Canon 2015 Annual Report Download - page 36

CANON ANNUAL REPORT 2015
34
FINANCIAL OVERVIEW
GENERAL
The following discussion and analysis provides information
that management believes to be relevant to understanding
Canon’s consolidated financial condition and results of opera-
tions. 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, office multifunction devices
(“MFDs”), laser printers, cameras, inkjet printers, semiconduc-
tor lithography equipment and FPD (Flat panel display) lithog-
raphy equipment. Canon earns revenues primarily from the
manufacture and sale of these products domestically and
internationally. Canon’s basic management policy is to con-
tribute to the prosperity 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 Office
Business Unit, the Imaging System Business Unit, and the
Industry and Others Business Unit.
Economic environment
Looking back at the global economy in 2015, the U.S. econ-
omy continued to grow steadily as employment conditions
and consumer spending progressively improved. In Europe,
developed countries such as the U.K. led a moderate eco-
nomic recovery. In contrast, the growth of China’s economy
continued to decline, weighed down by excessive investments,
and the economies of emerging countries, including those of
Southeast Asia and India, slowed due to such factors as the
recession in China and a decline in resource prices. As for the
Japanese economy, improvements were seen in both corpo-
rate earnings and employment conditions during the year.
Despite expectations at the beginning of 2015 that the global
economy would realize a modest recovery led by the U.S.
economy, during the second half, as the slowdown in China’s
economy became evident, emerging economies also grew
weaker. As a result, the global economy overall experienced its
lowest level of growth since the financial crisis precipitated by
Lehman Brothers’ bankruptcy in 2008.
Market environment
As for the markets in which Canon operates amid these condi-
tions, demand for office MFDs remained firm, mainly for color
models. As for cameras, the interchangeable-lens digital cam-
era market continued to face harsh conditions owing to cur-
rency depreciations in emerging countries and the slowing
growth in China. Likewise, demand for digital compact cam-
eras also declined amid the shrinking market. Additionally,
demand for inkjet printers decreased in emerging countries,
mainly in Asia, due to the depreciations of emerging coun-
try currencies and the slowdown in China. In the industrial
equipment market, ongoing strong investment by manu-
facturers led to healthy demand for semiconductor lithogra-
phy systems for memory devices, image sensors and power
semiconductor devices. Additionally, demand for lithogra-
phy equipment used in the production of flat panel displays
(“FPDs”) increased for large-size panels as device manufac-
turers boost capital investment for larger-size LCD panels that
offer higher levels of resolution.
The average value of the yen during the year was ¥121.13
against the U.S. dollar, a year-on-year depreciation of approx-
imately ¥15, and ¥134.20 against the euro, a year-on-year
appreciation of approximately ¥6.
Summary of operations
Sales of digital cameras and inkjet printers declined in the face
of continued harsh conditions, mainly in China and emerging
Asian countries. By contrast, sales of color-model office MFDs
and color-model light-production printing systems increased
steadily. Sales of semiconductor lithography equipment and
FPD lithography equipment also largely exceeded those for
the previous year thanks to favorable market conditions.
Consequently, benefitting from the boost provided by the
acquisition of Axis and the positive effect of favorable currency
exchange rates, net sales for the year increased 2.0% year on
year to ¥3,800,271 million. The gross profit ratio for the year
rose 1.0 point year on year to 50.9% thanks to ongoing cost-
cutting activities and highly profitable new products. Operating
expenses increased 5.4% year on year to ¥1,579,174 million
owing to such factors as the increase in foreign-currency-
denominated operating expenses after conversion into yen due
to the depreciation of the yen, along with the impact of the
acquisition of Axis and an increase in R&D expenses related to
new products. As a result, operating profit decreased by 2.3%
to ¥355,210 million. Other income (deductions) decreased by
¥27,522 million due to foreign currency exchange losses, lead-
ing to a year-on-year decline in income before income taxes of
9.3% to ¥347,438 million, and a decrease in net income attrib-
utable to Canon Inc. of 13.6% to ¥220,209 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 35.
Revenues
As Canon pursues the goal 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 primar-
ily from the sale of products and, to a lesser extent, provision
of services associated with its products. Sales vary depending
on such factors as product demand, the number and size of
transactions within the reporting period, market acceptance
for new products, and changes in sales prices. Other factors