Canon Inc (CAJ) 2013 Q4 法說會逐字稿

Good morning, or good afternoon, or good evening, 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; I will now review the business environment in 2013.

Although the economies of the United States and Japan headed toward gradual recoveries, in the latter half of the year the global economic environment remained challenging. This was reflected in the prolonged economic weakness in Europe, and through growth in China and the other emerging markets.

Contrary to the recovery we expected at the beginning of the year, a recent IMF information indicates that the world GDP growth in 2013 was 3%, the lowest rate since the Lehman shock.

In our business areas as well, the environment was challenging, especially for consumer goods, where demand didn't pick up due to the economic slowdown.

As for exchange rate, we finally saw progress in correcting the excessively strong yen and the weaker yen trend has become apparent.

Amid these conditions, looking at our camera business the economic slowdown and the effect of expanding sales of smartphones led to the continued contraction of the compact cameras market.

As for, interchangeable-lenses cameras, we carried out inventory adjustment at the beginning of the year, after which we faced weaker than expected sales. As a result, we recorded an unfavorable result in this business segment.

Within our office segment, however, our laser printer business steadily recovered from the second quarter thanks to growth in MFPs on the emerging market.

As for the industry and others segment, business began to recover in the fourth quarter, particularly for lithography equipment.

Overall, with the added benefit of the depreciation of the yen, we achieved sales and profit growth for the first time in three years.

From a quarterly perspective, we returned to sales and profit growth from the second quarter, and with each passing quarter the recovery trend became increasingly apparent.

Please refer to slide 4; this slide summarizes our performance in 2013.

Please refer to slide 5; I will now compare the results with our previous projections.

Changes in the exchange rate had a positive impact on both net sales and operating profit.

As for changes in sales volumes, in addition to lower than projected growth for interchangeable-lenses cameras during the yearend selling season in overseas market, we are not able to meet our target for either copiers or lithography equipment. As a result, the impact was negative on all segments.

In the other categories, price declines, cost reductions and expenses were basically in line with our [prayers].

Please turn to slide 6; I will now discuss our projections for 2014, this year. This slide shows our assumptions for exchange rate and exchange rate sensitivity.

Please turn to slide 7, as you can see we expect the global economies to gradually recover after having hitting bottom in 2013. Supported by the United States and the steady growth in Japan, we also expect Europe to return to positive growth.

As for emerging markets, we expect the relatively high growth to continue.

Overall, we also expect recoveries in our related markets, particularly in the second half. Within the office and industry and others segment we'll expand sales, taking advantage of market recoveries that started last year.

Within the imaging systems segment, due to the delayed recoveries in market demand for interchangeable-lenses cameras, we believe that in the first half of the year a small amount of inventory adjustment will be necessary.

Amid these situations, we'll are focused on improving our product mix of entry-level models and maintaining the same levels of unit sales as last year. Accordingly, we aim to achieve our second consecutive year of sales and profit growth firmly returning to path of expansion.

Please refer to slide 8, this slide summarizes our projections.

Please turn to slide 9, I will now compare our projection with our 2013 result, changes in exchange rate are expected to have a positive impact on both net sales and operating profit.

As for changes in sales volumes, we expect a positive impact on our office, industry and other segment amid ongoing market recoveries.

As for imaging systems, we expect a negative impact on compact cameras due to ongoing market contraction. For interchangeable-lens camera, however, we expect sales to be in line with those of last year's. And, for inkjet printers, we expect growth mainly in emerging market.

As for the others category, we plan to limit price declines to JPY90 billion compared with JPY138.2 billion last year. We also plan to reduce cost by JPY40 billion, the same level as last year.

Please refer to slide 10. I will now discuss each business unit, starting with the office segment. In 2014, the overall copier market grew at a gradual rate. Although the market for monochrome copiers shrank, due to economic weakness in emerging market, the market for copiers continued to expand across the regions.

This year, we executed our first [scaled] rollout for our second generation imageRUNNER ADVANCE series, which have a high level of systems affinity. Leveraging this advantage, we strengthened our ability to offer solutions focused on document management. As a result, we posted favorable sales.

For the full year, we achieved an 8% increase in color unit sales. Overall, however, unit sales were down 2% reflecting the sluggish sales of low-speed monochrome models in the first half of the year.

However, we did show an improving trend in country unit sales and enhanced product competitiveness gradually took effect, resulting in a 4% increase in total unit sales in the fourth quarter.

Next, laser printers; for the full year, while sales were sluggish at the start of the year, due to the slow economies, the market grew a few percentage points for the full year, thanks to double-digit growth of color MFPs and the new demand in emerging market.

During the year, we worked to broadly expand sales from the low end to the high end. As a result, we were able to raise our market shares, thanks to a 14% increase in unit sales.

Unit sales of consumables for the year, however, were slightly below that of the previous year, reflecting sluggish hardware sales over the past several years and the resulting flat installed base.

Please turn to slide 11; next, our projection for this business unit. As for copiers, in terms of unit, we expect the overall market to remain on a path of gradual growth, driven by continued expansion of color. Based on this outlook, we'll work to enhance our abilities to compete for large deals, as well as expand sales, in emerging markets by strengthening our lineup.

Additionally, we'll take steps to continue strengthening our solution business, for example, globally deploying services that make use of the cloud.

In the commercial printing areas, we will take further measures to expand sales capturing growth opportunities in such areas as digital printing, where demand for short-run jobs and the first turnaround times are increasing. We will also work to maximize synergies with Oce.

Next, laser printers; similar to last year, we expect the overall market to continue to grow at a gradual rate. Last year, we focused on actively expanding sales and raising our market share.

As we have seen some positive result this year, in turn, we will concentrate our focus on expanding sales of MFPs released since autumn of 2012. These efforts are expected to effectively expand future sales of toner cartridges.

As for hardware unit sales, we aim to steadily realize growth in line with the overall market. As for unit sales of consumables, we expect this to be basically in line with those of last year.

Please refer to slide 12. Next, I will discuss our imaging systems business unit, starting with cameras. As for interchangeable-lenses cameras, although the Japanese market continued to expand, the market overall shrank, due to lower sales of entry-level models in overseas market.

Overseas sales were particularly weak in Russia and in China, where we saw impact from the government thrift campaign. Lower than expected sales during the yearend selling season in the United States and Europe and the sluggish economic growth in other emerging markets also had an impact.

The reason behind the delayed recoveries in sales of our entry-level models is prolonged economic weakness, which reduced consumer purchasing power. People have become more selective in their purchasing decision and seem to give higher priority to the purchase about the type of mobile devices.

Additionally, they took until the middle of 2013 to adjust the channel inventory situation, which was high, at the end of 2012. The market fell 3%, to 17.5 million units.

Furthermore, while we had high hopes for our new models that we launched in the spring, unit sales didn't match our original expectations. One of the reasons why this occurred is because we are not able to freely convey it to the market, the product's new features and the ease of use.

Additionally, during the second half, in considering the market environment, we chose to give priority to profitability, resulting in a 7% decline in sales, to 7.65 million units.

As for compact cameras, the market saw further contractions, shrinking 31% (sic - see slide 12, "20.5%") to 64 million units. Although we plan to expand sales during the yearend selling season, we decided to give priority to profitability, due to the price reductions we saw for low-end models. As a result, our three year sales dropped 28%, to 13.2 units.

Due to the sharp decline in volumes utilization rates have come down, which have negatively affected profitability. That said, we have already taken steps to consolidate production, mainly at overseas production site.

Next the ink jet printers; in 2013, the market shrank 5% due to continued economic weakness. Despite such conditions however, we are able to expand unit sales for the full year, maintaining steady growth in the Americas and Europe. We also made good progress in growing consumable sales, thanks to steady hardware sales and subsequent growth in our installed base.

Please turn to slide 13; next our projection for this business unit, starting with cameras. As for interchangeable-lenses cameras, because channel inventory was a little heavy, at the end of 2013, we expect the first quarter to be rather weak.

Furthermore, we expect that China's thrift campaign to have lingering effect. We believe that we need to improve our product mix, for entry-level models. In order to accomplish this, we'll review our marketing activities and promote the switch to new products.

In fact, by reviewing our marketing activities and strengthening promotions, sales are starting to recover in certain regions. Going forward, we will promote similar activities in other regions as well.

In this way we expect the overall market and our unit sales this year, to be basically flat, at 17.3 million and 7.6 million units respectively.

In recent years, this business has suffered from such unforeseen events, the Japan earthquake and Thai flood. Furthermore, due to confusion in supply and demand, after the Thai flood, as well as changes in users' consumption patterns, we are seeing numerous changes in the market. Given this, we are unlikely to see the rapid growth among entry-level models that we have seen up to now.

For this year, we will thoroughly review what is happening in this complex market, and take measures to prepare for renewed growth. In order to realize this, we plan to make an improvement in profitability, by switching to new products and strengthening sales of interchangeable lenses. And in order to ensure steady growth, from the next year on, we'll try to solve the issues we are facing, from new perspectives.

Next I will discuss these initiatives. Developing products that accurately reflect the market need is the single most important requirement for the manufacturer.

Amid the diversifying need of users, having more contact with users, more chances to hear their opinions, and taking steps to swiftly reflect those opinions, into product development, is something we'll put even more emphasis on.

We'll not only improve the picture taking features and ease of use, of our hardware, we'll also work to improve services for the saving and the sharing of images.

In each region, our sales companies are holding amateurs' photography contest and the photography workshops, as a way to cultivate photographic cultures. We'd like to expand these type of events and activities, as this also offers us good opportunity to listen to the opinion of users, who want to take good pictures.

In order to respond to diversifying users' need, it is also important to expand opportunities for taking still pictures or movies. This is why we're developing cameras, based on new concepts. Last year's launch of the PowerShot N, and iVIS mini, are two examples of what I mean. And going forward, we want to expand our effort, in this area.

From a marketing perspective as well, we'll deepen communications with users.

In India, we are expanding Canon image square shops, which allow users greater opportunity to handle our products. This factor is contributing to our success in this country. In the future, we plan to triple the number of the shops we currently have in India, and expand this to other emerging markets.

In Brazil we aim to expand sales by leveraging the advantage of localized production, including interchangeable-lens cameras.

On top of this, we'll enhance cost reductions by furthering automated lens production. Additionally, we'll promote the optimization of our global production site.

Next compact cameras; this year we expect the market to continue to shrink, contracting 25% to 48 million units, and our own unit sales to decline by 20% to 10.5 million units. Even within this market we expect to see solid demand for high value-added products.

We'll also strengthen this segment. At the same time, we'll review our product lineup with a view of consolidation. Also, we'll work to achieve the optimal allocation of development resources. Through these measures we aim to improve our profit structure.

Next the inkjet printers; in 2014, we expect the market to remain basically flat. Here we work to expand the sales by offering products that suit the unique market characteristics in each region. Especially in emerging markets of Asia, we'll leverage our number around position in order to achieve our goals of 2% unit sales growth.

As for consumables, with the further expansion above our installed base, we anticipate steady growth.

Please turn to slide 14; the next, industry and others. As for IC lithography equipment, although KrF unit sales increased, thanks to the introduction of the new high-productivity equipment, total unit sales were down for the full year.

As for FPD lithography equipment, we sold 16 units in the fourth quarter thanks to the restart of customers' investment.

For the medical segment, we posted steady sales, thanks to new OCD products. As for the independent business group companies, due to the restrained capital investment by customers, manufacturing equipment-related sales declined, which pulled down sales of the other segment as a whole.

Please refer to slide 15; next our prediction for this business unit. In 2014 thanks to the restart of investment from the second half of last year, and expanding demand for memories and the image sensors used in mobile devices, like smartphone, I expect the market segment as well as our unit sales of IC lithography equipment to increase.

In the FPD lithography equipment market, we anticipate demand for even higher definition panels to increase. In the second half of last year, we commercialized the high-definition FPD lithography equipment for large panels. This year we plan to launch industry-leading high-definition FPD lithography equipment for small and medium-sized panels. Through this product we aim to expand our market share, selling 27 units for the year.

For the medical equipment segment we expect sales to increase, mainly through expanded sales of high value-added product, such as DR systems.

For the independent business Group companies, we anticipate the increased customers' investment, which will have a positive impact on sales in such sectors as (inaudible), OLED and solar panel production equipment, and (inaudible) memories and the [LED-originated] production equipment.

Please refer to slide 16; now I will discuss our financial situation. At the end of December inventory turnover was 52 days. Since Japan's earthquake and Thai flood, we have been working to optimize inventory level with the goal of avoiding lost sales opportunities. In view of optimizing logistics, we are now targeting an overall inventory level of around 46 to 50 days. Within this, our target for sales companies and the working process around four weeks and 10 days respectively.

Inventory held by sales company at the end of last year stood at 26 days, which is one and two days lower than at the end of September and last year respectively. Although we didn't achieve our yearend sales target, mainly for cameras, we took quick steps to adjust production so inventory at the end of December fell within acceptable range remit.

As for work in process, as of the end of December, inventory was 14 days, a three days' improvement compared with the end of 2012; there is however still room for improvement. As such we continue to actively manage supply chain activities, in order to further reduce excess inventory.

Next please refer to slide 17. This slide highlights our projection for capital expenditure and cash flow. Through comprehensive cash flow management we'll continue effort to maintain our financial health.

Please turn to slide 18. At the end of the year, cash on hand was JPY788.9 billion, equivalent to 2.4 months of net sales thanks to comprehensive cash flow management.

As for dividend, we plan to pay a yearend dividend of JPY65 per share, bringing the full year's total of JPY130, the same amount as last year. Although we expect the business environment to remain challenging for the time being, we aim to increase both sales and profit, making this the year in which we return to a path of growth.

This concluded my presentation. Thank you very much for your kind attention.