Nikon Corp

TSE:7731

Earnings Call Transcript 2023-Q1

[Muneaki Tokunari, Chief Financial Officer]

Good afternoon. My name is Tokunari, CFO of the company. Ladies and gentlemen, thank you very much for coming to Nikon's financial results meeting today despite your busy schedules. Today, I will explain the financial results of Q1 of this year, and the forecast for the full-year. Let me start with the results for Q1 of this year. Revenue was JPY 145.6 billion; operating profit was JPY 15.3 billion, with all reporting segments posting profits. Profit attributable to owners of the parent was JPY 11.8 billion. Compared to Q1 of last year, revenue grew by JPY 13.4 billion. Operating profit and profit attributable to owners of the parent fell, but profits were flat year-on-year. If you excluded the effects of last year's one-time profit from land sale and the U.S. subsidiaries' pension fund change.

The yellow box on slide four show the main numbers of Q1 on a consolidated basis. And to the right, you find the change from the pervious year. As you see at the bottom of the page, in text, revenue was up year-on-year on weaker yen and other factors, but profits were down mostly due to disappearance of last year's one-time profit. Slide five shows Q1 performance by segment. In the yellow box, the upper line for each segment is revenue; the lower line is operating profit. As you see, all segments posted profits. As you see on the right-hand side, the full segments, other than Precision Equipment Business, increased both revenue and operating profit year-on-year.

Our corporate profit and loss non-attributable to any reportable segments declined by JPY 4.9 billion mainly due to disappearance of capital gain from last year's land sale and changes in the amount of elimination from intersegment transactions. Now, let me move on to Q1 performance by business segment, starting with the Imaging Products Business. Revenue grew by JPY 11.2 billion, year-on-year, to reach JPY 61.2 billion, and operating profits grew JPY 4.4 billion to reach JPY 13.6 billion. ASP improved through the shift we made in high-end models for professionals and hobbyists. This, combined with the weaker yen, pushed up revenue significantly year-on-year by 22%, and operating margin exceeded 20%

Slide seven is the Precision Equipment Business. Revenue was JPY 41.4 billion, a decline of JPY 10.4 billion, year-on-year. Operating profit fell by JPY 9.4 billion, and was JPY 4 billion. FPD Lithography Business sold seven units in Q1, but saw both revenue and operating profits decline compared to last year, when 13 units were sold due to catch-up installations for COVID-delayed sales. In Semiconductor Lithography Business, new unit sales increased to push up revenue, but operating profits declined partly due to disappearance of the one-time service profits posted last year.

Slide eight, in the Healthcare Business, biological microscope sales in North America was strong, and retinal diagnostic imaging systems sales was also solid. With a weaker yen, both revenue and operating profits grew year-on-year. This slide, slide nine, is for the Components Business. Sales of optical parts for semiconductor-related products EUV related components, and photomask substrate for FPD were strong, leading to an increase in both revenue and operating profit. Slide 10 is for Industrial Metrology and Others. In the Industrial Metrology Business, sales of CNC video measuring systems for semiconductors and electronic parts grew, resulting in a year-on-year increase in revenue.

The utilization rates of manufacturing subsidiaries, which are included under Others, improved, resulting in a positive operating profit. Next, let me talk about the forecast for the full-year. For the forecast for the first-half of the year, revenue is JPY 275 billion, which is revised downward by JPY 20 billion. Operating profit is JPY 23 billion, and profit attributable to owners of parent is JPY 17 billion; both remain unchanged from the pervious forecast. Let me explain. Imaging Products is revised upward by JPY 5 billion in revenue and operating profit, respectively, reflecting improvement of products mix and positive Q1 results due to the weaker yen.

In Precision Equipment, JPY 25 billion in revenue, and JPY 5 billion in operating profit is deferred from first-half to second-half since some installations of FPD and semiconductor lithography systems are expected to be delayed to the second-half upon request from customer. As a result, revenue for the first-half of this year is revised downward by JPY 20 billion, the net of plus JPY 5 billion for Imaging Products, and minus JPY 25 billion for Precision Equipment. Operating profits will not change in total. This is the net of plus JPY 5 billion in Imaging Products and minus JPY 5 billion in Precision Equipment.

For the full-year forecast, as you see in the bottom-half of the page, reflecting the upward revision in Imaging Products, both revenues and profit will be revised upward. In other words, revenue is revised upward by JPY 5 billion to JPY 625 billion, operating profit is revised upward by JPY 5 billion to JPY 55 billion, profit attributable to owners of the parent is revised upward by JPY 4 billion to reach JPY 42 billion. Q1 results reflect the recent exchange rates, but from Q2 onwards the rates remains unchanged from the previous forecast, at JPY 120 to the dollar and JPY 130 to the euro.

If the weakening continues in Q2 onwards, we may be able to expect an upside by taking into consideration future uncertainties, like parts procurement constraints, continued confusion in logistics networks, COVID-related restrictions in China, slowdown of the economy, raw material and other cost increases, the full-year forecast other than that for the Imaging Products Business remains unchanged from the May forecast. Annual divided forecast also remains unchanged at JPY 40. Please look at slide 13, main numbers for the full-year forecast, including change from pervious year and previous forecast are shown in this chart. I already talked about the overview.

Please turn to slide 14; this is the by-segment full-year forecast, including change from the previous year and previous forecast. As you see on the far-right, the full-year forecast remains unchanged from the previous forecast except for the Imaging Products Business. I will explain the details by segment. Starting with the Imaging Products Business, revenue forecast will be increased by JPY 5 billion, reflecting Q1 performance, to JPY 215 billion. Demand for mirrorless Z Series flagship model, Z 9, is solid, and we are seeing a smooth shift to mid and high-end cameras for professionals and hobbyists. In July, we launched a new Z Series product, the Z 30.

We are working on further expanding our lineup, including lens products. However, parts procurement constraints still remained. And as you see at the bottom-left part of the slide, unit sales forecast for both cameras and lens remain unchanged from May. Operating profit forecast is also increased by JPY 5 billion to reflect solid Q1 performance. With improvement in ASP, performance is strong. But on the other hand, as expenses to grow sales and R&D cost is expected to grow, operating profit forecast for the second-half of the year remains unchanged. Last month, some media reported that we are discontinuing development of DSLR cameras, but Nikon will continue DSLR business. As we mentioned at this moment, we are focusing our management resources into mirrorless camera development, but we will continue to manufacture, sell, and support DSLR cameras so our customers can continue to use our products with piece of mind.

Slide 16, is -- focuses on Equipment Business. There's no change to the forecast for revenue and operating profit. Revenues are expected to grow JPY 28.8 billion, year-on-year, and reach JPY 240 billion. FPD lithography business revenue will decline, but the semiconductor lithography business will grow in volume, especially ArF lithography systems as an overall increase in revenue for the Precision Equipment Business is expected. For both FPD and semiconductor lithography business, there is no change in the unit sales forecast.

Operating profit forecast for the Precision Equipment Business is JPY 35 billion. We forecast an increase in operating profit for semiconductor lithography business, but the substantial negative impact on profit of lower sales of higher-priced Gen 10.5 FPD lithography systems is forecast to push down operating profit for the Precision Equipment Business. For both FPD and semiconductor lithography systems, installation of some systems is expected to be deferred from the first-half to second-half. This is because some customers, due to shortage of manpower, supply chain disruptions, and material shortage, are not prepared to have the systems installed as scheduled.

Reflecting the deferral of installation due to customer reasons, JPY 25 billion in revenue and JPY 5 billion in operating profits is to be posted in the second-half of the year, instead of the first-half. Please turn to slide 17, Healthcare Business. There is no change from the previous forecast. Year-on-year increase in revenue and operating profit is planned, with both expected to post record high numbers. For both biological microscopes and retinal diagnostic imaging systems, parts procurement restrictions continue.

However, through new product sales expansion and development of academia and private sector market in North America for biological microscopes and sales expansion, not only in North America, but also in Europe and Asia for retinal diagnostic imaging systems, we aim at achieving the plan set at the beginning of the year. Contract cell manufacturing business is to achieve steady growth in revenue through progress in multiple projects. Operating profit is to increase by JPY 1.7 billion, year-on-year, to JPY 6 billion due to increase in biological microscope revenue.

Slide 18 is for the component business, there is no change from the May forecast. Significant growth, both in revenue and operating profit year-on-year, revenue is to grow by JPY 12.2 billion, year-on-year, to JPY 53 billion. Operating profit is to grow by JPY 4.3 billion, year-on-year, to JPY 17 billion. Semiconductor related optical components, including EUV related components, optical parts, encoders, photomask substrate for FPD sales are all strong. Slide 19 is for Industrial Metrology and Others. Others include manufacturing subsidiaries. This business segment also maintains the previous full-year revenue and operating profit forecast. Revenue is to increase by JPY 1 billion, year-on-year, to reach JPY 37 billion.

In Industrial Metrology, we expect strong sales of CNC video measuring systems and expanded sales in X-ray inspection systems. For operating profit, we expect expenses to rise due to new product R&D and measure to strengthen sales infrastructure in Industrial Metrology. But due to improvement of profit at domestic manufacturing subsidiaries, included under Others, we expect a year-on-year increase of JPY 1.1 billion, to reach JPY 4 billion for the Industrial Metrology and Others as a whole. Now, summarizing Q1, all segments posted operating profit. Companywide operating profit was JPY 15.3 billion, profit attributable to owners of the parent was JPY 11.8 billion.

We posted solid profit, which means the company, as a whole, is accumulating earning power. By segment, the Imaging Products Business was hit by the lockdown in Shanghai in April and May. Sales in China, a major market for us, stagnated, but we were able to makeup for it with solid sales in other regions. Restructuring up to last year and the improved product value in products like the Z Series allowed us to achieve more profits than planned. The Precision Equipment Business is also producing solid results. The Healthcare and Components Businesses, which are positioned as strategic businesses, are also progressing as scheduled.

The first three months of the Medium-Term Management Plan, announced in April, went very well. For the full-year forecast, we made an upward revision of JPY 5 billion in operating profit, and JPY 4 billion in profit attributable to owners of the parent based on higher Q1 performance. The forecast for Q2 onwards remain the same due to the respreading of COVID, higher material and logistics costs, recession, and other uncertainties in the external environment. Despite these risk factors and parts procurement challenges, capitalizing upon the strength of the company, gained through restructuring and product competitiveness, we will focus first on achieving the upward revised profit forecast that we presented today.

At the same time, by steadily working on early expansion of growth areas, strengthening the human capital and sustainability strategies that are included in our Medium-Term Management Plan, we will meet the expectations of our shareholders and investors. We ask for your continued understanding and support.