In presenting its results for the first quarter ended June 30, the management of Hoya Corporation said on Aug. 6 that 70 percent of its production capacity for free-form lenses in Thailand had been restored and that it should be completely normalized by late September. The shortfall has been largely compensated by increased production levels in several European countries and in Japan.
Still, Hoya's British factory at Wrexham is planning to lay off 46 of its workers, representing about one-third of its staff. The move, which will be accompanied by the introduction of more automated manufacturing technologies, is said to be related to the Thai floods insofar as they have led to the company's decision to boost the operations of its Hungarian laboratory in Meteszalka, servicing customers all over Europe. Hoya Lens UK said it was aiming to create “a smaller, more multi-skilled and flexible workforce” at its British facilities.
About 80 percent of Hoya's 20,000-plus optical accounts around the world have started ordering again, with big variations from one region to the other, and the management told financial analysts last month that it is aiming to win back all of them by the end of this year – although it was not clear whether it meant the end of the calendar year on Dec. 31 or the end of its financial year on March 31. If its sales forces accomplish this feat, revenues should return to pre-flooding level early next year, but profit margins are likely to end up considerably lower because of concessions made to win back customers.
Meanwhile, the company has calculated that the inability to ship certain products from its super-laboratory in Thailand, which was idled and damaged by the floods last October, pushed its sales down by 6,458 million yen (€65.5m-$82.5m) in the first quarter of its financial year ended June 30. It also reduced Hoya's pre-tax earnings by ¥4,237 million (€43.0m-$54.1m).
The problems came on top of the continued appreciation of the Japanese yen, which lowered the group's sales and pre-tax profits by ¥2,569 million (€26.0m-$32.8m) and ¥1,028 million (€10.4m-$13.1m), respectively. In particular, the yen gained 14.5 percent against the euro during the quarter, compared with the same period a year ago. The unfavorable exchange rate reduced by ¥2.4 billion (€24.3m-$30.7m) the revenues of the Life Care division, which comprises eyeglass lenses as well contact lenses, intraocular lenses and endoscopes.
On other hand, the profitability of the company's eyeglass operations was boosted by insurance payments of ¥11,038 million (€111.9m-$141.0m) in compensation for the damage from the floods, with more to come in subsequent months, depending on negotiations with the insurers, which concern primarily the calculation of the loss of profits. Out of this amount, about ¥6.3 billion (€63.9m-$80.5m) covered damage to property and equipment, and the rest covered lost profits. Another positive factor was the previously reported increase in Hoya's stake in its Brazilian vision care operations, which contributed an extra profit of ¥2,269 million (€23.0m-$29.0m).
Thus, the Life Care segment made a nice pre-tax profit of ¥19,526 million (€197.9m-$249.3m) in the quarter, corresponding to a profit margin of 41.2 percent of sales, compared with a margin of 19.9 percent in the same period a year ago. The total revenues of the segment were off by ¥4,924 million to ¥47,357 million (€479.9m-$604.6m) – a decline of 9.4 percent – as sharply lower sales of eyeglass lenses were partly offset by sales increases for all the other product categories included in the segment.
Sales of endoscopes and other medical products rose by 6.4 percent, with increases in terms local currencies of 13 percent for intraocular lenses and 16 percent for endoscopes. Instead, combined sales of eyeglass lenses and contact lenses declined by 14.6 percent to ¥33.6 billion (€340.4m-$429.0m). However, Hoya managed to sell a higher volume of contact lenses, mostly in Japan, by opening more of its Eyecity stores in the country and by getting more consumers to visit them.
Hiroshi Suzuki, president of the Japanese group, pointed out, however, that a price promotion launched for Hoya's contact lenses did not have a major impact, and that its network of 192 Eyecity stores is getting close to saturation. He added that it might be better for Hoya to acquire another company rather than open new stores on its own, or to try out larger or lower-priced retail locations.
Revenues from all the operations of the Hoya group declined by 9.0 percent to ¥92.6 billion (€938.3m-$1,182.3m) in the quarter. Excluding the disposal of its Pentax camera business, which was sold last October, they were off by only 0.6 percent, and the management has calculated that they would have risen by 9.1 percent without the effects of the Thai floods and the expensive yen.
Pre-tax earnings grew by 33.6 percent to ¥25.8 billion (€261.6m-$329.5m) at group level, but excluding the insurance proceeds received during the quarter and other extraordinary factors, they would have risen by only 1.2 percent. Nevertheless, the group booked a nice net profit margin of 25.0 percent for the quarter against a margin of 15.1 percent in the year-ago period. Going forward, the rate of decline in sales eyeglass lenses and the insurance proceeds are both expected to diminish.