Canon Inc (CAJ) 2010 Q3 法說會逐字稿

Good morning or good afternoon, ladies and gentlemen, and welcome to Canon's conference call. Please refer to the slide we prepared for today's conference calls, and note that all financial comparisons made during my presentations will be on a year-on-year basis unless otherwise stated.

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

Please turn to slide three. In the third quarter, although we saw differing rate by regions, the global economies continue to gradually recover. Conditions also remained healthy in our market. The business environment, however, was more challenging compared with the second quarter, due to further yen's appreciation.

Under these circumstances, we achieved net sales growth of near 20% thanks to our enhanced product lineup. As for operating profit, we posted our third consecutive quarter of double-digit growth profitability. This reflects an improvement in productivity due to increased production volumes, further cost reductions and results from improved management quality activities.

Despite tougher exchange rate environment, we continued to post net sales growth and high profitability in line with the first half. We believe they're a great result in a year we view as a first in a new era of growth.

Please refer to slide four. Third quarter's net sales increased 17.9% thanks to strong sales of SLR cameras and laser printers, and a turnaround in Industry and Others, and the effect on newly consolidated companies. Third quarter's gross profit increased 27.9%. Despite further yen's appreciation, we maintained a gross profit ratio of 48.9%, which is in line with our first half performance.

This reflects an improvement in productivity and further cost reductions. Thanks to the improvement in gross profit, third quarter's operating profit was 1.7 times higher than the same period last year, and our operating profit ratio improved by 3.7 points to 11.4%. Our performance year to date shows that, amid an increasingly difficult exchange rate environment, we continued to post net sales growth and high profitability.

Please turn to slide five. Despite recent achievements, when you compare our performance with our record result of 2007, you see that we are only halfway there. On top of this, we face a tougher exchange rate environment. To achieve our goal of realizing results in 2012 that's exceeding our record performance of 2007, we remain focused on achieving steady progress.

Please refer to slide six. On this slide I compared third quarter's net sales and operating profit with those of last year's. As for changes in sales variance, the impact was positive on both net sales and operating profit, and exceeded the negative impact of changes in exchange rate.

In the Others category, despite consumer product price declines and the increase in advertising and sales promotional expenses, through continued effort targeting production reforms and higher production volumes, we achieved JPY48 billion in cost reductions.

Traditionally, even in years of strong performance, we generate just enough cost reduction to cover price declines; this year we are able to cover expense increase as well. We believe our profitability has been enhanced through improvement in productivity due to increased production volumes and price maintenance resulting from production differentiations.

Please turn to slide seven. This slide shows expense and inventory trend. It also reflects how ongoing measures, made at improving management quality, have contributed over the last years.

In the third quarter, we maintained the same levels of expense to sales ratios, despite increase in advertising and promotional expenses, and the impact of newly consolidated companies. This was achieved through comprehensive effort to realize further efficiencies.

As for inventory, although we maintain appropriate levels through continued effort to make full use of IT in supply chain management, we aim to reduce inventory turnover in this to a point that exceeds our historical low of 39 by the end of this year.

Please refer to slide eight. I will now discuss our 2010 projections. This slide shows our exchange rate assumptions, and the projected impact that the JPY1 change in the exchange rate would have on fourth quarter's net sales and operating profit.

Please turn to slide nine. This slide highlights some key points regarding our 2010 projections. In the fourth quarter, although we expect the world economy to continue its path of gradual recovery, the situation is still unclear, especially for developed countries.

Please refer to slide 10. According to an IMF report released on October 6, the world economy is projected to grow at the rate of 4.8% in 2010 but be slower in the fourth quarter.

Please turn to slide 11. Under these circumstances, with our further enhanced product lineup we achieved unit sales growth that exceeds market trend. We also promote further cost reductions and expense efficiencies.

In these areas we are currently accelerating efficiencies in all Group-wide processes. For example, through business process and IT reforms we have shortened development and manufacturing lead times. This has allowed us to launch new products in a more timely manner. We will take full advantage of the benefit.

As a result, we expect to overcome further yen appreciation, posting net sales and profit growth of all businesses to achieve JPY390 billion in operating profit, and secure our first full year's double-digit operating profit ratios in two years.

Please refer to slide 12. This slide summarizes our current projection for fiscal year 2010. As for net sales, we roll out our projection to reflect yen's appreciation that exceeds our previous forecast. From a profit perspective, however, we raised our projection for operating profit to JPY390 billion.

Please turn to slide 13. I will now compare our current projection for three years' net sales and operating profit with our previous forecast. Changes in exchange rate assumption had a negative impact on projected net sales. Sales volumes, however, have been better than expected and we now expect to exceed our previous projection for all business units.

Within our Consumer business unit we expect especially strong sales of SLR cameras and the interchangeable lenses to lead to improve profit. As for operating profit, we expect additional cost savings from all business segments totaling JPY50 billion, compared to our previous projection, to contribute to profitability. In summary, although we lowered our projection for net sales due to yen's appreciation, we raised our projection for operating profit.

As for our fourth quarter performance, we expect the pace of recovery to slow, particularly in developed countries. This doesn't reflect any changes in product competitiveness or earning power essentially derived from production efficiencies.

Please turn to side 14. I will now discuss our third quarter result and the current three years' projection by business unit, starting with our Office business unit.

Third quarter's net sales for the Office business unit increased 25.6%, reflecting copier share expansions and a steady recovery in laser printer market shares. Third quarter's operating profit increased 30.3% due to expanded sales of laser printer consumables in particular, and the continued measures of production reforms. Please note that from the second quarter, our result includes the effects of our new consolidation. Figures excluding this effect are also shown on this slide.

For the full year, business unit net sales and operating profit are projected to increase 20.6% and 27.7% respectively. This reflects expanding sales of our further enhanced copier lineups and laser printer market share gain. This also reflects the effort to improve productivity through the reinforcement of production systems.

Please turn to side 15. I will now discuss Office business unit net sales by product, starting with copiers. In the third quarter, amid the recovery in demand in each region, we achieved 28% unit sales growth. Within this, color copier unit sales increased 38%, reflecting market expansion and the expanded sales of imageRUNNER ADVANCE series.

From this quarter, we also started cross selling with Oce. Going forward, we will steadily advance our co-operation and build on our achievements. In total, third quarter net sales of copiers increased 3.3%. Excluding the significant falling exchange impact, third quarter net sales of copiers increased 13.2%.

For the remainder of the year, we expect the office copiers market to continue its path of gradual recovery. Within this market, we aim to increase our market share through our enhanced imageRUNNER ADVANCE product lineup, while, at the same time, expanding future consumable profit through an enlarged installed base.

In the production printing market we will also work to expand our share by launching new products and furthering our co-operation with Oce. We also aim to increase sales through alliance with Hewlett Packard and Fujitsu. Through these medias, we predict three years' net sales of copier to increase 1.5%.

Please refer to slide 16. Next slide, we'll discuss other printing devices, focusing on laser printers. In the third quarter, the laser printers market remained strong. In this market, our unit sales were 1.6 times higher than the same period of last year.

During the quarter, we also saw a steady recovery in our market shares. Consumable sales were also very strong, growing 17% on the local currency basis. In total, third quarter net sales of other printing devices increased 13.5%.

For the full year, we expect the laser printer market to grow at a pace of around 15%. This is higher than other previous projections, mainly reflecting trend in emerging markets.

In the fourth quarter of 2010, we expect sales to remain strong, exceeding third quarter result. Accordingly, we project full-year unit sales to increase 64%, compared with last year's, when our sales shrank more than the market.

Based on what I have just said, we expect three year net sales of other printing devices to increase 10.9%.

Please refer to slide 17. Next, I will discuss our Consumer business unit. In the third quarter, we continued to see strong momentum in consumer related market. Third quarter net sales for the Consumer business unit increased 3.3%. This reflects strong camera sales, particularly in Asia.

Excluding the foreign exchange impact, third quarter net sales for the Consumer business unit increased a double-digit 14%.

Third quarter's operating profit increased 14%. This was due to expanded sales of product with high profitability, such as SLR cameras, interchangeable lenses, and the inkjet printer consumables.

For the full year, targeting the year-end selling season, we'll mainly focus on increasing sales of competitive new products and the further unit sales expansion.

Facing severe competition in the year-end selling season, we'll also increase expenses, to promote sales, through an improved product mix. However, we expect to raise our full-year operating profit ratios. As a result, three years' net sales and operating profit for our Consumer business unit are projected to increase by 6.9% and 33.5% respectively.

This represents the reverse of operating profit and operating profit ratio that preceded, (inaudible), and exceeding our 2008 result.

Please turn to slide 18. Next, I will discuss the Consumer business unit by product, starting with cameras. In the third quarter, the camera market remained strong, for SLR models globally, and solid for compact models.

In this market, despite significant yen appreciation, third quarter's net sales of cameras increased 7%. Third quarter sales of SLR cameras were particularly strong as we established a new record for monthly unit sales in September.

In addition to releasing a new model, we saw stronger than expected demand for our 5D Mark II and then entry models, released earlier this year. And for interchangeable lenses, sales of new telephoto lenses targeting professional photographers released in the first half of this year, contributed significantly to overall lens sales.

During the quarter, we also expanded sales of nine new compact models. For the full year, we now expect the SLR camera market to expand 23%, to 12.5 million units. Our projection for the compact camera market, to expand by 5%, to 110 million units, remains unchanged.

Under these conditions, we have raised our full-year's projection for SLR unit sales, by 200,000 to 5.7 million, representing growth of 29%.

As for compact cameras, our unit sales projection remains the same 7% growth, to 21 million units. As a result, full-year net sales of cameras are projected to increase 9%.

Please refer to slide 19. Next, I will discuss inkjet printers. The inkjet printers market continued its path of gradual recovery, which started from the fourth quarter of last year. Within this market, compared with the third quarter of last year when we led the market in returning to unit sales growth, third quarter unit sales were down 2%.

For the full year, however, we expect total unit sales to increase 3%, due to sales expansion of new [autumn] products. Although sales of consumables remained strong, third quarter's inkjet printer sales decreased 2.9%, due to significant impact of the yen's appreciation.

With our eyes on the year-end selling season, we completely changed the designs of 30 new products, as the MG6130. New features have also been added, such as full HD movie print, which enables a photo with high quality printing of full HD movies, taken with a Canon digital camera.

Highly appreciated by the market, since their launch in September, sales of our new product have been strong, evidenced by the exceptionally high market shares in Japan. Looking towards the year-end selling season, we'll work for further sales expansion of new products. As a result, full year net sales of inkjet printers are projected to increase 4.8%.

Please turn to slide 20. Next, I will discuss Industry and Others. Third quarter's net sales for the Industry and Other business unit increased 31.7%. This reflects a recovery in sales of the photography equipment and the independent business Group companies, amid improved market conditions.

For the same reasons, net sales of the independent business of Group companies are also projected to improve for the full year. As a result, three years' net sales for the business unit overall is projected to increase 19.6%. We also expect to reduce operating profit growth, by JPY74 billion.

Please refer to slide 21. Next, I'll focus on lithography equipment. As for IC steppers, we expect the market to recover this year, to a level of about 20 -- 250 units, due to bullish IT investment by mainly Asia-based memory manufacturers.

In this market, we sold 10 units in the third quarter and now project unit sales of 28, for the full year. As for LCD aligners, we expect the market, in terms of units, to be around 110 units, which is basically the same as our previous projections.

In this market, we sold 16 units in the third quarter. For the full year, we expect unit sales to be 57, which is lower than our previous projection, due a shift in acceptance timing. As a result, net sales of lithography equipment were about double in the third quarter, and are projected to increase 39.4% for the full year.

Please refer to slide 22. Finally, I will discuss our financial situation, starting with capital expenditure. Going forward, we work to maintain our financial health, through such measures as profitability improvement, investment efficiencies, and the same advancement to reduce inventory.

Please turn to slide 23. This slide shows our projection for cash-on-hand at the end of this year. This year is a final year for our current third five-year plan, and we will make best effort to achieve the projection that I just explained so that it provides a momentum towards the next five-year plan, starting from next year.

This concludes my presentation. Thank you very much for your kind attention.