Canon Q4 and Fiscal Year Results

Canon Q4 and Fiscal Year Results

Canon has released its fourth quarter and Fiscal Year results as of 31 December 2022.

2022 in Review

Looking back at 2022, while the global economy resumed its economic activities in earnest, the pace of economic recovery slowed due to global inflation and tight monetary policies in order to control inflation in each country. In the United States, although affected by inflation and tightening monetary policy, the economic recovery continued due to robust increases in personal consumption and expansion of exports. In Europe, the economy slowed down due to a surge in energy prices resulting from the Ukraine crisis and continuous price hikes caused by inflation. In China, the recovery of personal consumption declined, and capital investment slowed due to restrictions implemented under its Zero-COVID strategy. In other emerging countries, the economy recovered moderately, mainly in India and Southeast Asia. In Japan, affected by the surge in the price of energy and inflation caused by the depreciation of the yen, the economy continued to recover moderately, mainly in terms of personal consumption.

Amid the unstable economic environment, in the markets in which Canon operates, despite a shortage of semiconductor chips and supply chain disruptions, demand improved moderately. Looking at performance by products, demand for office multifunction devices (MFDs) remained firm due to a recovery of in-office work. Meanwhile, demand for laser printers and inkjet printers slowed due to decreased demand from customers working from home. For cameras, demand remained solid, mainly for mirrorless cameras and lenses for professionals and enthusiasts. For medical equipment, demand in Japan declined this year due to a drop-off following the conclusion of government spending in 2021, although investments in the medical field recovered slowly, mainly for diagnostic imaging unit products outside Japan. For semiconductor lithography equipment, while the memory devices market declined, overall demand remained firm due to strong demand for power devices and sensors. For FPD (Flat Panel Display) lithography equipment, demand tended to decline due to decreased demand from customers working from home amid the COVID-19 pandemic, and demand for laptop computers decreased in response to the current economic slowdown.

The average value of the yen for the year was ¥131.66 against the U.S. dollar, a year-on-year depreciation of approximately ¥22, and ¥138.42 against the euro, a year-on-year depreciation of approximately ¥8.

In 2022, Canon ensured adequate supplies of products through sustained efforts such as switching to alternative components and seeking new vendors and taking swift action to secure transportation capacity while utilizing alternative transportation routes to deal with a shortage of components and logistics disruption. Net sales for the year increased by 14.7% year-on-year to ¥4,031.4 billion due to adjustment of product prices and depreciation of the yen. New business sales exceeded ¥1,000 billion, and net sales exceeded ¥4,000 billion for the first time in five years since 2017 as a result of the business portfolio transformation. Gross profit as a percentage of net sales decreased by 1.0 points to 45.3% due to the increase in the ratio of hardware caused by stabilisation of production supply, including printers, in addition to the increased costs of parts and logistics. However, gross profit increased by 12.3% year-on-year to ¥1,827.8 billion, mainly due to price adjustments of products and the depreciation of the yen. Although operating expenses increased by 9.5% year-on-year to

¥1,474.4 billion as a result of increased operating expenses denominated in foreign currencies due to the depreciation of the yen, as well as an increase in selling expenses accompanying growth in sales, the operating expense to sales ratio decreased by 1.8 points to 36.5% due to continued efficiency-focused cost control and improvements to management structure. As a result, operating profit increased by 25.4% year-on-year to ¥353.4 billion. Other income (deductions) decreased by ¥21.8 billion year-on-year to a loss of ¥1.0 billion, mainly due to the deterioration of valuation gains and losses on securities and currency exchange losses from liabilities incurred by group finance, denominated in foreign currencies caused by the depreciation of the yen. As a result, income before income taxes increased by 16.4% year-on-year to ¥352.4 billion, and net income attributable to Canon Inc. increased by 13.6% year-on-year to ¥244.0 billion.

Basic net income attributable to Canon Inc. shareholders per share was ¥236.71 for the year, a year-on-year increase of ¥31.36.

Results by Segment

Looking at Canon’s full year performance by business unit, in the Printing Business Unit, unit sales increased compared with the previous year due to the recovery of office MFDs production, thanks to supplies of semiconductor chips improving in the second half of the year. Sales of services and consumables increased moderately compared with the previous year due to a recovery of increase of in-office work. As for laser printers and inkjet printers, unit sales increased significantly compared with the previous year due to the recovery from stagnating production activities resulting from COVID-19 infections. However, consumables decreased compared with the previous year due to decreased demand from customers working from home. For equipment in the production printing market, sales increased compared with the previous year due to strong sales of the varioPRINT iX series of high-speed cut-sheet color inkjet presses, while revenue from services also increased. These factors resulted in total sales for the business unit of ¥2,261.9 billion, a year-on-year increase of 16.7%, while income before income taxes decreased by 3.1% year-on-year to ¥225.8 billion, due to the increase in costs of parts and logistics, despite price adjustment of products.

As for the Imaging Business Unit, unit sales of interchangeable-lens digital cameras were above those of the same period of the previous year due to continued robust demand for full-frame mirrorless cameras including the EOS R5 and EOS R6 as well as favorable reviews of the new EOS R7 and EOS R10 APS-C-size mirror- less cameras, despite stagnant production activities caused by a shortage of components. Unit sales of lenses increased owing to strong sales of RF-series interchangeable-lenses that expanded the product lineup. As for network cameras, sales increased significantly, mainly as a result of strengthening sales activities in response to diversifying market needs in addition to the recovery of product supply. As for professional video production equipment, sales of Cinema EOS-series cameras, including the new EOS R5 C, as well as professional video cameras and broadcast lenses, were strong. These factors resulted in total sales for the business unit of ¥803.5 billion, a year-on-year increase of 22.9%, while income before income taxes increased by 63.2% year-on-year to ¥128.0 billion mainly as a result of improved profitability due to an enhanced product mix

As for the Medical Business Unit, demand in Japan declined this year due to a drop-off after an uptick from government spending, which concluded in 2021, and delays of installation work at medical institutions overseas. However, demand of large systems such as Computed tomography (CT) systems and Magnetic resonance imaging (MRI) systems recovered overseas, mainly in Europe and the United States. Sales of diagnostic ultrasound systems were also strong. These factors resulted in total sales for the business unit of

¥513.3 billion, a year-on-year increase of 6.9%, the highest recorded sales in the history of the business unit. Income before income taxes decreased by 7.0% year-on-year to ¥31.9 billion due to an increase in other income (deductions) accompanying a corporate acquisition transaction occurred in the prior year.

As for the Industrial Business Unit, regarding semiconductor lithography equipment, unit sales increased compared with the previous year as a result of maximizing production capacity amid strong sales for a wide range of products such as power devices and sensors. For FPD lithography equipment, performance remained high despite a decrease in unit sales compared with the previous year when the business unit caught up with the delayed equipment installation, although this was mitigated by the minimized impacts of both decreased demand from customers working from home amid the COVID-19 pandemic and the economic slowdown in the current year. For OLED display manufacturing equipment, sales decreased compared with the previous year as panel manufacturers reconsidered investment plans in response to diversifying OLED panel applications. These factors resulted in total sales for the business unit of ¥329.2 billion, a year-on-year decrease of 2.5%, while income before income taxes totaled ¥59.2 billion, a year-on-year increase of 30.7% following the increased unit sales of semiconductor lithography equipment.

Cash Flow

During 2022, cash flow from operating activities decreased by ¥188.4 billion year-on-year to ¥262.6 billion as a result of higher inventory levels of key devices and main products, and an increase in working capital. Cash flow from investing activities decreased by ¥26.4 billion year-on-year to ¥180.8 billion due to the absence of major M&A transactions and the increased sales of fixed assets resulting from optimization of branch office capacity at overseas sales subsidiaries, while capital investment to improve efficiency and productivity remained consistent and purchases of securities increased. Accordingly, free cash flow decreased by ¥162.0 billion compared with the previous year to ¥81.8 billion.

Cash flow from financing activities comprised the repayment of loans that were provided for the acquisition of Toshiba Medical Systems Corporation (Canon Medical Systems Corporation). As a result, long-term loans decreased by ¥120.0 billion. In addition, there are repurchases of ¥100.0 billion of treasury stock and dividend payout increased by ¥30.4 billion year-on-year. On the other hand, total outlay of ¥146.8 billion was recorded due to the increase in short-term loans in response to the increase in working capital.

Owing to these factors, as well as the impact from foreign currency exchange adjustments, cash and cash equivalents decreased by ¥39.3 billion to ¥362.1 billion from the end of the previous year.

Outlook

The outlook for the global economy from next year is expected to remain uncertain due to pandemic, geopolitical risk and economic slowdown risk in response to inflation mainly in Europe and the United States.

In the markets in which Canon operates, demand for office MFDs is expected to remain solid due to demand for high-productivity printing equipment. However, there are concerns that demand for laser printers and inkjet printers may be affected by the decrease in demand from customers working from home and the current economic slowdown. As for interchangeable-lens digital cameras, demand is expected to remain solid due to the need for high-quality visual expression. For network cameras, the market is expected to maintain stable growth due to 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 video content due to the spread of online video streaming. As for the medical equipment market, demand is expected to remain solid due to a recovery in large investments, mainly for diagnostic imaging unit products, previously held back due to the COVID-19 pandemic. For semiconductor lithography equipment, despite concerns of shrinking in some memory device market, demand of power devices is expected to remain solid. Furthermore, robust demand is expected to continue due to the spread of political initiatives repatriate semiconductor manufacturing capabilities. For FPD lithography equipment, there are concerns about a delay of investments of panel manufacturers mainly due to decreased demand from customers working from home amid the COVID-19 pandemic.

With regard to the currency exchange rates on which Canon bases its performance outlook for the next year, Canon anticipates exchange rates of ¥130 to the U.S. dollar and ¥140 to the euro, representing  appreciation of approximately ¥2 against the U.S. dollar and depreciation of approximately ¥2 against the euro as the annual average rates of the previous year.

Upon taking into consideration of the above economic projection, despite concerns of global inflation and tightening monetary policies in each country, it is expected that policies will lead economic recovery in the second half of the year. Based on improved product costs and recovery of product supplies in response to easing of component shortages and logistical disruptions, Canon will strive to demonstrate the results of its new business portfolio and to supply the market with competitive new products. Accordingly, Canon projects full- year consolidated net sales of ¥4,287.0 billion, a year-on-year increase of 6.3%; operating profit of ¥360.0 billion, a year-on-year increase of 1.9%; income before income taxes of ¥390.0 billion, a year-on-year increase of 10.7%; and net income attributable to Canon Inc. of ¥270.0 billion, a year-on-year increase of 10.7%.

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