Olympus 2015 Annual Report Download - page 36

losses recorded during this year. However, this is only a tempo-
rary setback, as we believe that it is entirely possible for the
Company to consistently maintain a high level for ROE in the
double digits. Going forward, we will target this level by im-
proving profitability centered on the Medical Business and
byusing capital more efficiently.
We are currently in the process of formulating a new
corporate strategic plan slated to begin in April 2016. This
plan will focus on three key points—growth, capital efficiency,
and financial soundness—and will place greater emphasis on
ROE and other performance indices that incorporate share-
holders’ perspective.
At Olympus, we are aware that corporate value is best im-
proved by living up to the expectations of our shareholders
and various other stakeholders and pursuing balanced in-
creases in the different types of value relevant to shareholders,
customers, employees, and business partners. To realize sus-
tained increases in these values, it is crucial for Olympus to
always be acompany that can continue to grow its business
over the medium to long term. Moreover, this growth must be
achieved while ensuring financial soundness and consistently
generating the returns that our various stakeholders expect.
Recognizing this fact, we believe it is vital to conduct
management that emphasizes the plan’s three key points and
places focus on the balance between these points.
Message from the CFO
Performance Indices and Targets of the Medium-Term Vision
2012/3
(Results)
2013/3
(Results)
2014/3
(Results)
2015/3
(Results)
2017/3
(Targets)
ROIC* 2.7% 2.7% 5.9% 8.0% 10% or more
Operating margin 4.2% 4.7% 10.3% 11.9% 10% or more
Free cash flow ¥(4.8) billion ¥58.7 billion ¥52.1 billion ¥27.2 billion ¥70.0 billion or more
Equity ratio 4.6% 15.5% 32.1% 32.9% 30% or more
(Reference)
ROE (62.3%) 8.3% 5.7% (2.6)% —
* Return on invested capital (ROIC): At Olympus, ROIC is calculated using the following assumptions: Return (Operating income after taxes) / IC (Shareholders’ equity + Interest-bearing debt)
Construction of a Financial Base that Can Withstand
Global Competition
Looking at financial soundness, the equity ratio improved from
4.6% on March 31, 2012, to 32.9% on March 31, 2015, ex-
ceeding the level of 30% that we had planned to target over the
foreseeable future. However, we realize that this level is still in-
sufficient when compared to other global medical equipment
manufacturers. In the Medical Business, considering approval
requirements among other factors, significant time and money
must be invested throughout the process of developing and
commercializing products. At the same time, we must also be
prepared for the risks that are characteristic of this business. It is
therefore necessary to build a financial base that can support
these activities over the long term. In addition, ongoing upfront
investments are crucial in ensuring stable growth. For this
reason, I believe we need to further increase the level of equity
capital by generating operating income in the Medical Business
and other businesses. Naturally, we must remain aware of the
capital costs involved in doing so. I am not talking about simply
raising capital through fund procurement, but rather we formu-
late and implement financial strategies that boost capital while
limiting capital costs and maintaining a balance with interest-
bearing debt.
Growth Investments in the Medical Business
Conducted as a Top Priority
Three years ago, quickly recovering the Company’s financial
reliability was one of the most important tasks for management.
When planning medium- to long-term man
agement resource
allocations, the balance sheet is, of course, an
important con-
sideration. However, I believe that utilizing capital to fuel future
growth is of even greater importance. Accordingly, I feel that
conducting ongoing investments in the growth of the Medical
Business should be a top priority for improving stakeholder
value. In addition, M&A will be considered as a possible
optionfor expanding these operations going forward.
Shareholder Returns
For fiscal 2015, we were able to issue dividend payments for the
first time in four years. To date, there have been a number of
concerns that have prevented us from resuming dividend pay-
ments, including securities litigations and deliberations with the
U.S. Department of Justice. However, we have made notable
progress toward resolving these issues, and have also secured
an amount of monetary resources sufficient for issuing returns.
Based on these factors, we judged that the Company was now
capable of providing ongoing dividends, and thus decided to
resume dividend payments in fiscal 2015.
Given the growth potential and profitability of the Medical
Business, I am confident in our ability to secure sufficient cash
flows even while conducting growth investments. Specific divi-
dend policies, such as the target dividend payout ratio, will be
developed as part of formulating the next corporate strategic
plan. What I can say at the moment is this: we are committed to
increasing dividends while improving business performance and
maintaining a level of capital that can be deemed sound based
on the characteristics of our business as a medical equipment
manufacturer. By striking a balance between these concerns,
we aim to respond to the expectations of our shareholders by
issuing ongoing dividends in the future.
Emphasis on Constructive Communication with Shareholders
We recognize the importance of constructive communication
with shareholders in realizing ongoing growth and medium- to
long-term improvements in corporate value. For this reason,
President Sasa and I take the lead in speaking with our share-
holders in Japan and overseas. These interactions serve as
opportunities for us to discuss a variety of topics, including
circumstances regarding our business, measures to resolve
management issues, and how we plan to realize the type of
growth we promised when conducting the capital increase two
years ago. In the past, a large number of shareholder inquiries
voiced concerns for the Company’s corporate governance sys-
tems. Today, however, shareholders are increasingly asking us
about growth strategies, and the fact that they are now looking
forward to Olympus’ future with anticipation is unmistakably
clear. Shareholder opinions will continue to be reflected in man-
agement decisions as we move forward and work to maintain a
positive relationship with the market.
0
100
200
300
400
0
15
30
45
60
2009/3 2011/32010/3 2012/3 2013/3 2014/3 2015/3
103.5
155.7
112.5
44.8
148.6
329.5
355.5
10.0 14.1
11.0 4.6
15.5
32.1 32.9
2017/3
(Target)
Equity / Equity Ratio
(¥ Billion) (%)
Equity Equity ratio (right)
0
200
400
600
800
2009/3 2011/32010/3 2012/3 2013/3 2014/3 2015/3
642.8 661.5 648.8 642.4
560.4
415.8
354.4
300.0
2017/3
(Target)
Interest-Bearing Debt
(¥ Billion)
Resource Allocation and Shareholder Return Policies
Balance-Oriented Management and Cash Cycle
Balance-Oriented Management
Growth investment in the Medical Business
Generate operating income in the Medical Business and other businesses
Growth
Continue issuing dividend payments
Shareholder Returns
Reinforce nancial base, reduce interest-bearing debt,
and increase equity capital
Financial Soundness
Improve capital efciency and protability
Capital Efficiency
Increase Free Cash Flow
69
OLYMPUS Annual Report 2015
68 OLYMPUS Annual Report 2015