Strategy

Aiming for Sustainable
Growth as a Truly Global
Medtech Company

under 16CSP due primarily to the strengthening of laws andregulations in different countries and delays in new productintroductions. It is extremely important that we accurately
identify changes in the market environment and swiftly takeaction with a view to the future. The Scientific Solutions Division
is making steady progress toward achieving its target of a 10%
operating margin. The Imaging Division functions as a driverof Companywide technologies supporting the technologicalcapabilities of Olympus even though performance was down
mainly due to intensifying competition and the discontinuationof operations at a manufacturing subsidiary in China.
Under 16CSP, we set management goals for return on
equity (ROE), operating margin, earnings before interest, taxes,
depreciation, and amortization (EBITDA), and equity ratio. The
recording of significant one-time costs that included securities
litigation settlements was a major factor behind the low level of

ROE for fiscal 2019. We also recognize that the results for theoperating margin and EBITDA have left us with challenges. The
equity ratio has improved markedly from 4.6% at the end of
fiscal 2012 to 47.3% at the end of fiscal 2019 with continued
efforts to bolster the soundness of our financial structure
bearing fruit.
With regard to shareholder returns, Olympus has continued
to increase dividends since resuming payments in fiscal 2015
after refraining from doing so during the prior three years. A
year-end dividend of ¥30 per share was paid for fiscal 2019.
We plan to issue dividend payments of ¥10* per share in fiscal
2020. In this way, we have evaluated our financial and capital
strategies as being successful.
* Olympus conducted a four-for-one stock split of common stock on April 1, 2019.

Enhancement of Speed and Efficiency under Transform Olympus

Message from the CEO

Yasuo Takeuchi
Director, Representative Executive Officer,
President and CEO

Becoming a Sustainable Company That Thrives in the Next 100 Years
Takeshi Yamashita founded Takachiho Seisakusho on October
12, 1919 with the aim of achieving the domestic productionof microscopes. This signaled the beginning of Olympus.
After that, we applied the optical technology we amassed in
microscopes to cameras and endoscopes, thereby laying thefoundations for today. The year 2019 marks the milestone ofour 100th anniversary. I would like to express my sincerest
appreciation for the warm support and kindness we havereceived throughout our history.
It is my honor to be appointed Representative Executive
Officer, President and CEO in such an auspicious year. My

mission is to transform Olympus into a sustainable company
that continues to make a mark over the next 100 years andensure that we keep achieving Our Purpose of “making
people’s lives healthier, safer and more fulfilling.” Although oneof our mainstay products, the gastrointestinal endoscope, hascommanded high market share over a long period, it’s unclear
whether the same future can be guaranteed amid the current
difficult business environment. I feel strongly that now is thetime to change given it’s our centenary so that we can remain acompany at the forefront of the industry for the next 100 years
and beyond.

Olympus announced Transform Olympus , our corporatetransformation plan, in January 2019 with the aim of deliveringcontinuous growth as a global medtech company. This
plan is the culmination of years examining the challenges
facing Olympus in consultation between our management
team, including former president Sasa, and global business

Key Issues in Developing intoa Truly Global Company

Transform Olympus●Efficient and Agile Decision Making

Shift to Centralized
Global Group Management●Centralized Risk Management●Optimal Allocation of Function andTalent Globally●Improve Business Speed andEfficiency in line with Global Medical
Technology Peers●Sustainable Growth of Therapeutic
Devices

Review of Medium-Term Management Plan 16CSPIn 2011, Olympus was faced with a critical management
juncture after issues with past activities regarding the deferralin the posting of losses came to light. We therefore positioned
the four years between 2012 and 2016 as a reconstruction
phase and made efforts to strengthen our compliance systemand streamline non-business domains. Since 2016, we have
moved on to the sustainable growth phase in which we

10

have been promoting our medium-term management plan,
16CSP (Corporate Strategic Plan), aimed at strengthening thefoundations of our business and developing a strong businessportfolio. Our core Medical Business has achieved steadybusiness growth on the back of a required investment split
between its five business units. Despite this, however, we have
unfortunately not been able to accomplish the goals we set

consultants. To ensure ongoing growth going forward, we
recognized the issue of enhancing the speed and efficiencyof response to the external environment, which led to theformulation of the plan. Although approximately 80% of
Olympus’ revenue is accounted for by the medical field,
there is still room for significant improvement in efficiency and●Improve Operating Profit Margin andCapital Efficiency●Governance Structure in line with
Global Development of Business●Diversify Board of Directors

Globally Integrate HR Management“Transform Medical,” Optimize andSimplify Medical Device Business

Expected Outcomes●New Organization Chart and ExCom●Clear Lines of Accountability●Rapid Execution●High Performance Culture●More Productive Team

●Business Divisions Aligned byBusiness Model●Timely Introduction of New Products●Effective Outcomes to Patients●Continuous Profit Growth

Prioritize Cost Containment andCapital Efficiency●Greater Capacity to Invest

Transition to Three Committee●Faster Management Action

Board Structure with
Diversified Board of Directors●Higher Shareholder Returns●Board Aligned With Strategic Goals●Board Focused on Strategy andLong-Term Accountability

Olympus Integrated Report 201911

Strategy

Message from the CEO

12

SustainLead in next-gen minimally invasive surgery. It is imperative tostrengthen organizational capabilities to support this businessgrowth and we are promoting four measures to heighten ourorganizational functions, namely (1) Improving our operationaland financial performance, (2) Build capabilities fit for growth(3) Evolving our corporate culture, and (4) Focusing on thecustomer and value.
This corporate strategy is our basic direction. We plan toimplement an action plan in pursuit of ongoing improvement
in line with changes in the environment. By undertaking these
initiatives, we aim to achieve an annual average growth rateof 6% in the Endoscope Solutions Division and 8% in the
Therapeutic Solutions Division within the mainstay medical field.
As initiatives to realize future growth and transformation,
we are committed to progressing in three steps. First, we will
focus on measures that can bring us short-term results in

5-6% Growth Annually>20%

Our aspiration
is to become a globally-leading
medtech company contributing topeople’s lives by delivering
innovative solutions that benefit
patients, healthcare
professionals, payors andproviders

Deliver
consolidated
corporate operating margin*

Becomeleaders in thetherapeutic areas where we compete(GI-ET, urology and respiratory)

Our Corporate Strategy

A

Focus the corporate portfolio, centering on Medical

Maintain leadership in reusable endoscopes
Complement our portfolio with single-use endoscopes
to accelerate growth and address unmet needs
Evolve the endoscopy commercial model– shift towards service-based offerings andprocedure-based business models

C

Focus and scale prioritized therapeutic areas(GI-ET, urology and respiratory)D

Develop a leading position in next-generation minimallyinvasive surgery by delivering integrated technologies
designed to improve clinical and economic outcomes

m

er

an

d va

lu e

B

Focu

Realize an Operating Margin of 20%, the Same Level as Global Medtech Peers
Olympus unveiled a new corporate strategy in November 2019
to replace 16CSP. Under this corporate strategy, the Company’s
strategic aspiration is to grow into a globally leading medtech
company contributing to people’s lives by delivering innovative
solutions that benefit patients, healthcare professionals, payors,
and providers. We will aim for an annual average growth rate of
5-6% over the long term, an operating margin of at least 20%,and to get a leading position in therapeutic areas.
In order to achieve this strategic aspiration and theperformance metrics of our corporate strategy, we will promote
four core components aimed at bolstering business growthand profitability as well as four measures to ensure stronger
organizational functions. The four core components forbusiness growth and enhanced profitability are to (A) Focus
our corporate portfolio, (B) Further strengthen leadership in
endoscopy, (C) Focus and scale our TSD business, and (D)Our Strategic Aspiration and Performance Metrics

toto promote the use of global human resources.
Third, in April 2019, we reorganized the Olympus medical
business into two global divisions: the Endoscopic Solutions
Division for the handling of capital products such as
endoscopes and the Therapeutic Solutions Division for thehandling mainly of single-use devices. For the Therapeutic
Solutions Division, we have established a global businessheadquarters in the United States and are working to build
business foundations, which will give us better access to
medical industry clusters as well as major clients in the UnitedStates, the largest therapeutic device market in the world.
Fourth, we will prioritize cost containment and capitalefficiency. Olympus recognizes that there is a significant
opportunity to improve the operating margin and capitalefficiency in line with global medical device industry peers.
To begin with, we aim to contain SG&A expenses to ¥413.0
billion in fiscal 2020 in order to enhance Companywide costawareness, and we are strengthening initiatives toward thisgoal.
Fifth, we resolved to shift to a Three Committees Board
Structure with a more diversified Board of Directors. Bytransitioning to such a structure, we intend to accelerate
decision making on business execution, reinforce governance,
further improve transparency, enhance the Board of Director’s
focus on supervising management’s implementation ofstrategy, and increase management agility. In addition, we
newly appointed three non-Japanese directors with provenglobal management experience in June 2019 to provide a morediversified Board.
While implementing these five policies, we have also
evaluated our significant potential to boost profitability and haveformulated a number of measures to realize this. Each of ouremployees is currently striving to drive this major transformation
to becoming a global medtech company.

usprofitability in comparison with global medical device industry
peers. We will seek to leap forward to becoming a global
medtech company by implementing the five policies outlined inTransform Olympus .
Let me briefly explain the details and progress of these five
policies.
First, we will shift to centralized global group management
and clarify roles and responsibilities. Starting April 1, 2019,an executive management team consisting of five executive
officers took on oversight of the entire organization. In addition
to Chief Executive Officer (CEO), the team includes the Chief
Operating Officer (COO), Chief Technology Officer (CTO),
Chief Financial Officer (CFO), and Chief Administrative Officer(CAO), who have responsibility for formulating and achieving
Companywide management strategies and plans. Overall
responsibility and decision-making authority regarding theexecution of plans has been delegated to Division Heads andFunction Heads to speed up decision making. The effects ofthis policy have already started to emerge, including faster
decisions being made.
Second, we will globally integrate human resourcesmanagement. We will look to secure and utilize talent capableof management and business operation that help realize
a truly global company. At the outset, we will establish theinfrastructure to ensure that outstanding human resources in
the Olympus Group are placed in optimal positions globally andpromote the management of our talent so that we can retain
exceptional individuals throughout the Group as we accelerate
global growth. I am confident that reforming our Companywide
management structure will lead to more professional humanresources with a more rounded global outlook and therefore
greater business efficiency while cultivating a corporate culturethat encourages the pursuit of high performance. In April 2019,
we changed our management-level human resource programin Japan from a capability-based system to a job-based system

si n

n
go

th

e

c

FY2023/3 Financial Guidance and Supporting Financial Indicators

FY2020/3
Financial GuidanceSupporting
Financial Indicators

11%

Operating Margin*

Approx.

Free Cash Flow Growth*Approx.

ROIC*

EPS Growth*¥50 Billion
10%

Approx.

¥47

Target FY2023/3

>20%
>20％

CAGR from FY2020/3

>20％
>25％

CAGR from FY2020/3*Adjusted for extraordinary items

Olympus Integrated Report 201913

Strategy

Message from the CEO

procurement, our R&D portfolio, and inventory management.
We will then accelerate efforts to enhance profitability basedon Transform Olympus , and through this, achieve an operating
margin of 20% in three years by fiscal 2023. Finally, after
transforming into a lean and efficient corporate structure,

we will embark on efforts to strengthen competitiveness tostimulate sustainable growth such as mergers and acquisitions
and large-scale investments using the free cash flow we havegenerated as the source.

Aim to Expand the Therapeutic Solutions Division While Strengthening Our Dominant Position in
the Endoscope Solutions Division
In the Endoscope Solutions Division, our largest business, we
aim to have the most comprehensive endoscopy portfolio on
the market, supported by the evolution of a commercial model,
to enhance the value we bring in early diagnosis. In the next
few years, we expect further innovation in the gastrointestinalendoscope market, and as a leading company in the industry,
we aim to grow and expand our business with a focus on early
diagnosis and minimally invasive therapy.
First, we will endeavor to strengthen our leadership position inreusable endoscopes, one of our traditional areas of advantage,
through continued innovation and commercial excellence.
We already command a dominant position in industrialized
nations, and going forward we project high growth mainly inregions with significant scope for market expansion such as
China and India. Additionally, in next-generation gastrointestinalendoscope systems, we will introduce technologies that drive
innovation in detection, characterization, staging, and treatmentof lesions with the aim of setting new standards for endoscopic
diagnosis and therapy.
Next, we will seek to build a leading product portfolio for all
endoscopic medical areas and reinforce our competitivenessby adding single-use endoscopes to our lineup. We areforecasting a high average annual growth rate of 20-40% in the
single-use market over the next five years and believe singleuse endoscopes are becoming the preferred choice in cases

requiring urgent and convenient preparation and high-level
infection control and also since no maintenance is required.
We are currently developing single-use endoscopes for theduodenum, biliary duct, and urinary tract.
Also, in line with the concept on value-based healthcare,we will shift to a commercial model based on medical cases
and maintenance services. We will initiate trials of evidenceor procedure-based payment models for targeted products
and regions, and scale up pilot programs of all-inclusive
maintenance services that include reprocessing (cleaning,
disinfection, sterilization). Through these three strategies, wewill further reinforce our current dominant position.
In the Therapeutic Solutions Division, where further growth isexpected, we will focus on our highly competitive domains. The
fields of gastrointestinal endotherapy, urology, and respiratory
endotherapy are positioned for us to aim for leading positionsin the market, and we believe we can increase the feasibilityof growth by expanding products and spreading procedures
backed up with strong sales practices. We established theglobal headquarters for this division in the United States in April
2019 and will pursue unique value through aggressive merger
and acquisition activities, concurrent product development, andthe strengthening of functions with regulatory and clinical affairs
departments.

14

business centered on medical fields. But there is still room
for improvement in terms of reinforcing and coordinating
functions on a global basis. As we move into the future, wewill look to maximize the performance of the entire Olympus
Group and build up strong capabilities through the global
management of talent, the strengthening of IT infrastructure, theappropriate allocation of resources, and more robust businessdevelopment.

Contribute to Realizing a Sustainable Society by Taking a Proactive Stance on ESG
Amid drastic changes in global and social environments,
Olympus needs to undertake its business activities from an ESG
perspective in order for us to grow sustainably. We are making
strides in identifying material issues (materiality) and haveformulated six ESG areas of high importance to the Company.
Going forward, we will make stronger efforts in particular for
four actions within these six ESG areas ((1) Healthcare accessand outcomes, (2) Compliance, product quality and safety,(3) Responsible procurement and (4) Employee diversity andinclusion).
Since our founding, Olympus has provided value to society
through products and services in medical, scientific, andimaging fields, among others. As we forge ahead, we will
look to fulfill our responsibility to society and stakeholders bycarrying out these four actions, and at the same time, seek toimprove our economic value and realize sustainable growth.

We will Actively Engage on Six ESG Areas:
Corporate
governance

Economicsustainability

Product
sustainability

Environment

PeopleSociety

Olympus will Focus on Improving:■ Healthcare access and outcomes■ Compliance, product quality and safety■ Responsible procurement■ Employee diversity and inclusion

Aiming to Foster a Culture of High Performance Based on Individual Awareness of Productivity

Strengthening Organizational Capabilities Supporting Business Growth
To drive further growth in the medical field going forward,
Olympus must reinforce the capabilities that serve as
our foundation. We will work on reforming the mindset of
employees while reviewing organizational structures andsystems so that we continue to be a company that cangenerate high profitability and efficiency. In this respect, twoof the key challenges to be addressed are “improving ouroperational and financial performance” and “build capabilities fit
for growth.”First, in terms of improving our operating and financial
performance, we will strive to enhance profitability byimplementing various measures formulated under Transform
Olympus over the next 3-4 years. We will aim to achieve an
operating margin of 20%, the same level as global medtech
peers, by significantly boosting profitability through efforts to

expect the situation to become even stricter moving forward.
As such, we will invest more management resources in an effort
to keep pace with these changes. We will also focus on driving
innovation based on the customer’s perspective and needs,
and introduce products in a timely manner that incorporate
technology that differentiates us from our competitors and thatmeets market requirements.
Olympus has established a position as a global player indrive growth in profit via greater efficiency in addition to growth
via sales gains.
Next, to build capabilities fit for growth, we will make efforts
to strengthen our medical affairs functions in pursuit of businessexpansion in the medical field. We will endeavor to maximize
customer value and contribute to the realization of a safe andsecure medical environment by shifting from the provision of
conventional value based on product offering and technologicalexpertise to the provision of value based on medical evidence
and medical data. In addition, we will bolster quality andregulatory functions with a view to the next 5-10 years in order
to continue to expand business in the medical field and provide
safe, high-quality products to stakeholders. We believe that it isa matter of course for laws and regulations to be strengthened
and for legal requirements to increase as time passes andI am of the opinion that the most important point in becoming asustainable company is to change the corporate culture rooted
in that company. Olympus has developed many productsthat contribute to society, and we are a company with lots ofopportunities and potential. Our medical devices provide value
in the form of early diagnosis and minimally invasive therapy,
thereby helping to improve the quality of life of patients while
reducing their medical expenses, which are on the rise globally.
Our scientific products play a part in life science research andthe realization of a safe society, and our imaging products
capture those irreplaceable moments in life and help makepeople’s lives more fulfilling.
On the other hand, when looking at the external environment,
the market has been changing at an unprecedented speed inrecent years, and in order to respond quickly to these changes
and survive, it is necessary to swiftly drive innovation andmeet the new era head on. In such times, it is imperative toestablish a corporate culture that is customer oriented andencourages speed of action and efficiency. As we continue
along our journey to become a global medtech company,
we must change to a corporate culture that encourages
high performance in which each employee is conscious ofproductivity. I will take the lead in advancing reform of thecorporate culture for the entire organization while being careful
to express what each individual needs to do in order to help us
fulfill this goal.

November 2019

Yasuo Takeuchi
Director, Representative Executive Officer, President and CEO

Olympus Integrated Report 201915