Financial Strategy
Yasuo Takeuchi
Director, Senior Executive Managing Officer,
Head of Corporate Management Office, CFO
Olympus Corporation
March 30, 2016

Todayʼs Agenda

2

2016/3/30

1.

Financial Strategy Directives

2.

Management Goals

3.

Performance Indices and Targets

4.

Targets for Business Segments

5.

Management Emphasizing ROEProfitability: Ratio of Net Income to Net Sales

Asset Efficiency: Total Asset TurnoverFinancial Leverage

6.

Operating Margin Improvement

7.

EPS

8.

Policies for Allocating Management Resources (Capital, Funds, Etc.)

No data copy / No data transfer permitted

Todayʼs Agenda

32016/3/30

1.

Financial Strategy Directives

2.

Management Goals

3.

Performance Indices and Targets

4.

Targets for Business Segments

5.

Management Emphasizing ROEProfitability: Ratio of Net Income to Net Sales

Asset Efficiency: Total Asset TurnoverFinancial Leverage

6.

Operating Margin Improvement

7.

EPS

8.

Policies for Allocating Management Resources (Capital, Funds, Etc.)

No data copy / No data transfer permitted

Financial Strategy Directives
Directive Ensure financial soundness and improve capital efficiency through efficient cash flowallocation
 Clarify cash flow allocation policies (financial soundness, growth investments, and shareholderreturns) and link to accomplishment of management goals
 Strengthen financial governance systems and prioritize Groupwide optimization to improve
capital efficiency within Group
Medium-Term Vision

16CSP

Secure financial soundness
Improve financial soundness
Improve capital efficiency

4

2016/3/30

 Increase equity capital Strategically control interest-bearing debt

 Reduce interest-bearing debt

 Secure stable equity capital levels

 Quickly resume dividend payments

 Realize phased increase in shareholder returns

No data copy / No data transfer permitted

Todayʼs Agenda

5

2016/3/30

1.

Financial Strategy Directives

2.

Management Goals

3.

Performance Indices and Targets

4.

Targets for Business Segments

5.

Management Emphasizing ROEProfitability: Ratio of Net Income to Net Sales

Asset Efficiency: Total Asset TurnoverFinancial Leverage

6.

Operating Margin Improvement

7.

EPS

8.

Policies for Allocating Management Resources (Capital, Funds, Etc.)

No data copy / No data transfer permitted

Management Goals
 Working secure an appropriate level of financial soundness, we will constantly achieve ROE of 15% throughbalanced improvements in profitability and business growth as well as financial soundness, and double the bottomline (EPS) over the next five years
Capital Efficiency

ROE15%(FY2016 estimate: 14%)

 Secure appropriate level of financial soundness and then target balanced improvements in profitability and businessgrowth to maintain ROE of 15% over long term

Profitability

Operating margin 15%(FY2016 estimate: 12%)

 Improve profitability by boosting earnings in 3 surgical device businesses (GS, URO/GYN, and ENT), advancing selection andconcentration measures in Scientific Solutions Business, and at least breaking even in Imaging Business Reduce manufacturing costs, increase development efficiency, and streamline back-office work and processes to reduce
SG&A expenses and thereby improve profitability

Business GrowthEBITDA

Double-digit growth*(FY2016 estimate: ¥150 billion)(FY2021 estimate: ¥240 billion) Achieve sales growth that exceeds market growth rates in Medical Business while eliminating operational inefficiencies torealize high-quality growth Enhance earnings capacity measured by excluding accounting factors (depreciation, amortization of goodwill, etc.)

Financial Soundness

Equity Ratio50%(FY2016 estimate: 39%)

 Increase equity capital from perspectives of securing financial soundness matched to risk levels and appropriately managing
financial leverage
6* Compound annual growth rate (CAGR)

Todayʼs Agenda

7

2016/3/30

1.

Financial Strategy Directives

2.

Management Goals

3.

Performance Indices and Targets

4.

Targets for Business Segments

5.

Management Emphasizing ROEProfitability: Ratio of Net Income to Net Sales

Asset Efficiency: Total Asset TurnoverFinancial Leverage

6.

Operating Margin Improvement

7.

EPS

8.

Policies for Allocating Management Resources (Capital, Funds, Etc.)

No data copy / No data transfer permittedPerformance Indices and Targets
 Record forecast figures of ¥1,100 billion for net sales and ¥170 billion for operating income in FY2021 byaccomplishing management goals
FY2021 (Forecast)

FY2016（Forecast）

Net sales¥1,100 billion

CAGR

6%

¥816 billion

Operating income¥170 billion

CAGR 11%¥100 billion

Free cash flowMore than¥250 billion

Total in 5 years－¥320－¥163EPS

After securing stable financial base, prioritize allocation of funds toward investments ingrowth fields and use remainder of funds to provide shareholders with appropriate returns
that match their expectations (target total return ratio of 30% in future)8

2016/3/30

No data copy / No data transfer permitted

Todayʼs Agenda

9

2016/3/30

1.

Financial Strategy Directives

2.

Management Goals

3.

Performance Indices and Targets

4.

Targets for Business Segments

5.

Management Emphasizing ROEProfitability: Ratio of Net Income to Net Sales

Asset Efficiency: Total Asset TurnoverFinancial Leverage

6.

Operating Margin Improvement

7.

EPS

8.

Policies for Allocating Management Resources (Capital, Funds, Etc.)

No data copy / No data transfer permitted

Targets for Business Segments
Net sales
Medical Business
Scientific Solutions
Business
Imaging Business
OthersElimination or
corporate
Total

FY2016(Forecast) FY2021(Forecast)
615
900

CAGR

8%

106

130

4%

80
1555
15-7%0%－－－

816

1,100

6%

Operating income
Medical Business
Scientific Solutions
Business
Imaging Business
OthersElimination or
corporate
Total

FY2016(Forecast) FY2021(Forecast)
137
225

CAGR
10%

170

11%

Net income
Total

FY2016(Forecast) FY2021(Forecast)
56110

CAGR
15%102016/3/30

81310%0(12)2－－(33)100

No data copy / No data transfer permitted(70)Medical BUs(CAGR)
GIRBU

7%

GSBU

11%

UGBU

8%

ENTBU

13%

MSBU

5%

－* Foreign exchange
rate assumptions：・US$ =¥115
・Euro =¥130

Todayʼs Agenda

11

2016/3/30

1.

Financial Strategy Directives

2.

Management Goals

3.

Performance Indices and Targets

4.

Targets for Business Segments

5.

Management Emphasizing ROE
Profitability: Ratio of Net Income to Net Sales

Asset Efficiency: Total Asset TurnoverFinancial Leverage

6.

Operating Margin Improvement

7.

EPS

8.

Policies for Allocating Management Resources (Capital, Funds, Etc.)

No data copy / No data transfer permitted

Management Emphasizing ROE
ROE15%

 Achieve ROE level necessary to compete with global companies and realize ongoing growth Improve profitability and capital efficiency (growth potential) to maintain ROE of 15% overlong term

FY2016(Forecast)

Total asset
turnover

Asset efficiency
Financialleverage

2016/3/30

Ratio of net
income to net sales

Profitability

12FY2021(Forecast)Net income
Net sales

Approx. 7%

×Approx. 10%Increase operatingmargin
Improve balance ofother income andexpenses×Net sales
Total assets

Approx. 0.8 times

×Approx. 0.9 times



Increase net sales
Improve business asset
efficiency
Improve corporate
asset efficiency

×
Total assets
Equity capital

No data copy / No data transfer permittedApprox. 2.6 times

Approx. 2.0 times

Manage financial
leverage
Conduct BS-basedmanagement

Profitability: Ratio of Net Income to Net Sales
 Improve profit margins by increasing business earnings, reducing corporate and manufacturing costs, andmanaging balance of other income and expenses

Profitability
Ratio of net income to net sales

Increase operating
marginNet income
Net sales
FY2016（Forecast）

FY2021

Approx. 7%

10%2016/3/30

No data copy / No data transfer permitted

FY2021

Approx.12%

15%

Reduce ratio of manufacturing costs to net sales (down 1 pt)

Reduce ratio of SG&A expenses to net sales (down 2 pt)

Improve balance ofother income andexpenses

FY2016 (Forecast)¥(14.0 billion)
Lower interest payments by
reducing interest-bearing
debt, etc.

Reduce interest burden (strategically control interest-bearing
debt)

13FY2016（Forecast）

Manage foreign exchange translation adjustments

Asset Efficiency: Total Asset Turnover
 Maintain high growth rates while managing total assets

Asset efficiency

Increase net sales

Total asset turnoverNet sales
Total assets
FY2016（Forecast）

FY2021

Improve total asset
efficiency
Approx. 0.8
times

Approx. 0.9times





14

2016/3/30

No data copy / No data transfer permitted

FY2016（Forecast）

FY2021¥816 billion

Up 35% (¥1,100 billion)

Maximize net sales (grow business by steadily advancing BUstrategies)• Net sales growth: 46% in Medical Business, 23% in Scientific
Solutions Business
FY2016（Forecast）

FY2021

Approx. ¥1,020 billion

Limit increase to approx.20%

Improve inventory efficiency (optimize inventories throughenhanced SCM)
Utilize Medical Business demo products and loaners with higher
levels of efficiency
Reduce cash and deposits by managing funds on consolidatedbasis
Appropriately manage capital tie-up shares• Conduct evaluations from medium-to-long-term perspective
based on Basic Policy for Corporate Governance and curtailor liquidate holdings that lack rationality or necessity

Financial Leverage Realize appropriate level of financial soundness from perspective of securing extra leeway for responding to risks

Financial leverage
Total assets

BS-basedmanagement

Equity ratio

Pursue appropriate financialbalance
Mar. 31, 2016(Forecast)

FY2021

Approx. 39%

Approx. 50%

Equity capital

15

FY2016（Forecast）

FY2021

Approx. 2.6
times

Approx. 2.0times

2016/3/30

No data copy / No data transfer permitted

Enhance internal reserves as global player in medical field
Conduct growth investments to expand operations
Issue appropriate shareholder returns

Todayʼs Agenda

16

2016/3/30

1.

Financial Strategy Directives

2.

Management Goals

3.

Performance Indices and Targets

4.

Targets for Business Segments

5.

Management Emphasizing ROEProfitability: Ratio of Net Income to Net Sales

Asset Efficiency: Total Asset TurnoverFinancial Leverage

6.

Operating Margin Improvement

7.

EPS

8.

Policies for Allocating Management Resources (Capital, Funds, Etc.)

No data copy / No data transfer permitted

Operating Margin Improvement
 Achieve operating margin of 15% (approx. 3 pt increase vs FY2016 estimate)
Improvements on consolidated level
60%Ratio of SG&A expenses
to net sales
54%

52%

50%

40%

Cost of sales ratio
34%

33%

30%

Ratio of SG&A expenses to netsales (2 pt improvement) Reduce SG&A expenses byabsorbing expense increases
associated with growthinvestments and response to
more-stringent regulations
through improvements inoperational efficiency
Cost of sales ratio(1 pt improvement)

Operating margin
20%

12%

15%

10%

 Pursue ongoing cost of sales
reductions
 Strengthen procurement
functions30%

Medical Business

25%
25%

20%

15%

10%

5%

22%

FY2016
2016/3/30

FY2021No data copy / No data transfer permitted

Medical Business(3 pt improvement) Improve profitability ofgastrointestinal endoscopes
 Boost earnings capacity of 3
surgical device businesses

Scientific Solutions Business(2 pt improvement) Conduct selection andconcentration based on
Scientific Solutions Businesscustomer segment oriented
strategies
10%
8%Imaging Business

4%0%0%0%17

Operating margin improvements by segment

FY2016FY2021

Imaging Business(4 pt improvement) Implement ongoing businessstructure reforms
 Focus on sales of high-margin
OM-D series cameras and PROlenses

Todayʼs Agenda18

2016/3/30

1.

Financial Strategy Directives

2.

Management Goals

3.

Performance Indices and Targets

4.

Targets for Business Segments

5.

Management Emphasizing ROEProfitability: Ratio of Net Income to Net Sales

Asset Efficiency: Total Asset TurnoverFinancial Leverage

6.

Operating Margin Improvement

7.

EPS

8.

Policies for Allocating Management Resources (Capital, Funds, Etc.)

No data copy / No data transfer permitted

EPS
 Consistently realize ROE of 15% and double EPS over 5-year period of 16CSP
Path to ROE of 15% and doubled EPS（JPY）

2350

１300

Double EPS (to ¥320)

Consistently realize
ROE of 15%

250
20020%EPS
ROE5%

500%0
FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021-5019

2016/3/30

Medium-Term Vision
No data copy / No data transfer permitted

16CSP

profitability, business growth, and15%

150
100

Consistently realize ROE of 15%
through balanced improvements in10%

¥163

1-5%

financial soundness

2

Double EPS (vs FY2016)

Todayʼs Agenda

20

2016/3/30

1.

Financial Strategy Directives

2.

Management Goals

3.

Performance Indices and Targets

4.

Targets for Business Segments

5.

Management Emphasizing ROEProfitability: Ratio of Net Income to Net Sales

Asset Efficiency: Total Asset TurnoverFinancial Leverage

6.

Operating Margin Improvement

7.

EPS

8.

Policies for Allocating Management Resources (Capital, Funds, Etc.)

No data copy / No data transfer permitted

Policies for Allocating Management Resources (Capital, Funds, Etc.)
After securing stable financial base, prioritize allocation of funds toward growthinvestments in Medical Business and use remainder of funds to provide shareholders
with appropriate returns

Management resources(capital, funds, etc.)

Internalreserves

Financial soundness

Prioritize reinforcement of financial base in consideration of businesscharacteristics and risks and stably increase equity capital (equity ratio of50%)

Continue conducting growth investments to accelerate growth speed
centered on Medical Business Staff investments: Effectively utilize resources in cross-Company mannerand conduct investments primarily aimed at Medical Business and highly
specialized fields
 Capital expenditures: Increase amounts of production equipment, demo
products, and loaners in conjunction with sales growth centered on MedicalBusiness R&D investments: Conduct investments with balanced distribution for new
product development, next-generation product technology creation, andnew technology research Primarily pursue organic growth while considering M&A when necessary foradvancing strategies１

Growthinvestments

Cashoutflows

221

2016/3/30

No data copy / No data transfer permitted

Shareholderreturns

Increase total return ratio (to 30%)