Nikon Corporation

This is Tokunari. Thank you indeed for your kind attendance.

Please turn to Slide 3. First, I'd like to go through the summary for FY 2021 March for the Full Year Results.

Revenue was JPY451.2 billion. A big decline on year-on-year basis.

Of the JPY139 billion, imaging in products account for about JPY75 billion due to the market shrinkage and COVID-19. Precision Equipment business was down about JPY60 billion, mainly due to the postponed installation of FPD Systems.

Operating profit was negative JPY56.2 billion. Excluding the one-time cost including impairment of fixed assets as much as JPY55.6 billion, the loss was limited at JPY600 million.

Operating profit was negative JPY34.4 billion. As shown in the bottom, as of August last year, we had assumed for the operating loss of JPY75 billion and net income loss of JPY50 billion.

As you'll see here, we were able to reduce the loss numbers respectively. Please turn to Page 4.

This graph shows the details of operating profit. The far left bar shows in our forecast back in August, the number was negative JPY75 billion and you can see the changes we had since then.

This JPY75 billion included risk buffer of JPY20 billion structural reform costs for imaging products of JPY5 billion, the total of JPY25 billion. To its right, the actual health consists of three major factors -- JPY20 billion improvement coming from the imaging products in particular, surpassing the sales forecast as well as the improved product mix; JPY12 billion from the advanced business cost reduction; JPY14.8 billion from the other expense control and cost reduction.

Each operating profit was pushed up, resulting into the substantial loss of JPY600 million, almost breakeven. In contrast, we had a negative JPY25.9 billion for the impairment of fixed assets, a part of our efforts to improve the company balance sheet, minus JPY25.3 billion for disposal and the write-down and minus JPY4.3 billion for restriction-related expenses, which is one-time cost item, a total of minus JPY55.6 billion being the major factor.

Full year and operating loss became JPY56.2 billion. Despite the much larger impairment and write-down losses, much bigger than the risk buffer of JPY20 billion, we were able to compress the operating loss vis-à-vis the plan.

This can be explained by the increase of revenue and profitability as well as the much larger cost reduction we carried out. The Slide 5 shows the details of the one-time costs I have just mentioned, such as impairment disposal and the write-down on the quarterly basis.

Please turn to Slide 6. This shows the mentioned items for the consolidated results for FY 2021 March.

As shown in the right hand, we surpassed the previous forecast in all the items which we announced back in February. Please pay attention to the second row from the bottom, free cash flow now became positive of JPY22.9 billion.

This was realized by the sales of securities we own and others. Next slide.

This slide shows the actual by segment. Impairment, disposal and the write-down had a rather major impact except for the Precision Equipment business.

All the segments show negative results. Please look at the second row and from the bottom.

Corporate P/L non-attributable no to any reportable segments. This includes the corporate indirect expense and others, though it was negative JPY16.1 billion in the previous fiscal year.

That was state of business efficiency initiatives carried out. It now shows a substantial improvement of JPY7.5 billion year-on-year.

In this section I will explain the results by segment for FY 2021 March. The first segment is imaging the products business as shown in the top right.

It grew a JPY5.2 billion compared with the previous forecast we made back in February. Since the third quarter and on what the terminal market is self-recovered.

And on top of that, we had a rather successful launch of new mirrorless products, Z 6II and Z 7II. All-in-all, operating profit grew to JPY4.3 billion from the previous forecast.

As shown in the bottom right, we slashed JPY27 billion from business costs including the advanced business cost reduction of JPY12 billion. The cumulative reduction over the past two years became JPY52 billion.

With this done, we do believe it is quite possible to realize the plan, the cost reduction as much as JPY63 billion scheduled to be executed during the midterm management plan. We have just one year to go.

In the last fiscal year, imaging products business had an operating loss of JPY35.7 billion. But if we exclude the one-time cost such as impairment, it would become negative JPY12 billion.

As for the current fiscal year, we will further advance our structural reform efforts and put focus on the products for pro and hobbyists to realize positive operation profit. Slide 9 shows Precision Equipment business.

Bottom left shows the market size and Nikon's sales in units. FPD -- the restricted installation challenge is still going on in China, but we succeeded in selling a total of 29 units, up one unit from the February forecast.

As shown in the top right for the entire Precision Equipment business, the revenue was down JPY5.3 billion from the February forecast. The major reason for this is the delayed acceptance test of one AF emersion [ph] system pushed out into the current fiscal year.

Operating profit was this post moment. The number went down by JPY2.6 billion, but may I remind you that we secured the profit of JPY1.4 billion for the full year basis.

Please turn to Slide 10, Healthcare. Healthcare business had growth both in revenue and profit compared with the February forecast.

Both biological microscopes and retinal diagnostic imaging systems are now on the recovery track since Q3. Operating profit was negative for the full year, that excluding the fixed asset impairment of JPY2.5 billion, the loss would be hovering around JPY500 million.

Slide 11 shows industrial metrology and others. Revenue went down year-on-year, this was caused by the sluggish CapEx on the side of automotive customers particularly.

Operating profit was positive JPY2.7 billion in substance excluding the one-time cost. Next, I will explain our forecast for the current fiscal year ending March 31, 2022.

Slide 13 shows the highlights. Revenue JPY510 billion, up JPY58.8 billion.

We forecast to expand sales in all segments driven by recovery from COVID-19 pandemic. Imaging products; on top of the market recovery was the mirrorless expansion.

Revenue here is expected to grow at JPY14.8 billion. Precision equipment revenue is expected to grow to JPY20.3 billion, driven by the greater sales volume in small and mid-sized panels for FPD.

Operating profit is expected to become positive of JPY20 billion, getting away from the loss we had in the previous fiscal year. We aim to be profitable in all segments, we do expect to see revenue recovery in all businesses.

We can also expect to see a benefit of a smaller depreciation burden, so we do expect all the segments to turning positive. Profit attributable to owners over the parent is forecasted to be JPY16 billion.

Dividend forecast was to expected earnings recovery in a profit this year and as well as the expected earnings recovery going forward; we set the annual dividend increase of JPY10 year-on-year. Slide 14 shows the major items for the full year including the numbers from the previous fiscal year.

I have already explained the major points. Here now I'd like to explain the revision for business segments we have made.

Digital Solutions BU and our customized products BU and Glass BU used to and belong to an industrial metrology and others now belongs to components business. These three business units are engaged in the same solution business in terms of delivering parts and components to our customers.

Please move on to Slide 16. This shows our full year forecast by segment.

To help you in the yellow box, the top number shows revenue and the bottom number shows operating profit. From the top imaging products business; operating profit there is JPY5 billion, precision equipment business JPY17 billion, healthcare business JPY1 billion, components business newly created JPY8 billion, and industrial metrology and others JPY3 billion.

As we'll see and we intend to become profitable in all the segments. Second row from the bottom, corporate P&L non-attributable to any reportable segment is expected to improve by JPY2.1 billion year-on-year.

Now, I will go segment by segment for the full year forecast for us on Slide 17; imaging products business. Revenue is expected to be JPY165 billion, up about JPY15 billion year-on-year.

As shown in the bottom left, the market is now on a recovery uptrend, digital cameras are expected to grow as a whole by 5% year-on-year. As shown in the top right in sentences, Nikon will not chase after the number of units sold, rather we will make our further shift towards higher-end and mid-range models, while keep an eye on pro and hobbyist market.

To be specific here, we plan to further expand the lineups of mirrorless bodies and lenses. We will aim at improving unit price and profit.

Recently, we are observing the global semiconductor is in a tight supply demand situation. So there is a concern for possible disturbance in the electronics and components and others, so we need to look at possible alternatives where we'll make efforts for several procurement.

Business cost to be reduced JPY11 billion this fiscal year. We plan to reduce the cost by as much as JPY63 billion for three years to come.

Imaging products business, this has caused concerns with our stakeholders and customers, but in this fiscal year we will go for a profit and we will meet with your expectations here. Slide 18 is about precision equipment business.

Revenue is JPY205 billion, up JPY20.3 billion year-on-year. FPD, CapEx is still [indiscernible] away the customers, both mid, small, as well as a large-sized panels, orders for us seem to be rather firm.

COVID-19 postponed the installation of FPD systems but now it will be progressing smoothly one after another. Next, SPA, sales of refurbished systems, primarily [indiscernible] to increase but new systems will decline during this transitional period and the customer's CapEx.

In semiconductor business, it now appears that there will be a firm demand in the near future among the major U.S. customers, so we'll make a good preparation now so that we can make profit several years from now.

We need to secure a new stable customers. With all those points in mind, precision equipment business operating profit is expected to be JPY17 billion.

Please look at Slide 19; healthcare business. Revenue for FY '22 March is JPY70 billion, up JPY7.2 billion year-on-year.

Biological microscopes, the Americas market recovery well contributed to the growth in our revenue. Retinal diagnostics imaging system is expected to hit a new record in sales following the previous fiscal year.

Cell contract manufacturing will finally start it's commercial production this fiscal year. With all these endpoints in mind, for the entire healthcare business, we expect a record high revenue.

Operating profit is expected to be JPY1 billion; this is going to be the very first ever operating profit in the history of healthcare business. Next slide.

This slide explains the components business, so we have newly created. Starting from the current fiscal year, we decided to disclose these numbers as an independent segment because we can expect to generate substantial amount of profit particularly in EUV areas.

As shown in the bar graph, expected revenue in the first year is JPY35 billion, and expected operating profit is JPY8 billion. Optical components, EUV and related components, and optical parts, encoders and photomask substrates for FPD, and every one of them; and then how we'll expand it's sales, particularly in EUV related components, business is expected to progress firmly.

We believe it as entered the phase of revenue generation. This is the last slide for numbers.

This is industrial metrology and others on Slide 21. Others do include our production subsidiaries and others.

For the full year revenue is expected to be JPY35 billion, up in profit of JPY3 billion. This segment is also expected to become profitable.

In the current fiscal year we do expect our customers, namely electronic components and automotive related CapEx to recover. We expect ourselves will expand in image metrology system, X-ray inspection systems, and non-contact metrology systems.

Operating profit is expected to make a firm recovery and we plan to be profitable. That's all for my part.

Lastly, I would like to make a summary about the previous fiscal year. We were greatly affected by COVID-19, particularly in the first quarter.

Revenue unfortunately went below JPY500 billion, operating profit also suffered as much as minus JPY50 billion. But imaging products business, in particular, as President Umatate explained, we advanced it's structural reform, thus we made an effort in improving our balance sheet, we try to become lean [ph].

With this done, we believe our future risk has been reasonably reduced. As for the outlook and for the future, particularly for the current fiscal year; we will make an effort to make all the segments to become profitable, including the newly created component business.

We aim at JPY20 billion for the corporate operating profit and JPY16 billion for profit attributable to owners of the parent. And we like to make this current fiscal year to be here to lead us to the sustainable journey yet to come.

In concluding, I would like to now solicit your continuing support with our investors and all the people concerned. Thank you indeed for your kind attention.

I am pleased to update you on the progress we are making in our medium-term management plan. The current fiscal year is the last year of the plan.

Slide 23, please. The goals of the medium-term management plan is to build a foundation for mid-to-long term growth and to achieve a ROI of 8% or higher.

Of these two, we are making a solid progress building a foundation for growth. The component business newly created is expected to enter revenue making phase this fiscal year, thanks to the efforts we made in optical components and EUV related components.

The material processing business is making good progress in finding our customers by leveraging open innovation and sales networks of our partner vendors. For business scaling, we have already started initiatives in reinforcing the organization by creating new units.

While maintaining discipline on investment, we intend to accelerate more in our M&A strategy. In contrast, as for our 8% or higher ROI, it seems to be rather difficult to achieve this goal in the current fiscal year, which is the last year of the medium-term management plan.

Yes, there were external factors involved but it isn't quite regrettable that we simply cannot make it. I would like to offer my sincere apologies here.

Being a listed company, this is something Nikon should be able to succeed, generating a stable cash returns in excess of capital costs. By implementing these strategies I am going to explain now Nikon will try to achieve this goal of 8% ROI as soon as possible.

We will stick to our basic philosophy to strengthen business profitability and acquire growth engines. We will strengthen our corporate values by raising our capability to make money.

Slide 24 shows the progress in glass of our business strategy which I will talk today. I will particularly expand on the core businesses, imaging products business and the precision equipment.

I will also explain components business and material processing business in additional manufacturing. I will cover them later one by one.

In the long-term growth areas, we have business systems robotics; here now we are developing sensors, robotics, smart cameras so that we can contribute to the digital transformation and automation which are advancing in the society and the pharmaceutical industry. In the healthcare domain we're going to expand our profit by selling biological microscopes and retinal diagnostic imaging systems.

We will deliver on growth by an expanding profit by offering drug discovery support services and the contract to sell manufacturing and others. Slide 25, please.

Here now, I would like to explain imaging products and the precision equipment business areas, one by one. In imaging products business, we were carrying our structural reform efforts as planned.

There is no change as for our policy to focus on the pro and hobbyists. In camera business, we will grow mirrorless cameras Z-systems.

We would like to deliver [indiscernible] to professionals and hobbyists, both at home and abroad. By the end of the current fiscal year we will launch flagship body in Z9, expand the lineups of the Z mount lenses, we plan to expand our soft-end process expression in the video editing and filming assistance and stronger integration with SNS.

As for investment for R&D, we continue our investment in order to improve our competitiveness and to gain support from our target customers. We're intend to extend the technology that we have acquired from our long history of camera business to B2B.

Nikon should offer it's unique image experience, and we should enter 3D [indiscernible] business. In strengthening the business fundamentals by cutting JPY63 billion out of business costs, we can still be profitable even when revenue is less than JPY150 billion, the level we had in the previous fiscal year, we still can generate profit.

To be specific here, we plan to work on optimizing more than 2,000 employees, we'll also consolidate our production sites and sales companies. In the previous fiscal year now, we scrutinized our future risk factors and we took off some facilities and inventory from the balance sheet as much as JPY30 billion.

By executing those actions firmly, we would like to generate profit this year. Slide 26, please.

Here now I'd like to talk about the precision equipment business. Market isn't quite alive with DX or digital transformation.

We need to further strengthen our products and we need to diversify our earnings. At the same time we need to looking into the future to identify the kind of technology and products to be needed.

By doing so it is imperative for us to place this precision equipment business into our core business. In a 3D lithographic business, we will endlessly seek after higher customer values in terms of higher resolution and productivity.

In the semiconductor lithography systems, we are leveraging a business with core customers in order to get away from the situation where we depend upon just one company. We started working on diversifying our customer base, both at home and abroad.

And we are now getting some good results from those stable customers, someday in the future we will enter the enabling technology area of lithography. We are also expanding our service business area.

Here now we are utilizing the end-customer's equipment to data. We are hoping to identify the possible needs of relocation, modification and improvement.

In Provo [ph], we are now putting more focus on refurbishment and we use business. Furthermore, we are exploring the possible opportunities in the lithographic peripheral business.

Here we plan to integrate our strong precision control and high precision measurement technology. We are already getting some results in this area.

We are getting some results with our litho-booster and macro-inspection devices, AMI, which can contribute to improving yield for advanced processes for semiconductor manufacturers. Last year one of the major issues we had to address was the risk related with the overseas travel restriction.

We enhanced our remote support. We have helped those local engineers to deliver services for installation and initial operations of the equipment's at the customer sites.

We are now expanding our overseas operations. As of the end of March 2021, we impaired JPY20 billion plus in fixed assets and inventories based upon the future risk of scrutiny we conducted.

By executing those measures as firmly as possible, we will try to expand earnings in our lithography systems, services and the lithography in the peripheral areas. We try to have a good balance in our revenue portfolio.

Slide 27, please. In growth areas and I will only expand on a two areas.

First is component business. Here in our efforts to developing customer needs, we are going to generate earnings starting in the current fiscal year.

While generating revenue in optical and EUV related components, we plan to develop key components which we can expect to get a high market share. Going forward as well, we would like to offer the most appropriate solutions for our customers who are asking for more diversified and sophisticated requirements; by doing so, we like to aim at further growth in our components business.

Another areas is material processing business. By delivering the special the processing in a short time with a lower cost but with higher precision, we like to build an innovative ecosystem which will solve customer's big issues.

Here Nikon would like to create a new markets and new industries in the domain of monozukuri [ph] or manufacturing excellence. Here now I'd like to share two specific cases that we are making this year [ph].

The first case is Nikon how was selected to participate in contract processing for small and mid-sized satellites. It is said that going forward as many as 1,000 satellites will be launched per year in the small and mid-sized satellites area.

There is a need to make components which are like the complex in geometry. Nikon acquired an American company Morph 3D in March end.

We are planning to get contracts with Boeing and others in aerospace industry, and for outsourcing business. In regard to riblet processing for the reduction of the fluid resistance, we have entered agreement with an Australian company called BST or Bionic Surface Technologies.

BST is an advanced solution company based upon it's fluid dynamics and expertise. We are going to combine simulation technology from BST and our optical processing technology to deliver riblet-based solutions.

As a part of this initiative, we are going to outsource riblet processing to Sendai Nikon, one of our subsidiaries, which used to make cameras. By applying this riblet possessing to an implosion of the home vacuum cleaners, as well as to jet engine fan blades, we should be able to improve fuel efficiency and reduce carbon monoxide and make our contributions to realizing the sustainable society.

Slide 28, please. We are making startling efforts in the reforms to support management with long-term viewpoints.

We will advance business process reforms, we will reduce the total costs of more than JPY80 billion, which accounts for more than 5% in the total revenue. Major areas for this are the head office and the procurement as well as image-related cost.

As for R&D, I as CDO, keep an eye on the entire R&D themes, and I am responsible not to allocate resources. For strengthening our Monozukuri Foundation, we decided to appoint a CMO, Chief Manufacturing Officer.

With a CMO we will gather and centralize information and functions. As on the shift in human resources in Japan we will reassign 1,001 people, mainly from engineering to growth areas.

In overseas, we will work on optimize the workforce covering 1,500 or more employees. We need to be firm and determined in this process.

As for the balance sheet; in order to minimize future risk factors and improve liquidity of the assets we own, we have already regulated a total of JPY100 million plus. There is no change for our [indiscernible] on the side of mid-term and long-term capital allocation.

We are now still focusing on stable dividends and total shareholders return ratio is 40% or more. We intend to sustain our investment upto 40% for strategic investment.

Thus for corporate governance we established a nomination committee with the outside Director as Chair. We will make certain efforts to improve successor training plans.

Excuse me. We will make further efforts to improve success on our training plans.

Outside directors, Mr. Neriota [ph] with the general chemical manufacturing background, who also had served as the Chair of the Board of Directors of a precision equipment company.

Mr. Moraiyaman [ph], he has a background in general heavy equipment manufacturing company.

We have a Mr. Yamagamini [ph], who is a female attorney.

While focusing on qualification, we are trying to expand diversity. Now outside Directors account for about 45%.

We are here now to make further efforts for governance, which will help us to further improve our corporate values. My last slide summarizing the points now I have just explained.

Starting from the left, we have to fully grasp the changes going on in our management environment while addressing issues and challenges to strengthen the management foundation. By doing so we need to make the whole existing business operations as profitable.

Furthermore, by engaging ourselves into the three long-term growth areas, ultimately we should be able to offer our values to the society; I believe this is going to be Nikon's corporate mission. I promise to you that we are all united within Nikon and to address those issues and challenges.

You see more on slides and after this, you will find useful information there and I hope for you to understand our basic policies for sustainability. And some of the slides we used are when we announced a medium-term management plan, just for your reference purpose.

This concludes my presentation. Thank you indeed for your kind attention.