Revenue up 10.4% Canon Q1 announces financial results Q1 2023

Canon has released its financial results for Q1 2023.

2023 First Quarter in Review

Looking back at the first quarter of 2023, while there were concerns about an economic slowdown resulting from the tightening of monetary policies continued from last year in order to curb inflation, personal consumption remained solid thanks to economic recovery following the COVID-19 pandemic. By region, in the United States, the economy continued to recover moderately as the labour market continued to remain steady despite the tightening of monetary policies. In Europe, while the impact of the economic slowdown was exacerbated due to rising interest rates, the economy recovered moderately due to such factors as exports remaining firm. In China, domestic demand recovered due to the lifting of the government’s Zero-COVID strategy. In other emerging countries, economic recovery continued, mainly in India and Southeast Asia. In Japan, the economy recovered moderately due to the normalisation of economic activities following the COVID-19 pandemic.

In the markets in which Canon operates, demand remained firm due to a supply recovery following a shortage of components and logistical disruptions, which had constrained business. On a product basis, demand for office multifunction devices (MFDs) remained firm as supply shortages were abating. For inkjet printers, demand slowed due to decreased demand from customers working from home. For laser printers, demand slowed due to the curbing of corporate investments. For cameras, demand remained solid, mainly for mirrorless cameras. For medical equipment, while, in some regions, there was a drop-off following a period of increased demand last year in response to COVID-19, there were signs of recovery in the large-size equipment market where investment had been stagnant in recent years. For semiconductor lithography equipment, although the demand for memory devices declined, investments remained firm, mainly for power devices, analog devices, and sensors. For FPD (Flat Panel Display) lithography equipment, demand declined due to a postponement of investments from panel manufacturers.

 The average value of the yen in the first quarter was ¥132.47 against the U.S. dollar, a year-on-year depreciation of approximately ¥16, and ¥142.10 against the euro, a year-on-year depreciation of approximately ¥12.

As for the first quarter, net sales for the first quarter increased by 10.4% year-on-year to ¥971.1 billion due to an improved business environment, as mentioned above, as well as the adjustment of product prices resulting from increased costs caused by inflation and the depreciation of the yen. Gross profit as a percentage of net sales increased by 1.9 points year-on-year to 46.8% due to an improved product mix, thanks to the competitive new products that were released in the previous year and the depreciation of the yen. Gross profit for the year increased by 15.1% year-on-year to ¥454.0 billion. Operating expenses increased by 16.1% year-on-year to ¥369.5 billion as a result of an increase in sales force and sales-related expenses accompanying a growth in sales alongside maintaining an efficiency-focused control of expenses. In addition, operating expenses denominated in foreign currencies increased due to the depreciation of the yen. As a result, operating profit increased by 10.9% year-on-year to ¥84.5 billion. Other income (deductions) increased by ¥11.5 billion year-on-year to ¥3.1 billion due to gain on valuation of securities and a decrease of currency exchange losses from liabilities denominated in foreign currencies. As a result, income before income taxes increased by 29.3% year-on-year to ¥87.5 billion, and net income attributable to Canon Inc. increased by 22.7% year-on-year to ¥56.4 billion.

Basic net income attributable to Canon Inc. shareholders per share was ¥55.56 for the first quarter, a year-on-year increase of ¥11.59.

Results by Segment 

Looking at Canon’s first-quarter performance by business unit, in the Printing Business Unit, MFDs for offices continued to sell well, with the number of unit sales significantly exceeding the same period of the previous year, as the product supply shortage was abated and products including the iR-ADV DX C5800 series were well-received in the market. As for inkjet printers, the number of unit sales decreased compared with the same period of the previous year as the surge in demand from users working remotely subsided. As for laser printers, the number of unit sales decreased compared with the same period of the previous year as companies curbed investments. Regarding equipment for the production printing market, the number of systems sales increased compared with the same period of the previous year, with strong sales of the imagePRESS V900/V1000 series of on-demand printers. As a result, sales of the Printing Business Unit increased by 10.0% compared with the same period of previous year to ¥558.2 billion. Due to effects such as weak consumables sales, net income before tax for the first quarter decreased by 4.2% compared with the same period of the previous year to ¥53.1 billion.

In the Imaging Business Unit, as for the interchangeable-lens digital cameras, the number of unit sales decreased due to the shifting of demand to mirrorless cameras. However, the EOS R6 Mark II full-frame mirrorless camera, which was released last year, and the new EOS R7 and EOS R10 APS-C size mirrorless cameras were well-received in the market. Overall lens sales in terms of units was lower than the same period of previous year, but sales of RF-series interchangeable lenses remained strong. Sales of network cameras increased sharply, thanks to the recovery in product supply and enhanced sales activity leveraging the products’ expanding applications. Sales of professional video cameras were also strong, and sales of IP remote cameras, which are designed to increase production efficiency and meet labour-saving needs, also grew steadily. As a result, sales of the Imaging Business Unit increased by 22.4% compared with the same period of the previous year to ¥192.4 billion. Boosted by the effect of competitive new products, which were released in the previous year and non-recurring expenses incurred to close a certain production facility in previous year, net income before tax for the first quarter increased by 173.1% compared with the same period of the previous year to ¥37.5 billion.

In the Medical Business Unit, sales were strong, mainly in Europe. In the United States, despite a postponement of investments by medical institutions due to a shortage of medical staff and rising interest rates, the sales were above that of the same period of the previous year, as were the same for other overseas regions and Japan. As a result, sales of the Medical Business Unit increased by 10.9% compared with the same period of the previous year to ¥131.1 billion. Expenses increased due to higher costs for materials, energy, and labour. Still, profitability improved due to expanded sales of large-size equipment and services, while net income before taxes for the first quarter increased by 7.9% compared with the same period of the previous year to ¥6.9 billion.

In the Industrial Business Unit, sales of semiconductor lithography equipment were on par with the same period of the previous year, which saw a significant increase in the number of unit sales, due to continued strong performance in a wide range of sectors. However, the number of FPD lithography equipment sales was fewer than that of the same period of the previous year due to a postponement of investments by panel manufacturers as the panel market worsened. As a result, net sales of the Industrial Business Unit decreased by 9.4% compared with the same period of the previous year to ¥62.1 billion, and net income before tax for the first quarter decreased by 38.8% compared with the same period of the previous year to ¥7.5 billion.

Cash Flow

In the first quarter, cash flow from operating activities increased by ¥58.2 billion year-on-year to ¥73.6 billion as a result of a significant increase in profit and collection of trade receivable that had increased last year. Cash flow used in investing activities increased by ¥3.1 billion to ¥38.1 billion from the same period of the previous fiscal year when income temporarily increased due to the sales of an overseas branch office. Accordingly, free cash flow increased by ¥55.1 billion compared with the previous year to ¥35.5 billion.

Cash flow from financing activities increased by ¥37.5 billion year-on-year to ¥75.7 billion due to the increase in short-term loans in response to the decrease in working capital despite increased dividend payouts.

Owing to these factors, as well as the impact from foreign currency exchange adjustments, cash and cash equivalents increased by ¥115.6 billion to ¥477.7 billion from the end of the previous year.

Outlook

The outlook for the global economy from the second quarter onward remains uncertain due to geopolitical risks and continued inflation. However, the global economy is expected to maintain a recovery trend due to the normalisation of markets thanks to the decline of the COVID-19 pandemic and signs of financial stabilisation due to an immediate response by regulatory authorities to financial uncertainty which originated in the United States.

In the markets in which Canon operates, demand for office MFDs is expected to continue to remain firm, thanks to high demand for high-productivity printing as well as their status as key office devices. For inkjet printers, new home-use printing demand generated by the COVID-19 pandemic is expected to continue. In addition, demand for refillable ink tank models is expected to increase. For laser printers, demand is expected to remain at the same level as that of the previous year. As for digital interchangeable-lens cameras, demand is expected to remain solid, supported by the need for high-quality visual expression. For network cameras, the market is expected to maintain stable growth due to continued expansion of security applications, along with the growing demand for video analysis and high-value-added products. In addition, the market for professional video production equipment is expected to grow, supported by increasing demand for and spread of online video content. As for the medical equipment market, demand is expected to remain solid due to a recovery of investments in large-size equipment previously held back due to the COVID-19 pandemic, despite ongoing uncertainty. In addition, Canon entered into a share transfer agreement to acquire Minaris Medical Co., Ltd., which runs such businesses as in-vitro diagnostic reagents and automated clinical chemistry analysers, in order to strengthen and expand in-vitro diagnostics business. For semiconductor lithography equipment, despite concerns of contraction in some memory device markets, the demand for power devices is expected to remain solid. Furthermore, robust demand is expected to continue due to the construction of semiconductor factories in various countries and regions undertaken due to economic security concerns. For FPD lithography equipment, the market is likely to contract due to delayed investments from panel manufacturers, although the market shows signs of recovery thanks to optimisation of inventory levels.

With regard to currency exchange rates on which Canon bases its performance outlook for the second quarter onwards, Canon anticipates exchange rates of ¥130 to the U.S. dollar and ¥140 to the euro, which were maintained from its previous outlook, representing an appreciation of approximately ¥1 against the U.S. dollar and depreciation of approximately ¥2 against the euro compared with the previous year. Upon taking into consideration of the steady market conditions, the aforementioned currency exchange rates and sales prospects of competitive new products, Canon revised the forecast upward to full-year consolidated net sales of ¥4,313.0 billion, a year-on-year increase of 7.0%; operating profit of ¥380.0 billion, a year-on-year increase of 7.5%; income before income taxes of ¥410.0 billion, a year-on-year increase of 16.3%; and net income attributable to Canon Inc. of ¥285.0 billion, a year-on-year increase of 16.8%.