Canon 2011 Annual Report Download - page 40

38 F I N A N C I A L S E C T I O N >F I N A N C I A L O V E R V I E W
F I N A N C I A L O V E R V I E W
GENERAL
The following discussion and analysis provides information
that management believes to be relevant to understanding
Canon’s consolidated financial condition and results of oper-
ations. References in this discussion to the !Company"are to
Canon Inc. and, unless otherwise indicated, references to the
financial 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 plain
paper copying machines, digital multifunction devices
(!MFDs"), laser printers, cameras, inkjet printers, semiconduc-
tor lithography equipment and liquid crystal display (!LCD")
lithography equipment. Canon earns revenues primarily
from the manufacture and sale of these products domesti-
cally and internationally. Canon’s basic management policy
is to contribute to the prosperity and well-being of the world
while endeavoring to become a truly excellent global corpo-
rate group targeting continued growth and development.
Canon divides its businesses into three segments: the
Office Business Unit, the Consumer Business Unit, and the
Industry and Others Business Unit.
Economic environment
Looking back at the global economy in 2011, amid increasing
uncertainty in the second half of the year as the pace of recov-
ery decelerated due to economic downturn in the United
States and Europe, the economy as a whole continued to
grow moderately, primarily driven by emerging economies.
In the United States, a lack of improvement in employment
conditions and housing problems led to a lower rate of
growth, while in Europe, the sovereign debt crisis negatively
affected the real economy, which led to a noticeable slow-
down in recovery. Emerging markets, such as China and
India, maintained a high rate of growth amid concerns over
the effects of tight monetary policies. In Japan, severe circum-
stances persisted following the Great East Japan Earthquake
in March and, just as production activities began showing
signs of recovery, Thailand was hit with massive flooding in
October, resulting in a slowdown of the economy.
Market environment
As for the markets in which Canon operates amid these con-
ditions, within the office equipment market, demand for
color network digital MFDs showed growth in all regions
around the globe. As for laser printers, while robust demand
in emerging markets fueled growth, European markets
cooled in the second half of the year. Within the consumer
products market, demand for digital SLR cameras continued
to display healthy growth across global markets while
demand for compact digital cameras grew in emerging
nations but remained sluggish in developed countries.
Overall demand for inkjet printers was supported by steady
growth in emerging economies. In the industry and others
market, despite somewhat restrained investment in semicon-
ductor lithography equipment used to manufacture DRAM
memory devices, the market recorded robust growth overall.
As for LCD lithography equipment, despite solid demand for
equipment to manufacture mid- and small-size LCD panels
used in smartphones, demand for equipment used to manu-
facture large-size LCD panels remained sluggish.
The average value of the yen during the year was ¥79.55
against the U.S. dollar, a year-on-year appreciation of approxi-
mately ¥8 or 9%, and ¥110.72 against the euro, a year-on-year
appreciation of approximately ¥4 or 4%.
Summary of operations
Owing to the historically high valuation of the yen com-
bined with the effects of the earthquake and floods, all of
Canon’s businesses faced extremely demanding conditions
throughout the year. Amid this harsh environment, Group-
wide efforts to swiftly restore production in the aftermath
of the disasters, coupled with efforts to maximize produc-
tion and boost sales, led to net sales for the year totaling
¥3,557.4 billion (U.S.$45,608 million), a year-on-year decline
of 4.0%. Despite the significant negative impact of the
strong yen and the effects of the earthquake and floods, the
gross profit ratio rose 0.7 points year-on-year to 48.8%,
owing to the further acceleration of production innovation
activities. Gross profit, however, decreased by 2.6% to
¥1,736.8 billion (U.S.$22,266 million) for the year.
Operating expenses totaled ¥1,358.7 billion (U.S.$17,419
million), a decrease of 2.6%, owing to comprehensive
spending cuts across the Canon Group implemented after
the earthquake to control expenses more efficiently. Cost-
reduction and expense-cutting activities contributed to
further reinforcing the company’s financial structure,
which helped make up for the significant drop in revenue
in the first half of the year mainly triggered by the earth-
quake, while also absorbing the financial impact of the
strong yen and the floods in the second half of the year. As
a result, operating profit dipped 2.4% to ¥378.1 billion
(U.S.$4,847 million) for the year and other income (deduc-
tions) declined ¥8.9 billion (U.S.$114 million), mainly due
to foreign currency exchange losses, leading to income
before income taxes of ¥374.5 billion (U.S.$4,802 million), a
decrease of 4.7% year-on-year. Net income attributable to
Canon Inc., however, grew by 0.8% to ¥248.6 billion
(U.S.$3,188 million) for the year owing to the lower effec-
tive income tax rate compared with the previous year.
Key performance indicators
The following are the key performance indicators (!KPIs") that