Konica Minolta announced nine-month YTD and third quarter FY2018 results Feb. 1, 2019. For the nine months ending Dec. 31, 2018, Konica Minolta has posted $6.9 billion in revenue, up 4 percent year-on-year (YoY). This produced $3.3 billion in gross profit, up 6 percent YoY, and a large jump in operating profit of $450 million, a 74 percent increase over the same period in FY2017.

For the third quarter of FY2018 (October through December 2018), revenue was reported at $2.3 billion, 1 percent below the same period in 2017. Gross profit of $1.1 billion remained flat versus 3Q FY2017 results. While gross profit dollars did not grow versus 3Q 2017, gross margin as a percentage of revenue was up to 48.4 percent compared to 47.9 percent for the same quarter of FY2017. Konica Minolta posted $140 million as operating profit, a whopping 84 percent above 3Q FY2017.

Konica Minolta pointed to the continued sales growth of color models and IT services to explain Office Business YoY revenue growth success during the first nine months of the fiscal year. In addition, the company cited sales growth of both color and monochrome models as well as industrial printing in the Professional Print Business that generated higher revenues. The performance in these business areas helped offset revenue declines in the Healthcare and Industrial Businesses to produce total revenue growth of 4 percent YoY.

Konica Minolta also referenced the initiatives it started last year in optimizing facilities usage, through sale and leaseback arrangements of assets as contributing factors to increasing FY2018 operating profit performance. Those actions have brought in $180 million of income for the first nine months of FY2018.  

For the nine months ending Dec. 31, Konica Minolta’s free cash flow was $150 million. Cash and cash equivalents on hand Dec. 31 were $1.1 billion, a decrease of $200 million from March 31, 2018. At the end of December, total inventories were 5 percent higher when compared to the end of December 2017 and inventory turnover rate was at 3.5 months, an increase from 3.32 months in December 2017.  Since March 2018, inventories have increased 14 percent and inventory turnover has increased from 2.81 months to 3.5 months. The company explained these increases as anticipation for projects due in the fourth quarter and as a margin of safety to better respond to limited transportation space that may be caused by continuing trade friction between the U.S. and China. In addition, production is preparing for new A3 product introduction, and production of the current product has been brought forward. Konica Minolta stressed all of these inventory increases are temporary.

Looking toward the end of FY2018, the company continues to be optimistic regarding achievement of the outlook it gave in October 2018. They forecast $9.7 billion in total FY2018 revenue, a 5 percent YoY increase over FY2017 and operating profit growth of 19.0 percent YoY to $574 million.

Office Business

During the third quarter, Office Business revenues were down 2 percent, $20 million less than 3Q FY2017. However, operating profit for that same period was up $160 million, a 19 percent increase over the same time last year. For the nine-month period ending Dec. 31, Konica Minolta Office revenue was up $3.9 billion over the same nine-month period of FY2017, registering 2 percent growth. Operating income came in at a 15 percent increase, or $300 million more than the same time period in FY2017. IT Services are included in Office Business and for the nine-month period through Dec. 31, they contributed 10 percent of the total Office Business segment revenue.

Monochrome A3 MFP model sales continue to experience a decline, but color model sales have increased by 15 percent YoY. Segment 4 and above A3 color models increased by 7 percent YoY. The company said A3 high-speed color models drove sales volume growth in Europe, and A3 color models from low-speed to high-speed saw growth in China, India and ASEAN. In North America, the company disclosed that sales volumes stagnated but pointed out that “a scientific approach to sales, together with high value-added sales resulted in improved profitability.” The company added that IT Services Solutions, with effects from new subsidiaries due to acquisitions, a strengthening in sales and service delivery capabilities in IT managed services, and, from that, the development of a sales structure for the Workplace Hub, drove an increase in revenue. Non-hardware sales (consumables, solutions), after a 0.7 percent YoY increase in the second quarter, saw a 0.4 percent decrease in sales versus the same period in FY2017.  

Professional Print Business

The Professional Print Business of Konica Minolta continued to see strong growth with sales volumes increasing in both monochrome and color models. For 3Q FY2018, Professional Print grew revenue by 4 percent and had a 27 percent increase in operating profit over the same quarter of FY2017. For the YTD nine-month period ending Dec. 31, Professional Print has achieved a revenue increase of 6 percent and an operating profit increase of a remarkable 72 percent.

Stating that Europe and North America saw considerable expansion in sales volumes of both color and monochrome models, Konica Minolta also pointed to significant increases in China, India and ASEAN. The company also said a new auto product inspection system was added to the IQ-501 (an option that provides constant monitoring and control during printing to automate color management and front/back registration). The company expects the IQ-501 to contribute in the fourth quarter of FY2018 and beyond.

Sales of the Accuriojet KM-1, label printers, and other digital decoration printing equipment from MGI also expanded primarily in the U.S. and Europe. However, Konica Minolta said sales of these industrial printing products also expanded in China, India and ASEAN countries.

Our take

The Office Business and Professional Print Business are the cornerstones of Konica Minolta’s revenue and profits. Combined, they represent 77 percent of Konica Minolta’s YTD revenue and 85 percent of the company’s YTD operating profit. The revenue and operating profit growth each of these business segments has provided during FY2018 is something the company has to be very happy with, considering the headwinds that are increasing in these market areas. The effects of Konica Minolta’s initiatives in managing production costs and other asset management actions that have eliminated costs and brought income have also shown results in profitability growth. Each region has shown YoY revenue growth for FY2018, with China growing 30.1 percent, India 30.1 percent, Europe 4.7 percent, Japan 3 percent and North America 2.3 percent. As we said last quarter, Konica Minolta has not only seemed to have found the right combination of product, solutions, services strategies and operational efficiencies, they are also finding growth in the Office and Professional Print business in all regions of the company.  

Color hardware sales maintained their ratios of 73 percent of Office Business sales and 80 percent of Professional Print sales. Non-hardware YoY revenue saw a slight dip in the third quarter from the upward momentum Office Business was experiencing but saw a 6.1 percent increase in Professional Print Business. This revenue may be an indicator of future revenue trends as this covers consumables and services.  IT Services Solutions in Office Business has grown 10 percent since last year and now contributes 13.2 percent of all Office Business revenue. Marketing Services makes up 23 percent of Professional Print revenue. These services solutions are critical to maintaining customer loyalty and an annuity stream that consumables alone cannot continue due to changes in print habits and page volumes in the office, as well as increased competition for production print pages in Professional Print segments of the market. Konica Minolta’s strategy to provide real value-added sales and services, organically or through acquisitions, appears to be on track.

Adding more value to print output and expanding into the industrial print space are good examples of the value-add services and product expansion Konica Minolta has in mind. The AccurioPress 6100 and the MGI products add new value to production print output and the other industrial print products appear to be contributing well to the company’s growth. The company’s Accuriojet KM-1 should continue to drive Professional Print growth, particularly as sales continue to expand in China, India and ASEAN countries. All of this bodes well for Konica Minolta in capturing more industrial print and digital package print volume.

Away from print, Konica Minolta appears to be moving successfully, albeit quietly. It’s of particular note that in FY2018 Konica Minolta created a “New Business” segment within their financial statements. A description of what is included in “New Business” is found in slide 30 of the Feb. 1 financial presentation. The company reported that 3Q FY2018 New Business revenue grew 56 percent over 3Q FY2017 and has grown 157 percent YTD for the nine-month period of the fiscal year. Included in this are Bio-healthcare and the Workplace Hub (WPH). While not yet showing an operating profit, and while these areas only represent 3 percent of Konica Minolta’s total YTD revenue, it will be interesting to follow the happenings in these areas as Konica Minolta builds them to buffer the revenue and profit challenges the core business will continue to face.

     

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