Tokunari: I assumed the position of representative director and president, COO in April 2024 through an appointment by the Board of Directors following discussions of the Nominating Committee, which comprises a majority of external directors. I joined Nikon midway through my career. Also, this is the first time in roughly half a century that someone from a non-engineering background has been become president of Nikon. Given this fact, I believe that my appointment is a reflection of the Board’s desire for me to help transform Nikon. I thus feel that I am charged with the important mission of strengthening Nikon’s business fundamentals through means such as addressing the issues it has faced regarding Group governance and global compliance.

Hiruta: Nikon is in the process of implementing its Medium-Term Management Plan that spans the period from FY2022 to FY2025. Under this plan, the Company has been advancing measures to transform its business model, stabilize its businesses, and grow earnings. However, there are still a few obstacles that remain to be addressed on Nikon’s path toward future growth. Based on this recognition, the need to bolster risk management frameworks and enhance management from a cash flow-based perspective was discussed at meetings of the Nominating Committee and of the Board of Directors. These discussions culminated in the appointment of yourself, Mr. Tokunari, as president. Since the transition to a new management team guided by you as COO and Mr. Umatate as CEO, we have seen steady progress in addressing these issues.

Tokunari: To bolster risk management frameworks, we established a new organization to oversee risk management and compliance in October 2024, and we have been taking steps to strengthen these frameworks through the recruitment of experienced individuals from outside of the Company and other means. Moreover, we have been arranging opportunities for the Board of Directors to receive prompt reports on conditions within the Company as a way of sharing information regarding risks and other matters. We have also been working to shift away from our previous approach to management, which was focused on earnings, to adopt a new approach with an emphasis on the balance sheet and cash flows.

Hiruta: I also think it is worth noting the reports that you provide on the latest conditions within Nikon at the start of Board meetings. These reports are incredibly valuable to external directors as they help us better understand conditions at the Company by allowing us to maintain an up-to-date understanding of what has transpired since the last Board meeting as well as the issues you see as president.

Tokunari: It was after the General Shareholders’ Meeting held in June 2024 that you became chairman of the Board, Mr. Hiruta. You have been a director at Nikon for a number of years, giving you a strong understanding of the Company, and you have an extensive background in management. This background, as well as the fact that Nikon is currently pressed to change, was likely what made the Board recognize that you were the right person for the job.

Hiruta: In my capacity as chairman of the Board, I believe it is important to make full use of the insight and knowledge of the six external directors, each of whom has a unique background, in order to guide decisions by the Board and thereby enhance our response to the issues faced by Nikon. To facilitate this process, I increased opportunities for exchanges of information between external directors after regular Board meetings and other information sharing venues as well as meetings of the Independent External Directors’ Meeting, which we have been holding since FY2022. After compiling the input gained from external directors through these opportunities, I report it to Mr. Umatate and yourself. We have also been working to help external directors gain a better understanding of agenda items via Study Sessions for the Directors held prior to Board meetings as warranted by the actual agenda items.

Tokunari: Study Sessions for the Directors, discussions among external directors, and frameworks that allow the lead external director to share what external directors view as important management issues with senior executive management are all provisions that are similar to the best practices implemented by the boards of directors of U.S. companies. We were able to implement these practices at Nikon due in part to your help.
As chairman of the Board, formulating agendas is one of your most important duties. I understand that you participate in meetings of the Executive Committee, the highest management decision-making body, as an observer for the purpose of performing these duties.

Hiruta: At meetings of the Executive Committee, I look at discussions and decision-making processes while trying to ascertain exactly where Nikon’s strengths and weakness lie. After meetings, I talk with Mr. Umatate or yourself if there was something I feel the need to point out.

Tokunari: Your diligence has led to us engaging in even deeper discussions at Board meetings. The third-party evaluation of the effectiveness of its Board of Directors has also shown that both internal and external directors feel that the Board’s effectiveness has increased greatly over the past year.

Hiruta: Nikon’s inability to sufficiently respond to changes in semiconductor market conditions and industry structures resulted in slumps in related businesses, which had a major impact on overall performance. As a director, I cannot help but feel disappointment with the lack of knowledge that made me unable to predict such changes during the process of formulating this plan. To minimize such oversights in the future, we have been inviting experts to arrange Study Sessions for the Directors and taking other steps to heighten the Board’s understanding of industry trends.

Tokunari: Whether lithography systems, measuring instruments, or inspection systems, a lot of Nikon’s products can draw ties to semiconductor production. This means that trends in the semiconductor market can have a massive impact on our performance. However, issues with our business structure and the distribution of our customer base have made us unable to capitalize on the benefits of the growing demand for semiconductors stimulated by the rapid spread of AI technologies. I also understand that the low stock price causing our price-to-book ratio to remain below 1.0 times is largely a result of profit falling short of the targets of the Medium-Term Management Plan due to such factors.

Hiruta: The Board of Directors receives timely reports on how investors are viewing Nikon’s strategies and stock price. How exactly we should approach living up to investors’ expectations and raising corporate value is something that we will need to delve deeper into going forward.

Tokunari: A lot of discussion takes place concerning our semiconductor-related businesses and how we can expedite development processes to more quickly generate returns. For example, we have begun development of semiconductor lithography systems for back-end processes, which are expected to see increased demand for applications pertaining to AI and data centers. This is a notable change in course given that Nikon has previously only offered systems for front-end processes. The systems under development are slated to hit the market during FY2026. Going forward, the Board of Directors should continue to discuss semiconductor-related and other important management strategies in order to drive ongoing improvements in corporate value.

Tokunari: SLM of Germany is among the global top three in the field of metal 3D printers. Sales of this company’s large-sized systems are growing, but this growth is slower than was projected at the time of the acquisition. Nevertheless, we expect this company to be able to post operating profit on a non-consolidated basis in FY2025. As our strategies for this company are advancing in the intended direction, I believe that our monitoring frameworks are functioning effectively.
RED of the United States, meanwhile, is a cinema camera manufacturer with an established reputation in Hollywood and other cinema centers. This company was acquired with the goal of swiftly incorporating its video-related technologies in order to accelerate the development of video equipment. We have already dispatched some 20 junior and other employees to RED, where they are helping out with the process of developing new cinema cameras. We will need to be diligent in monitoring this company to ascertain whether or not these efforts will generate the anticipated sales.

Tokunari: Since taking up the mantle of president, I have been focusing on reinforcing Nikon’s management foundations in five areas: human capital management, sustainability strategies, digital transformation, manufacturing, and administrative management.
Smooth progress is being seen with regard to human capital management and sustainability strategies. We are approaching human capital management from the three perspectives of acquiring, developing, and leveraging talent. I am a firm believer that innovation is born out of diversity. Based on this belief, we are promoting inter-business personnel relocations and mid-career recruitment. In fact, 37.1% of the Company’s managers were mid-career hires. To help such mid-career hires gain a better understanding of Nikon’s various products and technologies, we have been preparing video content for Group employees in which I personally explain current conditions at the Nikon Group and taking other steps to heighten employee engagement. As for sustainability strategies, external institutions have been rating Nikon high in comparison to its competitors.
Conversely, we are facing issues with respect to digital transformation, manufacturing, and administrative management. On the front of digital transformation, we plan to invest ¥30.0 billion in upgrading our core systems. As for manufacturing, as much as ¥100.0 billion will be invested leading up to 2030 to rebuild aged factories to bolster our production systems. Meanwhile, we are enhancing the internal control and internal auditing departments that constitute our second- and third-lines of administrative management.
These measures for strengthening business fundamentals will no doubt be an imperative part of our efforts to make Nikon into a company that can once again generate revenue on the scale of ¥1 trillion.

Hiruta: When I was a member of Nikon’s Audit and Supervisory Committee, I had the chance to observe internal audits. I remember having strong feelings that Nikon’s production facilities were getting a bit too old, and I even suggested to the executive team, through the Board of Directors, that action might need to be taken. Today, such action is being considered.

Tokunari: We also received similar comments from other external directors with management experience at manufacturers, and we examined this possibility in response to such comments. The type of performance volatility seen in the past has made Nikon prone to stockpile its cash, and this tendency has resulted in it forgoing arguably necessary investments in its business fundamentals. Going forward, however, we will be looking to conduct such investments as necessary while maintaining sufficient financial discipline.