Olympus Corp Ord

Hello, I am Representative Executive Officer Takeuchi. I would like to start with a presentation for the consolidated financial results for the second quarter of high school year 2035. Thank you for participating. Before turning to the results presentation, I want to first address the recent reports regarding our previous Representative Executive Officer and CEO, Stephen Kaufman. As we have announced on October 28, 2024... Upon receiving an allegation that Mr. Kaufman had purchased illegal drugs, we immediately launched an investigation which determined that Mr. Kaufman likely engaged in behaviors that were inconsistent with a global code of conduct, our core values, and our corporate culture. The matter was swiftly passed to the authorities, and Olympus has been and will continue to cooperate fully with the investigations. As these investigations are ongoing we are limited in what we can say on the matter here today. We appreciate your understanding. We will promptly announce any events that should be disclosed in the future. Since Mr. Kaufman's resignation, I took on the role of interim CEO and will lead the company in the execution of a strategy and continued delivery of essential products and services to patients worldwide, fully embodying a purpose of making people's lives healthier, safer, and more fulfilling. Olympus is strongly opposed to the use of illegal drugs. We regularly provide training to management teams and employees to ensure that they are fully aware of the global code of conduct and company policies. We will further continue to strengthen this in the future. In addition, the management team remains resolutely focused on a long-term strategy and execution for sustainable growth. Going to the second quarter's consolidated financial results. First, our business continued to grow steadily in the second quarter following from the first quarter. Revenue increased by 10% year over year on a consolidated basis, accelerated by a tailwind of yen depreciation. Of particular note was the strong performance in North America, where we achieved 24% growth year-to-year, with double-digit growth in all three focus areas of GI, urology, and respiratory. Strong core customer demand, particularly in the U.S., drove overall growth, mitigating headwinds, particularly in China, including the continued impact of the anti-corruption campaign, volume-based procurement, and increasing local competition. Due to factors such as tight SG&A control, the adjusted operating margin reached approximately 18% for the six months and 20% for the three months, in line with our company's strategy. The ongoing remediation and quality transformation program, ELEVATE, is continuing to progress well to meet our commitments to the U.S. Food and Drug Administration, FDA. In the next slide, I will explain the progress to date and the outlook for the ELEVATE program. Our forecast for the fiscal year 2025 remain unchanged from the previous announcement. Although the business environment remains uncertain, we will continue to monitor the situation closely and respond appropriately and promptly, working towards achieving the initial forecast announced in May. Finally, I would like to inform you of two topics that will support our future growth. The first point is that we received clearance and approval for cloud-based AI endoscopy devices in the U.S. and Europe. I will talk about the details later in this presentation. Next, on November 1, 2024, the U.S. Centers for Medicare and Medicaid Services issued the calendar year 2025 Medicare Physicians' Fee Schedule Final Rules. The rule finalizes establishment of a new current procedural terminology, CPT code, and reimbursement rate specific to ITIN, which will go into effect in January 2025. The addition of a CPT code with appropriate reimbursement rates not only creates a systematic process for providers to bill and collect for the ITIN procedure, but makes it economically viable in the hospital outpatient ambulatory surgery center and physician's office sites of care, increasing access for patients seeking this minimally invasive therapeutic option for BPH. In fiscal year 2024, we launched a multi-year program focused on a quality transformation called Elevate. The program is an initiative to meet our regulatory commitments, acknowledging the FDA warning letters we received in 2022 and 2023, build for a future, and strengthen our cultural foundations led by a strong global and cross-functional team. Progress to date has been very good, with over 95% of our commitments to the FDA completed. Regarding the global complaint handling system, one of the key milestones, we completed the transition to the global system in October 24 in the U.S., Europe, and Japan. The transition in China and other markets in Asia is scheduled to be completed by the end of November. This will allow us to harmonize complaint handling processes globally and improve our ability to quickly detect and correct issues. In addition, we successfully completed third-party audits of remediation activities at Aizu, Hinode, and Hachioji facilities, and the feedback confirms successful implementation of corrective actions. By fiscal year 2026, we expect to complete our remaining commitments to the FDA and move on to the next phase of Elevate in further improving and standardizing key elements of a quality system. Accordingly, expenses related to Elevate will decrease, but some will transfer to SDNA-enhancing QARA organization capabilities from fiscal year 2027 onwards. Through EvoVate, we will not only comply with the regulatory requirements, but also continue embedding the principles of quality, patient focus, and customer centricity further into our DNA as we embody a culture of excellence and continuous improvement. This gives us a strong sense of purpose as a company and will become a source of competitive advantage. Next, I would like to highlight our three new cloud-based AI medical devices that recently received approval as CE marked medical devices in Europe under the Medical Device Regulation, EUMDR. They represent the first phase in an effort to commercialize the first intelligent endoscopy ecosystems. Additionally, in July 2024, Odin Medical Limited, an Olympus company, received FDA 511K clearance for the first cloud-based AI technology designed to assist gastroenterologists in detecting suspected colectal polyps during colostomy procedures. the CADDI, Computer Aided Detection Device. In August 2024, we received CE approval for three AI medical devices in Europe under the MDR program. CADI, which can be used to detect and characterize suspected colorectal polyps, CADU, which is intended to aid in analyzing dysplasia in patients with Barrett's esophagus during endoscopy procedures, and SMART-IBD, which is designed to aid clinicians in analyzing ulcerative colitis during colonoscopy procedures. All three products use AI algorithms that utilize innovative cloud technology, allowing data to be analyzed in real time via the cloud with the most up-to-date software. The 510K clearance for CATI and the CE approvals in Europe mark a significant milestone in our efforts to enhance clinical outcomes and operational efficiency in endoscopy and allow us to accelerate the launch of the platform with these CAD digital products. So we believe several ski achievements in fiscal 2025 are prepared as well for the commercial launch in fiscal year 2026 for the intelligent endoscopy ecosystem. Recent roadshows and product demonstrations with customers generated strong feedback on the vision and the architecture of our intelligent endoscopy ecosystems. We are piloting these cloud AI endoscopy systems in selected European hospitals. This co-creation approach enables real-world clinical evaluation, ensuring the systems meet the needs of healthcare providers and patients. Early customer feedback on initial offering has been very positive. We will begin commercializing the first AI solutions in the first quarter of fiscal year 2026 in the U.S. and selected countries of the EMEA region. Additional digital products of the intelligent endoscopy ecosystems will follow during fiscal year 2026 in selected countries of the EMEA region. With the anticipated growth in AI offerings, Olympus is uniquely positioned to shape the future of healthcare, improving outcomes and efficiency by leveraging data and a strong presence across all endoscopy suite components, capital equipment, consumables, infection prevention, and service. Our ambitious goal is to connect 40,000 of a globally installed base of GEI image processors by the end of this decade. I'll hand it over to Shifu Izumi, who will lead you through Adidas financials for the second quarter.

Hello, everyone. I am Tatsuya Izumi, CFO. Let me explain our consolidated financial results and the business review for the second quarter of fiscal year 2025. Consolidated revenue increased by 10% year-on-year to ¥474 billion, with yen depreciation serving as a tailwind. Revenue growth was driven by North America, which achieved double-digit growth in all three focus areas led by EBIS-X1-G1 endoscopy system. Revenue reached a record high for Q2 and for the sixth month. Operating profit increased significantly year-on-year to 70.5 billion yen due to a decrease in losses related to barren medical technologies, which were recorded in the previous fiscal year, tied SG&A Control and Tailwind from FX. Adjusted operating profit increased by 28% year-on-year to 85.1 billion yen, with an adjusted operating margin improving 2.5 points to 17.9%. In addition, looking only on the quarterly basis, the adjusted operating margin was 20%, achieving the financial guidance set forth in our company strategy. Three financial results were largely supported by FX. However, even after adjusting for FX, revenue increased by 3% and adjusted operating profit increased by 4%. The four-year forecast remains unchanged. And from the previous announcement, although the business environment is by no means optimistic, we will continue to work toward achieving our initial forecasts. Again, our fourth-year forecasts remain unchanged. Although the business environment is by no means optimistic, we will continue to work towards achieving our initial forecasts. Next, let me take a look at overview of each segment. First is the endoscopic solution division. Revenue grew 10% year-on-year. Adjusted operating profit, excluding other income and expenses, significantly increased year-on-year to 71.5 billion yen, with an adjusted operating margin of 23.9%, an improvement from the same period of the last fiscal year. Next is each sub-segment in GI endoscopy. Cells in North America grew 44% led by strong cells of EBIS-X1 GI endoscopy system. On the other hand, cells declined in China due to the impact of the anti-corruption campaign and other factors. In surgical endoscopy, sales declined in China and increased in Europe. Growth was driven by solid performance of Bicela 83, surgical endoscopy system and others, combined with favorable FX effects. In medical service, we saw steady growth across all regions, especially in Europe and North America, due to stable revenue streams based on service contracts including maintenance services and increase in new accounts. Next, in the therapeutic solution division, revenue grew 10% year-on-year. Adjusted operating profit, excluding other income and expenses, significantly increased year-on-year to 32.7 billion yen, with an adjusted operating margin of 18.7%, an improvement just like ESG. Now looking at each sub-segment, all three focus areas, GI endotherapy, urology, and respiratory, grew primarily in North America and Europe. In GI endotherapy, cells increased in HPV or hepatopancreatobiliary-related products and others. In urology, the growth was led by solutive superpulsed laser system for urinary tract stone management and resection electrodes for BPH treatments. In respiratory, we saw strong performance in the EVAS scopes and therapeutic devices mainly used for EVAS TB and A. Next is the balance sheet as of the end of September. Total assets decreased by 167.6 billion yen from the end of the previous fiscal year due to the decrease of cash-in-cash equivalents and FX impact. Additionally, interest repaying debts decreased due to the repayment of debts. Balance as of the end of September 245.5 billion yen. The equity ratio rose to 51.4%, up two points from the end of previous fiscal year. Next is cash flow. At first glance, cash flow may appear to have decreased significantly because the impact of the transfer of evident was included in the same period of the previous fiscal year, but adjusted free cash flow excluding the external factors improved year-on-year. Cash flow from operating activities was plus 93.7 billion yen. It increased significantly or near due mainly to an increase in profit before tax and corporate income tax refund. Cash flow from investing activities was minus 30 billion yen due mainly to expenditures associated with acquisition of tangible assets. fixed assets and intangible assets. Free cash flow stood at ¥63.7 billion. Adjusted free cash flow was ¥39.3 billion, excluding extraordinary factors such as acquisitions, transfers and reorganization of businesses. Cash flow from financing activities was minus ¥156.7 billion due mainly to share buyback, the repayment of the long-term debts and dividend payouts. As a result, cash and cash equivalents stood at 245.9 billion yen as of the end of September 24. That concludes my presentation. Thank you for your attention.

We would like to take questions from this point onwards. First, Mr. Takeuchi. As you have explained at the beginning, I would like to ask my question about your point. So I understand it's difficult to answer the things related to the investigation, but please answer while possible. If you look at the reports, Mr. Kaufman, in terms of the management of these type of crises, Maybe it was a bit lax. I think basically Mr. Kaufman's behavior and words were based on the lax management. So I don't know how, whether this media report was true or not. So basically, in terms of the expense or spending of Mr. Kaufman, in terms of control of the spending by Mr. Kaufman, have you conducted any review? Because it seems to be lax. So, Mr. Takeuchi, you are the interim CEO. So in terms of the nomination committee discussions, what will be the roadmap for the succession planning going forward? I would like to ask about that. Thank you very much for asking your question, and I would like to answer. Well, the investigation is ongoing, so there's nothing that I can say definitely. In terms of the expenses, in terms of our lax management of the company expenses, I think that was the point of your question. For this incident, more broadly, so not just trying to limit the timing, the former CEO himself privately utilizing the company asset under investigation. We have not found that type of allegation to be true. The internal audit is ongoing, but currently I think we can say that point. So in that sense, This has been a personal matter for him, and that's what we think as of now. In terms of the succession planning for the next CEO, the nominating committee and the board of directors will decide about this, so I cannot give you any formal comment. Currently, what I can say at this point, we are trying to the best candidate, taking a broader perspective. So that will be a basic policy. That is how we are approaching this matter. Understood. So a simple follow-up on my side. So the current midterm management plan, so it was announced in 2023. And at that timing, it was right after the wording letters has been issued. And after that, Mr. Izumi has joined the company as a CFO. And the board members have changed dramatically. And Takeuchi-san, you had explained at the beginning, the FDA issue is moving forward toward the solutions. And the CEO has changed. In terms of the midterm plan, is it going to continue on this track, or is it going to update that because of the change in the external environment, the change in your internal situation? Can you give us some guidance on that? Thank you for your question. So what I can say at this point is that the incident surrounding the previous CEO and reviewing the direction of the strategy of the company, we will not do so. We will basically go forward with what we have set forward as a strategy. But Putting that aside, whether we should review the strategy or not, this is something ongoing discussion. So depending on the change in the environment, if necessary, of course, we will review our strategy. So always... Maybe it's an exaggeration to say that we always have that in mind, but there is a possibility that the tragedy may be changed. But I repeat, this is not related at all with the former CEO. This is purely a management matter that we are taking into account. Understood. Thank you very much.