Nikon Corp

This is Muniaki Tokunori, CFO at Nikon Corporation. I do appreciate your precious time to spread your business schedule to attend our financial results briefing today. I would like to explain our financial results for the third quarter of the year ending March 31, 2023, as well as our outlook for the full year. In the third quarter of our year to date, revenue increased by 12.2% and operating profit increased by 7.8% year-on-year. As shown in the lower right of the slide, the effect of yen's depreciation was a major contributor. Profit attributable to owners of parent increased only slightly by 1% due to the impact of the absence of the gain on valuations of investment securities which was recorded in financial income in the previous fiscal year. Slide 4 shows the cumulative third quarter results by segment. As you can see from the percentage change year-on-year shown on the far right, operating profit in the imaging and healthcare businesses increased substantially more than 2x year-on-year, and all businesses except for the precision equipment business posted operating profits higher than the previous year. Now I'd like to go through the actual performance using slide 5 and onward. I will begin with imaging products business. Revenue from imaging products business increased by 48.4 billion yen year-on-year to 184.4 billion yen, and operating profit increased by 22.4 billion yen to 41.2 billion yen. In addition to the effect of the yen depreciation, average sales and price increased due to the advanced shifting to mid-high-end models for the pro hobbyists. In the area of interchangeable lenses, sales of high-priced lenses for full-frame cameras was strong. contributing to higher revenue and profit despite the declined volume of low-priced lenses. For your information, we achieved much higher results up until the third quarter due to the fact that the planned R&D and other expenses were deferred to the fourth quarter. Slide 6 shows precision equipment business. Revenue was down 29.4 billion yen, year-on-year to 133.5 billion yen. Operating profit was 14.6 billion yen down 18.8 billion yen year-on-year. Revenue and profit from FUD lithography systems declined as units sold fell sharply. This is a sharp contrast to the situation in the previous year when we had installations coming back so rapidly after the big impact of COVID-19 pandemic. On the other hand, Sales of semiconductor lithography systems increased compared to the previous year when the investment period of major customers was in the off-season, and both revenue and profit increased. However, sales volume fell short of the plan due to the requested postponement coming from customers, including the lack of utilities. Now slide 7 on health care and business. Revenue was 72.1 billion yen, and the operating profit was 7.2 billion yen, showing a significant growth year on year. Both revenue and operating profit reached record highs, and operating margin was in the 10% range. This was due to the strong sales of biological microscopes and retinal diagnostics imaging systems mainly in North America, as well as the positive impact coming from the cheaper yen. Slide 8 shows component business. With revenues being ¥38.1 billion and operating profit being ¥13.3 billion, this segment also imposed growth both in revenue and profit. In addition to EUV-related components, semiconductor-related products such as optical parts and optical components, as well as encoders and photomask substrates for FVT expanded, and operating profit margin remained in the 30% range. Now slide 9 shows industrial metrology and others. Revenue was 27.8 billion yen, and operating profit was 2.4 billion yen, showing growth both in revenue and profit. In the industrial metrology business, we had rather strong sales of video measuring systems and industrial microscopies. Next, I would like to explain our full-year forecast. Please refer to slide 11. First of all, all the exchange rate assumptions shown in the second row from the bottom are 130 yen to the U.S. dollar and 135 yen to euro for the fourth quarter. I will explain our full-year earnings forecast based upon these exchange rates assumptions. At the top, we have revised down our full-year revenue forecast by 15 billion yen from the previous forecast to 630 billion yen. Open profit is unchanged from the previous forecast at 55 billion yen. Profit attributable to owners of parent is also unchanged from the previous forecast of 42 billion yen. Next, as for shareholder returns, the annual dividend remains 40 yen per share unchanged from the previous forecast. Regarding share buybacks, we have repurchased 17.56 million shares for 24.9 billion yen. As of the end of January, we will continue our buyback operations up to the maximum of 30 billion yen through March 24th this year. As mentioned in the topic section, following the completion of the tender offer for shares of SLM Solutions, the company became our consolidated subsidiary as of January. We are presenting our full-year forecast, including the impact of this acquisition. Please refer to slide 12. This table shows the main numbers of the full-year forecast, including comparisons vis-à-vis the year-on-year and the previous forecast. I have already explained the outline. Slide 13 shows the full-year forecast by segment along with year-on-year and the previous forecast comparisons. I will go through details segment by segment. First, imaging products business. As the market scale is recovering, we will continue our strategy of improving profitability focusing on mid-high-end cameras. We maintain our previous forecast of 700,000 units for interchangeable lenses for digital cameras. On the other hand, sales of interchangeable lenses are expected to be lowered by 100,000 units to 1.15 million units due to the weaker than planned sales of low unit price single focal length lenses. The average sales and prices are steadily in the rising, especially for mirrorless cameras and interchangeable lenses, and revenue is expected to be 230 billion yen up 51.8 billion yen year on year with no change from the previous forecast. Open profit is expected to be 42 billion yen, up 9 billion yen from the previous forecast based on the results through the third quarter. We are now revising up 9 billion yen from the previous forecast to 42 billion yen, a significant increase as much as 2.2 times. Slide 15 shows precision equipment business, revenue being 210 billion yen, down 20 billion yen from the previous forecast. In FDA lithography systems, due to the impact of the rapid expansion of COVID-19 infection in China for a certain period of time, The completion of installation of one unit for large panels has been postponed to the next fiscal year, starting from April, and the annual sales volume is now expected to be 29 units. The FPD lithography in the systems market is expected to bottom out in the next fiscal year due to the slowdown in investment by customers and deferred installations in response to the sluggish panel demand, and we believe it will start to recover in 2024 and beyond. In the semiconductor lithography assistance market, installation of 11 units is expected to be postponed to the next fiscal year by the request of our customers. This is due to the delays in the readiness among some customers due to labor shortages, supply chain disruptions, material shortages, and other factors. In light of these factors, we have lowered our full-year revenue forecast by 20 billion yen for precision equipment business as a whole. Open profit has also been lowered by 6 billion yen from the previous forecast to 24 billion yen, reflecting FAD lithography systems and semiconductor lithography systems being postponed till the next fiscal year. We have assumed since a year ago when we formulated the medium-term margin plan, that the bottom of the precision equipment business would be reached in the next fiscal year starting from April due to the supply-demand cycle, but we now expect the bottom to be much deeper than we had expected, particularly in the FBD lithography business. On the other hand, there are some results that will lead to a better future. For example, more than 80% of sales of ARF lithography systems in the semiconductor lithography Businesses were previously concentrated in one major customer in North America, but our efforts over the past several years to diversify our customer base have borne fruit, and this fiscal year we expect sales volume from customers other than this major customer to exceed half of our total sales. We believe that the fact that our customers are diversifying into other Asian countries will help stabilize the profitability of our official equipment business in the future. Please see in slide 16. Revenue from health care business is expected to be 93 billion yen, up 19.8 billion yen year-on-year, no change from the previous forecast. Open profit is also expected to increase by 3.7 billion yen year-on-year to 8 billion yen in line with the previous forecast. Sales of both biological microscopes and retinal diagnostics imaging systems have been rather favorable on the back of strong orders. The risk in the healthcare business is parts procurement. Although there is an improvement trend, we will continue to monitor the situation closely from the fourth quarter onward and strive to ensure the stable supply of products. Slide 17 shows the outlook for the components business. Revenue is expected to increase significantly to 53 billion yen, up 12.2 billion yen year-on-year, with no change from the previous forecast. Operating profit is also expected to increase by 5.3 billion yen unchanged from the previous forecast. Solid cells are expected for EUB-related components. Optical parts and optical components for semiconductor-related products, encoders, and photomask substrate for FAD are expected. Slide 18 shows the forecast for industrial, metropolitan, and others. Others include production subsidiaries and others. Revenue in this business segment is expected to be 44 billion yen, an upward revision of 5 billion yen from the previous forecast, and operating profit is expected to be 3.5 billion yen, a downward revision of 1 billion yen from the previous forecast. The estimated impact of the consolidation of SLM solutions from January to March is reflected in this latest forecast. SLM solutions has been performing well, with EBITDA expected to be positive for the last three consecutive quarters, excluding one-time M&A-related expenses. Nikon intends to develop the materials and processing business as the next pillar for Nikon's growth strategy centered around SLM solutions. That is all for the explanation of our business performance and the numbers. But today, as Nikon's director in charge of sustainability, I would like to briefly report to our shareholders and investors on the current status of ESG and the sustainability of Nikon Corporation. In fact, Nikon's sustainability activities have been highly evaluated by third-party organizations, surpassing those of other companies in our industry. For example, Nikon has been selected for the ALS and Climate Change Survey by the non-profit organization CDP for four consecutive years since FY 2019. and in the Dow Jones Sustainability Index, one of the world's leading ESG investment indices, Nikon has been selected as a component of the DJSI World and the DJSI Asia-Pacific for the five consecutive years. In particular, this year, Nikon received the number one score in the entire world for the industry group to which Nikon belongs. In addition, Nikon shares are included in all the five of the GPIF's ESG investment indices, including the Japan Empowering Women Index and the Carbon Efficient Index. Behind these high valuations are our steady and persistent efforts to respond to society's expectations with trust in the area of the environment, social and labor affairs, and governance, and we are getting results, if I may say so. In the current mid-term management plan, we will also take on the challenge of contributing to a sustainable society through creativity by leveraging our light-utilizing and precision technologies. The recently announced ANA Green Jet is an initiative for Boeing 787 to improve fuel efficiency and reduce CO2 emissions by applying a sharkskin finish to the surface of its aircraft. It's just one example. By solving social and environmental issues with optics and precision technologies, we hope to contribute to realize a sustainable society, and at the same time, we would like to enhance the sustainability of Nikon as a company. Finally, I would like to say a few words in summary. Our business performance up to the third quarter has been favorable in terms of both operating profit and profit attributable to owners of parent. However, in the fourth quarter, we have not changed our previous forecast of 55 billion yen for operating profit due to the R&D expenses to be incurred in the imaging and the risk of lithography systems. Currently under installation to be postponed till to the next fiscal year in precision equipment business. Over the next fiscal year, there are no risk factors such as concerns about economic recession, the impact of inflation, and the reduced effect of the yen depreciation, as well as uncertainty in the FPD panel market. However, that said, Nikon has been transformed into a much more resilient corporate entity than in the past. In other words, the imaging business is steadily growing in the mid-high and near-less market. The precision equipment business is diversifying its customers, particularly in semiconductor business. And the businesses other than imaging and precision equipment, such as the component business, which is expected to generate 18 billion yen in operating profit, and the healthcare business, which is expected to generate 8 billion yen in operating profit, are firmly growing as our earnings pillars. Furthermore, Nikon will aim for further growth in the next fiscal year, including the launch of a digital manufacturing business centered around the acquired SLM solutions. We would like to ask for the continued understanding and support of our shareholders and investors.