Nikon Corp

I took on the role of CFO this past April. Thank you for joining us today. I'll begin by reviewing our results for the fiscal year ended March 31st, 2025, and then share our outlook for the current fiscal year. For FY 2025, Nikon recorded revenue of 715.2 billion yen, operating profit of 2.4 billion yen, and profit attributable to owners of the parent of 6.1 billion yen. We faced a decline in sales for semiconductor-related businesses within precision, equipment, and components. The increase in sales from imaging products and health care and the weakening were not enough to offset this, resulting in a slight drop in overall revenue. Adding to this, we recorded a 27.2 billion yen in one-time cost, which significantly reduced our profit. Details are available on slide 28. Compared to our previous forecast, using product, precision equipment, and digital manufacturing all fell short of expectations, contributing to a notable shortfall in profits. Because of this, we revised our annual dividend downward by ¥5 to ¥50 per share, keeping it at the same level as the end of last year. The ¥30 billion share buyback was carried out as planned using funds made available through balance sheet efficiencies. The repurchase shares were canceled at the end of the fiscal year. This chart shows the changes in operating profit by segment compared to our February 6th forecast. As you can see, imaging products, precision equipment, and digital manufacturing saw major downside, and runtime costs played a significant role. Slide 5 in the yellow box highlights key financial indicators for previous fiscal year. Operating cash flow was 48.2 billion yen, marking the second consecutive year of growth. However, free cash flow came to minus 21.7 billion yen due to outlays tied to our acquisition red and relocation of our head office. On slide 6, we present segment results compared to both the previous year and our previous forecast. Let me walk through each one. Starting with imaging product business. The global market for digital camera interchangeable lens type continue to expand, especially in China. With strong demand for our new mirrorless cameras, both bodies and lenses, and tailwind from weaker yen revenue increased by 15.6 billion yen to 295.3 billion yen. Sluggish conditions in similar industries resulted in operating losses at RED, a company we acquired, and our recognition of fixed asset impairment losses at MRMC also led to a decline in operating profit by 5.2 billion to 41.3 billion. Compared to our forecast, profits fell by 5.7 billion yen due to a shift in product mix leading to lower length sales versus the plan, in addition to the impact of one-time costs. Next, on slide 8, precision equipment business. Sales of FPD lithography systems for high-resolution panels increased significantly. However, that was offset by a decline in new semiconductor lithography system sales. This brought overall revenue down by 17.4 billion yen to 201.9 billion yen. We also revised our future plans for semiconductor lithography business due to changes in customer investment plans and delays in market recovery. As a result, we recorded 14.1 billion yen in fixed asset impairment losses, inventory write-downs, and restructuring costs. Operating profit was limited to 1.5 billion yen. Compared to forecast, profit was down by 7.5 billion yen due to one-time cost despite higher service income. Now on slide 9, healthcare business. Sales in life science solutions declined due to sluggish markets in Europe, the US, and China, but strong growth in eye care solutions and contract cell development and manufacturing, plus the weaker yen, pushed the revenue and profit higher year on year. However, we still came in 1.3 billion yen below our forecast due to a missed life science solutions sales and the disposal of old inventory. Next, component business on slide 10. We saw growth in X-ray and CT system for aerospace application but declines in UV-related components, optical parts and components, and encoder drag the segment down. Revenue dropped 11.8 billion yen and operating profit fell by 8 billion yen. Compared to forecast, profit exceeded expectation by 3.1 billion yen thanks to cost controls and lower restructuring costs in industrial solution business. Now, our last segment, digital manufacturing business. The overall metal 3D printer market, slightly contracted. Paramount for small to mid-sized system due to market condition. However, in our focus area of aerospace and defense, demand for Nikon's SLM solutions, large format system, NXG series expanded. NXG sales, which continued over half of SLM's revenue, grew by 33% year-on-year, with approximately 75% directed to space and defense sector. This contributed to an overall business revenue increase of 2.3 billion yen to 23.3 billion yen. On the profit side, however, operating losses widened by 1.2 billion year-on-year to 15.2 billion due to increased costs from lower production going of small to mid-sized system as well as upfront investments such as in U.S. facility and R&D. This also resulted in a 5.7 billion yen profit shortfall compared to our previous forecast and the reason for which I will explain later together with the outlook for the current fiscal year on slide 22. Let's turn to the outlook now. For FY2026, we are assuming 145 yen to the dollar and 155 yen to the euro. We expect a revenue of 710 billion yen, operating profit of 36 billion yen, and profit attributable to owners' appearance of 30 billion yen. Components and digital manufacturing are sure to see growth while stronger again and weaker sales and semiconductor lithography business in precision equipment will likely keep total revenue flat. We anticipate a significant 33.6 billion yen increase in operating profit, driven by improved profitability in some businesses, the absence of last year's 27.2 billion yen in one-time costs, gains from the sales of idle assets, reduced R&D spending, and the effects from restructuring. The dividend will be 50 yen per share, same as last year. Details are on the next slide. Due to the uncertainty surrounding U.S. tariffs, they are not included in the forecast. We anticipate approximately 10 billion negative impact on operating profit. This is a current estimate and will be incorporated into our four-year forecast at the appropriate time pending final negotiation with economic impact and effectiveness of our countermeasures. Now, let me talk about our shareholder return policy under the midterm management plan. Given recent performance, we have revised our dividend projections. For FY2025, we lowered the dividend from ¥55 to ¥50 per share. And for FY2026, we've also adjusted the original target from ¥60 to ¥50 per share. We also completed a 30 billion yen share buyback last fiscal year, which brought our total shareholder return ratio to 765.8%. For the current fiscal year, we project a return ratio of 54.8% and over the full four-year plan. And the cumulative ratio should be around 111.3%. Roughly 15% of total distributable resources under the plan will be allocated to shareholder returns. Please refer to slide 15 for a summary of our key FY2026 indicators alongside year-on-year comparisons. Slide 16 shows full projection by segment, also compared to last year. The others operating loss down two lines improved 13.1 billion yen year-on-year. This reflects the absence of last year's one-time costs related to our head office relocation and footprint reorganization, along with expected gains from idle asset sales and lower R&D spending, as noted below. Now let's go into the each segment forecast, starting with imaging products. We expect the interchangeable lens camera market to remain steady at around 6.7 million units. We anticipate a continually favorable market trend led by new high-end cameras for professionals and hobbyists. We are aiming to increase our unit sales, especially when in the volume zone, such as Z52 launched April and Z52 released last November, which incorporate advanced technology from Z9s. We are targeting sales of 950,000 camera bodies, up 100,000 from last year, and 1.4 million lenses, up 90,000. Due to a slight drop in SP, revenue is expected to hold steady at 295 billion yen, with operating profit down by 1.3 billion yen to 40 billion yen, due in part by stronger yen. Moving on to precision equipment business. We project revenue to decline by 16.9 billion yen to 185 billion yen. FPG lithography system cells were expected to dip slightly from 38 to 35 units, though demand for high-resolution panels remained solid. In semiconductor lithography, orders for our new I-line stepper 2205IL should increase from 28 to 34 units, but the sales of new ARF lithography systems and service income were declining due to slow market recovery. Operating profit, however, is forecast to increase by 10.5 billion yen to 12 billion yen overall, helped by an improvement in product mix in FED and improved profitability in semiconductor lithography due to the disappearance of last year's one-time cost and optimization of service bases. Regarding semiconductor photography business, we will assess future customer investment trend. Proceed with streamlining production support structure and lower breaking good point, thereby establishing a structure capable of generating stable profit from next fiscal year onwards. At the same time, we will promote the development of next-generation equipment such as digital lithography system for back-end processes and new ARF immersion lithography system aiming for significant recovery in running around 2030. For healthcare business on slide 19, we aim to boost profitability in life-size solutions through increased sales of high-value added products. In ICARE solutions, we are working to develop new sales channels of automakers channels in Europe and expand further into Asia and other regions. In contract sales development and manufacturing, we plan to make upfront investment to support growth, but existing project remains strong and will provide stable income. Total revenue is expected to fall ¥1.4 billion to ¥115 billion due to the yen's appreciation, But operating profit is forecast to rise by 1.8 billion to 8.5 billion thanks to cost optimization and higher life science solutions margins. Components of business on slide 20. We plan to expand our customer base for optical parts and optical components and expect stronger sales in the second half as market conditions recover. In meteorology equipment, our video measuring system for electronics component and semiconductors and X-ray and CT system for aerospace are expected to perform well. Furthermore, we anticipate increased demand for FPD photo max substrates for high-resolution panels. All together, we project revenue to grow by 4.9 billion yen to 79 billion yen and profit by 2.9 billion yen to 10 billion due to revenue gains, improvement in profitability resulting from restructuring and the absence of one-time costs. Digital Manufacturing Business We expect the overall metal 3D printer market to stay flat for small to mid-sized systems but anticipate continued growth in the large format segment. Nikon SLM solution set a record high in orders last year with 19% growth, with 52% growth in large format equipment. The backlog at the end of March was 13.5 billion yen, up 3.5 billion yen year-on-year. For FY2026, we aim to expand further in aerospace and defense, raising revenue by 9.7 billion yen to 33 billion yen. We will also improve profitability by optimizing business management through production optimization, tighter cost control, and R&D prioritization. We remain on track to make SLM profitable this year. For the whole segment, we are now targeting profitability by FY2028, a one-year delay from our initial plan. Lastly, concerning the operating profit of the digital manufacturing business, I will detail the variance between the previous forecast and the prior year's actual results, as well as the year-on-year changes in our current fiscal year outlook. Last year's showfall came mainly from delays in customer deliveries of SM's large format system due to customer circumstances. Small to mid-sized system also saw delays and higher production costs. Nikon's DED system underperformed as well. the weekend and higher expenses to further impact the results. This year, profit recovery will mostly come from higher sales of SLM's large format system and a better product mix. For small to mid-sized system, we'll cut cost by optimizing production in addition to an increase in unit sales. will also continue to rein in expenses across other parts of the business, aiming to reduce the segment's operating losses to 8.5 billion yen. To sum up, last fiscal year saw a significant profit decline, which was impacted by lower semiconductor revenue in precision equipment and components and the recognition of 27.2 billion yen in one-time costs. For this current fiscal year outlook, overall revenue is expected to be the same level as last fiscal year. However, we are anticipating improved operating profit in all segments, excluding imaging products, which is sensitive to effects. We anticipate ¥36 billion in operating profit, a significant ¥33.6 billion increase largely due to the absence of the one-time cost booked in the last year. Although this is the final year of our mid-term plan, we foresee a substantial shortfall compared to our operating profit target of ¥70 billion. We strongly recognize that improved profitability remains a challenge. We are committed to a company-wide effort to recover our earnings. Our chairman and CEO, Uma Tate, will elaborate on the progress of midterm plan including this point. Thank you. Good afternoon. My name is Uma Tate. I'm the chairman and CEO of NICOM. Thank you again for joining us today. This year marks the final year of our current midterm management plan. Looking back the past three years, we've made steady progress in strengthening our business strategies and improving our management foundation. Our business segment, while imaging outperformed due to the underperformance in industrial areas like semiconductor-related coupled with delays in growth drivers, the numerical targets outlined at the bottom of this slide are expected to fall short of our plan except the revenue. Profitability improvement remains a work in progress, and we recognize that we have not yet fully met the expectations of our shareholders. Taking these points into account, we positioned FY2025 as the year to build a foundation for where we want to be in 2020. We will focus on both recovering short-term performance and making investment for long-term growth. Please look at slide 3. This slide provides a numerical overview of our progress. As shown on the left side, the first two years of the plan went very well. By FY2023, we had already achieved the original FY2025 revenue target of $700 billion two years ahead of schedule. Operating profit was also mostly on track. However, over the next two years, while imaging continued to perform well, other segments suffered from upfront investment burdens and the semiconductor market downturn. As a result, operating profit for FI 2025 is now forecast at 36 billion yen, well below our 70 billion yen goal. In response, we've implemented various restructuring and organization integrations. We've also prioritized how we allocate gross investments, limiting projects that take too long to scale, and focusing on three key areas, professional video cameras, next-generation lithography, and metal additive processing. Now, let's move to slide five. This graph plots the five business segments with revenue on the x-axis and operating margin on the y-axis. The size of each bubble represents total operating profit. The dotted circles show our FY2025 targets set during planning. The lighter circles reflect our latest forecasts. And the darker circles show our FY 2030 goals. For the two main businesses on the right, our strategy is to grow precision equipment through next-gen lithography and customer diversification. For imaging products, we aim to stable profits by launching competitive professional video cameras and attracting new users, especially the younger generation. On the left-hand side, we have our three strategic businesses. In healthcare and components, which have relatively high margins, we aim to stately grow earnings. For digital manufacturing, the goal is to beat industry growth and reduce losses quickly through metal additive processing. We want to create more value across all five businesses and reach 1 trillion yen in revenue and a 10% operating margin by FY2030. Next, I will walk you through what each business will focus on in the following two pages. For imaging products, we are prioritizing new user acquisition, especially among younger generations. We are also leveraging Synergies with RED, a U.S. subsidiary to expand in the professional video camera market. In healthcare, we are working to strengthen our system microscopes and applications while also scaling up our rapidly growing contract cell development and manufacturing business. Slide 7. In precision equipment, our FPD segment remains solid. For semiconductor lithography, we are streamlining support infrastructure for key clients while also developing digital lithography for semiconductor backend processes and a new platform, ARF Immersion Lithography System. In components, we are increasing synergy from the integration of the former industrial metrology business and aiming for growth, particularly overseas. And in digital manufacturing, we will focus on expanding our presence in defense and aerospace by leveraging SLM's large-format metal 3D printers. Slide 8 summarizes our efforts to strengthen Nikon's management foundation. On the left, you will see our continued focus on human capital management and sustainability. On the right, we are investing in digital transformation, manufacturing innovation, and organizing of executive management for group companies. Slide 9 provides a summary of everything we've discussed today. Finally, this year marks Nikon's 108th anniversary and the 100th anniversary of our first microscope. Our microscopes have helped visualize the invisible, supporting research in life sciences, medicine, and advanced industry like semiconductors. Last year, in response to Japan's demographic challenges, we've developed a microscope system designed to improve the success rate of artificial insemination in fertility treatments. The system is shown here on this slide. In this way, Nikon is committed to contributing to society while also enhancing long-term corporate value for all stakeholders, including our shareholders. Thank you for your continued support, and thank you again for your attention.