Canon Inc (CAJ) 2014 Q4 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 year-on-year basis unless otherwise stated.

Please turn to slide 3. First, a review of last year's business environment. At the beginning of 2014, we forecasted that global economy would recover, led by the United States and other developed countries. However, it failed to match expectations following a string of unforeseen events, including the conflict between Russia and Ukraine. According to the latest information released by the IMF, global economic growth in 2014 didn't improve from its low level of 2013.

We saw the deceleration in our market as well, particularly for consumer goods due to the prolonged economic weakness. The compact camera market continued to shrink and the interchangeable lens cameras market was sluggish, particularly in Europe. In 2014 we also saw a further correction of the strong yen.

Faced with these market conditions, we posted net sales that were basically in line with last year, despite the lower camera revenues and thanks to solid sales of our office and lithography equipment.

As for profit, we posted our second consecutive year of growth thanks to efforts to expand sales of high-added-value products and efforts to reduce expenses.

Please turn to slide 4. This slide summarizes our performance in 2014.

Please refer to slide 5. I will now discuss our full year result with our previous projections.

Changes in exchange rate had a positive impact on both net sales and operating profit. As for changes in sales volumes, sales of compact cameras were below our projections due to our focus on profitability and our decision not to go after units. As for interchangeable lens cameras, although the market did pick up a little in December, market recovery seems to be delayed and there was very little momentum.

Sales of new copiers were also weaker than expected, particularly in the emerging markets of Eastern Europe and Latin America. As for the others categories, we are basically in line with our plan in terms of expenses, price declines and cost reductions.

Please turn to slide 6. I will now discuss our 2015 projections. Here are our assumptions for exchange rates and the exchange rate sensitivities.

Please refer to slide 7. I will now discuss key points regarding our full year projections. In 2015 we expect the United States, where employment conditions are improving and personal consumption is increasing, to lead the global economies. In the first half of 2015, however, we expect the economies of Europe and Japan to remain weak.

As for the market in which we operate, we expect to face a challenging environment in the first half of 2015, followed by recovery in the second half. For the year, however, we forecast only a moderate improvement in our operating environment.

Amidst these conditions, we plan to launch more new office products and cameras compared with previous years. For interchangeable lens cameras in particular, we will introduce more new models to stimulate potential demand that still exists in this market, which I will discuss in more detail later in my presentations.

We also plan to introduce strategic new copiers and laser printers to expand future sales of consumables. Through these measures we aim to firmly secure sales and profit growth, successfully concluding phase four of the Excellent Global Corporation Plan.

Please turn to slide 8. This slide summarizes our projected performance in 2015.

Please refer to slide 9. I will now compare our projections with our 2014 results. Changes in exchange rate are projected to have a positive impact on both net sales and operating profit. Sales volumes are also projected to have positive impact thanks to the launch of new products, as mentioned earlier, to unlock potential demand. As for the others categories, price decline is projected to be JPY65b as compared to JPY81.4b in 2014.

We also project JPY38b in cost reductions. Expenses, however, are projected to increase, mainly due to efforts to expand sales of new products.

Please turn to slide 10. I will now discuss each business unit, starting with office. In 2014, the monochrome copier market was relatively weak. The overall copier market, however, showed moderate growth, led by color devices. Within this market, we posted a decline in monochrome's unit sales. However, thanks to new [right] production and A4 color copiers, which contributed to double-digit growth of color models in the second half, total unit sales for the year were basically in line with last year's.

As for our solution business, which is included in others, sales grew thanks to system replacement demand and our global rollout of cloud services. We also posted an increase in wholesale-related sales thanks to growth in Japan and the United States.

Next, laser printers. In 2014 the laser printer market grew by only around 1%. Although demand for colors and multifunction devices continued to grow, the overall market was negatively impacted by weak sales in Europe and other regions affected by prolonged economic weakness. Within this market, we posted slightly lower unit sales of both hardware and consumables. Hardware sales were weak in Europe and other regions, particularly for monochrome devices. As for consumables, lower print volumes in Europe due to economic weakness was a major factor.

Please refer to slide 11. Next, our projection for the business unit, starting with copiers. We expect the copier market to remain on a path of gradual growth, driven by continued color expansion. Within this market we expect about one-third of our unit sales this year to come from strategic new products, including the ones that were launched last year.

Our aim for color copier is to grow units at double-digit rate through new products and continued market growth. We also expect contributions from large deals this year as business discussions are proceeding smoothly.

As for our solution business, at the end of last year we introduced our cloud-based service to the European market, already launched in Japan and the United States, in a continuous effort to expand sales.

As for other, new strategic products will be launched this year, following the launch of new continuous feed and wide-format printers last year. In addition to strengthening our position from a product perspective, we will work to strengthen the marketing activities, particularly in Asia, in order to expand sales.

Next, laser printers. In 2015 we expect the laser printers market to grow around 2% in terms of units thanks to continued strong demand for color and MFP devices despite anticipated sluggish demand for monochrome and single-function devices. This year we plan to launch new products based on renewed platforms which offer advantages in productivity and environmental performance.

Through these new products and continuing effort to expand sales of color and MFP devices, we plan to exceed market growth. By expanding sales in this way, we'll work to further improve on our [MIF] and link this to a gradual increase in cartridge sales from the latter half of this year.

Please turn to slide 12. I will now discuss our imaging system business unit, starting with the cameras. In 2014 the compact and the interchangeable lens camera market both shrank due to various factors, such as the consumption tax hike in Japan, efforts to curb spending on luxury items in China, the conflict in Europe and the slower-than-expected recovery in the United States.

While the compact camera market shrank by 34% to 42m units, our sales shrank by 32% to 9m units. We didn't achieve the 9.5m units that we projected. The shortfall, however, consisted mainly of low-end units. Spending more to achieve our projections is not really contemplated due to our focus on profitability.

From this perspective, we remained successful in shifting our product mix toward more high-value-added models, with the support of new products, such as the G7X and SX60 HS which were launched in the second half of the year.

Next, interchangeable lens cameras. While the interchangeable lens camera market shrank by 18% to 14.4m units, our sales shrank by 17% to 6.36m units. Aside from the weak market, there were a couple of other factors for this decline.

One reason is linked to the heavy channel inventory situation at the beginning of the year and the effort to resolve the situation by adjusting shipping volumes. A similar situation occurred in 2013. However, the approach to normalize then inventory situation then was led by severe price competition, causing a progressive downward trend in pricing. With the idea of improving profitability, we took action to control our shipments and manage pricing within a reasonable pricing range.

The other factors is related to entry class models. Last year we launched only one new model in this segment, which was not enough to stimulate demand. Technological innovation through digitalization was driven by pixel count competition, [which has] (inaudible) however, (inaudible) rate. These factors really account for the double-digit declines we posted in unit sales.

Even in this situation, there were some bright spots. From a product perspective, the new 7D Mark II followed the success of the 70D that was launched in 2013, giving us confidence that truly innovative products can stimulate the demand.

Next, inkjet printers. In 2014 the inkjet printers market shrank, mainly due to continued economic weakness in Europe and Asia. The situation in Asia was particularly challenging for us due to our high market shares in this region. As a result, we posted a 4% decline in full-year unit sales.

During the year-end selling season, however, we grew unit sales in many regions, thanks to new products and regionally tailored marketing strategies. As a result, we posted an increase in fourth-quarter unit sales, contributing to a steady recovery following the difficult first half of the year.

As for consumables, we posted healthy sales thanks to past efforts to expand our [MIF].

Please refer to slide 13. Next our projection for this business unit, starting with the interchangeable lens cameras. As I just mentioned, one reason why we posted lower sales of interchangeable lens cameras in 2014 was due to the lack of entry-class models that could stimulate people's willingness to buy. Drawing up from the result from third party surveys, we believe the demand for camera remains firm. The result of this survey indicates that among individuals that don't already own an interchangeable lens camera, there is still a high percentage interested in purchasing one.

As this proportion is higher than the actual penetration rate, we feel there is still room to expand the market. In order to encourage individuals willing to purchase an interchangeable lens camera to actually buy, we need to launch new products that accurately reflect their need. We have done some market research to identify those needs. Some important ones I will highlight today.

Presented on this slide are factors that entry users considered important when they made their purchasing decision. The highest priority, which remains unchanged, is given to image quality and resolution. However, the important point of spread from just pixel count to improvement in autofocus function and speed, which cannot yet match the human eye, the need to easily take high-quality pictures has grown.

We have been focusing on enhancing various shooting features along with that. However, the need for easy use has gained importance as well. Furthermore, as you can tell from mirrorless cameras, the need for smaller and lighter solutions continues to be strong. On top of that, the survey showed improved wireless communication had a high interest.

Please turn to slide 14. We feel the major reason why high amateur models, such as the 70D and 7D Mark II have enjoyed steady demand is because they accurately address the needs of high amateur users. In the new DSLR and mirrorless cameras we release in the future, we will strive to do the same in order to stimulate demand.

On top of this, we will also work to further strengthen our broad range of interchangeable lenses and assets that support our EOS systems. Further enhancing our range lineup is one way we are working to stimulate demand for camera bodies.

Furthermore, through Connect Station, which was announced recently in the United States, a product that supplements the need for wireless communication, we'll work to strengthen affinities with networks, building support for this product in future new cameras. Offering a new way to enjoy photos after they are taken will further stimulate demand.

At the same time, we'll also strengthen our marketing activities. The number of people taking our photography workshops has been increasing year over year. Going forward, we'll expand the workshops we offer to new and experienced entry users. As for marketing, we will employ the marketing strategy of selectively targeting specific user groups to expand sales, which was so successful in China, to other regions.

Please refer to slide 15. As for the interchangeable lens camera market, we expect the environment to remain challenging in the first half of the year, with gradual improvement in each region in the second half. Implementing the various products and the marketing-oriented measures I just mentioned, we expect to remain -- maintain the same levels of unit sales as last year's. Based on this, we now expect the market and our unit sales in 2015 to be 14.3m and 6.4m units respectively.

As for compact cameras, we expect the market to shrink by 21% to 33m units, and our unit sales to decrease by 14% to 7.8m units.

The [rebound] in market contractions we projected reflects effort by manufacturers to reduce the number of low-end models they offer. It also reflects our expectation that demand for high-value-added models will remain firm. Under this scenario, we will work to raise profitability, promoting an improvement in product mix and raising our competitiveness through further enhancement of our high-end product lineups.

Next, inkjet printers. This year we expect the inkjet printer market to be basically in line with last year, thanks to a gradual recovery in market conditions in Asia, where economic weakness persisted. Within this market, we'll have continuous effort to launch new products and deploy marketing strategies tailored to the need of each region. As a result, we expect our unit sales to increase 2%. In order to achieve this growth, increasing sales in Asia and other emerging market is a key factor. We also expect some growth to come from the global rollout of MAXIFY brand business inkjet printers.

As for consumables, we are forecasting a healthy growth due to expanded sales of hardware. Leveraging the full potential of our comprehensive inkjet technologies, we are focusing on expanding our presence in B2B areas, including MAXIFY, the business inkjet printers I just mentioned. We are also working to grow our commercial photo and large-format printer businesses.

In the case of the large format, we have been successful in our efforts to improve product competitiveness and our strategic marketing activities. As a result, we are securing and expanding business with global accounts and consistently seeing growth in unit sales that outpaces the market.

Please turn to slide 16. Next, industry and others. As for IC lithography equipment, sales rose to 54 units in 2014. This reflects continued investment in equipment used to manufacture memory devices and image sensors.

As for FPD lithography equipment, we sold 22 units in 2014. In response to demand for high-definition panels, we launched equipment for large-size panels. Thanks to this, along with the sales of our high-definition models for small- and medium-sized panels, we not only exceeded last year's unit sales but also gained market shares.

As for others, medical equipment sales increased, thanks to expanded sales of wireless DR panels as a product. Due to lower sales of Group companies, however, sales were essentially flat. The profit growth of this business unit is mainly due to a prompt investment in new businesses and future technologies.

Please refer to slide 17. Next, our projection for this business unit. As for IC lithography equipment, we expect our unit sales to be basically in line with last year's due to continued strong demand for memory devices and image sensors.

As for FPD lithography equipment, we expect the market to grow through increasing demand for TVs and mobile devices. Within this market we are forecasting an increase in sales to 35 units. This reflects our advantage in the segment for large-sized panels, as well as expected steady growth in sales of equipment for small- to medium-sized panels.

As for the medical equipment segment, we expect sales to increase mainly through expanded sales of high-value-added products, such as DR systems and [photo-thermic] equipment. Within this new business we expect network camera sales to grow. We also expect increased capital investment in OLED, memories and LED-related manufacturing equipment to raise sales of the independent businesses of Group companies, such as Tokki and ANELVA.

Please turn to slide 18. Next, our financial situation. At the end of 2014, inventory turnover was 50 days, 8 days shorter than at the end of September and 2 days shorter than at the end of 2013. Of this, the inventory turnover of sales company was 2 days shorter than at the end of 2013, mainly due to lower levels of camera inventory.

As for work in process, inventories turnover was 16 days, 2 days longer than at the end of 2013. This was mainly due to production preparation for higher shipments of product within the industry and others business unit.

We regard 50 days as the target for overall inventory. From this perspective, inventory at the end of 2014 was at an acceptable level. We have, however, continuous effort to reduce inventory, particularly work in process.

Please refer to slide 19. Next, capital expenditure and cash flow. We'll maintain our financial health through a continuing focus on comprehensive cash flow management.

Please turn to slide 20. Next, cash on hand. In 2015 -- 2014, JPY150b was used to acquire treasury stock. Thanks to comprehensive cash flow management, however, cash on hand was JPY844.6b or 2.6 months of net sales at the end of the year.

As for the dividend, Canon works to provide a stable return and actively returns profit to shareholders, mainly in the form of a dividend, taking into consideration medium-term profit forecast, along with planned future investment, cash flows and other factors.

As for our 2014 dividend, we plan to pay a year-end dividend of JPY85 per share, bringing the total for the year to JPY150, which is JPY20 higher than last year's.

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