Image credit: screenshot of Canon Medical Systems at ECR 2019 video
On the 28th January, Canon published its financial results for Q4 2020. These show that Group sales began to recover during the quarter, although remained lower year-on-year. The quarterly group sales revenue reached ¥945.7 billion, compared with ¥953.5 billion in Q4 2019, a marginal decrease of approximately -0.8% year-on-year. This took cumulative 2020 sales to ¥3.16 trillion, compared with ¥3.59 trillion in 2019, a decrease of approximately -12% year-on-year. The fourth-quarter sales result was driven by higher sales from the Industry (+¥33.9 bn) and Medical Systems segments (+¥12.7 bn), offset by lower sales from the Office (-¥47.8 bn) and Imaging segments (-¥3.8 bn).
The Medical Systems Business
The Group reports on the performance of its medical systems business which encompasses the acquisition of Toshiba Medical during 2016. The segment generates its revenue primarily from the sale of digital radiography and diagnostic x-ray systems, computed tomography (CT), magnetic resonance imaging (MRI), diagnostic ultrasound systems, clinical chemistry analysers and ophthalmic solutions.
During the quarter, sales revenue originating from medical systems reached, ¥122.8 bn, compared with ¥110 billion in Q4 2019, an increase of approximately +12% year-on-year. This reflects a return to sales growth for the medical systems business, which has had a challenging year due to the negative effects of the Coronavirus pandemic. Cumulative 2020 sales reached ¥436.1 bn, compared with ¥438.5 bn in 2019, a marginal decrease of -0.6% year-on-year.
The sales performance was categorised by continued strong demand for computed tomography (CT) and diagnostic x-ray systems used for the diagnosis and treatment of pneumonia. During the Q4 earnings call, Toshizo Tanaka, CFO & Executive Vice President, commented:
“In 2020, the business environment deteriorated as medical institutions worked feverishly to deal with COVID-19. Except for some equipment used to detect for pneumonia, the diagnostic imaging equipment market was significantly impacted. Under these market conditions, we captured opportunities created by government support funds and/or preferential tax treatment given to medical institutions to support equipment purchasing. As a result, fourth-quarter sales grew 11.6% and we were able to slightly grow both sales and profits for the full year on a local currency basis. In 2021, due to the current resurgence of COVID-19, we are seeing somewhat of a halt in diagnostic imaging equipment business discussions. However, by further strengthening the competitiveness of mid-range and high-end products such as CT and MRI systems, we will work to expand sales with medium- and large-size medical institutions. We are also strengthening our sales capability. In Japan, we have raised selling efficiency and coverage of medical institutions, supported by a sales organisation that was integrated under Canon Medical Systems last year. And in emerging markets, we are working even harder to partner with local companies. Through these and other initiatives, we will facilitate our aim to grow sales by 5.5%. As for profitability, our operating profit ratio declined by 0.3 points in 2020 due to a mix shift towards lower-priced equipment as a result of COVID-19. However, in 2021, through the expansion of sales, the continuation of efficient management of expense that was developed in response to COVID-19, and also the promotion of cost reduction activities, we plan to raise profitability to 6.4%.”
From a geographical perspective, the fourth-quarter sales growth was driven by higher sales from Japan, Europe and Asia, offset by lower sales from America.
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 for the year was ¥106.68 against the U.S. dollar, a year-on-year appreciation of approximately ¥2. The average value of the yen for the year was ¥122.07 against the Euro, the same level as during 2019.
Outlook for 2021
The growing availability of COVID-19 vaccinations means that vaccination programs will gradually be launched around the world. However, it is thought that is will take time to see a full-scale recovery in global economic activities through balanced measures to curb infections and expand economic activity. In Japan, a second State of Emergency was declared in some regions, causing concerns about potential effects on the economy. In addition, prospects also remain uncertain throughout the world. However, the pace of the world economy is expected to recover moderately with the various economic measures and fiscal policies in each country and region over the long term. As for the medical equipment market, demand is expected to remain at around the same level as the previous year due to the risk of additional COVID-19 infections. The exception is that a gradual trend of recovery will be observed as we progress into the second half of 2021.