S&P:Ratings on Ricoh Placed on Creditwatch Negative

[Anonymous]

S&P:Ratings on Japan’s Ricoh Placed on Creditwatch Negative

– Ricoh’s financial risk profile is likely to recover more slowly than we had expected because shrinking demand for its main products–such as copiers and printers–and the impact of the yen’s appreciation against major currencies have hurt earnings.

— Standard & Poor’s placed its long-term corporate credit ratings on Ricoh and its group companies on CreditWatch with negative implications.

— We will resolve the CreditWatch after verifying how Ricoh’s restructuring, growth strategy for the next few years, and probability and speed of financial recovery will affect its earnings.

Standard & Poor’s Ratings Services today placed its ‘A+’ long-term corporate credit ratings and senior unsecured debt rating on Ricoh Co. Ltd. and its group companies on CreditWatch with negative implications. At the same time, we affirmed our short-term corporate credit ratings on the companies. The CreditWatch placements reflect our view that Ricoh is more likely to take a longer time than we had expected to improve its financial risk profile, because weak demand for its imaging and solutions products–such as copiers and printers–and the yen’s appreciation against major currencies are hurting its profitability.

Ricoh’s business performance has continued to decline in fiscal 2011 (ending March 31, 2012). Restructuring costs, the impact of the Great East Japan Earthquake in March 2011, and the yen’s continued strength caused Ricoh’s sales to decline 3.3% year on year to JPY938.8 billion in the first half of fiscal 2011, resulting in a JPY1.7 billion operating loss for the period. For the full fiscal year, the company expects to make JPY1.95 trillion in sales and it has halved its forecasts for operating and net profit to JPY37.0 billion and JPY10.0 billion, respectively. Following Ricoh’s acquisition of IKON Office Solutions Inc. in the U.S. in November 2008, Ricoh’s EBITDA margin deteriorated to around 8%, and stayed at that level, from between 12% and 13% in previous years.

Standard & Poor’s had expected Ricoh’s profitability and cash flow to begin to recover in fiscal 2011, primarily as a result of cost reductions. However, deteriorating business performance leads us to believe Ricoh will need at least one more year to improve its financial strength, including measures of cash flow. Its ratio of funds from operations (FFO) to total debt (adjusted for captive finance and pension liabilities, among other factors) is likely to fall far short of 45% in fiscal 2011 from over 100% prior to the global financial crisis that began in late 2008.

We will resolve the CreditWatch placements on Ricoh group companies after confirming Ricoh’s progress in restructuring and the earnings outlook of its U.S. operations, and considering the likelihood Ricoh will improve its profitability and financial risk profile. We believe any downgrade of Ricoh is likely to be limited to one notch because the company’s main imaging and solutions business remains highly competitive in Japan and Europe and restructuring efforts are likely to improve earnings to a degree

http://industryanalysts.com/IA10/CIO/Entries/2011/11/4_Ricoh_Reorganizes_District_Field_Structure.html
Yesterday IA, Inc. reported the forthcoming changes at Ricoh USA that resulted in a reported 220 executives being laid off. Today, IA, Inc. has obtained a letter that was sent to dealer principles from Jim Coriddi, VP, Dealer Division that explains the changes.

While Ricoh’s relationship with their dealers has reportedly been tenuous since the IKON acquisition, we feel this letter represents a strong level of communication to the Ricoh dealer community that they have lacked in the past.

Here’s the letter…

Dear RFG Dealer Principals,

Yesterday, Ricoh announced a new District field structure for our direct channel in the U.S. that will bring a stronger alignment of growth initiatives to the field.  While this change does not directly impact the dealer channel, I wanted to share some details with you about how this change will help strengthen our dealer/direct relationships and collaboration.  As a valued partner we want to keep you informed of the exciting changes taking place within the direct channel.

Over the past decade, Ricoh has invested in a broad portfolio of products and services and has gained market share in the industry through its strategic acquisitions and vision of growth.  This has included a focus on both our direct distribution and dealer channels, as well as improved collaboration between the two channels.  Over this time, we have made investments to expand our services business model as a key growth strategy, including a focus on IT Services, expansion of our production print portfolio, and the ongoing development of the ChaMPS program for our dealers to leverage Ricoh’s services resources.

To further integrate and align our direct channel for growth and services, we are introducing a new streamlined District field structure in the U.S. for our direct channel with 10 geographic Districts, which replaces our former Region and Area structure.  Under this new District model, District Vice Presidents (DVPs) will drive our sales execution in the field, supported by a national model for technology services delivery and enterprise services operations.  Dave Greene, Vice President, Direct Sales, will have continued responsibility for direct channel sales under this new structure. 

As part of this announcement, we also announced a future step in our direct channel integration as it relates to aligning under a unified brand.  In April 2012, we will leverage the strength of a single brand, transitioning the IKON brand to Ricoh in the U.S.  This does not impact the Savin and Lanier brands in the U.S., and we will continue to align our dealer channel under the Ricoh, Savin and Lanier brands.
 
Our dealer channel support structure remains unchanged and we look forward to providing the same strong support for our dealer community that you have come to expect.  Under the leadership of the District Vice Presidents (DVPs), the direct channel will continue their collaboration with dealers.  The District model also provides for a single point of contact for dealers into our direct channel through the DVPs.

We will continue to provide the tools and strategies to help you grow your business as you remain a critical part to Ricoh’s business strategy.  If you have any questions, please contact me or your Region Vice President.

Thank you for your continued commitment.
Jim Coriddi
Vice President, Dealer Division

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November 8, 2011 at 8:28 AM