initiatives to enhance returns on capital

Today, I will explain our initiatives to enhance returns on capital.

Initiatives to Enhance Returns on

Capital

April 11, 2019Hidetaka MatsuishiCorporate Executive Vice Presidents and CFORicoh Company, Ltd.

I will show you the page that Mr. Yamashita presented a little while ago. Last year, we embarked on a project under his control in which we embarked on an

initiative to make management more capital-conscious.

(C) 2019 Ricoh Co. Ltd. All Rights Reserved 1

Simultaneously deploy growth strategies, enhance returns on capital, and reform governance

Pursuing RICOH Take Off

Implement RICOH Ignite growth strategies, reaching targets for FY2022 and generating sustainable growth thereafter

Enhance returns on capital and materialize growth strategies by deploying appropriate capital policies and investments

Driving growth strategies by properly evaluated and incentivized corporate governance system

Growth strategiesdeployment

Enhance returns on capital

Corporate governance reforms

I will briefly background this initiative. As I am sure you know, perspectives on enhancing corporate value have changed.

The Japanese government rolled out the Stewardship and Corporate Governance codes after formulating its Japan Revitalizaton Strategy in 2013.

The Corporate Governance Code was revised last year. Among the changes was a new guideline on managementʼs giving due consideration to the cost of capital.

The idea is for managements to remain aware of costs and risks while endeavoring to enhance returns on equity and optimize corporate value.

This translates into boosting capital and income gains and thereby enhancing total shareholder returns.


2013 2014 2015 2016 2017 2018

Changing Corporate Value Improvement Perspectives

Japanese governmentʼs

strategy economic

revitalization(Third Arrow of

Abenomics)

StewardshipCode

introduced

CorporateGovernance Code

introduced

Itoh Report*1

(ROE 8%)

StewardshipCode revised

CorporateGovernance Code revised

Capital costs

Scale expansion

Scale optimization

Corporatevalue

optimization

Capital costs

Costs and risks awareness

ROE

Returns awareness

Enhancing total shareholder returns

Capital gains(Share price)

Income gains(Dividend)ROE

*1: Japanʼs Ministry of Economy, Trade and Industry commissioned Professor Kunio Ito of Hitotsubashi University to chair the following project: Competitiveness and Incentives for Sustainable Growth: Building Favorable Relationships between Companies and Investors, with the final report being called the Ito Report.

The second backdrop to our initiative was how the capital markets see Ricoh. While our dividend yield has been stable, our ROE and share price growth rates have

been high volatility. Our ROE declined in FY2017 after we posted significant losses as a result of

structural reforms and efforts to optimize assets, including by posting impairment losses.

You will note that our share price has risen somewhat recently. I believe that we have to transform our earnings structure to stabilize the volatility

we have experienced.


Capital Market Assessments

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

05年度 06年度 07年度 08年度 09年度 10年度 11年度 12年度 13年度 14年度 15年度 16年度 17年度 18年度

Share price growth rate

ROE

Record sales and earnings Global

financial crisis

Great East Great East Japan

Earthquake

Corporate Corporate Restructuring and Growth

Project instituted

Dividend yield (right axis)

Dividend yieldROE

(right axis)

Note: FY2018 figures are forecasts

Ricoh Resurgent

Share price growth rate

8% ROE

FY 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

We will need to overhaul our earnings and business structures

The third backdrop element I want to cover is our total shareholder return. There is a gap between the valuation of our stock and TOPIX and benchmarks of

other companies. In that respect, management must endeavor to improve our evaluation among

investors and eliminate our overall market gap by focusing on returns on capital.


RICOH120%

Company A135%

Company B151%

TOPIX(including dividends)

184%

80%

100%

120%

140%

160%

180%

200%

FY2012 FY2013 FY2014 FY2015 FY2016 FY2017

Total Shareholder Return

Share price(valuation)

gap

Improve evaluation from investors and eliminate valuation gap through management focusing on returns on capital

Total shareholder return (Accumulated dividends over years one through five)

We have fully deployed growth strategies to drive sustainable expansion and lift corporate value over the medium and long terms. We will cultivate numerous growth businesses.

We need to thoroughly manage investment and business portfolios in a range of fields.

We believe that having management keep close tabs on shareholdersʼ equity and returns on capital will enable us to deliver sustainable growth and improve medium-and long-term corporate value, thereby lifting returns to shareholders and other stakeholders.


Management that Pursues Sustainable Growth and Lifts Corporate Value over the Medium and Long Terms

ResurgentFY2017〜

IgniteFY2018〜

Take OffFY2020〜

Deliver value to shareholders

and other stakeholders

Deliver value to shareholders

and other stakeholders

Management conscious of returns on capital

Materialize growth strategies

Pursue capitalefficiency

Materialize growth strategies

Pursue capitalefficiency

Portfolio management

Drive sustainable growth and

improve corporate valueover medium

and long terms

Structural reforms Launch growth strategies Overhaul governance Strengthen management systems

Fully deploy growth strategies Reform operational foundations

supporting growth strategies

¥185 billion in operating profit ROE over 9.0% Reform business structure

Need to make more robust investment and business portfolio management in fully pursuing growth strategies with conscious of returns on capital

This page shows where specific efforts are heading. Over the years, our ROE approach has been to focus on improving corporate value

over the medium and long terms. We will progress based on properly defined business operations and capital policies.

On the business management front, we will manage investments by deploying ROIC requirements for each business and business unit KPI management to contribute to operational profitability.

Our capital policy is to optimize our interest-bearing debt and shareholdersʼ equity structure.

At the same time, we seek to generate shareholder returns including consistent dividends.


Returns on Capital-Centric Business Operations and Capital Policies

Investment capital

Financing

Investments

Debt costs (interest payments)

Investorsʼ anticipated

returns

ROE

Business operations

Improve corporate value over medium and long terms

Capital policies

ROIC exceeding capital costs:business and investment management

Key performance indicator management by business strategy

Optimize debt-to-equity ratio

Shareholder returns Reduce capital costs

Debt

Shareholdersʼ equity

Mar

ket Cr

edito

rsIn

vest

ors

Business investments

Returns

Investment

Capital costs

Pursue returns exceeding capital costs

We look to expand our ROIC tree in line with business strategy and departmental characteristics.

The application of ROIC extends to businesses and regions. Existing, growth, and new businesses inherently differ inherently, so we will manage them with different KPIs.

We also want to use meaningful KPIs linked to activities in the field while also benchmarking top companies.

For existing businesses, management encompasses such elements as prices, cost rates, and inventory turnover rates. We will maintain and more tightly manage such indicators.

KPIs for new businesses will include return on investment, impairment risks, and internal rates of return.


Example ROIC Tree Matching Business Strategies

ROICROIC

Business ABusiness A

Business ABusiness A

Boost NOPATBoost NOPAT Profit marginimprovementProfit marginimprovementFixed costsreduction

Fixed costsreduction

Selling price ratesSelling price rates

Cost ratesCost rates

Note: Including by reviewing and withdrawing from low-profitability existing businesses (reducing invested capital)

・・・

・・・etc.・・・etc.

・・・etc.・・・etc.

・・・

Note: Prioritize growth over medium and long terms

KPI

CapitalpoliciesCapitalpolicies

Boost NOPATBoost NOPAT

New business ANew business A

New business BNew business B

OptimizeInvestment capital

OptimizeInvestment capital CCC improvementCCC improvement

Fixed assets turnover

Fixed assets turnover

Optimize cash reserves

Optimize cash reserves

ROEROE Optimizeinvestment capital

Optimizeinvestment capital

Inventory turnover period

Inventory turnover period

Production automation rates

Production automation rates

M&A investmentsM&A investments

Capital (R&D) investments

Capital (R&D) investments

ROIROI

Impairment riskImpairment risk

IRRIRR

・・・etc.

・・・etc.

・・・etc.

Deploying using ROIC tree in line with business strategy and departmental characteristics

Pursue efficiency goals

Pursue growth

goals

This page maps our operational and capital policies. We aim to maximize investment returns and corporate value while paying due accord to capital costs and maintaining financial health.

We will maximize ROIC through the ROIC and portfolio management efforts described earlier.

The Investment Committee that we launched last year has begun looking at ROIs and managing the risks and opportunities of individual investments while keeping tabs on internal rates of return, discounted cash flows, and other benchmarks.

We will continue our policy of reducing holdings, notably of companies that do not deliver returns or whose performances contribute nothing to our results.

We have halved our cross-shareholdings in recent years to 23 stocks. This level is very low among listed companies.

We seek to diversify debt sources while maintaining our credit rating. We have endeavored to pursue stable dividends under our 19th Mid-Term

Management Plan. We are switching to a policy of paying stable dividends, targeting a consolidated payout ratio of 30%.

Our stock buyback policy is to repurchase shares flexibly based on business conditions. This should help us optimize capital costs and deliver suitable returns on equity, thereby maximizing corporate value improvements.


Capital Policies Map

Maximizecorporate

value

Total shareholder

returns

Total shareholder

returns

New Customer

value

New Customer

value

Suitableshareholder

returns

Suitableshareholder

returns

Optimalcapital costs

Optimalcapital costs

ROE/Capital Costs

Dividend payout ratio(also refer to DOE)

Keep tabs on capital costs and financial health while maximizing investment returns and corporate value

ROIC management ROIC business management

– Hurdle rate exceeding capital costs + spread

– Balance sheets management

Maximize returns on invested capitalMaximize returns on invested capital

Capital policy Sufficient capital

Maintain financial health

Maintain financial health

Investment management (through committee) IRR exceeding capital costs

with risks Business strategy → ROI

Reduce policy shareholdings Benefits and risks greater than

capital risks

Debt policy Maintain credit rating Diversify debt sources

(direct ratios)

Stock buyback policy Repurchase shares flexibly

based on business conditions

Dividend policy Deliver stable dividends,

targeting consolidated payout ratio of 30%

Here, you see our roadmap to deploying ROIC. Our Investment Committee currently employs such benchmarks as the hurdle rate

and internal rates of return. This year, we are trialing business ROICs while using the ROIC in frontline activities. Our next step will be to manage performance by setting companywide goals,

deploying business ROIC trees, and managing our business portfolio.s The step after that will be to set PDCAs while refining ROIC. That effort would also

encompass automation through information technology. People often say that ROICs tend to have diminishing equilibriums. Still, we will keep

tabs on business phase positionings while putting ROIC management in place in a way that works for Ricoh.

In todayʼs presentation, I presented some thoughts on challenges ahead of us, and we have much to decide. Nonetheless, I would appreciate your understanding of where we are heading.


Step 3 StabilizeStep 2 MaterializeStep 1 DeployToday

Trial assessment comparing business ROICs with previous year results

Use ROIC tree in frontline activity management trials

Set companywide and business ROIC targets and manage predicted performances

Practice ROIC tree-based PDCAs

Use ROIC in managing business portfolio

Refine ROIC based on business conditions

Use ROIC tree to set PDCAs (including using data aggregation systems for automation) Employ hurdle

rate reflecting capital costs in investment decisions

Three steps to delivering a solid ROIC

ROIC Roadmap


Forward-Looking Statements

Note: In this document, fiscal years are defined as follows: FY2018 = Fiscal year ended March 31, 2019, etc.

The plans, prospects, strategies and other statements, except for the historical events, mentioned in this material are forward-looking statements with respect to future events and business results. Those statements were made based on the judgment of Ricoh's Directors from the information that is now obtainable. Actual results may differ materially from those projected or implied in such forward-looking statements and from any historical trends. Please refrain from judging only from these forward-looking statements with respect to future events and business results. The following important factors, without limiting the generality of the foregoing, could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements:a. General economic conditions and business trendb. Exchange rates and their fluctuations c. Rapid technological innovation d. Uncertainty as to Ricoh's ability to continue to design, develop, produce and market

products and services that achieve market acceptance in hot competitive marketNo company's name and/or organization's name used, quoted and/or referenced in this material shall be interpreted as a recommendation and/or endorsement by Ricoh. This material is not an offer or a solicitation to make investments. Please do not rely on this material as your sole source of information for your actual investments, and be aware that decisions regarding investments are the responsibility of themselves.

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