Ricoh to Take $1.72 Billion Impairment Loss, Cites Declining North American Business

Photo credit: REUTERS/Toru Hanai

Ricoh Company of Tokyo, Japan, announced today that it would book an impairment loss of 180 billion yen ($1.72 billion) for its fiscal year that ends on March 31, 2018, The firm cited a slump in its North American business.

Last month, Ricoh had forecast operating profit of 20 billion yen for its fiscal year, but is now stating that its operating profit will be a loss of 160 billion yen. It had also forecast that there would be no profits for the fiscal year, but is now forecasting a loss of 170 billion yen for its fiscal year.

Ricoh said that its sales subsidiary in the United States, Ricoh USA (RUS), is expecting to allocate impairment losses of 140 billion yen for its fourth-quarter that ends on March 31, 2018, for its IKON Office Solutions that Ricoh acquired in 2008.

RUS is also expecting to allocate impairment losses of 40 billion yen in its fourth quarter for its IT services company, mindSHIFT Technologies that Ricoh acquired in 2014.

Ricoh will disclose the exact amount of losses as soon as its valuation is finalized.

The company noted that the main purpose of its acquisition of IKON and other distributors in the United States was: 1) to increase its competitiveness by expanding its business in the U.S. market, 2) to stabilize its future earnings potential by acquiring direct-sales MIF (machines in field) and to develop an understanding of solutions-requirements, and 3) to secure a sales infrastructure and a customer base to enable Ricoh to grow into new areas such as the services business with a focus on managed services and production printing.

Ricoh notes that IKON’s management was brought together with RUS and that it strengthened its  sales coverage and expanded its overall business in the United States. More recently, it says, as paperless work environments have increased, primarily due to the increase in the use of cloud and mobile technologies, “digitization has increased even faster than we expected in the North American market. As such, unit prices continue to decline due to intensified competition. The severity of business conditions will continue to increase.”

19th Mid-Term Management Plan

As a result of digitization’s impact on office printing, Ricoh says that last year, it redefined its  business domains based on customer segments as part of RICOH Resurgent, its 19th Mid-Term Management Plan, which covers the period from fiscal year 2017 to fiscal year 2019.

This plan has three key elements that include “structural reforms and business selectivity, prioritizing growth businesses and reinforcing our management systems, and revising our business segments.”

Ricoh says it also improved its  ability to monitor its business units and support decision-making and management, noting:

“The new cash generating unit structure is the basis upon which impairment tests of fixed assets are conducted. Regarding RUS’s office-printing business, we changed the strategy to being profit-focused
under RICOH Resurgent, and as a result of reviewing future cash flows, which were based on future expansion, it became apparent that we needed to allocate impairment losses of 140 billion yen for goodwill, intangible assets and tangible fixed assets relating to IKON and other acquisitions.”

The firm says that after reviewing mindSHIFT’s IT-services business, it anticipated that its future cash flow would decrease, due to changes in the market, including the rapid adoption of cloud-based services, and so decided that it would be difficult to recover the full book value of mindSHIFT. It expects to allocate impairment losses of 40 billion yen for the unit.

Future Measures

Ricoh says that it “will continue to position RUS as our representative sales company and an extremely important subsidiary of the Ricoh Group,” and that it will also “promote structural reforms to further contribute to the enhancement of their corporate value to the group, not only in the short term, but also in the medium and longer term.”

For the services business, including mindSHIFT, it says it will shift from an expansion strategy “to a more profit-focused strategy, and invest intensively in areas where we can expect greatest contribution to profit.”

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