Risk factors

Ricoh develops business globally, and the economic conditions of its major markets, Japan, the United States, and Europe, affect its business.

In particular,

• Sino-American trade friction
• Brexit

Ricoh recognizes that the movement of each country due to the rise of protectionism is the main risk that may affect the business results.

Ricoh carefully monitors changes in the global economic situation and takes measures to respond appropriately.

• With regard to Sino-American trade friction, we are promoting measures to reduce customs risk, such as transferring some product production for the United States from China to a factory in Thailand, using the conventional BCP measures (parallel production). As a result, we will be able to prevent the impact on business performance that is expected to be several billion yen in response to the decree on the fourth phase of sanctions and customs measures against China. We will continue to respond to changes in the situation.
• With regard to Brexit, we assume that confusion due to nodeal exit, and we increase the stock of necessary materials and products at our European bases. In addition, the majority of us is subject to ITA products, and we believe that even if no-deal exit happen, the adverse effects of customs duties on business impacts will not be significant.

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Ricoh continually faces the risk of fierce competition. Below are considered as risks.

• Competitive new products by competitors.
• Increased price competition
• Shift in demand to low-priced products

Ricoh plans to continuously introduce new products that enhance customer value in each business area. Ricoh will always aim to gain competitive advantage by high-quality, high-value-added products that can be improved customer workflows from value provision by hardware.

With regard to price competition, we will continue to conduct appropriate selling price management. By free ourselves from scale expansion competition and providing high-quality, highvalue products that go into workflow solutions, we will aim to get customer satisfaction without lowering selling prices.

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A substantial portion of Ricoh's manufacturing and sales activity is conducted outside of Japan, including in the United States, Europe, and in Other region, such as China. Below are considered as risks.

• Direct impact of material market fluctuations
• The impact of exchange rate fluctuations on consolidated statement of profit or loss and consolidated statement of comprehensive income as a result of converting local business results of overseas subsidiaries into yen using the average rate for each fiscal year.
• The impact of exchange rate fluctuations on consolidated statement of financial position due to the fact that assets and liabilities denominated in local currency are converted into yen using the exchange rate as of each account closing date.

In order to respond flexibly to fluctuations in the material market, Ricoh promotes the study of alternative materials during product development and after shifting to mass production, promotes multiple purchasing in procurement of materials, and regarding market fluctuations that can not be absorbed, Ricoh are striving to reflect selling prices appropriately while looking at competitors' situation.

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Ricoh engages in alliance with entities to create various products and services to fulfill customer demand. Ricoh believes that alliances with other entities, joint venture and strategic investment are effective for the timely development of new technology and products using management resources of both parties. However due to various reasons described below, these alliances may adversely affect Ricoh's future growth and profitability as well as its financial results and condition.

• Ricoh's interest differs from other parties' interests due to financial or other reasons, finally Ricoh may be unable to maintain the alliance.
• Failure to acquire an exact interest due to lack of information and enough deliberation.
• Such strategic investments may not necessarily lead to the expected outcome or performance and may result in increased time and expenses being incurred due to the integration of businesses, technologies, products and/or personnel necessitated by such investments.

In order to flexibly respond to various customer demand, Ricoh believes that these types of management decisions are being more significant on the future performance of Ricoh. That is why Ricoh sets this risk as “managerial strategic risk” and makes efforts to strengthen decision making process for this matter.

The Investment Committee is established and positioned as an advisory committee to the GMC, and verifies investment plans based on the validity of financial aspects including capital costs, and strategic aspects such as profitability and growth risks, etc. Members with expertise perform prior reviews and discussion on diversifying investment projects to external entities in order to ensure consistency with management strategies and raise the efficacy of the investment while improving the speed and accuracy of investment decisions.

The committee chairperson attends and share the results of the committee's discussions on each project in GMC so as to assist the decision-maker in making objective decisions. Also, the committee monitors each project's progress and learn from it so that continuous PDCA process runs effectively.

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Ability to appropriately respond to rapid technological changes are fundamentals of Ricoh's products/services competitiveness.

Ricoh's failure to respond to any risks described below, may adversely affect Ricoh's future growth and profitability as well as its financial results and condition.

• Prediction to technological changes and actions for it
• Set focus technological development area and resource allocation for it
• Set new business area and technological development for it

With advancements in innovation across all sectors globally, it is becoming increasingly important to develop technologies that are able to resolve issues facing customers and society at large quickly. That is why Ricoh sets this risk as “managerial strategic risk” and makes efforts to strengthen decision making process for this matter.

Ricoh provides products and services to customers in a global market. To accomplish this, Ricoh runs research facilities in Japan, the United States, India and China, promoting deep collaboration among our facilities worldwide, while utilizing regional characteristics. A, in order to respond to the rapid business environment changes in timely fashion, it is not always best to conduct R&D activities internally. Ricoh promote open innovation to accelerate R&D activities by proactively cooperating with universities, institutes and companies around the world.

Ricoh's established “Innovation Division” in 2019, and is integrating all new-growth-arearelated process (such as prioritization, incubation, operationalization as a business).

Also, Ricoh has assigned CTO (Chief Technology Officer) to decide technological prior development area, and proper resource allocation so that accelerate Ricoh technological activities.

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Ricoh believes that in order to maintain mid- to long-term competitiveness, securing and retaining highly skilled personnel at the right time is essential. Ricoh's failure to respond to any risks described below, may adversely affect Ricoh's future growth and profitability as well as its financial results and condition.

• Failure to recruit qualified personnel in appropriate timing
• Failure to train up highly skilled personnel
• The loss of key employees

Lack of workforce due to declining birthrate and an aging population, war for talent in particular area (such as AI, IoT etc.) is making recruiting more difficult. That is why Ricoh sets this risk as “managerial strategic risk” and places emphasis on securing and retaining qualified personnel.

• Deploying Job-matching recruiting and ensuring highly trained person to get a career what they expect.
• Promoting not only fresh graduate recruiting but mid-career recruiting
• Enhancing various systems in order to support work-life management and diverse workforce
• Enhancing systems to secure and train managing staff

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Ricoh provides financing to some of its customers in connection with its equipment sales and leases.

• Despite Ricoh monitor the creditworthiness and the amount of credit, no assurances can be made that Ricoh will be able to fully collect on such extensions of credit due to unforeseeable defaults by its customers.
• These financing arrangements that Ricoh enters into with its customers result in long-term receivables bearing a fixed rate of interest. Ricoh finances a part of these financing arrangements with short-term borrowings. As a result, there is a risk that operating profit may be affected by interest rate fluctuations.
• Ricoh develops its business based on the current law, tax and accounting regulations.

If these regulations are changed significantly, there is a risk of affecting the performance of Ricoh.

In terms of accounting standard, the adoption of IFRS 16 “Lease” is expected to have some impacts on the finance business, such as changes in customers' purchasing behavior in countries to which the standard is applied.

• Ricoh evaluates the creditworthiness and the amount of credit extended to a customer prior to the financing arrangement and during the financing term on a regular basis. Depending on such evaluations, Ricoh makes adjustments to such extensions of credit as it deems necessary to minimize any potential risks of concentrating credit risk or nonpayment.
• Ricoh finances these financing arrangements with short-term borrowings subject to variable interest rates along with borrowings subject to fixed interest rates whose terms are matched with the term of the financing arrangements for the purpose of hedging the interest rate risk.

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When building information security systems, Ricoh plans for these risks described below,

• Malicious cyber-attack cause Ricoh's system trouble, information security problem and loss.
• Cyber-attack makes Ricoh a attacker-side, and Ricoh server is used for bad ends involuntarily. That results Ricoh's bad reputation and Ricoh will be excluded from customer supplychain.
• Ricoh products has big information security problem and get exclusion from market, which adversely affect Ricoh's future growth and profitability as well as its financial results and condition.

Now is the time that each country demands country-level countermeasure for information security, Ricoh watches new threat/movement carefully and consider/promote proper countermeasure for it.

• Based on international information security standard, Ricoh establishes comprehensive control organization accordingly for covering Ricoh global information security and it enhances its systems continuously.
• Ricoh makes countermeasures for risks which occurs to factory/equipment systems to be cyber-attacked.

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Ricoh may be held responsible for any defects that occur with respect to its products and services. Depending on the defect described below, Ricoh may be liable for significant damages which may adversely affect its financial results and condition.

• Significant product liability(Burnout, Human damage)
• Violation for safety/environmental regulations
• Prolongation for quality problem in market etc.

In addition, negative publicity concerning these defects could make it more difficult for Ricoh to attract and maintain customers to purchase Ricoh products and services. As a result, Ricoh's financial results and condition may be adversely affected.

For enhancing safety/reliability of products, Ricoh analyzes mechanism of each breakdown/incident carefully, and reflect it in products development process. If any problems happen in the market, Ricoh has systems to respond it promptly.

In order to provide products aligned with each country's safety/environmental regulations correctly, Ricoh reviews own operational standard/guide with confirming each local market update.

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If Ricoh faces to earthquake, Tsunami, political turmoil, flood, pandemic or supply-chain disruption, which causes risks described below.

• Delay or disruption of parts supply
• Stop manufacturing for products
• Disruption of transportation, freight

These risks may cause opportunity loss and adversely affect Ricoh's financial results and condition.

Ricoh keeps some amount of inventory for BCP, also has multisupply route for key parts as preparations for accidents.

Based on each risk-case assumption, Ricoh plans actions when it happens and does training, also evaluates effectiveness and improves its process.

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Since alliance/joint-R&D with other parties are getting increased, Ricoh may be involved in contract conflict/trouble, which may adversely affect Ricoh's financial results and condition.

Ricoh has accumulated learnings from trouble what Ricoh experienced in the past, then developed assessment method. The method is utilized for risk assessment for new business development and take measures based on that assessment results.

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Ricoh is subject to various governmental regulations and approval procedures in the countries in which it operates. If Ricoh is unable to comply with any of these regulations described below or fails to obtain the requisite approvals, Ricoh's activities in such countries may be restricted. In addition, even if Ricoh is able to comply with these regulations, compliance can result in increased costs. In either event, Ricoh's financial results and condition may be adversely affected.

• Human resources related compliance(Harassment, Employment, Human rights, etc)
• Export regulations and tariffs as well as rules which may constrain production/sales activities
• Regulations relating to commerce, antitrust, patent, consumer and business taxation
• Environmental and recycling related laws.

Ricoh has defined “Ricoh Business Conduct Guideline” to heighten awareness of the importance of corporate social responsibility through implementing “Ricoh Way”. Ricoh involves its employees in various activities designed to ensure compliance with applicable regulations as part of its overall risk management and compliance program.

• Regarding Human Resources related Implement timely internal training and define emergency response framework, supplier periodic assessment for human rights compliance
• Regarding export regulations Implement timely internal training, announce all Ricoh business related regulations change or update
• Regulations relating to commerce, antitrust, etc. Legal division leads internal training and strengthen systems continuously with considering a case if any violation happens.
• Regarding environmental and recycling related laws Ricoh has introduced environmental management system and does periodic assessment to ensure environmental laws compliance.

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Ricoh recognizes goodwill in relation to acquisitions and various tangible assets or intangible assets for business operation. There might be harmful effects on business results or financial positions of Ricoh when expected cashflows could not be generated by failure to meet the target or other.

As mentioned in risk “Alliances with other entities, strategic investment”, we deliberate on the appropriateness of the acquisition amount at the Investment Committee. We monitor progress after investment and have established a system to execute and manage business.

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With respect to its employee benefit obligations and plan assets, Ricoh accrues the cost of such benefits based on applicable accounting policies and funds such benefits in accordance with governmental regulations.

Currently, there is no immediate and significant funding requirement. However, if returns from investment assets continue to decrease and/or turn negative due to market conditions, such as with fluctuations in the stock or bond markets, additional funding and accruals may be required. Such additional funding and accruals may adversely affect Ricoh's financial position and results of operations.

Ricoh has reviewed and implemented systems as appropriate based on government regulations, human resource strategies and personnel systems.

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Ricoh recognizes climate change as a significant concern that may have an extensive impact on the entire world regardless of country and region, and therefore as a crucial issue that may affect its global operations. We carry out a range of measures against risks identified based on the above recognition. Despite this, we still face a number of potential risks as described below, which may arise as a result of inadequate or delayed actions.

(Transition risks)

• Risks of increased costs, lost sales opportunities and damaged corporate brand resulting in decreased corporate value, as a result of failure to effectively respond to an extremely fast transition toward a decarbonized society.

(Physical risks)

• Risks of the business being affected by surging prices of raw materials for paper and others as a result of extreme climate events.
• Risks of product/service supplies being interrupted through suspended factory operations and disrupted supply chains as a result of delayed actions to address damage caused by extreme climate events.

To deal with each of the described risks, we have developed the following measures:

(Transition risks)

• To effectively respond to the transition toward a decarbonized society, we have set up an ESG Committee, chaired by the president and CEO, as a system to monitor trends in international environmental requirements so that we can review our environmental goals and prevent risks from arising or address actualized risks in a timely manner.
• In 2019, climate change related issues are newly added to the Total Risk Management (TRM) system in order to enhance activity to cope with climate change transition risks.

(Physical risks)

• We are enhancing risk management involving the supply chain; sourcing from multiple suppliers and securing extra materials and parts stock. We also work with suppliers to improve business continuity management.
• For actions against damage caused by extreme climate events, please refer to the sections for risks within “large-scale disasters,” and “delayed and disrupted supplies of products over a prolonged period of time.”

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Ricoh will do its utmost to ensure the continuation of business activities, secure employee's and their family's safety, and fulfill its social responsibilities as a corporate citizen in the event of described below,

• Natural disaster (earthquake, Tsunami, hurricane, flood, snowstorm, Eructation etc.)
• Accident (Fire, eruption, Leak of hazardous materials, big accident of public transportation etc.)
• Drastic situation change (Domestic warfare, International war, radical social movement etc.)
• Incident (Terror, abduction, intimidation etc.)

Ricoh has internal common regulations Ricoh Group Standard” and has specified behavior that Ricoh employee should take in emergent situation, reporting structure, and emergency headquarters' establishment and roles so that every location can behave properly in emergency.

Measures taken to mitigate such risks include periodic inspections of equipment and facilities, conducting disaster drills, implementation of systems to confirm employee safety and formation of a business continuity plan.

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On January 29, 2018, Ricoh India filed an application to initiate the corporate insolvency resolution process with the National Company Law Tribunal, Mumbai (NCLT), pursuant to Section 10 of the Insolvency and Bankruptcy Code of India, 2016. The NCLT admitted the insolvency petition on May 14, 2018.

We allocated expenses which relate to Ricoh India of ¥6.9 billion, ¥11.7 billion and ¥14.9 billion in consolidated operating results for the fiscal years ended March 31, 2017, 2018 and 2019, respectively. As a result of allocating an additional loss in the consolidated operating results for FY2018, we have allocated all the credits of Ricoh India.

(For the details, please refer 3. Analysis of Consolidated Financial Position, Operating Results and Cash Flows, Regarding the Circumstances and Response to the Financial Irregularities at a Sales Subsidiary in India and the Subsequent Conditions)

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