Image credit: screenshot of Canon Medical Systems at ECR 2019 video
On the 23rd April, Canon published its financial results for Q1 2020 which show that Groups sales revenue contracted significantly during the first quarter. The overall sales revenue reached ¥782.3 billion, compared with ¥864.5 billion in Q1 2019, a decrease of approximately -10% year-on-year. This result was driven by lower sales revenue from all business units, led by Imaging Systems (-¥135 bn), followed by Office (-¥74 bn), Industry & Others (-¥61 bn) and Medical Systems (-¥12 bn). The company estimated that the majority of these revenue declines were due to the negative effects of COVID-19.
The Medical Systems Business
The Group reports on the performance of its medical system business, formally Toshiba Medical. These results show that revenue originating from medical systems contracted moderately during the quarter. The overall sales revenue reached ¥106.1 billion, compared with ¥109.4 billion in Q1 2019, a decrease of approximately -3% year-on-year. When adjusting this sales performance for the impact of currency effects, comparable sales growth was closer to -1.5% year-on-year. The lower sales revenue was driven predominately by the negative effects of the Coronavirus pandemic as new equipment installations were delayed or deferred. The quarterly results noted that the cancellation of trade shows and academic conferences globally meant that there were fewer opportunities to engage customers in business development discussions which restrained new sales. The demand for diagnostic X-ray systems grew, along with other related equipment used in the diagnosis of pneumonia and other infectious diseases, although stronger sales activity within these areas was more than offset by declines across the wider medical systems portfolio.
From a geographical perspective, the first-quarter result was driven by a combination of higher revenue from Asia and Oceania which was more than offset by lower revenue from Japan, America and Europe. Within China, the demand for diagnostic solutions stimulated by Coronavirus as well as the gradual restart of economic activity helped to support sales growth from Asia. Within Japan, while the demand for medical equipment somewhat recovered during the second half of 2019, demand contracted during the first quarter, driven by lower economic activity as a result of social distancing and quarantine measures. Within Europe, during the second half of 2019, economic activity was already weaker due to customers deferring capital investment decisions amid generally sluggish international trade. This trend was compounded further by the impact of COVID-19 which resulted in restricted movements throughout the EU from the start of March. The U.S. followed suit shortly thereafter, resulting in delayed new installations and reduced new sales activity.
Realignment of X-ray business operations
On 3rd December 2019, Canon announced that the X-ray business operations within its subsidiary Virtual Imaging Inc will transfer to Canon Medical Systems USA Inc (CMSU) effective from 01/01/2020.
Exposure to foreign exchange
Canon is exposed to exchange rate volatility, particularly involving the Japanese Yen and the currencies of other major economies such as the U.S. dollar, Euro and Chinese yuan. The Group remains a net exporter from Japan to the rest of the world, which means that in terms of absolute values a weaker Yen is generally favourable for its business and a stronger U.S. dollar and euro is in principle unfavourable. The average value of the yen in the first quarter was ¥108.96 against the U.S. dollar, a year-on-year appreciation of approximately ¥1, and ¥120.11 against the euro, a year-on-year appreciation of approximately ¥5. During the first quarter, the overall impact of the Yen’s appreciation against the U.S. dollar and Euro were negative both on Group sales revenue and profitability.
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