Canon Inc (CAJ) 2009 Q1 法說會逐字稿

Hello, everyone, and welcome to Canon's conference call. My name is Masahiro Osawa. I am in charge of finance and accounting. Please note that all financial comparisons made during my presentation will be [on a one] year basis, unless otherwise stated.

Please refer to slide two. This slide outlines today's agenda.

Please turn to slide three. I will now summarize our first quarter. With respect to market, although there were signs that the market for consumer product might be bottoming out, the market for office products shrunk even further, reflecting ongoing concern that the global recession will continue.

As for currency, the yen's appreciation was JPY11 to the US dollar and JPN36 to the euro. Although first quarter sales declined significantly due to the severe business environment and the steps we took to further adjust laser beam printer general inventory, we remained profitable.

During the period, we also promoted our activities aimed at eliminating all possible waste and further enhancing our muscular business constitution, in accordance with our policy of Improved Management Quality.

Please refer to slide four. Turning to first quarter results, net sales decreased 31.8%. This was the result of weak demand for office products, the further adjustment we made to laser beam printer general inventory, and the significant appreciation of the yen.

As for profits, although we achieved a high level of expense reduction through our concerted Group-wide effort, operating profit dropped by 88.3% due to decreased sales.

Please turn to slide five. I will compare our first quarter net sales and the operating profit with our result in the same period last year in more detail.

Currency had a major negative impact on both net sales and the operating profit. As for changes in sales volume, the overall impact was negative due to the weak market environment and laser beam printer shipment adjustment. The impact on digital serial cameras and the LCD [panels], however, was positive.

As for the Other category, the negative figure under net sales represents price decline for mainly digital cameras. The negative figure under operating profit represents the price decline, caused an increase of JPY20 billion due to the significant drop in production volume, as well as our efforts to minimize the impact of these factors through aggressive expense reduction.

Please refer to slide six. Under Improved Management Quality, we were able to cut a substantial JPY50 billion in quality expenses, while also actively investing in strategic areas, such as R&D and sales expansion, by furthering effort in the area of selection and focus.

As for inventory, we are able to guide [channel] inventory lower. In addition, we significantly reduced our own inventory by about [JPY82 billion]. Despite this however, inventory turnover in days exceeded the level at the end of March 2008 and December 2008.

Going forward, we aim to further improve our ability to respond to changes in our environment through such means as a strengthening supply chain management.

Please turn to slide seven. Looking at our full-year projections for 2009, this slide shows our exchange rate assumptions, and the projected impact that a JPY1 change in today's rates would have on projected net sales and operating profit for the remaining three quarters.

Please turn to slide eight. This slide highlights some key points regarding our current projections for the full year. As you can see, we expect the difficult environment to continue. Given the severe environment and the expected drop in volumes, particularly for office product, due to weak demand, we are projecting lower sales and profit for the full year.

Under this situation, however, we will continue to deepen and to enhance our activities in the Improved Management Quality. Through this, we expect to achieve expense savings of JPY172 billion for the full year, which is JPY60 billion more than previously projected.

In addition, we aim to launch competitive new products in a timely manner, while maintaining inventory at appropriate levels. Despite severe environment, through Improved Management Quality, we aim to secure over JPY100 billion in net income for the full year, which exceeds our previous projection.

Please refer to slide nine. Let's turn now to the P&L. In 2009, while we do not expect a full-scale economic recovery, we do expect the situation in the second half of the -- second half to improve somewhat. As such, we project full-year net sales and operating profit decreases of 18.7% and 63.7% respectively.

Please turn to slide 10. I will now compare our current projections for the full year net sales and operating profit with our previous forecast. Compared with our previous projections, currency is expected to have a significantly positive impact on net sales and the operating profit.

As for changes in sales volumes, due to weaker than expected demand for Office Imaging Products, we do not expect to meet our previous projection. In the Computer Peripherals segment, due to weaker than expected demand and further reduction in general inventory for laser beam printers, we expect to miss our previous projection by a large amount.

Within Optical and Other Products, we also expect to miss our previous projection for IC steppers by a large amount, due to the severe market environment.

As for Others, the positive figure under net sales represents efforts to limit price decline.

The positive figure under operating profit represent the limited price decline and a [JPY92.1 billion] increase in projected expense savings that offsets lower than expected cost reduction now of [JPY47 billion], due to the reduction in production volume.

Please turn to slide 11. I will now discuss our first quarter result and the full year projections by product group, starting with Business Machines. First quarter, net sales and operating profit decreased 34.7% and 63.8% respectively. This reflects the significant impact of currency and the drop in sales of copying machines and laser beam printers, amid weaker than expected market conditions.

For the full year, we project that net sales and operating profit will decrease 19.1% and 46.1% respectively. This is due to decreased sales of copying machines and laser beam printers, as well as the significant appreciation of the yen.

Please refer to slide 12. Next I will discuss sales of Business Machines by product starting with Office Imaging Products. In the first quarter, the copying machine market remained weak in developed countries. Demand for (inaudible) and non-hardware was significantly below our expectations as user chose to extend the life of their hardware and limit usage in the face of the financial crisis and the weak economic environment.

Admit these conditions, first quarter sales of Office Imaging Products decreased 31.3%, due to low sales of both color and monochrome copiers, mainly mid to high range models and also low sales of consumables.

For the full year, we expect the severe market conditions to continue. Amid this situation, we aim to expand our market share by launching a new generation of both color and monochrome office copying machines that will contribute to repairing replacement to demand after the economic recovery. These machines will offer higher serviceability, network capability under improved performance.

In North America, we are on track with plan to expand our direct sales workforce and our dealer network. We are also working to strengthen our position in the print-on-demand market. In this segment, we launch a new monochrome product, [RUNNER], in March.

Furthermore, we are planning to introduce new models in the light production market, which, in time, will boost not only sales of hardware, but also consumables. Although various measures for future growth are being taken, we are projecting a decrease in net sales for Office Imaging Products for the full year of 18.6%. This is due to the continued weak economy and the significant impact of the yen's appreciation.

Please turn to slide 13. Now let's turn to Computer Peripherals, starting with laser beam printers. Despite a stable installed base, the market environment for laser beam printer has -- wasn't as user's strived to hold down expenses by extending the life of printer hardware.

The credit crunch is also having a negative impact on the purchasing power of dealers. We now expect the laser beam printer market to shrink by about 20% in terms of units, which is significantly worse than previously projected.

Amid this situation, first quarter unit sales decreased 75% and the net sales decreased 41.9% as we also took active steps to reduce general inventory.

As for full-year, we expect unit sales to decrease 45% due to weaker demand and ongoing efforts to reduce general inventory. For the same reasons, along with the appreciation of the yen, we expect full-year net sales to decrease 25.5%.

Although we are projecting a significant drop in full-year net sales, in our view, this year represents the bottom and we expect market conditions will gradually improve. When the market does recover, we aim to take quick steps to return to growth, as we actively deploy and expand our product line-up of color models and MFPs.

Turning to inkjet printers, we estimate that the global market has shrunk by about 20% in the first quarter. Within this market, our unit sales declined only 7%, mainly due to expanded sales in the US market. First quarter net sales, however, decreased 26.6%, due to lower unit sales and the yen's significant appreciation.

For the full year, we expect the market will continue to contract. Amid this situation, we aim to steadily increase our inkjet market share, as we did in the first quarter, through the launch of competitive new products.

As for sales of consumables, we projected double-digit growth on a local currency basis based on steady sales of hardware, higher sales to customers that tend to print more, as well as price increases on selected products in overseas markets. As a result, net sales of inkjet printers overall are projected to increase about 5% in local currency, but decreased 5% in [yen's] terms.

Please turn to slide 14. Now let's look at the Cameras segment. In the first quarter, we realized an early launch of new compact cameras on a global basis and the increase in sales of digital serial camera. First quarter, net sales, however, decreased 24.4%, mainly due to lower unit sales of compact cameras and the yen's appreciation.

Although operating profit decreased 82.9%, we are able to secure an operating profit ratio of 4.7%.

For the full year, we will strive to maintain unit sales and our price premium through the timely launch of distinctive products that address increasingly diverse user needs. However, we project a 13.3% decrease in net sales, mainly due to the significant impact of the yen's appreciation.

Although full-year profit is projected to decrease 58%, we will strive to improve our operating profit ratio through an improved product mix, cost reductions, and measures to thoroughly reduce expenses.

Please refer to slide 15. Next, I will discuss digital cameras in more detail. In the first quarter, the overall digital camera market was relatively. Although we saw lower demand for compact models due to the weak economy, the accumulation of market inventory and price erosion that we originally feared was not as severe as we had expected.

Amid these conditions, we launched new compact models that leveraged the capability of our DIGIC 4 image processor, introducing Smart AUTO function that has been well received by the market. As for SLR cameras, despite the harsh business climate, unit sales increased thanks to strong sales of our new [ELPH] advanced [Hamochi] models.

First quarter net sales for the segment overall, however, decreased 22.1%, reflecting lower unit sales of compact digital cameras and the appreciation of the yen.

For the full year, we project that the global digital camera market will remain unchanged. We still expect the market will contract by about 7% to about 114 million units. This figure includes our projection that unit sales of SLR cameras will increase by 1% to 9.4 million units.

Within this market, we aim to launch new compact models in a timely manner that cater to increasingly diverse user needs.

As for SLR cameras, we aim to be number one in the all categories, starting with our new [ELPH] model that went on sale in April and incorporates a high definition movie feature.

For the full year, while we maintain our original sales projection of 23.9 million units, which includes 3.9 million SLR cameras, we expect net sales to decline by 9.4% due to the yen appreciation.

Please turn to slide 16. Turning to Optical and Other Products, despite increased sales of (inaudible), first quarter net sales decreased 27.8% due to the significant impact of lower unit sales of IC steppers. First quarter, operating profit was minus JPY11.3 billion, due to the steep drop in sales.

For the full year, we project 30% decrease in net sales as we expect the semiconductor market to remain weak. Despite efforts to reduce costs and expenses, we expect full-year operating profit to be minus JPY27.4 billion because of the large drop in net sales.

Please refer to slide 17. I will now discuss semiconductor production equipment in more detail. For the year, we expect the IC stepper market to be less than 90 units, due to the poor performance of semiconductor device manufacturers amid the global recession.

Amid this situation, unit sales in the first quarter totaled 4, and we lowered our full-year sales projection to be 10 units.

As for the LCD [arena] market, in view of the fact that panel pricing conditions remain severe and the major manufacturers have reported negative profit for the first quarter, we expect the market to be about half the size it was in 2008, which was about 120 units.

Amid these market conditions, first quarter unit sales totaled 14, an increase of 8 units compared with the same period last year, due to the shift of some sales from last year.

For the full year, we expect to main our overwhelming number one market position. In the face of these harsh market conditions, we are projecting unit sales of 38, 3 units less than our previous projection.

Net sales for the first quarter decreased 45.9%, and are projected to decrease 55.2% for the full year.

Please turn to slide 18. Finally, I will discuss our financial situation. As for capital expenditure, we are planning to reduce spending to JPY290 billion, which is below depreciation, while still investing in strategic areas, such as fully automated cartridge production lines.

Free cash flow is projected to be JPY100 billion due to the severe environment and the lower net income, amid internal reports to remit capital expenditure and reduce inventory.

Please turn to slide 19. We expect cash-on-hand at the end of the year to be JPY630 billion, which is equivalent to around two months of full-year net sales.

Regarding our dividend for 2009, before providing our projection, we would like to take a little bit more time to ascertain not only our performance this year but also the trends we can expect next year.

This year, we plan to [raise] groundwork that will allow us to burst ahead of the competition when the economy recovers, focusing on improved management quality and leveraging our sound financial constitution.

This ends my presentation.