Strategy

Yasuo Takeuchi
Director, Vice President andChief Financial Officer

Message from the CFO
Progress of the Financial and Capital Strategies of 16CSP Issuer Rating Upgrade from Rating Institution
For Olympus, responding to the securities litigations related tothe deferred posting of past losses and recovering financial
creditability have been important management tasks. I takegreat pride as CFO in our ability to report to stakeholders that
we have been making steady progress in addressing thesetasks. Specifically, we reached a settlement in the last remaining securities litigation with institutional investors in July 2018.
This settlement marks the resolution of all the issues that had
previously presented risks with regard to the past scandals.

As CFO, reinforcing our financial position has been one of
my priorities, and Olympus has been seeing improvements inreturn on equity (ROE) and equity capital in accordance withplans. In terms of our financial soundness, a massive recovery
has been seen in the equity ratio. While this ratio stood at
4.6% on March 31, 2012, it soared to 45.2% on March 31,
2018, as our financial position was fortified through the reduction of interest-bearing debt. The 50% equity ratio goal set
forth by 16CSP is thus now within our reach.

Progress in Financial and Capital Strategies under 16CSP
16CSP target: ROE of 15%Goals

Initiatives

ProgressStrengthen financial position•	Equity ratio target of 50% forecast to be achieved ahead of schedule due to reductionof interest-bearing debt

Improve credit ratings•	Issuer rating raised to single A, an increase of two levels during 16CSP (R&I)

Diversify funding sources•	Fund procurement costs down (issuance of publicly available corporate bonds andcommercial paper)

Improve asset efficiency

Reduce fixed assets•	Appropriate control of shares held for purposes other than pure investment (sale of stock inTerumo Corporation and financial institutions)•	Downsizing of balance sheet (sale of U.S. lease receivables and global reorganization andsale of fixed assets)

Control financial leverage

Improve shareholder returns•	Phased increase in dividend payments targeting total return ratio of 30%

Increase profitability(profit attributable toowners of parent)

2014% in fiscal 2018 (progress in line with plans)

One Olympus Report 2018

Note: Olympus adopted International Financial Reporting Standards (IFRS) from fiscal
2018. “Equity ratio” under Japanese GAAP (JGAAP) is equivalent to “ratio ofequity attributable to owners of parent to total assets” under IFRS and “total netassets” under JGAAP is equivalent to “total equity” under IFRS.

By optimally allocating and fully utilizing our management capitaland resources, we will generate cash flows and achieve growth thatexceeds capital costs in our pursuit of improved corporate value.

As a result of the ongoing improvement in our financial position,
we have succeeded in improving our credit ratings. For example,
Rating and Investment Information, Inc. (R&I), raised our issuer
rating to a single A in July 2018. Reasons cited for this decision
included our earnings rooted in our world-leading gastrointestinalendoscope operations and our relatively high competitiveness inthe surgical device field. In addition, R&I referenced the high reliability of our overall ability to generate earnings and cash flows and thecontinuous improvements to our financial balance being achieved
through profit accumulation and debt reduction. Praise was also
directed toward our efforts to enhance our management structure
in such a way as to allow for management that actively incorporates outside input as well as other improvements to stability.

Credit ratings are crucial to being able to easily procure funds
from global capital markets. Accordingly, we will continue working to improve our ratings by remaining mindful of financial
stability and capital efficiency. Moreover, we are balancing overseas assets and liabilities to instill an added degree of resilienceto foreign exchange rate fluctuations into our financial position.
Conversely, we recognize that the slow progress with regard
to EBITDA, an indicator of business growth potential for which
a target has been set in 16CSP, is an issue. This issue is due inpart to delays from our initial schedule for introducing newproducts. We therefore must maintain financial soundness toensure that we are able to conduct the investments necessary
for compensating for these delays going forward.

Equity Capital / Interest-Bearing Debt / Ratio of Equity
Attributable to Owners of Parent to Total Assets

Issuer Ratings

Equity CapitalInterest-Bearing Debt
Ratio of Equity Attributable to Owners of Parent to Total Assets (right)

AA(¥ Billion)

(%)

800

43.3
38.2
560.4

600

415.8

400
15.5
200

32.1

329.5

45.2
41.1

48
36

428.8
286.4

394.8
286.0

A+
A

32.9
382.4
355.5 354.4
321.1

AA–

BBB+

442.8
24BBB
BBB–

248.0
12148.6

A–BB+
BB0(FY)

2013

2014

2015

2016

2017
(JGAAP) (IFRS)

2018

0BB–
2010/7

2011/7

2012/7

2013/7

2014/7

2015/7

2016/72017/7

2018/7

One Olympus Report 201821Strategy

Message from the CFO

Policy Regarding Allocation of Management Resources
Our policy for allocating management resources over themedium-to-long term is to focus on strengthening our balance
sheet while effectively utilizing capital to fund further growth.
We are essentially done with the reorganization of non-corebusiness domains, and we next plan to prioritize the allocationof resources to growth fields centered on the Medical Business. R&D expenditures will be conducted selectively while
carefully discerning the anticipated benefits of each investment. At the same time, we will actively invest in innovation
to remain in step with new technological advancements andcontinue growing into the future.

As for capital expenditures, we are augmenting manufacturing equipment and repair bases centered on the MedicalBusiness with an eye to 10 years down the line. The threeTohoku factories, our principal manufacturing bases, wereexpanded and renovated to improve production efficiency
and allow them to better accommodate the growth of theMedical Business. We are now moving ahead with the reorganization, consolidation, and establishment of repair basesin Europe, North America, and other overseas regions. The
basic strategy of 16CSP is to target organic growth.
However, we will also proactively examine potential mergers
and acquisitions as necessary to facilitate and accelerate theadvancement strategies.
Furthermore, we recognize the need to turn our attention to
the efficient allocation of management resources toward improving our non-financial value. By this, I refer primarily to theOlympus brand, our expertise, and our human capital, which
are all sources of pride. Part of my job is to guide us in generating cash flows by fully utilizing our management resources.

For details, please refer to “Message from the President” on page 14.

Shareholder Returns
Our basic policy is to issue ongoing shareholder returns while
maintaining a sound financial base and prioritizing investmentsin the Medical Business and other growth fields to improve
corporate value. It was in fiscal 2015 that we resumed dividend payments after having refrained from making payments
during the prior three years. We have continued to issue shareholder returns each year thereafter. In fiscal 2018, we issued

dividend payments of ¥28 per share, making for a dividend
payout ratio of 17% and a total return ratio of 23%. We plan toissue dividend payments of ¥30 per share in fiscal 2019. Ourfinancial position has improved substantially, putting our goalof an equity ratio of 50% within reach. We are therefore committed to living up to shareholder expectations through phased
increases in dividend payments.

Consolidated Performance
Operating Profit

Profit (Loss) Attributable to Owners of Parent(¥ Billion)
140

After establishment of current management team

120

104.5

100

91.0

60
40

61.2
42.7

38.4

35.557.1
42.8

35.1
8.0

3.90

13.6

(8.7)

–20

Resumption of dividends–40(50.6)(FY) 2009

16CSP(49.0)
2010

2011

2012

2013

2014

2015

2017

2016
(JGAAP)

22

81.0

71.2

62.6

52.5

20

–60

76.5 78.2

73.4

80

One Olympus Report 20182018
(IFRS)

Capital Cost and ROE Policies In 16CSP, we have defined four important management indicators, based on which quantitative performance is to beevaluated. These indicators are ROE, the operating margin,
the growth rate of EBITDA, and the equity ratio. The underlying principle behind our decision to set these indicators is for
us to maintain ROE of 15% over the long term throughearnest business reforms to improve profitability and asset
efficiency, even as our financial leverage decreases due toefforts to ensure financial soundness. The target figure of
15% for ROE represents a level that will exceed our capitalcosts after financial soundness has been achieved throughan appropriate capital structure. In addition, this is the levelthat Olympus will have to reach in order to stand shoulder-toshoulder with other global medical equipment manufacturers
and continue growing indefinitely.

Moreover, we believe that responding to the expectationsof our shareholders and other stakeholders, and pursuing abalanced increase in the differing types of value sought byshareholders, customers, employees, and business partners,
will in turn lead to improved corporate value. Sustained improvements to corporate value will require that we continue togenerate returns that meet the expectations of our stakeholders while maintaining financial soundness, thereby ensuringthat our business can achieve stable growth over the mediumto-long term. We will also need to maintain the financial position
necessary for supporting efforts to meet these needs. Basedon this premise, we will practice management that emphasizes
the four management indicators I just mentioned, the perspectives they represent, and the balance among them with theaim of improving corporate value.

Management Emphasizing ROE

ROE of 15%

 chieve ROE level necessary to compete with global companies and realize ongoing growthA
Improve profitability and capital efficiency (growth potential) to maintain ROE of 15% over long term

Profit*Equity capital(JGAAP)

Profitability

Ratio of profit*=
to revenue

Assetefficiency

Total asset
turnoverFinancialleverage=

Profit*Revenue

Revenue
Total assets

Total assets
Equity capital(IFRS)FY2016FY2017FY2018FY2021(Results)(Results)(Results)(Targets)

7.8%

0.8 times

2.6 times

10.5%

5.8%

0.8 times

0.8 times

2.3 times

2.4 times

7.3%

Approx. 11%Increase operating margin
Improve balance of otherincome and expenses

0.8 times

Approx. 0.9 times
Improve business asset
efficiency
Improve corporate asset
efficiency

2.2 times

Approx. 2.2 times
 anage financial leverageMConduct BS-basedmanagement* Profit attributable to owners of parent

Tasks to Be Accomplished in Surviving Global Competition 
Olympus is developing its business around the world. I am
therefore tasked with the important responsibility of exercising
headquarters functions in overseeing the regional managementin charge of operations in specific regions. I feel strongly that
Olympus will need to place great emphasis on global ideas
going forward if it hopes to achieve ongoing growth. Equallyimportant will be to fully and efficiently utilize our management
resources on a global scale. The revision to Japan’s Corporate
Governance Code has made the possibility of appointing nonJapanese directors a topic of discussion from the perspectiveof diversity within boards of directors. For Olympus, however, I
think that diversity of management needs to be prioritized before
diversity of the Board of Directors. Effective global coordination
among functions can increase our ability to execute strategies
in research and development, sales, services, and all other areasof the value chain. However, this type of global coordination
will expose us to various different cultures, ways of thinking,and laws. For this reason, heightening our effectiveness along
the value chain will require that we strengthen the headquartersfunctions that are responsible for global oversight. Moreover, it
will be vital to strengthen these functions not as Japanese headquarters functions but as global headquarters functions. Suchstrengthening will be impossible if our headquarters functions
consist entirely of Japanese people who do not understandforeign cultures and ways of thinking. If we do not appoint more
non-Japanese individuals to management positions at our Tokyo
headquarters, we will not be able to generate the ideas and makethe decisions necessary to compete on the global stage. It is truethat massive changes have been made to Olympus’ corporate
governance over the past six years. However, the Company
still lacks the necessary speed when it comes to transforming
its business operations. Diversity is crucial to Olympus at themoment. As we practice global and Groupwide management
going forward, I will seek to fulfill the role of promoting diversity.
One Olympus Report 201823