Canon, Inc. (

CAJ

)

Q3 2011 Earnings Call

October 25, 2011 12:00 am ET

Executives

Toshizo Tanaka – Executive Vice President and Chief Financial Officer

Presentation

Toshizo Tanaka

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Good morning or good afternoon ladies and gentlemen, and welcome to Canon’s Conference Call. Please refer to today’s slide 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 two. This slide outlines today’s agenda. Please turn to slide three. I will now discuss the third quarter. Despite growing financial instabilities in Europe and United States and uncertain outlook, the global economy remained on a path of gradual recovery. These reflect continued strong growth in the emerging markets amid inflationary risk and some progress made in reconstructions after the earthquakes in Japan.

Although our market remained strong, the overall business environment was more challenging than that faced in the second quarter due to the rapid appreciation of the yen. Under these conditions, we worked toward improving our product delivery systems in order to realize the swift recoveries in productions. Through our effort to ensure the stable product price in response to strong market demand, we realized our first quarter net sales and profit growth since the third quarter of 2010 despite the yen’s rapid appreciation.

Please refer to slide four. I will now summarize our third quarter performance. Despite the significant appreciation of the yen, particularly against the US dollars, we realized a slight increase in net sales of 0.4%, thanks to increased sales volume following our recoveries from the earthquake.

As for profit, our gross profit ratio reached 49.4%, an increase of 0.5 point from the same quarter of last year exceeding the high 49.2% mark in the first half of this year. This improvement was due to increased net sales and the progress made in cost reductions, thanks to the enhanced productivity.

Operating profit increased by 17.4%. This reflects not only the increase in gross profit, but also improved expense ratios resulting from effort to streamline expenses. Additionally, we secured an operating profit ratio of 13.4% representing the first time to reach the 30% levels in the third quarter of 2008. This shows that effort to improve profitability mainly through continued cost reductions are steadily bearing fruit even under an increasingly challenging exchange rates environment.

Please turn to slide five. Next, I will compare our third quarter results with the same period of last year. Changes in exchange rates had a major negative impact on both net sales and operating profit. As for changes in sales volumes have made favorable market conditions and through effort to improve our product delivery systems, we achieved unit sales growth in all business units.

In the other categories, the negative figures on the net sales represent price decline for mainly cameras. The positive figures under operating profit represent price decline offset by cost reductions and marketing expense savings.

In summaries, we achieved net sales and operating profit growth by expanding unit sales and reducing cost offsetting the significant negative impact from the yen’s appreciation and earthquake.

Please refer to slide six. I will now discuss our projection for full year of this year 2011. This slide shows our exchange rate assumptions for the fourth quarter and estimated impact that ¥1 change in this rate would have on fourth quarter’s net sales and operating profit.

Please turn to slide seven. This slide highlights some key points regarding our previous projections. As for the global economy, while there are increasing uncertainties and risks of the possible slowdown in developed countries, we feel the global economy will remain in the path of gradual recovery with the emerging markets continuing to show rapid growth.

As for the market in which we operate, we expect global demand to remain strong even towards the end of year. Under this condition through various measures such as access rating momentums in our recovery from the earthquake, achieving the unit sales growth through [period] strategy for each product and regions.

Strengthening effort for further cost reductions and controlling the expenses while investing in sales growth we had a plan to cope with the yen’s rapid appreciation. However, after analyzing the flood the situation in Thailand we feel there is the sufficient reason to be concerned about the potential impact on our business particularly in our Consumer Segment.

And for cameras, although we don’t have any cameras related factories in this area, some of our past players in the affected the regions, as a result our production maybe temporally impacted. We are now working on a shift recovery sourcing alternative path and so projected some impact during the year-end selling season.

As for inkjet printers, we have factories in flood affected areas. We are making effort to shift production to our new plant in Thailand located outside the affected areas, and to our plant in (inaudible)

and so on.

Despite this effort some financial impact may occur due to damage to buildings and equipment caused by the flood and delays in production of certain products. Also, the situation keeps changing. We are doing our utmost to minimize any impacts on our business. At this point in time, however, we incorporated into our devised

projections and impacts of ¥50 billion on net sales and ¥20 billion on operating profit. As a result, we now deduct on three projects and net sales and profit decline for the three years.

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