Canon Inc (CAJ) 2014 Q1 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. In the first quarter, temporary factors such as the consumption tax increase in Japan and the record cold weather in the United States affected regional economic activities. Overall, however, the global economy continued to gradually recover this bottoming out in the first quarter of last year.

As for our markets, office remained solid and industrial equipment, which started to recover in the second half of last year, remained on track. As for digital cameras, the compact camera market continued to contract and the interchangeable lens camera market got off to a slow start. In the others, however, we did see early signs that the market was bottoming out.

Amid this business environment, we achieved our fourth consecutive quarter of sales and profit growth.

Please refer to slide 4. This slide summarizes our performance in the first quarter.

Please refer to slide 5. I will now compare our first quarter's result with those from last year in more detail. Changes in the exchange rate had a positive impact on both the sales and the operating profit.

As for changes in sales volumes, although imaging system sales decreased due to a decline in camera volumes, the total impact from changes in sales volumes was positive on sales thanks to solidly performing office and industrial equipment businesses.

As for profit, in addition to consolidating the production of camera -- compact cameras to a normalized utilization rate, we also benefitted from strong sales of new interchangeable lens cameras. This led to an improvement in product mix and profitability.

In the others category price decline was JPY17.3b, less than last year's JPY25.8b, reflecting a lower impact from memory cameras. This category also includes JPY7.1b in cost reductions and JPY2.1b in expense saving.

Please turn to slide 6. I will now discuss our projection for 2014. This slide shows our assumptions for exchange rates and the exchange rate sensitivity.

Please turn to slide 7. I will now discuss our revised full-year projections. As for the global economies, although uncertainties surrounding emerging markets such as Russia and South America remain due to political and economical instability, overall we expect the global trend of gradual economic recovery to continue.

Under these conditions, and taking into account the fact that our first quarter's results were basically in line with projections, we maintain our regional outlook for recovery mainly in the second half of the year.

As for net sales, although we are implementing measures to make adjustment to our business base which will lead to a recovery in growth, such as improving the product mix of cameras, we expect the sales of imaging systems to decline due to compact camera market contraction. However, office and industry and others, however, we expect the market to remain solid, and thanks to new products we expect to post market exceeding sales growth.

From a profit perspective, we will continue to work to improve the profitability of cameras, while also working in a concerted effort to reduce cost and expenses. Through these measures, we will strive to firmly secure our goals of achieving two consecutive years of sales and profit increase and returning to a path of growth.

Please refer to slide 8. This slide summarizes our current projection for the full year.

Please turn to slide 9. I will now compare our current projection with our previous one. The impact of exchange rates is positive on both net sales and operating profit, due to a weaker than projected yen in the first quarter.

As for changes in sales volumes, we expect a mix shift down for mainly office products. In the others category, our plan includes JPY90b for price declines and JPY40b for cost reductions, which is in line with our previous projections. For expenses, we are planning for additional savings.

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

In the first quarter, the copiers market grew at a gradual pace as it did last year, driven by growth in color. Within this market, our unit sales grew 2%. This reflects increased sales of color models in developed countries and monochrome models in Asia, thanks to a series of new models largely tailored for emerging markets.

As for our solution businesses, which is included in the others segment of office, sales grew significantly. In addition to strengthening our abilities to offer the solution, the end of Windows XP support stimulated the replacement demand for computers, printing equipment and related systems.

Next, laser printers. The laser printers market has grown for four consecutive quarters on a year-on-year basis. Much of this is attributable to double-digit growth of color MFPs. In the first quarter, unit sales increased 2%, which is in line with the overall market. This reflects our focus on expanding sales of mainly color models.

As for unit sales of consumables, which have also been solid, we posted positive growth.

Please turn to slide 11. Next, our full-year projection for this business unit.

We expect the color copier market to continue growing, thanks to gradual economic recovery. Within this market, we are planning to grow unit sales significantly. We aim to accomplish this by further enhancing our product lineup with the launch of our first A4 color imageRUNNER ADVANCE series model. Additionally, we will focus on expanding our global account business and recently secured a large deal.

As for production printing, in the right production segment where high growth is expected, we plan to launch new products in June that will offer outstanding productivity.

As for all the continuous feed printers, which are included in the others segment of office, we'll expand sales leveraging the benefits of integration and strengthening our product lineup for the Japanese market from April.

Next, laser printers. We expect the overall laser printer market to continue to grow in unit terms, thanks to such factors as color MFPs and new demand in the emerging markets, as was the case last year, with continuous efforts to expand sales mainly in product categories where substantial growth is expected, which is linked to the future expansion of cartridge sales.

As for other unit sales, we work to steadily realize unit sales growth similar to the overall market. For unit sales of consumables, we expect the volumes to be basically in line with the last year. Both of these forecasts are largely unchanged from our previous projections.

Please refer to slide 12. Next, I will discuss our imaging systems business unit, starting with cameras.

As for the interchangeable lenses camera market, demand picked up in Japan and significantly dropped in the United States, for the temporary factors mentioned earlier. Within this market, our unit sales decreased 7%. This result also reflects our efforts to normalize channel inventory.

Despite this result, we believe the market is in the process of bottoming out. What we saw in the United States were the one-off factors. In China and Western Europe, we actually saw gradual signs of a recovery starting to appear, and in some regions we posted higher unit sales.

As for compact cameras, the trend of market contraction continued. As a result, we posted a 30% decline in unit sales. However, the expansion of our market share since the fourth quarter of last year continued.

Next, inkjet printers. The inkjet printers market was slightly below that of last year. Within this market, we grew unit sales in Japan through promotional campaigns that targeted the last minute pickup in demand. Overall, however, unit sales decreased 9%, reflecting record cold weather in the United States and the economic slowdown in Asia.

As for consumables, we posted positive growth thanks to the steady expansion of our installed base.

Please turn to slide 13. Next, our full-year projection for this business unit, starting with cameras.

As for interchangeable lens cameras, at the time of our last earning announcement we recognized that the segment for entry level models had shifted from high growth to stable growth. At that time, I highlighted various measures we are taking to stimulate growth and improve profitability. At this time, I would like to provide you with an update.

Our first measure was focused on further stimulating demand by expanding the entry user base. Here, we started a new promotional campaign from this spring that targets people who feel that they are not ready to own an interchangeable lens camera or that such cameras are too difficult to use, while conveying a message that good pictures can be easily enjoyed by all users, regardless of age.

At the same time, we are promoting a review of our marketing activities in order to expand sales of new products to improve our product mix. This has led to, for example, the launch of a new website and expanded relationships with media outlets to convey that message to targeted customers such as females and travelers. Additionally, we have steadily increased opportunities for users to directly handle our products, securing more shelf space with large retailers.

Through these measures, we are driving a shift to new products, and in the first quarter the proportion of sales attributable to newer models exceeded that of older ones. Sales of new entry level digital SLR cameras we launched in March got off to a strong start, particularly in Europe.

Furthermore, we are promoting sales expansion in emerging markets. In Asia, for example, we are setting up Canon brand shops and steadily expanding our sales network. In Brazil, we are making good progress in preparing for the start of localized production of interchangeable lens cameras, which is expected to substantially increase unit sales in this country as it did for compact cameras.

Please refer to slide 14. These are some of the measures we are steadily implementing to improve the situation on the entry level interchangeable lens cameras, including an improvement in product mix which is on track. As a result, in the first quarter, including the normalization of channel inventories, we are basically in line with expectations. We expect to post an increase in unit sales through the second half of the year.

In summary, our outlook for market size and unit sales remains unchanged at 17.3m and 7.6m units, respectively.

Next, compact cameras. Our outlook regarding the size of the market and the unit sales remains unchanged at 48m and 10.5m units, respectively. Demand for high value-added models offering exceptional image qualities and enhanced zooming performance remained solid, even amid market contraction.

In March, we launched a new flagship model that incorporates a large image sensor and offers exceptional image quality with improved operability. We also introduced models equipped with 30 times optical zoom lenses in compact form factors. Going forward, as well, we aim to boost our market shares offering product lineups that reflect the need of users and leverages our advanced technological capabilities.

Next, inkjet printers. This year, we expect the inkjet printers market to be basically flat. The models that we launched last year are being well received by the market for their improved operability and ease of use, due to their enhanced support for cloud based services. We are continuously launching products that capture market need to stimulate demand.

Additionally, in Asia, we leverage our top market share position to expand sales. Through these measures, we plan to increase full-year unit sales by 2%.

Please turn to slide 15. Next, industry and others. As for IC lithography equipment, sales of i-line systems for memory were strong in the first quarter, thanks to increasing investment from the second half of last year.

As for FPD lithography equipment, we sold 2 units in the quarter as customers continued to invest. As for medical equipment, sales of DR systems were strong. In addition, independent businesses of group companies also put in a solid performance.

As a result, the net sales for the industry and others business unit increased 19.6%. Operating profit, however, remained in the red due to active upfront investment to establish new businesses and develop next generation technologies.

Please refer to slide 16. Next, our full-year projection for this business unit. We expect unit shipments of IC lithography equipment to increase. This reflects growing demand for image sensors and memory owing to the popularity of the mobiles and other devices.

This year, in addition to expanding sales of existing core products such as i-line and KrF lithography equipment, we'll accelerate the development of next generation lithography equipment that uses nano imprint technologies to reinforce our business foundation for the future.

In the market for FPD lithography equipment, we anticipate increasing demand for even higher definition panels. Following the launch of our models for large-size panels last year, we'll expand sales launching models for small- to medium-size panels this year in order to expand new business opportunities.

As for medical equipment, we plan to expand sales of DR systems. In order to respond to dynamic imaging need, we have been working to strengthen our product lineups. As for ophthalmic equipment, in addition to new OCT systems developed in cooperation with OPTOPOL, we also plan to start supplying OEM products.

As for Group companies, we expect the customers to invest more in the areas such as (inaudible) IC manufacturing equipment, as well as Tokki's OLED production equipment. As a result, our net sales for the industry and others business unit are projected to increase 18.6%.

As for operating profit, although we have planned to make improvement, we still project this will be in the red.

Please turn to slide 17. Next, our financial situation. At the end of March, inventory turnover was 53 days. This level of inventory is considered appropriate as we prepare for the peak in demand. Within this, sales inventory held by sales companies was 26 days. This is within the range we consider appropriate, which is approximately four weeks.

I will point out, however, that inventory turnover ratio for cameras rose by two days, due in part to record cold weather in the United States. This will be normalized in the near future by controlling production and shipment flows.

As for work in process, due to temporary factors such as the preparation of new products, inventory turnover in days was basically the same as at the end of December. We'll continue to effort to bring this down to our goal of around 10 days.

Please refer to slide 18. This slide highlights our projection for capital expenditures and cash flows, through comprehensive cash flow management with continuous effort to maintain our financial health.

Please turn to slide 19. Next, cash on hand. Although JPY50b was used to acquire treasury stock, thanks to comprehensive cash flow management, cash on hand is projected to be JPY775b or 2.4 months of net sales at the end of this year. Although our results in the first quarter were basically in line our expectations, we'll work to achieve our second consecutive year of sales and profit growth and return to a path of growth without preconceptions.

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