Three-Year Management Plan 2019 to 2021

January 30, 2019
Canon Marketing Japan Inc.
Masahiro Sakata, President© Canon Marketing Japan Inc. 2019

Contents

1 Review of 2018
2 Three-Year Management Plan 2019-2021
3 Structural reforms/strategic investment/

return to shareholders© Canon Marketing Japan Inc. 20191

1 Review of 2018
2 Three-Year Management Plan 2019-2021
3 Structural reforms/strategic investment/

return to shareholders© Canon Marketing Japan Inc. 20192

2018 General Overview - Progress on Key Management Indicators -■ Sales decreased due to a year-on-year decrease, mainly in sales of the BtoC business, especially cameras
and inkjet printers, despite an increase in sales of the BtoB business. Operating income also decreased, despite
a reduction in SG&A expenses, which was not sufficient to offset the drop in gross profit due to the sales
decrease.
■ Both sales and operating income fell below the initial plan, mainly due to a slump in the digital SLR camera
market that was more serious than the forecast at the beginning of the fiscal year. However, operating income
exceeded the level that was revised and announced externally in October.
Actual results for 2017Plan at start of 2018

Actual results for 2018

Compared with Previous Year

Operatingincome

30.6%

30.2%

30.4%

-0.2%

¥30.4 billion¥32.0 billion¥28.9 billion¥-1.5 billion

Operatingincome ratio

4.8%

5.0%

4.7%

-0.2%

Profit attributable toowners of parent¥20.7 billion¥21.7 billion¥20.8 billion¥+0.1 billion

ROE

7.2%

6.9%

-0.3%

Sales
SGA ratio© Canon Marketing Japan Inc. 2019

¥632.2 billion ¥645.0 billion¥621.6 billion

-1.7%

3

2018 General Overview - Weight Shift towards Growth Areas -■ In the independent growth areas, significant growth was achieved in IT solutions, especially SI for large
enterprises, the data center service and the security business. In addition, industrial equipment also grew by riding
the growth trend of the market.
■ In Canon’s growth areas, the expected growth was not achieved, mainly due to a delay in the launch of new
products in production printing, despite growth in sales of network cameras.

■ In Canon's profitability growth areas, sales decreased due to the sluggish market of home-use inkjet printers,
despite significant growth in mirrorless cameras, which was not sufficient to cover the decrease in sales of SLR
cameras.
Independent
Growth Areas(IT solutions, industrial
equipment, medical imagingsolutions, etc.)

Canon’s
Growth Areas(Production printing,network cameras, etc.)

Canon’s Profitability
Growth Areas(MFP, laser printers, digital
cameras, ink jet printers,etc.)

Sales© Canon Marketing Japan Inc. 2019

Actual results for 2017

33%

Actual results for 201836%(¥207.6 billion)(¥197.9 billion)(¥221.7 billion)

7%

7%(¥46.0 billion)(¥46.5 billion)

60%(¥378.6 billion)¥632.2 billion(¥46.2 billion)

57%(¥353.7 billion)¥621.6 billion%+3%(¥+14.1 billion)(+6.8%)+0%(¥+0.2billion)-3%(¥-24.9billion)(-6.6%)-1.7%
4

2018 General Overview - Sales Growth -Growth in IT Solutions
Enterprise segment
Area segment
Other

Group IT solutions total

2017

108.5
54.8
18.7

182.0

2018

119.0
58.1
20.6

197.7

(Billions of Yen)%

+10%+6%+10%+9%

Increase in SI services for the financial and manufacturing industries
and the public sector
ITS for middle-ranking or small and mid-sized firms grew in each ofthe hardware, software and maintenance businesses.
Expansion of security business

Full occupancy of the Nishi-Tokyo Data Center Phase I
Building/preparation for construction of the Phase II Building isunderway.
© Canon Marketing Japan Inc. 20195

2018 General Overview - Change of the Organizational Structure Shifting to a framework that caters to customer and market needs

Aim

Shifting to a new framework

Change to the business unit system bycustomer, which achieves the mutual useof the customer bases of the respective
Group companies and offering newsolutions starting from customers

Increase in specialization by theconsolidation of crossover functions within
the Group and the maximum use of theGroup’s sales channels© Canon Marketing Japan Inc. 2019

Results/progress

Progress in mutual use of customer bases within the samebusiness unit, centered around SI
Acceleration of promotion of the sales style using proposals
to meet general IT issues among small and middle-sizedcompanies, in addition to document solutions
New establishment of an organization in charge of planningand centralized control of the ITS business for small andmiddle-sized companies, covering both direct sales andindirect sales, in January 2019
New establishment of the center for centralized control of
BPO in July 2018 to strengthen the organization structure
Consolidation of the planning functions for security products
in January 2019 to increase specialization and ensure themaximum use of the Group’s sales channels
New establishment of the headquarters for centralized controlof the contact centers to accelerate efficiency improvement
and cost reduction
6

1 Review of 2018
2 Three-Year Management Plan 2019-2021
3 Structural reforms/strategic investment/

return to shareholders© Canon Marketing Japan Inc. 20197

Basic Strategy under the Three-Year Management Plan for 2019-2021

1. Maintenance of income from major products ofCanon(Digital interchangeable lens camera/inkjet printer/MFP/laserprinter (LBP))

2. Realization of increases in both sales and profits
in the market expansion areas, particularly ITsolutions(IT solutions/industrial equipment)

3. Establishment of the revenue base in Canon’sbusiness whose growth is expected(Network camera/production printing/healthcare)

To b e c o m e a v i b r a n t a n dhighly profitable Group© Canon Marketing Japan Inc. 20198Three-Year Management Plan 2019-2021 Targets

ActualResults
Net sales(%)

Operating income

2018621.6(－)

28.9(Billions of Yen)

Three-Year Management Plan
2019

622.0

(+0.1%)

29.5

2020

635.0

(+2.1%)

31.0

2021

655.0

(+3.1%)

33.5(ratio)(4.7%)(4.7%)(4.9%)(5.1%)(ratio)(4.9%)(4.9%)(5.0%)(5.3%)(ratio)(3.4%)(3.4%)(3.4%)(3.5%)

Ordinary income
Profit attributable to owners ofparentEPSROE© Canon Marketing Japan Inc. 2019

30.5

20.8

¥16.1
6.9%

30.7

20.9

¥16.1
6.7%

32.0

21.7

¥16.7
6.8%

34.8

23.0

¥17.8
6.9%
9

Net Sales and Operating Income Targets of Individual Segments(Billions of Yen)

ActualThree-Year Management Plan2018

Net sales

Consumers
Enterprise
Area
Professional
Other

Consolidated
total© Canon Marketing Japan Inc. 2019

Growth
rate

150.2

2019

138.8

8.7

190.0

257.6

12.1

46.4

0.9

-

4.9%

-

4.6%

-

-20.8
621.6
-

2021

OperatingOperatingOperatingOperating
Net sales
Net sales
Net sales
incomeincomeincomeincomeIncomeGrowthIncomeGrowthIncomeGrowthIncome
ratio
rate
ratio
rate
ratio
rate
ratio

7.3

188.2

2020

4.7%
1.8%

-0.1
28.9

4.7%

6.9

135.0

7.0

132.5

9.7

199.0

10.3

210.0

11.5

262.912.1

265.0

12.5

272.5

13.0

48.7

1.1

55.0

1.5

60.0

2.5

-7.6%

5.0%

+1.0%

5.1%

+2.1%
+4.9%

-18.4
622.0
+0.1%

4.6%
2.3%

-0.3
29.5
4.7%

-2.7%

+4.7%
+0.8%

+12.9%

-19.0
635.0

+2.1%

5.2%

5.2%
4.7%
2.7%

-0.3
31.0
4.9%

-1.9%

+5.0%
+2.8%
+9.1%

-20.0
655.0

+3.1%

7.0

5.3%

5.5%
4.8%
4.2%

-0.5
33.5

5.1%
10

Market Outlook

Market outlook of major products(Number of shipped units in Japan)

Digital interchangeable lens cameras
ミラーレス

SLR camera

Large capacity

Monochrome

Color

Mirrorlesscamera

2018

MFP

2021

Ink jet printers

2018

Laser printers

BusinessColor

Home

Monochrome2018© Canon Marketing Japan Inc. 201920212021

2018

2021

11

Strategy for Maintaining Income of Canon’s Major Products
Digital interchangeable lens cameras

Ink jet printers○ Sales expansion by increasing the selection ofmirrorless cameras○ Increase of sales of middle-classinterchangeable lens whose unit price is high
○ Provision of services/solutions forrevitalization of the photo imaging market, which
the leading company should provide○ Sales expansion of the business field byincreasing the selection of business-use printers
and those with large-capacity ink tanks○ Construction of an efficient sales systemthrough greater focus on e-commerce, etc.
○ Improvement of profitability through the sales
expansion of home-use printers whose unit price ishigh and whose printing volume is large

MFPLaser printers○ Improvement of profitability through greater
focus on the middle-class customer group○ Promotion of sales activities that do not involve
face-to-face communication and replacement
activities by CE○ Increase of profitability through reforms of thecost structure of the maintenance service© Canon Marketing Japan Inc. 2019

○ Increase of income from cartridges by continuing
expansion of sales to specific industries○ Expansion of income from stock-type business byimproving the ratio of genuine products of cartridges
and the rate of subscription to the maintenance service○ Realization of more efficient maintenance services bypromotion of subscription to the NETEYE service*NETEYE is the online support service that provides an environment for comfortable use through constant monitoring of thestate of multifunctional products (MFP) and laser printers (LBP), among other machines, by using the Internet.

12Initiatives for the ITS Business Taken to Date

Advancement/development of theITS business achieved to date

Business expansion by using thedifferentiated technologiesof the Company

System development by using the technologies for demand
forecast/migration/security/image analysis

Strengthening of the IT infrastructurebusiness by using
the Nishi-Tokyo Data Center
Quality of management rated as global level (*)

Improvement of profitability

Securing larger projects/prime shift/quality improvement

Expansion of the business field forsmall and medium-sized companies

In addition to document solutions,
expansion of infrastructure/security/business system

Expansion of the security business
Development and market penetration of uniqueproducts such as ESET/FortiGate*The Nishi-Tokyo Data Center obtained the "Management and Operations (M&O)" certificate of the data center management standard,
which makes it the second company to hold this certificate in Japan.

© Canon Marketing Japan Inc. 201913

Outlook for the Domestic IT Market
Market outlook for the area
on which the Company will particularly focus

Data Centers¥2 trillion¥1.5 trillion

CAGR+8.5%¥1 trillion¥1 trillion

IT Security¥0.5 trillion

2018
2018

2021
2021

2018
2018

CAGR
+5.5%

¥1.5 trillion

BPO
CAGR
+4.9%

¥1 trillion

2021
2021

2018
2018

2021
2021

While the domestic IT market is expected to expand at an annual growthrate of 2% (2018 to 2021) on average, we will expand the business mainly inareas of high growth.

*The market outlook is provided by the Company based on the forecasts announced externally (IDC/Yano Research Institute Ltd.).

© Canon Marketing Japan Inc. 201914

ITS Business: Sales Results

Changes in sales of the Group IT solutions¥172.1 billion¥176.8 billion+8.6%+3%+3%2015¥182.0 billion

2016

2017

Achievement of growth exceeding market growth© Canon Marketing Japan Inc. 2019

¥197.7 billion*IT market growth: CAGR of approximately 3%

2018
15

Three-Year Management Plan for 2019-2021: Toward the Core Theme“ITS3000”

Sales plan of the Group IT solutions

The target for sales of the IT solutions business for 2021
is 35% of the Group’s sales.
¥230.0 billion¥197.7 billion
OtherArea¥58.1 billion

Enterprise¥119.0 billion

2018(Actual)© Canon Marketing Japan Inc. 2019

CAGR+5%¥300.0 billion

OtherArea¥68.4 billionEnterprise¥141.4 billion

2021

Aim for achievement during the periodof the next Long-Term Management
Objectives (for 2021-2025)16

Growth Image for ITS3000
Keywords for ITS
expansion

Strategybycustomergroup

Enterprise segment

Area segment

IT infrastructureservice
Crossoverbusiness
Security
areas

BPO© Canon Marketing Japan Inc. 2019

Three-YearManagement Plan
for 2019-2021

ITS3000

Main growth driver





Package-type SI expansion
Creation of the business offering
services
Expansion of the area of solutions forbusiness operations/industries(including M&A)

Expansion into partner channels
Expansion of the area of maintenancesupportIncrease of the selection of solutions(including M&A)

 Expansion of the scale of thedata center Business expansion to support
the IT life cycle including
operation/planning Establishment of the model topropose total security
 Expansion of BPO exclusively
for business operations(including M&A)

17

SI for Large Companies (Enterprise Segment)
Changes/needs of customers
Increase ofIT investment

Expectationof productivity
improvement

Strengths
Customer baseStrengtheningof security

AI/IoT
Use of newtechnologies

Business knowledge of thefinancial/manufacturing industries

In the mathematical/image/language fields, etc.

Course of action

the Company’s own element technologies

More focus on the area of digital business to be created together with customers
© Canon Marketing Japan Inc. 2019

Enhancement of the model for providing services by utilizing extensive knowledge of industries/business operations
Improvement of productivity by shifting from the model for development upon contract to increase of SI core/package SI18

IT Infrastructure Service

Course of action

Enhancement of response throughout the IT life cycle from planning to operation/maintenanceExpansion of the business of added value by use of the Data Center Phase II Building
Comprehensive business expansion with an eye on operation to planning in addition to system development

Additional areas to be focused onConcept

Measures

Improvement of the business ofadded value including
security/IT outsourcing, etc.

Business expansion by providing a seriesof services from planning/design throughconstruction to operation for cloud computing

Operation/
maintenance

Planning

Installation/
migration

DesignDevelopment/construction© Canon Marketing Japan Inc. 201919

ITS for Middle-ranking/Small and Mid-sized Firms (Area Segment)
Changes/needs of customers
Labor shortage
Productivity
improvement

Absence ofpersons exclusivelyin charge of IT

Security
BCP response

Strengths
Community-based customer base

Nationwide system forassistance/support for installation

Provision of diverse kinds of value
Solutions for business operations/industries; total security
IT infrastructure construction (hardware/software)/maintenance/support

Course of action

To become a partner for customers’ IT utilization (IT concierge)To make a proposal to solve issues to cover the absence of persons exclusively in charge of IT
Unique maintenance/operation services by combining off-site and on-site operations© Canon Marketing Japan Inc. 201920

Security

Course of action
Realization of proposal for total securityFor large companies: to make a comprehensive proposal by increasing the number of security engineers
For small and medium-sized companies: input of unique merchandise and maximum utilization of sales channels

Model for total security proposition
Security
operation
monitoring
serviceSecurityenhancement
measures Measures against the targetedcyberattack
 Measures against information leakage© Canon Marketing Japan Inc. 2019 Vulnerability diagnosis
service SOC service(SOC: Security Operation Center)

Security
consulting
 Support for creating a security
road map Report of issues and proposal formeasures

21

BPO

Course of action

Establishment of the BPO model exclusively for business operations
Establishment of high-quality BPO services

Acceleration of growth by acquisition of professional human resources and M&AEnhancement of the proposal style to solve issues of customers with IT solutions and BPO

Business scale: large

Measures

Enhancement of facilities/capabilitiesof the BPO center© Canon Marketing Japan Inc. 2019

Personnel
placement

Exclusively forbusiness operations

OA equipment

Profitability: highConstruction of high-security system
by using the company’s own data centers[Enhancement]

Profitability: low

Utilization of the existing customer basecentered on large entities(especially the financial industry)

management

BPO

Business scale: small22

Strengthening and Creating New Sources of Revenue
Conventional Revenue Models

MFP+ maintenance services
LBP+ toner cartridges
Ink Jet Printers+ ink cartridges© Canon Marketing Japan Inc. 2019

Revenue Models to Grow in the Future

Cloud Services
IT Maintenance/Operation Services

Data Center Services
Work to strengthen and create
stock businesses based on ITsolution technologies

23Growth of the Industrial Equipment Area
Stable growth not affected by the economy■ Growth by expansion of the non-semiconductor area
Nonsemicond
uctor

32%

CAGR
+８%

Nonsemiconductor40%

Semiconductor

Semiconductor

2018

2021

■ Increase of profitability through sales expansion ofservices, including maintenance contracts© Canon Marketing Japan Inc. 2019Non-semiconductor area
IoT vision

CMOS sensor

FA camera

Laser processingParts

Small camera
for industrial use

System ContractProcess
Measurement
machines
design manufacturingNew business
X-ray analysis equipment

24

Establishment of the Earnings Base in Canon’s Business Expected to Grow

Networkcameras■ Efficient sales by packaged camera (main unit)■ Expansion of highly profitable business with VMS*1
and other solutions■ Sales expansion by increase of proposal for added value/support

Production with the increased dedicated sales staff
cut sheet ■ Expansion of sales to small and medium-scale commercial printing
and maintenance sales by utilizing the customer baseHealthcare■ Improvement/expansion of the HIS business*2 byincreasing sales of electronic medical records to clinics■ Expansion of the cloud services for medical treatment*1 Video Management System*2 Hospital information system© Canon Marketing Japan Inc. 201925

1 Review of 2018
2 Three-Year Management Plan 2019-2021
3 Structural reforms/strategic investment/

return to shareholders© Canon Marketing Japan Inc. 201926

Radical Reforms of Cost Structure
Thorough reduction of SG&A expenses through reforms of the cost structure
1.
2.
3.

Reforms of the business operations process by utilizing RPA and other advanced ITtechnologies

Creation of the common base for the call center system and optimization of businessbases/personnel
Promotion of in-house handling to reduce costs spent outside the company

MFP business:
reforms of business
operations process

Improvement ofCE’s productivity- Reduction of the numberof warehouses- Improvement of thefrequency of delivery

Adoption of the sale style
not involving face-to-facecommunication© Canon Marketing Japan Inc. 2019

SG&A Expenses

30.4%
2018

28.8%
2021

27

Strategic InvestmentsFor large companies:→ Expansion of the area of solutions for business

operations/industries
M&AInvestments

CapitalExpenditure© Canon Marketing Japan Inc. 2019

Enhancementof the ITsolutions areaFor small and medium-sized companies:→ Increase of the selection of solutions for business

operations/industries


Expansion of the BPO business exclusively forbusiness operations



Increase of security resources

Data Centers
IT Investment

 Construction of the Nishi-Tokyo Data Center Phase IIBuilding Investment in IT to boost internal productivity andbusiness efficiency
28

Shareholder Return and Dividends

Dividend Policy
Our basic policy is to pay dividends to shareholders based on a dividend
payout ratio of at least 30%, while also taking into account overall issues
such as medium-term profit outlook, investment plans and cash flow.
Change in Annual Dividend Per Share (Yen)7060504040

4550606060

20172018

2019(Forecast)

3020
100

© Canon Marketing Japan Inc. 201920142015

2016

29

The performance and future projections made in this document are based on information available at the present time, and include potential risks andinaccuracies.
Owing to various factors, actual results may differ substantially from these projections.

© Canon Marketing Japan Inc. 2019