Weak Asia and Strong Yen Spoil Canon Q1 FY2016 Results
- Q1 2016 year on year net sales fall -10.6%
- Operating profit down -32.6%
- Overall company net sales -7%
The first indication of what 2016 will bring for Canon was contained in their Q1 FY2016 financial report just released. Expectations were for a significant fall in the imaging segment so lets see how they got on.
Projections in the last report for the full year 2016 were for a fall of -8% Gross Sales Value and -16% in Total Units. This fall was to be mainly due to the demise of the Fixed Lens Compact Camera that was expected to fall -24% by Units in 2016 under intense competition from the Smart Phone.
Overall Business Results
Net sales across all business segments, excluding the new Toshiba Medical Systems Business, were down -7% on the same period year on year. Operating profit fell a considerable -39.4%. These results were against a background of a global economy that continued to realize moderate growth.
The overall fall in sales was attributed to a fall in the market for Laser Printer, Cameras and Inkjet Printers. Other Business in the Lithography section showed strong growth as Capital Investment by Semiconductor and Flat Panel manufacturers increase their capital spending.
Sales and profits were hit also by the strengthening of the Yen against the Dollar and Euro that accounted for close to half of the fall. Cost cutting and limiting price reductions helped keep gross profit ratio at 50.8% down just -0.3% year on year.
The strengthening of the Yen was not foreseen in the overall projections given in the end of year FY2015 report. Hence overall net sales for FY2016 have now been reduced from 3850¥B to 3600¥B and operating profits have been reduced from 360¥B to 300¥B.
While not a brilliant overall performance it is reasonable damage limitations whilst waiting for the new businesses to bring about growth.
Imaging Systems Segment Results
Net sales in the Imaging Systems segment were down -10.6% for Q1 2016 year on year. As a proportion of overall sales Imaging fell to 29.5% down from 30.6% the previous year. Operating profit fell by -32.6% to 19.6¥B.
The main geographic area of concern was Asia and Oceania where sales slumped by -16% whereas Europe was the best performer losing just -6.6% of sales by Value.
Digital Cameras account for 57% of the Imaging Systems segment whilst Inkjet Printers account for 32% of sales. The other 11% is made up by Image scanners, Multimedia projectors, Broadcast equipment and Calculators. Cameras have lost -2% from the previous year.
The highlights of the Camera section are noted as the release of the new EOS 80D to attract the high end of the amateur-enthusiast and the EOS M3 and M10 that have done well in Japan and Asia. The extended G series Powershot models have high value and solid demand to offset the general demise of the compact camera.
R & D
Research and development within the Imaging segment has been increase from 21.4¥B to 23.6¥B in this quarter year on year. Other companies appear to be reducing R&D and that will hurt them in the long run.
Lack of stock is one problem that is inhibiting camera sales for some companies in some areas. Canon have increased inventories and are up to 51 days worth from just 43 days its at the end of Dec 2015. Getting this product to the front line can only help sales.
Even though predictions for 2016 were negative for Digital Cameras the reality is even worse. Given the first quarter results even the new forecasts seem optimistic. The Digital Camera business is going to continue to be challenging for the foreseeable future. However, Canon have already made there plans to move to other areas where they can grow and profit.
Canon Inc. share price dipped slightly then recovered to be down just 0.35% at the close.