Olympus Corp Ord

Hello everyone, I'm Stefan Kaufmann, CEO of Olympus Corporation. I would like to thank you for participating in this conference. Fiscal year 2024 provided us with numerous challenges. In this environment, our organization and people have proven to be resilient, our business model to be robust, and our relationship with our customers to be stable. For fiscal year 2025, we are confident that we will see a strong recovery bolstered by the significant potential of our strong business model and our grown self-confidence to overcome obstacles. Our purpose and refreshed core values, the three strategic guiding principles of patient safety and sustainability, innovation for growth and productivity, And the four value pools build the foundation and define the direction for sustainable growth in the future. As introduced in our company strategy and in relation to our first priority, patient safety and sustainability, we are implementing numerous initiatives to strengthen our QERA system, processes and capabilities over the three years from fiscal year 24 to fiscal year 26. So far, we have made great progress. To give you a few tangible examples, in fiscal year 24, we undertook several initiatives to improve our ability to perform root cause analysis, which is central to our efforts to create the most effective corrective and preventive actions. We have also improved our complaint handling effectiveness, resulting in more consistent medical device reporting and even quicker responses to patient safety signals. Also, our regulatory compliance functions have enhanced their operational impact significantly. The EleVIT program will help to unleash Olympus' full potential, improving our sustainability and creating a strong backbone for future innovation. We have successfully put in place stepping stones for future growth, A solid pipeline of growth drivers in our defined clinical focus areas is in place, and we are leveraging our value pools. With those in our proven business model, we anticipate a strong recovery and more stable operations overall in fiscal year 2025. We have identified strong opportunities across our value pools. With its release in the US, our flagship, EVIX X1, sees a very high demand. In addition, our broader GI portfolio shows significant growth momentum in North America. The emerging markets show relevant growth opportunities and high future demand. Also, our pipeline features relevant care pathway extensions. For example, we are very proud of the recent clearance for our first single-use ureteroscope, Renaflex. And there's more to come. We are excited that our intelligent endoscopy ecosystem should start to see its first releases in Europe in the second half. Let's now have a look at those value pools in more detail. Since the introduction of EVIS X1 in the US last October, our GI endoscopy business gained strong momentum and grew 20% year-on-year in North America after FX adjustment. The latest order situation is very favorable, and we expect high growth in fiscal year 25. As you might be aware, the North American market accounts for about 35% of our total sales in the GI endoscopy segment. Also, our GI endotherapy business has been a strong performer. North America accounts for about 25% of our total sales in this segment, and has been growing at a double-digit year-on-year rate for the last two years. We had strong growth from all three core clinical areas, colorectal cancer detection, colorectal cancer treatment, and HBP diseases. The Colonoscope Distal End Detachment Endocuff Vision and the Hemostasis Powder Endoclut are two of our uniquely differentiated products that are high growth drivers, especially in the U.S. ESD knives and ERCP devices, such as Multi-3V Plus Extraction Balloons, show repeated double-digit growth. We will continue to focus on these business areas and capture further global expansion opportunities. Wherever I meet customers in the world, their feedback about EVUS X1 is overwhelmingly positive. Dr. Saruja, a U.S. clinician, claimed that the EVUS X1 enables visualization that we did not think possible, supporting safe, efficient, and high-level care for our patients. The X1 endoscopy system is our most advanced system. It introduces several easy-to-use technologies that aim to revolutionize the detection, characterization, confirmation, and treatment of gastrointestinal disorders. The imaging advancement, including TXI and RDI, improve the quality of endoscopic diagnosis and treatment. A recent article in the endoscopic journal Gastroenterology demonstrated the clinical value of TXI and concluded that TXI improves both the adenoma detection rate and the adenoma per colonoscopy. To date, this is the first randomized controlled study using TXI during colonoscopy and highlights the potential benefit of more widespread uptake in enhancing the quality of colonoscopic screening and surveillance for all patients. We are excited to continue elevating the standard of care with EVIS X1. Another growth driver and opportunity for global expansion is the emerging markets. In emerging countries, demand for medical equipment is expanding due to quickly growing populations, lifestyle changes resulting from rising incomes associated with economic growth, and the expansion of medical infrastructures. The need for gastrointestinal endoscopy, which contributes to the early detection and treatment of GI cancers, is increasing as the incidence of cancer is expected to rise in the future. Conversely, emerging countries are facing a shortage of highly specialized endoscopists. Therefore, we will strengthen our investments in training activities for endoscopists in emerging regions such as Africa, India, and Latin America. Although emerging countries still account for a low percentage of our total medical business sales, our CAGR over the past few years have been very high at 20% and more, and we expect continued high growth in the future. In addition to many opportunities for business and global expansion, we are progressing in our care pathway enhancement efforts. As the leader in endoscopy, our goal is to provide the right scope for every patient, procedure and site of care. The 510K clearance for Renaflex, our first single-use endoscope, is therefore an important strategic milestone for us. Renaflex will complement our innovative portfolio for endoscopic stone management procedures, which are in growing demand due to increasing prevalence. It will allow customers to optimize workflows, for example, in case of unexpected events where reusable ureteroscopes may be unavailable to avoid cancellations or delays. Featuring the ergonomic and visualization capabilities for which Olympus is renowned, RINAflex is scheduled to launch in the US and APEC during fiscal year 2025. Another important value pool for growth is our vision of the intelligent AI-driven endoscopy ecosystem. We are very excited to bring this vision into reality. The feedback we have received from our customers is very reassuring as we are able to address many of their currently unmet needs. The ecosystem we build is not limited to software products but includes endoscopes, infection prevention solutions, services and integration with multiple hospital systems. We aim to leverage the power of data and AI to improve clinical outcomes and efficiency. Customers subscribing to our intelligent ecosystem will find multiple artificial intelligence algorithms developed to improve their clinical outcomes as well as solutions to improve their workflows, gain insights into their clinical performance and manage their endoscopic assets. The initial solutions are co-created with five hospitals in Europe and we expect to open an additional 10 reference centers by the end of 2024. Let me close with emphasis on the fact that we expect strong recovery in fiscal year 2025, both in sales and profit. Obviously, some of the growth is supported by exchange rates effects. But even without these tailwinds, we will make significant progress towards our targets announced in May 2023 of revenue CAGR of approximately 5% and 20% operating margin. And now, you might be curious to meet our new CFO, Tatsuya Isumi, who joined us at the beginning of April. Please give him a warm welcome. The stage is yours, Tatsuya. Thank you, Stefan.

Hello, everyone. I am Tatsuya Izumi. I was appointed as CFO this April. I am proud to bring my extensive experience in the financial field and global business to Olympus. By actively engaging in dialogue with external stakeholders, I hope to contribute to further strengthening Olympus' corporate value. Your support is appreciated. I would like to provide our consolidated financial results for fiscal 24 and the full year forecast for fiscal 25. These are the highlights of the fourth quarter and full year results for FY24. In FY24, we achieved increased revenue on constant currency, despite headwinds such as decreased sales in China, the Noto Peninsula earthquake, and temporary shipment suspensions of some products. On a reporting basis, the medical business achieved a record high for both the fourth quarter and the full year. Operating profit and adjusted operating profit decreased due to several one-time expenses. Total profit, including both continuing and discontinued operations, reached a record high of 242.6 billion with EPS of 200 yen due to a gain on the transfer of scientific solutions business evident recorded in the first quarter. Next, full year forecast for FY25. While FY24 posted a decline in OP due to multiple one-time expenses and other factors, FY25 expects a return to a growth trajectory and to achieve a revenue of $1,021 billion, up 9% year-on-year on a reporting basis and 5% after exchange rate adjustments. OP is projected at 177 billion, marking a significant increase driven by a higher revenue and lower one-time expenses, coupled with a favorable impact of foreign exchange. A significant increase expected on constant currency as well. Adjusted OP is projected at 198.5 billion, up 31% year-on-year on a reporting basis, and up 22% on constant currency. Adjusted operating margin is expected to be 19.4%, close to our financial guidance in company strategy of 20%. We project profit of 121 billion with EPS of 106 yen on an absence of gain on transfer of evidence in the previous year. Dividends for FY25 are forecasted to be ¥20 per share, up ¥2 from the previous year, in light of the financial forecast under our policy of stable and gradual increase. As announced in a timely disclosure released today, we have decided on a share buyback of ¥100 billion, marking this the second consecutive fiscal year to execute share buyback. Now some details of the results for FY24. Consolidated revenue amounted to $936.2 billion, achieving increased revenue on constant currency with strong performance in North America and APAC. Particularly in North America, we are seeing momentum building up led by EVIX X1 launched in October of last year. In the meantime, sales in China declined due to a significant impact of purchases decisions to delay tenders as they managed the effects of the anti-corruption campaign in various segments. Gross profit was 625.1 billion with gross margin deteriorating 0.9 points. due to an expense of approximately 5.2 billion for the field corrective action for a high-speed encephalator and provision of approximately 4.2 billion for the voluntary recall of small intestine endoscopy system and others. SG&A expenses were 473.2 billion with SG&A ratio deteriorating 2.9 points. Major factors include an increase in expenses related to the Elevate program and expenses for improving efficiency and strengthening of operational infrastructure for sustainable growth. OP declined to $3.6 billion, down 77%. The open margin deteriorated 16 points to 4.7%. Regarding other income and expenses, a loss of 108.3 billion was posted. Major expenses include about 51.9 billion for the discontinuation of manufacturing and sales of electromagnetic navigation systems and others by Varon Medical. about $23 billion related to the Elevate program, about $8.6 billion for losses related to orthopedics business, and about $10.6 billion for impairment losses on the development assets and work-in-process R&D projects in ESD. Expenses related to Elevate Program totaled approximately $31.5 billion, with approximately $8.5 billion under SG&A and approximately $23 billion under others. Adjusted OP declined to $151.5 billion, down 14%, with an adjusted OP margin deteriorating 3.9 points to 16.2%. Profit from continuing operations was $27 billion. With the completion of the transfer of discontinued operation in April 2013, we recorded a gain on the transfer in the first quarter. Total profit including both continuing and discontinued operations was ¥242.6 billion with EPS of ¥200. We plan to pay a dividend of ¥18 per share for FY24 of ¥2 year-on-year as announced previously. I will not touch on details by segment, the consolidated statement of financial position, or the consolidated cash flows. Please refer to the presentation with script available on our website for details.

This slide shows the factors that affected operating profit compared to the forecast presented in February when we announced the third quarter results. Although the impact of the Noto Peninsula earthquake was smaller than expected, we recorded additional expenses in other expenses, including losses related to the orthopaedics business and impairment losses on development assets and working process R&D projects in ESD. This was because those assets and projects were reduced to their recoverable amounts to reflect changes in the market environment and other factors that made it impossible to achieve the expected revenues. Although these expenses have not been factored in as of February 14th, when the third quarter results were announced, we believe that we need to make improvements to enhance the accuracy of budgeting and forecasting, and I believe that this is my personal obligation. Next, I would like to explain our full-year forecasts for fiscal 2025. As Stefan explained earlier, we view fiscal 2025 as the year in which we return to a growth trajectory, expecting top line growth of 9% on a reporting basis and 5% after FX assessment. In addition, as we completed the process to eliminate future concerns in the previous fiscal year, one-time expenses that had large toll on the previous year's results are expected to decrease, and with a tailwind of FX pushing the revenue, we expect a significant increase in the operating profit, also expected to increase significantly after FX adjustment. Adjusted operating margin is expected to be 19.4%, close to a financial guidance of 20%, indicated in the company strategy. Lastly, I would like to explain our capital allocation. Our capital allocation policy remains unchanged. Strategic investments in highly profitable exiting businesses and growth opportunities will be given top priority in allocation, and shareholder returns will be based on stable and gradual dividend increase. We will consider share buyback when there are surplus funds available after securing sufficient liquidity on hand for working capital and investments. As announced today, we have decided on share buyback of 100 billion yen. Based on our capital allocation policy, this will be share buyback in the amount of 100 billion yen for the second consecutive fiscal year, while securing sufficient liquidity for working capital and future investments. The annual dividend forecast is 20 yen. Going forward, we continue to allocate capital to ensure stable returns to shareholders with top priority being placed on business investments that increase shareholder value. This concludes my presentation. Thank you for your attention.