- Q1:What is your assessment of the operating performance for the first half of the year ending March 2014?
The first half of the current fiscal year was extremely challenging, with declines in both sales and profits compared with the same period of the previous fiscal year. But under the guidance of the "Management Measures Committee" established in August 2013, and working together as a company, we managed to improve profitability by implementing far-reaching cost reductions. As a result, profits during the period exceeded our earnings forecast announced in August.
- Q2:What do you perceive as necessary to achieve your targets the year ending March 2014?
The focus points are different for each business. In the Precision Equipment Company, we need to drive sales of ArF immersion scanners, an area we are concentrating on in the fourth quarter. For the Imaging Company, I think the important point is to fully grasp the changes taking place in the markets for both compact digital cameras, and interchangeable lens-type digital cameras. For the Instruments Company, we need to turn the demand in the growing emerging markets into sales.
In addition to these measures, I believe that by continuing to focus on lowering procurement costs and advertising expenses, and by enhancing efficiency in research and development, we will be certain to meet our targets for the fiscal year.
- Q3:Nikon's Medium Term Management Plan, announced in May 2013, identifies three priority tasks to strengthen existing businesses. Please summarize what this entails.
The three priority tasks–reducing costs, bolstering supply-chain management and launching differentiated products–are similar to measures on which we have focused previously. Our existing businesses retain growth potential which, if reinforced, will enable the businesses to generate cash that can be invested in new businesses.
To improve profitability, it is essential that we reduce costs. We are pursuing this objective by establishing a product development platform, enhancing productivity and reforming our procurement system.
Our efforts to bolster supply chain management include speeding up all processes, from component procurement to development, production and logistics. We are also striving to eliminate operational inefficiencies, so as to create a resilient operating structure. Thus, although in the Precision Equipment Company we have halved the production lead time–from twelve to six months–we are pursuing a further reduction so that we may be even more flexible in responding to demand trends.
To improve earnings, we must not only reduce costs, but also increase the appeal of our products, and the degree to which they are differentiated. We are less likely to succeed in developing differentiated products, if we only improve the functions and performance of existing equipment. I want Nikon to develop products based on new concepts that raise the bar considerably.
We have been struggling with these issues for nearly a decade now, but I’d like the entire corporate group to once more push forward in pursuit of minimum cost operations.
- Q4:How is each internal company working to strengthen existing businesses?
In the Precision Equipment Company, although IC stepper and scanner business has faced harsh conditions for years, our performance advancements in ArF immersion scanners give us, I believe, the opportunity to recapture market share. I think that by quickly attaining a 30% market share for ArF immersion scanners, we will be able to lay the groundwork for putting the IC stepper and scanner business on a sound footing. Meanwhile, in the LCD stepper and scanner business, we are in an extremely strong position. At a time when the trend to produce higher-definition equipment is expected to gain momentum, our product development will enable us not only to maintain, but to reinforce our market lead.
For the Imaging Company, it is crucial that we determine how best to adapt our strategies in response to market changes, particularly in terms of new products and product lineups. The rapid penetration of smartphones is causing the compact digital camera market to shrink. Previously, cameras and smart devices were not direct competitors. However, in the current market structure in which these products are competing, we must examine closely the concepts on which our compact digital camera offerings should be based. Thus, when it comes to interchangeable lens-type digital cameras, we need to question our ability to offer truly innovative functions and performance. Another essential element is cost reduction. Imaging products account for the majority of the component procurement within the Nikon Group. We will focus on further reducing procurement costs by revising procurement methods and other means.
The principle task of the Instruments Company is expanding segment sales. In recent years, although operating losses have risen, we have viewed this as up-front investment, essential for business development over the long term. Since market conditions have been less than favorable, leading to increased segment operating losses, we have continued to pursue broad investments, covering aspects from development to sales and including the 2009 acquisition of a Belgian measuring equipment manufacturer. As we work to capture a leading position, from the fiscal year ending March 2014 we plan to launch new products, including non-contact three-dimensional (3D) measurement systems for the industrial instruments market. The Instruments Company has adequate potential to achieve profitability if sales are increased, and I believe that we will take the first steps toward this goal during the fiscal year ending March 2014.
- Q5:Another essential element of the Medium Term Management Plan is new business. Could you provide an overview of this?
While the main target for new business is the field of health and medical related areas, the plan makes clear our intention to focus particularly on the area of diagnosis and analysis. Yet, even within this focus area, the projects we are pursuing cover a broad spectrum of development stages. Some projects need to begin with basic technology development, while others–although somewhat advanced in terms of technology development–are at the stage of analyzing the steps needed to engage the potential market. We anticipate that the earliest products to be launched will generate a certain level of sales by the fiscal year ending March 2016, while those requiring the longest lead time may take a further five years to reach commercialization.
We expect the medical field to undergo significant changes, particularly as we hear many domestic and overseas government officials say that the rapid rise in healthcare costs is leading to a serious situation. We want to help alleviate this situation by developing new methods of diagnosis and analysis that can contribute to the provision of efficient medical treatment. By leveraging Nikon's technologies–optics, precision control, image processing and inspection–we plan to cultivate new businesses based on a theme of developing equipment and systems in such areas as image analysis and diagnostic support at the genetic and cellular levels, and support for appropriate treatments and new drug development.
Of note, in August 2013 Nikon decided to invest in Healios Co., Ltd. (formerly Retina Institute Japan K.K.), a RIKEN certified bioventure company. Through this partnership we are supporting the development and practical application of regenerative medicine to treat retinal disease using iPS cells. We hope to further the advancement of regenerative medicine using iPS cells, and to establish a foundation for the regenerative medicine business in the future.
- Q6:Nikon's CSR-related policy states, "We recognize the importance of CSR and will contribute to the sustainable development of society." Please summarize what this involves.
We believe that, as a company, we contribute to the development of society through our steady growth and creation of value. Nikon is involved in business activities worldwide, and we maintain facilities and offices in a large number of countries. I want the Nikon Group to become firmly rooted in each of the communities in which we operate. By becoming an integral part of those communities, we will be able to contribute more to those societies. This is one of the reasons that it is so important for the Nikon Group to become more international as an organization, and to pursue a localization strategy. Another core factor of corporate social responsibility policy is our duty to humanity and the environment. The pursuit of profit alone will ultimately lead to failure. Hence, we conduct our business activities based on the premise that we must maintain harmony with society.
- Q7:In a move to internationalize the Group, in 2012 Nikon established the Global Human Resources Development Section. Please explain the background and goals of this initiative.
Worldwide, the Nikon Group has more than 24,000 employees, while 60% of our employees are citizens of countries other than Japan. Overseas employees are involved in a diverse array of business operations, from production to sales, and we believe that it is essential for them to gain a strong understanding of Nikon and the Nikon brand, and to develop an affinity with the Nikon Group.
I believe that the Nikon Group will continue to develop new markets centering on emerging countries and that, as a result of this process, our organization will become much stronger if we all share a common awareness of what the Nikon brand means. For this reason, we are focusing our training programs on Nikon's DNA.
In March 2013, we also established the Nikon Group HR Vision, which defines the core competencies Nikon seeks from its employees, and this vision was shared with all staff worldwide. To enable the Nikon Group to realize sustainable growth, through the activities of the Global Human Resources Development Section, we aim to create an organization in which all employees can attain their full potential.
- Q8:In closing, are there any other points you wish to make to shareholders and investors, such as regarding your position on shareholder return?
Shareholder return is based on our previously stated policy of "expanding investment in business and technology development to ensure future growth, taking steps to enhance competitiveness, and paying a steady dividend that reflects the perspective of shareholders, while making continual adjustments to better reflect operating performance." Accordingly, we have set a target for a total return ratio of 25% or more, to be achieved through dividends and the buyback of stock.
Although the fiscal year ended March 2013 saw a large decline in profits, we are committed to improving our profitability by transforming our operating structure and strengthening our existing businesses. Combined with aggressive new business development, these efforts are focused on creating a Group with high growth potential. We look forward to the continued understanding and support of our investors as we pursue these goals.
- *This article, based on a previous interview, was produced on December 2, 2013.