Canon Inc (CAJ) 2012 Q1 法說會逐字稿

Good morning or good afternoon, ladies and gentlemen. And welcome to Canon's conference call.

Please refer to today's slides and note that all the financial comparisons 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. In the first quarter, the global economy saw only a gradual recovery. In addition to continuing weakness in Europe, we also saw sign of decelerations in emerging markets.

As for exchange rate, although the yen moved away from its excessive appreciations, it remained strong against the US dollars and the euro.

In addition to the challenging business environment, we faced some effects of last year's Thai flood. Under these situations, despite posting a slight decrease in the sales, we recorded our third consecutive quarter of operating profit and net income growth through cost reductions and comprehensive effort to streamline expenses.

Please refer to slide four. This slide summarizes our first quarter's performance. As for net sales, we posted a slight decline of 1.2% thanks to continued strong sales of SLR Cameras and the Color Copiers.

As for gross profit, although we made steady progress in cost reductions, gross profit as a percentage of net sales declined 1.3 points due to such factors as a rise in oil prices and changes in product mix.

As for operating profit, we secured a slight increase of 0.2%, reflecting progress we made in streamlining expenses.

Net income increased 11.0% due to a gain on foreign currency denominated assets and other factors.

Taking into considerations our strong performance prior to last year's earthquake and this year's challenging business environment, our abilities to maintain profit growth can be attributed to further improvement in our financial constitutions.

Please turn to slide five. I will now compare our first quarter's result with that of last year's in more detail. Changes in the exchange rate had a negative impact on both net sales and operating profit. As for changes in sales volumes, the impact was negative on Office, due to inventory adjustments of Other Printing Devices. For our other two business units, the impact was positive.

In the Other category, the negative figures on the net sales represent price decline. Positive figures on the operating profit represents the price declines offset by cost reductions and the comprehensive effort to streamline expenses. In this way, despite the slight decline in sales, we secured an increase in profit, observing the yen's appreciation.

Please turn to slide six. This slide shows our exchange rate assumptions and their estimated impact on projected net sales and operating profit for the remaining nine months of this year.

Please turn to slide seven. This slide highlights some key points regarding our revised projections. Although we feel the global economy may be sluggish, we still believe that the emerging markets will continue to drive overall expansion and that it will take considerable time before Europe realizes an economic recovery.

As for the United States, although there are signs that the worst is over and that things seem to be improving, we feel it will take time before the US economy can contribute to driving strong growth in the global economy.

In addition to the challenging market environment, we expect Japan's manufacturing industries to be exposed to prolonged yen appreciation. However, in such adversities, we work to further advance our manufacturing as a way to enhance our abilities to respond to rapidly changing market need through a swift start-up of production of attractive new products.

We also strive to enhance our production and sales structures, which will allow us to rapidly deliver these products around the world. We are firmly achieving on this target and build a foundation for future growth to achieve our target laid out in Phase IV of the Excellent Global Corporation Plan.

Please refer to slide eight. This slide summarizes our revised projection for the full year.

Please turn to slide nine. I will now compare our current projections with our previous forecast. Changes in the exchange rage assumption had a positive impact on projected net sales and operating profit.

As for projected changes in sales volumes in our Office business unit, the impact was negative after debut of our plan for Other Printing Devices.

As for Consumers, the impact was positive, reflecting in particular strong sales of higher-end cameras and inkjet printers.

The total impact on Industry and the Others was positive due to favorable sales of Group companies.

In the Others category, the negative figures under net sales represent the same JPY110b in price declines for [Memory], Copiers and the Cameras.

The negative figures on the operating profit reflect cost reductions totaling JPY90b, which exceed our results of last year's, but is lower than our previous projections due to impact of Thai flood and other factors. In total, we plan to significantly exceed our previous net sales and operating profit projections.

Please refer to slide 10. I will now discuss each business unit, starting with our Office business unit.

In the first quarter, the overall Copier market remained on the path of gradual recovery. However, we faced a challenging environment due to the economic slowdown in Europe.

In emerging markets, office-related products saw robust demand thanks to the economic growth. Amid this environment, we focused on promoting sales of our imageRunner Advance series, which led to an increase in unit sales.

Our performance in Color was particularly noteworthy as we achieved unit sales growth in all regions. As a result, net sales of Copiers increased 1.7% on a local currency basis. In yen terms, however, net sales decreased 1.8%.

As for Laser Printers, the overall market continued to see sluggish growth amid efforts to reduce inventories and due to the uncertain business climate, mainly in Europe. As a result, hardware unit sales decreased 13%, while net sales of Consumables decreased 9% on a local currency basis.

In total, first-quarter net sales of Other Printing Devices decreased 14.9%.

Looking at the entire business -- Office business unit, first-quarter net sales decreased 8.9%. Operating profit decreased 16.2%. And the operating profit ratio declined by 1 point.

Please refer to slide 11. Next I will discuss our full-year projection for this business unit. We expect the market for Copier to remain on the path of gradual recovery. Amid this market environment, we will further strengthen our product lineups and enhance our sales networks, boosting our cooperation with leading IT vendors and further accelerating synergies with [others].

In addition, we will comprehensively strengthen our abilities to provide both hardware and software solutions that address the new need of office environment, created by cloud-based computing and other advancements. Through these measures, we aim to recover the market share we lost last year due to supply constraint caused by the earthquake.

And for non-hardware products, for which demand remains stable, we plan on further accelerating sales growth for hardware products. And we expect net sales to increase 3% on a local currency basis. In total, net sales of Copiers are projected to increase 7.8%.

As for Laser Printers, we believe the market will need more time to recover from the slowdown caused by the uncertain business climate, particularly in Europe. Based on this outlook, we lowered our full-year projection for unit sales from flat to minus 4%. And our full-projection for Consumable sales from 1% growth to 2% decline on a local currency basis. In total, net sales of Other Printing Devices are projected to decrease 5.7%.

Despite our cautious outlook for this year, we still expect the global market for Laser Printers to grow over the medium term at a rate exceeding global economic expansion, driven by new demand in emerging markets and global trend toward the Color and Multifunction Devices. Canon will steadily work to improve profitability and market share in preparation for the eventual economic turnaround by launching and expanding sales of new products that support higher print volumes.

For the Office business unit, net sales and operating profit are projected to increase 1.1% and decrease 6.3% respectively.

Please refer to slide 12. Next, I will discuss our Consumer business unit, starting with the Camera segment. The market overall remained favorable, particularly for SLR cameras, reflecting growth in the emerging market. Amid this market environment, we achieved a nearly 30% increase in unit sales of SLR cameras, reflecting strong sales of our entry level models and strong demand for our recently launched camera targeting advanced amateur users.

We also continue to see robust sales for interchangeable lenses. We posted strong sales for new compact digital cameras lunched in March that incorporated WiFi connectivity capabilities. As a result, overall Cameras net sales increased 7%.

Next, I will discuss Ink Jet Printers. In the first quarter, the market shrank due to declining business confidence in Europe and supply constraint due to impact of Thai flood. In addition to the difficult market environment, our unit sales decreased 12%, reflecting the significant impact of supply constraint caused by the flood. We also posted a decline in net sales for Consumables. In total, net sales of Ink Jet Printers decreased 12.6%.

For the Consumer business unit, net sales and operating profit increased 4.8% and 17.1% respectively.

Please turn to slide 13. Next, I will discuss our full-year projection for the Camera segment. We expect a strong global demand for SLR cameras to continue, driven by such factors as an expanding user space and replacement demand.

Regarding our product portfolio, Canon offers a broad lineup of SLR Cameras to meet a wide range of market need. This year, we are updating our lineup with a particular focus on higher-end segment. We have already announced new advanced amateur and professional level cameras. We'll use our rich lineups to expand sales 27% to 9.2m units. At the same time, we'll also work to increase sales of interchangeable lenses.

As for compact cameras, we are aiming to boost sales by 17% to 22m units. To achieve this, we will further differentiate and enhance our lineup by launching new cameras offering image quality that approaches SLR cameras, furthering the improvement in design and quality and by incorporating features such as network connectivity capabilities.

In addition to the launch of differentiated new products, this high growth rate also reflects last year's supply constraint due to the earthquakes and Thai flood.

As for our Cinema EOS systems, which targets motion pictures and television production industries, we'll also expand sales by enhancing our product lineup.

In total, we expect net sales for the Camera segment to increase 23.1%.

Next, I will discuss our full-year projections for Ink Jet Printers. We expect the overall market to be on par with last year's in terms of units sold. Although we expect the impact of declining business confidence in Europe to continue, we are seeing favorable demand in Japan and increasing demand in emerging market due to economic growth. As such, we have seen strong sales. And our market shares have improved in high-end segment, thanks to the recoveries we realized in production.

We'll work to expand sales from the second quarter, launching new high-quality products with enhanced usability. As a result, we'll maintain our target of a 1% increase in unit sales for the full year.

As for Consumables, we expect the net sales to increase thanks to robust sales for mid- to high-end models.

With regard to the DreamLabo, which targets the business growth in the retail photo market, we started shipment this February. And going forward we will work to expand sales in each region. Through these measures we expect Ink Jet Printer sales overall to increase 2.8%.

In total, Consumer business unit net sales and operating profit are projected to increase 20.4% and 37.4% respectively.

Please refer to slide 14. Next, I will discuss Industry and Others. First quarter's IC Stepper sales increased from last year's 11 units to 13 units. This reflects favorable demands for i-line and the KrF equipment and met the strong demand for such products as smartphones and tablet PCs.

First-quarter unit sales of LCD aligners, however, were the same as last year's at five units.

Sales for Group companies increased due to (inaudible) equipment, new orders for equipment for electronic [process] manufacturing and recent acquisitions. In total, Industry and Other business unit net sales and operating profit increased 19.4% and decreased 39.5% respectively.

Please turn to slide 15. Next, I will discuss our full-year projections for this business unit. As for IC Steppers, we project sales to be 70 units. This reflects favorable demand for end products such as those used in ecofriendly automobiles, and the increasing demand for sensors, LED elements and the ICs for inverter-related products.

As for LCD aligners, we project sales to be 16 units. This reflects our outlook for weak investment by panel manufacturers amid the ongoing effort to reduce inventories and lower factory utilization rates.

We project sales by Group companies to increase due to contributions of Tokki and Anelva and the effect of newly reconsolidated companies.

In total, Industry and Other business unit net sales and operating profit are projected to increase 10.7% and decrease 44.9% respectively, and rather due to lower unit sales of LCD aligners.

Please turn to slide 16. Finally, I will discuss our financial conditions. At the end of March, inventory turnover was 56 days, which can be mainly attributed to an increase in inventories held by our sales companies as they work to expand sales.

Please refer to slide 17. This slide highlights capital expenditure and free cash flow. Going forward, we'll maintain our financial health, promoting more through cash flow management.

Please turn to slide 18. As a result, we expect cash on hand at the end of December to be JPY770b, an amount equal to 2.4 months of net sales.

Since last year, we have been steadily building up our result while coping with various situations, such as last year's earthquakes and the flood. Going forward, Canon Group, we work in concerted effort to firmly return to a path of growth and achieve the target laid out in Phase IV of the Excellent Global Corporation Plan.

This concludes my presentation. Thank you very much.