Konica Minolta Displays Growth in A3 MFPs Despite FOREX Impact

Konica Minolta, Inc. (KM) reported Q216 financial results on Monday, October 31, 2016 (see Figures 1, 2, and 3 below).

  • Q2 Revenue of ¥232.7 billion (B) ($2.27B), declined 10% (YTY), 4% increase w/o FOREX impact
  • Q2 Operating Profit of ¥9.6B ($93.7M), declined 47% (YTY), 5% increase w/o FOREX impact
  • Q2 Business Technologies Revenue of ¥3 ($1.8B), decreased 11%, 4 % increase w/o FOREX impact
  • Q2 Business Technologies Operating Profit of ¥12.8 decrease 39 %, 9% increase w/o FOREX impact
  • KM felt confident enough to keep its full-term forecast unchanged since it’s announcement on July 28
  • FY16 Revenue Forecast of ¥1,030B, FY16 Operating Profit Forecast of ¥55B

2016-1101-fig-1-km-q216-earnings

2016-1101-fig-2-km-0216-earnings

2016-1101-fig-3-q216-earnings

Our View

As Konica Minolta’s Business Technologies Business (BTB) goes, so goes Konica Minolta, Inc. (KM). In Q2 of FY2016, BTB’s revenue was over 79 percent of KM’s consolidated revenue. Any falloff of BTB revenue or FOREX impact affects all of KM.

The stronger yen significantly affected BTB revenue and caused the revenue and operating profit to fall. However, KM has a rather unique value-added hybrid-sales strategy where the company sells equipment linked with IT services and this allowed KM to increase mid-range and high-end color devices which caused revenue to grow on a local currency basis.

Over and over again, KM discussed the FOREX impact to its revenue, gross profit, and operating profit. Most other Japanese companies similarly discussed the situation with FOREX, however, it appears the KM’s hybrid-sales strategy helped to thwart the sales impact due to FOREX changes.

KM is well known for its color bizhub brand. Its mainstay A3 color MFPs had strong sales in Q2. Sales volumes exceeded prior year sales in all four regions of the U.S., Europe, Japan, and Others. In particular, the bizhub C658/C558/C458 series (65/55/45ppm) had high growth in sales, as well as, in the production print segment with the bizhub PRESS C1100 digital color printing system leading the way. As mentioned in Q1 earnings results, BTB has now started selling its Accuriojet KM-1 digital inkjet press at drupa 2016 with positive reviews.

BTB reported that non-hardware sales “shifted to a positive growth rate in the Office Services” unit of BTB. There has been consistent increase in color print volume with a gross profit ratio of over 50 percent. BTB plans to grow print volumes through the shift to high-speed color devices and to continue to push ahead with cost reductions, particularly, in the digital manufacturing area.

KM discussed the value-added sales approach that has lead to BTB’s gross margin increase using an equation:

Hybrid Sales x High speed color MFP shift x Increase Color Print Volumes x Non-hardware sales growth = Improved Gross Profit

Focusing on hybrid sales and the shift to high-speed color MFP have driven color print volumes up. This is linked to improved consumables sales and as a result the gross profit trend has moved from an average of 49.2 percent (Q115-Q415) to and average of 50.7 percent over the past two quarters.

Now, let’s take a look at the two units of BTB, the Office Services and Commercial and Industrial Printing for the Q2. The Office Services unit is comprised of the IT service solution and Office Products. The IT service solution revenue increased 7.0 percent to ¥15.1B while the Office Products unit revenue decreased 15 percent to ¥117.4B. The Commercial and Industrial Printing unit is comprised of Industrial print/Inkjet, MPM/Print Services, and Production Print. Industrial Print/inkjet increase 134 percent to ¥6.3B, MPM/Print Services declined 12 percent to ¥11.8B, and Production Print dropped 15 percent to ¥33.7.

Combined, these two units provided 79 percent of KM’s Q2 revenue of ¥232.7B or ¥184.3B and Operating Profit of ¥12.8B, a decline of over 39 percent.

Unit sales trends for the various segments are shown in Figure 4 on a Y/Y basis:

 

Figure 4: Konica Minolta Hardware Segments

Segment
Color
Black & White
Total
A3 MFP
11%
(3)%
4%
Production
Flat
(1)%
(1)%

 

KM made it a point that the company would not change its latest consolidated results forecast from its July 28 announcement. So far, Canon and Ricoh have reduced forecasts, Xerox and now Konica Minolta have kept year-end forecasts the same, and Lexmark only reports on past progress without any forecasts due to its impending acquisition by Apex Technology. KM has to feel pretty good that it has achieved growth in some areas despite the unusually difficult FOREX situation this year.

Print Friendly

0 Comments

Leave a Reply

You must be logged in to post a comment.