Canon 2009 Annual Report Download - page 46

44 CANON ANNUAL REPORT 2009
FINANCIAL OVERVIEW
GENERAL
The following discussion and analysis provides information that
management believes to be relevant to understanding Canon’s
consolidated fi nancial condition and results of operations.
References in this discussion to the “Company” are to Canon
Inc. and, unless otherwise indicated, references to the fi nancial
condition or operating results of “Canon” refer to Canon Inc.
and its consolidated subsidiaries.
OVERVIEW
Canon is one of the world’s leading manufacturers of copying
machines, laser printers, inkjet printers, cameras, steppers and
aligners. Canon earns revenues primarily from the manufacture
and sale of these products domestically and internationally.
Canon’s basic management policy is to contribute to the pros-
perity and well-being of the world while endeavoring to become
a truly excellent global corporate group targeting continued
growth and development.
Canon divides its businesses into three segments: the Offi ce
Business Unit, the Consumer Business Unit and the Industry and
Others Business Unit.
Economic environment
Looking back at the global economy in fi scal 2009, although the
year began amid an unprecedentedly harsh business climate,
economic stimulus measures implemented by different countries
have started to yield results, leading to moderate recoveries as
the second half of the year approached. Although countries
such as China and India, whose economies have rapidly grown
in prominence, maintained their stable growth largely owing to
increased consumer spending, developed countries such as
Japan, the United States and European nations all recorded neg-
ative growth for the fi rst time since the end of World War II,
leading to negative growth overall around the globe.
Market environment
As for the markets in which Canon operates amid these condi-
tions, within the offi ce equipment market, demand for both
color and monochrome models of network digital multifunction
devices (“MFDs”) decreased in each region. While sales for laser
printers also remained weak, dropping below the year-ago level,
the rate of decline gradually narrowed toward the second half
of the year. As for the consumer products market, while
demand for compact digital cameras remained sluggish and
prices continued to decline, demand for digital single-lens refl ex
(“SLR”) cameras displayed solid growth especially in overseas
markets. With regard to inkjet printers, although demand con-
tinued to be slack, which led to a reduction in market size com-
pared with the previous year, conditions started to improve
toward the end of the year. In the industry and others market,
demand for steppers, utilized in the production of semiconduc-
tors, declined signifi cantly while demand for aligners, used to
produce liquid crystal display (“LCD”) panels, also slowed but
showed signs of a recovery heading into the next fi scal year. The
average value of the yen during the year was ¥93.21 to the U.S.
dollar, a year-on-year appreciation of approximately ¥10 or
10%, and ¥130.46 to the euro, a year-on-year appreciation of
approximately ¥21 or 14%.
Summary of operations
Although the markets for consumer products such as cameras
and inkjet printers are clearly bottoming out amid the signifi -
cantly stronger yen, which has had an impact on all of the
Company’s businesses, net sales for the year totaled ¥3,209.2
billion (U.S.$34,883 million), a year-on-year decline of 21.6%,
mainly due to the effects of reduced sales volumes of offi ce
products throughout the year. Income before income taxes
totaled ¥219.4 billion (U.S.$2,384 million), a year-on-year
decline of 54.4%, while net income attributable to Canon Inc.
also decreased by 57.4% to ¥131.6 billion (U.S.$1,431 million).
Key performance indicators
The following are the key performance indicators (“KPIs”) that
Canon uses in managing its business. The changes from year to
year in these KPIs are set forth in the table shown on page 45.
Revenues
As Canon pursues to become a truly excellent global company,
one indicator upon which Canon’s management places strong
emphasis is revenue. The following are some of the KPIs related
to revenue that management considers to be important.
Net sales is one such KPI. Canon derives net sales primarily
from the sale of products and, to a much less extent, provision
of services associated with its products. Sales vary depending on
such factors as product demand, the number and size of trans-
actions within the reporting period, product reputation for new
products, and changes in sales prices. Other factors involved are
market share and market environment. In addition, manage-
ment considers the evaluation of net sales by product group to
be important for the purpose of assessing Canon’s sales perfor-
mance in various product groups, taking into account recent
market trends.
Gross profi t ratio (ratio of gross profi t to net sales) is another
KPI for Canon. Through its reforms in product development,
Canon has been striving to shorten product development lead
times in order to launch new, competitively priced products at a
faster pace. Furthermore, Canon has achieved cost reductions
through enhancement of effi ciency in its production. Canon
believes that these achievements have contributed to improving
Canon’s gross profi t ratio, and will continue pursuing the curtail-
ment of product development lead times and reductions in pro-
duction costs.
Operating profi t ratio (ratio of operating profi t to net sales)
and research and development (“R&D”) expense to net sales
ratio are considered to be KPIs by Canon. Canon is focusing on
two areas for improvement. Canon strives to control and reduce
its selling, general and administrative expenses as its fi rst key
point. Secondly, Canon’s R&D policy is designed to maintain a
high level of spending in core technology to sustain Canon’s
leading position in its current fi elds of business and to seek pos-
sibilities in other markets. Canon believes such investments will
create the basis for future success in its business and operations.
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