Nikon Corp

TSE:7731

Earnings Call Transcript 2022-Q1

[Muneaki Tokunari, executive]

This is Tokunari, CFO. I do appreciate your precious time, despite your busy schedule, to attend our financial briefing. Today, I am pleased to report the First Quarter results, our forecast for the full year and our sustainability strategy, these are the 3 points now I like to explain.

First, highlights, now, of the first quarter results, April through June. Revenue was JPY 132.2 billion compared with the first quarter last year when we were severely impacted in revenue loss by COVID-19. First quarter revenue was up JPY 67.5 billion or up 104%. Revenue became almost 2x.

Operating profit was JPY 19.9 billion. The 4 segments, including Imaging Products Business and Precision Equipment Business became positive in operating numbers. Operating profit in Q1 includes onetime factors, including about JPY 2.3 billion from the sales of the idle land and sales and profit of about JPY 2 billion from the retirement benefits released due to the revised pension systems of our U.S. subsidiaries.

Profit attributable to owners of the parent was positive JPY 15.8 billion. Slide 4 shows the major numbers for the first quarter on the consolidated basis. Revenue and operating profit and profit before income taxes and profit attributable to owners of the parent and free cash flow, respectively, shows a dramatic improvement from the first quarter of the previous fiscal year. For your further reference, the far right shows the Q1 numbers, 2 years ago, prior to COVID 19. The latest Q1 revenue did not recover and add to the numbers prior to COVID 19. But may I remind you that operating profit, profit attributable to owners of the parent, et cetera, surpassed the pre-COVID numbers. The structural reform up until the last fiscal year as well as the efforts to make the balance sheet lean, resulted in a lower profit loss breakeven point. Though the revenue is still on its way to recovery, but we believe we are firmly improving our profit-making capability and structure. As shown in the bottom, compared to the official numbers announced vis-à-vis the full year operating profit was JPY 20 billion, it was JPY 19.9 billion for the actual Q1 number. And vis-à-vis the full year profit attributable to owners of the parent was JPY 16 billion, it was JPY 15.8 billion. We were able to achieve almost a full year forecast just in 3 months from April through June. With this situation in place, we have revised our focus, and I will explain them later. Slide 5 shows actual numbers by segment in the first quarter. Please look at the operating profit in the central column from top to down, Imaging Products Business, JPY 9.2 billion, Precision Equipment Business, JPY 10.6 billion. We achieved operating profit in all the segments, except for Industrial Metrology and Others. The loss of Industrial Metrology And Others was caused by onetime factor of our subsidiaries, which are included in Others. As shown in the far right, both revenue and operating profit were above the previous year in almost all the segments. Now allow me to move on to each plan, each business segment, starting from Slide 6. The first segment is Imaging Products Business. Revenue in the first quarter was JPY 50 billion, almost doubled from JPY 25.1 billion in the first quarter last year, and operating profit landed at positive JPY 9.2 billion. Thanks to the recovering of demand in cameras, not only the mirrorless Z 6II and Z 7II launched last year, but high price interchangable lenders enjoyed strong sales, shifting into models for professionals and hobbyists, our strategic segment has been steadily advancing and higher ASP trend is still continuing.

On top of it, we were benefited by the cheaper yen as well as by the lower sales promotion cost, which is going to be deductible from sales. All in all, revenue grew almost 2x. Operating profit improved significantly year-on-year due to the subdued and deferred sales expenses in some items till Q2 and beyond.

Slide 7 shows Precision Equipment Business. Revenue was JPY 51.8 billion, up about 2.6x year-on-year. Operating profit was JPY 10.6 billion. FPD Lithography Systems. No system sales were booked in Q1, previous fiscal year due to the impact of COVID-19. We were not able to travel to China. But we completed installations of 13 units in April through June period, resulting in the increased revenue and profit. In Semiconductor Lithography business, we did not have new sales because the completion of some system installations were pushed out into Q2 and beyond. But thanks to the revenue and our contributions from the service business, et cetera, operating profit increased.

Please look at Slide 8. Healthcare Business. Revenue was JPY 15.8 billion. Operating profit was JPY 400 million. Revenue and profit grew year-on-year. Biological microscope sales grew mainly in the Americas. Right now, diagnostic imaging systems recovered in the major U.S. and European markets. We enjoyed growth, both in revenue and profit.

Slide 9, this shows our Components Business, whose disclosure starting from the current fiscal year. Revenue was JPY 7.7 billion. Operating profit was JPY 2.1 billion. Both revenue and the profit grew year-on-year. EUV-related Components Business contributed to the revenue expansion. Sales were strong in optical parts for semiconductor-related equipments and in quarters for industrial equipments. Slide 10 shows the last segment, Industrial Metrology and Others. Revenue was JPY 6.7 billion, up year-on-year. In the Industrial Metrology Business, revenue expanded, thanks to the recovered CapEx in our customer companies in electronic components, semiconductors and automotive-related businesses. On the other hand, operating profit became negative JPY 1 billion. The major reason for this goes to those domestic production subsidiaries, which belong to others. Those subsidiaries posted a disposal and write-downs of inventory and assets.

Next, I will explain our forecast for the year, ending March 31, 2022. Slide 12 shows the highlights for the forecast. For the full year, revenue forecast is JPY 520 billion, revised up JPY 10 billion from the May forecast. As for breakdown, Imaging Products are now revised by JPY 5 billion, reflecting better-than-expected Q1 performance. Precision Equipment forecast is now revised up by JPY 5 billion, reflecting better-than-expected sales for service business. Full year operating profit is expected to become JPY 27 billion, revised up by JPY 7 billion. As for details, Imaging Products are now revised up by JPY 7 billion. This upward revision is coming from increased sales as well as higher sales price of products due to the improved product mix. Precision Equipment Business is now revised at JPY 2 billion, coming from the expected service business opportunities related to the high-capacity utilization of the installed Lithography Systems.

But the corporate P&L, non-attributable to any reportable segments is now revised down by JPY 2 billion due to the revised profit and loss allocation between segments. All in all, we will have an upward revision as much as JPY 7 billion. Profit attributable to owners of the parent is now revised up by JPY 6 billion from the previous forecast. For the full year basis, our forecast here is JPY 22 billion. As for the annual dividend, it is JPY 30, unchanged from the previous forecast. Now please look at Slide 13. This table shows the major forecast numbers for the full year. I have already explained the highlights, so allow me to skip this. Next, I will explain our forecast for the full year by segment. This page is a summary page. So allow me to go to each segment. Slide 15. First segment is Imaging Products Business. Revenue is now JPY 170 billion, up JPY 5 billion from the May forecast. Digital camera market continued its excellent recovery, particularly in our focal market, mid- and high-end cameras and lenses is expected to remain strong. In order to monetize those market opportunities, in July, Nikon have launched a new mirrorless camera Z fc, and we are pleased to say it is highly appreciated.

Furthermore, in the second half this fiscal year, we plan to launch our mirrorless camera flagship model, Z9 and lenses for professionals and hobbyists. With strong demand coming from our customers, some of our products are running out in supply. So we intend to make further efforts to secure procurement of components, including semiconductors. With all these elements concerned, we have revised up revenue for the full year to JPY 170 billion, particularly taking into account the strong demand for professionals and hobbyists as well as risk factors such as parts supply. Operating profit for Imaging Products Business. Full year forecast is now revised up to JPY 12 billion, up JPY 7 billion from the previous forecast. Now we are having a lower breakeven point after having conducted impairment disposal and value depreciation and other structure reform conducted in the previous fiscal year and was the increasing ASP brought by the product mix. Profitability of Imaging Products Business is improving. So we can expect to grow in profit. Some expenses originally expected to incur in the first half will be deferred to the second half of the fiscal year. With this, we do expect to book as much as JPY 10 billion out of the JPY 12 billion in the first half for the full year operating profit.

Slide 16 shows Precision Equipment Business. Revenue is JPY 210 billion, up JPY 5 billion from the May forecast. In FPD, the customers' CapEx is trending to recover in small and mid-sized panels. CapEx for the large panels is moving firmly. And now the delayed installations caused by COVID-19 are moving rather smoothly. We expect to install 45 units in the current fiscal year as forecasted back in May, as shown in the left bottom. Most of the operating profit is expected to be booked in the first half because we have many large sized panels business in the first half. As for the expected units for semiconductor, Lithography Systems, the forecast we made back in May is unchanged, as shown in the left bottom. For both FPD and Semiconductors. Besides the Lithography Business, we are having a good business for services, particularly in the current fiscal year, but up by the recent strong markets for digitalization and Dx. The FPD and semiconductor Lithography Systems actually are growing quite good. We see a high level of utilization of the units we have installed at the customer sites. With this, there is going to be an increased demand for maintenance, replenishing of consumables and other services. With this in the background, we have revised our full year revenue for Precision Equipment Business to JPY 5 billion. Operating profit is now revised to be JPY 19 billion, up JPY 2 billion from the previous forecast by reflecting the strong sales opportunities. As much as JPY 18 billion out of JPY 19 billion is expected to be booked in the first half of the fiscal year because we have a concentration of delivery of G10 life size panels in the first half. Now please look at Slide 17. For Healthcare Business, there were no changes from the previous forecast for both revenue and operating profit, biological microscopes and retinal diagnostic imaging systems, both markets are now recovering. Commercial production in the Contract Cell Development and Manufacturing is advancing. Several projects are now underway as planned in the so-called CDMOs. And with this points in place, we expect the Healthcare Business to make a record in revenue. We forecast to generate the profit of JPY 1 billion in the current fiscal year, it is going to be the very first surplus on a full year basis since this business got started. Next slide shows the newly created Component Business. For Component Business as well, there are no changes from the May forecast. Revenue being JPY 35 billion and operating profit being JPY 8 billion. On top of the highly profitable EUV-related Component Business, we are having a rather firm business in optical components for semiconductor-related equipment manufacturers as well as in quotas for Industrial Metrology. We do believe we can achieve JPY 8 billion. Fully, we forecast for the full year and operating profit.

Now the last slide for the financial numbers. This Slide 19 shows Industrial Metrology and Others. Others include production subsidiaries. We have not changed the full year revenue and operating profit since the last forecast we made. Industrial Metrology Business has its customers and electronic components, semiconductor and automotive-related companies. And then CapEx is continuing to recover. We do expect to see a further growth in revenue from our image metrology system, X-ray inspection systems and non-contact 3D metrology, et cetera. For the entire segment, Industrial Metrology and Others put together will aim at JPY 3 billion for the full year on operating profit. Next, I will explain our sustainability strategy. Our sustainability consists of 2 aspects: firstly, to reduce global and environmental impact coming from our company's economic activities; secondly, to make our aggressive contribution to this sustainable society through our core business activities. As for the first aspect, we have a long-term goal to achieve carbon neutral by 2050. Under this goal, we have specific initiatives to reduce our global warming gas emission from our plants and offices by more than 70% in FY 2030, while making a shift to renewable energy as much as 30% in our total power consumption. We have already started these specific actions. At the same time, Nikon does believe it is important for us to be engaged in activities to aim at sustainable societies through our core business activities. Nikon has 3 sets of ideas here. In the process manufacturing contributed to a more comfortable society with Imaging and Sensing Technologies and contributed to people's health and quality of life. And we have positioned them as our long-term growth domains. And here now we commit ourselves into delivering a set of values, which are best fit with, and unique to Nikon. To be more specifically in the digital manufacturing domain, where Nikon will aim at monocular innovations. In order for Nikon to contribute to the special industry with our unique optical processes, we acquired a U.S. company in April, who specializes in contract processing of satellite parts. We would like to leverage our optical processing machine to reduce resistance so that we can improve fuel efficiency and reduce CO2 in turbines, wind power generation, airplanes, et cetera. We actually signed a joint development agreement with a Sharp Corporation to implement biomimetics technology, such as shark skin to implement other needs of air conditioners and other home appliances to imitate living organisms to contribute to a more comfortable society with our imaging and sensing technology, with 6G coming up. Nikon is now engaged in joint valuation research the SoftBank Corp in the fields of optical telecommunications. We are also engaged in efforts, which are already underway for remote shooting system to be used in many sport competition events in collaboration with our U.K. subsidiary, MRMC. Furthermore, in Healthcare domain, to contribute to better health, our subsidiary Nikon CeLL innovation Company, Limited is now collaborating with a major swiss biotechnology company in long term. They are developing and manufacturing new drugs for the regenerative medicine, the so-called CDMO operations. As you could see here, Nikon has its aspiration to solve social and environmental issues by leveraging our unique technologies, by contributing to realizing sustainable society, Nikon will also like to enjoy its own sustainable growth. This concludes my explanation. I'd like to summarize the first quarter. Though, we were impacted by the COVID-19 in Q1 last year. But since then, our business performance has improved significantly. We were able to almost achieve our full year forecast officially announced just during the first quarter, namely JPY 20 billion in operating income and JPY 16 billion in profit attributable to owners of the parent.

Looking at the segment by segment, thanks to the structural reform we conducted in the last fiscal year as well as the market recovery, Imaging Products Business made a firmer profit and our core business, Precision Equipment, FPD and semiconductor business also enjoyed a firm growth and our newly established component business made a progress as we had planned. All in all, we were able to have a rather small start for our profit-making goals for all the segments. With these rather favorable situations in place, for the first quarter, we made upward revisions for operating profit being JPY 27 billion. Profit attributable to owners of the parent being JPY 22 billion, respectively. And something related to the current fiscal year, we do expect that for the entire company basis, we will have a concentration of profit booked in the first half because of 4 segments, Imaging and Precision, have profits being generated in the first half of the fiscal year. Lastly, Nikon has a strong expression to come back from the loss we made in the last fiscal year. And Nikon will like to move on to sustainable growth to come. We are here to actually meet with expectations coming from the shareholders, investors, and may I wish for your continued support and understanding here. Thank you, indeed, for your kind attention.