Global Credit Research - 08 Jul 2020
Tokyo, July 08, 2020 -- Moody's Japan K.K. has downgraded Ricoh Finance Corporation (RFC)'s backed US Commercial Paper (CP) program to Not Prime from Prime-3.
This rating action concludes the review for downgrade initiated on 6 April 2020 to evaluate the negative impact of the coronavirus outbreak and Ricoh group's plan to return JPY100 billion to shareholders on the group's credit profile.
RFC is a wholly-owned financial subsidiary of Ricoh Company, Ltd. (Ricoh). Because RFC's US CP program is guaranteed by Ricoh, the NP rating is based on Moody's assessment of Ricoh's long-term creditworthiness.
"The downgrade of the US CP rating reflects our view that Ricoh will seek to diversify to offset the declining profit from its office printing business, and increase acquisition event risk and leverage," says Motoki Yanase, a Moody's Vice President and Senior Credit Officer.
Over the past five years ended March 2020, reported revenue has steadily shrunk by about 10% and its gross profit by about 20%. Ricoh has grown its office services segment to help offset the decline in its largest core copier and printer business. However, the services segment's operating margin is modest 5.1% for fiscal 2019, and much lower than the 9.0% for its office printing segment.
At the same time, the company's profitability remains low and provides little buffer against declines in profit and cash flow during the economic downturn. After excluding eliminations, Ricoh's consolidated operating margin for fiscal 2019 was at 3.9%, much lower than other companies at investment-grade.