NIKON REPORT 2016 to Our Stakeholders
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Management Message Nikon Group: Accelerating Reforms to Continue Growing over the Next Century In the fiscal year ended March 31, 2016, consolidated net sales decreased 4% year on year to ¥822.9 billion, and operating income was down 16% to ¥36.7 billion. Although the Precision Equipment Business and the Instruments Business achieved year-on-year increases in revenues and profits, the Imaging Products Business was sluggish under the effects of an overall shrinkage of its markets. An important year, the fiscal year under review is said to have been the turning point for the revised Medium-Term Management Plan Update announced in May 2015. We accelerated change in the Instruments Business and the Medical Business that are positioned for growth, as well as in the Precision Equipment Business and the Imaging Products Business, and continued through a year in which tangible achievements began to be seen. We gratefully ask for the continued support of our shareholders, investors, and other stakeholders. Kazuo Ushida President Masashi Oka Representative Director Senior Executive Vice President, CFO Representative Director Makoto Kimura Chairman of the Board Representative Director 08 NIKON REPORT 2016 To Our Stakeholders We are increasing profitability by means of a six-business portfolio to become a corporate entity that will continue to grow over the next century. BUSINESS STRATEGY Kazuo Ushida President Representative Director Although targets were achieved, results were unsatisfactory in Summary of the terms of progress made on the Medium-Term Management Plan Fiscal Year Ended March Under the Nikon Group’s Medium-Term Management Plan Update announced in May 2015, the targets for operat- 31, 2016 ing income were stated as ¥30.0 billion in the fiscal year ended March 31, 2016, and ¥38.0 billion and ¥65.0 billion in the fiscal years ending March 31, 2017 and 2018, respectively. The result in the fiscal year under review—the initial year of the plan—was ¥36.7 billion, which was higher than planned. Nonetheless, the figure represented a 16% decrease when compared with the result for the fiscal year ended March 31, 2015. While we were able to surpass the plan’s target, when viewed as an overall Company performance in no way can this be considered a satisfactory result. This year was positioned as an important year for building up strength to achieve targets we had said would improve significantly in the fiscal year ending March 31, 2018. I will convey repeatedly within the Company that by no means are we to be satisfied with the achievements of the first year of the plan. When the results for the fiscal year ended March 31, 2016, are viewed by main business, although sales of semiconductor lithography systems did not increase as much as planned, the market responded to activation from capital investment in small and medium-sized high-definition panels, there was a significant increase in the number of FPD lithography systems sold, and the Precision Equipment Business achieved a significant overall year-on-year increase in income of 75%. Factoring in the income of the Semiconductor Lithography Business over the past few years, the future cash flow from ArF immersion lithography systems was judged to be less than assumed, and the Semiconductor Lithography Business recorded an impairment loss of approximately ¥7.0 billion with respect to fixed assets, including the manufacturing facilities held. In the case of the Imaging Products Business, sales of the expected mainstay digital SLR cameras were weak, for example in the year-end shopping season of each country. Furthermore, the sales of other models were unable to cover the effects of delaying the launch of the new D500 model, resulting in a 19% decline in operating income. In the Instruments Business, sales in both the Microscope Solutions Business and the Industrial Metrology Business were favorable, and the operating income of the Instruments Business overall showed an increase of approximately double. In the Medical Business, the performance of Optos Plc, the U.K.-based retina diagnostic imaging equipment company that was made a wholly owned subsidiary in May 2015, is as far along as planned though there has been amortization of goodwill defrayment. The Medical Business as a whole, however, recorded an operating loss of ¥4.6 billion due to its posting of R&D expenses and other for its development. NIKON REPORT 2016 09 Having a strong sense of crisis and of mission, I am increasing Medium-Term the pace of Nikon’s transformation Management Plan As I mentioned earlier, while operating income of ¥36.7 billion exceeded the target set for the fiscal year ended March 31, 2016, the policy of the Medium-Term Management Plan Update is Transform to Grow, and this trans- formation remains a challenge because this has yet to take on a visible form. Moves such as the aforementioned acquisition of Optos and the establishment announced in May 2015, of Nikon CeLL innovation Co., Ltd. following the signing of the strategic collaboration agreement with Lonza—the world’s largest manufacturer of cells for regenerative medicine therapeutics—gave rise to an unconventional transformation, but one that cannot be considered sufficient. I have a strong sense of crisis and of mission that we have to tackle this situation with much more of a sense of urgency. Transform to Grow does not mean the Company will merely continue to enlarge the scale of its sales through M&As and other initiatives. While addressing new capabilities, the plan is designed to continue moving toward a stronger revenue base by causing our business categories to evolve. It will therefore take some time for the Company to reach constant levels of profit and business scale. I consider it to be my primary responsibility to convey the important aspects—in keeping with the Medium-Term Management Plan’s roadmap of measures, what the Nikon Group’s aims are, and what action we will be taking—in a specific and easy-to-understand manner for all stakeholders, in conjunction with a look back at the progress made so far. Basic Policy of Medium-Term Management Plan Update Announced in May 2015 Next 100 – Transform to Grow Transforming into a corporate entity that grows by means of its six-business portfolio By maintaining the stable earnings of the FPD Lithography Business and the Imaging Products Business as well as promoting the streamlining of existing businesses by returning the Semiconductor Lithography Business to profit and positioning the Microscope Solutions, Industrial Metrology, and Medical businesses as growth businesses, we are rebuilding a six-business portfolio and transforming into a corporate entity that will grow sustainably. 10 NIKON REPORT 2016 To Our Stakeholders Nurturing human resources with a mind-set that creates value added and encourages the taking of action Issues to Be Addressed The fiscal year ended March 31, 2016, can be assessed as one in which there were achievements made from the cost reduction standpoint in the Imaging Products Business in particular. As a result of having consolidated its production and sales, moving away from compact digital cameras, where demand was falling, and focusing instead on middle and high-end digital SLR cameras, where demand remained stable, as well as having carried out thorough cost reductions along the length of the supply chain, the Imaging Products Business maintained an operating BUSINESS STRATEGY income ratio of 8.8%, despite year-on-year decreases in net sales and operating income. As cost reductions are a mandatory management measure for manufacturers, we will continue to promote them on an ongoing basis, not only in the Imaging Products Business but across the Nikon Group as a whole. A factor that again came to the fore during the course of the initial year of the Medium-Term Management Plan was that a transformation in the Company’s mind-set is still being developed. If I had to give one example of an achievement, however, it would be the solutions-based proposals in the Industrial Metrology Business. The scale of the business itself is not large, but while incorporating a succession of new perspectives, proposing solutions to customers bore fruit in a variety of ways. Rather than the mind-set of simply performing a task with a conventional platform that is already in place, we need people with a mind-set that continually creates our own value added. Causing that mind-set to become more deeply ingrained throughout the Company is recognized as a major challenge. While breaking out of our shell and taking a bird’s eye view of the value chain, starting from the business area for which we are responsible, we will venture into adjacent areas. I would like to greatly increase the number of employees who possess this kind of mind-set, which also encourages them to take action. To realize Transform to Grow, we have introduced the human resource measure known as the FUTURE IN FOCUS, by which each and every employee is encouraged to change his or her way of thinking. Making steady progress with the measure, we will accelerate the further improvement of our human resource capabilities. It is necessary to further accelerate the reassignment of personnel to growth businesses. For example, we have implemented certain personnel transfers, such as from the Semiconductor Lithography Business to the Medical Business, but we are considering additional reassignments to strengthen the growth businesses. A year to strengthen the foundation to make Nikon’s vision of Outlook for the its future more concrete Fiscal Year Ending March With regard to the effects of the April 2016 Kumamoto Earthquake on Company performance, the supply chain of 31, 2017 the Imaging Products Business was the worst hit.