Olympus Corporation

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 CEO.

Despite these headwinds, our business performance remains solid driven by strong sales of EVIS 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, and adjusted operating margin was 18.9% both exceeding the forecast. Our quality and regulatory transformation project Elevate is continuing to progress well.

To meet our commitments to the US FDA, we expect to complete all commitments to the FDA by the end of FY 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 FY 2026 revenue is expected to grow steadily by 4% after FX adjustment.

Adjusted OP is expected to be ¥175 billion 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 FY 2026 dividend we plan to pay ¥30 per share, up ¥10 from the previous year.

As a result of our transformation, over the past few years, we have become a pure med tech 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.

Finally, I'm pleased to name Bob White, our new Representative Executive Officer President and CEO effective June 1. In addition, Bob is a candidate for our BOD 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 med tech industry will help Olympus unlock its potential to cultivate innovation and drive further growth befitting a global leader in the industry. Next I will discuss the key strategies for each business segment for FY 2026.

As explained at Q3 earnings call from April, we realigned 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, GIS and the Surgical & Interventional 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 OLYSENSE, 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 EVIS X1 U.S.-launch, we plan to launch flagship model scopes of the EVIS X1 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 the endoscopic ultrasound platform market. Additionally, we plan to launch the first CAD/AI products of OLYSENSE in Europe and the 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 the 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 intelligent, Endoscopy Ecosystem with the OLYSENSE system platform is a key pillar of our GIS strategy. Let me walk you through what we focus on in FY2026.

The first OLYSENSE portfolio to launch will be CAD/AI Software Applications designed to detect, characterize, and analyze lesions in the upper and lower GI tract. Following the mixed 2025, CADE Guidelines and recommendations from the ESGE, 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 for the gastroenterologists. The AI polyp detection algorithm of the CADDIE was trained on Sessile Serrated Lesions, SSLs and the large polyps that are often missed and more likely to progress to cancer.

Initial trial data shows OLYSENSE-assisted colonoscopies significantly improve the detection of the Clinically Relevant Lesions without increasing unnecessary resections. Currently, the OLYSENSE Hub and the CAD/AI products are being piloted in selected U.S.

and EU hospitals, receiving positive feedback at DDW and ESGE Days. So, in all, that's from the relevant investor.

We anticipate the strong long-term potential enhancing customer engagement and recurring revenues and the market share. The phased rollout of OLYSENSE and CAD/AI begins in H2, FY2026 with a subscription model.

Next, SIS develops an endoscope/laparoscopy-based ecosystem for the procedures in 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 BPH through the iTind market development while increasing the penetration of the core visualization and plasma technologies. I would like to introduce The SOLTIVE SuperPulsed Laser System for urinary tract stone management, which drives the lithotripsy growth in the next slide.

In respiratory, we continue to focus on driving adoption of the EVIS X1 bronchoscopy platform and drive growth in lung cancer diagnosis and staging with stronger emphasis around the updated EBUS-TBNA offering. In surgical endoscopy, we aim to introduce the VISERA ELITE III, 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 for some reason and coalesce in the form of a stone. 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 the treatment of urinary stones, we have a compelling and market-leading portfolio of solutions. Olympus was the first company to launch the new thulium fiber lasers for lithotripsy and we command the top market share in this category for both the laser systems as well as the consumable fibers.

The SOLTIVE SuperPulsed Laser System is already available in the U.S, Europe, and APAC and achieved double-digit growth in these regions during FY2025. 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 EBUS scopes contributed to decide the treatment policy by supporting the diagnosis of lung cancer type and staging in combination with other diagnosis results.

Our new Slim EBUS scopes extend 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, APAC, Oceania, and in Japan in this fiscal year.

Finally, I would like to briefly introduce our new CEO, Mr. Bob White.

So, that's in the MedTech industry and Mr. Bob White has been also for the globally and for the regionally have very good experience and expertise.

Mr. Bob White until April 2024 has worked as an Executive Vice President and President of the Medical Surgical portfolio for Medtronic.

Before then he was Senior Vice President and President of Medtronic Asia-Pacific based in Singapore where he had responsibility for APAC as well as Japan. So, that's why he has experience in Asia.

And his proven track record spans large multinational organizations as well as entrepreneurial ventures in which he consistently delivered exceptional results. Mr.

White has seen the numerous innovation programs and also for that and revitalizing Medtronic's respiratory and monitoring portfolios, advancing its GI portfolio and spearheading its robotics program and led several R&D initiatives and M&A transactions to drive strategic growth and value creation. His close engagement with the market and customers has enabled him to maintain a strong understanding of physician needs.

Prior to joining Medtronic, Bob held leadership positions at GE Healthcare, Merge Healthcare, and Healthcare divisions IBM. Throughout his career in the MedTech industry, he has played a pivotal role in improving the lives of patients around the world through that 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.

With that introduction, I would like to hand it over to CFO Mr. Izumi who will lead you through our detailed financials for fiscal year 2025.

Hello, everyone. I am Izumi, CFO.

I'd like to provide our 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 forecast, 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 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 EVIS X1 GI endoscopy system.

On the other hand, in China, competitive environment 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. Although 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 due to the decrease in losses related to Veran Medical Technologies, which were recorded in the previous fiscal year and the tailwind from FX. Adjusted OP increased by 25% year-on-year to ¥188.5 billion, with an adjusted operating margin improving 2.6 points to 18.9%.

Profit attributable to owners of the parent was ¥117.9 billion due to stable earnings base with EPS of ¥103. We plan to issue a year-end dividend for FY 2025 of ¥20 per share up ¥2 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 with an adjusted operating margin of 25%, an improvement from the last fiscal year.

Now, looking at each sub-segment. In GI Endoscopy, sales in North America grew 27% led by strong sales of EVIS X1 GI endoscopy system.

On the other hand, sales declined in China with its competitive environment intensifying due to the impact of Buy China policy and others. In Surgical Endoscopy sales 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 maintenance service and an 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 operating 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, sales increased in HPB-related products and others. In Urology, the growth was led by resection electrodes for BPH treatments and SOLTIVE SuperPulsed Laser System for urinary tract stone management.

In Respiratory, we saw strong performance in the EBUS scopes and therapeutic devices, mainly used for EBUS-TBNA. Next is balance sheet at the end of March, 2025.

Total assets decreased ¥101.4 billion 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 debt.

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 and the next to the status of cash flows. At the first glance, the cash flow may appear to have decreased significantly because the impact of the transfer of Evident was included in the last fiscal year.

But adjusted free cash flow and excluding extraordinary factors improved year-on-year. Cash flow from operating activities was positive JPY190.5 billion.

It increased significantly year-on-year due mainly to the increase in the profit before tax and corporate income tax refund. Cash flow from investing activities were negative JPY65.5 billion due mainly to the expenditures associated with the acquisition of tangible fixed assets and intangible assets.

Free cash flow stood at positive JPY125 billion. Adjusted free cash flow was positive JPY109.4 billion, excluding extraordinary factors such as acquisitions, transfers and reorganization of businesses.

Cash flow from financing activities was negative JPY211.5 billion due mainly to the share buybacks, the repayment of debts redemption of corporate bonds and dividend payout. As a result, cash and cash equivalents stood at JPY252.5 billion as of the end of March 2025.

Next is for the full-year forecast for the fiscal year 2026. The FX assumptions that are the basis for the forecasts are JPY145 to the US dollar and JPY161 to the euro based on average rates in the past one month.

Revenue is expected to be JPY999 billion on par with the last year. We expect a stable growth of 4% compared to the previous year after FX adjustment.

Adjusted operating profit is expected to be JPY175 billion with an adjusted operating margin of 17.5%. We assume 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 JPY105 billion with EPS of JPY94. I will explain about the shareholder returns later.

Note that this forecast do not include the impact of US 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 forecasts by business segment, so let me just explain by each business segment by segment.

In GIS, both revenue and profit are expected to increase after FX adjustment, driven by new products in EVIS X1 in North America despite an increase in the long-term strategic investments such as R&D expenses for future growth. In SIS, both revenue and profits are expected to increase after FX adjustment, driven by the sales growth centered on the focus areas.

Corporate expenses such as basic research included in the Elimination and Corporate have been reviewed. Starting from this fiscal year, a portion of these expenses are allocated to GIS and SIS.

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 medtech player improving and stabilizing cash-generation capabilities. In light of the situation, we have decided to significantly raise our dividend level.

We plan to increase annual dividend by JPY10 per share compared to the last fiscal year to JPY30 per share for fiscal year 2026. Furthermore as announced today, we decided on a share buyback of JPY50 billion after securing sufficient liquidity on hand for working capital and investments based on the capital allocation policies.

This represents the fifth consecutive year of share buyback. Going forward we continue to prioritize business investments that enhance shareholder value and allocate capital to ensure stable returns to shareholders.

So, we anticipate the business environment to remain uncertain this fiscal year including US tariff policies and the like. However, under the new management team that will be in place in 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 calls of 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 JPY20 billion 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 JPY20 billion can be alleviated.

But how much would that be, we are not ready to say. Also the assumptions for the tariffs, as you saw in the negotiation between China and US, we don't know, so it's difficult to factor that in.

That's the reason why we did not include that. So to your question, the gross impact of JPY20 billion and most of them can be alleviated, but we cannot say how much as of now.

I see. A follow-up, one point detail 10% 24%, so JPY20 billion 90 days at 10% and then 24% later on.

Is that the assumption? Or your competitors, the peers and the Japanese companies and US peers, I think that you would use the inventory and many companies said that impact will occur from later on.

So this JPY20 billion in gross, is that for nine months or—and you said that that can be alleviated. So 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% tariff, continuing for one year.

That is the assumption that we have, before coming up with this JPY20 billion. Our inventories are usually for two months, so this impact will happen in June and onwards.

As for 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 right away. 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 the cost.

So this time -- when I look at the documents and so forth that long-term strategic investments starting from that last quarter, you have started these strategic investments. So this means that for example, about 72% for that R&D expenses, it will be just higher than the average of the med tech including Japan.

What happens with that about the proportion of this percentage of R&D expenses, that can be strategic? That's why I think that, we should also maybe continue and then this will be sustainable and also this is particularly higher in this R&D cost.

Let me just ask about this your prospect about R&D expenses, in the near future. Thank you very much.

I'm Izumi, CFO. I answered your question.

The basic idea is that on a mid and long-term basis, we need to just invest for R&D, as a strategic investment. Therefore, this time ended March 2026, so we increased R&D expenses.

This is not the onetime increase. For example, it's difficult to get more specific, about how much after the next year and onward.

But anyway, not that it would 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. You are implementing the quality programs including for dealing with the FDA requirements.

How much of the cost of it this is? This year, it seems like it will just go down a little bit.

What is your plan about specific cost for this and the Elevate the quality assurance programs? What happens after for really getting into that including about the specific cost for quality assurance will be included and also for the other expenses?

Thank you very much. First of all, when it comes to the cost for Elevate in FY 2025, so this is JPY11 billion and the other cost is the JPY11 billion—and for the JPY30.5 billion as a total cost, it will be almost in line with our forecast and plan.

In FY 2026, I mentioned it would go down a little bit because for example for other costs it will be about JPY19.4 billion stood at JPY10.1 billion, it will reduce to that level. And then for SG&A, JPY9.4 billion total.

And JPY19.9 billion it will be below the JPY20 billion. This is the plan for this year.

And going further in FY 2027 and further it's very difficult to talk so clearly. But this is the Elevate program.

This quality program is a three-year program. And so this will end this FY 2026.

There's also no cost will be included in other costs. But after that for the SG&A, there is still about JPY10 billion of the cost we've included but it's not so dramatically go down but we will try to make it as efficient as possible.

Okay. Understood.

Thank you very much. That's all from me.

Thank you.

The impact of the tariffs I would like to know more details. And you said that the cross-functional team was established and you are 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 US, some products will go to other regions so sending them directly. And also the strategic price setting, it's 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.

On the demand side in US 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.

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 equipment and since 1990s both Japan and the US have offset their tariff with each other.

So that's our basic rule since then. So that this meant for example that because this is the medical equipment, costs related to the medical services for each citizen for both countries so that there's not -- that basic rule will not change.

For us, we're convinced that this is also to the government and also I think that the US government will share exactly the same concept basically that we strongly hope that the tariffs should be zero. It's not so much on just the 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's about your business in China. When I look at your numbers, it seems like they recovered substantially in your Q4.

But until the end of Q3, the business of about for example the concentrated purchases the China first policies that the negative factors are there until the end of Q3 last year so that's why -- and currently, what is the current status of your business in China? I'd like to know about it.

And also for last year, it seems like the gross profit margin is better than your forecast. Does this means that your recovery in the business in China last year was better than your forecast?

I would like to know about the comment please.

Thank you very much. First off, let me just answer to your question for me.

For Q3, at the time we had the earnings call and the last time in February, I mentioned about we see the sign of recovery after getting into this fiscal year in this year. This means that -- so December is the end of the fiscal year and China going towards the year-end of the fiscal year.

And so it seems like some of them stored and realized that the demand had gushed out or just comes out and that will lead to our incremental and substantial recovery it seems like. This is one of the background.

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. We'll really carefully watch it.

Still it's quite uncertain and unforeseeable when it comes to the business in China. And particularly -- so this is for this -- it had the impact over both of our business, but particularly for that I'd like to ask the comments from Frank-san and for the GIS.

All right. Do you ask me to comment?

Yes, if you have.

Yes, the audio was delayed one per second. Ueda-san, the recovery which we were expecting already in H2 last year was delayed as we all noticed.

And 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.

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 H2 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.

Thank you very much. I have one follow-up question.

How did you just -- what kind of assumption you have for 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 this downside in the business in China have led to some kind of a downward revision of the business plan. That's why you tend to be a little more conservative than last year or something like that?

Yeah. That's correct.

We are currently working on the assumption that we will be able to grow compared to FY 2025 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 antifraud 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 from 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.

Do you still want to 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.

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 about ¥20 billion in terms of profit and loss it's increased.

The headcount is not quickly increasing. How would you be spending that?

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.

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. We would need R&D budget for that.

I cannot give you the breakdown but those are the areas that we expect to work on.

But the consigned R&D for example ¥20 billion is used for the R&D outside of the Company or?

Well, R&D, the consigned R&D budget would also increase yes. We do expect that to increase the R&D that is outsourced to outside.

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.

We are not sticking with doing the R&D on our own. Thank you.

My first question is about this gross profit margin the 70.8%. Izumi-san, I'd like to discuss with you about the accuracy of this forecast.

In Q3 yes your endoscopy business in China will decline so that's why you made a downward revision. Other than that endoscopy and in China the other business did not have any impact on the gross profit.

I think that, this number cannot be explained only by this by the declining in the China and the rebound of China in the Q4. So also, what happens in Q4 and 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 this expected upside in Q4?

What is that reason? Would you be more specific about it?

And what do you think about the factors in the next fiscal year?

Yes. In Q4, last year there are two specific factors with COGS.

First one is that's for the reversal of the JPY3.6 billion of that recorded provisions and also for the JPY2.2 billion for the suppliers. So these are the two onetime impacts so that as of February, we have some kind of a possibility of that by the end of -- here we can realize it.

By the end of March, we're not for sure but 100%, it will be recognized. That's why our forecast as of the February we'll say conservative.

But these two factors are one-off. So that's why I did not have in this fiscal year.

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 about that the sales did not change so much so the scope have changed a lot, right? So that --it's not that?

It's not that.

Okay. Understood.

Okay. Then when it comes to the next fiscal year, when it comes to this year, it's about increase of R&D is much too substantial.

Yes, for the new developing next-generation endoscopy, but sometime in the future we will capitalize that.

That's why -- I think my question is about -- you mentioned about robotics is also part of it. So this is -- you also consider about some of the possibility of M&A because you make a lot of investments to the innovation ventures.

So taking all this not only for the organic, but also for the M&A, you have increased that level of R&D cost, right?

When it comes to the M&A, yes, we are interested in the M&A for the growth, but it's not the part of the R&D. It's 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, as these topics are concerned, I'm sorry that I could not explain so clearly, but it's not that all of these innovative technology can be done in-house alone, but also for the alliance or the outsourcing or that's for the way we're thinking about for the R&D.

I'm sorry.

You have acquired all them for the AI and also for you having the alliance with the other partners. That's why I can't understand, why do you need this kind of increase this year?

If you have just getting on the new area like robotics, I understand it. What happens?

It's not new topic rather EVIS X now currently is already matured and technology. So getting into the next generation of the endoscopy developments and also for including them in digitalization and new manufacturing approaches these are all included here in the R&D.

Okay.

This is Takeuchi speaking. So Mori-san [ph] of Nomura Securities questions we have also -- and that's related to his question, but when it comes to how to spend these expenses and costs so for endolumino 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 investments that -- so this is the R&D and by our organic and internal R&D or the outsourcing.

So we have both. So in the sense that -- and also the question from Mori-san was is that the outsourcing cost and are included in the R&D or is that our internal or organic efforts?

That was a question from Mori-san, but we included both. This is when it comes to our competency, we need to make that kind of additional 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 recent results. I think you guys did mention anticorruption.

So I just want to -- I think Mr. Drewalowski mentioned anticorruption.

So I just want to hear a little bit more about that here. Thank you.

Thank you, Mr. Lan [ph].

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 product 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 GI ET disposable products much more than the capital goods. So that means we have also seen our GI ET business struggling over the last year.

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 Fuji now 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. 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 just Seiji if you want to comment a bit more on the GI ET piece and

Yes. Thank you very much.

The trend is exactly the same as the SIS. Last fiscal year the TSD has ET business under the TSD.

So we pretty much sacrificed the impact by the BPP program for the endotherapy business and then for the BP program itself and also the significant competition with local manufacturers. And in case of the SIS in this fiscal year we still have some of the consumable business like surgical device energy device.

That is exactly the same situation under the BPP pressure because the business is pretty much in a tight situation. And then capital, especially, respiratory that is exactly the same as competitor with GI like Fuji and other local competitors.

Segmentation-wise it's the same as the GIS. That's my comments.

Okay. If I could just quickly --just a quick follow-up question about the anticorruption.

Is that still a factor in China? Or is that largely over?

As I mentioned earlier let me pick it up. We feel and see that the anticorruption approach has moved into a more permanent anti-fraud activity.

And I think that's healthy. That's a normal good compliance standard.

And therefore we feel that that is not a major new impact on our future outlook.

Okay. Perfectly.

Clear. Thank you very much.

This is a question to Takeuchi-san. So this time and effective June 1 now you have a new CEO.

And it's very good news. But now, in the selection process, there are the discussions, I think you had before that, as a candidate, this Mr.

Bob White. So based on these discussions and for a corporate policy, what will be fine-tuned?

What will 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 Mid-Term Business Plan or the corporate vision. When are you going to update for all these policies and the plans in the near future?

Yes, Shibano-san, thank you very much. Yes, in communication in the past, we mentioned about we considered and working on the new Mid-Term Business Plan and strategy.

That's why you asked that question. But now that we have the new CEO, and with this given this timing, there is new CEO he is effective June 1, we are very happy that we can have the CEO in this early timing.

But after that, for the new management policies or the strategies and still we're working on that, because now still the CEO has not have joined yet formally. So that's why.

So yes, we have about the whole and the strategies and Mid-Term Business Plan. So far, we have been working on.

But anyway, we need to just renew that step 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. That's why we'd like to fine-tune and refine the current plan and strategies so that we would like to take an action as soon as possible.

But when it comes to the 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, OP margin of 10% or more and in the long-run, 25%, P/E was mentioned. 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 five-10 years?

Is it possible for you to prioritize that? 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, could that be longer?

Thank you.

Thank you. Well, 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.

No new policy has been formulated. OP margin -- we are not ready to say that we are not going for the 2025 OP margin.

As of now, in order to become the global MedTech Company and to have a strong leadership, I think that type level of the OP 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 for finding the new CEO, the longer term of office or 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.