Nikon says it's expecting 'extraordinary losses,' has updated its FY2020 projections
Nikon Corporation has issued a statement to investors warning the company ‘expects to post extraordinary losses’ for its 2020 fiscal year (FY2020) that ended on March 31, 2020, and has subsequently made a revision to the financial forecast ahead of the upcoming release of the results on May 28.
If Canon’s latest financial results were anything to go by, it was inevitable Nikon’s were going to look even worse. While we don’t have the exact numbers yet, Nikon has preemptively warned investors that it won’t be pretty. In a document titled ‘Notice Regarding Recognition of Extraordinary Losses and Reversal of Deferred Tax Assets in Non-Consolidated Financial Statements,’ Nikon says the following:
‘Using the future plan that reflects the impact and more caused by the spread of COVID-19 to business activities, the Company has assessed an indication that fixed assets may be impaired, performed valuation of financial assets, and examined the recoverability of deferred tax assets.’
Put more simply, Nikon is saying the global impact of the COVID-19 pandemic has caused much of its business to slow or stop production in its facilities and dramatically reduced sales, leading to a drop in value of its production line and equipment. In turn for reducing the value of these departments, Nikon will be able to reduce its taxable income equal to the amount it’s decreased the value of these divisions. Nikon specifically references its Imaging Product Business, saying it is posting a 5.7 billion yen impairment loss.
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In addition to the above notice, Nikon has also published revisions to its projections for the forthcoming FY2020 results. As you might expect, the numbers are down dramatically.
Nikon expects revenue and operating profits to be 591 billion yen and 6 billion yen, respectively, a decrease of 4.7 percent and 70 percent, respectively, compared to Nikon’s previous forecasts. Nikon notes these figures are amplified due to the ‘recognition of impairment losses of 11.1 billion yen’ mentioned above. Nikon specifically notes the 7.5 billion yen in impairment losses for its Imaging Products Business is ‘mainly for property, plant and equipment and intangible assets.’
Summed up, Nikon is expecting much less revenue from its Imaging Products Business and other divisions due to the ongoing COVID-19 pandemic and as a result, it’s devaluing the assets of those divisions to account for the income said divisions won’t be making in an effort to reduce its tax liability. Put even more simply, Nikon is being clever with its accounting to help cushion the financial blow from what is shaping up to be a rough year.
Just how rough remains to be seen, but we'll know for certain on May 28, when the full results are released.
Notice Regarding Recognition of Extraordinary Losses and Reversal of Deferred Tax Assets in Non-Consolidated Financial Statements
NIKON CORPORATION (hereinafter “the Company”) expects to post extraordinary losses and to reverse a part of deferred tax assets in its non-consolidated financial statements, which are prepared in accordance with Japanese GAAP, for the fiscal year ended March 31, 2020.
Using the future plan that reflects the impact and more caused by the spread of COVID-19 to business activities, the Company has assessed an indication that fixed assets may be impaired, performed valuation of financial assets, and examined the recoverability of deferred tax assets.
As a result, the Company has decided to post an impairment loss of 5.7 billion yen for the fixed assets held by Imaging Product Business. And for Nikon Metrology NV, the Company’s consolidated subsidiary, a loss on valuation of the investments in subsidiaries and affiliates and provision for loss on business of subsidiaries and affiliates will be recognized 6.7 billion yen and 9.2 billion yen, respectively. The Company has also decided to reverse a part of deferred tax assets and post deferred tax expenses of 20.6 billion yen. However, the losses associated with the subsidiary mentioned above will have no impact on the consolidated financial results, as those losses will be eliminated in the consolidated financial statements.
Notice Regarding Revision of the Consolidated Financial Forecast for the Fiscal Year Ended March 31, 2020 and Recognition of Impairment Losses
This is to announce that the consolidated financial forecast announced on February 6, 2020 is revised as below, reflecting our recent business performance trend, and to disclose that impairment losses are expected to be recognized.
1. Revision of the Consolidated Financial Forecast
Revised Consolidated Financial Forecast for the Fiscal Year Ended March 31, 2020 (From April 1, 2019 to March 31, 2020)
2. Reason for Revision of the Consolidated Financial Forecast
Decrease in revenue is expected due to factors such as the delay in installations of FPD lithography system, affected by the spread of COVID-19. In addition, operating profit, profit before income taxes and profit attributable to owners of the parent are also expected to be lower than the previous forecast due to the recognition of impairment losses of 11.1 billion yen for non-current assets, as indicated below in “3. The Recognition of Impairment Losses.”
Based on these situations, the consolidated financial forecast announced on February 6, 2020 is revised as above.
3. Recognition of Impairment Losses
For the fiscal year ended March 31, 2020, indication of impairment for non-current assets was examined based on its future utilization and the impact caused by the spread of COVID-19 on business operations. As a result of measuring the recoverable amount of the cash-generating units in which impairment was indicated, a sufficient recoverable amount was not estimated in the Imaging Products Business and the Industrial Metrology Business and Others. Therefore, impairment losses of 11.1 billion yen are to be recognized. In the Imaging Products Business, impairment losses of 7.5 billion yen mainly for property, plant and equipment and intangible assets are to be recognized. In the Industrial Metrology Business and Others, impairment losses of 3.6 billion yen mainly for goodwill, property, plant and equipment and intangible assets are to be recognized.
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