Konica Minolta 2014 Annual Report Download - page 48

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KONICA MINOLTA, INC. Annual Report 2014
Financial Review and Data
Konica Minolta Group Risks
Business Risks
Of the business operations and accounting status described in the Group’s
Securities Report, the following risks could have a significant effect on the
judgment of investors in the Group. Further, the forward-looking state-
ments in the following section are the Group’s judgments as of June 20,
2014.
Risks Relating to the Economic Environment
(1) Economic Developments in Major Markets
The Group supplied MFPs, production printing systems, image input/out-
put components and display materials, healthcare equipment and related
services, and other products and services to customers around the world.
Sales and profits in these business segments are strongly affected by eco-
nomic developments in individual national markets.
Ongoing concerns in the global economy include anxiety over the relapse
of fiscal problems in Europe, a slowdown of growth in the Chinese and
other emerging economies, and monetary policy revisions in leading coun-
tries. Economic slumps in various countries have resulted in curtailment of
investment by customers, reduction of expenditures, and sluggish con-
sumption. Consequently, higher inventories and intensifying competition
are pushing down prices, and lower sales volumes and other factors may
have an adverse impact on the Company’s business performance and
financial position.
(2) Fluctuations in Exchange Rates
As indicated by the high percentage of overseas sales (77.4% in FY
2013), the Group engages in business globally and is susceptible to sub-
stantial impacts from changes in exchange rates. To reduce these effects,
the Group engages in hedging with a focus on forward contracts for major
currencies such as the US dollar and the euro.
In the Business Technologies Business, MFPs, printers and production
printing systems produced in China are procured on a US dollar basis, and
consequently, sales in regions where sales are conducted in US dollars
including the United States are largely offset by purchases, and this has
the effect of reducing the impact of changes in exchange rates. With
respect to the euro, however, changes in exchange rates have a direct
impact on profits. An increase in the value of the yen against the US dollar
and the euro has an adverse impact on the Group’s results and a decrease
in the value of the yen has a positive impact.
Konica Minolta Group Risks
Risks Relating to the Industry and Business
Operations
(3) Competition in Technological Innovation
In the Business Technologies Business including MFP, printers, and produc-
tion printing systems, the Group’s major business fields including TAC film
for LCD polarizers, and new business fields that the Group should develop
in the future such as Organic Light Emitting Diode (OLED) lighting, tech-
nological innovation that precedes other companies is an important
source of competitive superiority.
The Group continuously undertakes the challenges of development of
innovative technologies and actively invests in R&D and makes capital
investment for this purpose, but it is possible that the Group will not be
able to provide such technologies in a timely manner. It is also possible
that competitors will release similar technologies or alternative technolo-
gies before the Group. It is crucial that the Group accurately monitor
developments in innovative technologies to respond to customer needs,
but if the group is unable to develop such technologies, it may lose com-
petitiveness in key and new business segments.
(4) Business Environment in the Equipment and Services
Business Segments
Demand is rising for high added-value products that incorporate network
support and multifunction capabilities in the office equipment industry
including MFPs, printers, and production printing systems as well as in the
healthcare equipment segment, and demand for solutions and services is
also rising. In the office equipment industry in particular, the companies
are conducting acquisitions and reorganization and forming alliances with
IT firms to reinforce their sales channels. Competition among manufactur-
ers that take action in response to this trend involving logistics within the
industry is expected to intensify.
In the Business Technologies Business, which drives Group growth as its
largest segment, the Group adopted the Genre-top strategy, for focusing
management resources on expanding the business for color MFPs for
office use and production printing systems in advance of other companies
and joined the ranks of the industry-leading group in the European and
American markets. The pace of technological innovation in this area is
high, however, and as the importance of solutions and services increases,
there is no guarantee that the Group’s technological superiority can be
maintained. If the competitiveness of technology and sales channels is this
segment cannot be maintained and business growth slows, the Group’s
business results may be adversely affected.
Furthermore, the trend towards reducing installations of new MFPs as a
result of curtailed corporate investment and cost cutting could also have
an adverse impact on the Group’s business results in the future.