Canon's Management Discuss Q2 2012 Results - Earnings Call Transcript

Canon, Inc. (CAJ)

Q2 2012 Earnings Call

July 25, 2012 8:00 am ET

Executives

Toshizo Tanaka – Executive Vice President & Chief Financial Officer

Presentation

Toshizo Tanaka

Thank you. Good morning or good afternoon ladies and gentlemen and welcome to Canon’s conference call. Please refer to today’s slide and note that our financial comparisons made during my presentation will be on a year-on-year basis unless otherwise stated.

Please refer to slide two. This is today’s agenda.

Please turn to slide three. In the second quarters, we noticed spread in the global economic slowdown. In Europe, we saw economic stagnations. In the United States, we saw only gradual recoveries. And in emerging markets, factors driving the economic expansion seems to have weakened. As for exchange rate, although the trend of Yen appreciation remain, the levels of appreciation was significant against the Euro.

Despite business environment, which become increasingly more challenging since our earnings announcement in April, we steadily expanded our market shares for such core products as cameras and copiers posting our first increase in net sales in three quarters. At the same time, we maintained profitability by promptly responding to changes in the external environment through such measures as expense reductions. This allowed us to post our fourth consecutive increase in operating profit.

Please refer to this slide to summarize our second quarter result. We achieved an increase in net sales of 7.5% in yen terms, and an increase of 12.7% on a local currency basis. As for gross profit, while we fell short of the ratios we posted in the same period last year, we saw an improvement of 1.8 point on a sequential basis. Operating profit increased 18.1% thanks to a 2 point improvement in our expense to sales ratios made possible by effort to streamline expenses. As for the decrease in net income, this mainly reflect lower effective tax rate last year due to the earthquakes and other factors.

Please turn to slide five. I will now compare our second quarter result with our results of last years in more detail. Changes in the exchange rate had a negative impact on both net sales and operating profit. As for changes in sales volumes, the effect was positive compared with the second quarter last year’s period, which reflects the impact of the earthquake.

In the other categories, the negative figures under the net sales represent price declines. This negative figures and the operating profit represents price declines and the increases in expenses to expand sales. Through this effort we achieved net sales and operating profit growth reserving the impacts of the Yen’s appreciations.

Please refer to Slide 6. This slide shows our exchange rate assumptions and their estimated impact on projected net sales and operating profit for the remaining six months of this year.

Please turn to Slide 7. This slide highlights some key points regarding our revised projections. From July on we expect a situation of economic stagnation in Europe and a gradual recovery in Japan and in the United States to continue. In emerging market, we forecast a relatively high growth to continue, but at a slower pace. As a result, global economic growth will be related through gradual recovery. As for exchange rate, we expect the basic trend of Yen appreciation to persist for the time being.

Under this outlook, marked by a business environment that is rapidly changing and becoming increasingly more challenging, we cautiously revised reference for the later half of this year. Even in this environment, we aim to expand our market shares leveraging our strong product competitiveness and maintaining the momentum we have recently generated.

In line with this, we’ve also enhanced our profitability making further advancement in the areas of manufacturing by improving our production technologies. Through these measures, we’ve overcome the challenging situation to finally achieve sales and profit growth.

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

Please turn to Slide 9. I’ll now compare our current projections with our previous forecast. Changes in the exchange rate assumption had a negative impact on projected net sales and operating profit. As for changes in projected sales volumes, this had a negative impact on all segment and reflects our cautious outlook for the economic environment.

In view of the recent market trend, we revised our plan for laser printers with in our office business unit, and mainly compact and digital cameras in imaging systems. In the other categories some positive figures on the net sales represent this strange price decline. The positive figures on the operating profit represent this strange price decline and the comprehensive effort to streamline expenses.

As forecasted reductions due to rendering effect from the Thai flood in the second quarter and the impact of projected lower production volumes we revised our projection from 90 billion to 70 billion.

Please refer to Slide 10. I will now discuss each business unit starting with Office. In the second quarter, the copier market continued to gradually expand in the United States and Japan. In emerging market, office related demand continued to drive market expansion. In Europe, however, we saw weakness due to economic stagnation. Among this market environment, we look to expand copier sales enhancing our imageRUNNER ADVANCE series line up with new monochrome model.

We also made good progress in expanding sales of A4 monochrome models in market outside Japan. As a result, we achieved positive growth in all regions for both monochrome and color copiers and recoveries in market shares. In total, second quarter net sales of copiers increased 12.2% in a local currency basis. In yen terms, this increased 6.4%.

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