Canon Inc (CAJ) 2011 Q4 法說會逐字稿

Okay. Thank you very much. Good morning or good afternoon, ladies and gentlemen, and welcome to Canon's conference call.

Please refer to today's slide and note that all financial comparison made during my presentation will be on a year-on-year basis, unless otherwise stated.

Please refer to slide two. This is today's agenda. Please turn to slide three. 2011 was very challenging for Canon. Although the global economy continued to gradually recover, thanks to emerging market, we faced numerous challenges such as earthquakes, the economic troubles in Europe, the yen's rapid appreciation and the Thai flood.

Generally speaking, our market remained strong. We did, however, see sign of a slowdown in Europe and other regions. Within this challenging environment, full-year net sales decreased. Despite this, we raised our gross profit and operating profit ratios. Major factors for this achievement include further effort to reduce costs and expense efficiencies. As a result, despite the natural disasters and the yen's rapid appreciation, we achieved our second consecutive year of net income growth.

Please refer to slide four. Fourth-quarter net sales decreased 9.7%, due to the yen's rapid appreciation and the Thai flood. Operating profit, however, increased 14.2%, thanks to a 1.5 point improvement in our gross profit ratio and expense efficiency.

For the full year, despite prompt measures to minimize the impact of the natural disasters, net sales and operating profit decreased 4% and 2.4%, respectively, reflecting the yen's rapid appreciation. Net income, however, increased 0.8%.

Please turn to slide five. I will now discuss the disasters in more detail. The total impact on net sales and operating profit was JPY236.8b and JPY127.5b, respectively. When we exclude this impact, our results show an increase of 2.4% in net sales and operating profit growth exceeding 30%. This shows enhanced product competitiveness and significant progress made in cost reduction.

Please refer to slide six. I will now compare our full-year result with our previous projections. Regarding sales volumes in our Office business unit, we accelerated production recovery after the earthquake, and made progress in resolving back orders. Despite this, we didn't achieve our target for copiers due to the economic slowdown, particularly in Europe. We didn't achieve our target for other printing devices, as well. This reflects movement to reduce channel inventories amid concerns over economic conditions, particularly in Europe.

In our Consumer business unit, [main] factor for not achieving our target was slightly lower than projected unit sales of compact cameras. Additionally, although we achieved our target for SLR cameras, the contribution to our performance was limited as we gave priority to entry models, due to particularly strong demand amid limited production capacity. This also had a negative impact on sales of mid-range interchangeable lenses.

As for Industry and Others business unit, the major factor for this negative figure is a shift of some sales into 2012 due to acceptance delays. Regarding the Others category, the positive figure under net sales represent limited price declines. The positive figures under operating profit reflect this and the expense efficiencies. As for cost reduction, this was basically in line with our projections, amounting to JPY88.3b.

Please turn to slide seven. I will now talk a little bit more about the cost reduction activities. This slide shows the correlation between our production reform activities, gross profit ratios and the foreign exchange rates since 1986. You can see how the enhancement of production technologies has contributed to significant cost reductions.

Despite sales growth through globalization since 1985 Plaza Accord, the yen's appreciation has been a constant burden for Canon's operations. In the 1990s, we started production reform activities. Through this, we realized a step-up in profitability until around 2008. However, there was still a high correlation between our profitability and changes in exchange rate.

Through accelerated production reform advancement in such areas as automation and in-house production and the progression from cell to man-machine cell production since 2009, we realized improvement in profitability despite yen's rapid appreciation. 2011 was particularly noteworthy, because we overcome not only the impact of exchange rate but also the disasters to realize improved profitability. Our structure has improved to a point where we are able to absorb the impact of exchange rate.

Please refer to slide eight. I will now discuss our 2012 projection. This slide shows our assumptions for exchange rate and JPY1 change impact.

Please turn to slide nine. This slide highlights key points regarding our projection. As for the economy, in emerging markets we expect the growth to continue but at a slightly slower pace. In developed countries, due to structure related factors, we feel it will take some time to see a recovery, particularly in the Eurozone. Overall, we cannot count on significant global economic growth in 2012. As for the exchange rate environment, we reluctantly expect it to remain severe.

To return to a path of growth within this severe environment, we will further accelerate the launch of attractive new product and services. This includes broadening new business areas through such products as the Cinema EOS systems and DreamLabo, and expanding our Solution business centered on the imageRUNNER ADVANCE series.

We will also work to thoroughly reinforce our global sales strength. In addition to bolstering our sales networks in Asia, in developed countries, we will work to accelerate measures aimed at expanding our Solution business from a broader perspective which encompasses not only documents but photo imaging and medical areas, as well.

Through this effort, we'll work to firmly achieve our target of net sales and profit growth, exceeding the 3.3% growth in global GDP projected by the IMF. As the same time, we will also work to build a solid foundation that will support effort to achieve our 2015 target.

Please refer to slide 10. This slide shows our projected full-year performance. Despite the severe external environment, we aim to achieve these figures at the very least by thoroughly executing the strategies I just mentioned.

Please turn to slide 11. I will now compare our full-year projection with our result of last year. Changes in exchange rate are projected to have a major negative impact. As for change in sales volumes, all businesses are projected to benefit significantly from the accelerated launch of new product and services.

In the other categories, the negative figures under net sales represent JPY110b in price declines due to the aggressive promotion of sales expansion. The negative figures under operating profit represent price declines and increased expenses to expand sales and strengthen our sales structure. As for effort to reduce costs, we included JPY100b.

Please refer to slide 12. I will now discuss each business unit, starting with Office. In 2011, the copier market continued to gradually recover in developed countries. In emerging markets, we saw continued strong market expansion, particularly in Asia. Although we are impacted by an economic slowdown in Europe near the end of the year, we recovered from shipment delays caused by the earthquake and achieved a fourth-quarter unit sales growth.

Sales of color models were particularly strong, growing 14%. As for consumable sales, despite steady print volumes, sales decreased 2% on a local currency basis due to lower pricing. As a result, fourth-quarter net sales of copier increased 4% on a local-currency basis, but decreased 0.9% in yen terms. For the full year, net sales of copiers were basically flat on a local currency basis, but down 4.7% in yen terms.

In 2011, the laser printer market continued to steadily expand, despite instability in Europe and thanks to emerging markets. Amid this market environment, we posted full-year unit sales growth of 8%, exceeding our projections. As for consumable sales, despite movement to reduce channel inventories due to business concerns, particularly in Europe, actual demand remained steady and we posted a 4% annual increase on a local currency basis. As a result, full-year net sales of other printing devices were flat on a local currency basis, but decreased 7.4% in yen terms.

For the Office business unit as a whole, net sales decreased 9.3% in the fourth quarter and decreased 3.5% for the full year. Fourth-quarter operating profit grew 12.2%, reflecting increased effort to reduce costs. This profit increase was our first in five quarters. For the full year, however, due to the yen's appreciation and the earthquake, profit declined 11.6%. However, as you can see on this slide, profitability has been steadily improving.

Please turn to slide 13. In 2012, we expect the copier market to continue gradual recovery in developed countries. In emerging markets, we expect continued high growth amid a rise in office related investment pushed by economic expansion. On top of this, we also forecast further progress in the global adoption of color equipment.

Within this environment, we'll grow our proprietary cloud service Canon Business Imaging Online with our highly competitive imageRUNNER ADVANCE series at the core, strengthen our cooperation with leading IT vendors and expand our customer space. Through these measures, we will secure [straight] sales expansion to facilitate our aim of recovering market shares in developed countries.

In the commercial printing arena, we will make use of synergies with Oce to further our presence. We will also enhance our sales structure through such measures as expanding our sales and service workforce. Through these measures, we aim to post unit sales growth that exceeds market and increase the number of machines in the field to support future profit expansion.

Through these measures, we project 2012 copier sales to grow 4.5%. As for laser printers, we expect steady market expansion over the medium term, mainly due to continued demand in emerging market. However, in 2012, especially in the first half of the year, we expect the market to slow down, particularly in Europe. We also expect the channel inventory adjustment to continue. In this environment, we will work to improve market share and profitability, focusing on expanding sales of higher-usage printers.

Through these measures, we project full-year unit sales to increase slightly. As for consumable sales, we only expect a slight increase on a local currency basis, despite steady actual demand.

Net sales of other printing devices overall are projected to increase 1.7% on a local currency basis but fall 3.9% in yen terms. As a result, net sales for the Office business unit are projected to increase 0.3%. Operating profit, however, is projected to decline 12.6%, reflecting an increase in operating expenses aimed at enhancing our sales structure.

Please refer to slide 14. I will now discuss Consumer, starting with cameras. Despite the impact of the earthquake and the Thai flood, the SLR cameras market grew by 23% to 16m units. The compact cameras market, however, shrank by about 5% to 105m units, due to the natural disasters.

In this environment, we couldn't avoid a decrease in production due to the shortage of parts caused by the Thai flood in the fourth quarter. By taking swift action to minimize the impact, however, we achieved our full-year sale -- our camera sales target of 7.2m units. As for compact cameras, unit sales were 18.7m units, basically in line with our target. Regarding global market share, we believe we achieved the number one position for digital camera overall.

In summary, fourth-quarter net sales of camera declined 8.5%. Full-year net sales, however, increased 1% on a local currency basis but declined 4.6% in yen terms.

I will next discuss inkjet printers. The inkjet printers market was basically flat for the year, as continued strong growth in emerging markets was offset by a slowdown in developed countries. Amid this environment, we posted lower unit sales for the quarter, reflecting flood effect. For the full year, however, unit sales were up 2%.

As for consumable sales, we posted positive local currency growth in both the fourth quarter and for the full year. The actual demand remained strong. Despite this, fourth-quarter and full-year inkjet printer sales decreased 12.1% and 7%, respectively, reflecting flood effect and the yen appreciation.

In summary, due to the limited supply of parts caused by the natural disasters and the yen's rapid appreciation, we posted lower Consumer business unit net sales and profit in both the fourth quarter and for the full year.

Please turn to slide 15. In 2012, we expect the SLR cameras market to grow by 25% to reach 20m unit, thanks to expansion in all regions. As for compact cameras, we expect the market to grow by around 8% to reach 113m units, reflecting expansion primarily in emerging markets.

Amid this environment, we will work to launch attractive new products, accelerating product differentiation through the harmonization of proprietary key components, while at the same time leveraging our optical technologies to promote product advancement. As a result, we project SLR camera sales to increase 27% to 9.2m units, and compact camera sales to increase 17% to 22m units.

At the end of last year, we announced our plan to enter the movie industry with our Cinema EOS system. Available from the end of this month, the system has already earned accolade in the market. This new business (inaudible) is representative of our effort to expand our business. As a result, full-year net sales of cameras are projected to increase 17.2%, despite the yen's appreciation.

Next I will discuss inkjet printers. We expect the market to be flat amid concerns for an economic slowdown in developed countries, particularly in Europe. As for Canon, although we expect some impact of Thai flood at the beginning of this year, production of all models will start by the middle of February. Once production is normalized, we will work to expand sales to achieve our full-year target of 1% unit sales growth.

As for consumables, we expect the steady actual demand to continue. Going forward, we will also expand sales of our DreamLabo, which targets business expansion in the retail photo market.

Through these measures, despite our plan to steadily recover from the impact of Thai flood and to expand sales, full-year net sales are projected to decrease 4.6% due to the yen's appreciation. Full-year net sales for the Consumer business unit, however, are projected to increase 10.9% despite the yen's appreciation, mainly driven by growing sales of cameras.

As for operating profit, thanks to expanding sales of SLR cameras and the interchangeable ranges, as well as expected cost reductions due to improved productivity, we expect profit to increase 23.5%.

Please refer to slide 16. Next I will discuss Industry and Others. In the fourth quarter, IC Stepper sales were 22 units, reflecting bullish demand for our i-line and KrF2s, driven by strong demand for smartphones and tablet PCs. Demand for our i-line equipment was particularly strong, with sales of 52 units. This reflects strong demand for CMOS and CCD sensors and such products as power supply controller ICs used in hybrid vehicles.

As for LCD aligners, the market was negatively impacted by large panel investment in 2010. As a result, fourth-quarter unit sales of 25 units were significantly below those of Russia's. As a result, net sales of lithography equipment declined 17.8% due to lower LCD aligner unit sales. Operating profit, however, returned to the black the first time in four years, thanks to structural reform.

As for the sales of Group companies, in the fourth quarter we posted negative growth due to the delay of delivery schedule. For the full year, however, Group sales increased thanks to medical equipment and the significant growth in the sales of Toki OLED panels manufacturing equipment.

As a result, net sales for the Industry and Others business unit decreased 13.6% in the fourth quarter and 2.8% for the full year. As for profit, we were JPY24.3b in the black due to the lack of restructuring expenses.

Please turn to slide 17. In 2012, we expect the IC Stepper market to shrink to around 1,250 units, as demand for ArF and KrF2s used in DRAM manufacturing is projected to decline. For i-line equipment, however, we expect the market to remain strong due to the same factors in 2011. Accordingly, we expect our IC Stepper sales to grow to 94 units.

As for LCD aligners, we expect the market to be around 70 units given our outlook for panel manufacturers' investment to remain weak. As a result, we expect our LCD aligner sales to be 20 units.

For Group Companies, we expect to see sales expansion to come from recently acquired companies such as Elk and Showa Information Systems, as well as from strong demand for OLED panels manufacturing equipment and so on.

In summary, we expect the net sales and operating profit for our Industry and Others business unit to increase 8.5% and decrease 7.4%, respectively.

Please refer to slide 18. Finally, I will discuss our financial situation. At the end of December, inventory turnover was 46 days. This represents effort to optimize inventory levels held by sales companies. Going forward, we will promote further optimizations of inventory levels from the standpoint of preventing lost sales opportunities and responding flexibility to emergency situations.

Please turn to slide 19. This slide highlights capital expenditure and free cash flow. As for capital expenditure, although we have aggressive plans mainly to invest in production capacity expansion in response to medium-term growth, we will also promote more thorough cash flow management and maintain our financial strength, projecting cash on hand at the end of 2012 to be JPY770b.

Please refer to slide 20. Despite JPY100b in share buyback, cash on hand at the end of 2011 was JPY773.2b, equivalent to 2.5 months of net sales. Even within the severe business environment, Canon maintained its solid financial structure.

As for our dividend, Canon works to provide stable and active profit returns to shareholders, mainly in the form of dividend, taking into consideration the medium-term profit forecast along with planned future investment, cash flows and other factors. In 2011, thanks to comprehensive cash flow management, the Company generated (inaudible) cash on hand despite the yen's appreciation and the natural disasters.

Reflecting this situation, Canon announced a plan to distribute a yearend dividend of JPY60 per share. Based on this, our full-year dividend will be JPY120 per share, which is the same amount we distributed last year. At this point in time, we haven't decided our plan for the dividend in 2012.

This year as well, despite the severe business environment that we project, we will achieve net sales and profit growth and steadily execute measures aimed at building a solid foundation from which we will again return to a path of growth, accelerating the momentum toward achieving our 2015 target set out in our Excellent Global Corporation Plan, Phase IV.

This concludes my presentation. Thank you very much.