Canon Inc

Hello, everyone. I am Hatsumi Hirokawa. Thank you very much for joining the results presentation meeting, despite your busy schedules. Now we will explain the results for the second quarter of 2026 and the forecasts. We will proceed according to the order of this agenda. On the third page, I will review the key points of the second quarter results. In the second quarter, sales rose and income declined year on year, but operating income was around the same level as the second quarter of the previous year, when we set a record high. Both sales and income were largely in line with our internal forecasts. Additionally, despite a reactionary fall from PC replacement demand due to the end of support for Windows 10, we managed to remain on an upward trend, with sales up 10% year on year in SI solutions and 8% in service outsourcing, while total sales in IT solutions rose 3% year on year. In light of this progress, we have upwardly revised our full year forecasts for operating income by 3.0 billion yen, ordinary income by 3.3 billion yen, and net income by 2.0 billion yen. We will aim for year-on-year increases in sales and income coupled with new record highs for the sixth consecutive year. Next, I would like to highlight a key topic from the second quarter. We published Integrated Report 2026. For this year's Integrated Report, we have adopted the theme of paving the way to the future and further success through CEO creation, the road to 2030, and have sought to help stakeholders understand how the Canon MJ Group will enhance its corporate value over the medium to long term. You can find Integrated Report 2026 on the Canon MJ Group website. I encourage you to check the report and share any feedback or impressions during individual interviews or other occasions. The fourth page shows a summary of the results for the second quarter. In the second quarter sales increased and income declined year on year. Sales increased 1% year on year to 168.1 billion yen, owing to solid performance in the IT solutions business. Operating income declined 0.2 billion yen year on year, to 14.0 billion yen, reflecting a decrease in gross profit margin. Net income attributable to owners of the parent decreased 0.2 billion yen to 9.8 billion yen. The fifth page shows an analysis of operating income for the second quarter. Due to the rise in net sales, gross profit increased by 0.5 billion yen. Gross profit margin has deteriorated, mainly due to a decline in high-margin industrial equipment in the professional segment sales mix, in addition to unprofitable projects in the enterprise segment, especially system integration projects for the distribution industry. SG&A expenses declined by 0.6 billion yen, in part reflecting decreases in personnel expenses, more than offsetting higher IT expenses. For details of the second quarter SG&A expenses, please refer to SG&A expenses on page 31. The sixth page shows the summary of the results for the second quarter by segment. Net sales declined in the area and professional segments, but rose in the enterprise and consumers segments. Operating income decreased in the enterprise, area, and professional segments, while it rose in the consumers segment. Later, I will explain the details of the financial results by segment. The seventh and subsequent pages show the results for the first six months of 2026. Net sales in the first six months of 2026 increased, especially benefiting from solid performance from IT solutions, while Canon Products and other business remained on PAR with the previous fiscal year. Operating income rose due to an increase in gross profit driven by higher net sales, achieving a record high for the first six months of the fiscal year. Both ordinary income and net income attributable to owners of parent increased, also representing record highs for the first six months. The eighth page shows an analysis of operating income for the first six months of 2026. Due to the rise in net sales, gross profit increased by 1.9 billion yen. Gross profit margin grew, in part due to high value added products and services, primarily in the enterprise segment and consumers segment, being a larger percentage of the total sale. SG&A expenses declined by 2.1 billion yen, reflecting decreases in personnel expenses, amortization of goodwill, etc. For details about SG&A expenses for the first six months, please refer to SG&A expenses on page 32. The ninth page shows the summary of the results for the first six months by segment. Net sales declined in the area and professional segments, but rose in the enterprise and consumers segments. Operating income decreased in the professional segment, while it rose in the enterprise, area, and consumers segments. On the 10th page, I will explain the enterprise segment. For the second quarter, net sales increased 3% year on year to 67.2 billion yen, thanks to robust sales in IT solutions, in addition to the solid performance of Canon products and other. Operating income declined 0.4 billion yen year on year to 4.2 billion yen, reflecting higher SG&A expenses in addition to a deteriorating gross profit margin. Looking at Canon products and other, for office MFPs we secured multiple major projects and significantly increased sales volume as a result of active proposal efforts. Sales for office MFP maintenance services remained largely unchanged from the same period in the previous fiscal year, with an increase in the number of operating units and a higher percentage of color output offsetting the ongoing impact from the shift to paperless offices. Sales volume of LBP, laser printer, rose significantly thanks to a major project, while net sales for LBP cartridges also ticked upward following a major order. Consequently, net sales for the entire Canon products and other sub-segment increased 6% year on year. In IT solutions, there was a reactionary decline in demand for business PC replacements due to the end of Windows 10 support. However, overall sales improved 2% year-on-year thanks to smooth performance from application maintenance for the financial sector and system integration projects for the manufacturing sector. Next, I will explain the results for Canon IT Solutions Inc., a key affiliate. Due to the merger of TCS Inc. into Canon IT Solutions Inc. in July 2025, the results of the comparable second quarter from the previous year have been recalculated accordingly. Net sales at Canon IT Solutions Inc. rose 3% year-on-year to 38.9 billion yen. Operating income declined 0.9 billion yen year-on-year to 2.7 billion yen, reflecting unprofitable projects, especially system integration projects for the distribution industry, as well as increased SG&A expenses, including SE expenses associated with stepped-up proposal activities. orders received rose 13% year on year and set a new quarterly record, thanks to steady performance with data center projects as well as system integration projects for the financial sector. Outstanding orders declined 2% year on year in part due to sales switching to large data center projects. Outstanding orders outside the data center business rose 6% year on year to set a new record high, reflecting the securing of major IT infrastructure projects for the education sector, and system integration projects for the financial and manufacturing sectors. At Purimajest Inc., net sales declined in the second quarter in part due to some projects having been brought forward to the first quarter. However, total net sales over the first six months increased. Purima just achieved the synergy that was expected prior to joining the group, and in the second quarter it continued to secure multiple new orders from customers in the financial sector. On the 11th page, I will explain the area segment. For the second quarter, sales decreased by 1% year on year to 58.2 billion yen, reflecting a decline in IT solutions in addition to a slight decrease in sales from Canon products and other. Operating income declined ¥0.2 billion year on year to ¥5.6 billion, mainly reflecting a decrease in gross profit caused by lower sales. In Canon Products and other, sales volume increased slightly for office MFPs as we secured replacements with customers who had extended the use of their existing units, while actively pursuing proposal activities aimed at business streamlining. Sales volume for laser printers increased, supported by steady shipments through distribution channels. Sales of LBP cartridges increased, reflecting progress selling to business partners. However, sales from maintenance services for office MFPs declined, chiefly reflecting the continuing impact of the shift toward paperless offices. Consequently, net sales for the entire Canon products and other business sub-segment declined 1% year on year. In IT solutions, we saw an increase in the number of subscriptions for the Makayoshi TIT series that provides comprehensive support for sustainable management and DX implementation at SMEs, in addition to strong performance from security solutions such as ESET antivirus software. However, net sales declined 2% year on year, chiefly due to a reactionary fall in replacement demand for business PCs associated with the termination of support for Windows 10 in the previous year. Net sales for Canon System and Support Inc., a key affiliate, declined 3% year-on-year, to 27.0 billion yen. Operating income fell by 0.3 billion yen year-on-year to 1.9 billion yen due to an increase in personnel expenses as part of SGNA expenses, despite improved gross profit margins due to strong performance from security solutions such as anti-ransomware software. Despite the reactionary fall in demand for business PCs, Canon System & Support Inc. has steadily advanced growth-oriented initiatives, driving progress with the Makayoshi TIT series and an increase in projects providing support for compliance with the government's security measures evaluation system for supply chain reinforcement. On the 12th page, I will explain the consumers segment. Net sales in the second quarter increased 7% year-on-year to 36.1 billion yen. This was driven mainly by higher sales of compact cameras and inkjet printer cartridges. Operating income increased by 1.0 billion yen to 3.9 billion yen year-on-year. This is mainly due to higher gross profit driven by sales growth, in addition to improved gross profit margin following products such as compact cameras and inkjet printer cartridges accounting for a higher percentage of the product mix. Sales volume of interchangeable lens cameras declined 5% year on year, chiefly due to a reactionary decline in sales of the EOS R50V launched in May the last year, which more than offset sales of the EOS R6 Mark III released in November last year, and the EOS R6V released this June. Sales of interchangeable lenses increased, driven by purchases of replacements for RF mount models amid the rapid migration to the EOS R series. Sales volume of inkjet printers was down 9% from the previous year, reflecting a contraction of the market, etc. Sales of inkjet printer cartridges increased in part due to rush demand driven by concerns over sharp raw material price increases and supply shortages due to heightened Middle East tensions, despite print volume continuing to trend downward. In IT products, net sales increased, chiefly driven by rushed demand for memory cards due to concerns over sharply rising memory prices, despite a reactionary decline from the same period in the previous year that saw strong sales of high-performance PCs due to demand associated with the termination of Windows 10 support, among other factors. On the 13th page, I will explain the professional segment. For the second quarter, net sales fell 14% year-on-year, to 10.9 billion yen. That resulted from a slump in production printing and industrial equipment, despite the significant growth in healthcare. Operating income declined 0.7 billion yen year-on-year to 1.0 billion yen, mainly reflecting a decrease in gross profit caused by lower sales of industrial equipment. Sales in production printing decreasing 8% year over year, in part reflecting a decrease in high-speed sheet-fed printer projects. Net sales for Canon Production Printing Systems Inc., a main affiliate, fell 9% year on year, to 1.9 billion yen. Operating income declined 40 million yen year on year to 0.1 billion yen. Industrial equipment sales fell 51% year on year. This was partly due to the absence of multiple projects for semiconductor manufacturing equipment and related equipment that were underway in the same period of the previous year, in addition to some projects being pushed back to the third quarter or later. Sales in the healthcare business increased 46% year on year, driven by several large-scale projects for hospitals. The 14th page shows net sales for products and services by segment. Here I will explain the second quarter results for IT solutions. Let's begin with SI solutions. In healthcare under the professional segment, several large-scale projects for hospitals were secured. In addition, in the area segment replacement proposals gained momentum due to the end of software support and drove strong sales of core business software. As a result, net sales improved 10% year on year. Next let's look at the service outsourcing. In the enterprise segment, Canon IT Solutions Inc. performed strongly with application maintenance services for the financial sector, while in the area segment, solutions such as ESET antivirus software produced solid results. As a result, sales increased by 8% year on year. Next let's look at the IT products system construction. PC sales declined by approximate 2.0 billion yen, in line with initial assumptions due to the absence of the previous year's business PC replacement demand driven by the end of Windows 10 support in the enterprise, area, and consumers segments. However, overall net sales in IT products and system construction only declined by 5% year-on-year, helped by strong results from security solutions such as anti-ransomware software in the area segment and healthy sales of memory cards in the consumers segment. As a result, net sales for the whole group IT solutions sub-segment increased 3% year-on-year. The 15th page shows sales of products and services by segment for the first six months. SI solutions rose 8% year on year, service outsourcing increased 7%, and IT products system construction was down 2%. This resulted in overall group IT solutions increasing 3% year on year. The 16th page shows a summary of forecasts. Looking back on the first six months of the fiscal year, performance was particularly strong in the first quarter, and we made progress ahead of our forecasts for both net sales and income for the first six months. Compared with our initial expectations, across all segments the proportion of high-value added products and services in the product mix has improved, and we have managed to control IT expenses and head office-related expenses including advertising. To reflect this progress, we have upwardly revised our forecasts by ¥3.0 billion for operating income, ¥3.3 billion for ordinary income, and ¥2.0 billion for net income. I will explain about the situation from the third quarter onwards shortly. The 17th page shows forecasts by segment. For the reasons I explained a moment ago, we have revised our operating income forecasts upward by ¥0.3 billion in the enterprise segment, ¥1.7 billion in the area segment, ¥0.7 billion in the consumers segment, and ¥0.3 billion in the professional segment. The 18th page compares the forecasts by segment and results by segment for the previous fiscal year. Looking at net sales, we project decreases in the area and consumers segments, but expect sales to increase in the enterprise and professional segments. For operating income, we anticipate a decline in the professional segment, with an increase in the enterprise, area and consumers segments. The 19th page includes a year on year comparison of actual figures for the first half and forecasts for the second half. As I just explained, in the first half we achieved strong business performance, exceeding our initial expectations. In the second half, we expect that the reactionary decline due to the absence of PC replacement demand associated with the termination of Windows 10 support will be greater than in the first half. There are various potential risks in addition to impacts from the tight memory supply and soaring prices. Including rising costs and purchase prices driven by sharply increasing resource prices against the backdrop of the situation in the Middle East, as well as constrained investment on the part of customers in connection with those developments In addition, the Canon MJ Group expects future growth-oriented investment expenses to increase, including business investments such as R&D expenses for new business creation, as well as investments in IT and facilities for business process transformation. Given these circumstances, we project declines in sales and income for the second half of the year. At the same time, with the working population continuing to decline in the Japanese economy, there are steadily rising needs for it-driven productivity improvements, and security solutions that address both cyber and physical aspects. The Canon MJ Group will proactively propose solutions to address these needs, driving a sales expansion combined with improved profitability in the IT solutions business, while working to further strengthen the profitability of the Canon products business. For the full year, we will strive to deliver record high sales and income for the sixth consecutive year. Later, I will explain the details of the financial results by segment. On the 20th page, I will explain our forecasts for each segment. First, let's look at the enterprise segment. We project increased sales and a decline in income for the third quarter onward. We expect net sales to improve 5% year over year to 138.5 billion yen. We expect operating income to decline by ¥0.2 billion from the previous year to ¥11.2 billion, reflecting increased SG&A expenses, including system engineer expenses to secure new projects, and research expenses and development expenses aimed at new business creation. In Canon products and other, we project an increase, with the number of laser printers sold increasing significantly due to multiple large projects. along with an increase in the office MFP maintenance services thanks to an increase in the number of units put in operation. However, the sales volume of office MFPs and sales from LBP cartridges will decline due to offices continuing to shift to paperless operations. As a result, while we project a decline in net sales under Canon products and other, we will continue to actively propose solutions to customers in order to help improve their business processes. In IT Solutions, we project smooth progress with system integration projects for the financial and manufacturing sectors at Canon IT Solutions Inc. We also project an increase in sales from Steady Progress with Video Solutions and BPO at Canon Marketing Japan Inc., in addition to solid performance from BPO for the financial sector at Purimajest Inc. We will now be moving on to the forecasts in the area segment. Beginning in the third quarter, we forecast a decline in sales with an increase in income. We expect net sales to fall 3% year over year to 116.8 billion yen. We expect operating income to increase by 0.1 billion yen year on year to 11.0 billion yen, driven by efforts to improve gross profit margin while reducing SG&A expenses. In Canon Products and other, we project an increase in sales volume for office MFPs and laser printers as a result of aggressive proposal campaigns aimed at customers who have adopted our IT solutions, and efforts encouraging customers who have extended the usage life of their equipment to upgrade. However, we forecast declines in maintenance services for office MFPs and LBP cartridges, reflecting decreasing print volumes in offices. As a result, net sales for Canon products and other are projected to decline. Regarding the sales in IT solutions, we project a decline in net sales. This is because despite smooth performance from security solutions such as ESET antivirus software, along with the Makayoshi TIT series, which provides comprehensive sustainable management and DX implementation support for SMEs, we anticipate a reactionary decline from the significant increase in PC sales in the previous year due to the end of support for Windows 10. Next, let us look at the consumers segment. Beginning in the third quarter, we expect both sales and income to decline. We expect net sales to fall 6% year over year to ¥74.5 billion. We project that operating income will drop by ¥1.0 billion year on year to ¥7.0 billion, reflecting an increase in SG&A expenses including sales promotion and advertising, in addition to the decline in gross profit driven by lower sales. We project an increase in sales of interchangeable lens cameras as a result of higher shipments driven by product releases that meet customer needs. Sales of inkjet printers and inkjet printer cartridges will decline, reflecting a contraction of the markets. For IT products, we project a decline in sales in part in response to the significant growth in PC sales last year due to the end of support for Windows 10. Next, we will discuss the professional segment. We project increased sales and a decline in income for the third quarter onward. We expect net sales to improve 7% year-over-year to 24.3 billion yen. We forecast a 0.1 billion yen year-on-year decrease in operating income to 2.6 billion yen, due to higher SGNA expenses which will offset increases in gross profit driven by sales growth. In production printing, sales are expected to grow significantly, driven by progress expanding sales in the area of high-speed continuous feed printers and high-speed cut sheet printers. Sales of industrial equipment are expected to markedly increase, reflecting strong performance of semiconductor manufacturing-related equipment in addition to inspection and measurement equipment. Note that orders have already been received for most of the projects planned for 2026. In 2027 and beyond, we expect to see proactive capital investment from customers, and proposal activities have also gained momentum at Canon Marketing Japan Inc., with the number of business negotiations on the rise. Sales in the healthcare business are forecast to decline, in part due to a drop-off in projects for hospitals and dispensing pharmacies. Additionally, due to multiple large-scale projects for hospitals in the first half, full-year net sales are projected to remain on PAR with the previous year. On the 24th page, I would like to brief you on sales in monetary and unit terms for the main products shown in the supplementary material. First, let's look at IT solutions. The second quarter results from SI solutions to IT products system construction are as shown in sales of products and services by segment. There are no changes to the full year forecasts for 2026 from the figures we previously announced. Overall sales of network cameras in the second quarter show a year-on-year decline of 4%, reflecting the completion of multiple large-scale projects that had been underway in the same period of the previous year in the enterprise segment, despite strong performance in the area segment of the visual stage series of cloud-based video recording services. There are no changes to the full year forecasts for 2026 from the figures we previously announced. Next, let's look at Canon products and other. The second quarter results from office MFPs to LBP cartridges, and from interchangeable lens cameras to IJP cartridges are as shown in the segment information. Again, there are no changes from our previously announced figures. In commercial printing, sales of production printing in the professional segment declined, while there was a reactionary decline from the same period of the previous year that saw strong sales of image force, an optimal solution for in-house office printing, in the area segment. This drove a 7% year-on-year decrease in group-wide sales in the second quarter. There are no changes to the full year forecasts for 2026 from the figures we previously announced. This concludes our briefing on the second quarter financial results for 2026 and the explanation of our projections. I will now hand over the briefing to Tsuyoshi Osato. My name is Tsuyoshi Osato, and I am responsible for accounting at Canon Marketing Japan Inc. I will explain the revisions to our annual dividend forecast. Regarding the distribution of income, CMJ targets a consolidated payout ratio of around 40% or above, and follows a basic policy of issuing dividends that comprehensively take into account medium-term project forecasts and investment plans, as well as the cash flows they generate. In light of this policy, the newly announced upward revisions to our forecasts, and the increase in EPS associated with the acquisition of Treasury stock implemented in February through May this year, we decided to raise our annual dividend forecast from the previous forecast by ¥5 to ¥95 per share. As a result, we expect to increase dividends by ¥10 compared with the previous year's results. Today we also announced the further acquisition of treasury stock. We have communicated our intent to proactively purchase strategic shareholdings of our stock as treasury stock whenever there is an intent to sell, and our policy is to flexibly execute these off-market purchases in combination with market purchases, while taking into account share price levels and other factors. Going forward, we will continue to look at ways to improve capital efficiency and enhance shareholder return by achieving business growth accompanied by income, and by implementing our financial strategies.