Canon Inc (CAJ) 2013 Q2 法說會逐字稿

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

Please note that all financial comparisons made during my presentation will be on a year-on-year basis unless otherwise stated. Please turn to slide 3.

Since the second half of last year the global economy has been stuck in a longer than expected period of slow growth. Although Japan and the United States made progress in economic recovery, Europe's economies remained weak. And in emerging markets the pace of economic growth slowed. This was particularly evident in China, where we expected to see growing signs of an economic recovery around the Labor holidays in early May, but actually saw monetary tightening and other measures aimed at economic structure reform.

In the markets in which we operate we expected to see signs of gradual improvement, as we headed towards recovery in the second half of the year. Due to a delay in recovery however, the business environment remained challenging.

In Europe and China longer than expected sluggish market conditions had a pronounced impact on the camera market. Within this challenging business environment we worked to stimulate demand through the active launch of new products and other measures. This had a somewhat positive effect on our Office Equipment business, and coupled with the benefit from the yen's depreciation, we posted sales and profit growth for the first time in a year.

Please turn to slide 4. This slide summarizes our second quarter's performance.

Please refer to slide 5. I will now compare our second quarter's results with those from last year's in more detail. Changes in the exchange rate had a positive impact on both net sales and the operating profit. As for changes in sales volumes, the impact was negative on Imaging Systems, due to significantly lower sales of compact cameras and an unfavorable change in product mix, including the interchangeable lens cameras.

As for Industry and Others, these reflect lower sales of lithography equipment due to restrained customer investment. In the other categories the negative figures under the net sales and operating profit primarily reflect price declines due to intensified price competition for mainly cameras.

Please refer to slide 6. I will now discuss our revised projection for 2013. This slide shows our assumptions for exchange rate and the exchange rate sensitivity.

Please turn to slide 7. As for the economy and due to prolonged economic weakness in Europe and the economic slowdown in the emerging markets, we now expect the global economic recovery in the second half of this year to be weaker than our previous assumptions.

Although we believe that Japan's active monetary and fiscal policies, and the United States will provide underlying support for the global economy, we are not optimistic about economic recovery in emerging markets, such as China. Based on this outlook, we expect Office to continue its steady performance. For cameras however, we have revised our plans to reflect recent changes in the market environment.

The recovery from the second half this year that we expected in our previous projection is now forecasted to come later. From a profit perspective we'll work in a concerted effort to reduce expenses and take other measures. Through these efforts we aim to realize sales and profit expansion, returning the Company to a path of growth.

Please turn to slide 8. This slide summarizes our revised full-year projections.

Please refer to slide 9. I will now compare our current projection with our previous one. As for changes in the exchange rate, the impact was minimal on both net sales and operating profit.

As for changes in sales volumes, within Office we reduced our half-year projection to mainly reflect lower sales of low-speed monochrome models in emerging markets. In Imaging Systems, in light of recent market trends, we mainly revised our projections for camera sales in Europe and China. And in Industry and Others we lowered our projections for flat panel display liners, under Group companies, due to delayed customers investment plans and other factors.

As for the Others categories, the negative figures under the net sales represent additional price decline for mainly cameras. The negative figures under operating profit reflect additional price declines and the decrease in the expected cost reduction due to lower utilization rates.

From a profit perspective, we'll take additional steps to reduce expenses and make other improvements, which are also reflected in our revised projections.

Please turn to slide 10. I will now discuss each business unit, starting with Office. As for the copier market, although we saw weakness in Europe and emerging markets, the overall market remained firm, thanks to economic improvement in Japan and the United States.

In the quarter, we posted a 3% decrease in unit sales, mainly due to lower sales of low-speed models in the emerging markets. In focus to color and high value-added the mid to high-end monochrome segment, however, we made a smooth progress in expanding sales. Sales of color copies were particularly notable, as we achieved unit sales growth in all regions to post a double-digit growth of 12% overall. As for non-hardware sales, we posted a 2% increase on a local currency basis. The actual demand remained firm.

Next, I will discuss laser printers. Since the second half of last year, the pace of year-on-year market decline has been slowing. And in the second quarter of this year, the market was basically flat in terms of hardware units.

In the quarters, we actively worked to expand the sales of mainly MFPs and posted a 9% increase in overall unit sales. As for consumables, sales declined on both unit and a local currency basis. Like hardwares, the pace of year-on-year decline has been slowing, but at a slightly slower pace.

Please refer to slide 11. Next, I will discuss our full-year's projection for this business unit. In the copier market, we expect color models to remain the drivers of the overall market growth. As we are also seeing a pickup in business activities, we believe the market will continue the path of gradual recovery.

In this market, our global rollout of new second generation imageRUNNER ADVANCE series product has been progressing smoothly. Highly evaluated by the market, these products are leading to a steady increase in large account deals. Leveraging this advantage, we support dealers' efforts and offer the various promotions to achieve steady sales expansions.

As for our Solution business, we'll take measures to expand sales, such as strengthening our abilities to offer solutions that address the need of each market and globally rollout services that make use of the Cloud.

As for production printing, in order to further benefit from effect of the integration of Oce, we'll work to improve the effectiveness of sales organization.

As for laser printers, we expect the market to grow slightly for the full year in terms of units. This reflects an expected return to growth in the second half of this year, driven by color models and the MFP segment.

Within this market, we aim to increase future sales of consumables, promoting sales expansions of high-performance models within this segment, as we grow our installed base. In order to accomplish this, we'll actively work to expand sales from low to high-end models, with a focus on MFPs.

Additionally, we are on track and making good progress against our [regional] plans for the new product we launched in the autumn of last year. As for consumables, we expect demand to gradually increase in the second half in terms of units, but remain flat for the full year, which is in line with estimates for the market overall.

Please refer to slide 12. I will now discuss our Imaging System business unit, starting with cameras. Although we are seeing a different trend in different regions, overall, the interchangeable lens cameras market continued to grow.

In Japan, the market benefited from rising consumer confidence and demand remained solid, not only at the entry level but also for mid-range models. Demand was also firm in the United States. In Europe, however, demand was weak. And in China, we had a high expectation for recovery, market growth slowed due to the economic slowdown.

Although demand for durable consumer goods is starting to return, demand for luxury items, such as interchangeable lens cameras, has been slower to recover. As a result, reducing the inventory in the market took longer than expected.

In the course of reducing the inventories, we also invested a certain amount to lower prices. Due to these factors, we posted a 4% decline in interchangeable lens cameras unit sales, which reflects lower than expected sales in Europe and China. However, we maintained our leading position in terms of global market share.

As for compact cameras, market demand is shrinking in both developed countries and emerging markets. Although we posted strong sales of models equipped with high magnification zoom lenses, overall unit sales decreased 26% due to market contraction.

Next, I will discuss inkjet printers. In the second quarter, the market continued to shrink due to ongoing global economic weakness and the subsequent weak market recoveries. During the quarter, we executed regionally-tailored marketing strategies and maintained our trend of strong sales from the first quarter.

The decrease in second quarter's unit sales highlights the fact that we were in a phase of recovery last year following the Thai flood from the previous year. We also posted a steady result in the area of consumables, reflecting favorable hardware sales.

Please turn to slide 13. Next, I will discuss our full-year's projection for the Imaging System business unit, starting with cameras. As for the interchangeable lens cameras, we lowered our projection for market size from 20 million units to 19.5 million units. This reflects the expected slower growth in Europe and China, due to continuous economic downturn and a higher level of mirror lens camera market inventory.

As such, we have also lowered our unit sales projection from 9.2 million units to 9.0 million units. We believe market inventory levels of digital SLR cameras are within reasonable limit.

As for the market, however, due to prolonged economic weakness, consumers are becoming increasingly price-oriented. Given this, we expect an unfavorable change in product mix.

Faced with these circumstances, this year, we are launching digital cameras that not only offer improvement in basic performance, but also responded to users' need through their compact and lightweight designs, while also realizing improved video recording capabilities.

Despite the challenging environment, we'll work to improve our product mix, stimulating demand in the second half of the year through regionally-tailored promotions that highlights advantages that our product offers users. As the economy recovers and the market situation improves, we expect the market to return to double-digit growth from next year.

As for compact cameras, we lowered our market sales projection from 70 million units to 66 million units, taking into consideration the delayed recoveries and lowered our own unit sales projection from 14.5 million units to 14 million units.

Within this market, we'll work to expand sales of high value-added models featuring, for example, even higher levels of image quality or higher magnification zoom lenses. We'll also take steps to stimulate the market, continue to offer entry levels and mid-range models, which make up a large portion of the overall market at the point of entry, that will hopefully lead these customers to upgrade to interchangeable lenses cameras in the future.

Next, our full-years projection for inkjet printers; this year, we expect the market to shrink slightly in terms of units. This reflects a noticeable slowdown in market contraction that began last year, and our outlook that the market will remain relatively flat over the medium term.

Based on this outlook, we'll work to capture available sales opportunities enhancing our product lineups to meet the diversifying market need. By launching and promoting sales of new product for the year-end selling season, we plan to increase unit sales by 2%. As for consumables, because hardware sales have been favorable, we expect healthy growth.

Please refer to slide 14. I will now discuss Industry and Others, starting with IC steppers. Unit sales of IC steppers in the second quarter decreased. Although investment in lithography equipment for image sensors remained firm, investment in equipment for memory continued to be restrained due to oversupply of nand flash memory.

In the second quarter, we didn't post any unit sales of flat panel display liners. This reflects the stagnant market conditions surrounding large-size panels.

In the Others segment, sales related to the independent business Group Companies decreased due to such factors as delayed investment in the product development and restrained investment in hard disk drives due to reduced demand for PCs. This resulted in lower sales of semiconductors and storage-related manufacturing equipment. In addition, severe price competition in the market for LEDs held back investment in electronic device manufacturing equipment.

Please refer to slide 15. Next, I will discuss our full-year's projection for this business unit. As for IC steppers, we maintain our full-year's unit sales projection mainly due to an expected recovery in the strained investment in the second half of the year.

Going forward, we'll focus our energies on expanding unit sales of our high throughput KrF lithography systems to gain shares in the segment where our participation has been very low.

As for flat panel display liners, we lowered our full-year's unit sales projections mainly due to a shift into next year.

In addition to an expected -- the assumption of investment, we plan to start shipping high-resolution flat panel liners from the second half of this year and, from next year on, target market share expansion.

In the other segment we anticipate an increase in sales for medical equipment in the second half of this year boosted by expanded sales as the result of a large order DR systems, along with benefit made possible through our joint development effort with OPTOPOL.

Overall, however, we expect sales within the Other segment to decline as we anticipate the situation we faced in the second quarters, we likely continue along with the [strained] customers' investment in Tokki or at the manufacturing equipment.

Please turn to slide 16. I will now discuss our financial situation. At the end of June inventory turnover was 60 days. Although this is slightly higher than in the past years, it is still within an acceptable range. We are reducing the inventory of the cameras in line with our plans and the inventory held by sales companies at an acceptable level.

Work in process, however, increases due to planned industrial equipment sales in the second half of the year. Despite these factors work in process was still at a somewhat high, therefore we'll continue this effort to strengthen supply chain management to optimize the level.

Please refer to slide 17. As for capital expenditures through a review of our plans, we now plan to trim JPY20 billion off the total. In addition to our plan to keep capital expenditures below depreciation, we'll work to maintain our financial health through comprehensive cash flow management.

Please turn to slide 18. At the end of this year, cash on hand is projected to be JPY690 billion [over] two months of net sales.

As for dividend, our interim dividend is JPY65 per share. Decisions regarding our year-end dividend will be withheld, until we can better assess our future performance and funding plans.

Despite the expectation that our business environment will remain challenging, this year as well, we will strive to achieve our target of increased sales and profit, and return the Company to a path of growth.

This concluded my presentation. Thank you very much.