Canon, Inc. (CAJ)

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Canon Inc. (CAJ)

Q1 2011 Earnings Call

April 26, 2011 8:00 am ET


Toshizo Tanaka – Executive Vice President and Chief Financial Officer


Toshizo Tanaka

Good morning or good afternoon, ladies and gentlemen, and welcome to Canon’s conference call. Please refer to the slide we prepared for today’s call and note that all financial comparison made during my presentation will be on the year-on-year basis, unless otherwise stated.

Please refer to slide two. This slide outlines today’s agenda. Please note that my discussions of result and in our revised projections, we include to the extent possible that impact of the March enables earthquake.

As of we do our best to recover from these disasters. We have received corporations and sports from many of our business partners and communities in which we operate. The future is however remains unclear due to a range of factors such as availability for parts (inaudible). Although we have revised our projection for the three years based on latest information, please keep in mind that the situation is changing day by day.

Please turn to slide three. In the first quarter, the global economy continued its past level gradual recoveries boosted by the rapid growth of the emerging market in such countries as China and India. In our market, conditions also continue to improve. As for foreign exchange rate, however, the yen remained quite strong. Under these circumstances, Canon achieved increase in market shares and we steadily expanded our MIF in the field growing unit sales within all core businesses.

We achieved this by enhancing sales of competitive products. Additionally, Océ, which was added to our consolidation investors, also contributed to the increase in the sales. As a results, despite the yen significant appreciations, we posted a double-digit increase in the sales.

As for profit, well we are making better than expected progress toward our three years target, the earthquake focus as to report a reduction in profits.

Please refer slide 4. This slide provides a summary of our first quarter performance. Net sales increased 11.1%. The growth profit ratio remained at the high 48.4% as we overcame the strong yen through accelerated cost savings. Operating profit was down 5%, reflecting effect of the earthquake.

Please turn to slide five. Looking at the effect of the earthquakes in more details, the disasters caused serious delays in production and shipment resulting in a 21.4 billion yen negative impact on the sales.

On gross profit, the impact was negative 20.9 billion yen, reflecting lower net sales and recovered factories overhead cost associated with dramatic drop in productivities, and other cost, such as damaged good. At the operating profit levels, the impact was negative 21.2 billion yen, which include cost related to the disposals of fixed assets. For reference, first quarter result that exclude earthquake effect as shown on this slide.

Please refer to slide six. Next I will discuss our first quarter result with our result from the same period last year’s by factors. As for changes in the exchange rate, the impact was negative on both sales and operating profit. As for changes in sales volumes as we realized increased unit sales – in all business unit, the impact was positive on both net sales and operating profit.

In the others categories, the negative series and the sales to be present price decline for mainly consumer products. As for the negative figures on the operating profit although we made progress in cost savings, it was not enough to offset such factors as the price declines and increased promotional expenses.

In total, net sales and operating profit excluding the impact of the earthquake increased 105.1 billion yen and 16.9 billion yen respectively. This indicates steady improvement in our business foundation. However, as you can see the earthquakes impact offsets increased profit we achieved.

Please refer to slide seven. I will now discuss our projection for 2011. This slide shows our exchange rate and 1 yen change impact assumptions. Please turn to slide 8. This slide highlights some key points regarding our 2011 projections. As for the global economies, also there are ground for concerns such as the steep rise in oil prices and the impact of the earthquake. We expect gradual recoveries to continue.

Furthermore in our market although there are concerns about Japanese market, on a global basis, we expect to continue seeing steady demand. Under this circumstances, we expect our abilities to supply product to become slightly diminished reflecting temporarily decline into production of older product due to the earthquake.

Given these, our first forecast is to build a stable product spray structures through an early recovery in productions. Then from the second half, we’ll reiterate a safe to recoveries minimizing the earthquakes impact as we aim to achieve net sales growth for the full year.

Please refer to slide 9. We revised our full year projection for 2011 based on review of each business after the earthquakes and new exchange rates assumptions. As I mentioned at the beginning, while we face many elements of uncertainty. At this time, we project full year net sales to increase by 0.6%, operating profit to decrease by 13.6% and net income to decline by 10.8%.

Please turn to slide 10. I will now discuss the earthquake effects that included in our three years projections. We expect defect such as productions and segment delays due to difficulties in procuring parts for such product as a cameras and copier hardwares resulting in negative 314.4 billion yen impact on the sales.

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