As the supply chain improves, the company has ambitious growth initiatives for 2023.
To say that the first half of 2022 was challenging for Konica Minolta is an understatement. However, after a comprehensive webinar for analysts on December 13, all signs indicate that the backorder situation is improving and will continue to do so at least through March.
A full roster of Konica Minolta executives, including Sam Errigo, Michael Mathé, Dino Pagliarello, Laura Blackmer, Velinda Cox, and Kay Fernandez provided backorder and second quarter financial updates, a look at the product pipeline for 2023, and a deep dive into the company’s various initiatives, including e-commerce, dealer programs, sustainability, and diversity. In this first of two installments, I will focus on what President & CEO Sam Errigo shared with analysts.
Errigo kicked things off with an update on backorders and Konica Minolta corporate’s performance in the second quarter of its 2022 fiscal year. According to Errigo, earnings steadily increased and turned a profit in the second quarter, with the overall progress exceeding forecasts. Total revenue was 282 billion yen vs. 215 billion yen last year in the same quarter, up 31%.
Gross profit was up in relative dollars but on a percentage basis, down slightly because of higher shipping expenses worldwide. “Overall, we are pleased with our Q2 financials,” said Errigo. “There is still much work in front of us as we conclude Q3 and head into Q4,” said Errigo. “Certainly, we had a much better performance in Q2 than Q1, and a lot of it has to do with inventory.
Indeed, freeing up product in the second quarter, beginning in September, positively impacted revenue. “Our backorders were significant, and we made excellent strides from a production standpoint that helped KM corporate and us alleviate many of the backorder situations,” added Errigo. “It wasn’t perfect, but we made some big strides. We’re still not out of the woods but moving in the right direction.”
In the U.S., backorders are now below $100 million for Konica Minolta’s dealer and direct channels. Errigo reported that the company is having a good inventory month in December, which will help decrease the number of backorders in both channels. Konica Minolta is also focused on bringing in product parts and components, leading to increased product availability, top-line revenue, business contribution, and operating profit.
Errigo added that the business’s production and industrial print segment is more stable and predictable from an inbound standpoint and almost back to 2019 levels. The digital workplace and professional print also performed better in the second quarter than in the first quarter.
Not surprisingly, the company’s market share has been impacted by backorders, and for the second quarter it was 13.7% based “purely on availability,” according to Errigo. “I’m expecting these numbers to improve as we ship product. We had a big month in September, we shipped quite a few units to dealers to get caught up, and the market share jumped to 16.2% [in the current third quarter]. You can’t rest on that number because our competitors are starting to get caught up as we are, and as product becomes available, these numbers will be all over the place. I believe that in FY2023, the market will stabilize, and you’ll see a more predictable segmentation within the market. I also believe you’ll have some winners and losers. Some companies enjoyed market share gains, and some will continue to struggle. As they struggle, that will be an opportunity for companies like KM to increase our market share through specific targeting and programs within our dealer and direct channels.”
Errigo also outlined the strategic priorities that Konica Minolta is focusing on, including a dual transformation growth strategy to increase market share in its core business and drive digital transformation (DX) revenue. Part of that is moving faster into the managed IT sector of the business, including intelligent information management (IIM) as well as software solutions and video services, which Errigo said make up new areas for growth and long-term profitability.
Driving innovation is another strategy. “We have many things going on around infrastructure and using data more intelligently to help us internally but also to help our dealer channel and external customers understand the data and the value we can provide to them with better use of data and better use of technologies to help them manage costs and expenses within their relative businesses,” observed Errigo.
One of the more interesting revelations made during Errigo’s presentation was related to internal processes and staffing to increase shareholder value. “Our business has changed since COVID, and it is incumbent on us as leaders to make sure we look at every aspect of the business,” added Errigo. “We have an initiative in place that over the coming years we need to convert 15% of our staff to robotic, meaning taking those mundane processes and using RPA (Robotic Process Automation) technology to improve how we process information through the business but for creating new roles in the company that are much higher value to us internally and our stakeholders.”
Errigo also addressed social and environmental initiatives. He spoke passionately about diversity; an area further elaborated on by Fernandez later in the program. “We need a much more inclusive and diverse culture to accelerate our business transformation,” observed Errigo. “Going outside the guidelines of whom we would have traditionally hired won’t work and won’t help us in the future. This is one of those areas that I am most excited about. When you talk about business transformation, if you’re not talking about change or how the experience with your customer will change, transformation is not possible. We are investing in this area, and I believe there will be a benefit for KM corporate, our direct channel, and our dealer channel.”
Addressing climate change is another major initiative. Konica Minolta has a program for reducing CO2 emissions and protecting resources worldwide to ensure resources are available for current and future generations. Key to this initiative is Konica Minolta’s Eco Vision global long-term sustainability strategy. Not only is the company looking to reduce CO2 emissions but has a goal to achieve carbon-minus status. “We’re way ahead of schedule,” revealed Errigo. “Eco Vision 2050 has been pushed up to a 2030 timeline.”
Konica Minolta is also accelerating and introducing programs to help with recycled products and components used in its products. It is working with a host of companies to track and ensure that it is participating in sustainability programs. In addition to enlisting experts in those areas, Konica Minolta is engaging with customers, evaluating different sustainability programs that it can participate in with its customers.
I was impressed with Errigo’s candidness throughout the presentation and the detailed information about the company’s ambitious initiatives. Although the jury is still out as to Konica Minolta’s third quarter performance, all signs indicate that it is back on track.
I will report on Konica Minolta’s product pipeline, dealer programs, and its e-commerce and diversity initiatives in part two.