Hoya : Presentation for the three months ended Mar.31, 2024 (with Transcript) (1.11MB)

HOYA Corporation

Q4 FY2023 Earnings Call Transcript

May 15, 2024

[Speakers]

2 speakers

Representative Executive Officer and Chief Executive Officer

Eiichiro Ikeda

Representative Executive Officer and Chief Financial Officer

Ryo Hirooka

Moderator: We would like to start the HOYA CORPORATION fourth quarter financial results briefing for the fiscal year ending March 31, 2024. The two attendees from HOYA Corporation today are Eiichiro Ikeda, Director and Representative Executive Officer, CEO, and Ryo Hirooka, Director and Representative Executive Officer, CFO.

First, Mr. Hirooka will explain our business performance and the status of each business segment.

Hirooka：Consolidated revenue was 196.8 billion yen, up 6% from last year and minus 1% on a constant currency basis.

The main reason of the slight decline is the negative impact of the information technology, especially the HDD substrates business. HDD substrates were very volatile last year, and although they were doing very well until the first half of FY22, there was a major inventory adjustment from Q3 of FY22, resulting in a significant decline in sales. The rebound came in Q4 of FY22, and sales increased more than actual demand at that time. Since this is a comparison with the previous year, if we look at the YoY results, the entire information technology business was in the negative. The growth in Lifecare was able to offset this, but it was not enough to fully offset the decline in overall group sales and earnings. Including the impact of foreign exchange rates, sales were at a record high, due to the impact of yen depreciation.

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Pretax profit was 72.1 billion yen, a significant increase over last year. Basically, this is due to the large foreign exchange gains generated from the revaluation of foreign currency assets due to the yen's depreciation. Since foreign exchange gains were almost nonexistent last year, the increase in profit was much larger.

Operating profit was 53 billion yen, -1% YoY, -5% on a constant currency basis, and 26.9% as a profit margin.

Although we explained that Life Care covered the negative impact of Information Technology in terms of revenue, the difference in profit margins between the two businesses resulted in greater decline on operating income than on the revenue.

As for the variance between operating income and pretax profit, foreign exchange gains amounted to 10.8 billion yen. There are other "other income" items, but the main one is foreign exchange gains.

In Q3, there was a foreign exchange loss of 11.4 billion yen, which was a major factor in the change in pretax profit QoQ.

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We will continue with a segment-by-segment explanation.

In the Life Care business, revenue was 137.0 billion yen, up 10% from last year. Excluding the effect of foreign exchange rates, sales were up 2% in a constant currency basis.

We had reported such concerns at the time of our last earnings announcement, and it turned out to be true. In the Q4 of last year, there was a large increase in sales in China due to the end of the Covid restrictions, so the situation, including comparisons with that period, has turned out to be negative.

Pretax profit was 39.2 billion yen, a big plus YoY, with foreign exchange gains and other income concentrating in this segment.

Operating profit was 25.8 billion yen, or 18.8% as a profit margin, which is -3% YoY and -7% on a constant currency basis.

The profit margin for this business fluctuates depending on the quarter, but while Q3 and Q4 of the previous year were up quarters, this quarter is on the downside. The quarter was also affected by a slight slowdown in sales growth. We also decided that it would be a mistake to increase our profit margin by reducing promotional, sales, and clinical expenses that would lead to future growth only in this quarter because of the slight slowdown in sales growth. On the other hand, we have exceeded 20% for the year, and one of our criteria is to exceed 20% for the year, rather than necessarily pursuing 20% strictly on a quarterly basis.

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Let's talk about the situation by product.

Eyeglass lenses had sales growth of 13% and 3% on a constant currency basis, after growing in the low single digits through Q3. This was due to the economic downturn in China, in addition to a rebound from the large increase in China last year in Q4 after the end of the restrictions from Covid.

In particular, the RX lenses (custom-ordered lenses), the mainstay of our business, experienced a temporary halt in production and the ordering system etc. due to the IT system incident and we expect to face a difficult situation in the first quarter of the year. I will explain this point in more detail later.

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The contact lens retail business continued to grow at a stable rate of 6%.

In February, we launched LUMINOUS, a PB product, which has been well received by customers and sales are growing steadily. We are also focusing on online sales to drive growth.

We will continue to increase the number of value-added products and improve our services, and by doing so, we hope to achieve stable growth in the future.

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For endoscopes, the sales growth rate was 3%, and minus 9% excluding the impact of foreign exchange rates. Since overseas sales are very large, the business is growing on a yen basis due to the weak yen, but excluding the effect of exchange rates, the business is struggling with a negative 9% growth rate.

The largest impact was in China, where the macroeconomic situation is not good, and the anti- corruption campaign has affected the situation with low trading activities.

We are also considering a review of our organization and the form of transactions in our business in China, and we believe that Q1 will also be a struggle due to internal as well as external factors.

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Intraocular lens sales growth was 10%, or 3% excluding the impact of foreign exchange. While we have been experiencing double-digit growth here as well, there has not been an overall decline in growth, but rather a drop in sales in China compared to the previous year. This is a transition period with the introduction of the volume based procurement (VBP) system, so customers are becoming more cautious, and some unit prices are declining.

In addition, last year, sales had rebounded after the Covid regulation, so the negative impact of China was significant compared to that situation.

In addition to intraocular lenses, we also sell medical devices related to the eye, although this product does not account for a large percentage of the intraocular lens segment.

Intraocular lenses were somewhat slower this past quarter, but with the continued launch of new and value-added products and the expansion of the sales market, we expect stable growth in the future.

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Sales in the segment that sells artificial bones and endoscope cleaning equipment were plus 1% in a constant currency basis. The start of inventory adjustments in some products within the artificial bone business was a drag on overall sales growth. However, as the percentage of the sales of this product is very small, the impact was limited.

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In the Information Technology business, revenue was 58.7 billion yen, down 2% from last year, and down 7% in a constant currency basis, excluding the effect of exchange rates.

Again, in the HDD substrates business, sales declined significantly in Q3 of the previous fiscal year, and the rebound increase was seen in Q4, resulting in a significant decrease in sales compared to the previous year. Although sales were down, they were higher than we had initially anticipated, and we feel that the decline was rather limited to -7%.

Pretax profit was 31.4 billion yen, slightly positive YoY. Operating profit was 28.8 billion yen, a profit margin of 48.9%, and while HDD substrates were down, by controlling expenses we were able to keep them almost flat in yen terms and -2% in a constant currency basis YoY.

The main reason for the decline in sales and profit compared to the previous quarter is the seasonality of the HDD substrate. In FY2023, the seasonality was the same as usual.

As for profit margins, profitability has been improved in imaging-related products, which is a factor in the overall increase in profit margins.

This is the status of each product in the Information Technology business.

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