Good evening, everyone. This is Chikashi Takeda, Chief Financial Officer. I'd like to thank you all for participating in this financial briefing for the third quarter of fiscal 2022 of Olympus Corporation. I would go over our consolidated financial results for Q3 FY 2022, as well as full year forecasts. Slide three. Here, highlights of our financial results for Q3 FY 2022. First, the revenue. We achieved significant growth of 23% in the first nine months, driven by medical. Compared with fiscal 2020, we achieved a double-digit growth of 12%, well above the pre-pandemic level. For operating profit, we achieved record highs for both amounts and ratio in the first nine months, driven by sales recovery and improved SG&A efficiency. Next, full year forecast. No major changes to what we announced the last time.
We expect revenue to exceed pre-pandemic level, with medical sitting in record high. We expect operating profit of JPY 144 billion with an operating margin of around 17%, both record highs. We also expect a record high profit attributable to owners of parent at JPY 109 billion. Regarding shareholder returns, we forecast annual dividend to increase by JPY 2 per share year-on-year to JPY 14 per share, with expected share repurchase of approximately JPY 30 billion. Now, the consolidated financial results and business review for the third quarter of FY 2022. Please look at slide five. Consolidated revenue amounted to JPY 629.8 billion. Revenue increased across all business, particularly in medical, resulting in growth of 23%. Compared to FY 2020, revenue was up 12%, well above the pre-pandemic level.
Regarding COVID-19 and the supply chain disruptions, including semiconductors, despite certain partial impact, there was no significant impact on our consolidated results. Gross profit was JPY 411.8 billion, with gross margin improving 2.4 points, driven by higher revenue, improved factory operation rate, and the non-recurrence of voluntary recall costs for endoscopic and endotherapy products recorded in the previous year. SG&A expenses were JPY 293.6 billion, with SG&A ratio improving 2.1 points. With relaxation of restrictions on sales activities, strengthening of our operational infrastructure, and measures to improve profitability, the ratio was kept at 46% range upon higher revenue, despite increase in amount.
Operating profit was JPY 108.9 billion, with operating margins improving 4.7 points to 17.3%, despite recording of expenses associated with Transform Olympus and the reorganization of Scientific Solutions included in others. The adjusted operating profit margin, which we explained on Investor Day, was 18.9%, making steady progress toward our target of over 20% for fiscal 2023. Our profit attributable to owners of parent was JPY 87.7 billion, up JPY 86 billion year-on-year, marking a dramatic improvement from a loss associated with the transfer of imaging business recorded in the previous year. Now review for the third quarter from October to December, the three-month period. Revenue increased primarily in the Therapeutic Solutions and Scientific Solutions, but profit declined due to higher SG&A expenses and other expenses, including those for reorganization of Scientific Solutions.
SG&A expenses increased year-over-year with relaxation of restrictions on sales activities and measures to strengthen our operational infrastructure and to improve profitability. Slide six. Some details about each business segment. First, the Endoscopic Solutions. Revenue amounted to JPY 333.7 billion, up 21% in the first nine months. Operating profit was JPY 91.6 billion, with an operating margin of 27.4%. Expenses increased due to relaxation of restrictions in sales activities and recording of an impairment loss of JPY 1.6 billion associated with the development assets in EST. Still, we posted an increase in profit thanks to sales growth. For the business review, I would like to focus on the three-month period from October to December.
In the previous year, we already turned to growth thanks to a recovery from COVID-19, but this year, we had a regional variation, and revenue was flat year-on-year. In GI endoscope, we saw strong performance in Japan and Asia Pacific, including Australia and South Korea. In addition to steady sales of EVIS X1 series, all generation scopes also contributed to sales growth. Sales declined in China and Europe in the meantime. In China, stagnant budget execution and others, and advanced delivery in Q2 had an impact in Q3. Meanwhile, in Europe, sales declined due to the impact of large-scale tender projects in U.K. and other countries in the previous year. Sales contribution of EVIS X1 series has steadily increased, and in the third quarter accounted for more than 10% in the GI endoscope sub-segment.
In surgical endoscope, sales declined in China due to tough competitive environment, while sales were strong in Europe, North America, and Japan. In Europe, there were large-scale tender projects in Russia. In North America, we are promoting switch to VISERA ELITE II. In medical service, we saw steady growth centered in China and Europe due to stable revenue stream based on service contracts, including maintenance service, an increase in new accounts, and market recovery. Slide seven. The therapeutic solution revenue amounted to JPY 203.7 billion, up 24%. Operating profit was JPY 43.8 billion, with operating margin of 21.5%.
Despite an increase in expenses due to relaxation of restrictions on sales activities, both operating profit and margin improved substantially due to revenue growth coupled with improved gross margin due to the absence of voluntary recall costs of bronchoscopes of JPY 5.6 billion and endotherapy products, JPY 2 billion recorded in the previous year, as well as a gain of JPY 2.8 billion in other income associated with the phased acquisition of Medi-Tate. For business review, again, I'd like to focus on the three months from October to December. In the previous year, performance already rebounded to FY 2020 levels, and this year we saw a gradual recovery continuing, resulting in growth across all sub-segments. We achieved 8% growth compared with FY 2020 on a managerial basis. For your reference, exceeding the pre-pandemic level.
In GI endotherapy, we saw a strong performance in Europe and North America, notable momentum in products for endoscopic retrograde cholangiopancreatography used in endoscopic diagnosis and treatment of pancreatic duct and bile duct sampling, biopsy, forceps and others, and endoscopic submucosal dissection, and endoscopic mucosal resection. In urology, we saw strong performance in North America, led by resection electrodes for benign prostatic hyperplasia and Soltive SuperPulsed laser system for stone lithotripsy. Also, strong performance in Europe, partially supported by large-scale projects in Russia. In respiratory, sales in China declined due to stagnant budget execution, while growth was driven by North America due to revenue from Veran Medical Technologies and strong momentum in bronchoscopes and endotherapy products for endobronchial ultrasound-guided transbronchial needle aspiration. In other therapeutic areas, we saw strong performance in ENT, led by ENT endoscopes. Slide eight.
For Scientific Solutions, revenue was JPY 82.9 billion, up 24% in the first nine months. Operating profit was JPY 11.4 billion with an operating margin of 13.7%. Operating profit increased substantially due mainly to revenue recovery coupled with improved factory operation rates and cost control. For the business review, I'd like to focus on the three months from October to December. Revenue increased thanks to market recovery from COVID-19. Compared with FY 2020 on managerial basis, for your reference, revenue increased 6%. In Life Science, revenue was flat despite market recovery and improved budget execution at research institutions and universities, due in part to strong performance in China in the previous year. In Industrial, CapEx sentiment of the global economy continued to improve, driven by overall market recovery.
Industrial microscopes were strong, driven by 5G-related electronic components and semiconductor markets, and industrial view scopes and non-destructive testing equipment also contributed to sales growth, showing a sign of market recovery. Slide nine. Financial position as of the end of December. Cash and deposits increased due to an increase in operating cash flow. Investment securities decreased by JPY 8 billion. We are optimizing investment securities under the policy of holding listed stocks that will contribute to increase the corporate value over the medium to long term. Goodwill and intangible assets increased over the end of March due to the acquisition of Medi-Tate and others. We canceled approximately 72 million treasury shares in June and issued US dollar-denominated corporate bond of $500 million in December. The equity ratio rose 3.8 points to 37.1% over the end of March.
Please turn to slide 10 for the status of cash flows. Cash flow from operating activities was JPY 115.3 billion, up 29% year-on-year. While operating cash flow increased significantly due to improved profit, there was one-off expenditure of JPY 11.2 billion of the reversal provision for the carrier support for external opportunity program. Cash flow from investing activities increased by JPY 57.9 billion year-on-year, considering expenditures of JPY 40 billion for multiple M&As and the time deposits of JPY 40 billion in the previous year. The M&A in this fiscal year, this was almost flat. Free cash flow stood at JPY 58.1 billion.
Free cash flow would have been JPY 90.9 billion if the expenditures for the reversal of provision for the carrier support for external opportunity program and the acquisition of Medi-Tate were added back. Cash flow from financing activities declined by JPY 61.3 billion to JPY -9.3 billion, due mainly to the debt repayments and the dividend payments, while financing through the issuance of U.S. dollar corporate bond. As a result, cash and cash equivalents at the end of December stood at JPY 275.1 billion, an increase of JPY 87.4 billion. Next, I would like to explain our full year forecast for fiscal 2022. Please turn to slide 12. There are no major changes from the previous forecast. We expect revenue to exceed pre-pandemic level, with Medical reaching a record high.
Regarding COVID-19, there will be no significant impact on the consolidated results, although we will continue to monitor the situation closely. In addition, with regard to supply chain disruptions, including semiconductors, the situation is changing day by day, and deliveries may be delayed for some products until the end of this fiscal year. We will continue to take all measures to minimize the impact of this risk. We expect operating profit of JPY 144 billion with an operating margin of around 17%, both record highs. We also expect record profit of JPY 109 billion. We plan to pay a dividend of 14 JPY per share for this fiscal year, unchanged since the announcement in May. The forecast assumptions are 112 JPY per dollar and 113 JPY per euro.
Please turn to page 13 for forecast by business segment. There are some changes by segment from the previous forecasts. In medical business, including ESD and TSD, both revenue and operating profit are expected to reach record highs. In terms of elimination and corporate, we have made revisions in order to implement measures to strengthen our operational infrastructure, such as QA/RA and IT and improve operational efficiency. Lastly, I would like to highlight some of the initiatives we are pursuing to become a truly global med tech company. Please turn to slide 15 for the product pipeline for ESD. EVIS X1 is already on sale in Europe, Japan, and some parts of Asia, and it has steadily gained momentum. In regions where it has not been launched, we are making every effort to obtain approvals and launch soon.
In the meantime, in China, we have launched the IR system for the VISERA ELITE II surgical endoscopy system. Please turn to slide 16 for the product pipeline for TSD. There are no changes from the second quarter. We will continue to enhance and upgrade our product lineup by expanding sales and introducing new products. Please turn to slide 17. I would like to introduce two growth drivers in urology, one of our focus areas. First, the Soltive, a super pulsed laser system for stone lithotripsy. In the first nine months, sales of the product was at 20% higher than the plan, and we will continue to promote it as growth driver in urology.
Clinical research indicates that the treatment of kidney stones, Soltive may offer the potential for shorter procedure times, better patient outcomes, and lower procedure costs than those performed with Holmium:YAG lasers. For further details, please refer to the press release issued by Olympus America on January 18, 2022. Next is PlasmaButton. Since we developed the world's first electrodes and energy generators for TURis, we have boasted an overwhelming market share in this field and led the market. Our PlasmaButton has integrated third generation bipolar technology. The newest generation continues to set new standards across the board in terms of performance, treatment options, safety, cost, and time efficiency. We expect continued growth as we launch the product in more regions.
In this way, we will continue to provide solutions that meet the needs of the market by focusing on patient care pathways and delivering innovative technologies. Please turn to slide 18. Our theme for fiscal 2022 is to further strengthen our position as a global med tech company. We are continuing to work to establish the corporate transformation we implemented the previous year. I would like to talk about the progress in the third quarter. First, we were selected as a component of the Dow Jones Sustainability World Index, the world's leading corporate sustainability index, for the first time. We will continue to contribute to the development of sustainable society by actively incorporating ESG perspectives into our activities, and we'll fulfill our corporate social responsibilities on a global scale.
We have formulated strategic initiatives for the medical business and announced them on Investor Day on December 7, 2021. We have clarified focus areas and disease states where we can maximize our values and set the goals of elevating the standard of care in targeted disease states, and through which we can achieve further growth and improved profitability. In the next slide, I will talk about the progress of reorganization and Scientific Solutions Division. Please turn to slide 19. We inked the absorption-type company split contract on January 14, 2022 to transfer Scientific Solutions business to Evident Corporation, which is a newly established wholly-owned subsidiary of Olympus, effective April 1, 2022. We are also proceeding with examination regarding a possible transfer of all shares in Evident to a third party after the split.
We aim to establish a management structure suited to respective business characteristics of medical and scientific businesses that will accelerate our efforts to achieve sustainable growth and improve profitability, and will contribute to enhancement of corporate value of our entire group. That concludes my presentation. That was the last slide, and thank you for your attention.
Some housekeeping announcements before we start the Q&A session. One question. About Scientific Solutions Division reorganization. For Q3, what was the cost associated?
JPY -5 billion. Is this the part that is recorded in the corporate that accounts for that?
About JPY 4 billion by the end of Q3. How about Q3 alone? What was the amount for Q3 alone?
JPY 800 million up to Q2, so JPY 3.2 during Q3.
That is included in the corporate?
Yes.
JPY 10 billion on a full year basis?
That was the speculation voiced at the last earnings call. It's smaller than that. In Q4, we are thinking of about JPY 5 billion, so JPY 9.1 billion in total.
I see. Thank you. That's all.
About the endoscopy business. By region, what is the current status of each market? Europe and America didn't do very well. Is this because of the hurdle from the previous year? With other companies, order status for capital equipment seems to be quite good in the Western countries. Can you please comment about the order situation in the last three, six months? The order execution delay is continuing in China. Do you think this is going to persist for a long time? If you can comment. Yes, I can try to respond, but actually Nacho is with us, so I would like to ask Nacho to take this question.
Thank you very much, Takeda-san. Can you hear me well?
Yes.
Okay. Let me comment on the question. As per the sales situation by regions, as indicated in the presentation, indeed we have continued with a strong performance in Japan and Asia Pacific region, mostly for the introduction of the EVIS X1 series into the market. It is true that in Europe, China and America, the performance has not been as powerful as it was last quarter. Not last quarter, the quarter, the three months in the previous period. This is mostly due for different reasons. In the case of Europe, in the last year, third quarter, we were noting a significant increase of orders coming from government support or orders in COVID-19 in some regions, as the case of Europe.
In China, we have been seeing over the year a significantly weak demand, not only in GI, but in all categories. To your question of if this will continue, our expectation is that the demand will recover through this year. The weak demand in China has not been only in GI. I think we have been in all other categories and also in the entire medical industry as far as we know. Finally, in the U.S., again, we had quite a strong performance in the same quarter of the previous year. Also, we have to note that in the U.S. we're still selling the previous platform.
We're planning to launch, as has been informed, ABXG1 during this fiscal period. We're still selling the previous platform and the market is aware that the new platform will come. We can expect a little bit of hesitation to buy, even though I think that again, the results by themselves are not weak. It's more the comparison versus the previous quarter, which doesn't show the growth at this point. I hope I can answer your question. I could answer your question.
Thank you. Just a follow-up and clarification, if I may. In Europe, the order didn't really grow. Are we talking about the current situation or the previous year? Last year, third quarter or this year's third quarter? Just that clarification. Also, for China, I understand that you expect a recovery, but how long do you think it is going to take? When do you think we will see the recovery exactly?
As per Europe, what I was referring is that in the same period in previous year what we realized a couple of large orders from different countries in Europe that were promoted by government support to the healthcare infrastructure due to the COVID situation. That's the reason why this quarter looks a little bit lighter. As per China, it is honestly difficult to say. I think we have been for the entire year, we've been seeing that the demand in China has been weaker than in previous year. It's difficult to anticipate when it will recover. We are confident that the healthcare infrastructure in China continue evolving and continue growing.
Definitely we believe that all this infrastructure is going to need and require technology to fulfill the demand of the Chinese patients. I cannot predict precisely when the Chinese demand will be at the same level than it was. We are certainly positive that the healthcare market in China will continue growing, and our market share in China continues being strong. We are very positive on that direction, but difficult to define precisely when we will see the demand to increase again.
Yes. Thank you.
ESD and TSD. For the last three months, the operating margin year-on-year three or four-point decline, I think. I suppose that GI and the Repair, the GI portion went down, whereas the Repair went up. I think it's the product mix factor. Am I correct? The TSD margin, if you look at the three months only, about two-point decline year-on-year. I think this is because more of a profitable GI and urology and respiratory, all areas, the sales actually grew. I don't think it's the product mix, but other factors contributed to this decline. Can you give us the backdrop to these changes that took place?
Thank you. ESD first. The cost. You talked about the product mix, and I think you're talking about the cost of goods, COGS.
There is no impact in terms of foreign exchange. As for SG&A expenses, I think this is true overall. With sales activities recovering, associated costs have increased, associated expenses have gone up. On some of the development themes, R&D themes, we saw an increase during this period. These are the factors accounting for lower profit margin year-on-year. In TSD, here again, in terms of cost or COGS, cost of goods, there was expenses associated with the recall of the sterilization packaging last year. Excluding that, no change. There was a M&A in TSD, the mergers and acquisitions. Veran Medical Technologies being incorporated, resulting in higher labor cost as well as bonus payments being paid in association with improvement in business results.
This is again included in the labor cost. I see. For the fourth quarter, trend-wise, we expect what you just described to continue. Yes, for labor cost, personnel cost, I talked about TSD. Well, let me start from TSD. No change in terms of the trend in labor cost. Yes, same for ESD, basically. That is our current view.
Understood. Thank you. Please ask your question. JPY 6 billion in the corporate elimination. The profit looks quite high in the actual business, so you wanted to include this expense in advance? Or is there something that you need to do in the coming three months? Why are you incorporating JPY 6 billion right now? What is the reason behind this? Thank you for your question. One thing is Scientific SSDs are split. This was actually added to this expense, and there are some new things that we have to do. That's also true. The remaining two-thirds of that. This total amount is. Well, this is something that we had already identified as themes before.
Within the company, we went through a prioritization process, and we are thinking about maybe taking things out and bringing things in. Corporate company-wide projects, which has to be at a corporate expense, many of them were left during the process of the prioritization. We had to reallocate the resources within the consolidated format so that SG&A in total stays in balance. That's the story behind this number. Thank you.
Thank you very much. Just to confirm, in the second quarter, for each business, we had JPY 12 billion. You don't have anything new in the last three months for these businesses, no? This is the expense for the split of the company. I understand there are new things that you need to do now.
As we try to make the forecast for your performance in the future, if you're about to post the profit again in the future, should we expect increase in the corporate expense? Or do you think these projects that are brought forward would result in certain things and we will no longer have to expect this additional corporate expense in the future? Which way do you think it's going to be? In the last one or two years, we have implemented many reforms, operating model specifically. The way we do business with operations used to be more region-focused, but now we are trying to make it more global and more function-focused. Globalization, integration, harmonization, these are the key concepts. Based on those key concepts, actually, there are many projects that are in existence within the company.
Many of them can be considered one time. However, we have to respond to the changing environment. It is also possible that some of these will change its form and appear again rather than disappear completely. I would say right now, this is a peak. I'm trying to find the right way to describe this, but it's peaking now, but in the future, it will come down and stay at the same level. Maybe I could call it cruise speed. I cannot give you a specific numerical answer, but right now there are some special programs, actually many special programs, going on, and they are pushing up the cost in many cases.
In that case, if you have a good performance like this year again in the future, maybe you will try to increase your expense and you will achieve the cruise speed. Well, you're saying anyways this year, the corporate expense is especially high. Well, the concept is that we should prioritize. There is of course absolute criteria, but also relative criteria. In other words, depending on how the performance is, we may put things in or take things out, and that's part of this process. What you have just described right now, I guess my answer would be yes to that question. If that is the case, profit growth of the consolidated statement should be considered and you will not try to damage that, but basically you will not try to make the profit flat by overspending your expenses.
Yes, basically, that's the way we're thinking. Thank you.
One question. I'd like to focus on China. Slide six. The ESD, the surgical endoscope sales were weak in China. In the Japanese slide, it says, "Due to harsh competitive landscape." I'm guessing that in China, the Mindray products are getting more competitive. I think that's one way to interpret that phrase. Is that what you are trying to say here, or is it something else? Could you give us the backdrop?
For China, yeah, we had expected that question actually. I'm going to give the floor to Nacho Abia. Nacho, could you answer that?
Yes, thank you. Thank you, Chikashi. Let me answer the question. The comment regarding tough competitive environment in surgical endoscopy is not only applicable to China, is all over the world. I think we have seen over the last year competitive pressure on the surgical endoscopy space. This is the same situation as well in China, and this is related to both Chinese competitors in the case of China or other competitors in other areas. I think that we see companies like the one you mentioned bringing new products to the market, which is adding additional pressure to the existing competition in this space.
We are prepared to respond to that, and we add to that competitive pressure with our own developments and improving our technology in order to keep competing. No question that this is an area and a specific area where competition is strong in China and outside of China. I hope I clarified your question. Thank you.
Did that answer your question?
Yes. Thank you. Focusing on China, GI, stagnant budget execution, and as for TSD respiratory, again, stagnant budget execution. For capital products, most probably in China you are feeling the impact of the delay in budget execution. For GI, new products will be launched in China, soon, and we can expect recovery as a result. For GI or the surgical, endoscopes and respiratory endoscopes, I'm afraid, we can't really expect a recovery. Is that a fair statement?
Nacho, can you-
Yes. Yes, I can. Well, I think, obviously our market position in the GI segment and in the respiratory segment in the endoscopy side is very strong and our competitive differentiation is very solid, and this is the reason for our very high market share in the area. In the surgical endoscopy piece, we maintain a significant market share, but obviously we have more competitors in the market that are also depending on each market are representing a good portion of the market. I think that the competitive situation will continue in all areas.
I think that we will continue working in our surgical endoscopy platform to bring additional features and additional technology to our products that will help us to manage this competition. Healthcare is a competitive market in general. I think that this is not much different situation that it was in the past. I do believe that Olympus has plans in order to recover, I mean, whatever business we have, we have been weak in this market with additional launches over time. We don't see much different in the last quarter versus the situation in the previous quarters of the year. Thank you very much.
Thank you. Just a follow-up question for clarification. In China, EVIS X1 launch, when would that be? In China, that is. Can you specifically say when it is going to be launched in China, the EVIS X1? Yeah.
I think I can take that question," says Takeda-san. It's going to be somewhat later. EVIS X1 and the previous generation
That was launched not too long ago. As you're aware, in China, the regulatory path, it takes quite a bit of time to go through the regulatory process in China. So at this point in time, we can't specifically say, "This will be the date." We're not ready to do that yet. Next will be the U.S. and then China will be the order in which the launch is to be made so as to cover all the regions. I think I mentioned somewhere in some of the slides as quickly as possible, as early as possible. I see. For EVIS X1, the launch in China, I had expected that to take place later.
In your presentation you said that, because this new launch is expected, the customers in China are hesitating to place orders with the current version. I think there is a contradiction, inconsistency. What is going to be launched in China specifically? Hold on. Maybe there was some confusion. VISERA ELITE II, that was launched very recently. That is one of the new products launched in China, VISERA ELITE II. If you felt that that was EVIS X1, soon, I guess, means different things to different people. It is not yet on the planning phase yet, yes, that needs to be corrected. If I could dig in. Hesitate to buy what, is my question. The customers are hesitant to buy what?
If it was U.S., that is what we have been saying.
Can you make it clear what— Chikashi, can I take this question or clarify? Yeah. Can you clarify? Yes. If I understood correctly the question, it is suggesting that the fact that we haven't launched EVIS X1 in China is the reason for the weak demand. I honestly don't think that this is the question. Our market share in China in GI is very solid, and the current platform is clearly dominant in the market with very high market share. The regulatory process in China is longer than in other areas, and I think this is something that the Chinese healthcare providers they are aware of that.
Still our platform is being considered as the superior technology. I don't think that the impact of the current business situation in China is related to the fact that we have launched EVIS X1 in other parts of the world. It's simply because of this year we have seen more budgetary restrictions and delay or cancellation of tenders than in previous years. That's what I meant before when I believe that this situation will not continue and we believe that at some point the demand will recover. The fact that we have launched EVIS X1 is not impacting the decisions of Chinese customers at this point.
Understood. Thank you. That was very helpful. That's all. Thank you.
This is Sakurai from IR. To get back to your point, Hayashi-san. Maybe when we made the response earlier, we said that in the U.S., some customers were hesitating to place orders. Maybe in the process of translation that was not clearly communicated. Got it. Thank you. You were talking about the U.S. Got it.
My question is about the shortage of a semiconductor and its impact, which was explained earlier. For this fiscal year, some products may be impacted. That's what you said. As far as the sales forecast is concerned, you have not made any adjustments other than exchange rate. Isn't this going to be a risk factor and also impact for next fiscal year? Rather than impacting some products, maybe it may impact the overall revenue sales profit of your company. Or do you already have a clear view of sourcing of the semiconductor already?
Yes, I would like to try to answer your question first. As was explained before, for this fiscal year to the end of the year. Well, three months ago we said that we should be fine for this fiscal year. We can ride this through.
It has not really turned out to be as expected, so there may be some last-minute risks. Including the expenses, measures are being taken for this particular matter. The forecast that we shared in November will be achieved according to our thinking. For next fiscal year, again, three months ago, we talked about the chaos and the uncertainty, and if this continued into next year, it may impact our performance. That's what we said. In the last three months, the uncertainty has not really changed. Three months later from now, when we share our forecast for the next fiscal year, what would be the situation? That's difficult to foresee, impossible to foresee right now. I don't think we're in a position to be able to talk about the degree of impact.
Some impact during the first year may not be the same as the impact that we experienced this fiscal year. That's what we anticipate, and we have started formulating all sorts of countermeasures. That's all from me. Thank you.
I have a follow-up question. In terms of external environment, other than that, high material cost and also supply chain issue, including shortage of semiconductor, external environment may impact the margin. So, 20% of operating profit. In order to achieve this, do you think this is going to be a big risk factor? Or other than semiconductor shortage, do you think you can basically absorb that through cost control? What is your view?
Well, we need to pay attention. It's one of the things that we need to pay attention to, the high inflation.
For this fiscal year, and as we forecast the next fiscal year, would it impact the margin to a great extent? That's not what we believe at this point in time. The situation will keep changing. Therefore, we have to keep an eye on that and implement the measures accordingly. I don't think it will be as big an impact as semiconductor impact. Understood. Thank you. I know this question is difficult to answer, but thank you very much for that. That's all from me.
I'm looking at the supplementary material, page five, ESD, TSD, and medical services. You are enjoying very good results. I'm hesitant to ask about China, which is suffering. Looking at page five, I get that ESD and TSD -20% over Q2. They're in Q3. The good results in Q1 and Q2 have been canceled out. When I look at GI portion, the budget execution and the impact of the earlier orders placed in Q2 are mentioned. The early delivery in Q2. Budget execution and Q2 delivery impact on Q3. How about Q4? What should we expect for Q4 as a reaction to the postponement of budget execution?
Thank you for your question. China situation, I think, Nacho already talked about this, but there are various factors involved here. The budgets is being constrained and execution of the budget is being delayed. Then there is the local competition, as we are getting more competitive, as well as the policy there. Having said that, as you correctly indicated, in terms of the budget execution, we expect a certain recovery going forward. To what extent we will not go into the details. Even if the recovery is not as big as we expect on a consolidated basis because of the better performance in other regions, the sales revenue contribution elsewhere we believe would compensate. Therefore, we decided that we're not gonna change the guidance. Nacho? No, go ahead, Akabane-san.
The progress rate, 76% of the profit. So I know that the loss in the delay in China is being compensated. Assuming that if there is a recovery in Q4, are we gonna expect good results? What's the extent, you know, from region to region, or from area to area they're different. I just was wondering what your expectation is in terms of the recovery in Q4.
You know, rather than talk about the expected recovery, maybe we should look at year-on-year comparison. At least a positive growth year-on-year is what we expect right now, year-on-year increase.
Got it. Thank you.
Your view on Q4 numbers for endoscopy. ESD for Q4, I think the number, the profit is more than JPY 39 billion. This is an increase of JPY 10 billion against the Q3 and JPY 15 billion year-on-year. I know that R&D cost is increasing, so the expenses are on the increase. In the fourth quarter, the number is expected to grow rapidly. The last year, about JPY 4 billion was spent on ESD in terms of expenses and still operating profit of JPY 39 billion for Q4 for this business. How did you come up with this number? Fourth quarter usually has the highest sales. I am sure that you have calculated this number yourself. Year-on-year, I think you're talking about ESD, so that's 7% and Q-on-Q about 10% growth.
We have, of course, gone through the verification process to see whether we can reach this number. It is not a big jump for us. We are not trying to reach a specific number and start it from there. It's not the case. In the fourth quarter, positive factor is maybe some VRP cost reduction. But maybe there was more expense spent for the third quarter rather than the fourth quarter. Is that another way of looking at this? VRP. Year-on-year, yes, this is a contributor. So, there is no other extraordinary or special factor. Basically, cost of goods and SG&A and the total numbers are based on the numbers from the past. So, we have verified these numbers. In other words, there is no big factor behind this other than this. Understood. Thank you.
I have a question on the third quarter, October-December results. How did it compare to your internal forecast made at the time of Q2, both for sales, revenue, and operating profits, on a company-wide basis, group-wide, consolidated basis, as well as the business by business?
On a consolidated basis, very roughly speaking, revenue-wise, maybe 1%. For Q3 year to date, about 1% behind. That is for revenue for the nine-month period. Basically, as we've been talking, at this earnings call, China was one factor, one big factor. As for SG&A expenses, lots of ups and downs, so overall about the same on par with our forecast. This shortage of about 1% in terms of revenue is affecting the management-based profits, operating profits, the reference value. TSD. ESD was a bit sluggish. As for TSD and SSD, revenue was a little short, but through the expense control on a profit level, we were on par with the forecast.
Got it. On a three-month basis as far as the sales revenues are concerned, so slightly lower than what was forecasted at the end of H1 . China was the factor, correct?
Yes.
Thank you. On a full year basis, you did not change your guidance. Looking at the specifics, you're not really changing your assumptions for the H2 , correct?
Well, looking at the results up to the third quarter, the slight negative is to be covered in the fourth quarter, is our current projection.
Got it. Thank you.
I would like to talk about the ESD. First quarter and third quarter, there's seasonality and the sales activities are usually lower. That's what I know. China was quite weak, especially in ESD. Is that due to sales activities, the seasonality? In the first and third quarters, I understand that sales activities are lower. Is that a big impact, big factor behind this? Sales is lower in first and third quarter and high in second and fourth quarter. Is this trend going to continue into the future?
I would like to answer your question in a different way. Second quarter is high. Activity level, while the expense is suppressed, but the sales is higher, and this is traditionally always like this. You mentioned China, but I am not really aware about the situation in China. Nacho.
Have any, you know, answer to the question?
Yes. I have a perspective. I think altogether, what we are seeing since March or since COVID-19 is impacting the world is that seasonalities have changed. We cannot follow the same patterns that we were following in prior years. The reason for that might be different country by country and mostly related to budgeting and how to administer the healthcare expenses. We have seen that seasonalities have changed, so it's not that easy to predict how it will happen with seasonality. What I would say first, in general and then in China. I think in general, I would say that even in Q3, the...
Our ESD business has not been as maybe comparable to previous year, not as strong. We should not forget that we are talking about capital business. I think in the nine months period, our business has been very strong. Not only will it be regarding, you know, versus previous year, but also versus the pre-pandemic pre-pandemic level. I think again, that seasonality and forecast have become a little bit more difficult. In a full year basis in ESD, we are confident that we will achieve our numbers. Specifically, to China, again, this year has been a strange year from a budgetary perspective. What we have seen is that our customers has had more limited budgets than in previous periods.
At the same time, we know that the Chinese government has as a top priority to improve healthcare for the Chinese citizens. That's the reason why we are confident that the business in China have to recover because the technology needs to be is necessary in order to fulfill that demand. That's my answer or my comment to that question.
Thank you. A follow-up question. In China, they have a government policy of using Chinese products by China. The one that was produced in May was the 2021 version. Maybe the medical institutions will hesitate to buy for maybe one year. Does that mean in the next fiscal year, medical institutions will start to purchase as usual? In other words, demand continues to be strong. Is that the correct way of understanding this? Is yours.
The most important interest of the Chinese government is to provide the best possible healthcare to the citizens. That's very clear. I do think that obviously there is competitive pressures are in all markets and with local products and with not local products. At the end of the day, what is more relevant specifically in China is the work that we have been conducting for many years working with medical societies, with healthcare providers and with physicians.
Providing technology, providing education, and making sure that again, the patient, which at the end is the more relevant stakeholder here, is receiving the best possible treatment. This is the basis of our thesis, right? Our technology is specifically in GI, is recognized to be the best in the market, or at least our market share tells in that direction. The China market has a strong need to keep improving the healthcare and provide better healthcare access to the population. When you put these two things together, there is no reason to believe that the market is not going to come back strong and that our position is gonna be strong.
This is independently from any government policy, because at the end of the day, competition always exists. At the end of the day, we will be very consistent with the actions we have taken in the last years, which is very supportive to the healthcare in China. We will continue collaborating with healthcare institutions in order to promote new procedures and new technologies as we have been doing. We believe that, as I say, the situation with the demand and the budgetary situation this year will not continue because, again, the government interest is to provide the best possible healthcare. Thank you.
Thank you for giving me another opportunity. You made the news release on changes in the outside director. I understand that one of your new directors would be Gary Pruden, who is from Johnson & Johnson and Ethicon. I think you are expecting a great contribution from him for the surgical energy device. Now, compared to other devices, in terms of how you handle within your presentation materials, my impression is that the energy device's significance has been declining. That was my impression. The appointment of Mr. Pruden is that the indication of your renewed interest in energy device? Can you talk about that?
Thank you. The nomination committee's recommendation is to appoint him as a new director. Of course, the background.
He does have the med tech company background career-wise, Mr. Gary John Pruden. As Olympus aspires to become a leading global med tech company, we expect him to give us advice on many different aspects. That is one of the key reasons for his appointment. Not linked to any particular strategy, business strategy, no. We expect him to make contribution on a more general terms. Got it. Thank you. That's all. Thank you.
That concludes the conference call of Olympus. Thank you very much for joining us today.