Hoya : Presentation for the three months ended Jun.30, 2023 (with Transcript) (1,001.32KB)

HOYA CORPORATION

Q1 Financial Results Briefing for the Fiscal Year Ending March 2024

July 31, 2023

[Number of Speakers]	3
	Eiichiro Ikeda	Director, Representative Executive Officer,
		President & CEO
	Ryo Hirooka	Director, Representative Executive Officer &
		CFO

Moderator: Now that the time has come, HOYA Corporation will begin the briefing on the financial results for the first quarter of the financial year ending 31 March 2024.

We have with us President and CEO, Eiichiro Ikeda and Representative Executive Officer, CFO, Ryo Hirooka. From Hirooka, there will be explanation of the performance of Q1 as well as the market situation and we will be taking questions after the presentation.

Hirooka: Let me begin the Q1 results. This is group overall. I would like to start out with the numbers.

As for the revenue, JPY182.3 billion. Compared to last year, it was plus 1% YoY and on a constant currency basis, negative 2%. Pretax profit, JPY51.2 billion. Compared to last year, it was down 17%; on a constant currency basis, negative 20%. The operating profit, JPY47.8 billion. Compared to last year, down 12%; on a constant currency basis, down 14%.

There is some explanation I would like to give in relation to this. We have been explaining this, but HDD glass substrate was sluggish. That was the case for Q4, and in Q1, the situation remained the same. Last year, in Q1, both businesses were doing very good. On a YoY basis, it has led to significant decline, especially in IT.

As for Life Care, overall, the business performance was good. It was growing in double digits. Because of that, with regards to the revenue, even though it is slightly negative compared to last year, we were able to stay on par with the previous year due to great performance in Life Care. However, given the margin differential among the two segments, there was a big impact in the profit.

In terms of the other negatives, the HDD glass substrates, the situation remained the same as three months ago, and we are not seeing the trend of recovery. Currently, it is slightly worse than we had expected. We have a plant in Lao and there was some stoppage in the line last year. According to the market situation, as for the Lao plant, we decided that it would be good to stop the Lao plant and to utilize the Vietnam plant. Because of that, we will be shutting down the Lao plant in the long term, and because of that, there was an impairment loss incurred from this initiative on the accounting basis.

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Just like last year, in Q1, there was a big gain from the currency exchange. There has been profit and losses incurred from the currency exchange. The US dollar deposits, euro deposits, are generating that gain. There is no change in the assets themselves. It depends on the currency rate at timings. US dollar and euro had been stronger in June than March. Because of that, there was more gain from the currencies. That was the overview.

I would like to talk about the Life Care business. First, I would like to start out with the numbers.

Revenue was JPY127.4 billion, up 15% YoY. On a constant currency basis, it was up 11%. Continuing from Q4, there was a robust growth. In terms of the pretax profit, JPY30.5 billion. Compared to last year, it was up 22%. On a constant currency basis, plus 16%. Operating profit was JPY25.3 billion, 17% up YoY, and on a constant currency basis, up 13%. Operating profit margin was 19.8%.

Each product grew very well in Life Care business. We have been spending a lot of money on the selling costs, promotion costs, and clinical trials, but we are seeing the good sales from the high value-added products. We have been able to secure the operating profit margin of around 20%, which is our target, while investing enough to where the investment is needed. There is a good cycle, which has been generated, and of course, we need to do more. But in Q2 to Q3, I think that we will be able to grow while investing where we need to.

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Moving on to the next slide. This is product by product in Life Care business.

First is eyeglass lenses. On a constant currency basis, it was up 12%. There was a robust growth in this area. There was some impact from M&A, but even excluding that, we were able to grow in double digits.

There are two main drivers, US and China. As for the US, there was some time of struggle. But starting from H2 of the previous year, the situation started being stable. Organization-wise, it became stabilized as well. We have been able to see the increase in sales in US chain stores. So, now, we are in a growth trend.

Another is China business. In Q1 of last year, due to the impact from COVID-19, there was a downward trend. There was a rebound from that situation. But even excluding that rebound, we have been able to sell our myopia management lenses.

Also, in addition to US and China, for eyeglass lenses, we were able to introduce products such as myopia management lenses for children, etc. In each region, we have been able to improve our sales status.

Growth in Europe has also more than covered the sales of a customer (acquired by another company), with sustained double-digit growth across the board. This is a business which is difficult to grow constantly in double digits. At some point in time, there would be stoppage to the double-digit growth, but our focus is to grow more than the market. Currently, we are growing more than the overall market growth.

Next is contact lenses. There was a 9% growth in constant currency basis. Compared to Q1 last year, we had seen negative impact from COVID-19. The frequency of the use of contact lenses had been low but it is now recovering. We are seeing strong sales in the physical stores, and we are doing well in the private brand products and online delivery services, which have been able to respond to the needs of the customers. We have been able to capture the demand from the market in this area.

Next is endoscopes. Compared to last year, on a constant currency basis, we grew 6%. Endoscopes had seen smaller growth than the previous years in the past, but we are seeing a positive growth now. There has been rebound in the China market. However, in addition to China, we have been able to see a robust shipment in the other markets as well. Of course, there are struggles in this area, and we need to strengthen our structure

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in the US going forward. We will focus on the launch of the new products. When the new products are launched in the market, our sales force will gain momentum, so we would like to capture that momentum in order to grow the sales in the area of endoscopes.

Next is intraocular lenses. Compared to last year, on a constant currency basis, we grew 16%. There was a significant growth. In Q1 last year, due to the impact from COVID-19, China was stagnating, so there was rebound sales in this area, but in Europe and Japan, there was a sustained robust growth. We launched new products last year and not all of the new products are doing well, but by launching new products, we have been able to conduct sales activities in various regions, and that led to strong growth in sales.

Last but not least is artificial bones and medical devices. The amount is not so big, but this field has seen double-digit growth.

If you look at Life Care business overall, we have seen revenue growth and double-digit growth at that as well.

Moving on to the next slide. Next is IT business overview.

The revenue was JPY53.7 billion. Compared to last year, it was down 21% YoY. On a constant currency basis, negative 23%. There was a significant drop compared to last year. Last year, in Q1, HDD was doing well. LSI mask blanks, and EUV were driving the growth of the IT business. Because we are comparing to that period, there was a significant drop. On a QoQ basis, last quarter was JPY59.6 billion so there was a drop from Q4. But when I talk about HDD in the following slides, I will explain that the drop is coming mostly from the drop in the HDD substrates. LSI has seen flat growth from Q4.

The pretax profit was JPY20.9 billion. It was down 41% YoY, and on a constant currency basis, negative 43%. There were impairment losses from the Lao plant, and because of that, pretax profit went down significantly. With regards to the operating profit, it was JPY23.7 billion. Compared to last year, it was down 29%. On a constant currency basis, it was down 31%.

I may be repeating myself, LSI and HDD substrate, the amount of drop was significant. The operating profit margin was kept at 44%, but we were not able to cover it value-wise.

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