Olympus Corp Ord

Hello, everybody. I am Chikashi Takeda, the CFO of Olympus Corporation. I would like to thank you all for participating with this conference. I would like to provide a review of our consolidated financial results for the first quarter of fiscal 2024 and talk about our full year forecast for fiscal 2024. Next slide, please. This slide highlights the main points for first quarter financial results for fiscal 2024. Revenue increased 8% on a consolidated basis. Growth was mainly driven by China, which recovered from the Shanghai lockdown, and other factors, and APAC, which grew in all segments. Byproduct, Avis X1 and Visera Elite 3 were the main contributors. They both ESD and TSD achieved high single-digit growth, setting a record high in the medical business for the first quarter. On the other hand, profit decreased due to an increase in personnel expenses for future growth and strengthening of operational infrastructure such as QARA, as well as upfront project-related expenses for improving efficiency, etc., coupled with the absence of a gain of approximately $16.4 billion on the sales of land in Tokyo, which was recorded as other income in the previous fiscal year. FDA-related expenses amounted to several hundred million yen in SG&A and approximately 5 billion yen in other expenses. Those are mainly for complaint responses, medical device reporting MDR, and process and design validation, ensuring that we comply with all applicable quality laws and regulations and strengthening our quality assurance function. Steady progress has been made in corrective actions for FDA findings while engaging in constructive dialogue with the FDA. Adjusted operating profit excluding other income expenses decreased 5%, with an adjusted operating margin of 13.6%. Profit as a sum of continuing operations and discontinued operations reached a record high of 246.6 billion due to a gain on the transfer of scientific solutions business evident that was booked in the first quarter of the current fiscal year. EPS is 192 yen. Moving on to a full year forecast for fiscal 2024. The initial forecast announcing may remain unchanged as we still aim to achieving the budget and have taken appropriate actions despite slightly slow first quarter results. We think that the growth will be seen in the second half. Revenue is expected to reach 914 billion yen, up 4% year-over-year, and adjusted operating profit is expected to reach 182 billion, up 3% year-over-year, with an adjusted operating margin of around 20% on a par with the previous year. Profit as a sum of continuing operations and discontinued operation is expected to reach a record high of 336 billion yen, with EPS of 273 yen. The business environment is expected to remain uncertain to a certain extent in the second quarter and onwards. We continue to operate with a keen awareness of those risks. We also strive to maintain appropriate cost control while allocating resources to strengthen our operating infrastructure, including QARA, R&D, and initiatives to improve productivity.

Next page. This is an overview of our consolidated financial results. Consolidated revenue totaled $207.7 billion. The medical business achieved a record high for a first quarter, up 8% year-on-year. Both ESD and TSD achieved a high single-digit growth. Gross profit was $137.2 billion, with gross profit margin improving 0.7 points. The improvement was due mainly to a decrease in procurement in the semiconductor spot market and the depreciation of the Japanese yen. SGA expenses totaled 108.8 billion yen, with SG&A ratio worsening 2.4 points. The main factors were an increase in personal expenses for the future growth and strengthening of operational infrastructure, such as QARA, as well as various project-related expenses to improve efficiency and others. Adjusted operating profit was 28.3 billion, down 1.5 billion or 5% year-on-year. Adjusted operating margin deteriorated 1.9 points at 13.6%. Other income and expenses were negative 6 billion yen. as we posted a gain of approximately 16.4 billion on the sale of land in Tokyo in the previous fiscal year, whereas we recorded approximately 5 billion yen as FTA-related expenses in the current fiscal year. That's the main factor for the year-on-year decline. Profit from continuing operations was 13.5 billion with EPS of 11 yen. With the completion of the transfer of discontinued operation or evident in April, we recorded a gain on the transfer in the first quarter of the current fiscal year. Total profit including both continuing operations and discontinued operation was 240.6 billion with EPS of 192 yen. Lastly, but not the least, I would like to look back on what we have done under the new management team since this April. When we formulated our company strategy announced in May, we established a revenue hacker of 5%, a target some of you may have viewed as conservative. The initial quarter, however, validates the realism of our projections as we now find ourselves necessitating investments in corrective measures and the establishment of a robust framework for the quality systems following an FDA audit. Rigorous assessment and implementing corrective actions are of utmost importance to us, and these endeavors will persist throughout the fiscal year, necessitating the outline investments. Although our endeavors have just commenced, we are steadily advancing while actively engaging in constructive discussions with the FDA. This dialogue is sustained by significant transformative initiatives aimed at enhancing our quality infrastructure, optimizing the size of our quality system, and ensuring consistent global adoption of processes across manufacturing, repair, and distribution centers. Through this novel quality transformation program, we firmly believe that we safeguard patient safety and contribute to value creation for all stakeholders. Ultimately, this strategy will enable us to excel, fostering innovation for growth. Simultaneously, we continue to champion our four key drivers for value creation and pursuit of enduring, sustainable growth, business and global expansion, strategic M&A, enhancement of care pathways, and development of an intelligent endoscopy ecosystem. Progress across all pillars is proceeding according to plan. Despite the prevailing challenges in our operating environment, we maintain our forecast, confident in our ability to realize our goals through appropriate measures. Our foreign exchange assumptions remain unchanged, and their positive impact will counterbalance the risks observed in the first quarter. We regard this situation as an opportunity to evolve into a leading global medtech company, realizing innovation for growth in alignment with our three-year plan. That concludes my presentation. Thank you for your unwavering trust and support on this journey.

Before we go to the Q&A session, we would like to answer a question that was specifically of high interest among investors. I would like to read out the question. Against your internal plan, the first quarter start was slow. In terms of revenue and profit, how lower was it against your target, and what are the reasons behind these? First, Mr. Takeda, the CFO, will respond to this question. Well, normally this should be integrated into a slide or into a narration, but I would like to offer my explanation about this question, which was a high interest in the investors. So I do understand that this has been high interest of the investors. Well, first of all, in terms of revenue, Basically, about 3% lower than our internal target was the situation. Mainly, this was due to the suspension of the shipment of the products or the lack of supply of the components. These were the main reasons because we lost the sales opportunity due to these factors. So for 1.5% to 2%, downward pressure in the consolidated revenue growth. Specifically for TSD, this situation was more pronounced. If you look only at TSD, it was a 3% to 4% downward pressure against our growth. The remainder will be the accuracy of the quarterly plan that we have compiled. So maybe this is related to this activity, for instance, in the US. The X1 launch is near, so there has been a bit of a holding back of the purchase. In China, in terms of the number of cases, it has improved, but the inventory of the customers has been more than we have expected. So compared to the number of cases, the procedures, the shipment hasn't increased. But as a result, the revenue was weak. In terms of the cost of goods, there has not been such a change. This is basically related to the change in the sales composition. In terms of SCNA, About 4%. I was more by 4% against our internal target. I think half of it is due to the timing issue. And the remaining half would be So there's a compliant within the QIRA challenge, there's a compliant handling. So there was more than we have anticipated. So we have been using outsourcing. So that is the reason why the cost has gone up. In terms of the amount, about $2 billion. more than we have anticipated. So this 2 billion is basically a timing issue when we have booked the cost. That's all from me.