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Olympus Corp
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Good evening, good afternoon, good morning. I'm Chikashi Takeda. Thank you very much for taking time out of your tight schedule to participate in the conference call for the financial results for the first quarter and full year forecast for fiscal 2022. I'd like to give you the overview of the financial results for the first quarter as well as our full year forecast.
Please turn to Slide 3. Here you can see the highlights of the consolidated financial results for the first quarter of fiscal '22. First, the revenue. Reflecting the market recovery, revenue grew significantly by over 40%, driven by medical. The revenue was well above the pre-pandemic fiscal 2020 level, 11% increase.
In addition to higher revenue, we continue to optimize SG&A expenses and achieved an operating margin of 14.4%, leading to record highs in terms of both amount and ratio in the first quarter.
Next, full year forecast. In light of the first quarter performance and market recovery, we have revised upward our forecast for revenue and operating profit. Compared with fiscal 2021, we now expect a 14% increase in revenue with an operating margin of about 17%, an improvement of 5.7 percentage points.
The consolidated financial results and business review for the first quarter are as follows. Please turn to Slide 5. Consolidated revenue totaled JPY 119.1 billion -- or JPY 191.5 billion, driven by market recovery. Revenue increased across all businesses particularly in Medical, resulting in a growth of over 40%. Revenue was well above the pre-pandemic fiscal 2020 level, up 11%.
Gross profit was JPY 123.3 billion, with gross margin improving 2 percentage points, driven by higher revenue and improved factory operation rates.
SG&A expenses totaled JPY 95.8 billion with SG&A ratio improving 88 -- 8.8 points. With relaxation of restrictions on sales activities, strengthening of our operational infrastructure and measures to improve profitability, SG&A expenses increased in amount, but we managed to keep SG&A ratio at 50% with strong contribution at higher revenue.
Operating profit was JPY 27.6 billion with an operating margin of 14.4%, an improvement of 11.7 points.
These results represent record highs in terms of amount and ratio for the first quarter since fiscal 2009, when we began disclosing quarterly report.
Profit attributable to owners of parent was JPY 18.7 billion, up JPY 21.4 billion year-on-year.
Please turn to Slide 6. To facilitate a better understanding of business conditions, we have been enhancing disclosures on our product pipeline and others since last fiscal year.
Previously, we shared business division-based information such as growth rate and qualitative information with a focus on ESD and TSD. Starting from this fiscal year, we will provide additional information on each subsegment of the 3 business divisions.
In addition, starting from this fiscal year, bronchoscopes, which were classified in the GI endoscope segment of ESD, have been transferred into the respiratory segment of TSD with the aim of strengthening operations in the respiratory field.
Last fiscal year's actual have also been restated in the same manner to allow comparisons. For FY 2020, the figures are not restated. So in the ensuing presentation, when we compare to the results of fiscal year ending March 2020, they are based on the managerial basis for your information. So please keep that in mind when you compare the figures.
Slide 7, a look at details of each business segment. First, the ESD, Endoscopic Solutions division. Revenue totaled JPY 100 billion, up 35% compared with the same period of the previous year, which was heavily impacted by COVID-19, revenue grew significantly across all subsegments on market recovery. We don't have the restated figures for ESD and TSD for fiscal 2020 due to the changes in disclosure classification, as I described earlier. But for your information, we achieved 9% growth compared with the fiscal '20 on a [ material ] basis, representing a significant growth over the pre-pandemic level.
In GI endoscope, revenue grew across the regions with notable strength in Japan, Europe and North America. By product, GI endoscopy system, including EVIS X1 and various scopes such as gastroscope and colonoscopes contributed to sales increase.
In surgical endoscope, VISERA ELITE II surgical endoscopy system recorded strong sales driven by ongoing switch to VISERA ELITE II in Japan and North America.
In medical service, we have been enjoying a stable revenue based on service contracts, including maintenance service. The number of repairs increased across regions, a rebound from pandemic-related decline last year.
Operating profit was JPY 22.7 billion with an operating margin of 22.7%. Expenses increased due to relaxation of restrictions on sales activities. We also recorded an impairment loss of JPY 1.7 billion associated with the equity-method investment in an equity method affiliate in Europe. However, these expenses were offset by revenue recovery and the continuing cost control, resulting in a significant improvement in operating margin.
Slide 8, the Therapeutic Solutions division, revenue totaled JPY 63.6 billion, up 48%. In the same period of last year, the number of procedures declined significantly due to COVID-19, but the number has recovered since the beginning of this fiscal year, resulting in significant growth across all subsegments. Compared with the pre-pandemic fiscal 2020 level, we achieved 8% growth on a managerial basis for your information.
In GI endotherapy, recovery in the number of procedures resulted in growth across all regions and product groups. Performance was particularly strong in North America, where vaccination has progressed and the number of procedures is on the rise, with notable momentum in sampling products such as biopsy forceps for tissue sampling in screening endoscopy as well as product for ESD and EMR procedures.
Urology achieved significant growth driven by North America and Europe, where the number of procedures has recovered. Performance was particularly strong in North America, where the number of procedures has returned to pre-pandemic levels, led by resection electrode for benign prostatic hyperplasia and SOLTIVE SuperPulsed Laser System, a lithotripsy solution for urinary stones.
In respiratory was driven by North America on market recovery. Revenue from Veran Medical Technologies and strong momentum in bronchoscopes and endotherapy product for EBUS-TBNA made all the contributions.
In other therapeutic areas, we saw strong performance in energy devices, gynecology and ENT. In particular, THUNDERBEAT, a surgical tissue management system, and ENT scopes contributed to sales increase.
Operating profit was JPY 14.1 billion with an operating margin of 22.1%. Despite an increase in expenses due to relaxation of restrictions on sales activities, the operating margin improved substantially due to significant sales increase coupled with ongoing control as well as a gain of JPY 2.8 billion in other income associated with the phased acquisition of Medi-Tate.
Slide 9, the Scientific Solutions. Revenue was JPY 24.8 billion, up 40%. Compared with fiscal 8% growth on a managerial basis, exceeding the pre-pandemic level, for your information.
In Life Science, growth achieved across all regions on market recovery and improved budget execution at research institutions and universities. In particular, biological microscopes in North America where market conditions remarkably rebounded due to relaxation of restrictions on sales activities contributed to growth.
In Industrial, we achieved growth in all fields driven by market recovery led by improved CapEx sentiment.
In China, there was strong momentum in industrial microscopes due to 5G-related electronic component and semiconductor markets. Increased sales of nondestructive testing instruments also contributed to growth in relation to market recovery. X-ray fluorescence analyzers were also strong, boosted by high gold prices and strong recycling market of precious metals.
Operating profit was JPY 1.9 billion with an operating margin of 7.5%, representing a considerable improvement from last year's operating loss due mainly to revenue recovery and improved factory operation rate.
Slide 10, financial position as of June 30. Goodwill and intangible assets increased due to the acquisition of Medi-Tate and others. The equity ratio rose 1.7 percentage points to 35% from the end of March due to a decline in interest-bearing debt. Also, please note that approximately 72 million treasury shares were canceled in June.
Please turn to Slide 11. This is the status of the cash flows. Cash flow from operating activities was JPY 23.7 billion, up 182% year-over-year. While operating cash flow increased significantly due to improved profit, there was a one-off expenditure of about JPY 9 billion on the reversal of provision for the career support for external opportunity program.
Cash flow from investment activities declined JPY 21.2 billion year-over-year to minus JPY 33.5 billion due in part to an expenditure of JPY 21 billion associated with the acquisition of Medi-Tate.
Free cash flow remained positive as the expenditures for the reversal of the provision for the career support for external opportunity program and for the acquisition of Medi-Tate are added back.
Cash flow from financing activities declined JPY 150.8 billion, minus JPY 39 billion, due mainly to borrowing repayments and dividend payments. In the last fiscal year, there was a large amount of financing to deal with COVID-19. As a result, cash and cash equivalents as of June 30, 2021, stood at JPY 168.7 billion, a decrease of JPY 102 billion.
Next, I would like to explain about the full year forecast for fiscal year 2022. Please turn to page -- excuse me, Slide 13.
Our full year forecast for fiscal year 2022, which was recently announced in May, have been revised upward in light of our first quarter performance and market recovery. Revenue was revised by JPY 24 billion and operating profit by JPY 14 billion. We now forecast revenue to grow 14% year-over-year to JPY 830 billion and expect operating profit of JPY 140 billion with an operating margin of 16.9%, an improvement of 5.7 points.
We also forecast profit attributable to owners of parent of JPY 101 billion. Please note that this results in record highs for all lines. Compared with pre-pandemic fiscal year 2020, this forecast represents 10% growth in revenue, 52% growth in operating profit and 4.7 percentage points improvement in operating margin.
We plan to pay a dividend of JPY 14 per share for this fiscal year, unchanged since announced in May. The ForEx assumptions are JPY 108 per dollar and JPY 130 per euro.
The intra-group reorganization of the Scientific Solutions business is currently under consideration, and expenditures related to this are not included in this forecast.
Please turn to Page -- Slide 14. This is the forecast by business segment. Our forecast for both revenue and operating profit have been revised upwards across all business segments. In particular, Medical business, including ESD and TSD is expected to grow 10% in revenue and 5% in operating profit compared with pre-pandemic fiscal year 2020. and is expected to achieve record highs in both revenue and operating profit.
We are pleased to announce that we resumed shipment of EVIS X1 EDOF scope from July, from which we voluntarily suspended shipments last October.
As the resumption of shipments is in line with the original schedule, there is no significant impact on business performance forecast. However, we believe that expanding sales of EVIS X1 will help us achieve this revised forecast.
Lastly, I would like to highlight some of the initiatives we are pursuing to become a truly global medtech company. Please turn to Slide 16.
This is a product pipeline for ESD. While there are no major changes from the previous quarter in response to relaxation of restrictions on sales activities as well as with EDOF scope shipments. We will focus on expanding sales of EVIS X1 in Europe, Japan and some parts of Asia where we have already launched the product. We will also aim to launch it in regions where we haven't launched it yet.
Regarding VISERA ELITE II surgical endoscopy system, we will actively promote 3D and IR system through demonstrations in North America to further expand sales.
Please turn to Slide 17. This is a product pipeline for TSD. In GI endotherapy, we are committed to steadily expanding and growing the product lineup, including products developed in-house and those procured externally.
In urology, as I mentioned in the page for TSD results, we are seeing strong momentum in SOLTIVE SuperPulsed Laser System, a new lithotripsy solution for urinary stones.
We will also strengthen our solutions for BPH by promoting resections electrodes, a growth driver and iTind, a minimally invasive therapeutic device from Medi-Tate for which we just completed the acquisition.
In respiratory, we have transferred bronchoscopes, which were previously classified under the GI endoscope segment in ESD to the respiratory segment in TSD, adding the line of a bronchoscope and ultrasound bronchoscope to the pipeline.
We aim to create synergies between the product portfolios of Olympus and Veran Medical and expand our lung cancer portfolio.
Please turn to Slide 18. Our theme for fiscal year 2022 is to further strengthen our position as a global tech company. We are working to continue and establish the corporate transformation we carried out last year. We are steadily promoting measures to transform it to becoming a global medtech company such as commencement of consideration of intergroup organization of SSD promoting global business services in each region and making Medi-Tate a subsidiary.
Regarding GBS, the global business service, we establish Olympus Asia Pacific Business Management Services in Dalian in China and began to integrate and transfer some indirect operations in Japan, China and some parts of Asia. We will continue to pursue these initiatives and plan to roll them out globally.
Please turn to Slide 19. This is the last slide. We plan to hold Investor Day 21 on December 7 for the first time in 3 years. Details, including topics and how to participate, will be provided once this is finalized. We look forward to your participation.
This concludes my presentation. Thank you for your attention. We will now take questions.
My first question is on the full year forecast for ESD and TSD, Could you elaborate on the reason for the upward revisions for ESD, if possible? Can you speak per product area? And for ESD, compared to an upward revision amount of revenues, it looks like the upward revision amount of operating profit is not large. Are you expecting some one-off expenses to be incurred?
Thank you for your question. Mainly ESD is where we made the upward revision. And majority, although we're not disclosing that far, mostly in relation to GI endoscopy, the GI business unit. At the last, we think we had some discussion on this. And I think I indicated that we are taking a rather cautious view. And looking at the results over the past 3 months, we felt that there is a room for upside or for revision. And it was with that in mind that we said we are taking a rather cautious view 3 months ago.
Now after 3 months, for example, in Japan, compared to other regions, some -- 3 months ago, some said that the business is weaker. So it was based on that assumption that we put together our forecast 3 months ago. But looking at more recent results, the momentum that we started to see last year were confirmed to be continuing that is about Japan. But even in other regions, we see similar room for upward revision. So it is based on that, that we made the upward revision to our forecast, mainly on ESD.
I can't single out any product or product area, but rather it is more generic condition, warranting an upside.
And the other question that you asked looking at the ESD profit, upward revision in forecast. In the first quarter, we recognized the impairment loss in relation to the equity method subsidiary, the affiliates. Other than that, there are no special factors to note. Was that helpful?
Yes. I have a follow-up question about EDOF scope. Shipments in April were the assumptions that were already included. Back in May, I think you said that you were taking a cautious view because you weren't sure if the shipments could be made for or not. So could you clarify that?
Regarding the EDOF scope, the root cause has been identified, and we were able to work on the issue. It was a program issue. And what took time was the documentation and other matters. So the shipment of EDOF scope, I don't think I said it is uncertain whether we should make the shipments. Maybe there was miscommunication. That was due back in May. And also back in February, I don't think I said that there are uncertainties regarding the actual timing of the shipment.
There are various steps that we had to go through. And therefore, we decided not to disclose that information very proactively. But from the mid- to late July, the shipments were made. The schedule itself, although it was not included in communication with you, but it was in line -- nearly in line with the assumption that we used in our previous forecast.
So it's not just the timing of the EDOF scope shipment that triggered the upward revision in the [indiscernible]. I hope that explains.
Yes. Just one more clarification. About the SG&A expenses, that's increased in the first quarter. Could you give us the breakdown? Like what is the foreign exchange, what is the sales and marketing?
You asked me on the first quarter or the full year?
I mean, the first quarter, first quarter results, about JPY 15 billion increase, I think.
Yes, basically, the sales activities became more active due to the relaxation of restrictions. So overall, expenses increased, especially compared to the same period of the previous year. But the sales promotion and travel expenses increased in a much smaller rate. That's the general overview. Foreign exchange, about JPY 4 billion, the ForEx impact, JPY 4 billion or so. And this is a quarterly -- [indiscernible] are going to be very detailed, but as we've been saying, the IT-related investment and the operational infrastructure enhancement, and for the future benefit, we made various investments in preparation for the future, amounting to JPY 4 billion to JPY 5 billion.
R&D expenses also went up. So foreign exchange and some new initiatives related expenses, I think, would be the specific factors.
So this time around, the ESD -- so in terms of the bronchoscope, you -- have you [ tried to ] provide to TSD and then you have given us some information about that. So the year-over-year comparison is meaningless. So I would like to have 2 years before the figures for March 2020 to some retrospective adjustments included. So compared to 2 years ago, how much has this grown? I would like to hear about that.
So this year, ESD and TSD for this year's forecast, compared to March 2020, how much is -- this is going to grow. So you, is it -- so you're talking about ESD and TSD, how much it has grown compared to March 2020?
So again -- so the March 2020 figures so official, we have no official reclassification, but we have some managerial numbers that we can give you. So based on that internal number, March 2020 -- compared to March 2020, ESD and TSD, for -- in total, it's 5.8% for ESD. For TSD, 9.3% growth.
So based on the information, I would like to continue our discussion. So on Page 7 of the presentation on the very bottom, you saw that first quarter compared to 2 years ago, 9% growth. And if you look at the next page for TSD compared to 2 years ago, first quarter, 8% growth. So the growth of ESD compared to TSD is stronger for the first quarter. I think that was a bit of a surprise to me. So the number of procedures in line with that TSD's numbers would go up. So the capital intensive compared to capital [indiscernible] even compared to 2 years ago, it was a bit low. So can you give me the reason behind this?
The TSD growth has been higher and -- sorry, sorry, I just lost what the logic. So TSD 9.3 -- so these are ESD [indiscernible] rates, so that's for the full year. For the first quarter, ESD plus 9%; and TSD plus 8%, I think you have explained in that manner. So against the full year I think the trend is reversed for the first quarter. So the TSD's growth in the first quarter maybe is not as strong as you're expecting. So can you give us the reason behind this?
So would you hold on a bit. We'll discuss it. So let me come back to you afterwards.
Understood. So as a follow-up question. So this is [indiscernible] under the top financial data numbers [indiscernible] to the number of employees. In terms of TSD quarter-on-quarter, 300 people have declined. So about 200 in overseas. So I think there was a substantial decline of the number of employees. So I think basically, the system they have for the opportunities for the domestic employees. So the overseas TSD decline employees, is it intentional? Is it going to continue to decline?
Let me confirm. Excuse me. So again, let me get back to you later. So maybe in the latter half of the discussion, I would like to get back to you about this. Thank you.
So my question is just for the first quarter, TSD, ESD, both very strong. Compared to your peers, you did extremely well and the profit margin improved. And the question is whether this is sustainable or not. Your peers say that maybe the -- it's going to end in the Q3. And others say that the assurance push is going to wear out as well, not only in Japan, but China as well.
Now first quarter results because of the infection, pandemic, I think a lot subsidies, lots of the deep pocket on the part of the hospitals. So what about Q2? What is your projection for Q2 compared to Q1?
The question is whether the momentum that we saw in Q1 could be sustained in Q2, Q3, Q4, in other words, on a full year basis? I think that's your question.
We do have the guidance for the full year, but simply put, multiplied by 4 or larger is the full year forecast that we have compared to the first quarter since the latter half of last fiscal year, we are seeing the year-on-year improvement continuing, especially with the less impact of COVID-19. In other words, the procedures increasing in number and also the budget being implemented for the capital products. So these are the favorable factors within Olympus.
As I briefly mentioned in my presentation, it's not the type of products that will generate a big sales with 1 unit, but the new launches that we made in recent years are making sales contribution. So in light of all those factors, we believe that this momentum will be maintained to a certain extent. And the revised guidance, we believe that, that revenue forecast would be achieved. I hope that answers your question.
Yes. A follow-up question. Japan, China and North America, EVIS X1 and VISERA, the high price tag products. Is that the case that the hospital demand for those high-priced products is increasing?
So your question was kind of choppy, But I take it that you are suspecting that there is a stronger demand for high-end, high price tag products.
Yes, because they have the budget for that. That's my question.
Thank you for your clarification. I can speak on behalf of the customers, but our products, basically, compared to our competition, we have added value. We have the differentiated features, which I think is resulting in what you described. I think that's a valid view.
So in terms of the TSD, the first quarter profitability has been quite high. So how -- What has been the highest contributor to the high profitability of TSD?
Excuse me, I think this is about the connection. I'm just assuming that you asking this question. For the TSD, this quarter's operating profitability has been quite high, and you're asking the major reasons behind this. I assume that, that was your question.
So first of all -- so as extraordinary factor in this quarter in the TSD segment, it has been one major factor here. So we have acquired a company called Medi-Tate. And with this, so there is a JPY 2.8 billion of gains from a phase acquisition gain.
So Medi-Tate, before we acquired them, we had 18% to 19% of equity in Medi-Tate. So through this transaction, it means that our equity holdings in Medi-Tate has been accounted for a new value, and the gain from accounting methodology, it has to be categorized as other gains. And because of this, JPY 2.8 billion of gains in the first quarter has been accounted for, for the TSD segment. And that was the one major plus factor.
But even putting this aside, in terms of the numbers compared to the past, we have been able to achieve a high level of margin. And I think this is a combination of various factors. Well, in a nutshell, through the top line growth and the cost and expenses, we have strictly controlled spending. I think that summarizes the whole situation.
So a follow-up question. So from the second quarter onwards, when you look at the margins, there may be some positive factors, negative factors, some risks that you have reflected, Can you talk about that?
So the first quarter, I think basically, you said that the gains coming from the higher utilization in the second quarter onwards, how this is going to come out. Can you follow up on this point as well?
So I think your question is asking about whether there are further extraordinary factors that you have to account for, for TSD going forward. So in this forecast -- in our forecast, this phased acquisition gains, those type of major factors are not reflected. And I think this can be said overall for business, but towards Q4, there is a trend that the expense is going to increase even in TSD. But when we come to the end of the year and close the books, this will -- so we -- basically, we will be looking operating quarter-by-quarter so that we can achieve our forecast.
One question. Let's focus on China. Looking at the supplementary material, Page 4 on a local currency basis, the region-by-region results. For ESD China, first quarter an increase year-on-year TSD plus 1%. And so I get the impression this is rather low. So ESD, TSD, why is it so low, is the question? For example, for ESD, their policies to enhance endoscopy.
So prior to COVID, 20%, 30% revenue increase was achieved. And in the fourth quarter of last fiscal year, you have a similar [ fear, ] but in Q1, it went down again. Now 1% growth for TSD. This is rather low, but we think of the increase in procedures. So can you talk about the reason why the revenue growth for ESD and TSD in China is kept at single digit?
Thank you for your question. For China, the impact of COVID-19 was felt ahead of other regions. And I wouldn't say it was a result, but improvement or recovery was observed ahead of other regions as well. So there is like a timing gap between China and other regions. So relatively speaking, for Q1, the growth rate appears to be low. That's the big picture. For this year, generally speaking, compared to other regions, the growth rate is lower. Still, certain growth is expected.
You talked about the government policies, and they're not having major impact on our business. And this is nothing new. It's been talked about for some time. For example, concentrated procurement by China policy. These are being promoted in China. And so regarding TSD, it is considered as part of the risk factor, but we don't take a view that they are having a major impact on the figures. We have from ESD Kawano-san and Kuramoto-san from TSD. So maybe they can make some additional comments.
Kawano from ESD. Thank you for your question. Q1 result for China you're correct, single-digit growth. The market itself is not slowing down significantly. No. The biggest factor is the buy-China policy. As a guidance, it was issued -- announced in May. And so the budget execution is slightly slowing down. That's what happened during the first quarter. So once the budget execution resumes, we believe that we will again see the double-digit growth. That is the answer that I can provide.
This is Kuramoto from TSD. I also would like to add comments. Regarding China, like ESD, the buy-China policy is having an impact especially, the bronchoscope, which has a high profit margin within TSD. In particular, regarding the special demand last year that we enjoyed in relation to COVID-19. But because it was brought under control earlier than others in China and that procurement amount declined somewhat year-on-year.
On the other hand, in some parts of China, there's still the COVID-19 infection. And so procurement is still active. So there are some uncertainties, and we believe that is one of the reasons why the growth rate is kept at single digits.
I have a follow-up question. Buy China, obviously, that have been mentioned several times for ESD and TSD, are you seeing the local players gaining the market share, winning the market share from you. And I think you have made the upward revision to both ESD and TSD on a full year basis, on a company-wide basis. And I'm wondering whether China is one factor for the revision.
Thank you for your question. Regarding ESD, the buy China is the guideline by the national government. But depending on some provinces, whether to honor that or not, whether to implement that immediately or not, they're all different, which is complicating the situation.
In terms of the ESD products for endoscopes, of course, there are Chinese manufacturers of endoscopes, but the doctors prefer Japanese brands including Olympus. So we don't expect much impact. But the surgical imaging, there are many local products. So going forward, we expect competition. But again, situation varies from province to province and also depending on the price category. The situations vary as to the quota that is being imposed by China. So we are dealing on a province-by-province basis.
So overall, in accordance with the upward revision, we are asking our Chinese business people to make efforts so as to increase their sales as well. And for TSD, similar trend, so no additional information.
So I entered the conference in the mid. So maybe some person asked the same question. So this is a very simple question. So it is the ESD and TSD, thank you very much for discussing having the subsegment zone. This isn't very useful because you don't know what's happening in each of these businesses.
So in terms of the GI in scope, maybe I wasn't listening to what was explained, so it's going to recover. That's okay. So 9% of growth compared to March 2020 seems to be quite strong. So by -- is there a difference by region? Can you give me some color on that?
Thank you for your question. Well, actually, similar question was asked. So we are looking into this, so please hold on. Well, actually, I will get back to you later. So is that okay with you about this question? So if you have another question, maybe we can answer that first.
Okay. So the second question is that for urology, it seems to have grown a lot. So inside this, for instance, cystoscopes, so electrodes -- resection electrodes, in terms of the in urine stones, I think maybe BPH will be higher. So lithotripsy as well. So if you -- BPH increases, I think the margin should be quite high. So I think we assume that this is contributing to the improvement of the margin. But in terms of [ SOLTIVE ] space, you have shown here. So what has been the driver of the improvement of the urology?
So in terms -- we have seen some [indiscernible] and electrodes, and have like -- result of fees and these are growing. So within urology, these 2 stand out as contributors. So -- which is the high contributors or in terms of the value, we are not disclosing about that, but the reasons for TSD is improving, the major reasons are the urology, BPH and some management.
So focus, I don't have about [indiscernible]. So in terms of trim laser, it's #1 in the world. So structurally, I think hypothetically or theoretically, it has a high benefit. But, seeing -- as you pointed very interesting that it's selling a lot already. So in terms of the trim laser, is it -- is that itself a benefit or that you do or you have some clinical data about that? Can you elaborate on that point?
Well, today, from TSD we have Kuramoto and from ESD, Kawano, the top of each of the businesses are here with us. Kuramoto-san will explain.
So yes, this is Kuramoto speaking. As you have pointed out, so the growth driver, So BPH, for the plasma electrode is the major contributor. The reason behind this is that due to COVID-19, in terms of the, basically this procedure, I think for this kind of has been held back. And then it has restarted, and I think that has contributed to a high growth.
In terms of the size, the BPH plasma electrodes is the major contributor. And for SOLTIVE, the doctors seems to highly appreciate this aggressively, the sales is going up. And in terms of consumables margins are good, and we are expecting further growth and actually SOLTIVE the trim laser. So in the stone, it can make them into small pieces, very small pieces. So for instance, shorter treatment time, no blocking the view so that has been the benefit of this product.
So yes, SOLTIVE, so it is the laser that absorbs the [indiscernible] wave length. So I think the evidence is very, very visible because people but looking at endoscope and they can actually see that the stones are more finer. And I think in that sense, that is really our competitive edge.
Yes, that's what we think.
So the trim laser, you have developed at basis it's only yield, right? I think, so you collaborated with a laser company to develop this, meaning that other companies will not be able to develop this.
Yes, that's correct.
So -- well, you asked a similar question in the person -- with another person or question or similar to another question. So we are -- this is homework for us. So let us get back to you later, and let's move on.
I have a very similar question to the question asked by Mr. Nishimura-san, a very rudimentary question. I have to apologize, but the profitability, I think, has been about 18% on since the third quarter of last fiscal year, excluding the special factors. So 2018, 2019, the sales were around JPY 210 billion, and operating margin was 12%. Well, at this time, to exclude the restatement, JPY 250 billion -- no, JPY 230 billion sales, revenue.
So 18% since the latter half of last fiscal year, is that sustainable is the first part of my question. An increase from 12% to 18%, is it because of revenue increase and Transform Olympus initiative effect in other? But if you look at those different factors, how much coming from what?
Thank you for your question. First, whether this is sustainable or not. I'm afraid I have to repeat what I said earlier. If you look at the full year guidance, that should be the answer to your question.
Generally speaking, there is a special factor amounting to JPY 2.8 billion. But excluding that, it fits within this figure mentioned. So the answer simply would be, yes, it is sustainable.
Now, in my response earlier to a similar question, there's something that I forgot to mention. The bronchoscope respiratory system scope is included. And that's, to a certain extent, is contributing to improved profitability. But in any event, the answer to your question would be yes.
So compared to maybe 2 years ago, even on the pre-restatement basis, maybe 6% improvement. Can you break those into different factors? No just 2 or 3 years ago compared to 2 or 3 years ago, improvement of 5% to 6%. Can you give us the factors?
Yes. If we could go back the history, the write-off of the intangible asset related to gyros. And that being behind us, the profit margin is improving. That's one special factor that I can point to.
So I take it that within the subsegment that you disclosed, the profit margin is -- or the profitability is improving and TSD overall is seeing an improvement in profitability. And I was wondering if you could give us the factors behind that. Does revenue increase? And the COGS ratio improvement.
And as mentioned earlier, we have a very strict cost control measures being implemented. So those factors combined are improving the profitability is all I can say.
So the full year operating profit, how I should think of it. So 16.9% is the new see outlook. In the first quarter is 14% level. In terms of progress I think it's just 20% against the full year. So going forward, the -- is there any quarter -- the results, it's not a quarter that the top line is going to go up. So this JPY 200 billion multiplied by 4, JPY 800 billion plus. And is there a quarter that the margin is going to go up substantially?
So in terms of the -- how the expense is going to come out by each quarter is different. So from the following 3 quarters, that -- maybe that is one of the reasons that the margin will be different quarter-by-quarter.
Maybe to high level, maybe more details. So in terms of the -- so in the first quarter, so you have this phase acquisition profit, but I think basically, we have these external factors [indiscernible] is basically 0. So for the extraordinary gains, plus minus, so -- are there any other factors that will push up the operating profit in the many 9 months?
So there are no major factors that will push up the operating profit according to our plan currently.
So in the remaining 9 months...
Go ahead.
So in the remaining 9 months, the extraordinary losses will contribute rather than that, the excellent core operating profit will improve. And as a result, the 16.9% of operating margin will be achieved. That is what you're saying?
Yes. So there are some individual factors that I can point out. But overall, in the following 9 months, the until the SG&A line will be seeing improvements.
So one follow-up question. So at the beginning of the year, the U.S. growth -- if you're not forecasting investor growth. So after the first quarter closed, have you changed your outlook about the U.S.A.?
Well, basically, there has been no new events. Our outlook has not changed about the United States.
So the assumptions, the market, it has not changed from initial outlook?
Yes, that's true. On to endoscope business, may be some upside. But fundamentally, no changes this year. I think this year will be the market that we will struggle the most because [indiscernible] has explained about it previously because of new products, and unfortunately, this year, we cannot launch new products this year. So we have to do with existing products.
And of course, in terms of scope, there are some new products. But in terms of this -- sales coming from these new scopes, we will be striving to achieve the targets for the U.S.
You said that the market situation hasn't changed much, but in terms of the number of procedures, I have a question. In urology, I think there was a pent-up demand. So in first quarter, in what subsegment did you observe the pent-up demand? And what was the size of that impact? For example, in the U.S., da Vinci, their earnings report say that in Q2, there's still the pent-up demand. So what is your view regarding this pent-up demand for Q2?
We apologize, but we had some technical communication issue maybe it is our problem, but we only got 40% of your question. 60%, the connection was choppy. So if you could just summarize your question, we'd appreciate it.
The ESD and TSD, in what subsegment did you see the impact of the pent-up demand relative to the number of procedures? That's my first question. And also regarding Q2 this year, you expect pent-up demand. And do you expect this to continue into Q2 is my question?
Kawano from ESD. Let me take up the question relative to ESD. In ESD, as you're aware, basically is the capital business. So the number of procedures -- the number -- the decrease in number of procedures don't directly impact our business. Of course, the budgets of the hospital, whether it will be executed or not might be impacted depending on the number of procedures because the fewer procedures, meaning less income.
So it's going to be only indirect impact. And we don't expect the recovery to be 100% prior to the pre-COVID-19 and maybe another several months or even a year before the number to recover to the pre-COVID level. But situation varies from country to country. In some countries, they are already back in the pre-COVID-19 state and others no. So we're looking at each country on a specific basis.
Kuramoto from TSD, let me also answer that. In terms of subsegments, as mentioned earlier. As for the elective procedures, urology, and GI and respiratory, the devices related to this have that tendency. But in terms of number of units, as was mentioned earlier, the situation varies from country to country and also the Delta strain. And that infection is really getting serious globally. So there still is uncertainty what the situation is going to be going forward.
I have a follow-up question. In ESD, for surgical endoscopy, you're not seeing impact of pent-up demand because in some of the hospital facilities, expecting a recovery from COVID-19, we hear the orders being placed for capital products ahead.
So I was wondering if that's the case with you. Also -- and also, by region, as of the end of this fiscal year, what is the level of the COVID brought under control? What is the assumption that you have for different regions?
Thank you for your question. The first part of your question, the surgical imaging, it's a capital product. So what I mentioned earlier applies. When the number of procedures recover, then the budget, the hospitals, the facilities would see their income go up. Of course, in some of the hospitals, they are placing orders ahead of others. We do see that. But on a limited level, the general trend is -- unless the income on the part of the hospitals go up, the orders would not be placed. So be it GI or surgical and scope the situation would be the same.
The second part of your question, for FY '22, as of the end of March FY '22. To what extent do we expect the COVID situation to be brought under control? Well, that's really hard to say. We are doing what needs to be done. And we do have the figures, the best assumption, the best-case assumption. And we're expecting. We're hoping that situation will turn out to be better, COVID-19-wise, and that is the basis of our assumption. So this is about ESD, and I would like to ask Kawano-san to respond.
So by reaching each client from the second quarter onwards in terms of how the sales is going to grow, meaning that -- I mean by the market outlook and the new product acceptance situation or you usually don't have new products. So I think there's some conventional products as well even before new products were released. So can you give us some color, qualitative information about that?
So [indiscernible], in terms of the semiconductor procurement, the endoscope processors supply, there is a risk. [ Hoya ] has explained about the situation. What is -- about Olympus about how you take the situation?
I'm Kawano from ESD, I will answer your question. So partly speaking, so EVIS X1, there are regions that use that and do not user that. In terms of Europe, Japan and Asia, some Asian countries. When I say some Asian Hong Kong, India, [indiscernible] is going to introduce and Australia is going to use this so about 75% in Asia. X1 can be introduced. And Takeda-san has been talking about -- the issue EDOF has been resolved, and the shipment has been resumed. So Japan, Europe and Asia for these markets, including the EDOF scope, the X1 sales is going to proceed as planned. So in these 3 regions, ESD overall, we hope that these will be drivers and then go about the business.
For the United States, the X1 introduction will be 20 -- March 2023. So this fiscal year, we'll be struggling to be frank. And other regions are using this. I think the U.S. doctors are aware of that, and they're holding back of buying the products. And I think that's one risk. But to offset that -- so in terms of the IF2 system, so for the PCF, that is the colonoscope. And for the PCF-190, that is the duodenoscope. So by selling these 2 products, we are hoping that we can offset this holding back of the procurement [indiscernible].
So all [indiscernible], we have introduced that. So utilizing these type of products, we want to boost the figures in the U.S.
In China, the market -- once the market recovers, then the market sales will increase as well. So we want to ride the tide, so to speak. However, X1, I think it will take some time to introduce that to the Chinese market. So if it loses the conventional model, we would like to sell these models into China. And we would like -- by doing so, we would like to maintain the double-digit growth of sales that we have been able to have. Of course, there is a COVID-19 risk. But at a challenging number, this will be a target, but we are determined that we want to grow in China as well.
So a follow-up question, if I may.
You asked about the semiconductor issue.
Yes, please do so.
So currently, in terms of the supply of semiconductors, that is a huge challenge globally. And our procurement division is doing their best to procure the components and parts. And currently, in terms of this year's sales, there will be no impact in terms of the bottleneck of supply. We are not going -- well, there is a risk, of course, but I think basically we'll be able to achieve our targets without any bottlenecks in the supply and everyone in that the company doing best within this current situation.
One follow-up question from me. So ESD and TSD, so in terms of how you manage these divisions in your current organization, maybe it's difficult to answer. So under this current organization system. So ESD and TSD have co-head, so there are Kawano-san, Kuramoto-san, who basically focused on Japan or -- and there are some heads that focus on overseas markets. We have the co-head structure.
So you have Japanese heads, and we have 2 people who I assume are foreign people. So in terms of ESD and TSD, how the division of roles work because you have co-heads? And when you manage these divisions, are there any things that you are looking at or take care of?
So as far as I can answer, I would like to, so this is kind of for ESD, we hav signed [indiscernible] this Chairman and the co-heads, myself and Frank, we are managing the business. And actually, with Frank, I have more than 20 years of relationship with them. So I think I met him first in 1999, and the various businesses in this company, I have been working with him very closely. So there's no -- I think this co-head system isn't uncomfortable at all?
So in terms of -- initially, I thought that maybe we should divide the role, but -- well, in any case, you said they decided that these we, too, should look over the business but we have a strength, different strength. So naturally, without any -- explicitly, there is a kind of division of role. So Frank will look at this slide and I look at this slide. So it's a kind of a natural division of roles.
So I think there is no kind of debate in terms of who is going to preside over what. And I think this co-head system is working very smoothly. Thank you very much for asking. Kuramoto-san, what's your take on TSD?
So this is Kuramoto from TSD. Yes. So Gabriella is a co-head and she is in the United States, and we are managing the division. So I have worked in the U.S. for a long period of time in terms of the U.S. market, in terms of the business -- operated solution business, a market condition, I understand that fully. So with Gabriella, I feel quite comfortable we're working with her.
So I work from Japan, and I think we leverage that as a benefit, So in terms of the TSD, we have the manufacturer sites in [indiscernible] in terms of the bronchoscope, it's in [indiscernible]. So this development and the manufacturing sites are communicating closely. I may be the right person to look over that because I physically work here. So we divide our responsibility that way. So it's only 3 months plus that we have been working this way. But I think we have been able to smoothly operate this business.
And one -- well, aside from your question that you asked. So from my side, I answered about the trim laser -- sorry, I will give you some misinformation. So I said that it's a we Olympus is the only company. But actually, there's one company in Europe. Quanta Fiber Dust, is it? Quanta Fiber Dust, they produce a trim laser. But we were ahead in North America. We are the only company that provides a trim laser. So because we have this sales capability, and we are ahead of this technology, we want to monopolize this market. So correction, if you may.
So that in TSD, the business development TSD, that is mainly led by the United States as a follow-up.
In the U.S. there are new technologies and new movements they come out ahead in the United States. So business development more or less is led by the United States.
[indiscernible] from IR. I would like to respond to the earlier questions. [indiscernible] from UBS [indiscernible] from Nomura asked the question about ESD, TSD results compared to FY 2020. We don't have enough data to answer that question. And also a question from [indiscernible] is about the number of employees for TSD, ESD, We would like to get back to you on that later, maybe by next Wednesday, would like to respond to.
We will be uploading the Q&A from this earnings briefing on our web page. So please refer to that QA document that we'll be uploading for the answers, please. Because we don't have the sufficient information to answer your question.
It looks like there are no further questions. And therefore, we will end the Q&A session here.
So with this, we conclude the conference call of Olympus Corporation. Thank you very much for attending this conference call.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]