We will build a foundation for sustainable growth by improving profitability and strengthening our financial base. Toshimitsu Taiko Director, President and CEO, Representative Executive Officer

　The biggest mission assigned to me as president in April 2022 was to break out of the severe deficit situation that had continued since fiscal 2019 as soon as possible. In fiscal 2022, which was the final year of the previous medium-term business plan, DX2022, we recorded a significant impairment loss of goodwill from past major acquisitions so that we would not postpone our difficulties to the future. We have positioned fiscal 2022 as Phase 1 to “break with the past traditions” and chart a new course for sustainable growth.
　Under the Medium-term Business Plan (Fiscal 2023-2025), which began in fiscal 2023, we aim to regain the trust of our stakeholders by reliably achieving the goals we have committed to, based on the concept of “challenging and achievable management”. In fiscal 2023, our first year under the plan, consolidated revenue reached a record ¥1,159.9 billion. Operating profit and profit attributable to owners of the Company were ¥26.0 billion and ¥4.5 billion, respectively, achieving a return to profitability. We exceeded our target figures planned at the beginning of the fiscal year and took the first step toward rebuilding trust in the Company.
　Additionally, as operating cash flow increased, free cash flows also improved significantly from the previous fiscal year. However, a breakdown by business segment shows that while some businesses performed well, others did not perform as planned. We will reinforce our business management system in response to changes in market conditions to further solidify our progress toward rebuilding trust in the Company.

Performance Summary

(Billions of yen)

	FY2022	FY2023	YoY
Revenue	1,130.3	1,159.9	+2.6%
Business contribution profit	29.7	26.0	-12.5%
Operating profit	-95.1	26.0	―
Profit attributable to owners of the Company	-103.1	4.5	―
Free cash flow	-24.1	38.8	―

* Business contribution profit is a Konica Minolta-original index, defined as profit determined by subtracting sales cost and SG&A from revenue.

Phases of the Medium-term Business Plan

* Name of the internal organization that manages the Digital Workplace Business and Professional Print Business

　The Medium-term Business Plan promotes three basic strategies: strengthening business profitability, structural reforms implemented to reinforce profit foundation, and reinforcement of business management system. Based on these strategies, from fiscal 2023 to 2024, we will thoroughly implement “business selection and concentration” to strengthen business profitability as Phase 2, and then aim to “establish a foundation for growth” by the end of fiscal 2025 as Phase 3.
　In this Medium-term Business Plan, all businesses are strategically divided into four categories: strengthening business, maintaining profit business, non-focused business, and direction-changing business, and the expectations and roles of each business have been clarified. To complete business selection and concentration, it is essential to set a course for the reform of non-focused businesses and direction-changing businesses.
　For non-focused businesses, we deliberate and execute the use of third-party capital from a best-owner perspective, considering the growth potential of the market and the social value of the business. In April 2024, the Company completed the transfer of entire equity capital in Invicro, a U.S. subsidiary that provides drug discovery support services in its precision medicine business. In addition, we are proactively considering the use of third-party capital for Ambry Genetics as well, a provider of genetic testing services.
　On the other hand, for direction-changing businesses, we will closely examine the growth potential and business conditions of each business and region, execute selection and concentration within the business, including withdrawal or use of third-party capital, and transform them into growth-driving businesses. For example, in the DW-DX business, there are businesses and services that are already profitable and supported by customers, so we have carefully assessed the potential for business growth and profit contribution in each region and product. In fiscal 2024 we will implement measures based on the above to transform our business into one that can grow sustainably.
　As a result of these efforts, our deficit in non-focused businesses and direction-changing businesses in fiscal 2023 was reduced by approximately ¥3.5 billion compared to the previous fiscal year, and we plan to continue to focus on business selection and concentration in fiscal 2024 to further significantly improve performance.

　In fiscal 2024, along with business selection and concentration, we will implement global structural reforms as an additional measure to reinforce our profit foundation. Our stakeholders have pointed out that our Group's revenue and profit levels per employee are low compared to other companies in our industry. This is partly due to our business structure, in which a large percentage of our business is conducted in Europe and the United States, where labor costs are relatively high due to inflation and other factors and is not an easy problem to solve. However, if this situation is left unchecked, it may become even more difficult to optimize personnel over the next few years. After considering and reassessing, we decided that now is the best time to address this problem without further delay.
　Specifically, we will identify obstacles to productivity and efficiency, review business processes, improve operational efficiency using generative AI and other means, and invest in the education of human capital. At the same time, we will promote the assignment of the right people to the right positions and optimize personnel throughout the Group. Through these measures, we plan to reduce our global workforce by approximately 2,400 employees (including non-regular employees) during fiscal 2024 relative to our initial plan for fiscal 2025. As a result, a one-time expense of approximately 20 billion yen will be recorded in fiscal 2024. We expect this to have the effect of boosting profits by approximately 5 billion yen in fiscal 2024 and approximately 15 billion yen in fiscal 2025. Through these structural reforms, we will improve into an organization with high productivity per capita, and from fiscal 2025 onward, we will devote all our efforts to establishing a foundation for growth.

　Among the strengthening businesses, we have positioned our Industry Business as the biggest growth driver. This business targets areas with medium-sized, stable markets and has achieved a high market share and profitability. In the current market environment, its results underperformed our initial plan due to delayed capital investment by customers, deteriorating market conditions for displays and other products, and the resulting delay in product development for performance materials, but the business is still expected to grow over the medium to long term from fiscal 2025 onward.
　In the Industry Business, we have been developing each business unit individually, such as sensing, performance materials, and IJ components. In the future, it will be important to create new customer value by combining the strengths of each business unit, and to create business opportunities across businesses that would be difficult for a single unit to do alone. We will maximize our strong relationships with customers and technological assets developed in each of the units across the entire Industry Business to develop businesses more closely linked to the customer's manufacturing value chain in the focus areas of display, mobility, and semiconductor manufacturing, and to achieve stable growth over the medium- to long-term.
　In addition to the Industry Business, we will strengthen technological development to expand our strengthening businesses, which include the Professional Print Business, where we expect market growth for digital printing equipment, and the healthcare business, where there is increasing demand for our proprietary Dynamic Digital Radiography systems, which are provided by no other company in the world, and healthcare DX that utilizes images, AI, and IT technologies to make healthcare more advanced and efficient. In addition, we will increase the rate of R&D investment to create highly competitive products that leverage our core technologies.

　The office business is positioned as a maintaining profit business and is focused on securing stable profits and generating cash. With the spread of remote work and paperless operations, the decline in office printing volume in fiscal 2023 was within our expectations, and so far, we do not see any new factors that could cause printing volume to decline beyond what was assumed in the Medium-term Business Plan.
　Under such a market environment, the Company posted a profit in fiscal year 2023 that exceeded its initial plan, thanks in part to the expansion of One Rate* contracts and stringent production cost reductions. Although profitability has already improved at a pace exceeding that of the Medium-term Business Plan, we will further enhance profitability by improving the efficiency of sales and services using AI and other measures.
　In April 2024, we announced a strategic alliance with FUJIFILM Business Innovation Corp in the multifunction printer, office printer, and production printer segments. Since the market for office printers is expected to shrink over the long term, we need to streamline our investments. Although we have been promoting increased efficiency on our own in the past, we have decided to actively promote collaboration with other companies to generate even greater benefits. First, we have decided to establish a joint venture to coordinate the procurement of raw materials and parts, thereby improving our investment efficiency and establishing a stable supply system for products. In addition, we will proceed with discussions to expand the scope of operations to be covered going forward.

* One Rate: Our unique flat-rate billing model, as opposed to the traditional monthly variable billing method

　We consider fiscal 2024 a key year to promote business selection and concentration and global structural reforms and to serve as a bridge to return to growth starting in fiscal 2025. Although business contribution profit is expected to increase, one-time expenses are necessary to ensure the implementation of business selection and concentration and global structural reforms, which will result in a decrease in operating profit, and we expect profit attributable to owners of the Company to break even. For this reason, we plan not to pay a dividend in fiscal 2024. We also believe that prioritizing the reduction of interestbearing liabilities in preparation for a full-fledged rise in interest rates in the future will certainly lead to improved profits in the coming years. For now, we will grin and bear it while focusing on improving our financial position, and from fiscal 2025 onward, we aim to put not only business contribution profit but also operating profit and profit attributable to owners of the Company on a sustainable and stable growth trajectory, thereby increasing corporate value. We intend to return profits to shareholders as earnings improve.
　Improvement of ROE is one of the highest priorities in our Medium-term Business Plan, and we aim to achieve ROE of 5% or more in fiscal 2025 by improving the return on profit attributable to owners of the Company to 2.5% or more, achieving a total asset turnover ratio of 1.0, and building a balanced financial base with financial leverage of about 2x. Of course, 5% is a minimum target, and after that we will continue to strive for profit growth and improved asset efficiency, aiming to achieve the capital market expectation of ROE of 8% or higher as soon as possible.
　There is no “cure-all” for achieving these goals. First, it is essential to improve and strengthen our financial position by completing business selection and concentration and global structural reform in fiscal 2024, and then we will make the necessary growth investments to build a business foundation for sustainable medium- to long-term business growth.

Operational Plan

*1 Adjusted to revenue after deconsolidation

　Since its establishment in 2003, Konica Minolta has been one of the first Japanese companies to become a Company with Committees (currently a company with three committees), and in 2022, it has evolved its corporate governance by having a majority of its Directors be Independent Outside Directors and electing an Independent Outside Director as Chairperson of the Board. Furthermore, in 2023, we established the Corporate Governance Committee as a forum for discussion that contributes to improving the effectiveness of the Board of Directors.
　After two years of management under this system, the perspectives of the Outside Directors have clearly become more powerful than before, and I feel that the Board of Directors is performing its functions better than at any time since the Company’s establishment. The Company receives opinions from Outside Directors on proposals made by the executive side, and moves forward after engaging in a variety of in-depth discussions, which include those among the Outside Directors.
　In addition, meetings among the executive team, where important matters are discussed, used to be composed of more than 30 Executive Officers and Corporate Vice Presidents in total, limiting everyone’s opportunity to speak. In April 2024, we changed to a system in which only 13 Executive Officers, as required by the Companies Act, participate in discussions. As a result,we have created an environment in which all participants can speak their minds, and discussions have become much more profound.
　We hope to improve our performance going forward and show that our current governance system is right for our Company.

　Based on Our Philosophy, “the creation of new value,” Konica Minolta has put forth “Imaging to the People” as its management vision looking forward to 2030. This vision expresses our essential role as an innovative company, continually evolving and contributing to the sustainable growth of society and individuals by using our imaging technology, which is both our origin and our strength, to fulfill our customers’ various needs to “see.”
　To realize this vision, we aim to solve social issues through our business activities based on the five material issues we identified in 2020. Among these, we are particularly focusing on addressing climate change and using limited resources effectively as key issues directly related to our business growth.
　Addressing climate change, we aim to reach Carbon Minus*1 status in 2025, and, with regard to using limited resources effectively, we aim to achieve zero use of natural resources*2 in 2050. Our efforts based on this progressive policy have been highly evaluated by external organizations. On the other hand, some institutional investors are asking to see how our efforts to solve social issues are linked to our business earnings. I believe that our future challenge is to meet our stakeholders’ expectations and show that solving social issues is a driving force for sustainable growth.
　In this regard, I am looking forward to seeds for future growth in areas that will lead to decarbonization, while also utilizing and upgrading our technological assets.
　For example, we have the technology to produce high-quality recycled plastic materials from used plastic,and have been using recycled materials in MFPs for more than 10 years (see page 46). In addition, the hyperspectral camera developed by our Finnish subsidiary Specim is the top product for sorting plastic waste. In addition to these material and sensing technologies, we are considering developing a new business that will contribute to stabilizing quality and solving cost-related issues of recycled plastics, while effectively employing AI technologies going forward.
　Biomanufacturing is a technology to produce a variety of substances from biologically derived raw materials through the metabolism of microorganisms. This technology is expected to lead to reduced CO2 emissions because it can produce industrial products, foods, and pharmaceuticals without relying on fossil fuels. In this area as well, Konica Minolta is developing technologies to enable real-time measurement of complex phenomena such as fermentation by incorporating AI into a wide variety of sensing technologies, including hyperspectral imaging. We plan to accelerate the social implementation of these proprietary technologies through collaboration with partners in various industries.

*1 Carbon Minus: Situation where, through not only reducing product lifecycle CO2 emissions, which is within the purview of our responsibility, but also contributing to the reduction of CO2 emissions outside of our responsibility (those of our customers and suppliers), the amount of CO2 emissions reduced overall exceeds the CO2 emissions we are directly responsible for

*2 Natural resources: Resources that involve new mining, such as crude oil and mineral resources

　For Konica Minolta to achieve the goals of its Medium-term Business Plan and achieve medium- to long-term growth, further enhancement and expansion of human capital is imperative. To this end, we have set “improving employee engagement” as one of the KPIs in our Medium-term Business Plan, and we are promoting our human capital strategy by setting “improving fulfillment in work and corporate dynamism” as one of the five material issues of the same plan.
　To increase engagement, it is important to revitalize internal communication and ensure that the Company’s vision, direction, and values are shared. Since assuming the position of President, I myself have been focusing on communicating with employees. During my first year in office, I held town hall meetings in various locations, mainly in Japan, and in fiscal year 2023, even visiting our overseas locations. CEO LIVE!, an internal financial results briefing, also provides on-the-spot responses to employees’ opinions. We intend to apply the insights gained from these dialogues with employees to management, for example, by setting up a place where DX human capital can be selected and matched to solve problems in the organization, and by strengthening human capital development programs centered on reskilling.
　By steadily implementing each strategy in our Medium-term Business Plan and addressing sustainability issues one by one with a focus on results, we aim to return to a growth trend and increase our corporate value over the medium to long term.
　We look forward to the continued support of all our stakeholders.