As of September, 2018
Q: How was performance and the progress of the restructuring in the fiscal year ended March 31, 2018?
We have stepped in and forwarded Phase 2 of the restructuring in the fiscal year ended March 31, 2018, while also tying the restructuring to corporate performance, creating a testament to the success of the restructuring measures we have been carrying out since November 2016. Revenue fell more than ¥30.0 billion in comparison with the fiscal year ended March 31, 2017, due to the market contraction for the Imaging Products Business and reduced sales volumes of FPD lithography systems. However, operating profit and profit attributable to owners of the parent both increased year on year, by more than ¥50.0 billion and ¥30.0 billion, respectively. This feat was achieved thanks to a decline in temporary restructuring costs, reduced fixed costs due to the restructuring, and revisions to our business strategies.
Nonetheless, I realize that, if the benefits of selection and concentration are only limited to cost reductions, it will only lead to our business shrinking. Therefore, shifting to high-value-added businesses is a basic principle of preemptive restructuring. What the Group aims to achieve is to consistently create corporate value through increased profitability and enhanced management DNA. For this reason, I feel that the accomplishment of “Achieve break-even of the Semiconductor Lithography Business,” which was one of the management policies for Phase 2 of the restructuring, was a huge breakthrough. At the same time, we succeeded in developing a structure capable of consistently generating earnings. This was achieved by cutting fixed costs through head count optimization and transitioning to a more solid business model that focuses on production based on orders. We were also successful in laying the foundations for efforts to “Strengthen the profit structure of the Imaging Products Business,” which was another management policy. The D850 digital SLR camera, which was launched based on our strategy to focus on mid-range and high-end cameras, achieved sales that exceeded our forecasts. As a result, digital camera models equipped with a full-frame sensor achieved year-on-year growth in both unit sales and revenue. In the fiscal year ending March 31, 2019, we are excited to be launching the new Z 7 and Z 6 mirrorless cameras, which will capitalize on our strengths in optical technologies to exude quality that is distinctly Nikon.
In our FPD Lithography Business, we have established a competitive edge. For example, we launched the FX-103SH and the FX-103S systems in the third quarter of the fiscal year ended March 31, 2018. These offerings are ideal for the production of large and high-definition panels, such as the LCD panels and OLED panels used in 4K televisions as well as in 8K televisions, which are expected to become more widespread. We plan to capture demand in this business going forward by leveraging the strength represented by our being the only company currently developing and selling equipment compatible with plate sizes above 10th generation.
Q: What obstacles have been identified that might impede the completion of the restructuring and how will these obstacles be addressed?
The restructuring measures are proceeding according to plan. However, we must promote further reforms to become a group that continues to grow. My mission is to promote portfolio-based management, which entails concentrating human resources and capital on fields in which Nikon is competitive in consideration of post-restructuring growth strategies.
The Technology Strategy Committee, which was established in 2017, is promoting portfolio-based management from a technological perspective. This committee is tasked with further examining and confirming the core competency that is Nikon’s technologies to formulate medium- to long-term technology strategies for exploring new focus areas and for boosting competitiveness in existing businesses. The process for formulating these strategies involves clearly defining the business plans of business units and the technologies that can be combined to support those strategies. We must also reassess the mutual effect of development activity between business units and corporate divisions, such as the Research & Development Division.
Clarifying these matters and categorizing priority research themes based on social and market trends make it possible for us to effectively decide the growth themes that we should cultivate through concentrated investment. With a clear vision for the Nikon Group of the future, we will proceed to develop and revise business portfolios for accomplishing this vision while nurturing new businesses that will drive further growth.
Q: What results have been achieved with regard to the management indicators established as shorthand for use among managers?
Return on equity (ROE)*1 and return on invested capital (ROIC)*2 have been positioned as indicators for aligning management with the perspective of the capital market. We are currently in the process of developing a new Medium-Term Management Plan, which will contain growth strategies and start in the fiscal year ending March 31, 2020. I am already seeing these two indicators being used as a form of shorthand among Nikon Group department managers in discussions regarding this plan.
However, it will take time for understanding of these indicators to spread to all employees. If the Nikon Group is to truly change, it will be important for us to adopt a focus on capital efficiency while still remaining committed to creating high-quality products. I therefore think it is crucial that we work to foster understanding of ROE and ROIC through messages transmitted to employees worldwide in order to instill an awareness regarding these indicators as quickly as possible.
Moreover, we seek to transform Nikon into an organization in which all employees are able to think about what must be done in order to accomplish growth. Laying the foundations for such an organization is one of the tasks placed before me in the fiscal year ending March 31, 2019.
- *1. An indicator representing the ratio of profit attributable to owners of the parent to equity attributable to owners of the parent that is used to judge management efficiency
- *2. An indicator for measuring how efficiently returns are being generated through actual invested capital, including working capital and non-current assets
Q: What are the key aspects of Nikon’s efforts to create value in the society of the future?
Our society is undergoing a major transformation as various systems powered by artificial intelligence (AI) spread rapidly throughout our daily lives and industries. In the midst of this transformation, the Nikon Group seeks to provide the “eyes” that will be needed by people and industries alike by evolving the optical technologies we have cultivated to date—in other words, by unlocking the future with the power of light.
More than 80% of the information taken in by our brains is visual information acquired through our eyes. In AI, the role of the eyes is performed by lenses and sensors, which have crucial functions. Accordingly, we see these devices as being essential to the application of AI, and Nikon is well equipped to contribute in this field with its lens and sensor technologies. For example, we are already engaged in joint development of a solution that helps physicians diagnose diseases by using AI to analyze retinal images taken by the ultrawide field retinal imaging devices of subsidiary Optos Plc.
By expanding businesses in this field, our business model, which had previously focused on the manufacture and sale of completed products, is changing substantially. I think we have the potential to establish a completely new business model. Based on the assumption that we will utilize AI and other technologies, this model could include businesses in which we develop and provide solutions including applications, and businesses in which we sell specific technologies to business partners as modules. With this in mind, we will concentrate resources on our optical technologies and other proprietary Nikon technologies that can be differentiated from those of our competitors in order to create new value and thereby propel us toward future growth.
Q: What is the role of external directors in the enhancement of corporate governance?
Turning our attention toward fields outside of the Nikon Group’s previous business domains and actively seeking business opportunities therein will open up new possibilities for collaboration with business partners and for combining our technologies with others. In this endeavor, it will be crucial to utilize input from external directors in management to an even greater extent. The growth strategies we are in the process of formulating assume that we will be incorporating technologies, business frameworks, and ideas that lie outside of the fields in which Nikon traditionally excels. In this manner, we need to develop growth strategies that encompass previously unexplored fields and also measure their likelihood of success. We are going about this task by engaging in extensive discussions at meetings of the Board of Directors guided by the insight and knowledge offered by the Company’s four external directors based on their experience.
Moreover, Nikon commissioned a third-party organization to conduct an evaluation of the effectiveness of the Board of Directors in the fiscal year ended March 31, 2018. While a certain degree of praise was received for our efforts to enhance corporate governance, it was also stated that there was still room for improvement. In our corporate governance structure, we will not be satisfied with merely fulfilling the formulaic requirements but will rather go further to create a structure that is even more functionally transparent and disciplined.
Q: In what fields will the Nikon Group be contributing to the sustainable development of society?
Social interest in companies’ stances toward environmental, social, and governance (ESG) issues has been growing as of late. As stated, we are pursuing the ongoing enhancement of corporate governance in order to incorporate a more diverse range of perspectives into the process of formulating growth strategies and to increase transparency and discipline. As for contributions to society and the environment through our business activities, the Nikon Group’s quest to continue growing by functioning as “new eyes for people and industry” will contribute to the sustainability of not only the Group but also of society and humanity. For example, by providing “eyes” capable of supporting the diagnosis of diseases, we can contribute to the improvement of health and quality of life for people and the reduction of social security expenses.
We aim to develop growth strategies that demonstrate the connection between Nikon’s business and society to stakeholders both inside and outside of the Group. In this way, we hope to ensure that Nikon can continue to contribute to the sustainable development of society through its business activities while embodying its corporate philosophy of “Trustworthiness and Creativity” as a company that is meaningful to people around the world over the next 100 years.
Q: What growth strategies will Nikon implement after the completion of the restructuring?
The growth strategies that we are developing will guide us in creating new value while unlocking the future with the power of light.
Ambitiously tackling new challenges in areas that lie outside of our traditional product lines and business domains will require “Curiosity” to cultivate fresh ideas, “Acceptance” to warmly embrace diverse ideas and delight in differences among people and cultures, and “Inspirational Power” to share our ideas with infectious enthusiasm to effect positive change in the world. These three traits are set forth in Our Qualities of Mind. I, personally, will exercise inquisitiveness in learning about technologies and businesses in areas I had not previously considered while also managing the organization in a manner that inspires such ambition in all Nikon Group employees.
The major revolutions that have occurred over the 6 million-year history of humanity were the agricultural revolution that took place approximately 10,000 years ago, the industrial revolution that changed the world approximately 200 years ago, and the Internet revolution that transformed society only 20 years ago. One can see that the time between these revolutions is becoming much shorter, and it can thus be expected that massive changes will continue to occur in the future. In the face of such change, companies that lack a desire to learn will be doomed to fail. At the Nikon Group, we are committed to constantly reexamining the role and value to be provided by the Group in light of upcoming social change and to continuously growing through this process.
Lastly, let me reaffirm our dedication to living up to the expectations of our stakeholders by completing the restructuring and creating corporate value.
I hope you will continue to support the Nikon Group as we continue to move forward.