Topcon's Q1 sales boost turns profit

Global positioning technology firm to launch GNSS receiver with advanced tracking technology for Asian market, and world’s smallest auto steering system

Japan-based Topcon Corporation reported first quarter sales of ¥24 billion (US$245 million), a 17.2 percent jump over the same period last year, due mainly to increased demand in the United States, Europe, and Japan.

The parent company of Livermore, Calif.-based Topcon Positioning Systems Inc. (TPS) said the sales boost coupled with lower costs of goods sold and fixed costs propelled net profit to ¥55 million ($560,700), a big improvement over the net loss of ¥1.5 billion ($15.5 million) in the first quarter last year.

Publicly traded Topcon, founded in 1932, trades on the Tokyo Stock Exchange and generates over $1 billion in annual sales. TPS is the world’s largest manufacturer of precision GPS and GNSS systems, commercial lasers, and optical instruments for the global surveying, civil engineering, asset management, mapping, construction, agriculture and mobile control industries.

Ushering in a new era for Topcon, Satoshi Hirano took over as CEO in late June as the company shifts to accelerating growth strategies after a three-year cost-cutting plan was achieved in just 24 months this past March, allowing it to “focus on robust earnings management under the new administration.”

U.S. market shows signs of ‘gradual recovery’

Topcon said it saw economic “signs of gradual recovery” in the first quarter in the United States, but economic uncertainty is still the dominant trend in southern European markets.

“Economic recovery momentum was weak and trends remained sluggish” in emerging markets, including China.

The Japanese economy continued to “gradually trend toward recovery driven by expectations of post-quake restoration demand,” and favorable exchange rates thanks to the depreciation of the yen.

Topcon’s “Mid-Term Business Plan 2015” released in June laid out growth strategies for its three businesses: Positioning (TPS), Smart Infrastructure, and Eye Care.

Q1 financial results by segment

Positioning (TPS) – first quarter net sales totaled ¥10.7 billion ($108.7 million), an increase of 27.7 percent. Segment operating income amounted to ¥752 million ($7.7 million), a growth of ¥832 million ($8.5 million), owing primarily to net sales growth.

The strategy for TPS, led by CEO Raymond O’Connor, is to use technology from its core GNSS (global navigation satellite system) business for rapid expansion in IT construction (also referred to as machine control), but will invest “most heavily” in IT, or precision, agriculture.

Topcon also wants to accelerate the OEM business for both construction and agriculture equipment manufacturers. OEM sales between FY2011’s first quarter to FY2013’s first quarter rose 280 percent.

TPS said it will launch affordable models of GPS products for the Asian market, such as a GNSS receiver with advanced tracking technology and machine control products such as the world’s smallest auto steering system.

Smart Infrastructure – first quarter net sales were ¥6.8 billion million ($69 million), a 13.6 percent rise compared to Q1 FY2012, due to sales growth in Japan and China. Segment operating income stood at ¥447 million ($4.6 million), an increase of ¥287 million ($2.9 million), primarily reflecting net sales growth and lower cost of goods sold expense.

Topcon said both sales and profits increased due to the improvement of cost competitiveness by manufacturing total stations in China, where the local procurement ratio is 98 percent.

Smart Infrastructure strategy

The strategy for Smart Infrastructure is to “enhance new business with strong basis of surveying instruments.” Specifically, Topcon plans to:

• promote to its core business, the Survey/Construction/Building sector, with an estimated market size of $1 billion (￥100 billion), the world’s first surveying instruments management system business to use cloud computing and adopt the industry’s first automated manufacturing system
• launch the world’s first non-contact sensor for evaluating deterioration in infrastructure in what it calls the “Disaster Prevention by IT” market, with an estimated size of US$200 million (￥20 billion)
• enter the US$300 million (￥30 billion) Building Information Modeling (BIM) market with the “world’s first BIM-specialized product”
• cultivate new BIM markets, including 3D measurement, through its 2012 collaboration with Autodesk
• introduce the “world’s first specialized products for construction work sites” in the Construction Information Modeling (CIM) market, valued at US$300 million (￥30 billion)
• launch innovative sensors that can cover multiple varieties of agricultural products in the sensor supply business for the Precision Agriculture sector, estimated at US$100 million (￥10 billion)

Eye Care – net sales totaled ¥7.5 billion ($76.4 million), a growth of 16.8 percent in contrast with a year earlier, reflecting solid demand trends in the Untied States and Europe. Meanwhile, segment operating income amounted to ¥21 million ($214,029), compared to an operating loss in last year’s first quarter of ¥370 million ($3.8 million).

FY2013 full-year forecast

Topcon issued full-year FY2013 forecasts in April, which have remained unchanged. For the full fiscal year 2013, Topcon is expecting the following top line growth:

• Positioning (TPS) – ¥43 billion ($437.6 million) – 114 percent increase over FY2012
• Smart Infrastructure – ¥33 billion ($33.8 million) – 111 percent increase over FY2012
• Eye – ¥38 billion ($386.7 million) – 122 percent increase over FY2012