Canon Marketing Japan (CMJ) serves as the domestic sales company for Canon Inc. (TSE1: 7751), which has a 58.4% stake in CMJ (as of end-December 2020). In addition to selling Canon products, CMJ has its own IT solutions business.
The company’s consolidated segments are Consumer (22.9% of FY12/20 sales before adjustments), Enterprise (29.7%), Area (41.4%), Professional (5.4%), and Other (0.6%). In the Consumer segment, CMJ’s main customers are large domestic retailers, which it supplies with interchangeable lens digital cameras (single-lens reflex cameras, mirrorless cameras), interchangeable lenses, compact cameras, inkjet printers, and other products targeting general consumers. In the Enterprise segment, it supplies large and medium-sized Japanese companies with multifunctional peripherals (MFPs) and other office equipment, maintenance services for those devices, data center operation, and IT solutions. In the Area segment, it provides SMEs in Japan with MFPs and maintenance services, along with installation services and peripheral software for PCs and other non-Canon business equipment. In the Professional segment, the company provides industrial equipment including continuous feed printers and other devices for production printing, semiconductor manufacturing equipment, and device manufacturing equipment. Through this segment, the company also builds electronic medical record systems for hospitals in the healthcare sector.
CMJ intends to continue expanding from domestic sales of Canon products into the IT solutions field, with a focus on originality. It plans to improve profitability by leveraging its involvement with Canon business equipment to expand its services in IT and other fields. The Enterprise and Area segments will drive growth in these areas.
In FY12/20, CMJ reported consolidated sales of JPY545.1bn (-12.2% YoY), operating profit of JPY31.3bn (-3.5% YoY), recurring profit of JPY35.2bn (+3.8% YoY), and net income attributable to owners of the parent of JPY22.0bn (-1.1% YoY). Sales fell in all four major segments amid an expansion in telework and restrictions being placed on sales activities due to the impact of COVID-19. Operating profit declined only slightly, thanks to entrenched reductions in SG&A expenses and improved margins in the Consumer segment, largely on the back of growth in inkjet printers and high-value-added interchangeable lens digital cameras.
Following consecutive upward revisions to the full-year FY12/21 forecast at the time of Q1 and 1H results announcements, the company once again revised its forecast at the time of Q3 results announcement, this time lowering its sales target while raising the net income projection. The revised forecast calls for sales of JPY558.0bn (+2.4% YoY), operating profit of JPY35.0bn (+11.8% YoY), recurring profit of JPY35.8bn (+1.6% YoY), and net income attributable to owners of the parent of JPY25.5bn (+15.9% YoY). The company lowered its sales forecast by JPY9.0bn to reflect the tight supply conditions for its business equipment in the Enterprise and Area segments resulting from semiconductor shortages. Meanwhile, it left its previous profit forecasts unchanged owing to the rise in the share of high-value-added products and services in the IT solutions business sales mix and continued efforts from FY12/20 to curtail SG&A expenses. No change had been made to sales and earnings forecasts for the Consumer and Professional segments. The company raised its net income target in anticipation of gains from sales of investment securities.
The medium-term business plan is a rolling three-year plan that provides concrete strategies for achieving the goals in the company’s long-term management objectives. Under the leadership of the new representative director (appointed on March 26, 2021), CMJ announced its 2021–2025 long-term management objectives and 2021–2023 three-year management plan together at the time of its Q1 FY12/21 results announcement on April 23, 2021. According to the announcement, the company’s long-term objectives are based on the principles of coexistence, and aims to sustainably increase corporate value by solving social issues, enhance profitability, and improve management capital. Management targets for 2025 call for sales of JPY650.0bn, operating profit of JPY50.0bn, and ROE of 8.0%. The three-year management plan aimed at achieving these targets outlines a growth strategy centered on the IT solutions business while incorporating sales of Canon products. The three-year management plan calls for a sales CAGR of 8.2%, with targets for FY12/23, the final year of the plan, set at JPY600.0bn in sales, JPY40.0bn in operating profit, a 6.7% operating profit margin, and a 6.9% ROE.
Shared Research believes the company’s strengths are 1) its recurring revenue streams (recurring revenue businesses), 2) the powerful Canon brand, and 3) its strong balance sheet. Weaknesses include 1) limited domestic growth opportunities, 2) difficulty expanding its core business overseas, and 3) high volatility in the IT services market.
|Gross profit margin||35.2%||33.5%||33.5%||35.4%||36.1%||35.9%||35.4%||35.1%||32.4%||33.8%|
|Operating profit margin||1.3%||2.5%||2.6%||3.8%||4.1%||4.4%||4.8%||4.7%||5.2%||5.7%||6.3%|
|Recurring profit margin||1.7%||2.7%||2.8%||4.0%||4.3%||4.6%||5.0%||4.9%||5.5%||6.5%||6.4%|
|Per-share data (JPY)|
|Shares issued (year-end; '000)||151,080||151,080||151,080||151,080||151,080||151,080||151,080||151,080||151,080||131,080||-|
|EPS (fully diluted)||-||-||-||-||-||-||-||-||171.6||169.6||-|
|Dividend per share||20.0||24.0||24.0||40.0||45.0||50.0||60.0||60.0||60.0||60.0||60.0|
|Book value per share||1,827.3||1,907.5||1,980.2||2,082.6||2,136.2||2,163.0||2,290.7||2,337.0||2,502.4||2,664.2||-|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||102,522||108,435||102,282||120,607||99,573||107,285||136,979||135,571||53,993||59,631|
|Total current assets||302,093||316,608||324,938||339,596||347,542||362,141||397,506||387,244||377,403||380,349|
|Tangible fixed assets||91,928||99,564||99,684||100,059||99,310||96,701||75,090||71,987||82,813||83,729|
|Investments and other assets||33,969||30,415||29,559||29,184||30,150||32,064||32,750||34,292||39,011||36,855|
|Total current liabilities||151,090||163,397||164,914||164,770||159,678||156,966||157,398||129,903||120,023||108,440|
|Total fixed liabilities||45,367||45,088||45,086||44,623||49,385||59,841||55,911||65,317||58,582||52,049|
|Total net assets||251,307||254,088||257,075||270,352||277,438||280,919||297,522||303,570||325,092||346,114|
|Total liabilities and net assets||447,764||462,574||467,075||479,746||486,502||497,727||510,832||498,790||503,698||506,604|
|Total interest-bearing debt||3,355||0||73||0||0||0||435||216||175||128|
|Cash flow statement (JPYmn)|
|Cash flows from operating activities||8,715||33,767||28,780||38,190||29,730||33,306||28,885||16,990||22,052||38,490|
|Cash flows from investing activities||-12,107||-16,066||-25,757||-15,221||-44,536||-19,460||7,963||-10,526||-94,584||-26,174|
|Cash flows from financing activities||-3,811||-11,813||-9,105||-4,544||-6,224||-6,086||-7,145||-7,838||-8,557||-6,587|
Shared Research updated the report following interviews with Canon Marketing Japan Inc.
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||% of Est.||FY Est.|
|Gross profit margin||32.3%||32.0%||32.2%||32.4%||33.1%||33.1%||33.5%||33.8%||33.7%||34.6%||34.7%|
|Operating profit margin||4.6%||4.4%||5.2%||5.2%||5.5%||5.0%||5.2%||5.7%||7.5%||7.5%||6.7%||6.3%|
|Recurring profit margin||4.8%||4.7%||5.4%||5.5%||5.5%||6.3%||6.1%||6.5%||7.8%||7.8%||7.0%||6.4%|
|Gross profit margin||32.3%||31.7%||32.6%||32.9%||33.1%||33.0%||34.3%||34.4%||33.7%||35.5%||35.1%|
|Operating profit margin||4.6%||4.2%||6.5%||5.4%||5.5%||4.4%||5.6%||7.2%||7.5%||7.4%||4.9%|
|Recurring profit margin||4.8%||4.7%||6.6%||5.7%||5.5%||7.3%||5.7%||7.3%||7.8%||7.9%||5.1%|
The COVID-19 pandemic and related mitigation measures continued to weigh heavily on the Japanese economy. Personal consumption has remained in a slump, especially in terms of travel and dining out, as people refrained from going out following the Japanese government's repeated declaration of states of emergency and implementation of priority prevention measures. In terms of capital spending, there were signs of recovery due in part to improvements in overseas economies. IT investment in particular was robust due to continued strong interest in investment in the financial and manufacturing industries. Note, however, that in some part of the manufacturing industry, production lagged due to supply constraints resulting from semiconductor shortages.
Against this backdrop, cumulative Q3 sales increased by 1.3% YoY to JPY398.2bn thanks to expanded sales of digital cameras with interchangeable lenses as well as growth in SI service and data center sales on the back of aggressive IT investment by companies. Gross profit was JPY138.2bn (+5.0% YoY) and the gross profit margin improved to 34.7% (+1.2 pp YoY), thanks to growth in recurring revenues, including sales of interchangeable lenses in the Consumer segment and maintenance services for IT solutions in the Enterprise and Area segments. SG&A expenses remained in line with the previous year at JPY111.6bn (+0.3% YoY) due to careful control of personnel expenses, resulting in operating profit of JPY26.7bn (+30.8% YoY) and an operating profit margin of 6.7% (+1.5pp YoY).
|Segment profit margin||-5.0%||-0.5%||2.8%||5.2%||0.1%||4.0%||7.2%||9.8%||9.8%||10.9%||9.6%|
|Segment profit margin||-5.0%||3.2%||8.3%||10.5%||0.1%||7.8%||12.2%||14.7%||9.8%||12.0%||6.5%|
Cumulative Q3 sales were JPY87.9bn (+8.1% YoY). Although sales of inkjet printers declined, sales of digital cameras increased due to the contribution of new mirrorless cameras with interchangeable lenses and interchangeable lenses launched in the previous year. Segment profit was JPY8.4bn (+44.5% YoY), and the segment profit margin was 9.6% (+2.4pp YoY) due to strong sales of high-value-added inkjet printers especially in 1H and continued growth in digital cameras with interchangeable lens.
Sales of digital cameras with interchangeable lenses expanded sharply, due to the strong performance of RF mount interchangeable lenses for mirrorless cameras and other products following the launch of high-priced mirrorless cameras in the same period the previous year and a reaction to the steep drop in demand during cumulative Q3 FY12/20 due to the COVID-19 pandemic. Quarterly (three-month) sales volume of digital cameras with interchangeable lenses increased 20% YoY in Q1, 84% YoY in Q2, and 2% YoY in Q3.
Despite continued demand stemming from telework and online learning, sales of home-use inkjet printers were largely flat YoY due to the sharp increase in the number of units sold during cumulative Q3 FY12/20. Sales of printers with extra-large refillable ink tanks among others fell, hurt by product supply shortages due to the pandemic, leading to an overall decline in inkjet printer sales. Ink cartridge sales were down as well as the market contracted on a decline in color printing. Quarterly (three-month) inkjet printer sales by volume were up 34% YoY in Q1, down 23% YoY in Q2, and down 41% YoY in Q3, while ink cartridge sales by value were flat YoY in Q1, down 10% YoY in Q2, and down 4% YoY in Q3.
Sales of IT products grew on increased demand for PC peripherals as more people began working from home and on an increase in sales of gaming computers.
|Segment profit margin||7.4%||5.9%||5.8%||5.4%||7.6%||6.2%||5.5%||5.5%||8.0%||7.2%||7.1%|
|Segment profit margin||7.4%||4.3%||5.7%||4.1%||7.6%||4.4%||4.2%||5.4%||8.0%||6.4%||6.9%|
Cumulative Q3 sales were JPY129.3bn (+0.4% YoY). Sales of business equipment and other products, such as multifunctional peripherals (MFPs) for offices and laser printers, were constrained by product supply issues due to the pandemic, but IT solutions sales were boosted by the strong performance of the company's main subsidiary. Segment profit was JPY9.1bn (+28.7% YoY) and the segment profit margin was 7.1% (+1.6pp YoY) due to an increase in gross profit margins from higher IT solutions sales.
Sales of business equipment decreased by 6% YoY in Q3 (three-month period). Sales of office MFPs and laser printers declined as major companies continued to curb capital spending on office equipment and products were in short supply. Sales for maintenance services for office MFPs fell, impacted by lower print volumes at the offices of major companies as teleworking became more commonplace. Sales of laser printer cartridges increased on higher sales primarily to financial institutions. IT solutions sales increased 9% YoY in Q3 (three-month period) thanks in part to the company securing system integration (SI) projects for financial companies. Sales from the second data center were also steady. Engineering services were on a recovery trend centered on development projects for systems to be included in Canon products. The company also secured large BPO projects for the financial industry amongst others. Sales at Canon IT Solutions, a mainstay subsidiary, rose 12% YoY in Q3 (three-month period), and operating profit rose 53% YoY, driving higher sales in the IT solutions business. In January 2021, sales activities for semi-major and medium-sized companies were transferred to this segment from the Area segment, and from the current fiscal year, the Enterprise segment has carried out sales activities for major, semi-major, and medium-sized companies. The results for the previous year have been retrospectively adjusted.
|Segment profit margin||5.9%||5.5%||6.0%||5.6%||6.0%||4.4%||4.2%||4.4%||7.0%||6.6%||5.6%|
|Segment profit margin||5.9%||5.1%||7.1%||4.4%||6.0%||2.4%||3.7%||4.8%||7.0%||6.2%||3.3%|
Cumulative Q3 sales were JPY156.9bn (-0.8% YoY). Sales of business equipment and other products, such as multifunctional peripherals (MFPs) for offices and laser printers, declined due to the impact of the pandemic and shortages of semiconductor components, but IT solutions sales were underpinned by a strong performance in the IT support and cybersecurity-related services. Segment profit was JPY8.9bn (+33.3% YoY), and the segment profit margin was 5.6% (+1.4pp) due to higher profit in 1H despite lower profit in Q3 (3-month period) due in part to sluggish sales of business equipment.
Sales of business equipment decreased by 12% YoY in Q3 (three-month period). Sales of office MFPs, laser printers, and other products declined due to supply issues as a result of reduced overseas production due to the pandemic. Sales for maintenance services for office MFPs and laser printer cartridges decreased due to a decline in print volumes in offices, which reflected the impact from increased teleworking as the state of emergency covered a wider area than the previous year. IT solutions sales for Q3 (three-month) were flat YoY. Sales of cybersecurity-related products, such as ESET antivirus software, increased as demand continued to grow for the establishment of telework environments. The company also increased orders by focusing on bringing in IT equipment maintenance and operating service contracts. During Q3 (three-month period), Canon System & Support, a key subsidiary, reported a 4% decline in sales and a 115% increase in operating profit, as robust sales in the IT solutions business offset sluggish hardware sales. The company continued to focus on acquiring IT equipment maintenance and operating services contracts. In addition, network camera sales by value increased 13% YoY in Q3 (three-month period) due to an increase in network camera projects in line with rising cybersecurity-related demand.
|Segment profit margin||6.9%||5.7%||5.1%||3.9%||7.9%||8.5%||7.9%||6.4%||8.7%||10.0%||9.0%|
|Segment profit margin||6.9%||4.3%||4.0%||-0.6%||7.9%||9.0%||6.5%||1.5%||8.7%||11.3%||6.6%|
Cumulative Q3 sales were JPY21.8bn (-3.4% YoY) due to sluggish growth in production printing and healthcare. Segment profit was JPY1.9bn (+9.8% YoY), and the segment profit margin was 9.0% (+1.1pp YoY), thanks to strong sales of industrial equipment.
Production printing sales were down, hurt by declining print volumes and the resulting drop in sales of related consumables, and sluggish demand for monochromatic feed printers.
Against the backdrop of robust demand from the semiconductor industry, industrial equipment sales rose owing to increased sales of inspection and measuring equipment and semiconductor production equipment-related maintenance services.
Despite an increase in the number of projects for clinics, sales fell YoY due to a decline in the number of large projects tied to the installation of electronic medical record systems and medical IT infrastructure for hospitals compared to Q3 FY12/20, as well as a drop in the number of projects for dispensing pharmacies.
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Act.||2H Act.||FY Act.||1H Act.||2H Act.||FY Act.||1H Act.||2H Est.||FY Est.|
|Cost of sales||195,532||207,886||403,418||206,070||214,038||420,108||175,746||185,332||361,078||180,080|
|Gross profit margin||34.9%||35.3%||35.1%||32.0%||32.8%||32.4%||33.1%||34.4%||33.8%||34.6%|
|Operating profit margin||3.2%||6.0%||4.7%||4.4%||6.0%||5.2%||5.0%||6.4%||5.7%||7.5%||5.1%||6.3%|
|Recurring profit margin||3.7%||6.1%||4.9%||4.7%||6.2%||5.5%||6.3%||6.6%||6.5%||7.8%||5.0%||6.4%|
In its initial forecast, CMJ projected sales in the Consumer segment to remain generally flat YoY while forecasting YoY sales growth in the Enterprise, Area, and Professional segments on a recovery in office-related demand and the positive effects from planned sales promotions. Additionally, on the profit side, the company stated its intention to continue its initiatives to reduce SG&A expenses it implemented in FY12/20.
In the revisions announced at end-Q1, the company upwardly revised its initial forecast for the Consumer segment by JPY7.0bn for sales and JPY1.0bn for operating profit to reflect strong sales of high-value-added products. At the same time, it upwardly revised its initial operating profit forecast by JPY300mn for the Enterprise segment and JPY200mn for the Area segment to account for improved profitability.
Alongside the announcement of 1H results, the company again raised its full-year operating profit forecast by JPY1.0bn. It also lifted its recurring profit forecast by JPY1.0bn and its net income forecast by JPY700mn. The upward revisions were due to the company lifting its forecast for operating profit in the Consumer segment JPY1.0b, largely in line with improving gross profit thanks to high-added-value products accounting for a greater share of segment sales. The company made no changes to the forecasts for other segments announced alongside the release of Q1 results.
At the time of Q3 results announcement, the company lowered its sales forecast by JPY9.0bn while lifting its net income target by JPY1.3bn. The downgrade to sales was due to the impact of product supply shortages in business equipment across both the Enterprise and Area segments. According to the company, hardware production will be slightly impacted by shortages of semiconductors and other components in Q4 FY12/21, but should return to normal from FY12/22. In addition, the company explained that the decline in orders at its enterprise IT solutions subsidiary in Q3 was due to a drop in orders against a strong comparative previous year, when orders were boosted by large-scale data center-related projects. Orders are currently showing an improving trend. Despite the downward revision in sales, the company has not changed its previous profit forecasts based on an improved product mix and the continued benefit of cost savings. Net income has been revised upward to reflect the impact of the sale of investment securities.
No change was made to the segment earnings forecast at the time of Q3 results announcement. The segment forecast released along with Q1 results called for sales of JPY128.1bn (+3% YoY) and operating profit of JPY10.0bn (-19% YoY). When announcing 1H results, the company maintained its sales forecast, but lifted its operating profit forecast JPY1.0bn to JPY11.0bn (-13% YoY) on expectations for high-added-value products (both in the interchangeable lens digital camera and inkjet printer categories) accounting for a greater share of the sales mix. No revision was made to the sales and profit forecasts at the time of the announcement of Q3 results. However, sales forecasts by product were revised. The company forecasts a 10% YoY increase (30% YoY increase in the previous forecast) in unit sales of interchangeable lens digital cameras, a 3% YoY decline (unchanged) in unit sales of inkjet printers, and a 4% YoY decline (unchaged) in sales values of inkjet printer cartridges.
At the time of Q3 results announcement, the company lowered its initial segment sales forecast of JPY192.7bn (+5% YoY) by JPY4.2bn to JPY188.5bn (+2% YoY) due to the impact of product supply shortages and a review of the expected timing of booking sales of SI services for business impacted by the pandemic. The company made no change to its previous segment operating profit forecast of JPY11.9bn (+27% YoY), which had been raised JPY300mn at the time of 1H results announcement, owing to the increase in the share of high-value-added IT solutions services in the sales mix.
At the time of Q3 results announcement, the company lowered the segment sales forecast from JPY228.5bn (+2% YoY) by JPY4.5bn to JPY224.0bn (flat YoY) to account for the short supply of business equipment products due to semiconductor shortages. Meanwhile, it maintained its segment operating profit forecast at JPY11.7bn, which had been raised JPY200mn at the time of 1H results announcement, owing to enhancements in high-value-added services and products in the IT solutions business, as was the case in the Enterprise segment.
The company revised its forecast for business equipment (in terms of the number of units sold) at the time of Q3 results announcement. It expects overall unit sales of office-use multifunctional peripherals (MFPs; including rentals), which are included in both the Enterprise and Area segments, to decline 5% YoY (previous forecast was +12.% YoY), and sales of maintenance services (for business equipment) to fall 2% YoY (previous forecast -3% YoY). Additionally, it expects overall unit sales of laser printers to decline 18% YoY (previous forecast -2% YoY) and sales value of laser printer cartridges to be flat (previous forecast -2% YoY). In the IT solutions business, the company expects sales from SI services to expand 10% YoY (previous forecast +17%), maintenance and operation services/outsourcing to grow 11% YoY (previous forecast +10% YoY), and IT products and system sales to be flat (previous forecast +2% YoY).
As of the time of Q3 results announcement, the company had made no change to its initial forecast calling for sales of JPY34.7bn (+13% YoY) and operating profit of JPY2.4bn (+26% YoY) for the segment. Industrial equipment sales are expected to grow due to strong demand from the semiconductor industry, while production printing and healthcare sales are also expected to be weighted toward Q4. By category, the company expects sales to rise 4% YoY in production printing, 28% YoY in industrial equipment, and 1% YoY in healthcare.
The company’s medium-term strategy includes two layers. The medium-term plan is updated annually on a rolling basis and is informed by business strategies formulated from a long-term perspective.
Looking back on the FY12/16--FY12/20 long-term plan, the company made progress in transforming its business portfolio, strengthening its high value-added IT solutions business, and improving its operating profit margin by reviewing its cost structure. The IT solutions business accounted for 27% of total sales in FY12/15, but this rose to 37% in FY12/20. In addition, the operating profit margin improved from 4.1% in FY12/15 to 5.7% in FY12/20, due in part to cost restructuring efforts. Along with these management achievements, the company helped maintain and improve market share for Canon's many market leading products including interchangeable lens digital cameras, inkjet printers, laser printers, and office MFPs. In addition, the company has shifted from a product-oriented company organization to a customer-driven matrix organization, and has established a system that prioritizes customer service.
On April 23, 2021, the company announced its new long-term management plan and medium-term plan beginning on FY12/21 together with its Q1 FY12/21 earnings announcement. However, in light of the planned representative director change in March 2021 and the uncertainties surrounding the continued impact of the COVID-19 pandemic, CMJ decided to make the announcement at end-Q1 rather than at the time of its FY12/20 earnings announcement.
CMJ released its 2020 Integrated Report along with the 1H results released on July 27, 2021. The report contained a performance review and overview of trends and strategies for each segment, while also discussing the newly announced medium-term plan and social contribution efforts contained therein.
Place the corporate philosophy “Kyosei” (living and working together for the common good) at the core of all corporate activities
The company has placed “Kyosei”, which it adopted as its corporate philosophy in 1999, at the core of its long-term management plan (FY12/21 to FY12/25). The company believes that the philosophy is still relevant even with the focus on SDGs today, and has placed it at the core of its long-term management plan to show its commitment to promoting sustainability management.
In the past, the company has reviewed its business portfolio in response to changes in the market environment. Under this long-term management plan, however, the company will work to “solve social issues through business” by combining its Canon product business and IT solutions business to expand the range of issues it can solve. The company aims to become a "professional corporate group that solves social and customer issues using ICT and the power of humans." In line with this, the company has adopted the following three basic strategies.
1. Sustainably increasing corporate value by solving social issues through business
2. Becoming a high-profit corporate group
Business reform placing IT solution business at the center of growth
Improving the sales system for each customer segment using the customer base
Increasing the added value and enhancing profitability with respect to the Canon product business
3. Creating a virtuous circle by improving management capital
Accelerating business growth by developing skilled human resources and increasing engagement
Accelerating business growth through strategic investment
The management targets for FY12/25, the final year of the long-term management plan, call for sales of JPY650.0bn (including sales of JPY300.0bn from IT solutions), operating profit of JPY50.0bn, and ROE of 8.0%. The company has highlighted the IT solutions business as a growth driver. Of its JPY300.0bn target for FY12/25, the company plans to raise the share of sales from maintenance and operation services/outsourcing to 25% (vs. 17.8% in FY12/20), focusing not only on growing the IT solutions business, but also on improving profitability.
The medium-term plan (FY12/21 to FY12/23), which was announced together with the long-term plan (FY12/21 to FY12/25), outlines specific business strategies for the company to achieve the long-term plan.
Under the medium-term plan (FY12/21 to FY12/23), the company has divided its business portfolio into three major business areas: IT solutions, Canon products, and specialized areas and new businesses, and will work to focus on selective areas within each business.
The company positions the IT solutions business as the core of its growth, and will expand its service-oriented business model in particular. In addition, document solutions, which the company has differentiated by combining with Canon products, will be positioned as part of the IT solutions business, and the company will expand the scope of its solutions offering. By promoting this business, the company will also be able to grow its Canon product business. In the Canon product business, the company will operate in close collaboration with its other businesses with an eye on profitability. As for specialized areas and new businesses, the company is currently aiming to expand its industrial equipment business.
With respect to the connection between the company’s businesses and segments, the IT solutions business is included in the Enterprise, Area, and Professional segments, and the Canon product business is centered on the Consumer segment, but also related to the Enterprise, Area, and Professional segments.
|2021–2023 Medium-term targets||FY12/20||FY12/21||CAGR||FY12/23|
|Operating profit margin||5.7%||6.0%||6.7%|
|Net income attributable to owners of the parent||21,997||23,500||26,500|
The company’s domestic IT market growth projection by customer segment and business segment is as follows. According to the company, by customer segment, it expects large, semi-large, and medium-sized companies to grow at an average rate of 4.7% between FY12/21 and FY12/23 (based on company data), and small and medium-sized companies at 3.7%. By business category, the company expects security services to grow 11.0% and ITO (Information Technology Outsourcing) and BPO (Business Process Outsourcing) services to grow 5.5%.
CMJ believes that the needs for IT solutions differ depending on the size of the customer (based on number of employees), and has divided its customer demographics into two segments: Enterprise for large, semi-large, and medium-sized companies, and Area for small and medium-sized companies.
The company’s IT solutions business is mainly included in the above two segments, and it aims to grow its collective IT solutions business at an 8.2% CAGR over the three-year period of its medium-term plan starting in FY12/21. It plans to expand its IT solutions business in the Enterprise segment to JPY130.3bn in FY12/21 and to JPY154.0bn in FY12/23, and its IT solutions business in the Area segment to JPY66.3bn in FY12/21 and to JPY78.0bn in FY12/23.
In the IT solutions business, CMJ aims to build a service-oriented business model that enables it to provide services to customers on an ongoing basis, rather than selling goods or handling spot projects.
In the Enterprise segment, which targets large, semi-large, and medium-sized companies, the company will emphasize "co-creation with customers," deepen its understanding of customer businesses and markets, and develop what it calls Edge Solutions (solutions that focus on areas, industries, and technologies that the company considers its strengths). In the Area segment, which targets small and medium-sized companies, the company will build ongoing relationships with customers and fully support their businesses while leveraging its nationwide service offices and partnerships. In addition, regardless of the segment classification, the company plans to contribute to its customers’ IT strategies by providing security support services, for which demand is rising, and outsourcing services using its data centers.
CMJ has set KPIs for its IT solutions business by customer segment. In the Enterprise segment, the Edge Solutions business recorded sales of JPY18.0bn in FY12/20, and the company aims to expand this to JPY33.0bn in FY12/23. In addition, the company plans to boost contract numbers for its HOME service (small and medium-sized office support service providing security, cloud storage, and other services as a monthly subscription) and IT maintenance and operation services in the Area segment from approximately 110,000 in FY12/20 to approximately 160,000 in FY12/23. For its security-related business, which is included in both the Enterprise and Area segments, the company aims to grow sales from JPY28.0bn in FY12/20 to JPY38.0bn in FY12/23, with plans to expand sales for ITO and BPO from JPY13.5bn in FY12/20 to JPY21.0bn in FY12/23.
|Maintenance/operations services and outsourcing||34,700||40,700||50,000|
|IT products/system sales||95,100||103,100||100,000|
The company’s basic stance for its Canon product business is to improve its strategy as a device linked to the IT solution business. In addition, it aims to create profits through thorough streamlining.
Major products in the Canon product business include interchangeable lens digital cameras, inkjet printers, office MFPs, and laser printers. The market for all products except inkjet printers contracted substantially in FY12/20 and the company expects the markets to continue contracting. However, the structure of the interchangeable lens digital camera market itself is changing, and the company expects it to recover as the mirrorless camera market is driven by the high-end amateur customer base. As for inkjet printers, the company anticipates that the market will shrink over the medium to long term, although it expects that demand for teleworking and home-study use will continue to increase.
The Canon product business comprises of the BtoC business and the BtoB business. In the BtoC business, the company considers the photo imaging field, which mainly targets professionals, and the photo (digital cameras) and image (home inkjet printers, etc.) fields, which mainly targets ordinary consumers, as important business areas, and will focus on fostering a photo culture.
In the BtoB business, the company will strengthen its printing services using laser beam printers and office MFPs that are suitable for specific business types and business operations, and in commercial and industrial printing, the company will provide solutions that help customers improve overall productivity of their printing process. In terms of solutions for offices, the company will provide comprehensive printing services that make full use of office MFPs, various IT devices, and input/output devices to meet the changes in work styles created by the COVID-19 pandemic. In addition, the company will strengthen its device strategy in sync with IT solutions and work to create synergies among its businesses.
To maximize the value of human assets, which are the foundation of the sustainable improvement of corporate value, the company will work on improving human resources and increasing engagement. To improve human resources, it will step up leader development efforts, improve employees’ skills, and actively promote outside personnel. To improve engagement, the company will visualize and monitor engagement through employee awareness surveys, and promote the enterprising spirit that embodies CMJ's corporate culture.
CMJ will invest in businesses with an eye on capital efficiency and profitability, and continue facilitating the cycle of reinvesting profits produced from these investments in growth businesses. The company's investment policy consists of: business investment in focus areas, construction of data centers and other facilities, corporate investment and M&A; system investment in renewal of core systems and improvement of productivity in existing businesses through internal DX; and human resource investment in development and promotion of leader candidates and support for employees' efforts to improve their skills. The company plans to invest approximately JPY100.0bn over the three-year period of the new medium-term plan, using the funds accumulated during the previous plan.
The company’s basic policy is to pay dividends to shareholders based on a payout ratio of at least 30% while taking into comprehensive consideration of the medium-term profit forecast, investment plans, and cash flows.
The company's predecessor, Canon Sales Co., Inc., was founded in 1971, following the merger of Canon Business Machines Sales, Inc. (found in 1968 from Canon Inc. [TSE1: 7751]’s Office Machine Sales Division), Canon Business Machines Services, Inc., and Canon Camera Sales Co., Inc. The company adopted its current name in 2006, and also began moving into other fields, including IT solutions, manufacturing, and healthcare, all while continuing its work to enhance the Canon brand.
As of the end of 2019, parent company Canon Inc. held 58.39% of CMJ shares outstanding. To a frequently asked question about why to list a subsidiary at all, CMJ comments that one of the motivations behind its IPO was to maximize its corporate value by developing independent businesses (e.g., IT Solutions) and acquiring companies through stock markets.
CMJ has exclusive distribution rights to Canon products in Japan, and is also responsible for maintenance and other support services, and all domestic marketing activities. Overseas sales and marketing are similarly supported by semi-independent local subsidiaries such as Canon USA in the US. Canon Inc. itself is engaged in product development and manufacturing.
The company switched to its current segment reporting structure in FY12/18. Almost all segments handle Canon brand products, with the Consumer segment handling Canon’s digital camera line (including single-lens reflex camera, mirrorless cameras, and compact cameras) as well as Canon’s inkjet printers and ink cartridges. The Enterprise and Area segments both handle sales of Canon multifunctional peripherals (MFPs) while the Professional segment handles sales of professional-use printers and other equipment, including medical equipment. The Enterprise segment, the Area segment, and the Professional segment also handle system integration services, business software, and data center services, and the revenues derived from these non-manufacturing businesses and the sale of non-Canon products have been growing both in absolute terms and as a percent of total sales.
While its dependence on the parent Canon Inc. would seem obvious, CMJ notes that its relationship with the parent is intentionally designed to mimic that of an independent sales company and its supplier. The pricing is set through negotiations, i.e., Canon does not control pricing at CMJ. CMJ sets market share targets for each product, determines price points, sets the marketing budget (CMJ carries the burden of all non-corporate advertising and product promotions) and its own profit margins, and then negotiates its purchase prices with Canon based on that analysis.
Until the end of FY12/17, CMJ divided its businesses into Business Solutions, Imaging Systems (mainly sale of digital cameras and inkjet printers), IT Solutions, and Industrial Equipment, with each segment being effectively defined by the type of product and service they handled. However, in January 2018, the company shifted its organizational structure from the previous product driven structure to a consumer driven one, and reporting segments changed.
The new segments are as follows:
Consumer: Just as in the previous Imaging Systems business, this serves individual customers,
Enterprise: Targeting large corporations, providing input/output devices and sector-specific IT solutions and services,
Area: An SME version of the Enterprise business. In addition to selling I/O devices, provides one-stop security and other IT solutions, and
Professional: Developing solutions businesses targeting customers in specific sectors (production printing, industrial equipment, healthcare, network cameras and other imaging solutions).
|Segment profit margin||7.6%||4.9%||5.2%||9.8%|
This segment handles products designed for consumer use.
The segment largely inherited the former “Imaging Systems”.
In FY12/13, the segment name was changed from previous Consumer Imaging to Imaging System, though with almost no change in the types of products handled. The company acts as a wholesaler, directly supplying Canon consumer products such as digital SLR cameras, compact digital cameras, home-use printers, and digital camcorders, as well as commercial imaging equipment, to large electronics retailers and other retailers focusing on camera sales. The main sources of revenue within the segment are cartridges for inkjet printers and digital SLR cameras (as well as the cameras’ interchangeable lenses).
In FY12/12, the broadcasting equipment business was transferred from the Industrial Equipment segment to the Imaging System segment. CMJ sells HD-compatible lenses for TV cameras and such solutions as disaster-prevention surveillance camera systems for municipalities. In addition, CMJ entered the motion picture production market with the January 2012 launch of the Cinema EOS System (a family of motion picture production equipment), and the company is aiming to capture a share of the growing 4K market.
4K: Television technology that provides display resolution four times greater than full HD. The horizontal pixel count is approximately 4,000, hence the name “4K TV.”
|Segment profit margin||4.4%||4.6%||5.1%||5.2%|
The Enterprise segment handles input/output devices and also provides IT solutions and services designed to meet the industry-specific needs of large companies.
The segment took over the businesses for large companies from the old Business Solutions and IT Solutions segments.
Canon IT Solutions Inc. is a key subsidiary.
The mainstay business under the Enterprise segment is IT solutions services, which includes systems integration (SI) services, IT infrastructure services, and engineering services. CMJ had developed roughly 15% of its software to be included with Canon products or for systems used by Canon, the remaining 85% is designed for outside customers. To cope with volatility caused by the economic environment, the company has been focusing on outsourcing and other services capable of producing recurring revenues. In line with this, the company began operating the Nishi-Tokyo Data Center in October 2012, started construction of a new building in March 2019, and commenced operations of the new building in 2020.
Under SI services, the company handles the entire information systems development process for client companies, from needs analysis all the way through development, installation, and operations. In Scratch Development (i.e., new development as opposed to customization or adding functions) CMJ has developed systems for companies in the financial, manufacturing, and distribution/services industries. The SI Solutions includes healthcare-related systems, CAD and ERP solutions for manufacturers.
IT Infrastructure Services range from system integration and virtualization to next-generation networks, data centers, and business process outsourcing (BPO).
CMJ built a new data center in Nishi-Tokyo with a lot area of 16,532sqm and space for the equivalent of 2,300 server racks. The new center opened in October 2012 as a core facility of the outsourcing service business and cloud services. The center has a base-isolated structure combining a seismic isolation system and oil dampers. This structure reduces the building’s seismic motion. The lots and building have seven up to layers of security. The entire building is covered by an electromagnetic shield effective in blocking mobile phones and other radio signals to prevent data leaks.
Embedded System: CMJ develops embedded software for mobile phones, cars, etc.—both for Canon and third parties.
Products: Sales of (generally non-Canon) hardware and packaged software.
|Segment profit margin||4.4%||4.7%||5.4%||4.2%|
The Area segment handles input/output devices and also provides IT solutions and services designed to meet the industry-specific needs of SMEs.
The segment took over the businesses for SMEs from the old Business Solutions and IT Solutions segments.
Canon System & Support Inc. is a key subsidiary.
The mainstay business under the Area segment is to act as a business concierge for customer companies to help boost their operational efficiency by integrating office equipment centered on Canon products with software and operational services.
To provide appropriate customer support, the company hires support engineers nationwide. In addition, CMJ operates a remote-monitoring service called NETEYE to automatically detect low toner levels or other issues.
CMJ sells directly to larger companies but primarily uses partners (distributors) and group companies to sell to smaller customers.
When a partner distributes Canon products, it books the sales of hardware but only receives commission on the maintenance and support revenues. The support contract is concluded directly between CMJ and the end user.
Sales is categorized under the Enterprise business or the Area business based on the nature of services offered, which is dependent on the size of the customer company. Based on this, responsibilities are divided among the relevant divisions of the parent company and each segment.
|Segment profit margin||-||1.8%||3.7%||6.1%|
In the industrial equipment field, the company mainly deals with semiconductor-related equipment, working with global companies to provide products both domestically and internationally. As an example, CMJ sells U.S.-based Mattson’s semiconductor manufacturing equipment (e.g., lamp anneal), as well as semiconductor inspection and measurement equipment (e.g., wafer inspection systems. In addition, it offers Canon-made precision-engineered components and semiconductor manufacturing equipment as well as overseas-manufactured optical profilers.
In the medical field, the core business through the end of FY12/19 was operated by Canon Lifecare Solutions Inc. (formerly ELK Corporation, acquired in 2011), which within the medical imaging field handled medical imaging diagnostic equipment, preventive medicine (health check-up) support equipment (systems for facilities specializing in health check-ups), image filing systems for private medical practices, and other medical equipment and systems. However, in November 2019, Canon Inc. announced that it would be restructuring the group’s medical business. As a part of this, Canon Lifecare Solutions became a wholly owned subsidiary of group company Canon Medical Systems in FY12/20, and was deconsolidated from CMJ.
Recurring revenue streams (recurring-revenue businesses): A high percentage of CMJ revenues are recurring thanks to maintenance services and toner cartridges in Business Solutions and consumables for inkjet printers in Consumer Imaging.
Sharing a powerful Canon brand: CMJ strongly benefits from its association with Canon brand, one of the most recognized and powerful brands in Japan. Shared Research thinks this brand strength represents a substantial opportunity for CMJ in its push to grow its IT solutions business.
Strong balance sheet: The company has a substantial war chest to buy growth (the problem being finding the growth domestically and learning about overseas opportunities). It could also substantially enhance shareholder returns (the problem being a restrictively large Canon stake; as of 2012 this aspect should probably be valued for its option value not the immediate likelihood).
Limited domestic growth opportunities: While the company should be able to improve (restore) its profitability, the organic growth opportunities in Japan are severely limited by the lack of economic growth. It seems to Shared Research that the IT services business is the only one CMJ could buy some growth. However, there is a dearth of growing IT services of the quality and size that would match CMJ needs. In the core business only a sudden death of a competitor would provide a clear opportunity for a sustainable expansion.
Inability to expand the core business overseas: Because of the traditional split of responsibilities within the Canon group, CMJ is restricted from pursuing business opportunities overseas in the core areas of Business Solutions and Consumer Imaging. That leaves the company mostly with industrial equipment (including medical imaging) and IT services.
High volatility in IT services market: In the IT Solutions segment, where the company is aggressively pursuing M&A in line with its ITS3000 vision (JPY300bn in sales of IT services), the market environment is changing rapidly, such as with the emergence of cloud services, and customer needs are diversifying accordingly. Although CMJ has a proven track record in domestic sales of Canon products, it will need to rely on M&A and other external sources to incorporate the increasingly diverse IT solution technologies available in the market. With a need for swift action, the company will also need to make decisions in line with the Canon Group’s business strategy.