Canon Inc (CAJ) 2012 Q3 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 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 third quarter, the external environment was more challenging than we expected, characterized by further global economic slowdowns, especially pronounced in Europe and the emerging markets, such as China, and significant yen appreciation, particularly against the euro.

Due to the increasingly challenging environment, and also due to previously discussed efforts to adjust channels/inventories of laser printers consumables, we posted decreases in net sales and profit. By actively launching competitive new office equipment and cameras, however, we improved our -- maintained our market share positions for core products.

Please refer to slide 4. Third quarter's net sales and operating profit decreased 12.8% and 42.2%, respectively.

In addition to what I just discussed, please note that our performance in the same period last year reflects swift recoveries we were making after the earthquake.

Please turn to slide 5. I will now compare our third quarter results with our results of last year 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 negative on all segments. Major factors include the inventory adjustment of laser printer consumables, and lower sales of compact cameras due to market contraction.

As for Industry and Others, the negative figures reflect the large orders that were booked as sales by a group company in the same period last year.

In the Others category, the negative figures under net sales represent price declines.

The positive figures on the operating profit represent the price declines offset by cost reductions, and a comprehensive effort to reduce expenses.

Please refer to slide 6. This slide shows our exchange rate assumptions and their estimated impact on projected fourth quarter net sales and operating profit.

Please turn to slide 7. This slide highlights some key points regarding our revised projections. Factors supporting a global economic recovery have weakened and concerns over a further slowdown have risen. Additionally, due to unstable factors, particularly in Europe and China, the future direction of the global economy remains uncertain.

Our revised projections reflect worsening market conditions and increased sales risks, particularly in China. Coupled with our outlook for continued yen appreciations, we lowered our projections and now expect three-year net sales and profit to decline.

Please refer to slide 8. This slide summarizes our revised projection for the full year. We now expect net sales to decrease 0.7% in yen terms, and increase 2% on a local currency basis.

As for profit, we plan to secure an operating profit ratio of over 10%.

Please turn to slide 9. I will now compare our current projections with our previous forecast. Changes in the exchange rate assumptions had a negative impact on our projections. As for changes in projected sales volumes, this had a negative impact on all segments and reflects worsening market conditions and increased sales risks, particularly in China.

In the Others category, the positive figures under net sales represent restrained price declines. The positive figures under operating profit represent the restrained price decline and the comprehensive effort to streamline expenses, offsetting a lower cost reduction of JPY10 billion due to lower production volumes.

Please refer to slide 10. I will now discuss each business unit, starting with Office. In the third quarter, copier unit sales and net sales decreased 3% and 4.2%, respectively. This reflects economic slowdowns, particularly in Europe and emerging markets, such as China.

In the quarter, we launched four new mid to high-speed color copiers of our core imageRUNNER ADVANCE series. Market response to the new product has been positive. Going forward, we will use this to expand future sales.

As for laser printers, the overall market failed to grow due to weakening economic conditions, mainly in Europe. Certain segments, however, showed noticeable growth; namely, color MFPs.

Amid this environment, our hardware unit sales and net sales decreased 26% and 21.3%, respectively. This was due to lower sales of SFPs, amid the strategic effort to expand MFP sales. It's also reflects record quarterly unit sales in the same period last year.

Net sales of consumables decreased 18.3%, reflecting efforts to adjust channel inventories in line with our plans. As a result, net sales of printers decreased 22.4%.

For the business unit, net sales and operating profit decreased 13.4% and 39.3%, respectively.

Please turn to slide 11. Next, I will discuss our full-year projection for this business unit. As for copier market, although we expect Japan and the United States to remain steady, we also expect Europe and emerging markets, such as China, to remain challenging. As a result, we lower our projections.

Going forward, we'll work to further enhancement of our product competitiveness, launching a total of 13 new models. Maximizing the effect of new products, we aim to recover lost market shares, growing unit sales over 10% for the full year.

As for non-hardware sales, actual demand remains steady, and on a local currency basis we expect our net sales to increase [1%].

In summary, net sales of copiers are projected to be basically flat in yen terms, and increase 3.4% on a local currency basis.

As for laser printers, the market in 2012 seems to be a little weaker than our outlook three months ago. For hardware, we lower our full-year unit sales projection to minus 15%. This takes into consideration the risks of further economic slowdown.

For consumables, we lower our full-year sales projection to minus 11%.

In addition to the risks I just mentioned, we also took into consideration the possibilities of the new round of inventory adjustment. As a result, net sales of printers are projected to decrease 15.6%. For the business unit, net sales and operating profit are projected to decrease 8.1% and 22.9%, respectively.

Here I will provide supplementary explanation about the printer growth strategy that I should have touched upon at the recently held Analysts' Day.

First, about the strengthening the MFP lineup. When you look at the market today, you see a significant growth in MFPs, particularly for color models. The shift from SFP to MFPs is occurring rapidly. Growing our installed base of MFPs with larger scale customers is directly linked to the future expansion of cartridge sales.

In the MFP segment, we have been steadily gaining market share, thanks to the launch of new low end products. And this autumn, we'll go on the offensive with the launch of a new mid to high-end model.

Second, about building an efficient sales structure through a review of our product variations. Although Hewlett Packard also touched on this, it is not about reducing the product lineups or sales volumes. It is about building a management structure that will allow the effective promotion of sales by simplifying the best number of configurations we deploy for each product.

Please refer to slide 12. Next, I will discuss Imaging Systems, starting with cameras. In general, the market in each region for interchangeable lens cameras remains strong. We maintained strong sales for models, targeting advanced amateurs and professional users.

Overall, the unit sales, however, decreased 7%, due to a delay in the full-scale launch of our new models and lower than expected unit sales in China from the beginning of September. We continued to see steady growth in sales of interchangeable lenses.

As for compact cameras, due to economic slowdown and the impacts of smartphones, we saw levels of market contractions in each region that exceeded our projections, particularly in China.

Our unit sales decreased 21%, reflecting the market contractions and the high growth realized last year following the recoveries from the earthquakes.

In summary, net sales of cameras decreased 10.8%.

Next, I will discuss inkjet printers. Amid the global economic slowdown, we saw the market shrink in the third quarter. Despite this environment, our unit sales increased 4%. This reflects strong market acceptance in all regions for our products, which offer superior basic features and usability.

Net sales of consumables, however, decreased because of our limited ability to supply hardware during the year-end selling season last year. As a result, total net sales of inkjet printers decreased 3.9%.

For the business unit, net sales and operating profit decreased 7.3% and 30%, respectively.

Please refer to slide 13. Next, I will discuss our full-year projection for cameras.

Although we are seeing continued strong demand in each region for interchangeable lenses cameras, we decided to temporarily lower our market projection for unit due to what we saw in China in September. Our market projection for this year is now 19.3 million units; down from 20 million units.

As for our unit sales, mainly due to lower sales in the third quarter and the risks of further declines, we lowered our full-year projection from 9.2 million units to 8.8 million units.

Despite a temporary decline in our third quarter unit sales, we maintain solid hold of the number one market position, and we work to preserve this position for the full year by expanding sales of our competitive camera lineup.

As for compact cameras, we lowered our market projection for this year, from 105 million units to 95 million units, due to economic slowdown and the impact of smartphones.

As a result, we also lowered our unit sales projection, from 21 million units to 19 million units.

Due to the impact of smartphones, competitors have recently began focusing on high end models. To facilitate this shift, competitors are looking to enhance their internal product developments and production capabilities. Canon has long considered proprietary developments and the productions to be important, and we [dealt] in the areas of high value-added product.

By leveraging our existing systems, we further improve our competitive advantage, consecutively launching attractive new product.

Additionally, we further enhanced our camera lineups, offering WiFi connectivities, increasing the network compatibilities, and creating an environment where smartphone and cameras can co-exist as a way to promote sales. As a result, camera net sales are projected to increase 10.7%.

Next, I will discuss inkjet printers. We expect weakness in the global economies to continue, resulting in market contraction.

Amid this environment, we will further expand our global market share by responding to various customers' need through our new autumn lineups of inkjet printers, which offer improved usability and designs, available in different color variations. As a result, we expect unit sales to grow 1%, helping us to achieve record unit sales.

Overall, inkjet printer net sales are projected to decrease 0.9%, due to the impact of lower sales of consumables and the yen appreciation.

For the business unit, net sales and operating profit are projected to increase 10.1% and 15.3%, respectively.

Please refer to slide 14. Next, I will discuss Industry and Others. Third quarter's IC stepper sales were 8 units, reflecting favorable demand for i-line equipment, used in the production of image sensors and LED elements, and a shift of some [carried through] equipment sales to next year.

Third quarter sales of FPD i-liners was 3 units.

As for net sales of Others, a major order for OLED equipment the same period last year accounts for the lower net sales in third quarter.

As a result, business unit net sales and operating profit decreased 24.9% and 44.6%, respectively.

Please turn to slide 15. Next, I will discuss our full-year projection for this business unit. As for IC stepper, customers' investment plans are being pushed back due to inventory adjustments. As a result, we expect our result to be lower than last year's and our previous projections.

As for FPD liners, our projection remains unchanged at 16 units.

As for Others, the increase in sales reflects increased orders for Tokki's OLED Display Manufacturing Equipment, and the addition of new consolidations, such as ELPH, and other companies.

In total, Industry and Others net sales is projected to decrease 1.1%, while operating profit is expected to decrease 58%, reflecting the reduction in FPD liners unit.

Please turn to slide 16. Next, I will discuss our financial conditions. At the end of September, inventory turnover was 63 days. Inventory levels were typically high as we headed into the year-end selling seasons. Going forward, we will continue our effort to maintain appropriate levels of inventory.

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

Please turn to slide 18. Next, I will discuss cash in hand. Year to date, we used approximately JPY150 billion to repurchase our own shares. Through comprehensive cash flow management, however, we expect cash on hand at the end of the year to be JPY630 billion; an amount equal to 2.1 months of net sales.

This year, due to such factors as the global economic slowdown, we expect the challenging business condition to persist. Amid this environment, to return to a path of growth we'll promote further development of our financial [basis]. In addition, we'll enhance our product competitiveness, sales capabilities, and ability to generate profit so that when economic condition improves we can get off to a strong start.

This concludes my presentation. Thank you very much.