Hoya : Presentation for the three months ended Sep.30, 2023 (with Transcript) (2.74MB)

HOYA CORPORATION

Q2 Financial Results Briefing for the Fiscal Year Ending March 2024

October 31, 2023

[Participants]

Moderator: The attendance from our side are, Director, Representative Executive Officer, President, and CEO, Eiichiro Ikeda; Director, Representative Executive Officer, CFO, Ryo Hirooka.

Now, I'd like to invite Hirooka-san, the CFO, to talk about the results for Q2 and the update of the business segments. Thank you very much.

Hirooka: First of all, I'd like to talk about the group-wide results. As for the revenue, JPY188.7 billion; pretax income, JPY63.6 billion; and profit from the ordinary activities, JPY52.4 billion. All in all, because of the weakening of yen, we had a positive growth on the revenue.

As you can see here, HDD glass substrates continued to decline, which was a big factor. For Q2 last year, HDD glass substrates was not that bad. On a YoY basis, there was a bigger range of the negative growth. Life care, on the other hand, continued to have a solid growth. As a result the consolidated revenue was flat on a constant currency basis.

On the profit, there is a difference in the margin, so the decline for the operating profit was bigger compared to the decline in revenue.

As for the operating profit and the the pretax profit, there is a gap of JPY10 billion. Given that the US dollar has become stronger, there was a FX gain of JPY3.5 billion. On July 1, a business was transferred, and there was a JPY3.4 billion gain from this transfer. In addition, there was a increase of interest income related to deposits. The gap of JPY10 billion between pretax profit and operating profit, can be explained by these three factors.

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First of all, on life care business, the revenue, JPY132.1 billion, 6% growth on a constant currency basis. The business is indeed making a steady growth. The international sales is quite big. On a yen-denominated basis, because of the weakening of yen, it grew by 11%. As for the pretax profit, JPY31 billion; in the operating profit, JPY28.2 billion. The margin was 21.3%. The profit margin has been maintained. With regards to this segment, 20% is the standard that we have set for the profitability. This is just a benchmark.

On a quarterly basis, it is sometimes on the positive side, sometimes on a negative side. What is important is that we should be able to maintain that within the 20% range, making investments in sales, selling expenses, and so forth so that it would lead to the growth. This time, 21.3%, a rather high level.

As I mentioned earlier, sometimes, it's below 20%, sometimes, it's above 20%. This quarter just happened so that it's above 20%. Going forward, the policy is that our mindset remains unchanged. We will stick to the 20% as a benchmark. We would like to increase the investments so that we can maintain the 20% and aim for the growth in revenue. Just like the last quarter, in terms of this quarter, we will execute those activities.

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I would like to explain the growth rates of each product on a constant currency basis.

First of all, the eyeglass lenses. The growth rate was 7%. We were able to maintain steady growth across all regions. From Q4 of previous year, the sales for the US major chains are on the growing trend on a YoY basis. In United States, almost close to two-digit growth. Also, MiYOSMART and photocromic lenses are growing, and China is also showing a strong growth. For Europe, although there was a decline in chain stores (which our competitor acquired), we were able to get positive growth. We're actually overachieving the market growth. Also, the high-value added products are selling quite well. We are continuing investment in selling expenses and R&D costs, but the profit is also catching up with that.

Moving on to contact lenses. On a YoY basis, 9% growth, so close to two-digit growth. Last year, Q2 in Japan, in July and August, we saw a spread of the COVID-19 infection. In the contact lens of Japanese market, that's a reaction to last year that is being enjoyed. That's why it turned out to be 9%. On top of that, our private brand products and the online delivery service to improve convenience are selling well in a recovering market. Amid COVID-19, it has been difficult to increase the number of outlet stores. Now, that the market is recovering steadily, we would like to resume opening the stores. For this year, we plan to open about 10 stores. They will not contribute to the sales this year, but it would contribute to our positive growth for next year and onward. We are making investments for further growth. We'd like to once again accelerate that initiative.

Moving on to endoscopes. Growth was minus 6%. Unfortunately, there is a negative growth here. That is somewhat dragging the overall life care good trend. The biggest factor is in China. Last year in Q2, there was a bounce back from Covid with high sales. Compared to that, Q2 this year became a negative growth. We wanted other regions to offset that but, in the US, it did not grow as we had expected. Therefore, on a YoY basis, it turned out to be a negative growth. We've launched a new product. We want to make sure that the launch will pick up to lead to higher sales.

Moving on to IOLs. It is continuing to do well with a double-digit growth. Basically, in different regions, including new products, we're doing quite well, especially in China but also Japan is growing. India is growing

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as well. The new high value-added products are being launched, and that is leading to sales and marketing activities in different regions, achieving a higher revenue and higher growth.

Last but not least, artificial bones and others. As a business segment, not necessarily that big but close to a double-digit growth rate. That is contributing to the overall life care segment growth.

All in all, as life care, other than endoscopes, they are making steady growth. As a result, 6% constant currency growth was achieved.

Now, on IT business overview. The revenue is JPY55.5 billion; pretax profit, JPY26 billion. Operating profit, JPY25.3 billion, 45.4% is the margin. Just like Q1, HDD substrate fell significantly. Q2 last year, it was relatively good. On a YoY comparison, it's negative. On a QoQ basis, compared to Q1, it was worse. When we announced Q1 results. We had anticipated this, and Q2 was within our expectation.

Another factor is mask blanks. Q2 last year, mask blanks had a positive growth. From Q4, there was an inventory adjustment on the client side, which is coming down. Compared to Q2 last year, slight negative growth. Here, on QoQ, it's an increasing trend. Q1 is the bottom for the time being.

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Now, I will explain the overview by product.

First of all, LSI, minus 3% on a constant currency basis. The guidance was in the middle of the single digits. It was a bit better than we had anticipated, but it's within our expectation in terms of the range. Good or bad, the external environment has not changed. Better compared to Q1, especially EUV, is coming back compared to Q1.

For the outlook, rather than a significant recovery, it will be a moderate slow recovery is what we expect. For Q3, Q3 last year was very good. Compared to Q3 last year, we won't be able to recover to that level. After that, Q4 last year was not good. Q4 this year should be better than Q4 last year. What we had expected at the end of Q1, the business environment has not changed. Another factor that has not changed, in terms of the relationship via vis-a-vis the competitors, nothing has changed. With the external environment, how quick can we expect a recovery, will be the key point here.

Moving on to FPD, slight positive growth. Good or bad, no significant events during this quarter. Joint venture with the Chinese customer, it's pretty much on the schedule. The preparation is underway smoothly. We would like to take the high value-added products market in a stable way. HDD substrates, this has the biggest impact on the group-wide level. Compared to the previous year, 43% negative. Again, Q2 last year was still good.

HDD substrate growth rate was a big negative. The market environment, for some time, last time and the meeting before that, we said that it's very difficult for us to forecast, and that remains unchanged. It's not getting better, but it's not getting worse either. That's the impression. It's not that we have a good outlook for the future. In other words, we really don't know. That's continuing. H2, just flat from Q2 or maybe plus alpha. I think that will continue for the rest of this year.

Last but not least, Imaging. Compared to previous year, 7% positive. As you can see, the new camera launches, the camera manufacturers are actively launching the new products. From our perspective, the interchangeable lenses sales are increasing compared to the previous year. Again, as a business, on a quarterly basis, sometimes there is a demand for the interchangeable lending. Some quarters, we don't.

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On a QoQ basis, sometimes, it can be positive, sometimes, it can be negative. That remains a change. The important thing is even though there is a fluctuation, we need to have a structure to be able to maintain the profit to run this business. It's on the positive side. This time, it was good. Within this profit structure, we have to run and manage the business.

If you can move on to the next page, these are other topics: shareholder return, CapEx, and depreciation and amortization as it represents in the slide.

In the last financial results announcement, we announced share buyback. In October, we have completed buyback at today's board meeting. For the ones which were acquired, we resolved to cancel the shares repurchased. As for the interim dividend, JPY45 is what we are planning. That is all for the performance update.

Moving on, Arashida would like to talk about MiYOSMART, myopia progression control lenses.

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Arashida: For this product, at the financial results meeting a year ago, we introduced this product for the first time. With that background, I'm sure many of you are already familiar with this product. Once again, I would like to reiterate its overview. MiYOSMART. Going back 10 years ago, we started a joint research with Hong Kong Polytechnic University. Starting from Hong Kong and China in 2018, we started the sales as the myopia progression control lenses for pediatric use. You see the sematic diagram here. The central part is just like the normal spectacle lenses. It's transparent.

In the peripheral, it has the Defocus on the periphery, D.I.M.S., patented technology. For surgeries and unlike the solutions which insert lenses to the eye, it's not an invasive approach, and this is the key point. In the clinical trial results, which was implemented in Hong Kong, compared with the case using the regular glasses, this prototype is able to slow the progression of myopia by 60%. If you have time, please refer to the link here.

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Please move on to the next page. It has been almost five years since the launch in the market of MiYOSMART, but with the ophthalmology-related organization, we have a good evaluation. Here, you see some of the many awards and also recommendations from ophthalmology-related organizations. After a later time, please check the links.

Please move on to the next page. MiYOSMART, in 2018, they started the sales in Hong Kong and China. Since then, they have continued geographical expansion. Now, it's sold in more than 30 countries. As of now, the sales volume in China is the highest, but more recently, with the increase of the handling in France, UK, and

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Canada, the sales volume outside of China is increasing. With this background, in this Q2, MiYOSMART sales continue to have two-digit growth. Furthermore, globally, already over two million parents chose MiYOSMART.

Next page, please. Lastly, this is the recent status of MiYOSMART as a summary on this page. MiYOSMART photochromic lens version, MiYOSMART Chameleon, and the sunglass version, Sunbird, were launched for the prevention of myopia of children. As a measure to counter progression of myopia, outdoor activities are paid attention to. Those children who spend more time in bright environments outdoors are not susceptible to developing myopia. The expansion of the lineup will be very useful. We are continuing to have the research and clinical studies.

In European children, we were able to have an equivalent of the superior results, just like with the children in Asia. Needless to say, myopia is a global social issue. We continue to seek approval in regions and countries where MiYOSMART is not yet available in order to solve this issue. In this past quarter, MiYOSMART was launched in five markets, Colombia, the Philippines, Turkey, Slovakia, and Slovenia. This was very brief, but I just explained the recent status of MiYOSMART.

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