Interview with the CEO

We will continue to create new value for society by reforming our business portfolio to adapt to the environment.

Hiroshi Suzuki
President & CEO

Please provide an explanation of the Company’s financial results for the fiscal year ended March 31, 2021 (fiscal 2020), especially with respect to factors behind the increase/decrease in sales and factors behind the change in profit margin in each business. Also, taking a look back over the past year, is there anything you rate highly, or on the contrary, anything deemed as unfinished business?

In fiscal 2020, the Company experienced a reduction in sales of 5% from the previous fiscal year, to 547,921 million yen, primarily as a result of the Life Care business being impacted by the COVID-19 pandemic, but achieved a substantial increase in profits, i.e., profit before tax increased 8.1% year on year, to 159,218 million yen, and profit for the year rose 9.3% year on year, to 125,221 million yen. With respect to profit margins, the Company’s profit before tax ratio increased by 360 basis points from the previous fiscal year, to 29.1%.

I appreciate the fact that, despite the extremely tough and unprecedented business environment, the Group worked together as one, reduced costs in a flexible manner, and achieved higher profits in such an emergency situation, which is highly characteristic of HOYA. One thing we regret is that while our “defense” was strong, our “offense” fell short of taking advantage of such a situation to catch competitors off their guard.

By business segment, the Life Care segment was generally impacted by lockdowns and other restrictions imposed to prevent the spread of COVID-19 infections. On the other hand, the Information Technology segment experienced relatively limited impact; in particular, extreme ultraviolet (EUV) mask blanks and substrates for hard disk drives (HDDs) for data centers performed extremely well. The growth of EUV mask blanks was driven by the further boost in research and development of next-generation semiconductors by semiconductor manufacturers and foundries, while the growth of HDD substrates for data centers stemmed from the ongoing expansion of storage demand at data centers.

Please describe the impact of COVID-19 on each business and the future outlook. Also, what is your interpretation of the impact of changes in the environment toward the post-COVID-19 era (the “new normal”) on the Company, in terms of its positive and negative aspects?

As I have always said, forecasting is possible for up to the next six months or so, but to be honest, what will happen in a year’s time is anyone’s guess. We can be more accurate by steadily putting our mind to the Company’s foreseeable operating performance in three months’ time and six months’ time, rather than trying to predict things that are uncertain, as substantiated by past trends in operating performance.

With this as an assumption, the COVID-19 infection situation has repeatedly been undergoing the cycle of improvement and deterioration due to such factors as variant strains, and the situation remains unpredictable. With that said, normality should gradually be restored in the world along with the progress in vaccinations. While eyeglasses and other industries with large exposure to off-line sales channels (brick-and-mortar stores) have suffered a huge impact, demand is steadily recovering, in conjunction with the resumption of economic activities. Gradual recovery is also being observed with respect to medical-related products, which had been affected by the fall in the number of surgeries and the suppression of capital investments. In the Life Care business, progress toward digitization is under way to a certain extent, but no major change is expected to take place in terms of the industrial structure itself.

In the Information Technology business, workstyle reform triggered by the pandemic and the acceleration of digital transformation (DX) might lead to the expansion of demand for the Company’s semiconductor-related products (mask blanks and photomasks) as well as data-center-related products (HDD substrates).

What are your views on the directionality of the Company’s business portfolio going forward? In particular, please elaborate on new domains that you wish to add and those that you wish to curtail. Also, please explain the Company’s policy for merger and acquisition (M&A).

My biggest job remains unchanged, that is, to reform the Company’s business portfolio to adapt to changes in the environment, and to allocate management resources to each business. Our basic approach is to add domains that are adjacent to our existing business domains through M&A, whether vertical or horizontal. Instead of exclusively focusing on M&A that complements existing businesses (bolt-on acquisitions), we are also considering adding domains in the form of new businesses, rather than pursuing synergies with existing businesses.

Medical domains are promising as target domains. That said, pharmaceuticals are difficult for us. A domain that is close to our existing businesses may be medical devices, particularly the ophthalmology domain. In 10 years’ time, the industry will likely have substantially changed, giving rise to niche markets and opportunities. On the other hand, on the technology front, communication is a tough nut to crack after all, and HDDs might no longer have any market in the long run. Under these circumstances, the semiconductor business domain enjoys stability in the long run, so we are constantly monitoring niche business domains surrounding the semiconductor industry.

A common approach is to buy up a struggling business from another company and enhance it by introducing a proprietary management system, but this is not necessarily efficient. To put it bluntly, our aim is to buy up a business that will succeed without us having to do anything. Also, in regard to price, we place importance on performing calculations related to future returns in a logical manner and maintaining discipline. It is important to be disciplined enough to pull out when the price is higher than the theoretical price, even by one yen. In that sense, offers currently on the market are more or less outside our scope in terms of valuation. We intend to acquire businesses that enable us to reliably earn returns through synergy effects with our existing businesses.

While there are no specific businesses currently being considered for curtailment or withdrawal, we have retained successful businesses and strong businesses and, as a result, reinforced our business portfolio to date. A business that fails to succeed even when competent people put in hard work must be questioned as to whether its business domain has any potential in the first place; if it is deemed futile, we will quit decisively.

Reportedly, HOYA is a group of business divisions that are completely financially independent of each other, and each business division has a different culture. With this in mind, is there a corporate culture that is universal within the HOYA Group that serves as its source of strength?

As we have optimized organizations, systems, and the like in line with the respective characteristics of their business domains, it is true that each business division has a different culture. The personnel system also varies from division to division, and transfers and other exchanges of employees between business divisions are limited. Employees may have a sense of belonging to their respective business divisions, but their sense of belonging to HOYA is weak. It is fair to say that HOYA is distinctive for its strong centrifugal force rather than centripetal force. In this context, “thinking in numerical terms” may be regarded as our universal culture. Rather than measuring things based on a single yardstick, we use coefficients that vary among businesses. The culture of getting a grasp of things logically based on numbers without any dynamics being involved other than those that translate into profits—for example, factions, academic cliques, and other forms of noise and bias—has been developed universally in the history of HOYA.

HOYA’s corporate governance has been acclaimed for being progressive, as reflected in its independent outside directors accounting for the majority of Board members. On the other hand, some people question why Mr. Suzuki, internal director and CEO, concurrently serves as the Chairperson of the Board of Directors. What is your response to this? Also, now that 21 years have already passed since you assumed the current position in 2000, what are your thoughts about your successor?

In the Board of Directors of the Company, Mr. Mitsudo Urano serves as the Lead Director, and independent outside directors have extremely strong power as they account for five out of six Board members, constituting the majority of the Board. I serve as the Chairperson of the Board of Directors based on the view that nothing would be more rational than for me to preside over the Board meetings, given that I have the deepest understanding of businesses and internal matters. However, nothing is ever decided at my discretion, and if the Company’s operating performance deteriorates I will be rejected as CEO by the outside directors. In actual fact, there have been cases in which I was told to leave the room as they needed to discuss something in confidence; if I had not been asked to come back, I could very well have just packed my bags and gone home.

In regard to a succession plan, the Nomination Committee, consisting exclusively of outside directors, is formulating a plan. Although I offer my opinions on candidates and other matters, I am not a member of the Nomination Committee, so I have no right to make any decision. In the timeframe of the next 10 to 20 years, health care and medical domains that are more complex in operations and more global in scale are expected to expand, so candidates will likely be sought from such a perspective. For the continued, perpetual survival and prosperity of HOYA into the future, I believe my mission is to pass on HOYA in a stronger state than before to the next-generation management team.

Interest in environmental, social, and governance (ESG) has been growing not only among investors but also among a wide range of stakeholders including customers and suppliers nowadays. What is your interpretation of the relationship between ESG initiatives and corporate value? Also, please explain what you think is the most important in promoting ESG.

As for ESG, I think it is no good trying to please everybody, and armchair discussions alone will not cut the mustard either. There is no point discussing ideals regarding “the vision we should pursue”; what matters is “How exactly are we going to achieve the goals?” I also believe continuity is important, so anything unsustainable should not be carried out.

In terms of environmental, the reduction of CO2 emissions is becoming increasingly important. Being a manufacturer, the Company uses an extremely large amount of electricity in its manufacturing equipment and clean rooms. We need to replace equipment with units that are more energy-efficient. However, the conventional equation in which the reduction of CO2 emissions also translated into cost reduction has started to fall apart, giving rise to the need for discussions at the level of international politics, not just at the corporate level. Going forward, we will look into options, including those other than replacing manufacturing equipment.

In terms of social, let me talk a little bit about diversity. In the HOYA Group, employees are given equal opportunities, regardless of gender, race, and so forth. Personnel affairs are decided with an extremely simple, flat mindset, putting highly capable individuals in charge of appropriate positions. HOYA is a Japanese company, but no less than 90% of its employees are non-Japanese nationals, and members of the management team of its local subsidiaries in each country vary widely in terms of nationality and race. Taking a look at gender diversity, for example, almost all of our local subsidiaries in Thailand have a female president, but this is rather attributable largely to factors specific to the country and society itself. The fact that many of the current systems in society have been created by men cannot be denied; unless we create an environment in which women can demonstrate their capabilities, such a society cannot be deemed truly sustainable. Let me also add that I question myself as to whether it is right to just hire a certain number of women or appoint a female director for the sake of meeting numerical targets.

ESG initiatives will undoubtedly translate into higher corporate value. It ultimately boils down to the question: “What kind of value has been created for society?” Beating the competition is not the only measure of a company’s strength. The objective of a company is to undergo perpetual development, so in an extreme case, even if the company is acquired, it will be no problem as long as this objective can be fulfilled.

While there may be instances in which discrepancies may arise with the yardstick of capital markets (market capitalization), I believe they will be reconciled in the long run.

Please describe the past results and future approach regarding shareholder returns, including share buybacks. Also, what message do you wish to convey to shareholders and investors, including priorities and noteworthy matters in the Company’s relationship with them and the Company’s progress toward sustainable growth?

Our approach remains unchanged in that we will use funds by giving priority to investments aimed at sustained growth for the future. However, M&A, which forms the core of our growth strategy, will depend heavily on the existence of opportunities as well as valuations; therefore, if these factors do not materialize, and consequently, surplus funds arise, our basic policy is to return the funds to shareholders. In the past year, the Company executed a share buyback amounting to 80 billion yen in total, accounting for approximately 1.7% of the total number of outstanding shares, and retired the shares after acquiring them. Going forward, we will continue to conduct management that gives priority to capital efficiency by allocating funds in a flexible manner and proactively making growth-oriented investments and generating shareholder returns while keeping an eye on the balance with investment opportunities.