Consolidated Financial Results

Transcription

1 May 13, 2010 Consolidated Financial Results Fiscal Year ended March 31, 2010 April 1, 2009 March 31, 2010 Konica Minolta Holdings, Inc. Stock exchange listings: Tokyo, Osaka (First Sections) Local securities code number: 4902 URL: Listed company name: Konica Minolta Holdings, Inc. Representative: Masatoshi Matsuzaki, President and CEO Inquiries: Kiyoshi Nakamura, General Manager, Corporate Communications & Branding Division Telephone number: (81) Scheduled date for Ordinary General Meeting of Shareholders: June 22, 2010 Scheduled date for dividends payment: May 31, 2010 Scheduled date for submission of securities report: June 23, 2010 (Units of less than 1 million yen have been omitted.) 1. Overview of performance (From April 1, 2009 to March 31, 2010) (1) Business performance Percentage figures represent the change from the same period of the previous year. Fiscal years ended March 31 Net sales Operating income Ordinary income Net income , % 43, % 40, % 16, % , % 56, % 45, % 15, % Fiscal years ended March 31 Net income per share Net income per share (diluted) yen yen yen yen Fiscal years ended March 31 Net income to shareholders equity Recurring profit to total assets Operating profit to net sales % 4.6% 5.5% % 4.8% 5.9% Note: Equity in profit (loss) of unconsolidated subsidiaries and affiliates: Fiscal year ended March 31, 2010: 81 million Fiscal year ended March 31, 2009: (99 million) 1

2 (2) Financial position As of March 31 Total assets Net assets Equity ratio Net assets per share , , % yen , , % yen Notes: Shareholders equity As of Mar, 31, 2010: 419,535 million As of Mar. 31, 2009: 413,380 million (3) Cash flows Fiscal years ended March 31 Operating activities Investing activities Financing activities Cash and cash equivalents balance at the end of period ,377 (40,457) (43,803) 164, ,563 (90,169) 4, , Dividends [Yen] Dividends per share Fiscal years ended March 31 1st Quarter 2nd Quarter 3rd Quarter Year-end Total (annual) (forecast) Fiscal years ended March 31 Total dividends (annual) [millions of yen] Dividend pay-out ratio (consolidated) [%] Net asset-to-dividend ratio (consolidated) [%] , , (forecast) Consolidated results forecast for fiscal year ending March 31, 2011 (From April 1, 2010 to March 31, 2011) Net sales Operating income Ordinary income Net income Net income per % % % % share Six months 400, , , , yen Full-year 830, , , , yen Percentage figures for the full year represent the change from the previous fiscal year, while percentage figures for the six months period represent the change from the same period of the previous year. 2

3 4. Other (1) Changes in status of material subsidiaries during the quarter under review (Changes to specified subsidiaries accompanying the additional consolidation or removal from consolidation of companies): None (2) Changes to consolidated financial statement principles, preparation processes, disclosure methods, etc. (Description of changes to important items fundamental to financial statement preparation) a. Changes accompanied by the amendment of accounting principles: Yes b. Changes other than a. : None Note: Please refer to [4] Accounting standards and methods on page 27 for details. (3) Number of outstanding shares(common stock) a. Outstanding shares at period-end(including treasury stock) As of March 31, 2010: 531,664,337 shares As of March 31, 2009: 531,664,337 shares b. Treasury stock at period-end As of March 31, 2010: As of March 31, 2009: 1,464,883 shares 1,370,709 shares Note: For the number of shares, used for the calculation of net income per share, please see Per Share Information on page 45. 3

4 [Reference] Non-consolidated financial results 1. Overview of performance (From April 1, 2009 to March 31, 2010) (1) Business performance Percentage figures represent the change from the same period of the previous year. Fiscal years ended March 31 Net sales Operating income Ordinary income Net income , % (9,768) % (8,775) % (4,586) % , % 13, % 15, % 18, % Fiscal years ended March 31 Net income per share Net income per share (diluted) 2010 (8.65) yen - yen yen yen Note: Net income per share (after full dilution) is not written, as the Group recorded a net loss. (2) Financial position As of March 31 Total assets Net assets Equity ratio Net assets per share , , % yen , , % yen Notes: Shareholders equity As of Mar. 31, 2010: As of Mar. 31, 2009: 255,188 million 268,380 million Explanation of Appropriate Use of Performance Projections and Other Special Items This document contains projections of performance and other projections that were made based on information currently available and certain assumptions judged to be reasonable. There is a possibility that diverse factors may cause actual performance, etc., to differ considerably from projections. Please see the 3. Outlook for the fiscal year ending March 31, 2011 section on page 11 for more information on points to be remembered in connection with the use of projections. 4

5 1. Operating Results (1) Business Performance Analysis 1. Overview Net sales Gross profit Operating income (loss) Ordinary income Income before income taxes and minority interests Net income [Billions of yen] March Increase (Decrease) (143.3) (63.1) (12.2) (4.5) % % % % 8.6 % 11.5 % Net income per share [yen] % Capital expenditure Depreciation R & D expenses (24.2) (9.0) (13.3) % % % Free cash flow % Number of employees [persons] 36,048 36,875 (827) -2.2 % Exchange rates [yen] US dollar Euro (7.69) (12.33) -7.6 % -8.6 % Looking at economic circumstances in Japan and abroad, a credit crunch triggered by the financial crisis in the fall of 2008 had severe repercussions for the real economy, producing a vicious cycle of weak consumption, declining production, and worsening employment conditions that swept across the world, especially in advanced economies. The worst of this downturn has now passed, thanks largely to measures to restore financial order by the financial authorities and the success of government stimulus packages, and there were signs of a gradual recovery in the second half of the fiscal year under review. However, the recovery remained anemic as capital spending restrains and the credit crunch lingered. Moreover, a protracted appreciation of the yen put strong pressure on operating revenue at businesses including the Konica Minolta Group, where the ratio of overseas sales is high. The Group regards the drastic change in the business environment not as a temporary economic slowdown but as a turning point in society and an opportunity to enhance its corporate value to achieve stronger growth, the Group formulated BUSINESS PLAN <09-10>. And it is now executed it to ensure it is able to successfully navigate through this challenging period. The business plan has three pillars: (1) Improving corporate capabilities, (2) Achieving strong growth, and (3) Reforming the corporate culture. It will be executed during the fiscal year under review and in the next fiscal year. In the fiscal year under review, the first year of implementation, the Group focused on lowering break-even point by minimizing fixed costs through cost cutting and the execution of structural reforms, including the optimization of production systems in Japan and overseas, and the streamlining of overseas sales bases and sales personnel, including acquired sales companies, considering that the Group needs to urgently change its corporate structure to ensure it has free cash flows even in difficult business circumstances where growth in sales cannot be expected. The Group also took steps to trim down the balance sheet by reducing inventories, curbing capital expenditure, and improving accounts receivable periods and accounts payable periods. As a result of 5

6 those initiatives, free cash flows for the fiscal year under review topped 70 billion, far exceeding the year-ago level. Looking at the results of major businesses, sales of multi-functional peripherals (MFPs) for offices, the main products in the Business Technologies Business, were less than in the previous fiscal year, reflecting reduced capital spending by a corporate sector looking to cut costs, as well as tightening lease contracts attributable to the credit crunch. Nonetheless, the Group sought to boost demand by launching new color machines, and sales momentum consequently recovered in the Business Technologies Business in the second half of the fiscal year under review. In the Optics Business, as the LCD TV and personal computer markets recovered, sales of TAC films (protective films for polarizing plates) and glass hard disk (HD) substrates were sold well. In the Medical and Graphic Imaging Business, sales of digital equipment were almost on a par with the year-ago level, but that did not offset decrease in sales of film products. As a result, Konica Minolta s consolidated net sales for the fiscal year under review amounted to billion, a decrease of 15.1% year on year, reflecting declines in sales of main products and the effect of exchange conversion associated with the strong yen. Although the Group cut fixed costs and research and development expenditure, among other cost reductions, operating income fell 21.8%, to 43.9 billion, and ordinary income slipped 10.1%, to 40.8 billion, respectively, reflecting a decline in profits associated with the decrease in sales and the effect of exchange rates. After posting a loss on valuation of investment securities and business structure improvement expenses as extraordinary losses, net income stood at 16.9 billion, up 11.5% year on year. 6

7 2. Segment Information Business Technologies Net sales - external Operating income Optics Net sales - external Operating income Medical & Graphic Net sales - external Operating income Sensing Net sales - external Operating income (loss) March 31 [Billions of yen] Increase (Decrease) (0.0) (82.8) (13.5) (36.6) 1.8 (21.5) (1.6) (1.4) (0.3) % % % 14.8 % % % % - Business Technologies Business [MFPs for offices] Konica Minolta strove to boost demand for MFPs for offices as companies cut costs and curbed capital expenditure in the protracted global downturn, updating the bizhub series by launching two models of high speed color MFPs, namely bizhub C652 and C552, and four models of medium-to-low speed color MFPs, bizhub C452, C360, C280, and C220, in the first half of the fiscal year. These six new products are designed to contribute to customers total cost of ownership (TCO) with new energy saving systems that slash power consumption compared with conventional models and with more durable components. They are also intended to help customers boost their productivity and reduce the environmental burden by offering high image quality with the use of the Company s proprietary polymerized toner, cutting-edge network and security functions, and significantly lower machine operation noise. Partly reflecting the contribution of these new products, sales volumes of color MFPs for offices increased steadily every quarter. Although sales volumes for the full year fell short of the level of a year ago, those for the second half exceeded the year-ago level. Meanwhile, sales volumes of monochrome MFPs for offices recovered in the second half, with volumes in the North American market, which drove the recovery, exceeding the year-ago level. [Production printing field] Demand for color machines, such as bizhub PRO C6501 and C5501, remained stagnant in all markets in the global slowdown. On the other hand, with the launch of two new monochrome products, the bizhub PRO 1201/1051, sales of monochrome MFPs were up from a year ago, reflecting strong sales, principally in the North America and Asian markets. [Printer field] We stepped up our efforts to sell A4 tandem printers and A4 color MFPs for office use. Sales volumes of printers for the fiscal year under review far exceeded the year-ago level, driven by sharp rises in sales volumes of color machines for Europe and OEMs. 7

8 Overall, our Business Technologies Business focused on sales of color MFPs for offices, color printers and high-speed MFPs for production printing in line with our genre-top strategy. Momentum recovered, with sales rising every quarter and exceeding the year-ago level in certain areas and product fields. However, the recovery did not offset weak sales in the first half and the effect of the strong yen. As a consequence, sales to external customers fell 13.3% from the previous fiscal year, to billion, and also operating income declined 25.9%, to 38.9 billion. Optics Business [Display materials field] The Group sought to boost sales of high-function products, such as VA-TAC (viewing angle expansion) film and 40μ thin film, where the Company has a competitive edge. Meanwhile, given the positive impact of measures taken, especially by the Japanese and Chinese governments, to stimulate demand for home electrical appliances, the market for large LCD televisions recovered sharply. The recovery in demand in the United States and advanced economies in Europe also outpaced expectations. Consequently, sales volumes for the fiscal year under review were up sharply from a year ago. [Memory related product field] The Group took steps to expand sales of optical pickup lenses for Blu-ray Discs, the mainstay in the field. Although demand for optical pickup lenses for personal computers remained weak, demand for lenses for audio-video equipment recovered. Overall sales volumes of optical pickup lenses, including those for CDs and DVDs, exceeded the year-ago levels. The Group sought to increase sales of glass HD substrates for high storage densities of 250GB and 320GB. Backed by a recovery in demand for substrates for notebook computers and external memory, sales volumes exceeded the year-ago result. [Image input/output component field] While we have limited the product fields focusing on profitability, sales volumes declined, reflecting weak demand for the high-end items in which the Company excels and, in turn attributable to the global economic downturn. Overall, sales volumes of TAC film and glass HD substrates increased, backed by a recovery in the markets. However, the business was adversely affected by increasing pricing pressure on TAC film in association with falling prices of LCD TVs, a decline in sales volumes in the image input/output component field, and a fall in the unit sales price of pickup lenses for Blu-ray Discs, shifting to plastic. As a result, net sales to outside customers declined 21.1% from a year ago, to billion, but operating income increased 14.8%, to 14.3 billion, reflecting a recovery in sales of mainstay products and the effect of structural reforms to reduce breakeven sales undertaken by the Group from the end of the previous fiscal year. 8

9 Medical and Graphic Imaging Business [Healthcare field] In the digital X-ray diagnostic imaging area, main business sector, Konica Minolta launched a new computed radiography (CR) system, the REGIUS MODEL 210. The Company sought to expand sales to medical facilities both in Japan and overseas by offering digital radiography (DR) systems and diagnostic imaging workstations in addition to CR systems. As a result, sales volumes of this digital equipment were almost on a par with the levels of the previous year. We also took steps to expand our business sphere from the existing X-ray diagnostic imaging area, launching new products such as the I-PACS EX ceed, a network device, and the SONIMAGE 513 color ultrasonic diagnostic equipment. [Graphic imaging field] Konica Minolta focused on sales of digital equipment, including Pagemaster Pro 6501, an on-demand printing system. Despite the continued cooling of capital expenditure in the printing industry associated with the lingering economic sluggishness, the Company endeavored to boost sales. As a result of its efforts, sales of digital equipment were almost on a par with the level of a year ago. As noted, our Medical & Graphic Imaging Business focused on expanding the sales of the digital equipment and strengthening the digital solution business, but accelerating declines in sales of film products, in addition to the effect of a strong yen, could not be offset either in the healthcare field or in the graphic imaging field. As a consequence, net sales to outside customers fell 17.1% from the previous year, to billion. As gross profit declined with a fall in sales volumes of film products, the Company stepped up its initiatives to reduce fixed costs. However, operating income slipped 52.3%, to 1.4 billion. Sensing Business In the Sensing Business, Konica Minolta launched new products, the CM-5 spectrophotometer, the CR-5 colorimeter, and the RANGE5 non-contact 3D digitizer and sought to boost sales, especially in the fields of color sensing and 3D measuring. However, although sales increased sharply in China, capital expenditure continued to be curbed in the manufacturing industry in major markets in Japan, the United States, and Europe, reflecting economic stagnation, and consequently, sales volumes experienced sluggish growth. As a result, net sales to outside customers declined 17.5%, to 6.9 billion. The operating loss was 6 million. 9

10 [Reference] Three month performance (From January 1, 2010 to March 31, 2010) Net sales Gross profit Operating income (loss) Ordinary income (loss) Income before income taxes and minority interests (loss) Net income (loss) [Billions of yen] Three months (Jan - Mar) Increase (Decrease) (7.1) (8.6) (17.3) % 31.3 % (12.1) Net income per share [yen] (22.95) Capital expenditure Depreciation R & D expenses (1.3) (3.3) (2.5) -9.8 % % % Free cash flow % Exchange rates [yen] US dollar Euro (2.91) 3.81 [Reference] Three month performance by segment (From January 1, 2010 to March 31, 2010) -3.1 % 3.1 % Business Technologies Net sales - external Operating income Optics Net sales - external Operating income (loss) Medical & Graphic Net sales - external Operating income (loss) Sensing Net sales - external Operating income (loss) [Billions of yen] Three months (Jan - Mar) Increase (Decrease) (0.0) (6.8) 31.2 (1.0) 1.8 (0.0) (3.3) % % 26.9 % % % - 10

11 3. Outlook for the fiscal year ending March 31, 2011 The economic situation surrounding the Group, both in Japan and abroad, is generally expected to recover as emerging economies in Asia and elsewhere maintain the growth seen in the current fiscal year. Japan and the United States, along with advanced European economies, seem to enjoy moderate recoveries. Still, many concerns remains, including a very difficult employment situation, rising long-term interest rates, and a stronger yen. We think the economic outlook remains uncertain and challenging. Looking at the main businesses of the Company, we believe the Business Technologies Business will enjoy a modest recovery in the fiscal year ending March 31, 2011, although it will take some time for demand for MFPs for offices and production printing to recover in earnest. In the Optics Business, demand for digital consumer electronics such as LCD TVs and personal computers is expected to continue to expand. We assume exchange rates of 90 yen against the US dollar and 125 yen against the euro. [Billions of yen] March 2011 forecast March 2010 Increase (Decrease) Six months Full year Six months Full year Six months Full year Net sales Operating income Ordinary income Net income Note: The above operating performance forecasts are based on future-related suppositions, outlooks, and plans at the time this report was released, and they involve risks and uncertainties. It should be noted that actual results may differ significantly from these forecasts due to various important factors, such as changes in economic conditions, market trends, and currency exchange rates. 11

12 (2) Financial Position (1) Analysis of financial position March 31 [Billions of yen] Increase (Decrease) Total assets [Billions of yen] (52.2) Net assets [Billions of yen] Net assets per share [yen] Equity ratio [%] At fiscal year end, total assets amounted to billion, down 52.2 billion compared with the end of the previous fiscal year. The decline in assets reflects a reduction in inventories, the curtailment of capital investment, and improvements in accounts receivable periods and accounts payable periods. Inventories fell 30.8 billion from the end of the previous fiscal year, to 98.2 billion, attributable to launches of new products and a recovery in sales. Interest-bearing debt slipped 33.0 billion, to billion. Despite a decrease in foreign currency translation adjustments because of the appreciation of the yen, net assets increased 6.4 billion from the end of the previous fiscal year, to billion, reflecting a rise in retained earnings primarily due to the posting of 16.9 billion in net income. Net assets per share came to , and the shareholders equity ratio rose 3.4 percentage points from the end of the previous fiscal year to 48.5%. (2) Cash flows March 31 [Billions of yen] Increase (Decrease) Cash flows from operating activities Cash flows from investing activities (40.4) (90.1) 49.7 Total [Free cash flow] Cash flows from financing activities (43.8) 4.9 (48.7) During the fiscal year under review, net cash provided by operating activities was billion, while net cash used in investing activities, mainly associated with capital investment, totaled 40.4 billion. As a result, free cash flow (the sum of operating and investing activities) was an inflow of 72.9 billion. Net cash used in financing activities was 43.8 billion. In addition, the effect of exchange rate changes increased cash and cash equivalents by 1.3 billion. As a result, cash and cash equivalents at the end of the fiscal year under review stood at billion, rising 30.4 billion from the consolidated previous fiscal year-end. 12

13 Net cash provided by operating activities Net cash provided by operating activities reached billion ( billion in the previous consolidated fiscal year). Although the Group reported income before income taxes and minority interests of 36.0 billion, depreciation of 61.1 billion, and an improvement of working capital of 17.5 billion, these amounts were partly offset by 6.5 billion in accounts payable and accrued expenses, 3.8 billion in interest expenses, and other factors. Net cash used in investing activities Net cash used in investing activities was 40.4 billion ( 90.1 in the previous fiscal year). Cash of 33.6 billion was mainly used for investments in molding for new products in the Business Technologies Business and in the acquisition of tangible fixed assets relating to the reinforcement of production capacities in the Optics Business, our strategic business. As a result, free cash flow (the sum of operating and investing activities) was an inflow of 72.9 billion ( 17.3 billion in the previous fiscal year). Net cash used in financing activities Net cash used in financing activities was 43.8 billion (net cash provided of 4.9 billion in the previous fiscal year), mainly reflecting 30.0 billion for the redemption of corporate bonds at maturity, 9.2 billion in dividend payments, and 4.4 billion for repayments of loans payable and lease obligations. (Note) Amounts mentioned above do not include consumption taxes. [Cash flow indicators] March Shareholders equity ratio [%] Market price-based shareholders equity ratio [%] Debt redemption period [years] Interest coverage ratio Notes: Shareholders equity ratio: Shareholders equity / Total assets Market price-based shareholders equity ratio: Market capitalization / Total assets Years of debt redemption: Interest-bearing debt / Cash flow from operating activities Interest coverage ratio: Cash flow from operating activities / Interest payments Market capitalization is calculated as the share price at period-end multiplied by the number of shares outstanding at period-end (excluding treasury stock). Net cash flow from operating activities figures are those stated in the consolidated statements of cash flows. Interest-bearing debt is all liabilities reflected on the consolidated balance sheets that are subject to interest payments. Interest payments are those stated in the consolidated statements of cash flows. Cash flow outlook for the fiscal year ending March 31, 2011 Konica Minolta projects that free cash flow, the net value of cash flows from operating and investing activities, will amount to an inflow of 20.0 billion. 13

14 (3) Basic policy regarding profit distribution, dividends for the fiscal year under review, and projected dividends for the current fiscal year 1. Basic policy regarding profit distribution The policy regarding the payment of dividends from retained earnings, etc. calls for the basic approach of making a comprehensive evaluation of consolidated performance and funding requirements for promoting strategic investments in growth fields while seeking to sustain shareholder returns. Regarding the specific dividend target, the Company is aiming to sustain a dividend payout ratio of 25% or higher over the medium-to-long-term. With respect to the acquisition of treasury stock, the Company intends to make appropriate decisions regarding treasury stock acquisition as a means of profit distribution while giving due attention to such factors as the Company s financial condition and stock price trends. 2. Dividends for the fiscal year under review and the current fiscal year In the fiscal year under review (fiscal year ended March 31, 2010), the Company reported lower profits as the business downturn was greater than anticipated in the first half of the fiscal year. Nevertheless, the Company intends to distribute a year-end dividend of 7.5 yen per share as initially planned, which combined with the interim dividend of 7.5 yen per share will bring the total annual dividend to 15 yen per share. With respect to dividends for the current fiscal year (fiscal year ending March 31, 2011), given that the business environment demands prudence, the Company plans to distribute 7.5 yen per share for both the interim dividend and the year-end dividend, making a total annual dividend of 15 yen per share. *Figures given in the text as billions of yen have been rounded off to the nearest hundred million. 14

15 2. Group overview The Group comprises the parent company, 96 consolidated subsidiaries, 18 non-consolidated subsidiaries, and 7 affiliates. A chart detailing the business structure follows. Konica Minolta Holdings, Inc. Business Technologies Business: 76 Optics Business: 9 (Consolidated Subsidiaries: 57 Unconsolidated Subsidiaries: 15 Affiliates: 4) (Consolidated Subsidiaries: 9) Production: 10 Production: 7 Konica Minolta Supplies Manufacturing Co., Ltd. Konica Minolta Opto Products Co., Ltd. Toyohashi Precision Products Co., Ltd. Konica Minolta Opto (DALIAN) Co., Ltd. (China) Konica Minolta Business Technologies Manufacturing (H.K.) Ltd. (Hong Kong) Konica Minolta Optical Products (SHANGHAI) Co., Ltd. (China) Konica Minolta Business Technologies (DONGGUAN) Co., Ltd. (China) Konica Minolta Glass Tech Malaysia Sdn. Bhd. (Malaysia) Other Companies: 3 Konica Minolta Business Technologies (WUXI) Co., Ltd. (China) Konica Minolta Opto, Inc. Other Companies: 5 Sales: 1 Konica Minolta Opto (SHANGHAI) Co., Ltd. (China) Notes: Konica Minolta Business Technologies, Inc. Medical and Graphic Imaging Business: 17 (Consolidated Subsidiaries: 12, Unconsolidated Subsidiaries: 3, Affiliates: 2) Sales: 65 Konica Minolta Business Solutions Japan Co., Ltd. Production: 4 Konica Minolta Business Solutions U.S.A., Inc. (U.S.A) Konica Minolta Technoproducts Co., Ltd. Konica Minolta Business Solutions Europe GmbH (Germany) Other Companies: 3 Konica Minolta Business Solutions Deutschland GmbH (Germany) Konica Minolta Business Solutions (UK) Ltd. (U.K.) Konica Minolta Medical & Graphic, Inc. Konica Minolta Business Solutions France S.A.S. (France) Konica Minolta Business Solutions Australia Pty. Ltd. Sales: 12 (Australia) Konica Minolta Business Solutions (CHINA) Co., Ltd. Konica Minolta Health Care Co., Ltd. (China) Konica Minolta Graphic Imaging Japan Co., Ltd Other Companies: 57 Konica Minolta Medical Imaging U.S.A., Inc. (U.S.A.) Konica Minolta Graphic Imaging U.S.A., Inc. (U.S.A.) Sensing Business: 4 Other Companies: 8 (Consolidated Subsidiaries: 4) Konica Minolta Sensing, Inc. Sales: 3 Konica Minolta Sensing Europe B.V. (Germany) Other Businesses: 15 Konica Minolta Sensing Americas, Inc. (U.S.A) (Consolidated Subsidiaries: 14 Affiliates: 1) Konica Minolta Sensing Singapore, Pte. Ltd. (Singapore) Konica Minolta Photo Imaging, Inc. Konica Minolta Technology Center, Inc. Konica Minolta Business Expert, Inc. Konica Minolta IJ Technologies, Inc. Konica Minolta Logistics Co., Ltd. Konica Minolta Sogo Service Co., Ltd. Organization chart is as March 31, Only major consolidated subsidiaries are shown. Konica Minolta Engineering Co., Ltd. Konica Minolta Information System Co., Ltd. Konica Minolta Technosearch Corporation Konica Minolta Planetarium Co., Ltd. Other Companies: 5 15

16 3. Management policy (1) Basic management policy Management philosophy: The creation of new value Management visions: An innovative corporation that continues to create inspiring products and services in the field of imaging A global corporation that leads the market by advanced technologies and reliability Corporate Message: The essentials of imaging (Means providing the essentials to customers and being recognized as an essential company in the imaging world.) (2) Medium-to long-term management strategies and pending issues We expect the current positive momentum will generally continue, with the ongoing growth of emerging economies, especially in Asia, and moderate recoveries in advanced economies such as Japan, the United States, and Europe. However, potential causes of instability among macroeconomic indicators are still of particular concern, including the employment situation, long-term interest rates, and exchange rates. Consequently, economic conditions remain uncertain and challenging. In this difficult environment, the Konica Minolta Group has stemmed the trend of declines in sales and profit for two consecutive fiscal years. Positioning the fiscal year ending March 31, 2011 as a turning point for a return to growth, the Group will be proactive in its initiatives to achieve strong growth, as stated in BUSINESS PLAN <09-10>, and will look to achieve sustainable growth not only in the immediate future but also five to ten years from now. The Group has focused on improving its corporate capabilities under the business plan. To do this, the Group will reform processes in all functions, including the planning, development, production, and sale of products, from the perspective of customers. We will also undertake comprehensive reforms in distribution, procurement, and information technology. We believe these reforms will strengthen the competitiveness of the entire Group. To achieve its vision for sustainable growth, the Group will take on the major challenges described below. 1. Bolstering existing businesses and expanding operations In the Business Technologies Business, particularly in the office segment we will strive to meet the diversified needs of customers for offices by bolstering the competitiveness of MFPs and enhancing solution and service systems. For the production printing segment, we will enhance our product lineup by launching new products and will enter the commercial printing market by strengthening cooperation with internal and external resources, then expand the production printing business. In the Optics Business, the Group aims to expand the sales volume and market share of TAC films and glass HD substrates by improving production efficiency and ramping up production capacity through active capital expenditure. Using its optical technologies, the Group will enter the LED lighting business, thus expanding operations into a new field other than the digital consumer electronics industry. 16

17 2. Strengthening operations in Asian markets In Asian markets, where demand is expected to grow, the Group will focus on rapidly expanding sales in China and India as immediate priority, especially in the Business Technologies and Medical/Healthcare Businesses, and strengthen to sell the Group s products and services. Meanwhile, we will continue to shift production bases to China and Malaysia and will step up local procurement. The Group aims to expand operations by enhancing its competitiveness through cost reductions. 3. Accelerating development of new businesses For the Group to achieve strong, sustainable growth over the next five to ten years, it is important to add new businesses that will create a new era in addition to existing businesses. The Group will launch new businesses in the environment and energy, where social needs are increasing, and will harness its strengths to offer unique products. The Group will then develop a new area to serve as the third business, following the Business Technologies Business and Optics Business. Specifically, we are developing an organic light emitting diode (OLED) business based on a strategic alliance with General Electric Company (GE) of the United States. To establish mass production technology and to produce samples and products for limited sale aiming for cultivating potential customers, the Group is constructing a pilot line that is slated to be completed in the fall of Meanwhile, the Group has formed a capital and business alliance with Konarka Technologies, Inc., a U.S. venture, and is launching an organic thin film solar cell business, taking advantage of synergies with the OLED business. Through these businesses, the Group seeks to maximize its social contribution and elevate itself to a group of companies that better meet the needs of society, thereby increasing corporate value. 17

18 4. Consolidated Financial Statements (1) Consolidated Balance Sheets March 31, 2009 and 2010 March 31, 2009 March 31, 2010 Consolidated balance sheets Assets Current assets Cash and deposits 85,753 85,533 Notes and accounts receivable-trade 171, ,720 Lease receivables and investment assets 13,598 13,993 Short-term investment securities 48,000 79,000 Inventories 129,160 98,263 Deferred tax assets 25,326 19,085 Accounts receivable-other 16,531 7,639 Other 19,463 12,720 Allowance for doubtful accounts (4,749) (4,703) Total current assets 504, ,253 Noncurrent assets Property, plant and equipment Buildings and structures, net 71,937 66,708 Machinery, equipment and vehicles, net 69,726 52,782 Tools, furniture and fixtures, net 26,875 22,026 Land 35,033 34,320 Lease assets, net Construction in progress 11,522 16,901 Assets for rent, net 12,568 11,952 Total property, plant and equipment 227, ,057 Intangible assets Goodwill 81,374 71,936 Other 30,248 27,137 Total intangible assets 111,623 99,074 Investments and other assets Investment securities 18,068 22,029 Long-term loans receivable Long-term prepaid expenses 3,438 3,353 Deferred tax assets 39,608 35,304 Other 12,596 12,375 Allowance for doubtful accounts (519) (815) Total investments and other assets 73,654 72,411 Total noncurrent assets 413, ,544 Total assets 918, ,797 18

19 March 31, 2009 March 31, 2010 Liabilities Current liabilities Notes and accounts payable-trade 87,105 83,118 Short-term loans payable 64,980 58,231 Current portion of long-term loans payable 12,102 27,501 Current portion of bonds 30,066 - Accounts payable-other 36,443 30,536 Accrued expenses 27,770 24,882 Income taxes payable 2,534 2,488 Provision for bonuses 11,736 11,173 Provision for directors' bonuses Provision for product warranties 2,496 1,869 Provision for loss on business liquidation 7,268 4,714 Notes payable-facilities 2, Other 25,853 22,086 Total current liabilities 310, ,313 Noncurrent liabilities Bonds payable 40,000 40,000 Long-term loans payable 83,259 71,625 Deferred tax liabilities for land revaluation 3,889 3,733 Provision for retirement benefits 57,962 54,245 Provision for directors' retirement benefits Other 7,238 7,654 Total noncurrent liabilities 192, ,708 Total liabilities 503, ,022 Net assets Shareholders' equity Capital stock 37,519 37,519 Capital surplus 204, ,140 Retained earnings 185, ,790 Treasury stock (1,662) (1,743) Total shareholders' equity 425, ,707 Valuation and translation adjustments Valuation difference on available-for-sale securities (513) 741 Deferred gains or losses on hedges Foreign currency translation adjustment (11,755) (14,947) Total valuation and translation adjustments (12,070) (14,172) Subscription rights to shares Minority interests Total net assets 414, ,775 Total liabilities and net assets 918, ,797 19

20 (2) Consolidated Statements of Income Fiscal years ended March 31, 2009 and 2010 March Consolidated statements of income Net sales 947, ,465 Cost of sales 520, ,978 Gross profit 427, ,486 Selling, general and administrative expenses 371, ,498 Operating income 56,260 43,988 Non-operating income Interest income 1,655 1,749 Dividends income Equity in earnings of affiliates - 81 Other 5,748 5,654 Total non-operating income 7,925 7,843 Non-operating expenses Interest expenses 4,866 3,808 Equity in losses of affiliates 99 - Foreign exchange losses 7,272 1,124 Other 6,544 6,079 Total non-operating expenses 18,782 11,013 Ordinary income 45,403 40,818 Extraordinary income Gain on sales of noncurrent assets Gain on sales of investment securities Gain on sales of subsidiaries and affiliates' stocks 2,803 - Licence related income Gain on transfer of business 3,063 - Reversal of provision for loss on business liquidation 932 1,025 Other extraordinary income of foreign subsidiaries Other Total extraordinary income 8,073 3,593 Extraordinary loss Loss on sales and retirement of noncurrent assets 3,115 2,833 Loss on sales of investment securities Loss on valuation of investment securities 3, Impairment loss 1,168 2,561 Business structure improvement expenses 10,094 2,084 Loss on revision of retirement benefit plan 2,046 - Total extraordinary losses 20,252 8,329 Income before income taxes and minority interests 33,224 36,082 Income taxes-current 13,183 9,306 Income taxes-deferred 4,857 9,806 Total income taxes 18,040 19,113 Minority interests in income 5 37 Net income 15,179 16,931 20

21 (3) Consolidated Statements of Changes in Net Assets Fiscal years ended March 31, 2009 and 2010 March Consolidated statements of changes in net assets Shareholders' equity Capital stock Balance at the end of previous period 37,519 37,519 Changes of items during the period Total changes of items during the period - - Balance at the end of current period 37,519 37,519 Capital surplus Balance at the end of previous period 204, ,140 Changes of items during the period Total changes of items during the period - - Balance at the end of current period 204, ,140 Retained earnings Balance at the end of previous period 176, ,453 Effect of changes in accounting policies applied to foreign 5,210 - Changes of items during the period Dividends from surplus (9,283) (9,280) Net income 15,179 16,931 Change of scope of consolidation 96 - Disposal of treasury stock (117) (11) Amortization of net retirement benefit obligation in foreign (2,316) 697 Total changes of items during the period 3,558 8,337 Balance at the end of current period 185, ,790 Treasury stock Balance at the end of previous period (1,340) (1,662) Changes of items during the period Purchase of treasury stock (665) (106) Disposal of treasury stock Total changes of items during the period (321) (81) Balance at the end of current period (1,662) (1,743) Total shareholders' equity Balance at the end of previous period 417, ,451 Effect of changes in accounting policies applied to foreign 5,210 - Changes of items during the period Dividends from surplus (9,283) (9,280) Net income 15,179 16,931 Change of scope of consolidation 96 - Purchase of treasury stock (665) (106) Disposal of treasury stock Amortization of net retirement benefit obligation in foreign (2,316) 697 Total changes of items during the period 3,236 8,256 Balance at the end of current period 425, ,707 21

22 March Valuation and translation adjustments Valuation difference on available-for-sale securities Balance at the end of previous period 2,913 (513) Changes of items during the period Net changes of items other than shareholders' equity (3,426) 1,255 Total changes of items during the period (3,426) 1,255 Balance at the end of current period (513) 741 Deferred gains or losses on hedges Balance at the end of previous period (319) 198 Changes of items during the period Net changes of items other than shareholders' equity 517 (164) Total changes of items during the period 517 (164) Balance at the end of current period Foreign currency translation adjustment Balance at the end of previous period (2,431) (11,755) Changes of items during the period Net changes of items other than shareholders' equity (9,323) (3,192) Total changes of items during the period (9,323) (3,192) Balance at the end of current period (11,755) (14,947) Total valuation and translation adjustments Balance at the end of previous period 162 (12,070) Changes of items during the period Net changes of items other than shareholders' equity (12,232) (2,101) Total changes of items during the period (12,232) (2,101) Balance at the end of current period (12,070) (14,172) Subscription rights to shares Balance at the end of previous period Changes of items during the period Net changes of items other than shareholders' equity Total changes of items during the period Balance at the end of current period Minority interests Balance at the end of previous period Changes of items during the period Net changes of items other than shareholders' equity (414) 178 Total changes of items during the period (414) 178 Balance at the end of current period

23 March Total net assets Balance at the end of previous period 418, ,284 Effect of changes in accounting policies applied to foreign 5,210 - Changes of items during the period Dividends from surplus (9,283) (9,280) Net income 15,179 16,931 Change of scope of consolidation 96 - Purchase of treasury stock (665) (106) Disposal of treasury stock Amortization of net retirement benefit obligation in foreign (2,316) 697 Net changes of items other than shareholders' equity (12,473) (1,766) Total changes of items during the period (9,236) 6,490 Balance at the end of current period 414, ,775 23

24 (4) Consolidated Statements of Cash Flow Fiscal years ended March 31, 2009 and 2010 March Net cash provided by (used in) operating activities Income before income taxes and minority interests 33,224 36,082 Depreciation and amortization 70,179 61,174 Impairment loss 1,168 2,561 Amortization of goodwill 8,909 9,233 Interest and dividends income (2,176) (2,107) Interest expenses 4,866 3,808 Loss (gain) on sales and retirement of noncurrent assets 2,866 1,980 Loss (gain) on sales and valuation of investment securities 3, Loss (gain) on sales and valuation of subsidiaries/affiliates' stocks (2,803) - Loss (gain) on transfer of business (3,063) - Increase (decrease) in provision for bonuses (3,290) (544) Increase (decrease) in provision for retirement benefits 5,708 (2,926) Increase (decrease) in provision for loss on business liquidation (4,459) (2,553) Decrease (increase) in notes and accounts receivable-trade 50,596 (10,718) Decrease (increase) in inventories (3,550) 28,688 Increase (decrease) in notes and accounts payable-trade (10,372) (451) Transfer of assets for rent (7,419) (7,707) Decrease (increase) in accounts receivable-other 4,545 1,900 Increase (decrease) in accounts payable-other and accrued expenses (12,821) (6,554) Decrease/increase in consumption taxes receivable/payable 952 3,646 Other, net 8, Subtotal 144, ,551 Interest and dividends income received 2,000 2,271 Interest expenses paid (4,594) (3,874) Payments for extra retirement payments (105) - Income taxes (paid) refund (34,676) (1,572) Net cash provided by (used in) operating activities 107, ,377 24

25 March Net cash provided by (used in) investing activities Purchase of property, plant and equipment (61,645) (33,687) Proceeds from sales of property, plant and equipment 1,767 1,663 Purchase of intangible assets (7,774) (5,837) Proceeds from transfer of business 4,585 - Proceeds from sales of investments in subsidiaries resulting in change in 3,177 - scope of consolidation Purchase of investments in subsidiaries resulting in change in scope of (27,987) - consolidation Payments of loans receivable (286) (296) Collection of loans receivable Purchase of investment securities (990) (2,927) Proceeds from sales of investment securities 18 1,197 Payments of valuation of other investments (1,440) (1,207) Other, net Net cash provided by (used in) investing activities (90,169) (40,457) Net cash provided by (used in) financing activities Net increase (decrease) in short-term loans payable (16,504) (6,266) Proceeds from long-term loans payable 44,817 16,005 Repayment of long-term loans payable (6,364) (12,237) Redemption of bonds (5,000) (30,000) Repayments of lease obligations (1,993) (1,938) Proceeds from sales of treasury stock Purchase of treasury stock (665) (109) Cash dividends paid (9,279) (9,271) Cash dividends paid to minority shareholders (268) - Net cash provided by (used in) financing activities 4,959 (43,803) Effect of exchange rate change on cash and cash equivalents (11,311) 1,302 Net increase (decrease) in cash and cash equivalents 11,041 30,418 Cash and cash equivalents at beginning of period 122, ,727 Increase (decrease) in cash and cash equivalents resulting from change of scope of consolidation Cash and cash equivalents at end of period 133, ,146 25

26 5. Note on the premise of going concern No relevant items occurred during fiscal year ended March 31, Basis of presenting consolidated financial statements [1] Scope of consolidation (1) Number of consolidated subsidiaries: 96 Principal consolidated subsidiaries: Konica Minolta Business Technologies, Inc. Konica Minolta Opto, Inc. Konica Minolta Medical & Graphic, Inc. Konica Minolta Sensing, Inc. Konica Minolta Photo Imaging, Inc. Konica Minolta Techonology Center, Inc. Konica Minolta Business Expert, Inc. Konica Minolta IJ Technologies, Inc. Konica Minolta Business Solutions Japan Co., Ltd. Konica Minolta Health Care Co., Ltd. Konica Minolta Supplies Manufacturing Co., Ltd. Konica Minolta Business Solutions Europe GmbH Konica Minolta Business Solutions U.S.A., Inc. Konica Minolta Business Technologies Manufacturing (HK) Ltd. The following companies have been excluded from consolidated subsidiaries: Konica Singapore Pte. Ltd., Konica Minolta Photo Imaging Asia H.Q. Pte. Ltd. and Konica Minolta Photo Imaging U.S.A., Inc. due to the completion of liquidation; Veenman Deutschland GmbH due to a merger into Konica Minolta Business Solutions Deutschland GmbH, a consolidated subsidiary; Konica Minolta Danka Imaging Company due to a merger into Konica Minolta Business Solutions U.S.A., Inc., a consolidated subsidiary; and Konica Minolta Business Solutions Nederland B.V. and its subsidiaries Develop Nederland B.V., Holding Kantoor Communicatiesystemen B.V. and Flexi Technologies B.V. due to a merger into Konica Minolta Printing Solutions Benelux B.V., a consolidated subsidiary (Konica Minolta Printing Solutions Benelux B.V. has been renamed Konica Minolta Business Solutions Nederland B.V.). (2) Principal unconsolidated subsidiaries: ECS Buero-und Datensysteme GmbH Unconsolidated subsidiaries have not been included in consolidation because they are relatively small and their assets, sales, net income, and retained earnings (in proportion to scale of equity ownership) do not have no material influence on consolidated financial statement. [2] Scope of the use of equity accounting (1) Equity accounting is employed for investments in 5 unconsolidated subsidiaries and 3 important affiliates. Major subsidiaries and affiliates accounted for by the equity method: Unconsolidated subsidiary: ECS Buero-und Datensysteme GmbH Affiliate: Toho Chemical Laboratory Co., Ltd. Konica Minolta Photo Imaging (SHANGHAI) Co., Ltd., a non-consolidated subsidiary accounted for by the equity method, has been excluded from the scope of application of the equity method with the completion of liquidation. (2) Unconsolidated subsidiaries that are not accounted for by the equity method (including Konica Minolta Software Laboratory Co., Ltd.) and affiliates that are not accounted for by the equity method (including Konica Minolta Business Support Aichi Co., Ltd.) are excluded from the scope of application of the equity method, because they have little impact on net income (loss) or retained earnings, and their significance as a whole is minor. 26