Image credit: screenshot of Canon Medical Systems at ECR 2019 video
On April 26th, Canon published its financial results for Q1 2021. These show that quarterly Group sales returned to growth for the first time since the Coronavirus pandemic began. Quarterly Group sales reached ¥842.65 bn, compared with ¥782.31 bn in Q1 2020, an increase of almost +8% year-on-year. This sales result was driven by higher sales from the Imaging (+¥28.8 bn), Industry (+¥25.7 bn) and Medical (+¥18.3 bn) segments, partially offset by lower sales from the Printing (-¥8.5 bn) segment.
Reporting segment changes
Based on the realignment of internal reporting and management structure, changes were made to the names and composition of segments from the first quarter of 2021. Information pertaining to the fiscal year 2020 has also been restated to conform to this change. The first major change is the segmentation of inkjet printers. In order to operate the printing business as a whole, Canon established the Printing Business Unit, which encompasses office MFDs, laser printers and now inkjet printers. “Office” is now called “Printing”. The second change is the segmentation of the network cameras. A new business segment will be created by combining optical technologies under the business unit of Imaging, which includes cameras for consumers. The medical business remains unchanged although is now labelled “medical” rather than “medical systems”.
The Medical Business
The Group reports on the performance of its medical business which encompasses the acquisition of Toshiba Medical in 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. The resurgence of new Coronavirus infections had a negative impact on new business negotiations as well as planned installations, however, quarterly sales grew strongly. During the quarter, sales revenue originating from medical reached ¥124.4 bn, compared with ¥106.1 bn in Q1 2020, an increase of approximately +17% year-on-year. Quarterly sales growth was driven by higher sales from the Japanese healthcare system, supported by government subsidies, as well as increased demand for computed tomography, diagnostic x-ray, and diagnostic ultrasound systems across Europe and the United States. On a trailing 12-month basis, sales revenue returned to growth following three consecutive quarters of revenue contraction.
During the Q1 earnings call, Toshizo Tanaka, CFO & Executive Vice President, commented: “As for Medical, although we are still feeling the effects of COVID-19, on sales to medical institutions, and on equipment installation activity, as more people become vaccinated, we expect the operation of medical institutions to return to normal from the second half of the year. And with this, we expect the diagnostic imaging equipment market to gradually recover. In the first quarter, in addition to a recovery in market conditions, we saw active purchasing of equipment by medical institutions that received government subsidies, particular in Japan. Utilizing this, we achieved a significant increase in both sales and profit, driven mainly by CT and ultrasonic systems.”
Outlook for 2021
Canon revised its sales and profit forecast for its medical business, increasing both for FY2021. Net sales are projected to reach ¥461.6m during FY2021, an increase of ¥1.6m from the prior forecast of ¥460m. During the Q1 earnings call, Toshizo Tanaka commented: “From the second quarter on, in addition to sales of equipment used in pneumonia testing, which have been relatively stable, we expect an increase in sales of MRI and higher-end X-ray equipment, which have been slow under the influence of COVID-19. Additionally, we will work to secure orders by increasing the value of our entire diagnostic imaging system, utilizing AI technology to support high-definition image composition and radiologic interpretation. Furthermore, in the U.S., the world’s largest and most advanced medical market, we will promote our systems through online academic conferences, exhibitions, and webinars that have developed in the wake of COVID-19. We will also again work to strengthen our local sales capabilities, with the aim of achieving an overall increase in sales that exceeds market growth.”
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.