Hello, everyone. I am, Takeda. So first of all, I would like to provide a review of our numbers, and then in the second half of the presentation, Stefan Kaufmann will talk about growth and value creation. So thank you very much for participating in this conference for the consolidated financial results for the Q2 of fiscal 2024, despite your busy schedule. First, I would like to provide a review of the Q2 results, and then talk about a 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 Q2 and for 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 recorded in the previous fiscal year, and due to the discontinuation of the manufacturing sales electromagnetic navigation systems by Veran Medical Technologies. This is a loss around JPY 49.6 billion, and a provision of approximately JPY 5 billion associated with the voluntary recall of small intestine endoscopy system, etc., ESD. Other factors, including expenses, various projects to improve efficiency, as well as personal expenses for future growth and strengthening the operational infrastructure, such as QA/RA. Expenses related to the U.S. FDA were approximately JPY 1 billion under SG&A expenses and approximately JPY 11.9 billion incurred in other under other expenses.
These expenses were mainly comprised of complaint handling, medical device reports, MDRs, and the validation processes and designs, and are designed to strengthen the quality assurance function for 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 expenses, declined 16% with an adjusted operating margin of 15.2%. Regarding total profit, including both continuing and discontinued operations, we posted, well, we posted a record high of JPY 216.7 billion, with EPS of JPY 174, due to a gain on the transfer of scientific solutions divisions recorded in the first quarter.
To the full year forecast, we have revised the forecast to reflect results up until the Q2, in addition to changes to Forex assumptions from the previous forecast. Revenue will increase 9% year-over-year to JPY 958 billion, with adjusted operating profit declining 1% to JPY 174.5 billion. We forecast an adjusted operating margin of 18.2%. We project combined profit for continuing operations and discontinued operation to reach a record high of JPY 289 billion, with EPS of JPY 238. Additionally, as announced in the timely disclosure today, we have decided on additional share buyback of JPY 80 billion in accordance with the capital allocation policy. In fiscal 2024, we plan a share buyback of JPY 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 the 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. Going to slide 4. I'll now explain the consolidated financial results and provide a business review for the Q2 of fiscal 2024. Please go to slide 5. This is an overview of our consolidated financial results. Consolidated revenue amounted to JPY 136.6 billion. The medical business reached a record high for the Q2, and it was up 5% year-over-year. All business segments for the ESD, TSD and others all grew. By region, Asia and Oceania, APAC, which grew in all areas, performed well by business segment.
Medical service and GI endotherapy continued strong strength. Gross profit was JPY 288.4 billion, with gross margin deteriorating by 0.4 points. Despite a decrease in procurement and semiconductor spot market, the ratio worsened due to a provision of approximately JPY 5 billion associated with the voluntary recall of small intestine endoscopy systems in ESD. SG&A expenses were JPY 221.6 billion, with SG&A ratio deteriorating by 3.2 points. Major factors behind this include increasing expenses related to various projects to improve efficiency, as well as rising personal expenses in future growth and strengthening our operational infrastructure, such as in QA/RA. Adjusted operating profit declined JPY 12.8 billion to JPY 66.6 billion yen, down 16% year-over-year. The adjusted operating margin deteriorated 3.8 points to 15.2%.
Regarding other income and expenses, a loss of JPY 62 billion was posted, a loss of about JPY 49.6 billion due to discontinuation of manufacturing and sales of electromagnetic navigation systems by Veran Medical Technologies.
An FDA related expenses of about JPY 11.9 billion were recorded. In the previous fiscal year, we recorded a gain of JPY 14.6 billion, including a gain of approximately JPY 16 billion on the sale of the land in Tokyo. A loss of JPY 11.5 billion from continuing operations was posted in the meantime. With completion of the transferred discontinued operation Evident in April 2023, we recorded a gain on the transfer in the first quarter of this fiscal year. Total profit, including continuing discontinued operations, amounted to JPY 216.7 billion, with EPS of JPY 174. Next, I'd like to explain our full year forecasts for fiscal 2024 on page ten. Sorry, could you go to page eleven?
Our full year forecast for FY 2024, we have revised our forecast to reflect the results up to Q2, in addition to changes to FX assumption from the previous forecast. The assumed rate now is, on the basic forecast, are 145 yen to the dollar and 155 to the euro. We project that the revenue will increase 9% year-on-year to JPY 958 billion, with adjusted OP declining 1% to JPY 174.5 billion yen, with adjusted operating margin of 18.2%. Despite the weak yen as a tailwind, we expect challenging results due to various internal and external factors. We project a record profit attributed to owners of parent at over JPY 289 billion, with EPS of 238.
Reflecting gain on the transfer of Evident, profit from continued operations is expected to reach JPY 61 billion, with EPS of 50 yen. Capital expenditure forecasts have been revised to JPY 78 billion due to a review of investment items based on the results until Q2 and impact of weaker yen. Dividends of fiscal 2024 is planned at 18 yen per share, unchanged from May forecast. In addition, today, we announced additional share buyback of up to JPY 80 billion. The EPS figures discussed today will reflect this. So we plan a share buyback of JPY 180 billion for the full year. Slide 12, moving to forecast by segment.
We have revised down the ESD OP forecast from the August announcement, considering the delayed tenders due to the anti-corruption campaign in China, and the provision for voluntary recall of a 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 also revised down the TSD OP forecast, considering supply delays caused by quality responses and the parts shortages, as well as loss of approximately JPY 49.6 billion related to Veran Medical Technologies posted in Q2. FDA related expenses include around JPY 9 billion in SG&A and JPY 20 billion in other expenses for the full year.
For elimination on the corporate, despite the absence of gain on sale of land in Tokyo of approximately JPY 16.4 billion recorded last year, the expected increase in corporate 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 waterfall chart shows the factors behind change in adjusted operating profit from the previous announcement. As was explained earlier, we have a difficult situation this year due to various factors, such as the lower sales, provision associated with voluntary recall of some products, expenses related to FDA response, and other factors. Because of this, adjusted operating profit is projected at JPY 174.5 billion.
Please refer to the appendix for the factors behind change in operating profit on the IFRS basis. Now, this is all for my part, so I would like to hand over to CEO Stefan Kaufmann.
Thank you very much for your explanation, Chikashi. So hello, everyone. I'm 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 midterm ambition level with respect to growth and margin expansion is obviously higher than what we will be able to deliver in this year. Our shareholders' 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 would like to provide you with some more details to the respective points mentioned, so that you hopefully gain a good understanding of my leadership and direction for Olympus. Our company strategy is easy to summarize and comprehend. We have defined three strategic priorities: patient safety and sustainability, innovation for growth, and productivity.
We invest and will harvest from four strategic value pools: business and global expansion, strategic M&A, care pathway enhancement, and intelligent endoscopy ecosystem. All of this we do in three prioritized investment areas and focus areas: GI, urology, and respiratory. As announced in the company's strategy, we will invest approximately JPY 60 billion over the next three years in strengthening QA/RA. This will be invested in both remediation and transformational activities, which cannot be clearly segregated due to the complexity and dependency of the different projects. 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 life cycle management and digitally enabled processes to reduce cost, 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 QA/RA efforts I've just described, we are also making investments and implementing initiatives in the three strategic priorities to achieve sustainable growth and value creation over the midterm, 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'm 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 now able to cover the remaining 50% of our sales for further growth potential. In the last month, I had numerous opportunities to talk with healthcare professionals at congresses in Europe and Japan, and 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, 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 ever 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 port, 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 EVIS bronchoscopes. Now, our investments in single-use airway management scopes in the slim EVIS 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 newest 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 US. 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'm 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 implementation, 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 2 category one CPT codes, a reimbursement code for clinics, which is expected to go into effect in January 2025. 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. 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 our efforts to improve productivity. Since this fiscal year, we are not a conglomerate of different businesses anymore, 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 a full accountability for the global P&L, and verticalize all supporting functions within the line set of targets and KPIs and clarity about accountability. We have already allocated targets for productivity improvements in fiscal year 2025, 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 into innovation, into business and M&A remains unchanged, with business investments 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 business, 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 we'll 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 JPY 80 billion. The total share buyback for fiscal year 2024 is expected to be JPY 180 billion.
The total shareholder return ratio for fiscal year 2024, including an annual dividend forecast of 18 JPY per share, is expected to be 69.5%. We will proactively continue to consider share buyback in accordance with our capital allocation policy for fiscal year 2025 and 2026. 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 midterm target until fiscal year 2026. 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, macro political and macroeconomic 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 2025, our remediation will not be finalized. I also don't expect that the macro political and macroeconomic headwinds we experience this fiscal year will go away quickly. It's too early to say, but while I believe sales growth will be higher than this year, I don't expect a V-shaped recovery. Our EPS target is including the JPY 1,000 share buyback, but not the one announced today. Also, foreign exchange effects are not included.
So we aim to achieve an EPS growth well above the target of 8%, as we will proactively continue to consider share buyback in fiscal year 2025 and fiscal year 2026, in addition to the share buyback of JPY 180 billion in total in fiscal year 2024. Part of being a leading global med tech 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 2026. With all this said, in fiscal year 2026, I expect us to achieve our mid-single sales growth target and adjusted operating margin, and 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 are as follows: Number 1, 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 2025. Second, our business, our strategy, our 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 2026, we will be back on track for higher sales growth and margin expansion above 20%.
Thank you for your trust and your support, and this finalizes my presentation, and now we're looking forward to receiving your questions.
We would like to go to the Q&A session. W hat I want to ask both is that your performance has deteriorated. Putting aside the Veran situation, this fiscal year, I think the situation is tough. I understand that, but whether you're going to recover next fiscal year, I would like to make a discussion about that point. Well, in summary, the anti-corruption, say, in China is going to push down your sales and the... I don't remember whether it TSD or ESD, there has been a decline in investment in Europe, a nd then for the urology, basically there has been some sort of supply in terms of components. T his has been the three major impacts on the actual demand.
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.
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. A ctually, what we see from our perspective is that the situation fiscal year 2024, compared to what we expect in fiscal year 2025, from a macro political and macro economical environment, will not change significantly. W hen 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. When you look at Germany, there's at the moment a reform of the hospital system, of the healthcare system, that prevents hospitals to purchase capital goods.
Also the positive effect we had from the investments of NHS, basically, will not positively anymore impact our sales growth in U.K. When you look at 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 2024, and some of the impacts might also carry forward into the first quarter of the next year. T his is the macroeconomic environment.
Then, on an internal perspective, basically, as you have seen in fiscal year 2024, we have seen a couple of ship holds and a couple of recalls in relation to our remediation and transformation activities and QA/RA.
As I said in my closing remarks, we still need one more year to finalize our remediation and transformation activities to be back to very normal operations. I think this is the reason why I'm, for fiscal year 2024, without already committing final numbers, why 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.
Thank you, Stefan, and thank you, everyone, for the question. Just to complement what Stefan says, I think that you mentioned that from American company, I would say Olympus is a much more diversified company in terms of geographic scale and most of our American companies. That provides you know, 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, a nd the way that we do the business that we do there is very relevant to the in our total sales.
That from an external point of view we see definitely a situation in Europe that in Europe or in China is early to say if it's going to improve. I personally believe that the European environment it's going to continue being tough in terms of investments. I think the pressure, the inflationary pressures is putting a lot of pressure in hospital systems, a nd we were enjoying over the last years the massive investment on NHS in the UK, specifically in endoscopy, where they clearly overhauled the entire, almost entire country in terms of endoscopy rooms and that, whatever. O bviously, the German healthcare reform will have an impact as well.
From that point of view, it's 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, through the elevate process, our quality situation, and that means much more scrutiny in every single signal that we have from the market, that any product can be potentially creating an issue with patients. T his is provoking a number of logistical situations. In the moment we detect any signal of any kind, I mean, we really pause, really look at the situation and figure out what is the best course of action.
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 gonna continue in fiscal year 2025. D efinitely, I totally agree with Stefan, that fiscal year 2025 will be better, but not yet at the level that we would like to recover from fiscal year 2026 and beyond. Thank you.
Yeah. So, yeah, so we understand now, finally. Thank you. 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 it something specific to endoscopy, or is this just, this is just, weakness in general from the hospital environment? This is my final question.
The two single impacts that are specifically to endoscopy, or specifically, I would say more specifically to Olympus, are the largest investment that the NHS was doing over the last three years. And in literally reform, I mean, a lot of investment in general, but specific investment in endoscopy in the country and our exposure in Russia. I mean, our presence in Russia was very relevant before the war, and a lot of this has been deteriorated. This would be the unique situation for Olympus. Generally speaking, the healthcare reform in Germany, I think it's gonna have an impact in the entire industry. It's slowing down digital investments, as we are seeing, and we are seeing this not only for Olympus.
What is the impact in other companies? I cannot say, but definitely it's not only for Olympus, but Russia and the UK are the single factor that I believe are impacting us more than others.
I have a question for TSD. Maybe you may have touched upon this, but, on slide 36, supply chain QA and supply shortage, JPY 90 billion or JPY 10 billion, JPY 9 billion-JPY 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. C ould you deny that, if that's not the case? If there is a continuous problem still, do you have any sign of improvement, or do you have any idea for the end of the problem?
Like with the first question, I would start and then ask Nacho to supplement and to complement. So the backorder situation in TSD has two factors. One factor is related to supply shortages, the other factor is related to ship holds. T here were a couple of ship holds we had to introduce in the first six months of fiscal year 2024. In total, the backorder situation in TSD is stable. W e are on a backorder level of around JPY 4 billion, which is high, too high, s o we take further efforts to reduce. And the sales development in TSD indeed differentiates from category to category. As I mentioned, in GIET, we see remarkable growth.
As I mentioned, in the US, we grew double-digit in the first half of the year. Specifically, the area of urology was touched by some of the ship holds, the Plasma, and also Soltive, a nd 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. A ll in all, the outlook for GIET, for urology and respiratory, is that we are on a very stable foundation with a strong market position, and we believe that our products are competitive. Nacho, over to you.
Yeah. Thank you, Stefan. J ust to complement this, I think that there is a different aspect that has impact in our TSD business. A s Stefan would say, I think that we have out of the three focus area in TSD, 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. W e've been suffering, specifically in urology, and for two very, very clear reasons, right? W e were the first one that we launched the two, Thulium technology, the Thulium Laser technology into the market, and we enjoyed it for a while, of a unique position that we were the only one.
We knew, and it was very clear that our competitors will come with that technology. B ecause of that, we have been investing 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 have to pause for some time to push the supply chain. And obviously this is a run rate business, right? I think when you don't have supply, the customers cannot wait, and they need to go somewhere else and find those products, because the procedures cannot stop. I think this is having an impact, but it's a temporary impact that we'll be recovering both rounds.
One, we are working on new products and new solutions that will be added to the current Thulium Laser platform, that will make again ahead of the competition. With supply chain topics, we expect them to be improved over time and then to recover the stable supply. A gain, I think that the results this year on TSD, they are definitely not the ones we like to see, but I think we understand the reasons, and we are confident that this will be recovered as soon as we can recover a stable supply chain. W e—I mean, competition is always gonna be there, but we will continue bringing solutions to the market that will keep us ahead of competition.
Thank you for your question.
Thank you. Sorry, I have a additional question regarding your plan for therapeutic equipment. This year's 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?
I think Stefan already mentioned that our level of backorder is about... is significantly high. It's four times high than it should be at this point. T his is pretty much about what we feel that we are missing at this point, it is JPY 4 billion, around JPY 4 billion. The... It is very difficult to predict at this point what is happening with the supply chain for the reasons that I mentioned before, right? W e are acting very diligently following our new quality direction and being. S crutinizing any single signal that we identify from our products in the market.
This is a process that will be improved over time, and we will be able to accelerate that process and not generating logistical delays because of that, b ut at this point, it still is happening, and I think that it's very difficult to predict what is gonna happen in the next months.
I think to expect a sharp recovery, it's not realistic. I think that it is gonna be a smooth recovery over the next months, and, and hopefully through fiscal year 2025, we can get to a stable situation during the year, and then from there, we can, we can go with these supply limitations. Thank you for your question.
Thank you very much.
I have one question. If possible, please, answer. In terms of the re-auditing of re-inspections of the FDA to release you from these warning letters, the timing of the investigations of the FDA, maybe one year it will be difficult, will be not, in the calendar FY 2024 or calendar year 2024, we should assume that it's going to happen in on calendar year 2025.
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?
Yes, that was the meaning of my question.
Yeah. 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. F rom my point of view, we are making good progress, but to make an estimate when a warning letter will be lifted, that's merely impossible to do. And again, this is also not within our influence and discretion.
On page 15 of the material, once again, for the industry, you are trying to reform yourself into the best med tech company in the industry. So after the new president came in, 18 months, business environment changing from where you are, so med tech company with the highest standard in the industry. In order to become a company like this, what is missing still? QA/RA is a necessary condition, it's not a sufficient condition. In your material, stock buyback is going to be considered for next year and the year after that. So in that sense, maybe M&A. M aybe not M&A because of this timing, b ut for you to become the best level global med tech 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?
So from my point of view, obviously, there is no universal definition what a 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. O bviously, to be a company that in all aspects puts patient safety and quality first, is 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, I believe our company in the next two or three years has room to improve. And last but not least, what is a very important criteria for me is innovation, both organic innovation and inorganic innovation.
I think in that area, both in M&A, but also bringing 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. T his would be the criteria I would tick to call ourselves a best-in-class med tech company.
Thank you very much. I have one related question. T o raise your bar for the global med tech, 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 were small in size and the sales contributions were small. T he M&A efforts in terms of pricing the company put and the efforts post the merger, I hope that the company will have more active discussions. I have a 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 the portfolio review?
Thank you for the question. So first, in relation to portfolio, obviously, we are reviewing our portfolio on a constant basis. 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 changed. B asically, we are not seeking for large M&A targets. We are seeking for tuck-in deals that complement our portfolio, specifically in the area of GI, respiratory, and urology.
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 build up the function 3-4 years ago. Referring 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.
My question is about the QARA cost outlook, including the initiatives towards FDA. When we look back, including this year, let's say two years, so you're talking about spending JPY 60 billion for this remediation, and twenty-two billion for this fiscal year is going to be spent for these QARA-related costs. In terms of SG&A, this will be about JPY 7 billion-JPY 8 billion. The remaining will be under other expenses. That will be about JPY 15 billion. That is my image that I have in terms of the spending. In the first half, in the other expenses, JPY 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 cost? This is my question.
I would like to ask, Takeda-san, CFO, to respond to this.
I would take again the first part of your question and then hand over to Takeda-san. F irst of all, I obviously, when we did the multi-year plan for fiscal year 2024 to 2026, we were at a very early stage with respect to planning our remediation and our transformation activities. T he JPY 600 oku at that time has been a qualified guess. 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 JPY 600 oku, 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. I n many areas where we remediate, at the same time, we also transform to a higher standard. O ne example I also used in the presentation is that some of the findings in the warning letters are related to our capability and process validation and maintaining our device history records. W hat we do as a company is now that we invest, and that's part of the JPY 600 oku, into digitalizing our device history records, and we are striving also for a higher level of automation in our processes and manufacturing. So to differentiate what is remediation, what is transformation, it's not so easy, and that's the reason why we brought both programs together.
Then my last point, and then I hand over to Chikashi, is the rule of thumb still is that two-thirds of the costs are related to SG&A four, while one-third of the costs are related to SG&A three or COGS. Chikashi, please.
Hi. At, specifically.
So then, let me ask, answer more specifically to your question. First of all, in the previous meeting, we talked about JPY 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 will be between JPY 22 billion-JPY 29 billion, and there is about a JPY 1.5 billion impact of Forex. Well, that will be in the most latest outlook. If you go in the breakdown?
In terms of the increment, it's both will be equally for the SG&A and other expense. Both will increase in the equal manner. So it's going to 150 oku. It's going to be 200 oku.
That's with the other expense, so the SG&A is about, it says, JPY 70 oku is going to be JPY 90 oku. It's going to increase in this manner. So Stefan has talked about that the... It's difficult, talked about remediation and transformation, but with the other expenses of remediation and in terms of SG&A, it's not specifically for FDA initiatives. It's more for the transformation. So that's the way SG&A. In terms of the increment, specifically in the first half-... We- the four framework of the remediation, with the four work streams that is. F rom the complaint handling to MDR, the cost has gone up. The complaint handling and MDR, that has increased. But basically, it's because we made good progress, it has increased. T hat's the reason that we're giving. Have I answered your question?
So if that is the case, in the three years, JPY 600 oku target, is it going to be reviewed upwards? I think I feel that way, so what is your response to my feeling?
Well, first of all, the JPY 600 oku, the definition of the JPY 600 oku, this is the same, Forex level. If the Forex assumption changes, it will go up. And maybe it's, in detail, but, it says, everything that over, a little over JPY 600 oku. I think there is a certain range that we're talking about. I hope that you understand that. A nyway, basically, what we have announced in May, what we have, said in May, we, we are thinking that we want to, go forward, within this range.
JPY 150 oku, other expenses, is going to has been revised to JPY 200 oku. This increment cannot be explained only by the weaker yen. So can you explain why this has increased? Yes, there are some factors that 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 contractor cost or the professional expenses or the system integration cost. That will be the major element of this difference. Understood. Thank you very much. That's all from me.
Sorry for exceeding the scheduled time. Regarding the eliminations, your plan was to reduce JPY 5.5 billion. So the total is JPY 46.5 billion. Normally, is this the going 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?
Well, internally, 55 is the allocation, internal allocation. In that sense, we have set the normal base. Basically-