7733.T7733.T
LOADING
|||
Chikashi Takeda: Hello everyone, I am Takeda. So first of all, I would like to provide a review of our numbers and then the second half of the presentation, Stefan Kaufmann to talk about growth and value creation. Thank you very much for participating in this conference for the Consolidated Financial Results for the Second Quarter Fiscal 2024, despite your busy schedule. First, I would like to provide a review of the second quarter results and then talk about full year forecast for fiscal 2024. Please go to Slide 3. This will be the highlights. Revenue increased 5% on a consolidated basis. The Medical Business reached a record high for the second quarter and with the first six months of the fiscal year. However, profit declined in addition to the absence of the ¥16.4 billion gain on the sales of land in Tokyo, record in the previous fiscal year. And due to the discontinuation of the manufacturing sales electromagnetic navigation system, by Veran Medical Technologies, this is a loss around ¥49.6 billion, and a provision of approximately ¥5 billion gain associated with the voluntary recall of small intestine endoscopy system, et cetera in ESD. Other factors include rising expenses related to various projects to improve efficiency, as well as personnel expenses for future growth and strengthening the operational infrastructure such as QARA. Expenses related to the U.S. FDA were approximately ¥1 billion under SG&A expenses, and approximately ¥11.9 billion incurred under other expenses. These expenses were mainly comprised of complaint handling, medical device reports, MDRs and the validation of processes and designs, and were designed to strengthen the quality assurance function for our medical devices as required by the FDA and authorities in various countries. We have been engaged in constructive dialogue with the FDA to date and have made steady progress in dealing with the issues indicated in the warning letters. Adjusted operating profit, which excludes other income and expenses, declined 16%, with an adjusted operating margin of 15.2. Regarding total profit including both continuing and discontinued operations, we posted a record high of ¥216.7 billion, with EPS of ¥174, due to a gain on the transfer of the Scientific Solutions Division recorded in the first quarter. To the full-year forecasts for fiscal 2024, we have revised our forecasts to reflect results up until the second quarter in addition to changes to FX assumptions from the previous forecast. Revenue will increase 9% year-over-year to ¥958 billion, with adjusted operating profit declining 1% to ¥174.5 billion. We forecast an adjusted operating margin of 18.2%. We project combined profit from continuing operations and discontinued operation to reach a record high of ¥289 billion, with EPS of ¥238. Additionally, as announced in a timely disclosure today, we have decided on an additional share buyback of ¥80 billion in accordance with our capital allocation policy. In fiscal 2024, we plan a share buyback of ¥180 billion in total. In fiscal 2024, while we expect profit to decline due to various internal and external factors, we will steadily implement measures to address specific factors that inhibit growth, while continuing to implement upfront investments for sustainable growth. Our CEO, Stefan Kaufmann will talk more about these points later. Moving to Slide 4. I’ll now explain the consolidated financial results and provide business review for the second quarter of fiscal 2024. Please go to Slide 5. This is an overview of our consolidated financial results. Consolidated revenue amounted to ¥436.6 billion. The Medical business reached a record high for the second quarter and it was up 5% year-over-year. All business segments, while ESD, TSD and others all grew. By region, APAC, which grew in all areas, performed well. By business segment, Medical service and GI-Endotherapy continued strength. Gross profit was ¥288.4 billion, with gross margin deteriorating 0.4 points. Despite a decrease in procurement in the semiconductor spot market, the ratio worsened due to a provision of approximately ¥5 billion associated with the voluntary recall of small intestine endoscopy system in ESD. SG&A expenses were ¥221.6 billion, with SG&A ratio deteriorating by 3.2 points. Major factors behind this include an increase in expenses related to various projects to improve efficiency, as well as rising personnel expenses in future growth and strengthening of operational infrastructure such as QARA. Adjusted operating profit declined ¥12.8 billion to ¥66.6 billion, down 16% year-over-year. The adjusted operating margin deteriorated 3.8 points to 15.2%. Regarding other income and expenses, a loss of ¥62 billion was posted. A loss of about ¥49.6 billion due to the discontinuation of manufacturing and sales of electromagnetic navigation systems, by Veran Medical Technologies, and FDA related expenses of about ¥11.9 billion were recorded. In the previous fiscal year, we recorded a gain of ¥14.6 billion, including a gain of approximately ¥16.4 billion on the sale of land in Tokyo. A loss of ¥11.5 billion from continuing operations was posted. In the meantime, with completion of the transfer of discontinued operation Evident in April 2023, we recorded a gain on the transfer in the first quarter of this fiscal year. Total profit including both continuing and discontinued operations amounted to ¥216.7 billion, with EPS of ¥174. Next, I would like to explain our full-year forecasts for fiscal 2024, on page 10. Sorry, could you go to page 11. Our full-year forecasts FY ‘24. We have revised our forecasts to reflect results up until Q2 in addition to changes to FX assumptions from the previous forecast. The assumed exchange rates now is on the basis for forecasts are ¥145 to the U.S. dollar and ¥155 to the Euro. We project that revenue will increase 9% year-on-year to ¥958 billion, with adjusted OP declining 1% to ¥174.5 billion with adjusted operating margin of 18.2%. Despite the weak yen as a tailwind, we expect to see challenging results due to various internal and external factors. We project a record profit attributable to owners of parent of ¥289 billion with EPS of ¥238, reflecting a gain on the transfer of Evident. Also, profit from continuing operations is expected to reach ¥61 billion, with EPS of ¥50. Capital expenditures forecast have been revised to ¥78.0 billion due to a review of investment items, based on the results until Q2 and the impact of weak yen. Dividends for fiscal 2024, we plan to issue a dividend of ¥18 per share, unchanged from May forecast. In addition, today we announced an additional share buyback of up to ¥80 billion. The EPS figures discussed today will reflective this as we plan share buyback of ¥180 billion for the full year. Slide 12. Moving to forecasts by segment. We have revised down the ESD OP forecast from the August announcement, considering a delay in tenders due to the anti-corruption campaign in China and the provision with the voluntary recall of small intestine endoscope system. EVIS X1 was launched in North America, our largest market, and China from October 2023, which is expected to drive our future business expansion. We also have revised down the TSD OP forecast, considering supply delays caused by quality responses and parts shortages, as well as a loss of approximately ¥49.6 billion related to Veran Medical Technologies, posted in the Q2. FDA-related expenses improved around ¥9 billion in SG&A and a ¥20 billion in other expenses for the full year. For Elimination and Corporate, despite the absence of gain on the sale of land in Tokyo of approximately ¥16.4 billion recorded last year, the expected increase in corporate and infrastructure reinforcement expenses such as IT-related expenses. Operating result is expected to improve due to revised classification for each project this year. Lastly, discontinued operation will generate a gain on transfer of Evident, resulting in a significant increase in profit year-on-year. Slide 13, please. This slide shows the factors behind the change in adjusted operating profit from the previous announcement. As was explained earlier, we are facing a difficult situation this year due to various factors. Such as the lower sales, provision associated with the voluntary recall of some products, expenses related to FDA response, and other factors, because of this adjusted operating profit is project at the ¥174.5 billion. Please refer to the Appendix for the factors for the change in operating profit on the IFRS space. Now. This is all for my part. So I like to hand over it to CEO Stefan Kaufmann.
Stefan Kaufmann : Thank you very much for your explanation, Chikashi. So, hello, everyone. I am Stefan Kaufmann, thank you for joining this earnings call. Today as the President and CEO of Olympus, I would like to share with you my view on our current situation and give you some insight on our actions to sustain growth and value creation for all our stakeholders mid-and long-term. Our clear priority is the remediation of all issues outlined in the three warning letters and transforming Olympus into a best in class MedTech company with highest focus on patient safety and quality. We are making significant progress in meeting our FDA commitments and transforming our operational approach to deliver innovative, high- quality products and solutions to the market with enhanced efficiency, paving the way for the future. As already indicated in May, when we shared our three-year strategy with you, some of our remediation activities have a short term impact on growth and profitability. Foreign exchange is helping us this fiscal year, but our mid-term ambition level with respect to growth and margin expansion is obviously higher than what we will be able to deliver in this year. Our shareholder’s trust is important for us. Our capital allocation policy remains valid and we will this fiscal year and in the future increase value for our shareholders and improve our capital efficiency. Now I will provide you with some more details to the respective points mentioned so that you hopefully gain a good level of understanding of my leadership and direction for Olympus. Our company strategy is easy to summarize and comprehend. We have defined 3 strategic priorities: Patient safety and sustainability, innovation for growth and productivity. We invest and will harvest from 4 strategic value pools: Business and Global Expansion, Strategic M&A, Care Pathway Enhancement and Intelligent Endoscopy Ecosystem. In all of these we in 3 prioritize investments areas and focus areas: GI, Urology, and Respiratory. As announced in the company strategy, we will invest approximately ¥60 billion over the next three years in strengthening QARA. These will be invested in both remediation and transformational activities, which cannot be clearly segregated due to the complexity and dependency of the different projects and we have therefore consolidated remediation and transformation under one holistic Program management, which we named ELEVATE. We believe that ELEVATE will be one important enabler for innovation, growth, and improved profitability through sustainable benefits such as improved lifecycle management and digitally-enabling processes to reduce costs, improve effectiveness, and shorten time to develop, clear and launch new products. Once more, the remediation of the findings that led to our three warning letters as committed to FDA is the undebatable top priority. But we will at the same time unleash Olympus’ full potential. We do not want to miss out on this opportunity for fundamental change. In addition to the QARA efforts I have just described, we are also making investments and implementing initiatives in the three strategic priorities to achieve sustainable growth and value creation over the mid-term, and I would like to introduce some of those examples today. As one of our remediation and transformation projects, we have strengthened our capabilities and completely revisited our structure and processes for regulatory approvals. I am proud that we launched EVIS X1 endoscopy system as promised in the U.S., and even earlier than planned in China. EVIS X1 is now available in all relevant markets worldwide. It will provide the company with stable growth and cash flow. In markets where we launched already a few years ago and from now on also in the U.S. and in China. In China, the effect may delay due to the local anti-corruption efforts. So all-in-all we are incredibly excited about this progress as we will be able to cover the remaining 50% of our sales for further growth potential. In the last months, I had numerous opportunities to talk with healthcare professionals at congresses in Europe and Japan and at other occasions. Their feedback is unanimously reassuring and everyone is specifically praising that we have reached the next dimension of visualization. Therefore, please let me highlight some of the specifications that give us again a unique position in the market, ahead of competition. The EVIS X1 endoscopy system is our most advanced endoscopy system and introduces several easy-to-use technologies that aim to revolutionize the way gastrointestinal disorders can be detected, characterized, and treated. The imaging advancements include TXI, RDI, NBI, EDOF and ENDO-AID CADe. The EVIS X1 system first launched in Europe and has seen immense success and adoption. A recent customer testimonial claimed that the imaging capabilities delivered by the EVIS X1 platform really improve our capabilities to diagnose lesions and GI cancer at an earlier stage than was possible before. The EVIS X1 provides a combination of diagnostic and therapeutic innovations to streamline and improve endoscopic procedures and scope handling. We are excited to continue to elevate the standard of care with EVIS X1. Sales growth in TSD is more impacted by remediation activities and unfortunately we have not yet solved all our supply chain challenges. Nevertheless, the basics are still in place. In GI-Endotherapy, complementary to our core GI portfolio, we have built a broad and differentiated GI-Endotherapy portfolio of ERCP, ESD, Sampling and Hemostasis solutions. Sales in U.S. grew in the first half double digit, which demonstrates our strong competitiveness in these therapeutic areas. As you are aware, we are in closing discussions with Taewoong Medical. Their product portfolio is largely complementary to ours and we regard their metallic stent portfolio as a significant future growth driver. In Respiratory, we lead market position in pulmonary and EBUS bronchoscopes, and our investments in single-use airway management scopes and the Slim-EBUS scope, which are under development, are expected to reinvigorate the growth in this segment. In Urology, for the upper urological tract, 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. Competition has increased in this segment and we are currently revisiting our go to market strategy for the U.S. In the lower urological tract, we have a similarly compelling and market-leading portfolio of solutions for the treatment of bladder cancer and BPH. We expect to see significant growth from the PLASMA+ Technology system and more good news to come on the following page. Today, I am delighted to introduce iTind, which we expect to be a mid- to long-term growth driver for Urology. iTind is a minimally invasive treatment device that contributes to early improvement of symptoms of BPH. It does not require cutting or heating of prostate tissue, does not require permanent device implantation, and contributes to avoiding complications associated with other treatments. For patients, it is also a great way to maintain sexual and urinary function and recuperate at home, as it does not require an uncomfortable catheter and can be inserted with a simple procedure without hospitalization. For iTind, on October 20, 2023, the American Medical Association CPT Committee published its decision to establish two Category 1 CPT codes, a reimbursement code for clinics, which is expected to go into effect in January ‘25. Although we have already obtained reimbursement in hospital outpatient and Ambulatory Surgical Center, iTind is in high demand in the clinic or office setting due to its minimally invasive device and day treatment capability, and more patients and physicians will have access to the novel iTind procedure. The U.S., where the CPT code applies, accounts for approximately 40% of BPH patients worldwide, and iTind is expected to drive future growth in the urology field. Next, we will discuss the efforts to improve, productivity. Since this fiscal year, we are not a conglomerate of different businesses, but a pure MedTech player. Now we have the opportunity to create an operating model that puts the divisions on top of the organization with the full accountability for the global P&L and verticalize all supporting functions with an aligned set of targets and KPIs and clarity about accountability. We have already allocated targets for productivity improvements in fiscal year ‘25 and will in addition take a more structured approach next year to baseline the global organization, clarify value contribution and benchmark with industry peers to seek for further simplification and higher efficiency of our organization. Regarding capital allocation, the policy of investing in innovation, business, and M&A remains unchanged, with business investment as the top priority. In terms of M&A, we will continue to strengthen our product portfolio through tuck-in M&A opportunities that complement and enhance our existing businesses and fit our portfolio in focus disease areas in GI, urology, and respiratory. As in the past, we aim to increase dividends to shareholders in a stable and gradual manner and will consider share buyback when there are surplus funds available, after securing sufficient liquidity on hand for working capital and investments. We announced today that we decided on an additional share buyback of ¥80 billion. The total share buyback for fiscal year ‘24 is expected to be ¥180 billion. The total shareholder return ratio for fiscal year ‘24, including an annual dividend forecast of ¥18 yen per share, is expected to be 69.5%. We will proactivity continue to consider share buyback in accordance with our capital allocation policy for fiscal year ‘25 and ‘26. We are committed to allocating our capital with a view to improve the capital efficiency of Olympus and optimize returns to our shareholders. This is the last slide of my presentation. As we are holding the Q2 earnings call today it is not the right time to update our mid-term target until fiscal year ‘26. Nevertheless, I would like to give you today at least an indication of how I expect our financial KPIs will develop in the next two years and beyond. We are facing temporary headwinds on our top line caused by our quality remediation efforts, macropolitical and economical factors and some supply chain shortages. But we take actions to mitigate those headwinds and defend shareholder value because we believe we have a great business and the right strategy in place. In fiscal year ‘25 our remediation will not be finalized. I also don’t expect that the macropolitical and macroeconomical headwinds we experience this fiscal year, will go away quickly. It is too early to say, but while I believe sales growth will be higher than this year, I don’t expect a v shape recovery. Our EPS target is including the ¥100 billion share buyback but not the one announced today. Also foreign exchange effects are not included. We aim to achieve an EPS growth well above the target of 8%, as we will proactivity continue to consider share buyback in fiscal year ‘25 and fiscal year ‘26, in addition to a share buyback of ¥180 billion in total in fiscal year ‘24. Part of being a leading global MedTech company is having industry-leading capital efficiency so we have room to improve our capital efficiency. We have started already our productivity measures, but some of them will take time to fully positively impact SG&A and bottom line in fiscal year ‘26. With all this said, in fiscal year ‘26 I expect us to achieve our mid-single sales growth target and adjusted operating margin to finally meet our target of 20%. After fiscal year 26 I expect Olympus to be set up for steady margin expansion above 20% by higher sales growth on a more efficient global operating model. The three takeaways of my presentation as follows. Number one, remediation and transformation is progressing successfully. But it's not a walk in the park. It hampers growth and profitability this year. And also it will hamper growth and profitability in fiscal year ‘25. Second, our business, our strategy or business model, our technology, our customer relationship are robust. And they secure sustainable growth and value creation for all stakeholders in the future. Also in challenging times. And last but not least, fiscal year ‘26 will be back on track for higher sales growth and margin expansion above 20%. Thank you for your trust and your support. That this finalizes my presentation. And now we're looking forward to receiving your questions
A - Chikashi Takeda : We’d like to go into the Q&A session.
Unidentified Analyst : So what I want to ask more is that, your performance has deteriorated. The putting aside the Veran situation. So this fiscal year, I think the situation is tough. I understand that. But whether are going to recover in next fiscal year, I would like to make a discussion about that point. Well, in summary, the anti-corruption in China is going to put down your sales and I don't remember it the BTST or ESD there has been a decline in investment in Europe. And then I think for urology I think basically there has been some sort of supply in terms of components. I think this has been the three major impacts on the actual demand. So going forward, I mean, next year, is it actually going to recover. I would like to hear your thoughts about that. Specifically, in terms of the decrease in investment in Europe, the U.S. companies have not mentioned about this much. I specifically want to take a deep dive about the situation in Europe.
Stefan Kaufmann: Well, thanks a lot for your question. And then I would give you an answer from my perspective, and then hand over to Nacho to supplement. So actually, what we see from our perspective is that the situation fiscal year ‘24, compared to what we expect from fiscal year ‘25, from a macro political and macro-economic environment will not change significantly. So when you look at the situation in Europe, we are affected, obviously, by the sanctions against Russia, which has an impact on our top line significantly. And when you look at Germany, there's at the moment reform of the hospital system of the healthcare system that prevents hospitals to purchase capital goods. And also the positive effect we had from the investments of NHS basically, will not positively anymore impact our sales growth in UK. Then when you look at a China. We believe that the anti-corruption campaign in China has not shown so much impact year-to-date on our results, but we do expect that this will have an impact on the second half of fiscal year ‘24. And some of the impacts might also carry forward into the first quarter of the next year. So this is the macro economic environment. And then on an internal perspective. Basically, as you have seen in fiscal year ‘24, we have seen a couple of reports and a couple of records in relation to our remediation on transformation activities in QARA. As I said in my closing remarks, and we still need one more year to finalize our remediation and transformation activities to be back to very normal operations. And I think this is the reason why I'm for fiscal year ’24 without already committing final numbers, so I'm careful to create too much optimism that we have a V shaped recovery, I'm sure we will do better than this year. But to catch up with the 5% CAGR I don't I don't think this will be realistic and feasible in the next year. Nacho, over to you to supplement and complement.
Nacho Abia: Just to complement what Stefan said that you mentioned [technical difficulty] is a much more diversified company in terms of geographies, that most Americans that provides obviously a larger opportunity in many occasions, but also provides higher exposure in markets like Europe or China, where our penetration has been significant over years. And the way that we have the business that we do there is very relevant in all sorts of styles. So I think that from an external point of view, we see definitely a situation in Europe that in Europe or in China, that is early to say it’s going to improve, I personally believe that the European environment is going to continue being tough in terms of investments, I think the pressure the inflationary pressures, is putting all the pressure in hospital systems. And we will enjoy over the last few years, the massive investment on NHS in the UK specifically and specifically in endoscopy, where they clearly overhauled entire, almost entire country in terms of endoscopy rooms. And obviously, the German health care reform will have an impact as well. So I think from that point of view, the situation will continue to recommend caution on our expectations there. From internal point of view, as Stefan just mentioned, I mean, we are just in the process of elevating to the elevate process, our quality situation, and that means much more scrutiny in every single signal that we have on the market that any problem can be potentially creating an issue with the patient. And this is provoking a number of logistical situations in the moment we detect any signal of any kind. And then we really post really look at the situation and figure out what is the best course of action. But that sometimes means that we have to stop the supply of products for a while. And that's provoking some logistical challenges. Obviously, this is in the process to be improved. But as Stefan just say, I mean, we still believe that some of it is going to continue in fiscal year ‘25. So definitely I totally agree with Stefan the fiscal year ‘25 will be better, but not yet at the level that we would like to recover from fiscal year ‘26 and beyond. Thank you.
Unidentified Analyst : Yes, so yes, we understand – finally, thank you. So far, I guess it looks like ‘25 is still going to be a bit challenging. I think the challenges will remain. Just my follow up question. I guess. I'm trying to understand why you are up here because it doesn't really sound like all the other companies have talked about Europe is something specific to endoscopy or is this just this is just weakness in general from the hospital environment. This is my final question.
Stefan Kaufmann : The two single the two single impacts that are specifically to underscore polarized specifically I would say more specifically to Olympus are the largest investments that the NHS was doing over the last three years. And literally reform, a lot of investment in general, but the specific investment in endoscopy in the country and our exposure in Russia. I mean, our presence in Russia was very relevant before it were. And this has been deteriorated this would be the unique situation for Olympus. Generally speaking, the health care reform in Germany. I mean, I think it's going to have an impact on the entire industry slowing down. These are investments, as we have seen, and we've seen this not only for Olympus, but what is the impact on other companies, I cannot say but the penalties not only for Olympus, but Russia and the UK, are the single factor that I believe are impacting more us than others.
Unidentified Analyst : I have a question for TSD. Maybe you may have touched upon this. But on slide 36, supply chain QA and supply shortage, 90 billion -- or 9 billion to 10 billion is recognized? Do you have any numbers specifically for the first half? What is the current situation for this problem, especially for new urology? In q2, the numbers were very weak, as I understand. So is this problem still going on? I thought that the numbers are very weak, compared with Boston, your competitor, your number was so weak. So that makes me worry. It's not maybe because of supply chain, but because of the competitive dynamics, you are getting weaker. That's my concern. But could you deny that? If that's not the case, if there is continuous problems still, do you have any sign of improvement? Or do you have any idea for the end of the problem?
Stefan Kaufmann : Like with the first question, I would start and then ask Nacho to supplement and to complement. So the back order situation in TSD has two factors. One factor is related to supply for the trust, the other factor is related to ship ports. And there were a couple of ship points, we had to introduce in the first six months of fiscal year ‘24. In total, the backorder situation in TSD is stable. So we are on a backorder level of around 40 oku, which is high, too high. So we take further efforts to reduce. And the sales development in TSD indeed differentiates from category to category. As I mentioned, in GI, we see remarkable growth, as I mentioned in the U.S., we grew double digit in the first half of the year, specifically the area of urology was touched by some of the reports, the plasma, and also SOLTIVE. And as I mentioned in my presentation for SOLTIVE, the competitive environment has increased and we are revisiting at the moment our go to market strategy. But all in all, the outlook for GI ET for urology and respiratory is that we are on a very stable foundation with a strong market position that you believe that our products are competitive. And Nacho over to you.
Nacho Abia: Yes. Thank you, Stefan. Just to complement this, I think that there is a different aspect that has impact in our TSD business but as a Stefan would say I think that we have out of the three focus area in TSD. And clearly we have a quite a stable situation growing market share specifically in the U.S. in our endotherapy business, which is the business which is growing this year, but we've been suffering, specifically neurology and for two very, very clear reasons. So we were the first one that we launched the two new technology, the tooling brusher technology into the market and we enjoy it for a while, of a unique position that we were the only one. But we knew and it was very clear that other competitors will come with that technology. And because of that we have been invested into improvements of the products. This is the year where most of the competition is coming and obviously you see that and on top we have had some supply issues where we'll have to push for some time to push the supply chain and obviously this is a run rate business, right. So I think when you have supply, the customers cannot wait. And they need to go somewhere else and find those products because their procedures cannot stop. So I mean this is having an impact, but it's a temporary impact that will be recovered in both fronts, one, we are working on new products and new solutions that will be added to the current tooling lesson platform that will make again ahead of the competition. And with supply chain topics, we expect them to be improve over time, and then to recover the stable supply. So again, I think that the results are here on TSD, they are apparently not the ones we like to see. But I think we understand the reason we are confident that these will be recover as soon as we can recover the stable supply chain. And we -- I mean competition is always going to be there. But we will continue bringing solutions to the market that will keep us ahead of competition. Thank you for your question.
Unidentified Analyst : Thank you. Sorry, I have an additional question regarding your plan for therapeutic equipment. This year, so sales projection is flat. So for this fiscal year, the supply chain issue is not likely to be solved for this year, especially for QA in the first half. Do you have a number in terms of the impact from the supply chain for the first half for this year?
Nacho Abia: I think Stefan already mentioned that our level of backorder is about significantly high is four times higher than that it should be at this point. And this is pretty much about what we feel that we are missing at this point, it is [indiscernible]. It is very difficult to predict at this point what is happening with the supply chain for the reasons that I mentioned before, right. So we are acting very diligently following our new quality direction and being scrutinizing any single signal that we identify from our product in the market. And this is a process that will be improved over time. And we will be able to accelerate that process and not to generate in logistical delays because of that, but at this point, it still is happening. And I think that it's very difficult to predict what is going to happen in the next month is but I think to expect sharp recovery, it's not realistic, I think maybe smooth recovery over the next month is and hopefully during fiscal year ’25 we can get to a stable situation during the year and then from there, we can work with the supply limitations. Thank you for your question.
Unidentified Analyst : Thank you very much.
Unidentified Analyst : So I have one question, if possible, please answer. So the intent of the re-auditing of industry inspections of the FDA to release you from this warning letters, the timing of the investigations of the FDA. So maybe one year it will be difficult will be not in the calendar year ’24. Should we assume that is going to happen in calendar year ‘25?
Nacho Abia: Sure, if I understood your question correctly, is your question when we have finalized our remediation and the warning letters will be lifted? Or what is the direction of your question?
Unidentified Analyst : Yes, that was the meaning of my question.
Nacho Abia: So obviously, we cannot make any statement about when warning letters will be lifted or not. This is completely up to the discretion of FDA. The only thing I can tell you is that we are making good progress towards the commitments we have made. And we are in steady and constructive communication of different levels with our partners in Washington. So from my point of view, we are making good progress, but to make an estimate when a warning letter will be lifted, that that's nearly impossible to do. Again, this is also not within our influence and discretion.
Unidentified Analyst : On page 15 of the material. Once again for the industry, you're trying to reform yourself into the best domestic company in the industry. So after the new President came in 18 months, business environment changing from where you are. So MedTech company with the highest standard in the industry, in order to become a company like this, what is missing still, QARA is a necessary condition, it's not a sufficient condition in your material, stock buyback is going to be considered for next year and year after that. So in that sense, maybe M&A. So maybe not M&A because of this timing. But for you to become the best level global metric company, what is still missing, you have these initiatives listed. But these are the initiatives that you have been always talking about. But what is the really fundamental issues that you still have to tackle in order to become one.
Stefan Kaufmann: So from my point of view, obviously, there is no universal definition, what the best in class MedTech company is. I think there are a couple of boxes, we still have to tick in order to call ourselves best in class. And, obviously, to be a company that, in all aspects puts patient safety and quality first, certainly one of the boxes, where we have still room. The other part, I believe, is related to the financial performance with respect to growth, but also with respect to margin expansion and capital efficiency. Also there believe our company in the next two or three years has room to improve. And last but not least, what is very important criteria for me is innovation, both organic innovation and inorganic innovation. And I think in that area, both in M&A but also bring new products to the markets, I think Olympus still has room to become faster to bring more new products into the hands of our customers. So this would be the criteria I would tick to call ourselves a best in class MedTech company.
Unidentified Analyst : Thank you very much. I have one related question. So to raise your bar for the global MedTech, maybe there are things that you didn't look at including surgical endoscope in the last several years, probably you will review the portfolio going forward and also for M&A, like Veran’s case, relatively you bought these companies with high expectations, but actually other than Arc Medical, other companies who are small in size and sales contributions were small. So, the M&A efforts in terms of pricing the company put and the efforts post-merger. I hope that company will have more active discussions. So, I have question about the portfolio review and M&A strategy review. Are there any discussions going on in terms of changing the course of M&A strategy and portfolio review?
Stefan Kaufmann: So, thank you for the question. So, first, in relation to portfolio, obviously, we are reviewing our portfolio on a constant base, you know that we have defined GI, urology and respiratory as our focus areas, where we do resource allocation and investments with a higher priority. Currently, we do not foresee portfolio changes, but as I said before, we are reviewing our portfolio on a regular basis and see if we can create more value by shifting our portfolio in a different direction. With respect to M&A also there our strategy has not change. So basically we are not seeking for large M&A targets we are seeking for tuck-in deals that complement or portfolio specifically in the area of GI, respiratory and urology, and to also reflect on your comment about Veran. Obviously, our business development function is a new function, Olympus has not done M&A for a very long period of time we started to bid up the function three four years ago and refer also to best in class we are going through a learning curve. And I believe that our capability in M&A has significantly improved over the last couple of years.
Unidentified Analyst : So my question is about the QARA cost outlook including [indiscernible] FDA. When we look back and including this year, versus three years so you're talking about spending ¥60 billion for this limitation. And ¥22 billion for this fiscal year is going to be spent for this QARA related costs. In terms of SG&A, this will be about ¥7 billion to ¥8 billion, the remaining will be under other expenses, so about ¥15 billion. That is my image that I have in terms of the spending. In the perhaps first half in the other expenses, ¥11.9 billion is already incurred. Is it in line with expectations? Or is that are you spending more than you have expected in your costs? This is my question. So I would like to ask Takeda, CFO to respond to this.
Stefan Kaufmann: I would take again, the first part of your question and then head over to Takeda. So first of all, obviously, when we did the mightier plan for fiscal year ‘24 to ‘26. We were in very early stage with respect to planning our remediation and our transformation activities. So the 600, at that time has been a qualified guest. Now we are much more advanced. So we have a very concrete plan what we want to do over the next three years. And I can confirm the number to you, we are still in the area of 600. So not much has changed. When you look at the cost. What I find difficult is the differentiation between what is remediation and what is transformation. Because as I tried to outline in my presentation, we want to use this as an opportunity for us to excel our capabilities. So in many areas that we remediate at the same time, we also transformed to a higher standard. And just one example I also use in the presentation is that some of the findings in the warning letters are related to our capability in process validation and maintaining our device history records. So what we do as a company is not that we invest, and part of the 600 into digitalizing our devices to view records, and we're striving also for a higher level of atomization in our processes in manufacturing. So to differentiate what is remediation? What is transformation is not so easy. And that's the reason why we brought both programs together. And then my last point, and then hand over to Chikashi. And the rule of thumb still is that the two-thirds of the costs are related to SG&A 4 while one-third of the costs are related to SG&A 3. Chikashi, please.
Chikashi Takeda: So then let answer more specifically to your question. First of all, in the previous meeting, we talked about ¥22 billion in total that we're going to spend for this program. So, this time around, including what we have already conducted, we are going to change our outlook. It would be between ¥22 billion to ¥29 billion and there is about a ¥1.5 billion impact of forex will that be in the most latest outlook. If we go in the breakdown. So in terms of the improvement, is both will be equally for the SGA and other expense, both will increase in the equal manner. So it's going -- 150 is going to be 200 other expense. So the SG&A is about it says 70 oku is going to be 90 oku. It’s going to increase in this manner. So Stefan has talked about. It's difficult -- talks about remediation and transformation, but with the other expenses of remediation, and in terms of SG&A specifically for FDA initiatives is more the -- and transformation. That’s way SG&A. In terms of the increment, specifically in the first half, before we bringing back with remediation, therefore work streams that is. So from the company's handling to MDR, the cost has gone up the complaint handling and MDR. That has increased. But basically it is because we made good progress, it has increased. So that's the reason that we are giving. Have I answered your question?
Unidentified Analyst : So and if that is the case, in the three years, 600 oku target. Is it going to be reviewed upwards? I think I feel that way. So what is your response to my feeling?
Stefan Kaufmann : Well, first of all, this 600 oku definition of the 600 oku, this the same forex level the forex assumption changes will go up. And maybe it's an in detail, but it says everything that over a little over 600 oku. So I think there is a certain range that we're talking about, I hope that you understand that. But anyway, basically, what we have announced in May, what we have said in May. We are thinking that we want to go forward within this range. So, 150 oku other expenses? It's going to have been revised to 200 oku. This increment cannot be explained only by the weaker yen. So can you explain why this has increased? Yes, there are some practices go up and go down. But in the first step, the complaint handling and there is a process that connects the complaint handling to MDR. The contract to cause or the professional expenses, the system integration costs. That will be the major element of this difference.
Unidentified Analyst : Understood. Thank you very much. That's all from me.
Unidentified Analyst : Sorry for exceeding the scheduled time. Regarding the eliminations. Your plan was to reduce ¥5.5 billion. So the total ¥46.5 billion normally, is this going to be the normalized base going forward or for corporate eliminations? After FDA for three years, this is going to be less after three years or is it going to be more after the FDA response in the next three years?
Stefan Kaufmann : Well, internally 55 is the allocation internal allocation. In that sense, so we have set the normal base. Basically the corporate elimination standard will be around this. So this will be a normal level. Just for information, FDA response is not included at all in this amount.
Unidentified Analyst : Understood, thank you very much. That's all my questions. [Call Ends Abruptly]