FOREX Impact Hits Konica Minolta in Revenue and Operating Profit in First Quarter FY16

Konica Minolta, Inc. (KMI) reported Q116 financial results on Thursday, July 28, 2016 (see Figures 1, 2, and 3 below).

  • Q1 Revenue of ¥229.1 billion (B), declined 7.8 percent (YTY)
  • Q1 Operating Profit of ¥8.9B, declined 11.1 percent (YTY)
  • Q1 Business Technologies Revenue of ¥3, decreased 8 percent
  • Q1 Business Technologies Operating Profit of ¥13.1 increased 1 percent
  • Due to FOREX impact and business risks involving its Industrial Business, KMI reduced its FY2016 Earnings forecast from its May 12, 2016 forecast
  • FY16 Revenue Forecast of ¥1,030B, decrease of 3 percent
  • FY16 Operating Profit Forecast of ¥55B, decrease of 17 percent

2016 0802 Fig 1 KMI Q1 16

 

2016 0802 Fig 2 KMI Q1 16

 

2016 0802 Fig 3 KMI Q1 16

As Konica Minolta’s Business Technologies Business (BTB) goes, so goes Konica Minolta, Inc. (KMI). In the first quarter of FY2016, BTB’s revenue was over 81 percent of KMI’s consolidated revenue. Any falloff of BTB revenue or FOREX impact affects all of KMI. However, this quarter KMI reported its Industrial Business really suffered which created a hardship for the company (see Figure 1 and Figure 2 above). Sales of lenses for digital cameras declined as well as reduced sales of display products (note: Seiko Epson is getting out of the business due to competition as well).

In Figure 3 there is definitely a trend going on in KMI’s first quarter. In each of the first quarter in its last three fiscal years, its operating profit took a major decline and for each year it had a rebound in the second quarter. Quite possibly this same trend will occur this year. Over the years, the first quarter has historically been one of the weakest quarters for revenue mainly due to OEM’s desire to make the fourth quarter of the previous year look really good for its shareholders. Most of the time OEMs will put incentives in place to get businesses to purchase consumables. With the increase in MPS this may not have the effect it has in the past.

In the BT business, gross profit ratio went up primarily due to the sales of high-end A3 color MFP segment 4 and segment 5 in the U.S., Japan, the European Union, and other developed countries. Once again, in the commercial and industrial printing segment, KMI’s top-of-the-line bizhub PRESS C1100 grew sales in Japan and the U.S. and KMI saw sales growth in consumables as well.

KMI began to take orders for its new Accuriojet KM-1 digital inkjet press that it developed with KOMORI Corporation. KOMORI provided the paper-feeding technology and KMI provided advanced inkjet technology. Also, KMI mentioned it had taken an additional 30 percent stake in MGI (France). During drupa 2016 it had exhibited a new full color label press called bizhub PRESS C71cf that MGI had developed and manufactured.

Unit sales trends for the various segments are below:

Segment Color Black and White Total
A3 MFP 4 % -11% -3%
Production 1% -2% Flat

 

Our View

Cash flow from investing activities (property, plant and equipment and purchase of investments in subsidiaries) was an outflow of ¥38.9B. As of June 2016 KMI said it was going to spend up to ¥50B on acquisitions. Based on its current cash flow this may get curtailed somewhat.

KMI is attempting to diversify its earnings so it is not so dependent on its BT business. It decided to purchase a German surveillance camera manufacturer and video management software developer (VMS) and increase its stake in MGI Digitial Technology. As print volumes drop and businesses decide to go paperless plus millennials move into management, the requirement for printers and multi-function printers will decrease.

KMI is not the first imaging OEM to reduce its forecast – HP and Canon have done so already although Xerox has affirmed its full-year guidance. Photizo’s report after last quarter made mention that KMI makes intelligent adjustments along its way to provide value-add to its customers. In the long run this is what will pull the company through this volatile time.

 

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