The headline figures overshadow what has been a reasonable first half of the year for Fujifilm. The figures are spoiled by the negative impact from the strengthening of the ¥en. Take out that factor and Revenues would be about on par with the previous year but Operating Income would be ahead by 7.5%. What is more difficult to understand is why forex should have such a big impact when over 40% of revenue is credited to the home market.
Previously, the forecast for the full year saw Revenues rising by 2.3% and Operating Income rising by a substantial 15.1%. Overviewing the global economy over this first half the trend is of gradual economic recovery with signs of weakness in Asia. So even given the problems with exchange rates, some more growth was expected.
Revenue across all business segments was down -8.6% from the same period the previous year. This fall came across all segments of the business but Document Solutions that accounts for 47.8% of Revenue accounted for 54% of the revenue fall. Information Solutions accounted for 38.5% of Revenue but only 28% of the fall.
Operating Income fell by -21.3%. Information Solutions was the strongest segment with just a 6% fall in Operating Income this was due to the increased sales in Flat Panel Display materials.
The strengthening of the ¥en against the Dollar and Euro accounted for 94% of the fall in Revenues but 135% of the fall in Operating Income (ie. would have made a profit).
Given these results FujiFilm have lowered full year forecasts from the last forecast made in July 2016. Revenue forecast for the full year has been reduced from ¥2550B to ¥2400B, a 3.7% fall on the previous year. Operating Income forecast has been reduced from ¥220B to ¥192B, a 0.4% increase over the previous year.
Specifically concentrating on the Imaging Solutions segment of the business and isolating the Digital Camera part of the business that is the main concern here. The overall segment accounted for just 13.7% of Revenues and 5.7% of Operating Income. This segment covers film, printing instant photo system as well as digital cameras and optics.
Revenues in the Imaging Solutions segment were down -11.5% for Q2 2017 year-on-year. As a proportion of overall sales, Imaging fell to 13.7% down from 14.1% the previous year. Operating profit fell by -28.5% to ¥8.9B.
The Imaging Solutions segment breaks down into Photo Imaging, Electronic Imaging & Optical Devices. Digital cameras and lenses come under the Electronic Imaging & Optical Devices section that is responsible for just 31% of Imaging Solutions Revenues and 4.25% of Total Revenue. Operating Income is only declared for the whole segment. Fujifilm have concentrated their digital camera efforts into high end Mirrorless cameras such as X-Pro2 and X-T2. The X-T2 has been well received and has been a best seller in the last few months. However, the lower end compact market has suffered from falling sales that will be hard to make up for as competition is hotting up in the industry.
No further breakdown of the Imaging Solutions is given for either geographic area or camera type.
Research and development expenses within the Imaging segment have been increased from ¥3.9B to ¥4.3B in this half year-on-year well ahead this year so far.
The effect of the fluctuation in the exchange rate and not being able to predict them accurately have causes the biggest change in the financial figures this quarter. During FY2016 the average rates were ¥120 per US$ and ¥133 per €. In the 1st half of FY2017, this has changed to ¥105 per US$ and ¥118 per €. Current forecasts assume these will change very little in the 2nd half, but that may be a mistake given they have been below this for some time already.
The diversity and reputation of the Fujifilm should ensure a solid future as a business. In terms of the Digital Camera industry, Fujifilm is a very familiar brand in the high street. The latest cameras have been well received and the lenses are very well respected. However, digital cameras and lenses account for only 4.25% of the business and things in the industry are getting very tough. Can they withstand the pressure from bigger brands that will squeeze them out. I have my doubts.
The other successful product Fujifilm have had is the INSTAX instant cameras, film and printers. Whilst this range continues to show significant sales, I would say due to its popularity with young girls, this may be short lived. That would be another significant blow to the Imaging Solutions business.
One final note. The price of Silver has appreciated this year with the price shooting up after the Brexit vote. It has since receded partially but this may be short lived as money looks for a safe home.
Fujifilm Holdings share price dropped down -2.5% by the close of trading.