April 26, 2021 — Canon reported its financial results for the quarter ending March 31, 2021.
Operating Results and Financial Conditions 2021 First Quarter in Review
Looking back at the first quarter of 2021, the global economy gradually recovered as a result of balanced measures to curb infections and resume economic activities despite no indications that the spread of the coronavirus disease (“COVID-19”) pandemic worldwide was declining. In the U.S., the economy gradually recovered as a result of increased personal consumption and capital investment through economic measures decided by the U.S. government at the end of 2020. In Europe, because of the resurgence of infections, largely due to the COVID-19 variant from the U.K., the restriction of economic activity was prolonged and some countries reimposed lockdowns. In China, although the number of new COVID-19 cases increased, economic recovery continued due to increased domestic demand and exports. In other emerging markets, economies were stagnant due to the resurgence of COVID-19 infections. In Japan, the trend toward economic recovery continued, including exports and capital investments.
Amid these conditions, in the markets in which Canon operates, demand for office multifunction devices (MFDs), for both color and monochrome models showed moderate recovery. For laser printers, demand was above that of the previous year, mainly for monochrome models. For inkjet printers, demand in home use remained solid in developed countries and emerging countries. For cameras, the market showed signs of improvement due to a recovery in consumption centering on mirrorless cameras. For medical equipment, the trend towards recovery continued due to increased sales activities focusing on medical institutions. For industrial equipment, demand for both semiconductor lithography equipment and FPD (Flat Panel Display) lithography equipment remained solid.
The average value of the yen in the first quarter was ¥106.11 against the U.S. dollar, a year-on-year appreciation of approximately ¥3, and ¥127.72 against the euro, a year-on-year depreciation of approximately ¥8.
As for the first quarter, although unit sales of office MFDs were above those of the same period of the previous year, unit sales of equipment for the production printing market declined compared with the same period of the previous year, due to a moderate recovery in demand. For unit sales of laser printers, although monochrome models were above those of the same period of the previous year due to increased demand stemming from remote working, color models were below those of the same period of the previous year. Sales of services and consumables decreased particularly for office MFDs due to stagnation in customers’ print volumes amid the spread of COVID-19, although corporate activities gradually headed toward a recovery. For inkjet printers, unit sales, including those of Refillable Ink Tank Printers, were above those of the same period of the previous year due to solid global demand. For interchangeable-lens digital cameras, unit sales were above those of the same period of the previous year due to strong sales of the EOS R5 and EOS R6 full-frame mirrorless cameras. As for network cameras, which are being used in a growing range of applications, sales increased due to the strengthening of sales activities. For medical equipment, sales increased in major areas as a result of securing opportunities with medical institutions supported by the Japanese government. While semiconductor lithography equipment remained solid, sales for FPD lithography equipment were significantly above those of the same period of the previous year. However, sales for organic LED (OLED) panel manufacturing equipment were below those of the same period of the previous year. Under these conditions, first-quarter net sales increased by 7.7% year-on-year to ¥842.7 billion. Gross profit as a percentage of net sales decreased by 0.2 points to 45.6%. First-quarter gross profit increased by 7.2% year-on-year to ¥384.4 billion. Operating expenses decreased by 3.7% year-on-year to ¥313.8 billion, due to the continued controls of expenses. As a result, operating profit increased by 114.6% year-on-year to ¥70.6 billion. Other income (deductions) decreased by ¥6.2 billion year-on-year to a loss of ¥4.5 billion, mainly due to currency exchange losses, while income before income taxes increased by 91.4% year-on-year to ¥66.0 billion and net income attributable to Canon Inc. increased by 102.9% year-on-year to ¥44.5 billion.
Basic net income attributable to Canon Inc. shareholders per share was ¥42.51 for the first quarter, a year-on- year increase of ¥21.82.
Results by Segment
Looking at Canon’s first-quarter performance by business unit, in the Printing Business Unit, unit sales of office MFDs increased compared with the same period of the previous year, thanks to strong sales of the imageRUNNER ADVANCE DX series. For equipment for the production printing market, although sales of some products increased, unit sales as a whole were below those of the same period of the previous year due to a moderate recovery of demand. As for laser printers, while unit sales of monochrome models increased compared with the same period of the previous year due to increase in demand stemming from remote working, unit sales of color models were below those of the same period of the previous year. Sales of services and consumables declined as a result of stagnating customer print volumes particularly for office MFDs, although corporate activities gradually headed toward a recovery. For inkjet printers, unit sales, including those of Refillable Ink Tank Printers, increased compared with the same period of the previous year based on strong global demand. These factors resulted in total sales for the business unit of ¥469.4 billion, a year-on-year decrease of 1.8%, while income before income taxes decreased by 3.8% year-on-year to ¥54.7 billion.
As for the Imaging Business Unit, unit sales of interchangeable-lens digital cameras were above those of the same period of the previous year as sales of the EOS R5 and EOS R6 have grown with the shift to mirrorless models, and sales of interchangeable lenses increased significantly due to an expansion of the lens product lineup. As for network cameras, despite the continued impact of COVID-19, sales increased mainly as a result of strengthening sales activities of software for such diversified applications as remote monitoring and monitoring of congested and confined spaces, as well as conventional market needs including crime prevention and disaster monitoring tools. These factors resulted in total sales for the business unit of ¥148.6 billion, a year- on-year increase of 24.0%, while income before income taxes totaled ¥18.1 billion resulting in a recovery from a deficit for the same period of the previous year.
As for the Medical Business Unit, although the resurgence of COVID-19 infections had an impact on business negotiations and installation, Canon captured the opportunity in Japan to support the purchase of equipment for medical institutions using government subsidies. Sales also increased in Europe and the United States due to strong sales of computed tomography (CT) systems, diagnostic X-ray systems and diagnostic ultrasound systems. These factors resulted in total sales for the business unit of ¥124.4 billion, a year-on-year increase of 17.3%, while income before income taxes increased by 184.2% year-on-year to ¥11.7 billion.
As for the Industrial & Others Business Unit, regarding semiconductor lithography equipment, demand for memory devices, image sensors and automotive devices remained solid. As a result, unit sales remained at the same level as the previous year, when sales were strong. For FPD lithography equipment, there was growth in demand for panels. As a result, unit sales increased significantly from the previous year when there were delays in equipment installation due to COVID-19. For OLED panel manufacturing equipment, sales decreased. These factors resulted in total sales for the business unit of ¥124.6 billion, a year-on-year increase of 26.0%, while income before income taxes totaled ¥9.2 billion, a year-on-year increase of 30.9%.
In the first quarter, cash flow from operating activities increased by ¥65.9 billion year-on-year to ¥129.2 billion due to an increase in profit and working capital improvement. Cash flow used in investing activities decreased by ¥4.3 billion year-on-year to ¥39.3 billion mainly due to a decrease of investment in production equipment. Accordingly, free cash flow increased by ¥70.2 billion compared with that of the previous year to ¥90.0 billion.
Cash flow from financing activities recorded an outlay of ¥25.8 billion mainly due to dividend payout.
Owing to these factors, as well as the impact from foreign currency exchange adjustments, cash and cash equivalents increased by ¥75.7 billion to ¥483.4 billion from the end of the previous year.
Looking at the global economy from the second quarter onwards, while expectations are increasing for COVID- 19 vaccines that are gradually being administered around the world, it will take time to see a full-scale recovery of the global economy through balancing measures to curb infections and resume economic activities. In addition, the risk of delays for delivery of goods due to the high demand for international freight transport and delays for the supply of semiconductor chips are becoming apparent. Under these conditions, economic prospects continue to remain uncertain throughout the world. However, the pace of the world economy is expected to recover moderately over the long term thanks to various economic measures and fiscal policies in each country and region.
In the markets in which Canon operates, for office MFDs, amid an expected recovery of corporate activities, although a recovery of sales of services and consumables is slower than expected, demand for the imageRUNNER ADVANCE DX series is expected to increase. For laser printers, demand is also expected to increase due to signs of recovery of demand in offices as well as in home use. For inkjet printers, demand is expected to remain solid due to increased print volumes resulting from remote work and education, which have become more commonplace due to the impact of the resurgence of COVID-19 infections. As for interchangeable-lens digital cameras, the overall market is expected to remain at the same level as the previous year. Canon will strengthen sales of full-frame mirrorless cameras and interchangeable lenses while reinforcing sales promotion efforts amid a shift to mirrorless cameras and improving our product mix. For network cameras, the market is expected to continue growing due to the expansion of emerging markets and increasing demand for video analysis solutions. As for the medical equipment market, demand is expected to continue to recover due to progress in sales activity focusing on medical institutions despite concerns about impact of the resurgence of COVID-19 infections. For semiconductor lithography equipment, while demand for memory devices is expected to remain solid, demand for image sensors and automotive devices is expected to continue to increase. For FPD lithography equipment, demand will remain solid as panel manufacturers are expected to increase capital investments.
With regard to currency exchange rates on which Canon bases its performance outlook for the second quarter onwards, Canon anticipates exchange rates of ¥105 to the U.S. dollar and ¥125 to the euro, representing appreciation of approximately ¥1 against the U.S. dollar and depreciation of approximately ¥4 against the euro as the annual average rates of the previous year.
Taking into consideration exchange rate assumptions, Canon’s first quarter performance, as well as the current market forecast and sales prospects of new products, Canon projects full-year consolidated net sales of ¥3,500.0 billion, a year-on-year increase of 10.8%; operating profit of ¥198.0 billion, a year-on-year increase of 79.1%; income before income taxes of ¥211.0 billion, a year-on-year increase of 62.0%; and net income attributable to Canon Inc. of ¥140.0 billion, a year-on-year increase of 68.0%, which were revised upward from its previous outlook.
With regards to dividend forecast for the fiscal year 2021 which had yet to be decided, taking into consideration the earnings forecast mentioned above, Canon plans to distribute a yearly dividend of ¥90.00 per share, consisting of ¥45.00 for both the interim and year-end dividend. For more details, please refer to “Notice Regarding Projected Dividend for the Fiscal Year Ending December 31, 2021 (the 121st Business Term)” released separately on April 26, 2021.