Canon Inc, the Japanese originated conglomerate, published its third-quarter financial results today which include sales figures for its medical system business. This encompasses Canon Medical Systems, formally Toshiba Medical, which is responsible for its portfolio of imaging platforms across computed tomography (CT), ultrasound, x-ray and magnetic resonance imaging (MRI) modalities. Its financial statements indicate that sales revenue from the medical system business continued to grow for a second consecutive quarter. The Q3 sales revenue reached ¥113.9 billion which represents quarterly sales growth of +5.9% year-on-year (YoY). On a calendar year-to-date basis, sales revenue reached ¥328.5 billion which represents +2.9% growth YoY. Following a moderate revenue contraction during the first quarter, these latest results are more in-line with Canon’s growth strategy, which has been targeting an annualised average sales growth of 2-3%. The companies expectations for full-year 2019 sales growth is currently +3.3% for the medical system business.
From a geographical perspective, the recent growth was driven by a recovery in sales activity within Japan as well as strong sales growth from the United States, the companies second-largest market. The combination of these geographies has accounted for approximately 70% of sales revenues during 2019. Sales growth for the first 9-months reached +6.8% YoY for Japan and +6.6% YoY for America.
In contrast, sales activity within Europe has been significantly weaker, in part, due to customers deferring capital investment decisions as a result of weaker economic activity. Sales revenue from this region has contracted and is currently -3.7% lower YoY. Similarly, sales activity within Asia (including China) has also been materially weaker during 2019. The company has attributed some of this weakness to the increasing US-China trade tensions negatively impacting business volumes. Sales revenue from Asia and Oceana is currently -5.5% lower YoY. Despite this, the strong sales activity within Japan and the United States have offset these contractions resulting in overall YTD sales growth of +2.9%. From a trading perspective, sales growth can be attributable to a combination of new innovative product launches as well as Canon’s commercial activity to strengthen its global sales and distribution network.
New Product Launches
Over the past few years, Canon has steadily been renewing its product portfolio with various product iterations and new imaging platform releases. The most recent of which has been the launch of ‘Vantage Orian‘, a premium MRI platform which is reportedly generating new business orders and expected to help stimulate sales activity for the remainder of 2019 and beyond. In addition, at the beginning of the year, Canon launched ‘Aquilion Start’, a competitively priced CT platform which includes features typically found in premium systems, such as advanced noise reduction technology. The balance between cost and performance is expected to help drive increased orders from emerging markets which are expected to grow faster although with a higher sensitivity to price. In combination with these product launches, orders for existing premium CT systems have been strengthening within developed markets, particularly the USA and Europe, with radiation dose management and high image quality remaining key product differentiators. This has been supported by the launch of Canon’s proprietary software solutions leveraging “artificial intelligence” in order to optimise radiation exposure and image quality.
Strengthening Sales and Distribution Network
As outlined within its corporate strategy conference during March-19, Canon is seeking to diversify its sales portfolio internationally and has ambitious plans to accelerate sales growth outside of Japan, across both developed and emerging markets. Within North America and Europe, the company has been enhancing its sales structure as well as increasing it’s marketing activities with leading academic institutions in medical research. These institutions are typically influential for capturing investment decisions into premium and technology-rich imaging platforms. This activity is accompanied by developing localised distribution networks within emerging markets in order to capture the growing demand for imaging systems as a result of rapid improvements to medical infrastructure. For example in July-19, Canon entered into a strategic partnership with R-Pharm Holding in order to localise the production of its medical imaging solutions as well as deepen its distribution network within the Russian Federation. Furthermore, earlier this month Canon announced the opening of its Middle East division to be based in Dubai which expects to begin operations at the start of 2020. This is part of Canon’s strategy to “get closer” to customers through a direct presence within key growth markets.
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