Olympus Corp Ord

Hello, everyone. I am Chikashi Takeda, the CFO. I would like to give you the review of our consolidated financial results for the third quarter of fiscal 2023, as well as the full year forecast for fiscal 2023. Please note that today's briefing will focus on continuing operations. Please refer to the appendix section for detailed information about the discontinued operation. Now, a review of our financial results. Page two, highlights. These are the highlights of our financial results for the third quarter. During the third quarter, we continue to see the impact of supply shortages of semiconductors and other components, together with rising materials costs. But the situation is gradually improving, and we have taken measures to minimize risks as much as possible. Revenue increased 17% on a consolidated basis. We achieved double-digit growth for both ESD and TSD, setting record highs for both the third quarter and the first nine months in the medical business. Operating profit and operating margin also set record highs for both the third quarter and the first nine months. As for full-year forecasts, we have revised our foreign exchange assumption from the previous forecasts based on the results up to the third quarter. We have slightly lowered revenue on constant currency, but have left adjusted operating profit unchanged. We are still on the track to achieve adjusted operating profit margin over 20%, the target set in the corporate strategy. We expect revenue of 871 billion yen, up 16% year-to-year, and the operating profit to achieve record highs both in amount and ratio. Profit as the sum of continuing and discontinued operations expect to reach a record high of 376 billion yen due to a gain on transfer of scientific solutions business evident with EPS of 297 yen up 229% year-on-year. Let me go over the details of financial results and the business review. Page 4. Overview of consolidated financial results. Consolidated revenue totaled 641.5 billion yen in the first nine months, up 17%. Revenue in medical represented record highs for the third quarter and the first nine months, with double-digit growth for both ESD and TSD. Gross profit was 433.7 billion yen, with gross margin improving 0.7 points. Despite the impact of rising materials costs and others, gross margin improved due mainly to a change in regional sales mix driven by increased sales in China in Q3 and yen depreciation effects. SG&A expenses were 306.1 billion yen, with SG&A ratio deteriorating by 0.3 points. In particular, expenses associated with sales activities and strengthening of the operational infrastructure, such as QARA, increased. In other income and expenses, a gain of 14.9 billion yen was posted, mainly coming from a gain of 16.4 billion yen on the sale of land in Tokyo in Q1 and the record recording of 1.3 billion yen from the adjusted acquisition consideration due to a change in the fair value of conditional payment that was part of the acquisition consideration for Meditate in Q3. Operating profit was $142.6 billion, up $40.4 billion, worth 39% year-on-year. Operating margin improved 3.5 points to 22.2%. Please note that adjusted operating margin excluding other income and expenses, which is a milestone in our corporate strategy, was 20%. Profit from continuing operations was 105.6 billion with EPS of 83 yen up 29% year-on-year. while total profit, including both continuing and discontinued operations, was 108.4 billion, with EPS of 85 yen, up 25% year-on-year. We have been operating this fiscal year under conditions of multiple growth inhibitors and rising costs while making investments in growth areas and strengthening operational infrastructure. The environment remains uncertain, but we will continue to strive to achieve revenue and profit growth and reach the must-hit target of over 20% adjusted operating margins set three years ago.

Moving on to the full-year forecast. Please turn to page 6. We have revised the FX assumptions from the previous forecasts. Based on results up to the third quarter, we have a slightly lowered revenue excluding FX, but adjusted operating profit remains unchanged. The forecast assumptions for annual average FX are 135 yen to the dollar and 140 yen to the euro. For more details, please refer to page 24 in appendix for FX sensitivity. Revenue is expected to achieve 871 billion yen up 16% year-on-year. Opening profit is expected to achieve 198 billion yen up 35% year-on-year with an adjusted opening margin of 21.1% record highs. for both amount and ratio. Although multiple risk factors continue to stay in front of us and the outlook remains uncertain, we will proceed with all efforts with the goal of achieving the must-hit target of above 20% of adjusted operating margin set in the corporate strategy. Profit is expected to reach record high of 376 billion yen, reflecting a gain on transfer of scientific solutions business. EPS is expected to be 297 yen, up 229% year-on-year. Profit of continuing operations is expected to be 149 billion yen, with EPS of 118 yen, up 37% year-on-year. Regarding dividends for fiscal 2023, we plan to pay dividend of ¥16 unchanged from the announcement in May. Next page shows forecast by segment. We expect both ESD and TSD to continue double-digit growth year-on-year. As a result, the combined revenue of the two divisions in the medical field is expected to reach record high. We previously announced that EV6-1 would be launched in the US within the fiscal 2023. However, we have been revising the schedule to ensure all regulatory requirements are completed prior to the launch of the product. We are now aiming for a launch in the middle of fiscal 2024. We do not expect this postponement to have a material impact on our business performance. In ESD, the impact of supply constraints including semiconductors is improving. We expect continued sales expansion of EVs X1 in Japan, Europe and APAC. In China, we expect growth supported by pent-up demand due to delays in tenders and business negotiations caused by the Shanghai lockdown in the first quarter. as well as government support, such as low-interest loan programs for medical equipments. In TSD, we expect continued growth centered on the three focused areas. While in Japan and China, number of procedures is declining due to rapid surge of COVID, in Europe and North America, where the number of procedures are recovering, sales of mainstay products are expected to be strong. We will continue to work on achieving adjusted OPM of above 20% despite the unstable and uncertain environment by controlling SG&A expenses through company-wide efforts such as hiring constraints, review of various projects, limited non-essential overseas trips and review of R&D priorities. This continued operation is expected to record gain on transfer resulting in significant increase in profit. This is going to be my last seed. I would like to explain about the warning letters that we received from the FDA and our efforts to strengthen quality assurance and regulatory affairs. Olympus received warning letters regarding an inspection of the Aizu-Wakamatsu facility based in Fukushima in Japan in July and inspection of the Hachioji factory based in Tokyo, Japan in September. The content of the warning letters cites the quality system issues related to process and records for design and manufacturing, as well as the late submission of MDR. We are closely communicating with the FDA through both written and live interactions in order to ensure the met in a timely manner. We have been promoting efforts to strengthen quality assurance and the real affairs, including the globalization of a quality and regulation. We have implemented a global complaint improvement program that is a new process and technology platform to ensure compliance. established an independent worldwide quality and regulatory organization structure including hiring many leaders with the knowledge and experience of a QA RA at Meditech companies under the chief quality officer reporting directly to the CEO. We have been implementing global quality system and governance model for all Olympus sites and businesses and remediating design and manufacturing processes and records. The total amount of investment for these initiatives is currently under review. We will inform our forecast when a reasonable estimate can be made. The latest forecasts include 1.4 billion yen in expenses for the current fiscal year. In order to become a leading global medic company, we will further strengthen our quality assurance and regulatory affairs and globally establish quality and compliance to ensure patient safety. Thank you very much for your kind attention.

before we move to taking your questions we would like to focus on one question that we received in advance regarding the results up to q3 and the projection for q4 so see if onto that question yes i think i've covered majority of that in my presentation, and although I skipped the oral presentation, the longer version that is available from the company website, which includes the scripts, do answer your question. As for the guidance, compared to the guidance as for revenue, largely in line with the guidance. But when it comes to specifics, TSD revenue is a bit short. That has been the trend so far. And so that is the reason why we made a very small revision to the full year forecast. And profit is doing better than the guidance to a certain extent. And regarding the SG&A expenses, compared to the projection three months ago, we are spending more. As is included in the slides, the sales activities are becoming more active is one reason. And for enhancing the operational infrastructure, we are hiring people. and also QARA and some other functions. To address the specific challenges facing the company, we are making the investments and expanding, which explains an increase in SG&A over the projection. That has been the case up to the end of the nine-month period. Regarding Q4, the adjusted operating profit number hasn't been changed, meaning that during the last three months, we are to catch up, especially regarding the SG&A expenses. By implementing further measures, we are to catch up and make up for the difference. That's my... high-level response. And Nacho is close to the field, so I think he can add some more comments.