April 23, 2020 Canon Marketing Japan Inc. Questions and Answers for the Analyst Briefing of Q1 FY2020 Financial Results [Date and Time] April 22, 2020, 16:30 to 17:30 [Format] Conference Call [Responders] - Shiro Hamada, Director and Vice President - Hatsumi Hirukawa, Director and Vice President ―――――――――――――――――――――――――――――――――――――――― [Q1] In maintenance services, how much was the reduction in print volume from January to March? [A1] While we are not disclosing any quantitative figures, it was actually mid-March and onwards that was affected. There is not such a large change from the basic trends seen last year. The number of Canon office MFP units in operation has increased and as we have managed to maintain print volume, this was seen as a slight drop. ―――――――――――――――――――――――――――――――――――――――― [Q2] What was the scale of the decline looking only at mid-March onwards? [A2] The situation varies depending on the customer and region. ―――――――――――――――――――――――――――――――――――――――― [Q3] As a general idea of the overall decline in print volume, was it around 5%, 10% or 20%? [A3] To reiterate, as we began to see the impact from mid-March onwards, the timing of invoicing differs by customer and we have seen little to no impact for invoices completed before March 20th. Sharing figures as trend variables without looking at the results up to April or May might cause incorrect determinations to be made. We stand by the response that the situation varies depending on the customer. ―――――――――――――――――――――――――――――――――――――――― [Q4] Mirrorless camera sales in the first quarter were down 54% year on year. How were actual sales of DSLR and mirrorless cameras from January to March? [A4] The slump in the market for DSLR cameras and mirrorless cameras in February to March in particular exceeded the sluggish market that began last year. ―――――――――――――――――――――――――――――――――――――――― 1
[Q5] Is that an issue with the timing of product launches? [A5] We see it as an issue with the overall market. ―――――――――――――――――――――――――――――――――――――――― [Q6] Have there been any significant changes in market share? [A6] There have not been any significant changes. ―――――――――――――――――――――――――――――――――――――――― [Q7] Although mirrorless sales are down 54%, it seems that the overall market has not declined that much. What are your thoughts on this? [A7] For us, there has also been a reactionary decline from the release of the EOS RP last year. ―――――――――――――――――――――――――――――――――――――――― [Q8] How much have actual market sales dropped from March onwards? [A8] They have fallen more than last year. ―――――――――――――――――――――――――――――――――――――――― [Q9] I think the main reasons for the 42% increase in inkjet printer shipments is a reactionary boost from last year and good offerings for business users, but has the rise in remote work and school closures had an impact? [A9] The year before last, we released a number of inexpensive models on the market but we held off on their sales last year. The reactionary boost to that is a major factor. Looking at the progress of store sales, performance appears to be slightly improved from the downturn of last year, and we believe this may be in part due to demand from people working at home, albeit slightly. ―――――――――――――――――――――――――――――――――――――――― [Q10] What are the new products that have been particularly effective in producing favorable gross profit margins in the Consumers segment? [A10] The EOS-1DX Mark III that went on sale in February has driven up unit price. Unit prices for entry-level cameras have also seen a slight rise, and these factors have contributed to the rise in gross profit. ―――――――――――――――――――――――――――――――――――――――― [Q11] Are there any products or services seeing an effective upside due to the COVID-19 coronavirus? [A11] 2
In terms of positive impacts due to the coronavirus, there has been a slight impact on inkjet printer sales due to more people working from home, and this segment has performed better than expected. Some customers involved in distribution have also been securing greater inventory of laser printer cartridges out of concern that distribution networks could be interrupted due to the coronavirus. In addition, we have seen greater-than-expected sales of business PCs and accessories. ―――――――――――――――――――――――――――――――――――――――― [Q12] Is there still demand for IT-based proposals aimed at small and medium enterprises or the building of office environments in the near term? [A12] There have been a lot of requests from small and medium enterprises, particularly for IT support, such as last year’s replacements associated with the end of Windows 7 support. To coincide with business PC sales, software and other accessories are also being added. Our understanding is that the immediate situation has not changed. ―――――――――――――――――――――――――――――――――――――――― [Q13] Reductions in personnel expenses look significant. While the impact of expenses for retirement benefits is large, were there special factors in the first quarter? What was the actual reduction? [A13] Regarding the decline in retirement benefits expenses, the negative legacy had continued for a long time since the Lehman shock, and by eliminating that, things will change for the better year-round. The first quarter incorporates three months of such reductions, and the reduction is expected to continue from the second quarter onwards. As total personnel have also declined through natural attrition, that has also contributed to the lower personnel expenses. ―――――――――――――――――――――――――――――――――――――――― [Q14] On demand related to people working from home, Canon Marketing Japan is also having some employees work from home. Do we need to be concerned about bottlenecks such as delayed delivery or sales even when orders are received? [A14] Circumstances differ between regional areas and cities, but that is the situation arising. Canon Marketing Japan is also encouraging employees to work from home, and we have already had requests from customer to postpone deliveries. In either case, we think we will be able to post these as sales, but we may see an impact in the second quarter. ―――――――――――――――――――――――――――――――――――――――― [Q15] What are the factors behind the increased profits in the Consumers segment? Of the 1.3- billion-yen improvement in operating income, can you offer an image of how much of that is improvement in gross profit, and how much as reductions in SG&A expenses? [A15] In terms of the factors behind the improvement, the reductions in SG&A expenses are significant, followed by improved gross profit. ―――――――――――――――――――――――――――――――――――――――― [Q16] As factors behind the improved gross profit, apart from digital interchangeable lens 3
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