Canon Inc (CAJ) 2012 Q2 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 financial comparisons made during my presentation will be on a year-on-year basis unless otherwise stated.

Please refer to slide 2. This is today's agenda.

Please turn to slide 3. In the second quarter we noticed spread in the global economic slowdown. In Europe we saw economic stagnation. In the United States we saw only a gradual recovery. And in emerging markets, factors driving the economic expansion seem to have weakened.

As for exchange rate, although the trend of yen appreciation remains, the level of appreciation was significant against the euro. Despite the business environment, which became increasingly more challenging since our earnings announcement in April, we steadily expanded our market share for such core products as cameras and copiers, posting our first increase in net sales in three quarters.

At the same time, we maintained profitability by promptly responding to changes in the external environment through such measures as expense reductions. This allowed us to post our fourth consecutive increase in operating profit.

Please refer to slide 4. This slide summarizes our second quarter results. We achieved an increase in sales of 7.5% in yen terms, and an increase of 12.7% on a local currency basis. As for gross profit, while we fell short of the ratios we posted in the same period last year, we saw an improvement of 1.8 points on a sequential basis.

Operating profit increased 18.1% thanks to a 2 point improvement in our expense to sales ratio made possible by efforts to streamline expenses. As for the decrease in net income, this mainly reflects a lower effective tax rate last year due to the earthquakes and other factors.

Please turn to slide 5. I will now compare our second quarter results with our results of last year's in more detail. Changes in exchange rate had a negative impact on both net sales and operating profit. As for changes in sales volumes, the effect was positive compared with the second quarter last year's period which reflects the impact of the earthquake.

In the other categories, the negative figures under the net sales represent price declines. These negative figures under operating profit represent the price declines and the increases in expenses to expand sales. Through these efforts we achieved net sales and operating profit growth observing the impact of the yen's appreciation.

Please refer to slide 6. This slide shows our exchange rate assumptions and their estimated impact on projected net sales and operating profit for the remaining six months of this year.

Please turn to slide 7. This slide highlights some key points regarding our revised projections. From July on, we expect the situation of economic stagnation in Europe and the gradual recovery in Japan and the United States to continue. In emerging markets we forecast a relatively high growth to continue, but at a slower pace. As a result, global economic growth will be limited to gradual recovery.

As for exchange rate, we expect the basic trend of yen appreciation to persist for the time being. Under this outlook, marked by a business environment that is rapidly changing and becoming increasingly more challenging, we cautiously revised the plans for the latter half of this year.

Even in this environment, we aim to expand our market share, leveraging our strong product competitiveness and maintaining the momentum we have recently generated. In line with this, we've also enhanced our profitability, making further advancement in the areas of manufacturing by improving our production technologies. Through these measures we've overcome the challenging situation to firmly achieve sales and profit growth.

Please refer to slide 8. This slide summarizes our revised projections for the full year.

Please turn to slide 9. I will now compare our current projections with our previous forecast. Changes in exchange rate assumption had a negative impact on projected net sales and the operating profit.

As for changes in projected sales volumes, this had a negative impact on all segments and reflects our cautious outlook for the macroeconomic impairment.

In view of recent market trend, we revised our plan for laser printers within our Office business unit, and [mainly] compact digital cameras with imaging systems. In the other categories, the positive figures on the net sales represent the [strained] price decline. The positive figures on the operating profit represent the [strained] price declines and the comprehensive effort to streamline expenses.

As for cost reductions, due to lingering effects from the Thai flood in the second quarter and the impact of projected lower production volumes, we revised our projection from JPY19 billion to JPY17 billion.

Please refer to slide 10. I now will discuss each business unit, starting with Office. In the second quarters, the copier market continued to gradually expand in the United States and Japan. In emerging markets, Office-related demand continued to drive market expansion. In Europe, however, we saw weakness due to economic stagnation.

Amid this market environment, we worked to expand copier sales, enhancing our imageRunner Advance series lineup with new monochrome models. We also made good progress in expanding sales of A4 monochrome models in markets outside Japan. As a result, we achieved positive growth in all regions for both monochromes and color copiers, and recoveries in market shares.

In total, second quarter's net sales of copiers increased 12.2% on a local currency basis. In yen terms, this increased 6.5%. As for laser printers, despite stagnant economic conditions, the market remained firm thanks to mainly emerging market.

In this market environment, we achieved significant growth in color's unit sales. As a result, overall laser printer sales increased 3% in terms of unit. Conversely, consumable sales decreased 4% on a local currency basis, due to measures taken to adjust inventory that started last year. As a result, we posted an 8.4% decrease in the net sales of printers. For the Office business unit, net sales and operating profit decreased 2.6% and 2.6% respectively.

Please turn to slide 11. Next, I will discuss our full-year's projection for this business unit. We expect the copier market to remain challenging in Europe. In the United States and Japan, our outlook is for gradual growth to continue. And in emerging market, we will see continued strong market expansion. In this market environment, we further enhance the competitiveness of our product portfolio, focusing on our imageRunner Advance series.

Through these measures, we will further accelerate the momentum we generated in the first half in regions where sales were favorable, such as in Japan, the United States, and Asia.

In the area of commercial printing, we'll work to accelerate synergies with Oce. At DRUPA, the world's largest printing equipment exhibition held in May of this year, Canon and Oce jointly exhibited our broad portfolio, which was very well received. We will use this to steadily expand sales in the second half of this year. Through active measures to promote sales, we aim to increase full-year's unit sales by 14%, which is in line with our previous projections.

As for non-hardware sales, although actual demand remains steady, we lowered our full-year's projection from 3% on a local currency basis to 2%, due to delays in hardware sales and other factors.

In total, full-year's copier net sales are projected to increase 3.4%. As for laser printers, we are seeing an excessive price competition within certain segments of the market, resulting in a downward trend in our market shares.

Taking into consideration the stagnant global economic climate and the result from a full deep examination of the market trend, we decided to revise our business plan for this year. And for hardware, we'll take into consideration the balancing of market share and profitability, focusing on gaining market share in segments that will lead to future consumable sales growth.

As for consumables, we revised our projection for segment in the third quarter, due to unexpected delay in economic recoveries and subsequent need for further channel inventory adjustment. As a result, we now project full-year hardware unit sales to decrease 11%, and the sales of consumables to decrease 9% on a local currency basis. Accordingly we now expect full-year's net sales of printers to decrease 12.7%.

Since autumn 2010 we have been steadily launching new products which have contributed to a significant market share gains in the low end color MFD market. In the second half of this year, we'll take additional steps to enhance our lineup, launching new mid to high end color MFDs. We expect our new product portfolio to contribute significantly to recovering gross market share, due the superiority in areas such as environmental performance and user's friendliness.

Over the mid-term we expect the laser printer market to continue to gradually expand due to a shift to add colors and the MFDs, and the expansion of emerging markets. We anticipate MFDs, in particular, to continue to grow at the double-digit rate.

Looking at the entire Office business unit, we now expect full-year net sales and operating profit to decrease 5.2% and 19.7% respectively.

Please refer to slide 12. Next I will discuss Imaging Systems, starting with cameras. Global demand and the interchangeable range of digital cameras remained strong, thanks to high growth in emerging markets and on an expanding users' base in developed countries.

In this market environment we realized unit sales growth of 47%, supported by our broad product lineups and the continued strong sales of entry level and advanced amateur models. We also realized continued strong sales of interchangeable lenses.

As for compact digital cameras, overall market growth has weakened, reflecting global economic stagnations. We realized our unit sales growth of 31%, expanding shares in key regions, thanks to the release of new models in the first half of this year. As a result we posted a 29.6% increase in net sales of cameras.

As for inkjet printers, despite accelerated demand in emerging markets the overall market remained flat due to continuing weakness in Europe. Amid this market environment we realized unit sales growth of 2% thanks to our production system in Thailand returning to normal and the removals of the supply constraint. However, consumer sales decreased due to lower hardware printer sales during last year's year-end selling season, reflecting the impact from the Thai flood.

As a result, we posted a 4% decrease in the sales of inkjet printers. For the business unit, net sales and operating profit increased 22.3% and 23.6% respectively.

Please turn to slide 13. Next I will discuss our full-year projection for cameras. We expect the global demand for interchangeable lens digital cameras to remain strong. In this market environment, in the first half of this year we started sales of new products in every SLR camera category.

Additionally, we recently announced our entry into the mirrorless camera market. With our enhanced lineup, we aim to increase sales by 27% to reach 9.2 million units to firmly secure the number 1 market share position in the interchangeable lens digital cameras.

As for compact digital cameras, we [reviewed] our projections for the overall market from 113 million units to 105 million units. This reflects slower than expected growth and the spread of the smartphone. Based on this outlook, we revised our projection for total compact camera sales from 22 million units to 21 million units.

In the first half of this year, we realized double-digit unit growth, supported by strong product competitiveness. In the second half as well, we aim to achieve our unit sales target by launching products with even further advancement.

As for products targeting the motion pictures and television production industries, we will work to accelerate sales expansions by enhancing our lineup with the launch of a new product in the second half. As a result, we expect full-year's camera net sales to increase 18.6%.

Please turn to slide 14. Here I would like to briefly discuss the mirrorless cameras we announced the other day, focusing on its background. Since its initial development, the concept for this product has remained the same. We wanted to develop a product that maintained high image quality compared with EOS cameras, and also realize the compact and lightweight design at the same time.

We are always advancing the EOS systems, continuously creating and launching strategic products that become a source of growth and profit for the Company. The EOS M is a new product that fits into this category. We have been preparing our technologies as a way to expand the range of the interchangeable lenses in the digital camera market. And through our investigation of the broader market we expect our EOS M concept to be well-received by the market which is focused on users who want to easily taking better pictures in their daily lives.

We decided to launch the EOS M as a product that offer high speed and ease of use for photography enthusiasts, and as a product that will guide users to our new systems, which also offer an extensive line up of interchangeable lenses. And with special adapters users have the ability to use our broad range of more than 60 interchangeable lenses.

Going forward the new entry models in the new systems, we aim to further expand sales of new systems and the EF lenses with users who desire to easily take and preserve high quality pictures.

Please refer to side 13. Next I will discuss our full years' projection for inkjet printers. As for inkjet printers, we expect the market to remain challenging in Europe and the global inkjet printers market to be basically flat in terms of unit. Canon's products have been well-received by customers. After [spending] constraints were removed, this was particularly noticeable in Japan, where we have held the top market share position on a model basis. We'll leverage these trends to maintain strong sales in the second half of this year.

This Autumn we will further enhance the competitiveness of new products, stimulating greater demand for our offerings and linking this to sales expansion. Additionally, we'll take steps to capture growth opportunities in emerging market, expanding sales of models designed especially for emerging market, and taking advantage of our top market shares position in Asia.

As a result, we plan to increase full year's unit sales by 1%, recovering in the second half, of the declines in unit sales caused by the Thai flood. In total, we expect the inkjet printer net sales to be flat in yen terms, and grow approximately 3% on a local currency basis.

For the business unit overall, net sales is projected to increase 16.5%. As for operating profit, we project 26.8% increase and a 1.4 point improvement in profitability.

Please refer to slide 15. Next I will discuss industry and others. Second quarter IC Stepper sales increased significantly from eight to 19 units. This reflects favorable demand for i-line equipment used in the production of image sensors. Second quarter sales of flat panel display liners also increased from 2 to 7 units. As a result, net sales and operating profits of this business unit increased 7.8% and 31% respectively.

Please turn to slide 16. Next I will discuss our full year's projection for this business unit. As for IC Steppers, we project sales to be 53 units, which is basically in line with 52 units we saw last year. This reflects solid demand for finer products that incorporate parts such as image sensors and LED elements.

As for flat panel display i-liners, panels' manufacturers are being cautious in their 2012 capital expenditures due to deteriorating profit. This trend is particularly noticeable in the [large] panel segment, and areas where we are particularly strong. The result, three year sales of flat panel display i-liners are projected to fall from 25 units last year to 16 units this year.

As for others, the increase in sales reflected increased orders for [turnkey OLED] display manufacturing equipment, and addition of a new consolidation such as [ELK] and as a company. In total, net sales of industry and others is projected to increase 2.6%. Operating profit, however, is projected to decrease 49.8%, reflecting lower unique sales of flat panel display i-liners.

Please turn to slide 17. Finally, I will discuss our financial conditions. At the end of June, inventory turnover was 57 days. Taking into consideration our aims to avoid lost sales opportunity, we consider this level to be appropriate.

Please refer to slide 18. This slide highlights capital expenditure and the free cash flow. Going forward, we'll maintain our financial health, promoting more thorough cash flow management.

Please turn to slide 19. Next I will discuss cash on hand. Year to date we used approximately JPY100 billion to repurchase our own shares. Through cash flow management, however, we expect the cash on hand at the end of the year to be JPY700 billion, an amount equal to 2.1 months of net sales.

As for this year's dividend, from the standpoint of maintaining a stable dividend, we have decided to pay an interim dividend of JPY60 per share. As for our plan for the year-end dividend, we'll make our decision after taking into account our future performance and the cash [spend]. Although we expect the severe business environment to continue, we work in conservative effort to overcome this difficult situation.

This concludes my presentation. Thank you very much.