Nikon’s Last Annual Report

bythom nikon ar

Nikon’s 2020 Annual Report was late. Then somehow it snuck into publication without the usual RSS alert, so most of us didn’t notice it. Still, it was months later than usual. Normally, I write about these reports when they come out, but this time around, I’m also late, partly for the reasons just stated.

Much of Nikon’s Annual Report this time was about Nikon’s structure and management plans, plus how that is changing or will change. 

Nikon’s “vision” has changed over the years. I actually like the current one: “Unleashing the limitless possibilities of light.” Or wait, is it “Unlock the future with the power of light”? (Redundancy happens a lot in Nikon’s corporate materials.) I still think Nikon is primarily (and best at being) an optics company, but you generally need optics if you’re going to do anything with light, so the current vision(s) is fine.

Of course, you don’t have to read very far before you get a slightly different take: Nikon claims their core competences are: opto-electronics and precision technologies. That’s important, because Nikon’s future growth strategy centers around material processing and automated manufacturing, which aren't things Nikon is particularly known for yet, but which does use their core strengths in different ways than their current largest divisions (Precision and Imaging). Some of this new business growth will come from acquisitions and partnerships.

“Reform cost structure” comes up early and often in this report, but this isn’t a vague goal. Nikon wants to get everything to an ROE (Return On Equity) of 8% or higher (that’s higher than they’ve been achieving, on average, in the past six years). 

Curiously, though, the part of the company you want to know about—Imaging—is marching to a slightly different drummer: “secure a stable…20b yen or higher operating profit.” To put that in context, under the accounting rules they’ve used since 2017, that would be a higher profit than the 2016/17 fiscal year and about the same as 2018/19. 

We don’t yet know whether Nikon is on track for that amount in the current fiscal year that’s just started, but we do know that the Imaging Group has now “quickly achieve[d] profitability” in the on-going imaging business. 

A couple of things struck me in reading the high level messaging about the Imaging Group:

  • "It can also be expected that the distribution of images will become increasingly more personalized in the future. In light of this new social trend, Nikon will focus on product and technology development as well as online services.” It’s that last bit that intrigues me. Nikon has the Nikon Image Space cloud-based photo service that is absolutely underperforming. SnapBridge is really just a bridge. So exactly what is Nikon focusing on in terms of online services? Or are they just posing by saying something shareholders want to hear? 
  • "Meanwhile, the Imaging Products Business is branching out from its currently BtoC-centric model to develop a broad spectrum of BtoB and other businesses in pursuit of paths to further growth.” BtoC is business to consumer, meaning Nikon selling you a camera. BtoB is business to business, and the Mark Roberts robotic camera acquisition awhile back is the first tangible example we have of that. The report discloses an additional investment I hadn’t reported previously in wrnch, a company working in computer vision and deep learning. Curiously, Nikon claims they have investments in 22 such companies, but I don’t see a complete list anywhere.

I was immediately amused when I got to the section labeled “Improvement of Employee Engagement.” Uh, ding ding, what Nikon really needs to engage is its customers. Far too many parts of the corporate report take consumers for granted. Granted, an Annual Report is targeted towards investors, but where is anything at Nikon targeted at customers? Indeed, Nikon keeps using “distancing” language when they do talk about customers, as in “responding  to customer expectations.” Nowhere does Nikon ever disclose how they know what those expectations are.

I won’t get into most of the raw numbers, as they reflect the period that ended over a year ago and I’ll probably be discussing them when Nikon reports this past year’s financial results later this month.

But I did want to address one thing (though the numbers will have changed slightly by the next annual report). Nikon ended up with 184.8b in cash last April, and A+ or A credit ratings. Those aren’t the numbers of a company about to fail (and indeed, Nikon didn’t fail in the ensuing 12 months and this year’s numbers are going to say essentially the same thing). In terms of who owns Nikon, 34% of the shares were owned by Japanese banks and insurance companies last year, 1.4% by Mitsubishi. Nikon is not a Mitsubishi subsidiary, obviously, though the Mitsubishi keiretsu still has influence. 

Another falsehood that keeps getting repeated on the Internet is that Nikon has substantively cut back on R&D spending. Not really. In 2015 through 2020 the overall R&D spending has ranged from 60.7b yen (2018) to 66.7b yen (2015). 10.5% of revenue in 2020 was spent on R&D, the highest percentage in the last ten years. Within Imaging R&D spending is down about 16% from its five-year high, but still substantive (at 21.2b yen/year, and it’s still the most Nikon spends in any division). 

No doubt that some of the R&D spending has shifted away from Imaging (and Precision) to the new businesses, but Nikon isn’t backing off deeper research projects. 

Nikon does make some lip service in terms of board diversity. The wanted to increase external directors on the board to 45% and the diversity of the board in doing so. However, I wouldn’t call their board diverse in any sense of the term. It’s mostly Japanese men with either electronics or banking experience. There’s one woman. They do better in their workforce where women outnumber men. But that actually makes things worse: we have a narrow group of men telling women what to do. 

We’re in the middle of the quarterly and yearly earnings reports in Japan, so I’ll have more to say in the coming weeks as we get more details that are more current.

The bottom line is the same as it has been for awhile now: Nikon is a company that is contracting, but still managing to make their financials work. They are trying to add businesses to flip contraction into growth, but it’s too early to tell what success they’ll have at that. 

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