Fiscal year 2022 marked the first year of our Medium-Term Management Plan. While we saw a softening of the impacts from the COVID-19 pandemic, our business was still significantly impacted by external factors such as the high cost of resources due to geopolitical risks, interest rate hikes by various countries in an attempt to stem inflation, and the historic depreciation of the yen. Yet despite this environment, we managed to increase both revenue and profits, thanks to the cooperation and support of our stakeholders, for which I am truly grateful.
Progress on Medium-Term Management Plan
In April 2022, we announced our Medium-Term Management Plan, covering the four years from FY2022 to FY2025. In it we defined our Vision 2030 as being “a key technology solutions company in a global society where humans and machines co-create seamlessly.” To make this vision a reality, we set our goals to achieve in 2025 and formulated strategies and measures accordingly. In 2025, the final year of our Medium-Term Management Plan, we envision that “providing products and services optimized to meet our customer needs.” Our direction for the entire company will transition from providing mainly end products, and strengthen delivery of solutions integrating with service and components. Based on this direction, we are sustaining the Imaging Products Business and the Precision Equipment Business, which we position as our “Main Businesses,” while expanding earnings from our “Strategic Businesses,” which include the Healthcare Business, the Components Business, and the Digital Manufacturing Business.
During the first year of our Medium-Term Management Plan, both revenue and operating profit exceeded expectations
To sum up the first year of our Medium-Term Management Plan, it was a year of steady progress towards our direction for the entire company to “strengthen delivery of solutions integrating end products, service and components.”
In all of our businesses, including our Main Businesses, we sought to increase the opportunities for dialogue with customers as much as much as possible, while providing them with products and services based on an accurate understanding of their needs. Particularly in the Strategic Businesses of the Healthcare and Components Businesses, we worked to expand our contracted businesses, and strove to provide solutions that create new value in promising markets. In the Digital Manufacturing Business, we actively pursued mergers and acquisitions or business alliances with the aim of strengthening our business infrastructure, including making SLM Solutions Group AG (currently Nikon SLM Solutions AG, hereinafter “SLM”) a consolidated subsidiary.
As a result, while revenue for the Precision Equipment Business fell in FY2022 due to a larger-than-expected slump in the market, revenue increased for all of other businesses. Propelled in-part by favorable exchange rates, the Imaging Products Business saw strong sales of mirrorless cameras, while sales in the Healthcare Business grew for Life Science Solutions (biological microscopes) and Eye Care Solutions (retinal diagnostic imaging systems). Thanks to this, operating profit for these businesses significantly outstripped projections made when we formulated our Medium-Term Management Plan. The Components Business also grew steadily around optical and EUV-related components, and for the first time the ratio of operating profit from our Strategic Businesses surpassed 30% of our total operating profit. Going forward, we plan to achieve growth in the Digital Manufacturing Business, as we have with the Healthcare and Components businesses. We further aim to achieve 700.0 billion yen in company total revenue and 10% or higher operating margin, which are our targets for FY2025 (the final year of our Medium-Term Management Plan), all while promoting resilient portfolio management.
Main Businesses: Gained confidence to achieving earnings plan in stable manner for the Imaging Products Business, and started organizational reform for the Precision Equipment Business
Imaging Products Business
The vision set out in our Medium-Term Management Plan is: “Expand the possibilities for visual expression and acquire overwhelming support from all generations of fans around the world.” In the Imaging Products Business, profitability has improved thanks to structural reforms and a shift to mirrorless cameras for primarily mid- to high-end models, and the average selling prices of both interchangeable-lens-type digital cameras and interchangeable lenses have increased. Due to these factors as well as the positive impact of exchange rates, revenue and operating profit of the Imaging Products Business have significantly increased, and a record-high operating margin was achieved. The imaging contents business also got off to a good start. Also the Z 9, our first flagship mirrorless camera model, recorded the highest number of sales in the first year after release among all flagship model in the past 15 years. Moreover, since its release it has continued to evolve with improvements to its features and firmware updates.
Precision Equipment Business
Our vision for this business is: “Continue delivery of innovative solutions to customers and to support a digital society.” The Precision Equipment Business was the only one of our five business segments to experience a decline in revenue and operating profit. This is because, for semiconductor lithography systems, sales numbers and revenue of primarily ArF lithography systems increased, but there was a decline in revenue for FPD lithography systems as customers curtailed capital investment due to the fall in panel prices. In such circumstances, we merged the FPD Lithography BU and the Semiconductor Lithography BU into the Precision Equipment Group in April 2023. We intend to flexibly operate the resources of both businesses to establish a framework for agile response to future changes in the market and strengthen such future-oriented initiatives as digital lithography.
Strategic Businesses: The businesses are going well. We plan to expand the business infrastructure for the Digital Manufacturing Business
Our vision for this business is: “Support improving quality of life for people through innovation.” The Healthcare Business has seen significant customer growth, primarily in the private sector. Since it first became profitable in FY2021, its operating profit has skyrocketed to over 10.0 billion yen. Our targets for the final year of our Medium-Term Management Plan are 90.0 billion yen in revenue and 10.0 billion yen in operating profit, and we have achieved these goals three years ahead of schedule thanks in part to favorable exchange rates. We aim for further growth, which includes providing new value in areas such as Contract cell development and manufacturing, based on analysis and evaluation using the microscope technology we have built up over many years.
Our vision for this business is: “Grow together with customers as we support their innovation.” We have expanded the Components Business by supporting the high-level needs of a wide variety of customers in semiconductor-related fields. Strong sales of EUV-related components, Optical parts and Optical components, and Encoders for robotics drove an increase in revenue and operating profit. Going forward, we will continue to take advantage of various opportunities by leveraging our core competence in optics application technologies and precision technologies.
Digital Manufacturing Business
Our vision for this business is: “Enable innovations in manufacturing with applied optics application technologies.” During the first year of our Medium-Term Management Plan, our acquisition of SLM in order to promote full-scale expansion of our Material processing business was on an unprecedented scale for Nikon. Then, in April 2023 we established the Advanced Manufacturing BU. This US-based business unit is working to lay the foundation for expanding our business in Japan, the US, and Europe. Our customers are also introducing laser radar and X-ray and CT systems sold by our Industrial Metrology BU into their production lines. We will pay close attention to the development of these newly established business unit as we develop the Digital Manufacturing Business into one of our core businesses.
Strengthening the Management Base Essential to Execution of Our Medium-Term Management Plan
Sustainability at Nikon is based on our corporate philosophy of “Trustworthiness and Creativity.” The core tenets of this approach are to gain trust by meeting society's expectations through constantly assessing and improving the benefits our business receives from society and the environment and the impacts our business provides them, and to create value that contributes to helping solve social and environmental challenges while achieving the Sustainable Development Goals (SDGs) through our business activities.
In FY2022, we reviewed our 12 materialities and changed two of them to ensure that sustainability at Nikon is in line with “Trustworthiness and Creativity” and our Vision 2030. Specifically, we changed “Strengthening supply chain management” to “Building a resilient supply chain,” with the goal of building a framework that will allow us to respond to changes in the business environment with greater flexibility and agility. We also changed “Diversity and inclusion” to “Diversity, equity and inclusion” (DEI), to add the perspective of fairness in fostering a company culture in which everyone can participate and take on challenges. During this review, we seriously considered the opinions and expectations of our stakeholders, and sought input from a wide range of employees. At the same time, we incorporated the objective opinions of external experts that our management received during discussions with them. Nikon will continue to confront sustainability management and grow as a company that contributes to a sustainable society.
Human Capital Management
Human capital management is an important strategy, and human resources are the most important management resource for realizing our Vision. At Nikon, we have integrated and promote our management and human resource strategies through the three pillars of “Acquire talent,” “Develop talent,” and “Leverage talent.” I believe that allowing each and every employee to think and act independently is essential to the development of human resources, and the Company will create their environments accordingly. Management is currently discussing issues such as acquiring human resources, supporting their active participation, and developing solution engineers, and is implementing measures appropriately. By creating an environment in which each employee can perform to the best of their abilities and promoting employee self-awareness, Nikon aims to become a company in which human resources can grow independently.
Manufacturing and Governance
In manufacturing, we are working towards flexible response and efficient production in light of the significant changes in the business environment and increasing fluctuations in demand. In concrete terms, we have begun studies of major investments aimed at increased production capacity and productivity for optical parts and optical components, and lenses for multiple business units at our subsidiary Tochigi Nikon and at domestic production sites such as our Mito Plant. We are also actively working on corporate governance. In addition to further increasing the diversity of our external directors and enhancing the effectiveness of their supervision, we have established Independent External Directors' Meeting to conduct objective and hopefully fruitful discussions. We have also revised our officer compensation system and strengthened incentives toward achieving the Medium-Term Management Plan and increasing corporate value. Moreover, we are steadily enhancing the technical capabilities that are one of Nikon's strengths, as well as digital transformation (DX) focused on customers and employees.
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Realizing our Vision on a Basis of “Trustworthiness and Creativity”
Since its founding in 1917, Nikon has been on a quest to uncover the potential of light, and has created new value while striving to meet the expectations of our customers and win their trust. This very history is the source of Nikon's brand, and the origin of our corporate philosophy of “Trustworthiness and Creativity.” Obviously, our brand is not merely an amalgamation of our history; it must continue to evolve with the times and in line with social expectations to heighten its value. In order to provide products and services optimized to meet our customer needs, we will always consider what customers really want and deliver solutions integrating end products, service and components. And as we aim to become “a key technology solutions company in a global society where humans and machines co-create seamlessly,” we will continue to grow our business and improve our corporate value. We sincerely hope that you will look forward to what Nikon has to offer going forward.