Olympus Corp Ord

Hello, everyone. I am Takeuchi, Representative Executive Officer. I'd like to thank you all for participating in this conference. There were numerous challenges in FY 2025, including supply chain disruptions due to the Noto Peninsula earthquake, a difficult business environment in China, and unexpected departure of our former CEOs. Despite these headwinds, our business performance remained solid, driven by strong sales of Avis X1 GI endoscopy system in North America throughout the year. Revenue achieved close to the forecast announced in February. Adjusted operating profit was 188.5 billion yen, and adjusted operating margin was 18.9%, both exceeding the forecasts. Our quality and regulatory transformation project, Elevate, is continuing to progress well to meet our commitments to the U.S. FDA. We expect to complete all commitments to the FDA by the end of fiscal year 2026. Our three strategic guiding principles of patient safety and sustainability, innovation for growth, and productivity presented in our company strategy are progressing steadily. We made great progress with Elevate, building a solid foundation and further strengthening our corporate culture to achieve quality management that truly prioritizes patient safety. For FY2026, revenue is expected to grow steadily by 4% after FX adjustment. Adjusted OP is expected to be 175 billion yen with an adjusted operating margin of 17.5%. This is due to strategic investments to strengthen our organizational structure for future sustainable growth and improved profitability. The impact of U.S. tariff policy is not included in our forecast due to the fluidity of the situation. we will continue to take measures to mitigate the impact while prioritizing the continuous provision of our products and services to the medical field. As for FY2026 dividend, we plan to pay 30 yen per share up 10 yen from the previous year. As a result of our transformation over the past few years, we have become a pure medtech player. Stable cash generation is expected. In light of this, we have decided to significantly increase the dividend level. We have also decided to undertake a share buyback of 50 billion yen. Finally, I am pleased to name Bob White, our new representative executive officer, president and CEO, effective June 1st. In addition, Bob is a candidate for our VOD at Olympus General Meeting of Shareholders, scheduled to be held in June this year. I am confident that Bob's wealth of experience, exceptional leadership, and deep expertise in the medtech industry will help Olympus unlock its potential to cultivate innovation and drive further growth, benefiting, rather befitting, a global leader in the industry. Next, I will discuss the key strategies for each business segment for FY26. As explained at Q3 earnings goal, from April, we aligned our divisional structure to be more efficient and patient and customer-centric. As part of this evolution, the ESD and TSD transitioned into the new divisions of the Gastrointestinal Solutions Division, GSGIS, and the Surgical and Intervention Solutions Division, SIS. We will continue to invest mainly in three focus areas, GI, urology, and respiratory. First, in GIS, we are focusing on accelerating global market penetration and revenue growth with EVIS-X1 GI endoscopy, as well as expanding intelligent endoscopy ecosystem with Odisense, our new sub-brand for our primary cloud-based integrated suite of endoscopic applications and solutions. In GI endoscopy as part of Phase 2 of the EV6-1 US launch, we plan to launch a flagship monoscopes of the EV6-1 GI endoscopy equipped with EDOF, technology in FY2026. But we work to shorten the lead time with the aim of bringing them to market as soon as possible. In emerging markets, we promote initiatives to expand the market share sustainably, while in China, we accelerate preparation for local production of GI endoscopy. We also drive the expansion of endoscopic ultrasound platform market. Additionally, we plan to launch the first CAD AI products of all these scents in Europe and U.S. I will provide details later. In GI endotherapy, we continue to expand clinically differentiated product offerings in key areas of focus, ERCP, ESD, metal stent, and hemostasis devices. We aim to launch more than 10 new products regionally, including key markets of U.S., Europe, and Japan. In medical service, we are committed to delivering industry-leading services that meet customer needs in areas such as uptime, budget security, and operational support.

As noted earlier, expanding our intelligence in that scope ecosystem with the ODI system platform is a key pillar of our GIS strategy. Let me walk you through what we focus on in the fiscal year 2026. The first analysis in the portfolio to launch will be CAD-AI software applications designed to detect, characterize, and analyze lesions in the upper and lower GI tracts, following the MIX 2025 CAD-E guidelines and recommendations from the ESG-E. AGA, and BMJ, we are confident in our unique approach. Our AI-powered cloud-based design allows us to frequently improve the performance of our algorithms and continuously add new capabilities of the gastroenterologists that AI police Detection algorithm of the CAD-DE was trained on the sessile serrated lesions, SSLS, and the larger polyps that are open-missed and more likely to progress to cancer. Initial trial data shows Olicense-assisted colonoscopies significantly improved that detection of the the clinically relevant lesions without increasing unnecessary resections. Currently, the Olisense Hub and the CAD AI products are being piloted in the selected U.S. and EU hospitals. They're receiving positive feedback at DDW and ESGE days. So I don't know that from the relevant events there. We anticipate the strong long-term potential enhancing the customer engagement and recalling revenues and in the market share that the phase of the rollout of all the sensors in the CAD AI begins and that the second half of fiscal year 2026 with subscription model. Next, the SIS developed endoscope the laparoscopy, the basic ecosystem for the procedures in the urology, respiratory, and surgery. To build the leading ecosystems, we will actively manage our portfolio and scale major innovations into our core markets. In urology, we expand the leadership in the BAPH through the eye-tying market development while increasing the penetration of the core visualization and plasma technologies. I would like to introduce that the solutive superposed laser system for urinary tract store management, which drives that laser to clip C, the growth, and the next slide. In respiratory, we continue to focus on the driving adoption of EBIS-X1, the bronchial Coscopy, the platform and the drug growth and the lung cancer diagnosis and the staging with the stronger emphasis around the updated EBUS-TDNAF ring. In surgical endoscopy, we aim to introduce the Viscera N83 surgical endoscopy system in the U.S. and China to improve market competitiveness. Among them, And today I would like to highlight the two products that we expect to be growth drivers for this fiscal year, along with the target diseases that we are focusing on. First, urinary stones are a condition in which the substances contained in the urine crystallize over some reason and coalesce in the form of a stone. And the prevalence of this condition has been rising in recent years with an estimated 40% of the patients experiencing the recurrence within five years. For that treatment of the urinary stones, we have a compelling and market-leading portfolio of solutions. Olympus has a fast company to launch now the new saline fiber lasers for the laser trippancy, and we command that top market share in this category for both the laser systems as well as the applications. that's consumable fiber. The selective super positive laser system is already available in the U.S. and Europe and in APEC and achieved double-digit growth in these regions during fiscal year 2025. We plan to launch the system in Japan and expect it to contribute further to our sales. Next, lung cancer. This is the disease with an estimated more than 4 million patients and the highest mortality rate among all cancers worldwide. When detected at an early stage, lung cancer is highly treatable by surgery. Our market-leading endobronchial ultrasound scopus contributed to and decided that treatment policy by supporting the diagnosis of lung cancer type and staging in combination with other diagnosis results. Our new, the SLIM-EBUS scopes extended this capability to the peripheral regions of the lung, supporting visualization and real-time sampling of lymph node and lesion. We aim to launch the scopes in Europe, APEC, and Oceania, and in Japan in this fiscal year. And finally, I would like to briefly introduce our new CEO, Mr. Bob White. So that's in the magnetic industry, and Mr. Bob White has been, and also for the globally and for the regionally, have that very good experience and expertise. And Mr. Bob White, until April 24th, has been, worked as the executive vice president and the president of medical surgical portfolio for Medtronic. And before then, she was a senior vice president and president of Medtronic Asia Pacific based in Singapore, where he had a responsibility for APEC as well as Japan. So that's why he has experience in Asia. And his proven track record spans large, the multinational organizations, as well as the entrepreneurial ventures in which he consistently delivered exceptional results. And Mr. White has seen the numerous innovation programs set, and also for that, and revitalizing Medtronic's respiratory and monitoring portfolios, advancing his GA portfolio, and spearheading his robotics program and led to several R&D initiatives and M&A transactions. to drive strategic growth and the value creation. His close engagement with the market and the customers enabled him to maintain a strong understanding of the physician needs. Planned to join Medtronic, Bob held leadership positions at the GE Healthcare and Merge Healthcare and the Healthcare Division at IBM. Throughout his career and in the Medtech industry, he has played a pivotal role in improving the lives of patients around the world through their transformation of healthcare delivery. I'm truly pleased that he is bringing his extensive industry knowledge and insights to Olympus with him. We aim to achieve sustainable growth and enhance the corporate value by continuing to deliver innovative medical value that only we can provide. Okay. Okay. With that introduction, I would like to hand it over to CFO, Mr. Andy Izumi, and he will lead you through our detailed financials for fiscal year 2025.

Hello, everyone. I am Izumi, CFO. I would like to provide a consolidated financial results and business review for FY 2025. FY 2025 faced some challenges due to the external environment and others, but compared to the February forecasts, Although the yen appreciated, the revenue achieved roughly the forecast level, and both operating profit and adjusted operating profit exceeded the forecasts. Consolidated revenue increased by 8% year-on-year to 997.3 billion yen, with weaker yen serving as a tailwind. Revenue reached a record high for both the single quarter and the full year. The revenue growth was driven by North America, which achieved double-digit growth in all three focus areas, GI, urology, and respiratory, led by sales of the EVX1 GI endoscopy system. On the other hand, in China, competitive involvement has intensified due to the Buy China policy and others, resulting in the tough results for the full year. But Q4, we achieved a growth of 12% year-on-year. The business environment remains uncertain, but we will continue to closely monitor the situation and accelerate preparation for the local production in China. Operating profit increased year-on-year to 162.5 billion yen due to the decrease in losses related to Verum medical technologies, which were recorded in the previous fiscal year and the tailwind from FX. Assisted OP increased by 25% year-on-year to 188.5 billion yen. with an adjusted operating margin improving 2.6 points to 18.9%. Profit attributable to owners of the parent was 117.9 billion yen due to stable earning space with EPS of 103 yen. We plan to issue an year-end dividend for FY25 of 20 yen per share up to 2 yen year-on-year. unchanged from the forecast previously announced. Now let me look at each segment. First is the ESD. Revenue grew 8% year-on-year. Adjusted OP, excluding other income and expenses, increased year-on-year to 158.8 billion yen, with an adjusted operating margin of 25%, an improvement from the last fiscal year. Now looking at each sub-segment in GI endoscopy, Cells in North America grew 27% led by strong cells of EVIS-X1 GI endoscopy system. On the other hand, cells declined in China with its competitive environment intensifying due to the impact of by China policy and others. In surgical endoscopy, cells decreased in China while they increased in North America and APAC. Growth was driven by strong performance primarily in North America led by new products associated with OR system integration. 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 the manufacturing maintenance service, rather, and increase in new accounts. Next, in therapeutic solutions division, revenue grew 7% year-on-year. AOP, excluding other income and expenses, increased year-on-year to 69.8 billion, with an adjusted ovary margin of 19.3%, an improvement similar to ESD. Moving on to the performance for 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-related products and others. In urology, the growth was led by resection electrodes for BPH treatments and SOTIV, a super pulse laser system for urinary tract cell management. In respiratory, we saw strong performance in the EVAS scopes. Therapeutic devices mainly used for EVAS TBNA. Next is balance sheet at the end of March 25. Total assets decreased 101.4 billion yen from the end of previous fiscal year. The main reason for this was a decrease in cash and cash equivalents due to the share buyback and repayment of debts. Equity decreased slightly due to share buyback and dividend payouts, while an increase in profit was posted as a positive factor. The equity ratio rose to 52.5%, up 3.1 points from the end of the previous fiscal year.

Now, the status of cash flows at the fast of the glass. The cash flow may appear to have decreased significantly because the impact of the transfer of evidence was included in the last fiscal year, but adjusted free cash flow and excluding external factors improved year-on-year. The cash flow from the operating activities was the positive one at 19.5 billion yen. It increased significantly year-on-year due to magnitude increase in the profit before tax and corporate income. Tax refund. Cash flow from the investing activities were negative 65.5 billion yen due mainly to the expenditures associated with the acquisition of tangible fixed assets, and intangible assets. Free cash flow stood at the positive 1.25 billion yen, adjusted free cash flow was positive 1.9.4 billion yen, excluding extraordinary factors such as acquisitions, transfers, and organization of businesses. Cash flow from that to the finance activities were negative 1.12.5 billion yen, due mainly to the share buybacks that the payment were that's that redemption of corporate bonds and the dividend payouts. As a result, cash and cash agreement is suited 252.52 billion yen at the end of March 25. Next is that for the full year forecast for the fiscal year 2026. The FX assumptions that are the basis for the forecast are 145 yen to the U.S. dollar and 161 yen to the euro based on average rates in the past one month. Revenue is expected to be 999 billion yen on the par with last year. The rate is expected at a stable growth of 4% compared to the previous year after FX adjustment. Adjusted operating profits are expected to be 175 billion yen with an adjusted operating margin of 17.5%, which shows an increase in long-term strategic investments such as R&D, expenses for future growth. Profit attributable to owners of the parent is expected to be 105 billion yen with EPS of 94 yen. I will explain about the shareholder returns later. Note that these forecasts do not include the impact of U.S. tariff policies, as Mr. Takeuchi mentioned earlier, due to the fluidity of the situation. We will continue to closely monitor the situation and take measures to mitigate the impact. Next, the focus by business segments. So let me just explain by each business segment by segment. NGIS. Most revenue and profit are expected to increase after FX adjustments driven by new products in EVX1 in North America, despite an increase in the long-term strategic investments such as R&D expenses for future growths. In SIS, both revenue and profits are expected to increase after FX adjustment driven by the sales growth centered on focus areas. Corporate expenses, such as basic research included in the elimination and the corporate, have been revealed. Starting from this fiscal year, a portion of these expenses are allocated to GIS and CIS. Lastly, Let me just talk about the shareholder returns. Our capital allocation policy of prioritizing investment and growth drivers remains unchanged. However, we are happy to tell you that through corporate transformation over the past few years, we have become a pure meditator player, improving and destabilizing cash generation capabilities. In light of this situation, we have decided to significantly raise our dividend level. We plan to increase annual dividend by 10 yen per share compared to the last fiscal year to 30 yen per share for fiscal year 2026. Furthermore, as announced today, we decided on the share buyback of 50 billion yen after securing sufficient liquidity on hand for working capital and investments based on the capital allocation policies. This represents the 50 consecutive years of share buyback. Going forward, we continue to prioritize business investments that enhance the shareholder values and allocate capital to ensure stable returns to shareholders. So, we anticipated the business environments to remain uncertain this fiscal year, including U.S. tariff policies and the like. However, under the new management team that will be placed end of June, we will work hard to achieve sustainable business growth. That's all my presentation. Thank you very much. Thank you very much.

Now I'd like to take questions. First question, the impact of the tariffs. You did not show that at all, so could you explain the reason? There have been some earnings call of the different companies, and I think each company make a decision whether to include it or not. And there are some qualitative guidance, but if you say that there is no, nothing is included in terms of the tariff, if you can talk about some qualitative impact. Of course, it is fluid. I understand that reason. But starting from April, the 10% tariff is already applied for the shipment from Japan. So concerning that, that is not included at all in the plan or forecast. Is that the case? Could you respond? Thank you for your question. Izumi, CFO, would like to answer that. Yoshihara-san, as you know very well, we have factories in the United States, and the products that we sell in the United States, most of them are manufactured mainly in Japan and other countries. So, We do have an impact from tariffs. As of now, the impact probably will be about 20 billion yen in gross terms. And already, we have established a cross-functional team, sales, supply chain, and mainly the North American region. We are trying to take the measures to alleviate that. So most of the 20 billion can be alleviated. But how much would that be? We are not ready to say. And also the assumptions for the tariffs, as you saw in the negotiation between China and U.S., we don't know. So it's difficult to factor that in. So that's the reason why we did not include that. So to your question, the gross impact of 20 billion, and most of them can be alleviated, but we cannot say how much as of now. I see. So follow up one point. Detail. 10%, 24%. So 20 billion, 90 days at 10%, and then 24% later on. Is that the assumption? or your competitors, the peers in the Japanese companies and U.S. peers, I think that you would use the inventory, and many companies say that the impact will occur from later on. So this $20 billion in gross, so is that for nine months? And you said that that can be alleviated? Yes. Regardless of 10% or 24%, you can fully reflect that into the selling prices. Thank you. First of all, our assumptions are that, for example, in Japan, 10% are continuing for one year. That is the assumption that we have before coming up with this 20 billion. Our inventory is usually for two months. So this impact will happen in June and onwards. As for the fact reflecting that into the selling prices, when you consider the impact on the medical institutions, it would be very difficult for us to charge the extra value. So we would like to take other measures, for example, improvement of the supply chain. So it's not going to be a simple reflection to our selling prices. We will take various measures. I see. Thank you. I have two questions.

And so first question is a cost so this time and when i look at the documents and so so for that the long time strategic investments so setting from that the last quota you have studied this strategic investment so this means that for example about the 72 for that rnd expenses it would be a little bit uh a just uh higher than the average of the the meditech including japan so that's What happens with that about the proportion of this and percentage of the R&D expenses can be strategic. So that's why I think that we should also continue and this be sustainable. Also, this is particularly higher in this R&D cost. So let me ask about this, your prospect about R&D expenses in the near future. Thank you very much. I'm Izumi. I'm CFO. I answered your question. The basic idea is that we are on a mid and long-term basis. We needed to just invest with R&D as a strategic investment. So therefore, this time in March 2026, we increased the R&D expense. This is not the one time. increase. For example, and it's difficult to get more specific about how much after the next year and all that, but anyway, it's not that we'll go down or go back down to that previous level. At least we maintain the similar level, and also it can be increased further. So it's not that we just drop and get back to that level that's sometime in the past. Okay, thank you very much. So Let me just also about the – another follow-up question is about the cost in the past couple of years. So you are implementing the quality programs, including for dealing with the FDA requirements. How much of the cost of it this is? So – This year, it seems like it would be just to go down a little bit. What is your plan of a specific cost for this and elevate the quality insurance programs and what happens after for getting into for that including about this specific cost of quality insurance would be included and also for the other expenses. Okay, thank you very much. First of all, When it comes to the cost for Elevate in FY2025, so this is 11 billion yen for SA, and the other cost is the 11th, and for the 30.5 billion yen as the total cost, it will be almost in line with our forecast and plan. In FY2026, so it will be, I mentioned it will go down a little bit because For example, for other costs, it would be about 19.4 billion yen to 10.1 billion yen, which will reduce to that level, and therefore SGA, and 9.4 billion yen in total, and 19.9 billion yen. It would be below the 20 billion yen. This is the plan for this year. And to go further, and if I had 2027, and further, it's very difficult to talk so clearly about This is the elevated program. This quality program is a three-year program. And so this is, they will be ended, this FY2026. And there's also no cost will be included in other costs. But after that, for the SG&A, there's still about 10 billion yen of the cost will be included. But it's not that so dramatically go down, but when you try to make it as efficient as possible. Okay, understood. Thank you very much. That's all for me. Thank you.

The impact of the tariffs, I'd like to know more details. And you said that the cross-functional team was established, and you're coming up with the different countermeasures. So more specifically, what kind of measures are being looked at? Could you give us some examples? Thank you. Well, it's difficult for us to talk about the details, but one thing is the supply chain optimization. So, for example, something that goes via U.S., some products will go to other regions, so sending them directly, and also the strategic price settings. difficult to reflect it to the prices to adjust the prices or adjusting the discounts and the inventory the increase in July and onwards if the tariffs would go up we would proactively increase the inventories in the United States that's another thing that we are thinking about thank you So follow-up question. So on the demand side in U.S. market, the impact of the tariffs or new administration impact, endoscopy demand, would there be a risk that demand would be impacted in your view? As of now, at least our numbers, the forecast, we do not include that impact. But the impact of the tariffs, if the economy as a whole goes through the stagflation or inflation and it worsens, even with the medical equipment, it could be impacted. So that is not factored in yet, but we need to closely watch what would happen. Thank you very much. That's all.

Yes, so let me just I don't answer directly to the question, but probably many people are aware that at least when it comes to medical requirements, and since 1990s, both of Japan and the U.S. have offset the tariff with each other. So this is our basic rule since then, so that This meant, for example, that they, for a, because that this is the medical equipment, it's correlated to this, but the medical services for each of citizens for both countries, so that a, there's no, that basic rule will not change, so that for us, they were convinced that this is also to the government, and also, I think that's the U.S. government, which shared exactly the same concept, that basically that we I strongly hope that the tariffs should be zero. So there's not so much on that or just business performance, but we would like to avoid any possibility that these medical services and practices will be hampered with this tariff. Okay, understood. Thank you very much. My question about your business in China is, So when I look at your numbers, it seems like they recovered substantially in the new Q4, but until the end of Q3, that the business of, for example, concentrated in the purchase of China first policies, that are the negative factors there until the end of Q3 last year. So that's why it ended currently. What is the current status of the business today? In China, I'd like to know about it. And also for last year, and it seems like the gross profit margin is better than the forecast. So does this mean that you're going to be coupling the business in China last year was better than the forecast? I'd like to know about the comment, please. Okay. Thank you very much. First off, let me just answer to your question for me. So in a forecast, Q3, at the time we have the honest call and the last time, if I believe. So I mentioned about the sign of recovery after getting into this fiscal year and this year. This means that December is the end of fiscal year and in China, going towards the year end of the fiscal year. So it seems like some of that stored and realized that the demand has gushed out or just comes out. And that will lead to our incremental growth. and substantial recovery, it seems like. So this is one of the background. But so currently, we don't think that this is really the sign of any full recovery after this hour, so that it's still too early to make any kind of conclusion of that. So we really carefully watch it. Still, it's quite uncertain and foreseeable. when it comes to the business in China. And particularly, so this is for this, it have the impact over the both of our business, but particularly for that, the election, that's the comments from the Frank Sun and for the GIS.

Sorry, just that you asked me to comment?

Yeah, if you have.

The audio was gone for a second. The recovery which we were expecting already in the second half of last year was delayed, as we all noticed. The last quarter of the last fiscal year showed that we were for the first time seeing a positive trend. But if you compare that to two years ago, we are still not in a very positive momentum. So we are predicting that for the next fiscal year, we are going to see a recovery that will slowly continue to evolve, but will only show full effect in the second half of the year. which will coincide also with our efforts to start launching locally manufactured products, which is one of the factors that is typically influencing our ability to win tenders at the moment.

Okay, thank you very much. Okay, so I have the one and the follow-up questions. So how did you just, what kind of assumption you have for this, your planning and the business in China? It seems like we expect about a gradual recovery this fiscal year, but for example, what happens with your new products launch or the last fiscal year, but there's downside, downside. And the business in China have alluded to some kind of a downward revision of a business plan. So that's why you tended to be a little more conservative than last year or something like that.

Yes, that's correct. We are currently working on the assumption that we will be able to grow compared to FY25 in the lower single-digit range. which is less optimistic than we used to be. Obviously, China was one of our double-digit percentage growth drivers for many, many years, but we are expecting recovery now. But with the local manufacturing, the continued anti-fraud campaign, and the other influencing factors, we believe low single-digit is the right number for us at the moment.

Okay.

Thank you very much. That's all for me. Thank you. Thank you very much. To your first question, I think the COGS related, the impact of the improvement in China, I think you mentioned that. So do you still want the answer to that? Yes, if possible. Sorry, I forgot to answer that. Of course. China as a whole, the gross margin rate, there is a major contribution globally. So as it recovers, we are seeing the improvement. But because of that, overall gross margin improving, we have not seen such impact. There are other factors, and because of the composite of those factors, we are seeing the improvements. Thank you very much. Thank you very much. Thank you very much. About R&D, so about 20 billion in terms of profit and loss, it's increased. So the headcount is not quickly increasing. So how would you be spending that? So could you explain the background for increasing the R&D budget? How do you plan to use this increased part of the R&D? About the specific breakdown, we don't disclose that, but major ones, so for example, the endoscopy, next-generation endoscopy, right now, as we say, the competition is intensifying. So to recover our competitiveness, we need to enhance our competitiveness. So from now on, digital or robotics, the new technologies need to be worked on. As for the single use, yes, we need to develop that. So we would need R&D budget for that. So I cannot give you the breakdowns. But those are the areas that we expect to work on. But the consigned R&D and, for example, 20 billion is used for the R&D outside of the company or R&D, the consigned R&D budget would also increase, yes. Okay. we do expect that to increase the R&D that is outsourced to our site. So I think that you have been working on the R&D on your own, but that's no longer sufficient. So you'll be using money for the outside capabilities so that you can improve the competitiveness. Well, We are not saying that our competitiveness is weakening. We need to have more options, I think. So we are not sticking with doing the R&D on our own. Thank you.

My first question is about the gross profit margin. It's 70.8%. So Izumi-san, I'd like to discuss with you about the accuracy of this focus. In the Q3, you're endoscopy business in China would decline. So that's why you made that downward revision. So other than that, endoscopy in China, the other part of the business did not have any impact on the growth profit. So I think that this number cannot be explained only by this, just by the declining in China and the rebound in China in the Q4. So also, What happens in the Q4, including this gross profit? It seems like you tend to be really conservative because also there will be some of the factors in this fiscal year. What is that upside, expected upside in the Q4? What is the reason? Would you be more specific about it? And what do you think about the factors in the next fiscal year? Yes, in Q4. So there are two specific factors for COGS. The first one is that's for the reversal of the 3.6 billion of the recall of that provisions, and also for the 2.2 billion for the suppliers. So these are the two. and one time and impact. So that as of the February, we have some kind of a possibility of that. By the end of March, it can be realized that by the end of March, it was not, we're not for sure, but 100% we recognize it. That's why our forecast as of the February, well, say conservative. But these two factors are one off. So that's why I did not have in this fiscal year. So that, other than that, so for that, when it comes to accuracy of the COGS forecast, yes, we have some challenges to make it all the more accurate. So that, about that the sales did not change so much, but so the scope have changed a lot, right? So that, it's not that. It's not that. Okay, and this is, okay, then, then when it comes to next fiscal year, so, When it comes to this is about increase of R&D is much too substantial. Yes, for the new developing next generation endoscopy, but sometimes in the future we'll capitalize on that, capitalize that. So that's why I think that's what my question is about. You explained about, you mentioned about robotics is also part of it. This is you also consider about some of the possibility of M&A because you make a lot of investments in the innovation adventure. So taking all this not only for the organic, but also for the M&A, you have increases that the level of R&D costs, right? When it comes to the M&A, yes, we are interested in that M&A for the growth, but it's not the part of the R&D. It's a separate. Okay, understood. Okay, so this is only for the organic R&D efforts, right? Yes. Yes, yes, you're right. But when it comes to AI and robotics, and these topics are concerned, I'm sorry that I could not explain so clearly, but it's not that all of these innovative technologies can be done in-house alone, but also for the business. the alliance or the outsourcing or the divorce for the way we're thinking about for the R&D. I'm sorry. Oh, you have a quite old end for the AI and also for you having the alliance with the other partners. That's why I cannot understand why do you need this kind of an increase this year? If you have just getting on the new area like robotics, I understand it. What happens? It's not the news, the topic, rather... EVIS-X now, currently, is already matured in technology, so getting into the next generation of the endoscopy developments, and also for the, including them in digitalization, digitalizations, and new manufacturing approaches, that are all included here in the R&D, okay? So, this is Takeuchi speaking. So, Morisanto Normal Security's questions, and they have also, and that's related to his question, but And when it comes to that, how to spend these expenses and costs, so for antiluminal, and we have the challenges in the future, so that we need to increase the investment for that. That might be also possible, but also, if we make that investment, so this is the R&D, and by our organic and internal R&D, all that outsourcing, so we have both. So in the sense that And also, the question from the Morissa was that, is that an outsourcing cost? And that would include in the R&D or that our internal organic efforts? That was a question from Morissa, but we included both. So anyway, this is when it comes to our competency and we need to make that kind of additional and nominal investment, but we needed to have another, explore new areas. That's why We need to make some kind of strategic investments so that this is about the broader definition of R&D activities. It's very difficult to elaborate and specify what we will do, but all these elements are included in R&D. We hope that you understand that. Okay, understood. Thank you very much.

Thank you for the opportunity. First time asking questions. So I just want to ask you something about your China situation again. So you mentioned that the competition is becoming increasingly fierce. Could you perhaps provide a little bit more details which competitors in which product categories? And you guys give reason for China decline, but you didn't mention volume based procurement or pricing pressure. That's what, for example, Roche mentioned. Roche Diagnostics mentioned that in their report. in their recent results. I think you guys did mention anti-corruption. So I just want to, I think Mr. Jualowski mentioned anti-corruption. So I just want to hear a little bit more about that. Yeah, thank you.

Thank you, Mr. Lam. I would like to ask Frank to have the initial response to your question. If there's any additional supplemental comment can be made by Seiji, which is for the TSD area.

I think when we look at the impact, we cut our portfolio basically in two pieces. One is the capital goods and the other one is the disposable therapeutic products like GI endotherapy. Typically, the value-based procurement hits the GIET disposable products much more than the capital goods. So that means we have also seen our GIET business struggling over the last year. And that will continue, but the way out of that is typically innovation and launching new products, and that's what we are focusing on. On the GI capital goods, which is obviously the lion's share of our overall turnover, we have a situation where the main competitors are our standard main competitor, Fujinon, in the GI flexible endoscopy side. And we are also seeing, especially in the lower segments of the hospital market, a growing trend for local manufactured flexible endoscopes in GI. So that means at the moment we are seeing our major challenges in the low and mid-segment hospitals, while on the top segment hospitals with our recent launch of the X1 platform, we are still very positively growing the market there. Maybe, Seiji, if you want to comment a bit more on the GIT piece.

Yes, thank you very much. You know, the trend is exactly the same as the SIS. Us, physically, TSD has 80 businesses under the TSD, so we pretty much sacrificed the impact by BPP program for the endotherapy business. and then uh for the uh you know vp program itself and those with the significant competition with local manufacturers and then uh but in case of the uh you know the size in this physical yeah you know um we still have to do some of the consumable business like a surgical device energy device that is exactly the same situation under the bpp pressure uh you know in a quick gradual you know business is very much you know tight uh situations And then in the capital, especially in the West, that is exactly the same as a computer with a GI like Fuji and other local computers, you know, segmentation-wise, it's the same as the, you know, GIS. That's my answer.

Okay. You know, if I could just quickly, just a quick follow-up question about the anti-corruption. Is that still a factor in China or is that largely over?

As I mentioned earlier, we picked it up. We feel and see that the anti-corruption approach has moved into a more permanent anti-fraud activity. And I think that's healthy. That's a normal, good, combined standards. And therefore, we feel that that is a major new impact on our future outlook.

Okay, perfect. Yeah, thank you very much.

This is a question to Takauchi-san. So this time, effective June 1st. Now you have a new CEO, and it's very good news. But now, in this selection process, and... There are a lot of discussions, I think, that you had before that as a candidate, this Mr. Bob White. So based on these discussions and for a corporate policy, what would be fine-tuned? What would be changed dramatically after you have this new CEO? And we have that kind of ideas, if you can disclose them. And on top of that, if... And after this hour, for example, there's already disclosed the midterm business plan or the corporate vision. And when are you going to update about all these policies and the plans in the near future? Yes, Shimon-san, thank you very much. So far, and yes, in communication in the past, we... And we mentioned about we considered and working on the new Middletown business plan and strategy. That's why you asked that question. But now that we have the new CEO and with this, getting this timing of this new CEO, it's effective June 1st. We're very happy that we can have the CEO. in this early timing, but after that, and for the new management of policies or the strategies, and still we're working on that, because now still the COE has not joined yet as a formulae, so that's why, so, yes, we have about an hour and a strategies and mid-term business plans. So far, we have been working on. But anyway, we need to just renew that stuff once we have this new CEO so that it will be likely that we're going to have a lot of good input from this new CEO and from his own unique perspective. So that's why we like to fine-tune and refine the current plan and strategies and so that we like to take an action as soon as possible. But When it comes to timing, we cannot mention any specific timing when we can do that. Okay, that's all. Thank you very much.

Already some questions were asked. So in March, at the time of the CEO meeting, in the medium term, will be margin of 10% or more, and in the long run, 25% PEO. So with the new management team, rather than OP margin, basically you would try to increase R&D and to drive the top-line growth in coming 5, 10 years. Is it possible for you to prioritize that? Or OP margin strategy, the priority, would you be changing that? or become less important? That's my first question. And about the new CEO, I think that the term of office is about three years. So from now on, would that be longer? Thank you. Thank you. What about OP margin target? What to do about it or the ideas of the investments to increase the top line or to focus more on the growth or not. And no new policy has been formulated. OP margin, we are not ready to say that we are not going for the 25 OP margin. So as of now, in order to become the global medtech company, and to have a strong leadership, I think that type level of WP margin is necessary. That's what I think as of now. What was your second question? About the term of office. About the term of office. Our CEO, every three years or so, We had new CEOs. I think that was your understanding, but that is not the case. Either in the past or now, Bob White, in the search process of finding a new CEO, the longer term of office, or at the least length of the period, was something that we had in our mind. So three years is not the term of office. So the longer term, and we hope that he would make a contribution in the longer term. Okay, thank you. That's all. Thank you very much.