The first year of our Mid-term Management Plan (FY2023-FY2025) ("current Mid-term Plan"), in which our medium-to long-term vision is to "Become a Circulation-Creating Company," has come to an end. Among the business fields to be focused on in this current Mid-term Plan, we accumulated operating assets mainly in the real estate field and were able to deliver performance in line with our initial forecast, despite a decrease in profits with an increase in sales. With the subsiding of the COVID-19 pandemic and signs of economic recovery, such as rising stock prices, the Ricoh Leasing Group is continuing to look beyond the current Mid-term Plan, and is engaged in consistent evolution in keeping with our uniqueness in order to contribute to the realization of an abundant future.
Realizing an abundant future by harnessing our DNA
and through initiatives for our material issues
The role of our Group, which originated in the Leases & Finance Business, is to lower the hurdles for companies to make capital investments in new businesses and to diversify their businesses. By circulating funds, which are the lifeblood of a company, we have supported the business activities of our clients, especially small and medium-sized enterprises. Our Group has set forth the corporate philosophy that "We will be a bridge to an abundant future with our independent financial and services." What we call our "uniqueness" incorporates our commitment to consistently provide unique services to our clients, based on the assets we have accumulated through small-amount, small-volume transactions, and through repeated and consistent evolution.
The foundation of our business is transaction data with approximately 400,000 customers, one of the strengths of our Group. The Group was established as a leasing company to provide sales support for Ricoh products. In 2026 we will celebrate our 50th anniversary, and the data we have accumulated over these many years has become so fundamental to us that it can be called our DNA. We believe that by effectively utilizing this data, which is not represented in the balance sheet or statement of profit and loss, we can create new services that do not yet exist in the world and encourage growth opportunities for our clients. This is a source of differentiation from our competitors in order to survive in the era of VUCA (Volatility, Uncertainty, Complexity, and Ambiguity). The two axes of strategic planning for the current Mid-term Plan are use of transaction data, especially vendor leasing, and the resolution of social issues. The Group has identified four material issues (contribute to a clean global environment, enhance quality of life, develop a virtuous cycle for a sustainable economy, develop a virtuous cycle for a sustainable economy, and create a happiness company and society), and has set non-financial targets for each material issue, aiming to resolve social issues. We believe that our medium- to long-term vision of "Become a Circulation-Creating Company" will be realized through a combination of these two axes.
When I talk about this, I often use famous industrialist Eiichi Shibusawa's book Rongo to Soroban as an analogy. Here, Shibusawa's rongo (teachings, referring to Confucius's Analects) is our material issues, and the soroban (abacus, referring to the pursuit of profits) is contribution to corporate growth. We will contribute to the world from both of these perspectives, and by earning profits from the recognition of our Group's efforts, we will contribute to an abundant future, as stated in our corporate philosophy.
Sales and profits exceeding initial forecasts in the first Mid-term Plan year
Further promoting business growth strategies by field
Looking back on the first year of the current Mid-term Plan, we achieved a certain level of results in terms of sales and profits. Net sales increased for the first time in four fiscal years, rising 3.2% from the previous year to 308.3 billion yen. Meanwhile, operating profit, though lower than the previous fiscal year at 21.0 billion yen due to a reactionary drop from the previous year's special rental demand related to COVID-19, exceeded the initial forecast along with net sales due to growth in leasing and installment sales.
With respect to our sales operations, increased investments in logistics facilities and trust beneficiary interests in residential properties in the real estate field and expanded investments in solar power generation and several large-value installment projects in the environmental field contributed to higher executed contract volume and overall performance.
Net income was 11.2 billion yen, lower than the initial forecast, due to an extraordinary loss of 5.1 billion yen resulting from an impairment loss on some of the securities held due to a decline in stock prices. Ricoh Leasing continues to hold securities acquired, including the securities that were the subject of this impairment, through ESG investments and other means for the purpose of creating business opportunities and expanding collaboration. This has deepened our cooperative relationships through business collaboration with each of our investees.
Now, in the second year of our Mid-term Plan, an assessment of our external environment shows that the COVID-19 pandemic has finally subsided, interest rates are expected to rise in the future as we move away from the zero interest rate and low interest rate policies, and there are bright signs now appearing in the pulse of the once long-stagnant economy and society.
In management, investment in human capital will become even more important. Leasing companies can no longer survive on organic growth alone, and are entering an era in which new evolutions are required. In response to these environmental changes, the Group has formulated business growth strategies and strategies for enhancement of organizational strength in the current Mid-term Plan.
There are three main business growth strategies. The first is expansion and improved efficiency, which applies to three business areas: office, medical and healthcare, and capital investment. We will expand our business in these areas while improving efficiency as the most important foundation for the Group's growth. The second is diversification through the addition of businesses and services, which applies to real estate, environment, and nursing care. These are business areas where we would like to consider how to secure revenue while adapting our services for further expansion. The third is taking on the challenge of new business models, which includes the two business fields of "as a Service" and "BPO※." Although their contribution to earnings is yet to be seen, these business fields are expected to become a future axis of the Company through concentrated investment of people, goods, and money.
The three strategies for enhancing organizational capabilities are encouraging employees to take on challenges, which will result in business growth, and revitalizing the organization, building flexible systems and operational structures that reflect social changes, and strengthening governance, including governance at affiliates. Based on these strategies, we are promoting various initiatives.
- ※BPO(Business Process Outsourcing): Outsourcing part of a business process to a specialized business
Business growth strategies and organizational creation to adapt to environmental changes
Continuous evolution of Ricoh Leasing's businesses
The Group's business began in the office field, and we have grown and expanded our business while adding new fields one by one. However, markets in growth areas quickly become saturated, leading in turn to the need for efficiency. Then, we test ourselves in a new field, and the cycle repeats itself.
We call this sequence of events continuous evolution. Through a series of evolutions like these, we hope to create new fields that will become central axes of our business. Much like the evolution of living organisms, in business activities, we commit errors but adapt and evolve (mutate) to meet changes in the environment. To generate these evolutions is the challenge we face, and building such an evolution-based business model is what creates our uniqueness. In particular, we see the "as a Service" and BPO fields in our business growth strategies of the current Mid-term Plan as markets with ample room for growth. We will drive intentional evolution in these areas while actively investing management resources.
Evolution can be caused by a variety of stimuli in all kinds of situations. What is important is how a company provides opportunities for that stimulation. At the same time, the ability of each employee to notice things is also important, so we would like to encourage evolution by applying mechanisms that do not put too much pressure on them. If employees more readily verbalize their daily thoughts and feelings, employees may be able to notice things and generate insights. Therefore, as a company, we would like to create an environment that is facilitative, rather than take a grandiose, and potentially intimidating, attitude.
For example, we provide opportunities for employees to gain new knowledge through what we call Mirakuru-Za, a direct roundtable meeting to create an abundant future, in which officers are invited to each business site to stimulate communication between the field and management; Mirai Creation, an internal proposal submission system aimed at creating new businesses; Mirai Award, an event to recognize best practices in sales and business operations; women's leadership training, and; RL Miraijuku, a succession planning program. We also offer a human resources system arising from capturing ideas from front-line employees, including things they want to do and examples from other companies. Although we have not reached the point to justify incorporation in our business plans, we aim to take these ideas beyond the realm of our internal systems and connect them to our businesses.
There is one thing to keep in mind when thinking about evolution. I often talk about taking it "one variable at a time." To give an example, if a company were to expand overseas, it would consider which business it would use to begin this expansion. I believe that when we look at this single variable of going abroad, we must choose something that is an extension of our existing businesses. This is because when you have two variables—overseas and a new business—it is no longer continuous.
At present, I believe that we are able to generate strong figures while responding to the challenges of the world as we venture into new areas, and in general we are generating continuous evolution in the right way. Entrepreneurs do not find success patterns from the start; they follow what they call the basketball "pivot." This is truly a continuous evolution to find a success path while pivoting on an axis. Since experience is needed to make this happen, we will gradually increase the speed while thickening our current pipeline of evolution, leading to the overall growth of the company.
Firstly, seeking to improve capital efficiency, and then aiming to increase profits
Basic dividend policy: Stable shareholder returns over the medium to long term
In the prior Mid-term Plan (FY2020-FY2022), we achieved profit growth by improving earning power. It is necessary to maintain this trend in the future while, on the other hand, launching new business creation and measures.
The numerical targets for fiscal 2025, the final year of the current Mid-term Plan, are operating profit of 23.5 billion yen, net income of 16 billion yen, ROA of 1.1% or more, and ROE of 7% or more, with a dividend payout ratio of 40% or more. To achieve these numerical targets, it is important to increase profits while improving capital efficiency. For example, within taking on the challenge of new business models, we will create revenue streams that do not use assets. This is why we are strengthening our non-asset "as a Service" and BPO fields.
In March 2023, the Tokyo Stock Exchange issued a request that we practice management conscious of cost of capital and stock price, and with investors also demanding that we achieve ROE that exceeds the cost of capital, we must be more conscious of capital efficiency than ever before. At Ricoh Leasing, even before the COVID-19 pandemic, we have been practicing contract acquisition activities with an awareness of the cost of capital by establishing hurdle rates for each business field in order to ensure profitability for each business portfolio. We will more broadly instill such activities to increase profits. Beyond the current Mid-term Plan, we have also established a numerical target of 30 billion yen in operating profit for fiscal 2029. We will explore how to achieve this target as we carry out our business.
Although ROE declined in fiscal 2023 due to extraordinary losses, we will work to optimize equity capital in the denominator and increase profits in the numerator, targeting 7% or more in fiscal 2025, the final year of the current Mid-term Plan, and 8% or more in fiscal 2029. In the optimization of equity capital, we have changed our basic policy for shareholder return with the aim of controlling the speed of increase in equity capital.
While keeping in mind the progressive nature of our dividends, which have increased for 29 consecutive fiscal years through fiscal 2023, we will aim for an industry-leading dividend payout ratio of 40% or more in fiscal 2025 and 50% in fiscal 2029.
Significance of the four material issues set forth in the non-financial targets
Encouraging proactive employee engagement by setting numerical targets
One of our Group's material issues, create a happiness company and society, is an important foundation of management and the fundamental concept of human capital management. In the current Mid-term Plan, we aim to achieve employee happiness by implementing human resource strategies, with non-financial targets such as raising the engagement score to 75 points, increasing the percentage of female managers to 25%, and raising per capita education expenditures, such as reskilling, to 55,000 yen. We then set material issues such as contribute to a clean global environment, enhance quality of life, and develop a virtuous cycle for a sustainable economy, and set quantified targets to enable us to proactively engage in business activities. The Sustainability Committee held a series of discussions to determine the target values for these and how much of a positive impact they would have on society and how much they would lead to increased corporate value.
These targets are also used to measure the progress of how much each employee's work contributes to materiality, with clear numerical targets providing the driving force for our businesses. We will contribute to solving social issues by developing new business activities in light of what we must do to achieve our targets and the Group's corporate philosophy.
Creating an active working environment for employees by investing in human capital
Creating new services and increasing corporate value
In the current Mid-term Plan, we will grow our companies through initiatives in business fields within our business growth and strategies for enhancing organizational strength. We will faithfully and steadily carry out each business activity and create new services that our customers demand, while proceeding with continuous evolution. In order to realize this, it is important that our employees be able to work actively, and we will therefore create a work environment in which they can experience happiness by steadily investing in human capital. We believe that this will lead to improved performance and business growth for our Group, and that as we achieve greater sustainability in our corporate structure, the achievement of material issues will become a reality, and the entire planet will become sustainable.
First, we will devote all our energy to achieving the targets of the current Mid-Term plan, and then, using this as a stepping stone, we will look ahead to the numerical targets beyond this plan and strive to increase corporate value even more than before. This will help us to meet the expectations of our stakeholders. We look forward to your further support as we build ourselves up to achieve the abundant future sought by the Ricoh Leasing Group.