Olympus 2014 Annual Report Download - page 10

Past, Present, and Future of Olympus—Conversation with Analysts
Evaluation of Business Performance and Initiatives over the Past Two Years
Watanabe When the Tokyo Stock Exchange designated
the Company’s stock as Security on Alert, Mizuho Securities
revoked its rating. As a result, I temporarily stopped reporting
on Olympus. Over the period of approximately two years
before I resumed reporting, I did not revise the forecasts for
Olympus. In my fi rst report after I restarted coverage, I was
expected to include both the previous forecasts and the
Company’s new forecasts, but both sets of fi gures were almost
exactly the same. In other words, even amid the turmoil that
followed the scandal, business at Olympus was proceeding
generally according to plan. I believe that the stability of the
Medical Business was a major factor behind this smooth progress.
The ongoing losses in the Imaging Business are, of course,
a problem. However, faced with today’s exceptionally harsh
market, I think that losses of merely a few billion yen arethe
best the Company’s management could have done. Person-
ally, I choose to focus on the degree to which a company can
grow stably over a period of three to fi ve years, rather than
looking primarily at its ability to maximize earnings in the
short term. From this perspective, I have a very high opinion
of Olympus.
Koike I started covering Olympus in January 2013. The
precision machinery industry team at Morgan Stanley MUFG
Securities had been following the Company before the scandal,
but I was new to Olympus, covering the Company as the fi rst
representative from our healthcare industry team. A year ago,
there were not many brokers that had resumed coverage of
Olympus, and we were the only one to send someone from
their healthcare team. As such, there was a large backlash from
investors with regard to our coverage. This backlash was
particularly intense from overseas investors. It was not as if
investors overseas were constantly monitoring the situation in
Japan, and much of their information regarding the scandal
came from media sources like newspapers. For this reason,
we received many comments stating no improvement had
been seen in governance at Olympus. Later, the Security on
of the number of members as well as the ratio of internal and
outside directors and the ratio of independent directors and
non-independent directors. Nonetheless, circumstances will
change in the future, and it will be necessary to rethink our
systems based on those changes. I believe that the ideal
governance systems and membership ratios differ based on
the operating environment, and that there are optimal systems
for any circumstance we may face.
Watanabe At the moment, what issues do you expect to face
in further evolving governance systems?
Sasa The biggest issue Olympus faces at the moment is
the need to fl exibly allocate management resources in a volatile
market environment. The integration of business units was one
measure to address this issue. We must also ascertain the
business opportunities created by this situation and evaluate
these opportunities while readying our next move. This
approach will require us to create a system that enables us to
accurately evaluate each milestone we pass and ensure the
decisions we make are appropriate. Our ability to realize such
a system will have a large impact on the future of Olympus.
Ofcourse, we will require a plan to build this system, and our
people will not be able to act without a plan. I believe it is
impossible to optimally allocate our management resources
without clearly identifying what activities we will stop and what
new initiatives we will undertake.
Watanabe It is rare for a company to be able to effectively
reevaluate itself. I spoke with many endoscopic physicians
immediately after the Olympus scandal, and even then they
were not particularly upset. To physicians, it was almost as if
the scandal did not matter at all.
Sasa I was the division manager in charge of the
Marketing Division at the time of the scandal. After the news
broke, I received words of encouragement from countless
physicians, not only those in Japan but also physicians from
around the world.
Watanabe It must be quite reassuring to know that the
Company has the support of the end users of its products.
Alert designation was lifted from the Company’s stock and you
began visiting institutional investors around the world to explain
the situation at Olympus in conjunction with the capital increase.
After this, we stopped hearing complaints about the Company’s
governance systems. The focus of institutional investors is
always changing, and I am sure that they are now turning their
critical eye to another aspect of Olympus. However, I believe
that resolving the governance issues was a large step forward
for the Company.
Shibano I mainly cover the precision instruments industry, and
I began reporting on Olympus roughly one month before the
scandal. I was quite shocked with the incidents that unfolded.
Looking back at the two years that followed, I fi nd myself
concurring with the other gentlemen here today; there has been
almost no change in Olympus with regard to the strength of its
Medical Business, its operating environment, or its position in the
industry. After the scandal, product development moved forward
in the Medical Business, despite all the issues that needed
to be addressed both inside and outside the Company. Today,
Olympus is reaping the benefi ts of the new products it developed
during this period. I believe the ability to bring these products to
launch even faced with such adversity is truly symbolic of the
strength of Olympus. With regard to the digital camera business,
however, I cannot be so positive, even considering the
increasingly harsh operating environment. Looking at the results
of the Company’s restructuring of this business, I am forced to
say that other companies are making better progress than
Olympus. There are still numerous issues that need to be
addressed in this business in terms of sales, marketing, and the
precision of business plans, and I do not think that this situation
is something that began when the scandal was exposed.
I expect that the stock market is hoping for some clarifi cation
with regard to this business. Olympus needs to clearly explain
its plans for the digital camera business, describing how it is
positioned within the Company’s business portfolio and stating
whether this business will be continued or exited.
Sasa Gentlemen, I believe that everything you have said today
is accurate. Refl ecting on the past two years, we accomplished
some of our initial goals, but we also failed to accomplish others.
The market is always changing, and each change requires us
to alter our plans in response. In terms of businesses, the Medical
Business has proceeded as planned, while the Imaging Business
has not. In regard to the Medical Business as well, we were not
able to achieve certain targets because of the various measures
we instituted, such as those related to foreign exchange. We were
able to meet numeric targets, but there are still issues that need to
be addressed. For example, our targets were unmet in the energy
device fi eld, and it was the strong performance of other areas
that allowed us to achieve overall targets. If everything had
progressed as planned, performance in the Medical Business
would have been even more impressive.
Watanabe When discussing the possibility of investing in
a medical equipment manufacturer with global institutional
investors, people generally fall into one of two groups. One
group asserts that if a company makes quality products, then
it should see improvements in earnings and the operating
margin in the short term. The other group believes that
maintaining a consistent speed is important for medical
equipment manufacturers, and that if such a company disrupts
its own rhythm it will feel the negative impacts of this action 10
or so years down the line. I think most of the global investors
who invest in medical equipment manufacturers fall into the
latter group. These people tend to specialize in medical
companies and hold on to their investments for incredibly long
periods of time. It is therefore important for companies in the
medical fi eld to consciously issue information targeting these
investors. In the case of Olympus, I believe you could achieve
better results from disclosures if you communicated facts
about the Medical Business, such as what you view as the
appropriate business speed and operating margin. Particularly
with regard to the surgical device fi eld, investors need
information about how much growth potential exists in the
market and how much time will be needed for this potential
to come to fruition. Explanations of such factors would paint
a better picture of what Olympus is trying to achieve.
Shibano Just as Mr. Watanabe stated, I believe that a lot of
investors are trying to comprehend the medical equipment
industry from a medium-to-long-term perspective. However, the
medical equipment industry is not one that can be understood
intuitively. An understanding of this industry requires a great deal
of knowledge regarding the medical systems of countries
around the world, how widespread certain devices are, and
the nature of technological evolution. From this perspective,
I believe that it would be incredibly benefi cial for you to con-
tinue activities like the investor relations explanatory meeting
on the surgical device fi eld that was held in spring 2014.
17
OLYMPUS Annual Report 2014
16 OLYMPUS Annual Report 2014