Olympus 2014 Annual Report Download - page 33

Analysis of Business Results, Financial Position, and Cash Flows
Analysis of Business Results
Company Overview
In the global economy during fi scal 2014, there was an
overall moderate recovery trend centered on the United
States. However, diffi culties continued to be experienced in
certain regions, such as the slowdown of economic growth
in emerging economies, most notably China, and con-
tinuing economic sluggishness in Europe due to debt
problems. In the Japanese economy, recovery continued
on the back of yen depreciation and an improving job
market while consumer spending and capital investment
increased, partly due to the demand rush that preceded
the consumption tax hike.
In this operating environment, the Olympus Group
continued to advance the four basic strategies of the
medium-term vision (corporate strategic plan) launched in
fi scal 2013: “rebuilding of business portfolio and optimizing
allocation of management resources,” “review and reduc-
tion of costs,” “restoration of fi nancial health,” and
“restructuring of corporate governance.” Acting in accor-
dance with these strategies, we steadily implemented
initiatives targeting the removal of the Security on Alert
placed on the Company’s stock by the Tokyo Stock
Exchange while increasing capital to strengthen our fi nan-
cial base and reorganizing non-core business domains.
Looking at the Olympus Group’s focus business areas,
in the Medical Business, sales of new products in our fl ag-
ship gastrointestinal endoscope fi eld grew substantially in
Japan and overseas, and we strove to strengthen our sales
system to achieve further growth in the surgical device
fi eld. In the Scientifi c Solutions Business, previously known
as the Life Science & Industrial Business, we launched
products in various fi elds, such as laser scanning micro-
scopes and industrial videoscopes, and were thereby able
to achieve sales growth. As for the Imaging Business, we
strengthened profi tability by expanding our lineup of higher-
priced mirrorless cameras while working to maintain
optimal inventory levels and reduce costs. In fi scal 2014,
R&D expenditures amounted to ¥66,796 million and capital
expenditures totaled ¥37,810 million.
In regard to foreign exchange, the yen depreciated
signifi cantly against both the U.S. dollar and the euro in
comparison with the previous fi scal year. The average
exchange rate during fi scal 2014 was ¥100.24 against the
U.S. dollar (¥83.10 in the previous fi scal year) and ¥134.37
against the euro (¥107.14 in the previous fi scal year). These
rates increased net sales by ¥95,500 million and operating
income by ¥25,900 million year on year.
Net Sales
Consolidated net sales decreased 4.1% year on year,
to ¥713,286 million, as a result of the transference of the
Information & Communication Business in September
2012, the effects of which offset higher sales in the Medical
Business and the Scientifi c Solutions Business.
743.9 713.3
2013/3 2014/3
(¥ Billion) Medical
Business
+97.6
Scientific
Solutions
Business
+13.0
Imaging
Business
(11.5) Information &
Communication
Business
(114.2)
Others
(15.4)
0
200
400
600
800
1,000
Operating Income
Operating income increased 109.4% year on year, to
¥73,445 million, refl ecting higher income in the Medical
Business and the Scientifi c Solutions Business as well as
a substantially lower loss in the Imaging Business.
35.1
2013/3 2014/3
Medical Business
+25.7
Scientific
Solutions
Business
+1.4
Imaging
Business
+13.9
Information &
Communication
Business
(1.7)
Others
(0.5) 73.4
Elimination or
corporate
(0.4)
(¥ Billion)
0
20
40
60
80
100
Net Income
Net income increased 69.9% year on year, to ¥13,627
million, despite recording extraordinary losses totaling
¥35,642 million, which mainly consisted of provision for
loss on litigation as well as loss on liquidation of business
associated with the withdrawal from the biologics business.
Performance by Segment
Medical Business
In the Medical Business, consolidated net sales were
¥492,296 million, up 24.7% year on year, and operating
income was ¥112,735 million, up 29.5%.
In our fl agship gastrointestinal endoscope fi eld, sales
were strong for the gastrointestinal video endoscopy
systems EVIS EXERA III and EVIS LUCERA ELITE, both
launched in fi scal 2013. In the surgical and endotherapy
device fi eld, sales of the VISERA ELITE surgical video
endoscopy system, designed to support endoscopic
surgery, continued to grow. As a result, sales were
substantially higher in the Medical Business. Operating
income likewise increased accompanying higher sales.
Scienti c Solutions Business
Consolidated net sales in the Scientifi c Solutions Business
increased 15.2% year on year, to ¥98,510 million, while
operating income amounted to ¥4,935 million, up 39.9%
year on year.
In the life science fi eld, impressive sales were seen for
such products as FLUOVIEW FVMPE-RS, a new addition
to our line of laser scanning microscopes for use in cutting-
edge life science research. In the industrial fi eld, sales grew
for IPLEX RX and IPLEX RT, new industrial videoscopes
that offer our highest levels of resolution, as well as for the
OmniScan SX series of compact and lightweight ultrasonic
phased array fl aw detectors. In this manner, sales were up
in both fi elds, leading to higher operating income for the
Scientifi c Solutions Business.
Imaging Business
In the Imaging Business, consolidated net sales amounted
to ¥96,111 million, down 10.7% year on year, while operat-
ing loss was ¥9,182 million, compared with operating loss
of ¥23,073 million in the previous fi scal year.
In the digital single-lens camera fi eld, we launched
OM-D E-M1, our fl agship model for mirrorless cameras that
offers resolution levels comparable to full-size single-lens
refl ex cameras, and OM-D E-M10, a mirrorless camera that
condenses leading-edge technology into an ultraslim,
stylish body. These new additions drove year-on-year
increases insales. Meanwhile, in response to the contrac-
tion of the compact camera market, we limited the number
of units sold in this fi eld. Consequently, there was a decline
in overall sales for the Imaging Business. Nevertheless,
operating loss was reduced by constructing cost structures
appropriate for our business scale and cutting costs.
Others
In the Others Business, consolidated net sales amounted
to ¥26,369 million, down 36.8% year on year, and operat-
ing loss was ¥5,356 million, compared with operating loss
of ¥4,870 million in the previous fi scal year.
In order to allocate management resources to
business domains in a more concentrated manner,
we undertook the reorganization of non-core business
domains, including profi table businesses. As a result,
sales declined and operating loss increased.
Fiscal 2015 Outlook
Looking ahead, the moderate recovery trend in the global
economy centered on the United States continues and the
prolonged economic stagnancy in Europe appears to have
bottomed out. Nonetheless, the risk of economic downturn
still remains due to such factors as slowing growth in the
emerging economies. In the Japanese economy, despite
the presence of a recovery trend supported by yen
depreciation and the improving job market, the outlook
remains uncertain due to concerns regarding the effect of
the consumption tax hike and other issues.
Given this environment, the Olympus Group will
steadily advance the four basic strategies geared toward
accomplishing the goals of the medium-term vision. We will
also prepare for the period after the medium-term vision.
As part of this undertaking, we will conduct strategic
investment in the core Medical Business over the long term
to accelerate the strengthening of operating foundations.
At the same time, we will construct an optimal business
portfolio, based on an accurate understanding of changes
in the operating environment, while strategically allocating
and fully leveraging the Olympus Group’s management
resources to maximize Group performance. The “One
Olympus” management policy will be crucial in realizing
these improvements. As one facet of our efforts toward
building “One Olympus,” we will reorganize the Group,
revising business units in the Medical Business and the
Imaging Business, and otherwise work to create the ideal
organizational structure for the Group. Through this reorga-
nization, we aim to increase cost-competitiveness by
strengthening head offi ce functions, eliminating redundant
functions between divisions, and realizing more effi cient
utilization of management resources.
In the Medical Business, Olympus will take steps to
aggressively expand its operations. In addition to growing
sales of new gastrointestinal endoscope products, we will
strengthen sales systems in the surgical device fi eld and
boost sales of strategic energy device THUNDERBEAT. At
the same time, the Company will pursue expanded sales
in China and other emerging markets by enhancing
service bases and educating physicians with regard to
endoscopic procedures and techniques. In the Scientifi c
Solutions Business, we are shifting toward more
customer-oriented sales organizations to create systems
for maintaining a better understanding of customer needs.
Also, improved profi tability is being targeted in this busi-
ness by identifying business fi elds that guarantee high
returns and focusing investments on them. In the Imaging
Business, sales volume targets for compact cameras
will be further reduced in consideration of future market
contraction. At the same time, the shift toward mirrorless
cameras, a growth area, will be accelerated by increasing
the amount of total sales attributable to the high-margin
OM-D series. Furthermore, the Company will continue to
strengthen corporate governance systems while promot-
ing stringent compliance. Going forward, internal control
and other governance systems will be reinforced as the
Olympus Group continues to cultivate commitment to
upholding high ethical standards.
63
OLYMPUS Annual Report 2014
62 OLYMPUS Annual Report 2014