Good afternoon. Thank you for joining us. I'm Naoko Saito from J.P. Morgan . Welcome to the J.P. Morgan Healthcare Conference Olympus Presentation. Again, it's my pleasure to be introducing Olympus. From the company, we have CEO Bob White for the presentation, and after that, we'll have a Q&A session. With that, I will pass on to Mr. White. Thank you.
Thank you. Good afternoon, everyone. Thanks for joining us. As she said, I'm Bob White, the CEO of Olympus. Olympus is a 100-year-old company and a leader in endoscopy care. My objective over the next few minutes is to share with you our vision and how Olympus is going to shape the future of endoscopy-enabled care. Let's start with the world around us for a moment. Populations are aging. Over 40% of the population is over 60 years old, and with that aging population comes chronic diseases. It's estimated that people over 65 will have at least one chronic disease by the year 2050. That's driving underlying growth in endoscopy for us. The market's growing at roughly 5% a year. If you look at just the big developed markets of the U.S., of China, of Europe, and Japan, that's 155 million endoscopy procedures done annually.
Importantly, those geographies only represent about 25% of the world's population. As care becomes more available, you can see that becoming 600 million endoscopy procedures a year. Importantly, expectations are changing as well. Patients want earlier detection, faster answers, less invasive care, and better outcomes, and oftentimes looking for diagnosis and treatment in exactly the same visit. Clinicians want consistency, automated workflow, and actually the ability to spend more time with patients. Hospital administrators want greater reliability, simplicity, and efficiency, and actually an environment where quality and cost work together, not against each other. Today, endoscopy-enabled care is adding years of life to millions of people. Our ambition is to do that for millions of more people. We believe Olympus is uniquely positioned to deliver such a future.
Our global presence, long-standing relationship with clinical experts, and the world's largest install base of endoscopy systems actually forms the foundation on which much of the world's endoscopy care is delivered today. Our strategy brings together imaging platforms, devices, therapeutic devices, digital solutions, and artificial intelligence to form an adaptive ecosystem. As we bring together more technologies, robotics, artificial intelligence, endoscopy-enabled care becomes more precise. It evolves, becomes more efficient, and widely available. We see a future where patients get improved outcomes through earlier diagnosis and faster treatment. More conditions will be treated endoscopically, which means organs are saved, recovery time is faster, and patients get healthier. This is powered by an integrated AI ecosystem. Looking ahead, we see this ecosystem where technology, devices, data, come together into an adaptive environment that learns from every procedure, refines workflow, and empowers clinical decision-making.
This is the future that Olympus is creating, where endoscopy-enabled care extends life, enhances its quality, and sets a new standard for what minimally invasive medicine actually looks like. Let me show you what I mean.
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In the future, patients will be treated with shorter hospital stays and better patient outcomes with endoscopy.
I think that AI will be very helpful to us to obtain these answers and offer the best possible management for our patients.
Effectiveness of the treatment is the most important. [inaudible]
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At Olympus, our purpose is to make people's lives healthier, safer, and more fulfilling. As pioneers in the field, we have always stood at the intersection of medicine and technology, where purpose meets performance. Today, we stand at this threshold, ready to push the boundaries we need to push. The power of endoscopy-enabled care is already adding years of life to millions of people. Together, we will bring that power to millions more.
Okay. Having seen the future, let's turn to how we're going to make that real. Our vision will be achieved through three strategic imperatives, each of equal importance: innovation-driven growth, simplicity, and accountability. As I mentioned, innovation-driven growth is at the heart of what we do. Leveraging the world's largest GI install base, we're focused on key product launches in our core markets. Included in innovation-driven growth is also expanding our presence in China and ensuring that our products have access to that important market. Lastly, to complement our innovation-driven growth is to build on our M&A machine through inorganic means to tuck in acquisitions and partnerships to really complement the robust offering we have. The second pillar of our strategy is simplicity. Simplicity ensures we have a very strong operating foundation on which to run the business.
Beginning this year, short-term restructuring actions improve our operational efficiency, while longer-term structural moves position us for sustainable growth and driving us towards leading MedTech benchmark cost levels. That brings me to our third pillar, accountability. We're taking the opportunity to further strengthen a high-performance culture where excellence and execution are rewarded. This is critical because the better we operate the business, the better we serve patients. This patient-first mindset is critical to us. It's the reason we exist; we embed patient safety and quality in everything we do. We will continue to execute on our ESG commitments; we're implementing an Olympus Management System to improve our operational rigor. These three strategic pillars are built on our purpose and our core values; those aren't changing. Those values resonate deeply with me and all 30,000 Olympus employees. Our financial ambitions are also clear.
A 3%, 4%, 5% revenue plan, 100 basis points of operating margin expansion, and double-digit EPS growth. Let me go one step deeper. As we look at our strategic plan, our 3%, 4%, 5% plan accelerates growth from 3% to 4% to 5%, or about a percentage point each year. Importantly, this plan is grounded in very real drivers in our pipeline. Our playbook is absolutely clear. We deliver innovation, we fortify our core portfolio and expand it. Olympus customers can standardize on Olympus with the right tools in the right geographies at the right time. You can see the launch cadence across our core businesses from GI ET, respiratory, urology, also across geographies. On systems and scopes, we're expanding our EVIS X1 scope lineup region by region, U.S., Europe, Japan, China, keeping Olympus at the center of the endoscopy suite.
In parallel, we're scaling high-growth adjacencies with real clinical benefit. luminal patency stents, stone management, single-use ureteroscopes, single-use cystoscopes, EVIS, and single-use bronchoscopes. I'd offer to you this is what innovation-driven growth looks like: focused investment, faster execution, and a pipeline that supports growth. Oh, by the way, additional upside from M&A. Let me take this one level deeper for you. To be concrete about what's driving near-term growth, we're executing two levers with urgency. The first one is targeted portfolio expansion through partnerships, and the second one is a step change in our competitiveness in local manufacturing in China. Our partnerships have secured exclusive distribution agreements in really important areas. Our MacroLux offering, as you can see on the slide, strengthens our urology offering with single-use cystoscopes, single-use ureteroscopes, suction access sheaths, bringing capabilities across regions; we've already defined launch plans.
In GI endotherapy our GORE VIABIL partnership adds a differentiated biliary metal stent, which is so important to our HPB portfolio and positioning us to expand further in GI metal stents. Our launch plan is fully committed on that as well, already in the U.S. and launching here in Europe in the next couple of months. Alongside that, you see our EU-ME3 ultrasonic processor, which is really important in our GI respiratory ecosystem. We have defined launches for that as well. Importantly, on the China localization, as you can see on the page, this is a strategic inflection point. We're executing with tangible milestones. We have recent product launches. Our EVIS X1 video-capable system already started in December; we've got a full launch here this month. The takeaway is clear.
We're expanding our platform through the right partners and improving our ability to win. I also want to talk about how we're shaping the future through AI and robotics. First, OLYSENSE. OLYSENSE is our AI-powered ecosystem, which is designed to revolutionize workflows, device training management, disease detection characterization, and ultimately, standardize complex procedures. OLYSENSE has recently launched several AI-powered applications in the U.S. and select European markets. By FY 2028, we'd expect that 5% of our install base is connected to this AI cloud platform, and up to 30%, 25% by FY 2031. Endoluminal robotics is a top priority for us, and this is anchored by our recent joint venture with Revival Healthcare Capital . Leading this joint venture, we've recently announced that Erik Todd has joined as CEO of this, and we're very excited to bring Erik on board.
As you think about where Olympus is, by leveraging our AI footprint, our capabilities, our opportunity in endoluminal robotics, these are tangible, high-impact opportunities that propel our growth. Alongside this technology-driven strategy, we're also evolving our approach to cost management, and let me show you how we're doing that. We aim to deliver approximately 100 basis points of improvement year-on-year through a plan that is both very executable in the short term and structural in the long term. In the short term, our focus is on organizational simplification, SG&A efficiency. We're moving to a division-led model, reducing spans and layers and redundancies to make accountability clearer and decision-making faster. These actions are expected to drive approximately JPY 24 billion savings on a run rate basis, about 2,000 net positions in fiscal 2026 and 2027.
In the longer term, we're building a structural productivity engine to strengthen our manufacturing and supply chain, digitize where we need to, give us more flexibility, and importantly, we're adding end-to-end integrated planning. What this will enable us to do is drive down to MedTech benchmark cost levels over time. In the near term, we execute simplification and simplicity with decisive executable actions, and in the longer term, we drive structural changes. What this means, this provides durable opportunities for lock-in margin expansion over time. I want to take a minute to talk about the important topic of capital allocation. We think capital allocation is one of the most powerful levers we have to shape Olympus's future and deliver value to our shareholders. Our approach to capital allocation is rooted in discipline. It starts with investment in growth drivers, organic development, strategic M&A.
Also, we've committed to sustainable improving dividends for our shareholders, and we'll dynamically look at share buybacks as we have in the past year, and we'll certainly do so this year. Importantly, increasing our focus on free cash flow is very important. Let me talk about that for a moment. We're focused on free cash flow to strengthen our financial foundation and improve it. At the same time, we're leveraging our balance sheet. You've seen this in our recent announcement to triple our investment in our Olympus Innovation Ventures, $150 million investment. We're tremendously excited about this, because what this allows us to do is invest and learn faster and more quickly, and what you're going to see is continue to deploy that wisely throughout the year.
As we advance our innovation agenda, we'll also enhance our financial performance and ensure that we have the resources to drive long-term growth. Let me take a minute to recap where Olympus stands today. We have several tailwinds as we build business momentum. We've got really good GI performance in Europe and APAC, and we see significant improvement opportunities in the U.S. Our respiratory BU continues to excel and operate above market growth in the U.S., EMEA, and Japan. China's market has recently shown signs of improvement, and the launch of local production is expected to reinforce this trend. Emerging markets have been a strong high single, low double-digit grower for us. Our distribution agreements with MacroLux and Gore strengthen our portfolio in really key areas. Alongside these positive tailwinds, we must acknowledge that headwinds exist that demand our full attention.
The regulated and quality environment within Olympus remains elevated, and this is important because our quality and patient safety commitments are non-negotiable. We've proactively managed product recalls, temporary suspensions of products to ensure safe and effective products are delivered to the marketplace. To reinforce this commitment, we're elevating the role of the chief medical safety and patient officer to report directly to me as well, to ensure we're driving patient safety everywhere, every day, within sight of Olympus. We're building momentum, and our quality transformation remains central to our strategy. In closing, look, we have an exciting and clear vision backed up by very pragmatic actions that we're executing, and our journey's underway. We're executing with focus, with purpose and determination to improve the lives of millions of patients around the world. Thank you for your time.
Thank you so much for the great presentation, Mr. White. Let me now open up the Q&A session. From Olympus, our CEO, Mr. White, will be providing the answers. Let's start with my first question. It's been over six months since you became CEO of Olympus. Compared to other global MedTech companies, how do you evaluate Olympus? Could you share both the strengths and the challenges you see?
Yeah, thanks for the question. It's been a fantastic six or seven months inside of Olympus. When I came to Olympus, having been in MedTech my entire career, I felt a couple things were true, which Olympus had an amazing brand, great people, great legacy of technology, and just this history of innovation. What I found is those are true. We have amazing people. We have incredible customer relationships, who've stuck with us. Our position in really important markets is what fundamentally drives our success. I talked about the chart. If you're in a market that's growing at 5%, that's a great market to be in. At the same time, our opportunity to reshape the future of endoscopy-enabled care is what is so exciting. We've got this great legacy and an opportunity to reshape the future.
When we talk about artificial intelligence, robotics, what care will look like in the future, that's where Olympus is positioned to be. As I mentioned, when we think about our install base and how we are powering and forming the foundation for much of the world's endoscopy-enabled care, that's a beautiful platform to get on. Similarly, though, we need to drive our innovation faster. Absolutely. We need to get better commercially, 100%. We need to think about our global operations footprint, those things I talked about. I think we have a pragmatic view. I've spent time the past seven months all over the world, talking to customers, meeting with our employees. It's great to see not only the pride and the commitment of our employees, but the commitment of our customers to Olympus and what we mean to them in their practice.
Thank you so much. Great. Actually, what do you think about the reorganization from ESD and TSD business to GIS and SIS business so far? I think Olympus changed many things to focus on patient first in the couple of last two or three years. What do you think about the effect of the changes?
Yeah.
Many changes.
Thanks for the question. What my colleague, the moderator, mentioned, she threw a lot of acronyms at you. All that meant was we moved to a divisional model to get really close within our GI business and our surgical business. We did that very intentionally to align with our customers and how our customers operate. When we think about the future of the endoscopy suite, that's how we align. I think it's a really good sign that when we think about Olympus, we think about how do we dynamically adapt to where the market is going, to where our customers' needs are going. That's why this intelligent ecosystem is so important for us. I really like our businesses. They're well-positioned in good markets, but we'll always change and adapt. Thank you.
Thank you very much. How is the situation with the FDA reinspection? Do you have any update for us?
Yeah, thanks for the question. As I've talked about on previous earnings call, the FDA has come in and reinspected it. It's an open regulatory matter, so I can't talk about the details, but know that we're committed and have been and will be committed to complete transparency with the agency, very regular communication with them, and we look forward to that to continue.
Great. Thank you very much. We look forward to the additional updates going forward. Does anyone have any questions? If you have, please raise your hand. What are your thoughts on the market share for GI endoscopes going forward? I feel competition is intensifying, especially in China.
Yeah. Thank you for the question. We're fortunate, but we never take it for granted to have a 70% market share around the world. We come into that knowing we have to earn that every day. I want to pick up your question specifically about China. When I think about China and talk to also my MedTech peer CEOs, you may get different perspectives. Let me share you our view on China. China for MedTech has historically been a strong double-digit growth market with great margins. There's been three fundamental changes that have taken place in the China market over time. The first was the move to volume-based purchasing, which took a lot of margin out of the channel. Very clear. The second was the anti-corruption campaign that the Chinese government did.
Of course, Olympus wasn't involved in any of that, but it did actually put a chill into the marketplace as hospital executives didn't know where they were going to be. The third one, and most fundamentally, is the Buy in China, a policy that the Chinese government has put in place. Which is why I think smart companies adapt their strategy. You saw us move to localization in China with the factory. I talked about that on the pages. In addition to that, changing our commercial model, strengthening and thinking about our service and repair environment, strengthening our government relations involvement as well. You bring those together in a new strategy that I believe. Final point is, China, like many other markets, has segments of the marketplace.
Where we looked where we were a share donor, it was in the low- and mid-tier segments of the market, more than in the high tier. We're going to adjust our strategy to get at that. I like where our strategy is. I like the actions we're taking. My expectation for China is just to be at market growth. That I think it's a reasonable expectation for a company as big and strong as Olympus to be in China at market growth levels.
Thank you very much. How about U.S. and other areas, GI endoscopy market shares?
Yeah. Thanks for that. There are pockets where I believe our share moves around a little bit, and I would offer to you where we have donated share is because we had gaps in our portfolio, and competitors filled in those gaps, or where we weren't as good commercially as we needed to be. The beauty of that is both of those are very fixable problems. We have the opportunity to fill the portfolio, as I mentioned, with the roadmap that's very focused on what our division leader said: these are the products we need, so those are the products we're building. Much more, when I talked about the third pillar of our roadmap being accountability, much more of a performance culture that rewards execution and excellence.
Thank you very much. Back to the question of China. You mentioned there is a sign of recovery in China. What do you think about China outlook in fiscal year 2027 and going forward? Would you like to continue to China businesses going forward?
Thanks for the question. I like to think about gradual recovery in China. It's not going to turn on overnight. We're just getting products out of our factory. We changed the commercial model to now be very specific so the salespeople don't carry everything. They carry product specific to their business unit. Like I mentioned, the other steps we're taking. We're clear. We should see quarter-on-quarter improvement in our performance in China, and I nor any of my executives will be satisfied until I said we're at or above market growth. That's our position we should be in.
Thank you very much. Do you have any question?
Hello, Derek from Berenberg. Question for you. Is there any sector or stage or specific guidance you've given your business development team for future acquisitions, as you're looking to fill your pipeline and innovation with external assets?
Yeah, thanks for the question. When we think about business development, the way we think about it with inside of Olympus, it begins with strategy. Every one of our businesses have a very clear strategy and a pathway to leadership, and that pathway to leadership is born on what are we going to do organically, and if we don't have an organic pathway to leadership, what are we going to do inorganically? To this point, specifically on BD, we think about it in terms of three categories. One, tuck-in M&A. We've got a nice robust pipeline of that. Two, distribution deals and partnerships and structured relationships, like you saw us do with MacroLux and Gore to get a tuck-in of an added technology.
Third, of course, joint ventures, as you saw us do with Revival Healthcare Capital to create Swan EndoSurgical, which we're pretty convinced we would not be able to do that internally. For each one of those, we have clear targets in areas that we think will accelerate our growth. The other final thing I'd say to your comment, when we think about M&A and MedTech, oftentimes it's about buying R&D. It's about buying a technology that you can add to your bag, develop, that you become the better owner of. It's rarely you could buy a channel, because generally what we're trying to do in M&A is sit into our existing channel. This is about driving our weighted average market growth up. We're going to do acquisitions, and we do partnerships. It's about increasing our WAM growth.
Thank you.
Thank you.
Thank you. Your corporate strategy for the next three years shows an accelerating sales growth target. 3%, 4%, and 5% in the next three years. You explained the scenario, but could you more elaborate about this plan?
Yeah, sure. The 3%, 4%, and 5% plan, as I talked about, is pragmatically based on fundamental drivers inside our pipeline. We have very focused business units, and each of our division leaders have said these are the specific products that we need to fulfill the portfolio. When we look at the products that are in our pipeline, are those that are generating to our revenue growth. Of course, we set our internal plan higher than the 3%, 4%, and 5% plan. As we said, and noticed the 3%, 4%, and 5% plan, importantly, does not include any M&A. We think what we wanted to do is establish credibility, deliver a track record of hitting our numbers, knowing that we didn't put a ceiling on that, and we'll accelerate it as we go.
That's how we think about the plan, driving that important organic engine, first and foremost, with the real pipeline.
Thank you. Next fiscal year, 3% sales growth might be somewhat conservative. What do you think about that?
We're not going to be in a position to talk about guidance here today. We're going to move into it, we're going to do our best, and we'll see. Ultimately, you'll tell me whether it was conservative or not on how we did.
Yeah, I think you can revise upward revisions.
Can always revise it, right?
Yes. Thank you. In your three-year corporate strategy also aims to improve OP margin. I understand that the main factor is the JPY 24 billion impact from structural reforms, but I assume you are also planning to improve cost of goods sold. How do you plan to achieve cost improvements as sales of single-use products expand? I think it won't be the cost ratio worsening.
Thank you. Again, it's a very thoughtful question. Just to be clarified, when we talked about the 100 basis points improvement year-on-year, we said short term. These are very specific tactical actions. This is the restructuring we announced back in November, the 2,000 positions between our fiscal year 2026, which we're in right now, and fiscal year 2027. Those plans are well underway, being executed. Then longer term, we talked about structural improvement to drive down costs. This gets at our footprint, this gets at how our supplier base is leveraged. It gets at as we think about the value stream end to end. All of that is being looked at, which really gives us confidence, not only in the ability to execute our short-term actions, which we are, but actually drive sustainable structural improvements, which means that's consistent margin expansion past that.
That's why we feel confident that it's not just we took a few heads out. I don't want to minimize that, but we know we can do that. This is also about becoming a better operator for the business.
I see. Thank you. Your measure to address tariff impacts are progressing smoothly. What is your target regarding tariff in your three-year corporate strategy?
My target, what?
The target of regarding tariff impacts in your three-year corporate strategy.
In our three-year strategy? I think the highest impact is doing what I outlined, which is driving organic development to paving the way with creating the future of the OLYSENSE ecosystem, or the AI ecosystem powered by our OLYSENSE solution. I know that's what we're going to execute on the top line side.
Thank you. Do you have any?
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Microphone coming to you.
[inaudible] .
I'd like to ask you about your thoughts on the durability of your dominance on GI endoscope. I think it's been long discussed that whether it's liquid biopsy, single use, there's challenges have come and gone in terms of potential disruption. Just wondering if there's anything on the horizon that you're watching closely and what your countermeasures are. Thank you.
Thanks for the thoughtful question. There's a lot on the horizon that we watch. Then we ask ourselves, do we have offensive mitigation plans in place, or are we going to play defense? On the evolution of reusable and single use, we think there are important markets for single use, and we're very active internally on those development plans as well. Then you've seen us in certain segments where we felt we could increase our speed to market while we did a distribution deal with MacroLux to put a product in the portfolio. You began your question with the durability of Olympus' position. Here's what gives us confidence, but yet we know we earn it every day, is with the world's largest number of installed endoscopy towers. That gives us a presence, and our plans are all about shaping the future of the endoscopy suite as well.
Therefore, you see our move with OLYSENSE and Robotics. The way we think about Olympus when we step back, we think about seeing, reaching, and treating. Seeing is all about the amazing images and the optic technology that Olympus is known for. Also leveraging AI to give physicians better eyes in effect. The reaching, we're not standing still because once you see a disease, you got to reach it, and that's where you see our movement into robotics and similarly. Once you see it and you reach it, you got to treat it, and that's why we're investing heavily in our therapeutic portfolio. This see, reach, treat is foundational to Olympus, and that's why I feel good about how we're positioned to continue to form the basis of much of the world's endoscopy-enabled care.
Thank you very much. In your three-year corporate strategy, what specific areas do you want to improve to raise ROE and free cash flow?
Thank you. As I mentioned in our slide, free cash flow is a very important topic for not only the executive leadership team but all of Olympus. We're taking very specific actions across all our functions. First, to drive free cash flow, understand what that means in terms of everything from inventory to working capital and how we drive that. That's a big piece of it. You're going to see that. You saw my commitment and our team's commitment to do that. We're going to stay on that. That's an important one for us.
Thank you. What do you think about the balance between buyback and R&D innovation?
Yeah. Thank you. When I think about our capital allocation, it begins with our strategic growth drivers, right? We want to invest in those growth drivers to drive our WAMGR up. That's first and foremost. Next to that is we talked about M&A. Good question in the back there about how we think about M&A. That's an important use as well. Third, we talked about our dividend policy. We've been clear that we want a stable increasing dividend, and we're committed to that. On the share buybacks, we're going to dynamically look at that. Where it makes sense, when it makes sense to do that, and I think that's what our investors expect from us, and that's what we'll do.
Thank you very much. Do you have any questions? You started Olympus Innovation Ventures. What do you think about your M&A track record? Maybe M&A will be changed in future?
Yeah. It's a two-part question there, right? When you think about our track record, like many large MedTech companies, I think we've had some good ones; we've had some bad ones. All of those lessons learned are now how we think about M&A going forward. Olympus Innovation Ventures, though, is a really important vehicle for us because, yes, that could potentially lead to M&A, but we like about it because it gives us an opportunity to participate in an early round, a board observer seat, a position with these companies. Importantly, when we look at Olympus innovations, we do those in areas that are really important to effect our growth. You're going to see us continue to be active in that and continue to get better at M&A.
Okay. Thank you very much. Do you have any other message to the investors?
No. Thank you.
Okay. This concludes today's presentation Q&A session. Thank you so much, Mr. White. Thank you.