Nikon Corp

I am Umatate, representative of Duxar and president of Nikon. Thank you very much for taking time out of your busy schedule to join us today for our earnings call. I will discuss the current business situation and the specific progress of our growth strategy. In April last year, we set out our vision 2030 as a key technology company in a global society where humans and machines co-create seamlessly. In the first half of the major term management plan, which runs through fiscal 2025. We aim to grow our business and increase our corporate value by becoming a company that provides products and services optimized to meet our customer needs. This year, in the second year of the medium-term management plan, the external environment is becoming more challenging as the FPD business is at the bottom and the semiconductor market remains sluggish for a prolonged period. We have revised downward our operating profit forecast to ¥34 billion from the OP number we shared in August. On the other hand, we made upward revision of our revenue forecast to 690 billion yen, partly due to a weaker yen. Although not shown on this slide, we have increased our first half dividend 5 yen year-on-year to 25 yen, and maintained our full-year relevant forecast of 50 yen, which is no change from our original forecast. Our CFO, Mr. Tokunari, will explain the details of the numbers later. Although earnings are stagnant this fiscal year, we are making steady progress with our strategic development in line with our plan. This slide shows a very brief summary of our progress in the first half, the two businesses in quality of life and three businesses in industry. Both imaging products business and healthcare business in the quality of life segment are progressing well. In the imaging products business, we expect to achieve better earnings than last year by rolling out mirrorless cameras with cutting-edge features such as the Z8 and the ZF and continue to expand the lineup of interchangeable lenses for including super telephoto lenses and other high-value added products. In the healthcare business, we are making steady progress in expanding our lineup of digital microscopes that support life science, research, and medical practices, as well as services related to drug discovery support services for pharmaceutical companies and bio-ventures. Next, in the industry, The precision equipment and component businesses are facing more difficult environment than previously expected due to the sluggish semiconductor market. The precision equipment business created with the FPD lithography business unit and semiconductor lithography business unit combined in April this year. We will respond to changes in the business environment by horizontally integrating each function and revitalizing the organization. The component business has been affected by the current semiconductor market conditions, but we are making steady progress in developing new customers. and our long-term growth of story remains unchanged. In the digital manufacturing business, we established the advanced manufacturing business and established the division's headquarters in the United States, a first headquarter in the United States for Nikon to promote the full expansion of the materials processing business. In September, we made SLM Solutions of Germany a wholly owned subsidiary, laying the groundwork for business development in Japan, the US and Europe. As you can see at the bottom of this page, we recognize the post-acquisition integration of overseas subsidiaries is an important management focus and we will continue to improve and strengthen our management and control system. As I mentioned earlier, in the second year of the medium-term management plan, we expect a decline in profit year-on-year. While the overall performance is within assumptions of the mid-term management plan, there are some variations by segment. The imaging products business significantly exceeds the plan, but the semiconductor-related businesses are progressing slower than expected. We are currently reviewing our plans for each segment and will present new numerical targets for the second half of the mid-term management plan in the spring of this year. Nikon is committed to generating diverse revenues from common core of optical and precision technology and to responding to risks in order to achieve sustainable growth. We look forward to your continued understanding and support. Now, our CFO, Mr. Tokunari, will now explain the first half financial results and outlook for the full year.

Thank you very much for your attention. Good afternoon, everyone. I am Tokunari, CFO.

Nice to meet you all. I would like to discuss the first half results and the outlook for the full year. Firstly, the highlights of the first half results. Revenue was 331.2 billion yen, operating profit was 13.6 billion yen and profit attributable to owners or parents was 9.8 billion yen. Revenue increased by 42.9 billion yen compared to the same period previous year. Revenue grew on the strong business of the digital cameras and ARF lithography systems for semiconductors, with additional revenue of newly consolidated subsidiary metal 3D printer manufacturer SLM Solutions. On the other hand, OP and profit attributable to owners of parent decreased due to the lower revenue in the highly profitable FPD lithography systems and the components businesses, with higher expenses resulting from the SLM acquisition. Compared with the forecast announced in August, revenue increased by 6.2 billion yen, partly due to the cheaper yen, but OPE and products attributable to owners or parents decreased, partly due to provisions in the healthcare business and expenses related to the structural reform of MOV3D in the digital manufacturing business. Slide 9 shows the consolidated financial highlights for the first half this year compared to the same period last year and the previous forecast we made in August. Please take a look at slide 10. It shows the segment results for the first half. In the yellow line box for each segment, the upper row is revenue and the bottom row is operating profit. Compared to last year, revenue and profit increased in the imaging products business while profits decreased in other four businesses. Slide 11 shows consolidated revenue and profit and loss for the three months from July to September. If you look at just the three months, both revenue and profit increased compared to the same period previous year. This was due to the increased revenue and profit in the imaging products business and the precision equipment business. I will now explain the first half results of each segment starting with the imaging products business. Imaging products business revenue increased by 23.1 billion yen year-on-year to 137.6 billion yen, and operating profit increased by 3 billion yen to 25.2 billion yen. Revenue of mirrorless cameras and lenses for mirrorless cameras was strong, led by Z8 launched in May of this year. The average selling price of both bodies and lenses were up due to a focus on mid- to high-end models, and the weaker yen also contributed to a 20% or near increase in revenue. In addition, the operating profit margin exceeded 18%. Slide 13 shows a precision equipment business. Revenue increased by 12.7 billion yen year-on-year to 96 billion yen, yet operating profit decreased 3 billion yen to 3.2 billion yen. Revenue of new equipment totaled 11 units. out of which nine were ARF lithography systems, a significant increase from the two units last year. This shows we are making steady progress in expanding our customer base. On the other hand, service revenue decreased due to lower utilization rates of semiconductor device customers. In addition, revenue of FPD lithography systems decreased significantly to 4 units from 13 units in the previous year, as this fiscal year makes the bottom of the business cycle for FPDs, such as LCD panels. In the precision equipment business as a whole, the revenue increase of ARF lithography systems could not offset the decline in the highly profitable services business and FPDs, resulting in a year-on-year decline in profit despite an increase in revenue. Slide 14 shows the healthcare business. revenue increased by 4.6 billion yen to 51.2 billion yen due to strong revenue of life science solutions including biological microscope groups in north america and china however operating profit decreased by 0.9 billion yen to 2.7 billion yen due to provisions of 1.4 billion yen related to transactions of some customers and other reasons slide 15 is a components business The components business had been growing rapidly until the previous year due to the expansion of revenues from EUV and other semiconductor-related business. But in the first half of this year, revenue as well as profit declined due to the impact of sluggish semiconductor market. Revenue declined in the first half, partly due to the delayed shipment of EUV-related components and optical components as a result of production adjustment by semiconductor-related customers. Demand for some consumables such as optical parts also declined due to lower capacity utilization rates at semiconductor equipment manufacturers. Slide 16 shows digital manufacturing business. This segment consists of the industrial meteorology business and the newly established advanced manufacturing business or ADM business. Revenue was up year on year contributed by the newly consolidated German SLM solutions in the ADM business. On the other hand, operating loss increased due to SLM's operating loss and amortization of intangible assets of SLM, restructuring expenses as more 3D business strategy reviewed as well as upfront investments were made in the industrial metrology business. Next, let me go to the full-year outlook. As for the full-year forecast, we have raised our revenue forecast by 20 billion yen to 690 billion yen, partially due to the FX rate as the revenue increased in imaging products and the healthcare business is expected to outweigh the decline in other businesses. The imaging products of OP forecast was revised upward by 2 billion yen, and corporate expenses, etc., were increased by 3.5 billion yen. While downward revision of 4 billion yen in the precision equipment, 1.5 billion yen for healthcare, 5 billion for the components business, and 4 billion for the digital manufacturing businesses were made, this making total OP revised downward by 9 billion yen to 34 billion yen. The forecast for profit attributable to owners of parent was revised downward by 8 billion to 27 billion yen, but shareholders' returns, the interim dividend, is increased by 5 yen from previous year to 25 yen, and the annual dividend forecast is unchanged to be 50 yen. The FX assumption for the second half is 140 yen to a dollar and 150 yen for euro. Please see slide 19. You can see a list of fully forecast highlights compared to the previous year and the previous forecasts. I already covered the outline. So I will go to slide 20. It shows fully forecast by segment with year-on-year comparisons and previous forecast. The details for each segment will be explained later. First, the imaging products business. We revised our August forecast based on the assumption that the digital camera market will continue to expand in the second half of this fiscal year. As indicated in the lower left, we revised our full-year market size forecast for interchangeable lens cameras to 6.3 million units, up 500,000 units from previous forecast, and for the interchangeable lenses to 10 million units, up 600,000 units. Our sales volume is also revised up to 800,000 units. up 14% or 50,000 units from last year, and interchangeable lenses, 1.25 million, up 8% or 50,000 units from last year, based on the strong sales. Due to the upward revision in sales volume and change in currency assumptions, the revenue forecast is raised by 25 billion yen from the previous forecast to 275 billion yen. On a year-on-year basis, revenue is expected to increase 21% due to an increase in the average sales price per unit in addition to an increase in sales volume. OP forecast is also revised upward by 2 billion yen from the previous forecast. The second half forecast reflects higher purchasing prices of components and selling expenses for the year-end sales campaign. Slide 22 shows the forecast for the precision equipment business. Please refer to the lower left. Since the installation of some ARF lithography systems were postponed into next year, upon customer request, the sales volume of new semiconductor lithography system is expected to decrease by 3 units to 30 units. On the other hand, the sales of FPD lithography systems are expected to increase by 1 unit to 13 units. Considering the sales volume changes and others, we advise down revenue forecast by 5 billion yen from the August forecast to 200 billion yen. The operating profit forecast was lowered by 4 billion yen from the previous forecast in August to 8 billion yen due to the lower sales and an increase in R&D expenses to strengthen product competitiveness, including the development of next-generation platforms. Please see slide 23 next. I will now explain healthcare business. Based on the strong performance in the first half, we raised our revenue forecast by 8 billion yen to 103 billion yen. We revised the OP forecasted down by 1.5 billion yen to 9.5 billion yen, reflecting 1.4 billion yen provision in the first half related to certain customers' transactions and others, as well as higher purchasing prices for components, even though we expect a revenue increase. Slider 24 shows component business. Future investment trends by semiconductor device manufacturers remain uncertain due to this sluggish semiconductor market. EUV-related business, which is expected to grow in the medium to long term, is also stagnant at present, and the timing of recovery is yet to be determined. Production adjustment by semiconductor-related customers are expected to continue for some time, and deliveries of some EU-related components and optical components are expected to be postponed to the next fiscal year. Consumable business, such as optical components, is affected by lower capacity utilization rates of semiconductor device makers, and expected to be lower than previous forecast. As a result, we raised our revenue forecast down by 6 billion to 47 billion yen, and our OP forecast down by 5 billion yen to 15 billion yen. Slide 25 is the digital manufacturing business. Revenue is expected to be 62 billion yen down by 2 billion from the previous forecast, mainly because the SLM solutions acquired into the ADM business has been affected negatively by customers' changes in their investment plans. Operating profit is expected to be a loss of 13 billion yen, down by 4 billion yen from the previous forecast in August, mainly due to lower revenue in the ADM business, the negative impact effects, restructuring expenses at MOV3D and changes in the product mix in the industrial meteorology business. That's all from myself. In the summary of the first half, revenue was up partially due to the weaker yen, but operating profit fell short of the plan due in part to one-time expenses including provisions in healthcare and restructuring-related expenses in digital manufacturing. For the full year, We revised our OP forecast downward by 9 billion yen from the previous forecast to 34 billion yen. Weak semiconductor market conditions pushed down operating profit by 9 billion yen for the precision equipment and components business combined. For the next fiscal year, although we still cannot foresee a recovery in demand for semiconductor-related products, we will continue to make efforts to minimize the impact of market downturns by making timely and appropriate resources investment through close communication with our customers to make sure that we do not miss the timing of market recovery. During the first half of this fiscal year, we made SLM a wholly owned subsidiary. Although the ADM business will start the current fiscal year with loss due to the one-time cost of the acquisition, we aim to double revenue to more than 40 billion yen in FY 2025 and to return the EBIT positive. Furthermore, in FY2026, we plan to return to profitability in operating profit, even with the amortization of intangible assets included. There are many risk factors in the second half and into the next fiscal year, with longer-than-expected sluggish semiconductor market, geopolitical risks, and rising interest rates. but we will do our best to act with agility to accommodate those changes. We appreciate your continued support of our customers and shareholders and investors. Thank you very much for your attention.