Nikon Corp

TSE:7731

Earnings Call Transcript 2023-Q3

[Muneaki Tokunari, CFO]

This is Muneaki Tokunari, CFO at Nikon Corporation. I do appreciate your precious's time to start your business schedule to attend our financial results briefing today. I would like to explain our financial results for the third quarter of the year ending March 31st, 2023, as well as our outlook for the full year.

In the third quarter and year-to-date, revenue increased by 12.2% and operating profit increased by 7.8% year-on-year. As shown in the lower right of the slide, the effect of Yen's depreciation was a major contributor. Profit attributable to owners apparent increased only slightly by 1% due to the impact of the absence of the gain on valuations of investment securities, which was recorded in financial income in the previous fiscal year.

Slide four shows the cumulative third quarter results by segment. As you can see around the percentage change year-on-year, shown on the far right, operating profit in the imaging and the healthcare businesses increased substantially in more than 2x year-on-year, and all businesses except for the precision equipment business, posted operating profits higher than the previous year.

Now, I'd like to go through the actual performance using slide five and onward, I will begin with imaging products business. Revenue from imaging products business increased by JPY48.4 billion, year-on-year to JPY184.4 billion and operating profit increased by JPY22.4 billion to $41.2 billion. In addition to the effect of the year-end depreciation, average sales in price increased due to the advanced shifting to mid high-end models for pro harvest.

In the area of interchangeable lenses, sales of high price lenses for full frame cameras was strong, contributing to higher revenue and profit despite the declined volume of low priced lenses. For your information, we achieved much higher results up until the third quarter due to the fact that the planned R&D and other expenses were deferred to the fourth quarter.

Slide six shows precision equipment business. Revenue was down JPY29.4 billion year-on-year to JPY133.5 billion. Operating profit was JPY14.6 billion down JPY18.8 billion year-on-year. Revenue and profit from FPD lithography in the systems declined as units sold fail sharply. This is a sharp contrast to registration in the previous year when we had installations coming back so rapidly after the big impact of COVID-19 pandemic.

On the other hand, sales of semiconductor lithography systems increased compared to the previous year when the investment period of major customers was in the off season and both revenue and profit increased. However, sales volume failed short of the plan due to the requested postponement coming from our customers, including the lack of utilities.

Now, slide seven on healthcare business. Revenue was JPY72.1 billion and the operating profit was JPY7.2 billion showing a significant growth year-on-year. Both revenue and operating profit reached record highs and operating margin was in the 10% range. This was due to the strong cell biological microscopes and retinal diagnostic imaging systems, mainly in North America, as well as the positive impact coming from the cheaper yen, slightly shows component business with the revenues being JPY38.1 billion and operating profit being JPY13.3 billion.

The segment also in post the growth, both in revenue and the profit. In addition to EUV and related components. Semiconductor related products such as optical parts and optical components, as well as importers. And the photo mask substrates for FVT expanded and operating profit margin remained in the 30% range.

Now Slide 9 shows industrial metro and others. Revenue was JPY27.8 billion. Then an operating profit was JPY2.4 billion in showing growth, both in revenue and profit. In the industrial meteorology business, we had rather strong sales of video measuring systems and industrial microscopes.

Next I would like to explain our full year forecast. Please refer to Slide 11. First of all, all the exchange rate assumptions and shown in the second row from the bottom are JPY130 to the US dollar and JPY135 to Euro for the fourth quarter. I will explain our full year earnings forecast based upon these exchange rates assumptions.

At the top, we have revised down our full year revenue forecast by JPY15 billion from the previous forecast to JPY630 billion. Operating profit is unchanged from the previous forecast at JPY55 billion, profit attributable -- to owners of parent is also unchanged from the previous forecast of JPY42 billion.

Next -- for shareholder returns, the annual dividend remains 40 year per share unchanged from the previous forecast. Regarding the share buyback, we have a purchase 17.56 million shares for JPY24.9 billion. As of the end of January, we'll continue our buyback operations up to the maximum of JPY30 billion through March 24 this year. As mentioned in the topic section, following the completion of the tender offer for shares of SLM Solutions, the company became our consulted subsidiary as of January. We are presenting our full year forecast, including the impact of this acquisition.

Please refer to Slide 12. This table shows the main numbers of the full year forecast, including comparisons vis-a-vis ear near and the previous forecast. I have already and explained the outline.

Slide 13 shows the full year forecast by segment along with year on year and the previous forecast comparisons. I will go through details of segment by segment. First image in our products business as the market scale is recovering, we will continue our strategy of improving profitability focusing on mid high-end cameras. We maintain our previous and forecast of 700,000 units for interchangeable lenses for digital cameras.

On the other hand, the sales of interchangeable lenses are expected to be lowered by 100,000 units to 1.15 million units due to the weak plant sales of low unit price, single focal length lenses. The average sales and prices are settling in the rising, especially in the formula lesson cameras and the interchangeable lenses. And the revenue is expected to be JPY230 billion up, JPY51.8 billion year on year with no change from the previous forecast. Operating profit is expected to be the JPY42 billion up 9 JPY billion from the previous forecast based on the results through the third quarter. We are now revising up JPY9 billion from the previous forecast to JPY42 billion as significant increase as much as 2.2 times.

Slide 15 shows precision equipment business revenue being JPY210 billion down JPY20 billion from the previous forecast. In -- in the systems due to the impact of the rapid pension of COVID-19 infection in China for a certain period of time.

The completion of installation of one unit for large panels and has been postponed to the next fiscal year, starting from April. And the annual sales volume is now expected to be 29 units. The FB lithograph in the systems market is expected to the bottom out in the next fiscal year and due to the slowdown investment by customers and the deferred installations in response to the sluggish panel demand and we believe it'll start to recover in 2024 and beyond.

In the semiconductor lithograph in the systems market, installation of 11 units is expected to be postponed to the next fiscal year by the request of our customers. This is due to the delays in the redness and among some customers due to labor shortages, supply chain disruptions, material shortages, and other factors.

In light of these factors, we have lowered our full year on the revenue forecast by JPY20 billion for precision equipment business as a whole. Operating profit and has also been lowered by JPY6 billion from the previous forecast to JPY24 billion reflecting FPD lithograph in the systems and the semiconductor lithograph in the systems being postponed till the next fiscal year.

We have assumed since a year ago, when we formulated the medium time plan that the bottom of the operation equipment business and it would be reached in the next fiscal year starting from April due to the supply demand cycle. But we now expect the bottom to be much deeper than we had expected, particularly in the FPD lithography business.

On the other hand, there are some results that will lead to a better future. For example, more than 80% of cells of APF lithography in the systems in the semiconductor lithography business were previously concentrated in one major customer in North America. But our efforts over the past several years to diversify our customer base hub borne fruit, and this fiscal, we expect sales volume from customers other than this major customer to exceed half of our total of sales.

We believe that the fact that in our customers are diversifying into other Asian countries will help stabilize the pro -- building of our ambition equipment business in the future. Please see in slide 16, revenue from healthcare business is excluded to be JPY93 billion up JPY19.8 billion year-on-year. No change from the previous forecast. Operating profit is also expected to increase by JPY3.7 billion year-on-year to JPY8 billion in line with the previous forecast.

Sales both biological microscopes and retinal diagnostics imaging systems have been rather favorable on the back of strong orders. The risk in the healthcare business is parts procurement, although there is an improvement trend, we will continue to monitor the situation closely from the fourth quarter onward, and strive to ensure the stable supply of products.

Slide 17 shows, the outlook for the components business. Revenue is expected to increase significantly to JPY53 billion up JPY12.2 billion year-on-year with no change from the previous forecast. Operating profit is also expected to increase by JPY5.3 billion unchanged from the previous forecast. Solid cells are expected for EUB related components optical parts and optical components for same conductor related products in quarters, and the photo mask substrate for FPD are expected.

Slide 18 shows the forecast for industrial metropolitan and others, others include production subsidiaries and others. Revenue in this business segment is expected to be in a JPY44 billion, an upward revision of JPY5 billion yen from the previous focus and operating profit is expected to be JPY3.5 billion a downward revision of JPY1 billion from the previous forecast. The estimated impact of the consolidation of SLM Solutions from January to March is reflected in the latest forecast.

SLM Solutions has been performing well. We have done EBITDA expected to be positive for the last three consecutive quarters, excluding 1x amount a related expense. Nikon intends to develop the materials and processing business and ask the next pillar for Nikon's growth strategy center around SLM Solutions. That is all for the explanation of our business performance and the numbers, but today as Nikon’s Director in Charge of Sustainability, I would like to briefly report to our shareholders and investors on the current status of ESG and the sustainability of Nikon Corporation.

In fact, Nikon’s sustainability activities have been highly evaluated by third party organizations surpassing those of other companies in our industry. For example, Nikon has been selected for the [Indiscernible] in the climate change Soviet by the non-profit organization, the CDP for four consecutive years, since FY2019, and in the Dow Jones Sustainability Industries, one of the was a leading ESG investment industries. Nikon has been selected as a component of the DJSI -- world and the DJSI AsiaPac Pacific for the five consecutive years. In particular, this year, Nikon received the number one score in the entire world for the industry group to which Nikon belongs. In addition, Nikon shares are included in old in five of the GBFS ESG investment industries, including the Japan Empowering Women Index and in Carbon Efficient Index.

Behind this high evaluations are our steady and positioned efforts to respond to societies expectations with trust in the area of the environment, social and the labor affairs and the governance. And we are getting results, if I may say so. In the current midterm management plan, we will also now take on the challenge of contributing to a sustainable society through creativity by leveraging our light utilizing and precision technologies.

The recently announced Green Jet and as initiative for 787 to improve fuel efficiency and radio CO2 emissions by applying a shark skin finish to the surface of its aircraft is just one example. By solving our social and environmental issues with uptakes and precision technologies, we hope to contribute to realize a sustainable society and at same time, like to enhance the sustainability of Nikon as a company.

Finally, I would like to say a few words. In summary, our business performance and app to the third quarter has been favorable in terms of both operating profit and profit attributable to owners of parent. However, in the fourth quarter, we have not changed our previous forecast of JPY55 billion for operating profit due to our own expenses and to be incurred in the imaging and the risk of the systems currently under installations to be postponed till to the next fiscal year in precision equipment business.

Over the next fiscal year, there are the risk factors such as concerns about economic recession, the impact of inflation, and the reduced effect of the depreciation, as well as uncertainty in the FBA panel market. However, that enhancement transformed into a much more resilient corporate entity than in the past. In other words, the imaging business is strictly growing in the mid-high end mirror less market.

The position equipment business is diverse from its customers, particularly in semiconductor business and the businesses other than imaging and precision equipment such as the component business, which is expected to generate JPY18 billion in operating profit, and the healthcare business, which is expected to generate JPY8 billion in operating profit, are firmly growing as our earnings pillars.

Furthermore, now Nikon will aim for the further growth in the next fiscal year, including the launch of digital manufacturing business. Sending around the acquired SLM Solutions, we’d like to ask for the continued understanding and the support of our shareholders and investors.