The profitability of Hoya Corporation's eyeglass lens business declined in the fourth quarter of its latest financial year, ended on March 31. The management attributed this to price pressure in the market due to the acquisition of smaller chains by larger chains as well as the partial success of certain investments.
Hoya's chief executive, Hiroshi Suzuki, told investors that the company wants to generate better internal efficiencies in this sector, targeting a profit ratio of 18 percent. In the latest quarter, the pre-tax profit margin of Hoya's Life Care segment, which comprises eyeglass lenses and many other products, declined to 14.7 percent from 16.9 percent in the same quarter a year ago. The operating profit dropped to 15.7 percent from 17.4 percent.
In terms of local currencies, Hoya's sales of eyeglass lenses grew by between one and two percent in Europe, in line with the local market, the management said. They rose at double-digit rates in the Americas and Asia for different reasons. Sales in the Americas were positively affected by the acquisition of 3M's prescription protective eyewear business. Hoya's takeover of Performance Optics has not yet been concluded, pending approval by regulatory authorities, but even without the impact of acquisitions, sales in the Americas were up by between 6 and 7 percent in the latest quarter, and the management expects the positive trend to continue.
A sales increase of between 12 and 13 percent in Asia was mainly due to poor performance in the year-ago quarter. Sales in Japan fell by 3 percent, due to a contraction of the domestic eyeglass market, reducing Hoya's overall growth in eyeglass lenses to nearly 5 percent on a constant-currency basis.
The total revenues of Hoya's Life Care segment rose by 3.5 percent to 83.8 billion yen (€659.1m-$745.6m) in the quarter. However, the segment's pre-tax profit declined by 9.7 percent to ¥12.3 billion (€96.7m-$109.4m) because of the factors mentioned by Suzuki as well as acquisition and start-up costs, plus expenses made in advance to secure higher growth rates in the future.
The quarterly sales results were affected by changes in foreign exchange rates, including a 6.1 percent increase in the value of the yen against the euro, particularly in the narrower healthcare sector, where a large part of the revenues come from Europe.
In constant currencies, Life Care revenues were up by 6.1 percent and segment profits declined by 8 percent. Hoya's sales of healthcare-related products – including eyeglass lenses, contact lenses, endoscopes and intraocular devices – were up by only 2.9 percent to ¥62.4 billion (€490.8m-$555.2m) on a reported basis, but they would have increased by 5 percent if currency exchange rates had remained the same.
Hoya's sales of contact lenses, which are still largely confined to the Japanese market, rose by nearly 5 percent in the quarter, thanks in part to the opening of new Eyecity stores. The management noted that some of the new stores cannibalized those of existing locations to a larger extent than it had expected.
Sales of intraocular lenses jumped by 15 percent in local currencies. The growth would have been higher if Hoya had not faced capacity constraints, which should be resolved after new plants go into operation between the months of July and August.
The entire turnover of the group increased by 3.8 percent to ¥126.3 billion (€993.3m-$1,123.7m) during the quarter. Pre-tax earnings rose by 5.4 percent to ¥24.4 billion (€191.9m-$217.1m), while the net income grew by 2.6 percent to almost ¥19 billion (€149.6m-$169.1m). On a constant-currency basis, the group's total revenues rose by 6.2 percent in the quarter, with eyeglasses and contact lenses rising at mid-single-digit rates, but pre-tax earnings were nearly unaffected.
For the full financial year ended on March 31, Hoya reported a sales decline in yen of 5.3 percent to ¥478.9 billion (€3.77bn-$4.26bn) and a drop in net earnings of 6.9 percent to ¥86.8 billion (€683.1m-$772.7m). The operating margin of the group declined to 23.1 percent from 23.6 percent in the previous year.
The Life Care segment's revenues declined by 2.6 percent to ¥314.4 billion (€2.47bn-$2.80bn) for the full year, and they generated an operating margin of 18.0 percent, down from 18.3 percent in the prior year.