Nikon Corp
TSE:7731
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Nikon Corp
Earnings Call Analysis
Q1-2025 Analysis
Nikon Corp
In the first quarter, the company reported overall revenue of JPY 163.8 billion, with revenue growth largely driven by the Imaging Products business. This segment achieved a revenue of JPY 83.7 billion, marking an increase of JPY 9.3 billion year-on-year. The operating profit for Imaging Products also rose to JPY 17.8 billion, up JPY 2.5 billion from the previous year, resulting in an impressive operating profit margin of over 20%. Key drivers included strong sales from new mirrorless cameras like the Z8 and Zf, which contributed significantly to the growth.
While the Imaging Products segment thrived, other areas faced challenges. The Precision Equipment business experienced a revenue decline to JPY 33.1 billion, down JPY 4.2 billion year-on-year, coupled with an operating loss of JPY 2.1 billion due to delays in new semiconductor installations. The Healthcare business also had stagnant sales, especially in the U.S. and Europe, leading to an operating profit decrease by JPY 2.4 billion, resulting in a deficit of JPY 600 million.
Looking ahead, the company adjusted its full-year forecasts. Anticipating a total revenue increase to JPY 750 billion, this includes a JPY 5 billion upward revision primarily attributed to the strong Imaging Products performance. Operating profit remains projected at JPY 35 billion, unchanged from previous forecasts, with profit attributable to owners of the parent at JPY 30 billion. Segment performances will vary, with the Imaging Products business boosting its operating profit forecast by JPY 1 billion, while the Healthcare business saw a downward revision of JPY 1 billion.
The Imaging Products segment is expected to see continued momentum, specifically with a revenue forecast of JPY 305 billion, an increase of JPY 5 billion compared to earlier projections. However, operating profit for this segment is anticipated to come under pressure due to rising acquisition and R&D costs tied to the recent purchase of RED, a cinema camera manufacturer. In contrast, the Precision Equipment segment is maintaining its operating profit forecast at JPY 15 billion despite expected revenue fluctuations. The Healthcare and Components segments are being closely monitored, with adjustments indicating postponed revenues shifting from the first half to the second half of the fiscal year.
The company reported positive operating cash flow for the third consecutive quarter at JPY 17.5 billion, although free cash flow turned negative at JPY 8 billion due to expenses associated with acquisitions. This highlights the company's need to balance cash flow while pursuing growth strategies through strategic investments and acquisitions.
Understanding the broader economic environment is critical for assessing performance. High interest rates in major markets such as the U.S. and Europe are contributing to slower growth in the Healthcare and Components businesses. The management indicated that there will be a continued focus on developing private sector markets and supporting drug discovery services to navigate these challenges.
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I am Ohmura, Deputy CFO. I would like to thank you for your precious time despite your business schedule to attend our financial results briefing today. Today, I would like to report on the first quarter results and the forecast for the full year for FY March 2025. First, allow me to explain the first quarter results. Revenue was JPY 163.8 billion. Operating profit was JPY 2.9 billion. Profit attributable to owners of parent was JPY 2.7 billion. While revenue grew, but the profit was almost the same as last year.
First, revenue increased by JPY 5.7 million. In the Imaging Products Business, sales of mirrorless cameras; in the Precision Equipment Business, sales of FPD lithography systems; and in the Digital Manufacturing Business, sales of large-format metal 3D printers grew respectively. And in addition, thanks to the effect of the weak Japanese yen, revenue increased year-on-year. On the other hand, operating profit side, though the Imaging Products Business enjoyed a growth in profit, all the segments, other than the Imaging Products Business, got off to a slow start, resulting in a slight decrease year-on-year.
The yellow box on Slide 4 shows the main consolidated numbers for the first quarter, and to its right, the year-on-year comparisons.
As for free cash flow, as shown in the text in the bottom, operating cash flow was JPY 17.5 billion, achieving positive cash flow 3 quarters in a row. But free cash flow became negative due to the expenses caused by acquisitions of RED in Imaging Products Business and other factors, it became negative JPY 8 billion.
Slide 5 shows the performance by segment for the first quarter. In the yellow box, the top row of each segment shows revenue and the bottom row shows operating profit. On the year-on-year basis, the Imaging Products Business, the Precision Equipment Business and the Digital Manufacturing Business grew in profits. But Healthcare Business and the Components Business declined in profit.
Now allow me to move on to the first quarter results for each business segment. First, the Imaging Products Business. Revenue was JPY 83.7 billion, up JPY 9.3 billion year-on-year. Operating profit was JPY 17.8 billion, up JPY 2.5 billion year-on-year. Partly due to the weaker Japanese yen, we landed on a large increase both in revenue and profit. The operating profit margin maintained above 20% level. Mirrorless cameras Z8 and Zf were strong in sales, following on from the last year.
In addition, with the launch of the new Z6III, sales of digital camera interchangeable lens type increased by 10,000 units year-on-year to 230,000 units, and interchangeable lenses increased by 40,000 to 370,000 units. The acquisition of RED, a U.S. professional cinema camera manufacturer, as a consolidated subsidiary was completed in April this year. In the short term, there will be an increase in acquisition-related expenses and R&D expenses, but we aim to jointly develop unique and distinctive products and expand our business in the professional digital cinema market, which is expected to expand going forward.
Slide 7 is the Precision Equipment Business. Revenue was JPY 33.1 billion, down JPY 4.2 billion year-on-year. Operating profit was negative JPY 2.1 billion. As for the FPD lithography systems, capital investment for high-definition panels increased due to the recovery of the panel market, and the number of units sold increased from 2 units last year to 7 units.
On the other hand, for the semiconductor lithography systems, due to the situations of the customers, the installation will be completed in the second quarter or after. So we are not able to book revenue of new systems in the first quarter. With this decline in the sales of new semiconductor systems, revenue was down year-on-year. But thanks to the growth in the FPD lithography systems and elimination of the one-time costs incurred in the previous fiscal year, the size of the loss became smaller.
Slide 8. The Healthcare Business was up JPY 1 billion in revenue year-on-year. But the sales were sluggish, mainly in the U.S. and Europe, due to the stagnant market conditions such as investment restraints caused by high interest rates. And excluding the effect of the weak Japanese yen, the revenue actually declined. Operating profit was down by JPY 2.4 billion year-on-year, resulting in a deficit of JPY 600 million due to the decrease in the gross profit caused by the impact of the declined revenue excluding FX impact, as well as the increased upfront investment and the booking of onetime costs.
Slide 9 shows the Components Business. Revenue and operating profit were down year-on-year due to the semiconductor market situations, as well as the delayed recovery of the factory automation market. EUV related components got off to a sluggish start in the first quarter due to the impact of delayed sales caused by the customer circumstances. Slide 10 shows the Digital Manufacturing Business. Revenue grew thanks to the firm sales of SLM Solutions large-format metal 3D printers NXG series. We're able to increase its revenue and reduce the size of the loss as we had planned.
Next, I would like to explain our forecast for the current fiscal year. The top of the slide shows our forecast for the first half of the year, and the bottom shows our forecast for the full year. With the results of the first quarter, we revised down our forecast for the first half, but we have not changed our forecast for operating profit and profit attributable to owners of parent for the full year.
Please first look at the top half of the slide. We have revised down, respectively, revenue by JPY 4 billion, operating profit by JPY 4 billion and profit attributable to owners of parent by JPY 3 billion. Imaging Products, revising approval revenue by JPY 5 billion and operating profit by JPY 1 billion in order to reflect the strong Q1 results. Precision Equipment, revising downward revenue by JPY 5 billion and operating profit by JPY 2 billion due to the postponed installation completion of some semiconductor electrographic systems to the second half of the year.
In the Health care Business, excluding the effect of the increased revenue due to the weak yen, the first quarter was below the plan and some sales have been postponed to the second half. So we are revising down our revenue forecast by JPY 2 billion and operating profit by JPY 2 billion. In the Components Business, we are revising downward revenue by JPY 2 billion and operating profit by JPY 1 billion to reflect the postponed sales of some products to the second half.
Next, our forecast for the full year. Reflecting the revised-up revenue for the Imaging Products, we have revised for the company upward JPY 5 billion to JPY 750 billion. As for the operating profit in the Imaging Products business, it is now revised up by JPY 1 billion, while revised down JPY 1 billion in the Healthcare Business. So now the overall operating profit for the company has become JPY 35 billion, unchanged from the last forecast.
Profit attributable to owners of parent has remained the same from the previous forecast at JPY 30 billion. As for the exchange rate, for the second quarter onwards, it is JPY 145 to the U.S. dollar and JPY 155 to euro. No change from the previous forecast.
Now please refer to Slide 13. This shows the financial highlights for our full year forecast. Please look at the far right end, change from the previous forecast. As has been already explained, we have revised upward only revenue by JPY 5 billion, profit items and annual dividends have not changed from the previous forecast. Slide 14 shows our full year forecast in comparison with the previous forecast we made back in May. The first half and the second half are shown separately. Operating profit has been revised downward by JPY 4 billion for the first half and upward by JPY 4 billion for the second half, resulting in the full year forecast remaining unchanged.
Now please go to Slide 15. This shows our full year forecast by segment together with the last fiscal year as well as the previous forecast. As shown in the far right hand, in terms of the change from the previous forecast, we revised operating profit up by JPY 1 billion in the Imaging Products business and revised downward the same amount, JPY 1 billion, in the Healthcare Business.
The yellow box on the Slide 16 shows the forecast for the first and second half of the year by segment. We have revised our forecast in order to reflect the sluggish sales in the first quarter of the semiconductor lithography systems in the Precision Equipment Business, as well as some of the products in the Healthcare Business and the Components Business. There are also the postponed sales of some products from the first half to second half. We have reviewed and updated both the first half and second half forecast.
Operating profit for the Precision Equipment Business is expected to be JPY 4 billion in the first half and JPY 11 billion in the second half. For the Healthcare Business, JPY 1.5 billion in the first half and JPY 8.5 billion in the second half. For the Components Business, JPY 4 billion in the first half and JPY 13 billion in the second half, with profits constituted in the second half of all these businesses.
Next, allow me to explain our full year forecast by segment. First, the Imaging Products Business. In light of the solid performance in the first quarter, we have raised our revenue forecast to JPY 305 billion, JPY 5 billion higher than our May forecast. We have received a lot more preorders than we had expected for our new product, Z6III, compared to the previous year. We will increase the number of mirrorless cameras and interchangeable lenses centering around Z6III, and will expand our revenue opportunities.
Operating profit has also been raised by JPY 1 billion from the previous forecast. The strong mirrorless camera business is expected to contribute more to revenue than last year, partly driven by the weak yen. However, the business as a whole is expected to see a decline in profit year-on-year due to the factors, such as acquisition of RED and increased R&D expenses.
Slide 18 shows our forecast for the Precision Equipment Business. Compared to the previous forecast, the completion of installation of some semiconductor lithography systems will be postponed from the first half to the second half due to customer situations, such as delays in the factory construction, but there will be no change for the full year basis. Compared to the previous year, we'll offset the decrease in sales of ArF lithography systems with increased sales of the G8 FPD lithography systems for high-resolution panels, and we'll secure the same level of revenue from the previous year.
Operating profit for the entire business is also expected to be JPY 15 billion, the same as the last year, as the impact of decrease in the semiconductor lithography systems will be offset by the solid FPD lithography systems sales and improved service revenue.
Next, please refer to Slide 19. Here now, I'll explain the Healthcare Business. Revenue in the first quarter was below the plan if we are to exclude the FX effect. Furthermore, business negotiations are prolonging, pushing out some revenue opportunities from the first half to the second half. Reflecting this, we have revised the first half forecast downward by JPY 2 billion and the second half forecast upward by JPY 2 billion, and have left the full year forecast unchanged from the previous forecast.
In life science solutions, there are concerns that interest rates will remain high in Europe and the United States even after second quarter, and the customers' investment will be restrained due to the impact of government budget. However, we aim to achieve our revenue plan by developing the private sector market and strengthening drug discovery support services. In eye care solutions, we expect revenue to increase year-on-year due to sales expansion in the Asia region.
In terms of operating profit, we have revised the first half forecast downward by JPY 2 billion based on the revised revenue, while revising the second half forecast upward by JPY 1 billion, resulting in a downward revision of JPY 1 billion for the full year from the previous forecast.
Slide 20 is the Components Business. We are maintaining our May forecast of JPY 85 billion in revenue and JPY 17 billion in operating profit. However, due to the delayed market recovery and others, sales of some products, such as EUV-related components in the quarter, may shift to the second half from the first half of the year. So as shown earlier, we have revised our forecast both for the first half and the second half of the year.
Slide 21 is the Digital Manufacturing Business. There are no changes in this business segment from the previous forecast, both in revenue and operating profit driven by an increased demand for aerospace and defense industries. Orders for SLM Solutions' large-format metal 3D printer, NXG series, and sales are expected to go rather smoothly as planned. In the current fiscal year, we aim to achieve a full year profit on an EBITDA basis for SLM Solutions stand-alone. There is no change in our prospect to make SLM Solutions alone profitable next fiscal year and to make the entire Digital Manufacturing Business profitable in the fiscal year following that fiscal year ending March 31, 2027.
That's all for my part. But if I may now like to summarize the first quarter in the current fiscal year. Company-wide revenue exceeded the previous year, but operating profit and profit attributable to owners of parent got off to a sluggish start just like the previous year. By segment, the Imaging Products business, partly thanks to the weak yen, got off to a rather good start going about the plan. But the Healthcare and Components businesses got off to a poor start than plan due in part to the postponed sales for some products.
As for the second quarter onwards, the Imaging Products Business continued to perform well, but we believe that the Precision Equipment Business, the Healthcare Business and the Components Business may be affected by the timing of market recovery. We'll aim to achieve our target of JPY 35 billion in operating profit and JPY 30 billion in profit attributable to owners of parent, while firmly and carefully managing risks.
We appreciate your continued understanding and support of shareholders and investors. I would like to thank you for your kind attention.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]