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Now we would like to start the Q&A session.

I have a question about the question-related issues. I want to understand the current status. Last year, in June, some of the products received import alert. And last year, in the third quarter, ship hold was announced based on the inspections. And the ship hold was going to be mostly -- largely completed within the fourth quarter. That was an explanation last time, but it's still part of this fiscal year's plan. So I want to understand the current status of ship hold and the schedule of the inspections. How is it progressing? Please share the current status.

Yes. Thank you for the question. Let me address both parts of that. You mentioned the import alert first. The import alert, again, is largely tied to our Aizu facility. And so until that Aizu facility is reinspected, that import alert may not be lifted. And to put the import alert in context, that was roughly 1% of sales. So that's the import alert. The inspections that took place in the fall. As I mentioned on our Q3 call in an abundance of caution, we put a number of products on ship hold. And as I mentioned, I think it was 20 or so, the majority of those began to be released from ship hold during Q3 and Q4. The reason that some of this remains in FY '27, as I mentioned and Michael mentioned, largely in the first half is we do have a few products that remain on ship hold that we would expect that would be off of ship hold by the second half of FY '27. So that's an answer to your question in terms of what's the current state as it relates to import alert as well as products on ship hold.

I have one follow-up question. From this fiscal year and beyond, what happens to Elevate cost? What is the outlook for Elevate and contemplated expenses? In this fiscal year plan, JPY 24 billion negative in the other expenses. So is it going to be completed before the end of the fiscal year? Or does it depend on future inspections? Is there a risk that this expense will grow bigger than this?

Yes. Thank you for your second question. And you are correct. In FY '26, Elevate cost was approximately JPY 20 billion as we shared and 50% of that was in SG&A and 50% of that was in other expenses. Elevate cost as a program was ending and is ending in FY '26, as we announced. And importantly, the spend that we will continue to do in the quality area will be treated within SG&A and not below as a one-off cost as had previously happened in Elevate. This is important. And the reason we're able to do that moving forward is a lot of the good work that Elevate done in terms of core quality processes, we're now able to leverage in our ongoing quality program. So you should expect to see a dramatic reduction in below-the-line quality one-off costs as it relates to this specifically. So thank you for the question.

Right now, about the quality control issue, the Fukushima plant itself as of February has not received the inspection yet. But what is the time line at the moment in the first half or second half? And if possible, what is the preparedness towards the inspection? That's my first question.

As backdrop, we are in close ongoing communication with the FDA in a very constructive manner. They have not notified us of the upcoming -- any more upcoming inspection. So I don't know the answer to your question, the first part of your question.

But the second part of your question is important, and that is we've been preparing all of our plants, including Aizu for inspections and maintaining all of our facilities in the state of inspection readiness because this is where we expect our plants to operate on always. So don't know when they would be back, but our preparation for Aizu and other plants is ongoing, and we feel good about the quality work that is underway across our operations footprint. Thank you for the question.

My second question, this year's guidance is my second question. In terms of the GIS, the range for the profit is larger than the range for the sales. So what is the impact of China in GIS? And also in Q4, it seems that there is a tremendous deterioration in China. Could you also talk about the Q4 result in China?

Thank you for the question. Let me talk about China overall. As I mentioned on our Q3 earnings call, I expected that our progress in China would be nonlinear or meaning a bumpy, as we got back to reasonable growth in China. And in fact, what you saw in Q4 is that China remains a challenging market for sure. Q4 reflected greater caution in hospital procurement than we saw earlier in the year.

But importantly, over the medium to long-term, our plan is to return China to sustainable growth. And what we've done, I think, is really important in China. As I've mentioned on previous calls, we've replaced the leadership team, improved our commercial discipline, expanding our locally manufactured portfolio to improve competitiveness. And so what I believe you'll see is this ramp as we move throughout FY '27.

So in sum, I believe we're taking the right actions. It will be choppy as we get China back to a mid-single-digit grower. And importantly, that's -- when I talk about the 3, 4, 5 plan, from '27 through '29, I simply need China to be a low to mid-single-digit grower as opposed to a decliner. And I'm confident that we have that opportunity in China with the actions we have underway. Thank you for the question.

I would like to ask my question in English. Congrats on a very strong results on March '26. I've got a question about the competitive landscape for the GI endoscope globally. We understand that the competitor is now growing very quickly, not only in Japan, Europe, where the hospital budget is restricted, but also in U.S., it seems like they are commenting that gaining the market share. So I just wonder. We are really worried about your competitiveness even in the U.S. might be disrupted. How do you evaluate the current situation as of now?

Also, I understand that you are going to launch the new scope for the SZ61 globally in the second half of March '27. But do you see any risk that the product launch will be delayed? Maybe FDA issue might be -- if it's become complicated, but I'm just worried about this to be delayed. Could you clarify the -- or could you briefly comment on this -- my concern?

Yes. Thank you for the question. And I'll have Keith talk specifically about his view of the market within GIS and our competitive position. But before I do that, let me offer that our market share position is strong across all regions, including North America. And you saw in Q4, when we have new products in the hands of our sellers, you see tremendous results. And so you saw that in just Q4. And before I turn it over to Keith, the one other point I wanted to make, which to the second part of your question, which is our new product pipeline is very robust, and we continue to get new products approved by the FDA on a very good cadence. So while we work through quality remediation, -- that has not impacted our ability to get new products approved. But Keith, why don't you add your thoughts on the competitive nature and how we're positioned?

Look, we have confidence in our competitive position in the markets. I mean, if you look at how we performed in Q4, I mean, double-digit growth in the United States, really strong growth in EMEA, strong growth in Asia Pac. I mean Japan, today, we're working on a new commercial model to drive higher competitiveness, right, a more focused sales organization. And in China, Bob covered China before. But when we think about how we compete in this market, we've got confidence that we can compete at a high level. And from an execution standpoint, we continue to increase our ability to execute both in our commercial organizations, but also in R&D as we look to bring competitive -- new competitive products to the market.

One additional question is that I would be surprised to see that especially Bob, you decided to consider the option for the surgical endoscope. What makes you that decision? I know that you came from Medtronic. Medtronic also has a similar product. So maybe if you could share the view on your division.

Yes. Thank you for the important question. The reason I'm announcing a strategic review of Surgical is when we look at Surgical, and again, for everybody on the phone, Surgical, as we define it, is comprised of surgical devices, surgical endoscopy, ENT and OR integration. And when we look at these businesses as a group compared to the growth profile and the weighted average market growth of Olympus, as well as the margin profile that we aspire to, we made the decision that these businesses should be put under strategic review. Nothing is off the table as we explore a range of options to unlock value.

I'm not going to be specific on timeframe, but I am going to be specific that we will update you as we go through this process because I think it's really important for our investors and our shareholders to know that this is a management team that is going to take courageous, decisive action on its portfolio and ensure that we're in a position to win and grow and produce profitable growth as well. So we'll keep you posted on that. But fundamentally, our decision came back to the criteria, which was strategic fit, accretive growth and return on invested capital.

So two questions. One, just a question concerning the believability or confidence in your forecast. So when we go back, if you recall, in Q2, Olympus basically said that they were very confident about the remediation and the progress. But in third quarter, of course, we were surprised with ship holds and well, 8 inspections, which I think is quite unprecedented. So how confident are you that when the time comes for the Aizu plant reinspection, you won't have any additional ship holds and additional cost for remediations. How confident are you that the -- some of the Form 483s you've received will not turn into a warning letter? That's my first question.

Thank you for the question. And let me unpack that for you. First off, I'm very confident in our forecast. I believe our state of readiness at our manufacturing facilities continues to improve. You are right that it was a bit unprecedented, the 8 inspections that took place at the end of last year. But the observations that resulted from those inspections helped us further accelerate and strengthen our existing initiatives, which is why, to an earlier question, I don't anticipate a bolus of costs in the ongoing remediation because as you know or you may know, is following those inspections in December, we turned in a comprehensive response to all those observations. And in that response, we make a number of commitments, and we're executing on all of those commitments. And let me just say, there is absolutely no difference in what the FDA wants and what Olympus wants in terms of patient safety and quality. So I'm confident we're doing the right work. And I believe we're in a good state of readiness as we continue to progress.

Okay. Is there any -- are you sure so the Form 483s will not turn into a warning letter -- or is there any sort of communication with the FDA or any assurance that that's not going to take place?

Thank you for that question, too. Of course, the inspections remain an open matter for the FDA. While we meet with them regularly in an open, constructive dialogue, they have not signaled any action yet as resulting from those inspections. One could anticipate that in general, although this also isn't necessarily a rule that somewhere between 4 to 6 months after inspections take place, the FDA lets you know what they thought. But we've not heard anything yet. With that, we continue to do our work, right? And that's the focus. We're doing our work and meeting our commitments. So it's difficult for me to say, but there's no indication yet from the FDA.

Would it be accurate to sort of describe what happened in the third quarter as in like you guys weren't expecting 8 inspections all at once, and that's why you had to resort the ship holds. And so if it's just Aizu, then it's -- you're kind of more prepared. Is that how we should think about it?

Yes. Well, I certainly, I did not expect 8 in Q3.

No one, does.

That was a bit...

You could go for the Guinness record.

Guinness record. That was a bit unprecedented. So -- but again, I mean, that taught us we still had some things to work on. It pointed that we had to accelerate the globalization of some of our quality systems. We had some things to work on. So again, that was -- in my mind, that was a signal to keep doing what we're doing, do it faster. And to your point, certainly we'd expect a single site to be a lot less complicated than 8 simultaneously. But look, we're responsible for all of that. So it's not just Aizu that's being prepared, it's all of our facilities that are on a state of preparedness for an upcoming inspection.

Just lastly on the surgical endoscope, obviously, we're a little surprised because we were expecting things like THUNDERBEAT and things like that to be put on the -- sort of put on the review. Now it is true that I don't think Olympus has ever really demonstrated much competitiveness against Stryker. And so -- but isn't there any thought of trying to accelerate sort of development of being able to compete with Stryker. And obviously, the surgical endoscope probably has some sort of synergy with your ongoing work at endo -- Swan EndoSurgical, right? So isn't there a thought of trying to strengthen this through an alliance or something?

Well, so to be clear, which is why I wasn't announcing a very specific set of actions, but saying as we take this surgical business under a strategic review, they're very well may be elements. There may be underlying platform technologies that are enablers that continue to enable our progress in other areas as well. So when I say specifically, nothing is off the table, that also means that we'll see how this develops. But I think it's important that I signal that what our expectations are relative to growth and margin and return for each of our businesses.

Appreciate that.

FY '27 guidance, adjusted operating profit and operating profit. The gap between the 2 is JPY 24 billion. Now what kind of expenses are included in the adjustment?

Let me -- our guidance, do you mean adjustments below the line when you talk about adjustments to it, right? So Michael, I'll have you take this. The point I was making to the previous person who asked the question was last year in '26, we saw a significant below-the-line cost for our quality remediation for project Elevate, that roughly JPY 20 billion, half of which was in SG&A and half of which was below the line. The point I was making to that previous question was we expect that below-the-line quality cost to, in fact, be reduced significantly. The other measures below the line, whether it's workforce optimization, GTOM, et cetera. But Michael, perhaps you want to provide further below the line.

Yes. So the adjustments that we put below the line, I think the question was focused more on the future guidance for '27, not on '26. But there will still be some expenses related to GTOM in '27, although they'll be drastically different in scale as well as some tail end quality costs that will be below the line, but again, a very different scale than what we saw in '26. Typically, the adjustments below the line are going to be targeted towards onetime items like R&D impairments and things of that nature where you have onetime items or you have large-scale programs that you're putting below the line.

So what I would tell you is the difference between the full year '26 numbers and the '27 figures that we have are driven from the fact that these large-scale programs are being minimized in '27 from a perspective of the amount that we're going to be spending on them. So in the guidance, you're going to see that difference, and that's what's driving the profitability higher below the line in that respect. So hopefully, that helps give you some clarity as to what's the drivers.

I have a follow-up question. Middle East related expenses, what kind of expense items are you accounting for? That's my follow-up question.

Yes. Thank you. Regarding the Middle East, it's a good question. We're monitoring that situation very closely. To date, the direct impact has been limited. But the way we're thinking about this is, first, from a cost and logistics perspective, we're actively managing our logistics providers and have identified contingency routes to mitigate both space constraints and rate volatility, starting to see some cost pressures in transportation and freight surcharges, primarily driven by higher crude oil, but we've not yet faced material restrictions on that.

Regarding energy and material costs, of course, rising crude oil prices create upward pressure on energy-related expenses, but we're closely monitoring that as well. And when you think about our supply chain, we're working very closely with key suppliers, governments, by the way, logistics partners to systematically reduce our supply risk. We also have inventory coverage currently for critical components in line with our global standard levels. And importantly, there's no impact today on our customers or our patients. This is a situation that we monitor closely. When we look at the cost as we know it today, it's manageable for us within the guidance that we gave you.

I have a question about Q4 financial results. In your press release, there was a mentioning about the North America, which was much better than the expectation in sales compared with your internal expectation, what were different? What were the upside that you had for the fourth quarter compared with your expectation for North America?

Yes. So thank you for the question. As we mentioned on the Q3 call, we had good expectations for North America in Q4, but particularly around EDOF scopes, our new product, we wanted to see demonstrations turn into sales. But I would also offer you that Q4 North America performance and performance in EMEA and APAC and elsewhere around the world really showed the strength of the entire Olympus operating team coming together from the commercial organization to the operating organization, global operations, supply chain to ensure that we were able to produce, ship, install products. And so it was great to see that us execute and awesome to see our customer demand for this product. So it was just -- it was us fulfilling demand, and that's what we believe it was a good tailwind as we go into FY '27.

You said that demonstration of EDOF scope equipment. There was a shortage for those EDOF. That's why there was a concern you expressed in Q3 call that there may not be enough deliveries. But what was different from your expectation? Regarding the equipment available for demonstration, did you have enough number of equipment? Or for the SIS business, was there anything that was different from your original expectation for SIS?

Yes. So again, I think, one, we saw great demand for EDOF scopes in the U.S. And importantly, our factories produced more. So that was great. We were able to meet that. We also saw a tremendous uptake in our GORE VIABLE stents following our January launch. So this was a healthy pipeline that then converted in conversion rates. So that was particularly strong. And on the SIS side, when we put products, pull them off of ship hold, they also delivered meaningful contribution. So it was a team effort across the organization that allowed us to really have a very strong Q4.

Two questions about the United States. In Q4, the sales was strong, but do you feel the absence of that in the first quarter of the following fiscal year? Or do you think that strong momentum will continue into the first quarter of the following fiscal year and beyond?

Yes. So thank you for your question. The strength we saw in Q4 was particularly strong. I mean we saw tremendous growth. But importantly, we see strength continuing in the U.S. and we look at that based on our leading indicators of order activity, pipeline visibility. So we believe that sets us up for a very productive FY '27 in the very important market of North America.

If that is the case, we don't have to worry about the absence of the strength of the fourth quarter. So the strong momentum will continue each quarter in the new fiscal year. Is that the correct interpretation?

Again, let me be clear on our guidance, which when you look at Olympus overall, and I talked about China being a little choppy in the first half. We still have in SIS, some products on ship hold. I was answering the question particularly about GIS in North America. We like the strength that we saw in Q4, how we exited, and we expect solid strength here as we move throughout the year.

We're going to leverage that to offset some of the other pressures that we saw across the business that I talked about which is why I wanted to be transparent and talk about the phasing as I see throughout the year, which I would view it as a slower start to a stronger finish, which is exactly what Michael mentioned as we talked about consumables versus capital sales. So I feel -- that's why I feel confident in our guide we gave you, which we're targeting 3% growth, 100-plus basis points of operating margin improvement in FY '27.

One more thing. Impact of tariffs in the United States for the FY '26, JPY 25 billion negative impact on profit. But for the new fiscal year, how did you include the tariff impact on in your guidance?

Right. Michael, have you pick this up? But we basically assumed that the 15% tariff was going to continue in FY '27. And we know that's a dynamic situation, but that's the way we thought about it. Michael, do you want to pick up any more detail on the tariff scenario?

Yes. I mean, obviously, the dynamic with tariffs is pretty much unchanged year-over-year despite the Supreme Court's ruling as we assumed 15% for our full year 2027 numbers as well. So despite some good news from a cash flow perspective when we can get our refund, we've baked in the expense into our expectations in 2027 is similar to what we saw in 2026.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Now we would like to open for questions.

So the first question is on the new guidance on Page 9. The revenue guidance on constant currency basis was revised down by 2%. So we understand the ship hold in the SIS division was kind of unfortunate. But I think, as Bob said, it is a one-off. So -- but looking at Page 35, it also looks like the GIS division forecast has been revised down. And I'm assuming the weakness is mainly in the U.S., maybe a little bit in Japan, but Olympus launched a really competitive GI scope that no other player has in the U.S. market, yet the third quarter came in flattish on a constant currency basis in the U.S.

So could you talk to us about what went wrong in the third quarter that you had to revise your forecast? Was there the -- why was there a delay in the demonstration scopes or possibly is a certain competitor offering price to gain share as the other competitors suggested on their call? And are we sure we're going to see growth in the U.S. in the fourth quarter?

I'm asking this because I'm really struggling with how this downward revision reconciles with the disciplined execution that Olympus has repeatedly stressed in the recent quarters? That's my first question.

Thank you for the question. This is Bob. I'll start, but then I'll ask Keith actually to comment both what we saw in GI in Q3 in the U.S. and then what gives us confidence in Q4 moving forward. But before I do, you were right to frame it that ship hold, and I'm sure we'll talk about that dramatic impact on the SIS business. There was some ship holds as well in GI, not nearly as significant. And we saw good GI growth around the globe. So we've got confidence in Q4. But Keith, why don't you talk about execution in Q3 and then what gives us confidence in Q4?

All right. Thanks, Bob, and thanks for the question. So first, I'll start with, we're not satisfied with the performance in Q3 out of the U.S. And the performance is not about declining competitiveness or clinician preference. We still see strong engagement with Olympus products and our sales teams. And we continue to see interest across our portfolio, including new technology, like you stated, like EDOF and EUME3.

The issue here is really commercial execution. We had a pipeline and we didn't convert that pipeline. So we need to be sharper in how we position the value of the portfolio. We need to do a better job managing that pipeline, and we need to convert opportunities with much greater discipline in the United States. And I just want to draw one example, and I'm going to draw an example of China. And I think this is a pretty good a pretty good example of kind of how we approach this.

Last summer, when we saw sustained underperformance in China, we really tightened our go-to-market focus, but we also improved our discipline around managing the pipeline with weekly oversight calls with the sales team and the sales leaders. And we got a really good idea of what that pipeline looked like and how we could better manage that pipeline to conversion. And what you saw in Q3 in China, after several quarters of double-digit decline, we saw 6% growth. And I'm not going to -- I'm not saying that every region will react the same and everything is going to happen similarly.

But when we see declines like this in the market, and we can diagnose the execution issues and we can put tighter oversight in place. And as Bob stated earlier, we have KPIs that we track. We can put in place -- can put -- we'll put in place things to make sure that we're doing better execution with the sales team.

So again, I wouldn't say that every region is the same. But in the U.S., this is clearly an execution issue, when we've put things in place to make sure that this won't happen again, and we expect to see Q4 growth return in the U.S.

The second final question, the FDA inspection. So it looks like you received multiple observations from the FDA. Could you elaborate again on the observations that were found? I may have misheard you, but it sounded like these observations were in areas that weren't anticipated. So are the observations set addressable in a reasonably short period of time? Or should we not assume that the JPY 10 billion in other costs for Elevate will go away in 2027? This is my final question.

Yes. Thank you. A really good question. And let me frame the FDA inspections and observations. Again, the FDA conducted inspections at 8 of our facilities across U.S., Europe and Japan late in the last calendar year. Some of those inspections, in fact, resulted in observations. And many of those observations predated the work we had done in Elevate. That's okay. We own that. Others reflect where we've got to advance the maturity and consistency in the integration of our quality systems.

But importantly, it's very much of an open matter with the FDA because the FDA is still completing their evaluation of the observations and the actions. And importantly, we're taking proactive actions. So the steps I outlined in my opening remarks. So -- and importantly, and this is such an important point you raised in the last part of your question, which is I've committed to 100-plus basis points of margin expansion for Olympus in our midterm plan beginning in FY '27.

So I wouldn't put this on the same category of cost that was in the Elevate thing. And regardless, I'm committing to making sure we handle that.

So the observations reflect areas where we need to get better, advance the maturity, the consistency, the integration of our quality systems and processes. Like I said, it's an open matter, but we're direct active conversation with the FDA, but I wanted to share it on this earnings call to put it in context for you because we proactively put a number of products on ship hold, as I mentioned. And then through the quarter, worked through those, not all of them, but we're still working through those. So I believe we have a very clear set of actions in place to address this. Thanks for the question.

My first question is about the situation in China. So the third quarter last year, with a 10% high single-digit level of decline. But for the fourth quarter, is it going to be the positive trend is going to continue? I want to confirm, many med tech companies and the endoscope competitors, they're taking a tough outlook of the China market. But you are expect -- can you expect a strong recovery? So from January and the -- in terms of the -- there's a pressure in terms of CapEx for new building of the hospitals. Is it a headwind for your business in China? What type of risk do you see in the China market?

Thank you very much for the question. And let me frame how we think about China very specifically. So China moved from a very significant growth driver for Olympus to more recently a double-digit decline, as you mentioned. During that process, Olympus pivoted our strategy very clearly, local manufacturing, dedicated resources, continue to invest in physician training and service capabilities in the China marketplace, better government relations. So while risks exist in China, what you're seeing us believe is that we have a strategy that gets China to where we think the market is growing in China for mid-single digits.

So we're coming from a position where China was underperforming, and this is gradual. I mean, the reason we highlighted China in this quarter is we see the specific strategies that we put in place begin to show signs of growth, small signs, but positive growth, 5% growth from double-digit declines. But we're very mindful of the dynamics in the China marketplace.

As I mentioned, we're very excited to have a new President of China, Rosa Chen, starting in March. Rosa has demonstrated exceptional leadership in China in health care, most recently coming from Danaher, China. So I believe we've got the right strategy to win in China. But please understand, I also view it as gradual, but it's one that we believe we've turned the corner on. So thank you for the question.

So this is my follow-up question. This is about optimization of the headcount. We have talked about the net reduction, 2,000 positions. So it is an increase of the cost of JPY 31 billion. Have you gone ahead in this initiative? And if we look at next fiscal year, in terms of the cost and effect, how much should we put in?

That's great. Izumi-san, why don't you take that question, talk about the spend.

Hello, this is Izumi. I would like to explain. Initially, in terms of the structural form-related cost, JPY 12 billion has been in other costs, but we have revised that to a JPY 31 billion of cost. Because the -- rather than the progress has been accelerated, rather than that, it's more of an accounting procedure. There are items that we can provision it as cost from an accounting perspective. So that is the reason why we have put JPY 31 billion. So maybe this JPY 12 billion of outlook has been conservative in the first place, this JPY 31 billion, that is about 90% of overall cost for the cost that's going to spend for this fiscal year, the remaining 10% is going to be allocated next fiscal year.

So the reduction of JPY 24 billion effect, that outlook is unchanged. But how much is going to be generated next fiscal year? That will be explained in May in the next year's business plan. That's all from me.

This is a confirmation. So next year, has been provisioned and that has been -- we can provision that for this fiscal year. Yes. It's not the overall cost has increased because initially in total, this JPY 31 billion plus is the cost that we have anticipated in these 2 years. We thought that JPY 12 billion would be generated this year, but we have been able to accelerate the provisioning of this. That's all for me.

Slide 8, about the actions for ships and the impact of JPY 9 billion. I would like to ask once again about this. FDA inspection, while it was -- it's still going on. Should we expect more of the ship holds because I believe that the reinspection will continue to happen. So should we expect the risk of this expense occurring in the next fiscal year as well?

And also, 4 different areas were impacted. And I think there's some overlap with the products that was basically export banned in June. But is the GI not affected or is it affected? Can you please give us more details?

Yes. Thank you very much for your question. And I hope my answer will be very clear. First, of course, there could always be more inspections because there were facilities that were not inspected. I mentioned there were 8 facilities across U.S., Europe and Japan that were inspected. As I mentioned, yes, some of those observations during some received observations. During this process, we proactively out of an abundance of caution, put a number of products on product hold for patient safety. We then went through a very thorough process of evaluating patient safety. And then we've begun to release, as I mentioned, those products back into the markets, about 70% of that. There's still 30% that we're still remediating.

But importantly, as you mentioned, while cost continues, what my commitment to you is that we're going to handle that largely with inside of SG&A. So as we delivered 100 basis points of improvement plus year-on-year, your mid-range modeling should be what I offered to you back in November, which is 3, 4, 5 with 100-plus basis points of margin improvement.

Now this remains an open matter with the FDA, as I mentioned. So they're still both completing their evaluations of our -- of the observations, but also our proactive actions that we took, which included, as I mentioned, a risk-based review of our product portfolio, continued global harmonization of our quality systems, targeted strengthening of our quality and regulatory capabilities. So we're moving through this.

And then the last part of your question was -- these actions did specifically address 4 areas: GI-ET, urology, respiratory and surgical. So GI, to your point, did have a products that were impacted. And again, I won't go through the specifics because they were across all of the products, but some of those have already been released and some of those were continuing to remediate at this point.

So hopefully, that provides a great deal of clarity both on where we are and what we're doing about it. Thank you for the question.

A follow-up question. You're showing us a range now. And is this range based on expected additional ship holds? Or is this range based on something completely different? And for the next fiscal year, will we see another kind of range forecast based on remediation or related to remediation?

Yes. So thank you for the question. I actually -- and we believe that ranges are a more transparent and accurate framework to express the outlook considering both internal and external factors. They don't anticipate any additional ship holds. It just -- as I mentioned, as we move these products back into the marketplace throughout Q4, there's a dynamic nature of that.

And also, which you're undoubtedly familiar with, range is the common practice for our peers in the industry, in the med tech industry. So I would anticipate continuing to do ranges going forward, but it has nothing to do with less confidence and more about providing transparency in terms of the dynamic nature of what's happening.

I would like Tatsuya to comment as well on that.

Yes, I would like to add. Providing guidance within range. Well, I think the investors that follow us would compare us against the U.S. med tech companies. And we believe that this range would make it easier. And as Bob has just mentioned, ship hold products, we expect the ship hold to resolve in the fourth quarter for these products. And depending on the timing of the release, the sales could be higher or lower depending on the situation. So we wanted to include that in this range. That's all from me.

So I would like to talk about the core operating margin for the mid- to long term and what your idea is about that. The core -- the adjusted core operating margin, you have been reduced that from 2 to 3 percentage points. In the previous announcement for next fiscal year onwards, more improvement from 1 percentage point or more for the adjusted core operating margin. Is that the baseline that I should use and what is your future outlook of your adjusted core operating margin?

Thank you for the question, and it's a really important question. We are not lowering margin expectations in our 3, 4 and 5 plan. So while the first step is a bit of a longer step from FY '26 to '27, we're not suggesting that you reset your models for the next 3 years. We simply have -- and there were some conservatism.

The bottom line is it needs to be more than 100 basis points per year in annual profit improvement, and those are the steps that we're putting in place. And hopefully, that's very clear. So this is just the first year, we've got a little more work to do to get there, but we've not changed our destination nor our timing to be a mid-single-digit revenue growth player and a 20-plus percent operating margin company. Thank you for the question.

This is a follow-up question. One thing I want to follow up is that in terms of your revision, the core base gross margin has been reduced. So is it based on the ship hold? Is there's no change in the profitability of the products because there's a single-use products and the contribution of new products that are being talked about. I just want to ask that this is due to the change in the product mix. Can I confirm about that point?

It's another good question. Now this has less to do with mix shift and more to do with the specific dynamics related to the product holds that hit us in the COGS line from the field corrective action, some of the inventory work that was done. So it's -- that's why on a go-forward basis, we're not resetting our gross margins at all. We've got to deal with these proactive actions that we've taken, but we believe our fundamental mix has not shifted.

We're excited about single-use, but think about that as market expansion as opposed to replacing or cannibalizing some of the reusable scopes that we had. So that's -- we think the pie gets bigger for that. Izumi-san, anything to add on the gross margin profile, please?

I think Bob has explained this clearly. But this time, the decline in gross margin, the increase in COGS basically is due to ship hold and due to the disposal that we go to the inventory or the -- some costs for the recalls that we conducted. This is one-off factors.

In terms of the fundamental product mix impact, it is very, very limited. That's our understanding.

Slide 15, leadership team. And Izumi-san is leading the organization. And I see most of these people on this slide being non-Japanese. Manufacturing and R&D are more Japan-centric. So I'm wondering how can they motivate the Japanese employees. I'm not talking about sales activities. I'm talking about manufacturing and R&D. How can they motivate the employees to really drive the product development for the future?

Thank you for the question. We believe firmly that leadership is not a function of one 's passport, but leadership comes down to the experience and authentic approach that one has. So specifically, with the new leader who will be responsible for global operations, David Shan. David Shan has operated globally in many factories around the world and has a very wonderful track record of connecting and building great relationships across culture. And I believe fundamentally, in Olympus, people want to be on a winning team, and they want to continue to get better and better. So I'm excited about our global operations transformation.

I want to be really clear, though, the heart of Olympus will always remain in Japan, and we have tremendous factories here in Japan. And we know that we also can do a better job driving sustained cost improvement year-over-year by doing things better and more efficiently in digitization.

So I'm really excited about the experience and the expertise that David brings. Similarly, with R&D, Syed has been the Chief Technology Officer for a while. But importantly, leaders surround themselves with great people. And when I look at both the leadership teams surrounding David and Syed, they're made up of exceptionally talented Japanese leaders. And we continue to work on the development and succession planning as well.

So I'm excited about the team that's here, but please note that intentionally, we are developing amazing Japanese talent within each one of these functions as well. So thank you for the question.

So SIS voluntary recall, so for Izumi-san, in terms of the ship hold, the cost of ship hold for the first quarter onwards, it will not appear. I just want to confirm that.

Another point is that to Bob, so this voluntary recall, you consider the patients, I think it has been a good move. But Olympus in the past, in the SIS area, you have been continuously conducting these recalls. And after a ship hold, then another product will have to be voluntarily recalled from the market. I think you have repeated that cycle. So for that point, fundamentally, this -- is there any way to change that culture, so to speak? Do you have any thoughts about that?

I'll take the question second. Izumi-san, you want to take the first question?

I would like to first answer from my side. In terms of the impact of the ship hold in itself, it will continue into the fourth quarter because of the ship hold, because we're going to lose the revenue, that is about JPY 18 billion impact in the fourth quarter is going to appear. On the other hand, the costs related to ship hold, for instance, disposal of inventories, basically, that will be ended in the third quarter. There's no additional cost that will appear in the fourth quarter related to those types of costs.

Pick up your question on surgical, and I'll ask Seiji to comment here as well. He's right next to me. Importantly, you correctly pointed out that patient's safety is fundamental to Olympus, and it's my personal top priority as Chief Executive Officer. So we will proactively in an abundance of caution when we see a signal, take a product temporarily off the market to make sure, and that's what you saw us do in Q3. Your question though gets deeper than that, which is, is there a fundamental cultural issue here with inside of surgical? I don't believe so.

When I think about where we're at in our quality journey of strengthening the global harmonization of our quality systems, strengthening our quality capabilities, advancing the maturity and consistency of our quality systems and processes. We're doing that across. And Seiji, I'd like you to comment on how you feel about the quality of the products and your approach within side of SIS.

I'm Kuramoto from SIS. I would like to respond to your question. So as Bob has just mentioned, specifically in SIS, I do not think that there is a fundamental issue in SIS because we are always putting patients first and the products that I sell in SIS, like energy devices, therapeutic devices, there are some products that have a higher risk. So we put patient's safety first. And we have taken proactive actions to put some products off the market.

Going forward, from our point of view, for the therapeutic devices, because we want to grow in this area, we want always to put patients front and center and enhance the quality to be able to answer this. So this is essential. This is a thing that we have to go do for growth, and we want to go forward on this initiative. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Good afternoon. Thank you for joining us. I'm Naoko Saito from JPMorgan. Welcome to JPMorgan Healthcare Conference Olympus Presentation. Again, it's my pleasure to be introducing Olympus.

From the company, we have CEO, Robert White for the presentation. And after that, we'll have a Q&A session.

With that, I will pass on to Mr. White. Thank you.

Thank you. Good afternoon, everyone. Thanks for joining us. As she said, I'm Bob White, the CEO of Olympus.

Olympus, is a 100-year-old company and a leader in endoscopy care. My objective over the next few minutes to share with you our vision and how Olympus is going to shape the future of endoscopy-enabled care.

Let's start with the world around us for a moment. Populations are aging. Over 40% of the population is over 60 years old. And with that aging population becomes chronic diseases. It's estimated that people over 65 will have at least one chronic disease by the year 2050. But that's driving underlying growth in endoscopy for us. The market is growing at roughly 5% a year.

And if you look at just the big developed markets of the U.S., of China, of Europe and Japan, that's 155 million endoscopy procedures done annually. But importantly, those geographies only represent about 25% of the world's population. So as care becomes more available, you can see that becoming 600 million endoscopy procedures a year. But importantly, expectations are changing as well.

Patients want earlier detection, faster answers, less invasive care and better outcomes and oftentimes looking for diagnosis and treatment in exactly the same visit. Clinicians want consistency, automated workflow and actually the ability to spend more time with patients. And hospital administrators want greater reliability, simplicity and efficiency and actually in an environment where quality and cost work together, not against each other.

So today, endoscopy-enabled care is adding years of lives to millions of people. Our ambition is to do that for millions of more people. And we believe Olympus is uniquely positioned to deliver such a future, our global presence, long-standing relationship with clinical experts and the world's largest installed base of endoscopy systems actually forms the foundation on which much of the world's endoscopy care is delivered today.

And our strategy brings together imaging platforms, devices, therapeutic devices, digital solutions and artificial intelligence to form an adaptive ecosystem. And as we bring together more technologies, robotics, artificial intelligence, endoscopy-enabled care becomes more precise. It evolves, becomes more efficient and widely available.

We see a future where patients get improved outcomes through earlier diagnosis and faster treatment. More conditions will be treated endoscopically, which means organs are safe, recovery time is faster and patients get healthier. And this is powered by an integrated AI ecosystem. And looking ahead, we see this ecosystem where technology, devices, data come together into an adaptive environment that learns from every procedure, refined workflow, and empowers clinical decision-making.

This is the future that Olympus is creating where endoscopy-enabled care extends life and enhances its quality and sets a new standard for what minimally invasive medicine actually looks like.

Let me show you what I mean.

[Presentation]

Okay. So having seen the future, let's turn to how we're going to make that real.

Our vision will be achieved through three strategic imperatives, each of equal importance, innovation-driven growth, simplicity and accountability. As I mentioned, innovation-driven growth is at the heart of what we do, leveraging the world's largest GI installed base. We're focused on key product launches in our core markets. Included in innovation-driven growth is also expanding our presence in China and ensuring that our products have access to that important market.

And lastly, to complement our innovation-driven growth is to build on our M&A machine through inorganic means through tuck-in acquisitions and partnerships to really complement the robust offering we have. The second pillar of our strategy is simplicity. And simplicity ensures we have a very strong operating foundation on which to run the business. Beginning this year, short-term restructuring actions, improve our operational efficiency, while longer-term structural moves position us for sustainable growth and driving us towards leading medtech benchmark cost levels.

That brings me to our third pillar, accountability. We're taking the opportunity to further strengthen a high-performance culture, where excellence and execution are rewarded. This is critical because the better we operate the business, the better we serve patients. And this patient-first mindset is critical to us. It's the reason we exist and we embed patient safety and quality in everything we do. We will continue to execute on our ESG commitments, and we are implementing an Olympus management system to improve our operational rigor. These three strategic pillars are built on our purpose and our core values, and those aren't changing.

Those values resonate deeply with me and all 30,000 Olympus employees. Our financial ambitions are also clear: a 3%, 4%, 5% revenue plan, 100 basis points of operating margin expansion and double-digit EPS growth.

Let me go one step deeper. As we look at our strategic plan, our 3, 4, 5 plan accelerates growth from 3% to 4% to 5% or about a percentage point each year. Importantly, this plan is grounded in very real drivers in our pipeline. Our playbook is absolutely clear. We deliver innovation, we fortify our core portfolio and expand it. So Olympus customers can standardize on Olympus with the right tools in the right geographies at the right time. And you can see the launch cadence across our core businesses from GI, GIET, respiratory and urology and also across geographies.

On systems and scopes, we're expanding our EVIS X1 Scope lineup, region by region, U.S. Europe, Japan, China, keeping Olympus at the center of the endoscopy suite. In parallel, we're scaling high-growth adjacencies with real clinical benefit. Luminal patency stents, stone management, single-use ureteroscopes and cystoscopes, EVIS and single-use bronchoscopes. I'd offer to you this is what innovation-driven growth. Looks like focused investment, faster execution and a pipeline that supports growth and oh, by the way, additional upside from M&A.

Let me take this one level deeper for you. Because to be concrete about what's driving near-term growth, we're executing two levers with urgency. The first one is targeted portfolio expansion through partnerships, and the second one, the step change in our competitiveness in local manufacturing in China. Our partnerships have secured exclusive distribution agreements in really important areas. Our MacroLux offering, as you can see on the slide, strengthens our neurology offering with a single-use cystoscopes, ureteroscopes, and uction access sheaths, bringing capabilities across regions, and we've already defined launch plans.

And in GI endotherapy, our GORE VIABIL partnership adds a differentiated biliary metal stent, which is so important to our HPV portfolio and positioning us to expand further in GI metal stents and our launch plan is fully committed on that as well already in the U.S. and launching here in Europe in the next couple of months. And then alongside that, you see our EU-ME3 ultrasonic processor, which is really important in our GI respiratory ecosystem. And we have to find launches for that as well.

And then importantly, then, on the China localization, as you can see on the page, this is a strategic inflection point. We're executing with tangible milestones. We have recent product launches, our EVIS X1 video capable system, already started in December, and we got a full launch here this month. So the takeaway is clear. We're expanding our platform through the right partners and improving our ability to win. But I also want to talk about how we're shaping the future through AI and robotics.

So first, OLYSENSE. OLYSENSE is our AI-powered ecosystem, which is designed to revolutionize workflows, device training management, disease detection characterization and ultimately, standardize complex procedures. OLYSENSE has recently launched several AI-powered applications in the U.S. and select European markets. By FY '28, we'd expect that 5% of our installed base is connected to this AI cloud platform. And up to 30% to 25% by FY '31.

Endoluminal robotics is a top priority for us. And this is anchored by our recent joint venture with Revival Healthcare Capital. Leading this joint venture, we recently announced that Erik Todd was joined as CEO of this, and we're very excited to bring Erik on board. As you think about where Olympus is by leveraging our AI footprint, our capabilities, our opportunity in endoluminal robotics. These are tangible high-impact opportunities that propel our growth.

What alongside this technology-driven strategy, we're also evolving our approach to cost management, and let me show you how we're doing that. We aim to deliver approximately 100 basis points of improvement year-on-year through a plan that is both very executable in the short term and structural in the long term.

In the short term, our focus is on organizational simplification, SG&A efficiency. We're moving to a division-led model, reducing spans and layers, and redundancies to make accountability, clearer and decision-making faster. These actions are expected to drive approximately JPY 24 billion savings on a run rate basis, about 2,000 net positions in fiscal '26 and '27. But in the longer term, we're building a structural productivity engine to strengthen our manufacturing and supply chain, digitize where we need to give us more flexibility.

And importantly, we're adding end-to-end integrated planning. And what this will enable us to do is drive down to medtech benchmark cost levels over time. So in the near term, we execute simplification and simplicity with decisive executable actions, and then longer term, will drive structural changes. And what this means, this provides durable opportunities for lock in margin expansion over time. So I want to take a minute to talk about the important topic of capital allocation.

We think capital allocation is one of the most powerful levers we have to shape Olympus' future and deliver value to our shareholders. Our approach to capital allocation is rooted and discipline. Starts with investments in growth drivers, organic development, strategic M&A. Also, we've committed to sustainable, improving dividend for our shareholders, and we'll dynamically look at share buybacks as we have in the past year, and we'll certainly do so this year.

And importantly, increasing our focus on free cash flow is very important. And so when we talk about that for a moment. We're focused on free cash flow to strengthen our financial foundation and improve it. But at the same time, we're leveraging our balance sheet. And you've seen this in our recent announcement to triple our investment in our Olympus Innovation Ventures, a $150 million investment. We're tremendously excited about this.

Because what this allows us to do is invest and learn faster and more quickly, and we are going to see us continue to deploy that wisely throughout the year. So as we advance our innovation agenda, we'll also enhance our financial performance and ensure that we have the resources to drive long-term growth.

Let me take a minute to recap where Olympus stands today. We have several tailwinds as we build business momentum. We've got a really good GI performance in Europe and APAC, and we see significant improvement opportunities in the U.S. Our respiratory BU continues to excel and operate above market growth in the U.S., EMEA and Japan. In China's market has recently shown signs of improvement, and the launch of local production is expected to reinforce this trend. Emerging markets have been a strong, high single, low double-digit grower for us. And our distribution agreements with MacroLux and GORE, strengthen our portfolio in really key areas.

Over alongside, these positive tailwinds -- we must acknowledge that headwinds exist, that demand our full attention. The regulated and quality environment within Olympus remains elevated. And this is important because our quality and patient safety commitments are nonnegotiable. We've proactively managed product recalls, temporary suspensions of products to ensure safe and effective products are delivered to the marketplace.

To reinforce this commitment, we're elevating the role of the Chief Medical Safety Patient Officer, to report directly to me as well to ensure we're driving patient safety everywhere, every day with inside of Olympus. So we're building momentum. And our quality transformation remains central to our strategy.

So in closing, look, we have an exciting and clear vision backed up by very pragmatic actions that we're executing and our journey is underway. We're executing with focus, with purpose, and determination to improve the lives of millions of patients around the world.

So thank you for your time.

Thank you so much for the great presentation, Mr. White. So let me now open up the Q&A session. From Olympus, CEO, Mr. White, will be providing the answers.

So let's start with my first question. So it's been over 6 months since you became CEO of Olympus. Compared to other global medtech companies, how do you evaluate Olympus? Could you share both the strengths and the challenges you see?

Yes, thanks for the question. It's been a fantastic 6 or 7 months inside of Olympus. When I came to Olympus, having been in medtech my entire career, I felt a couple of things were true, which Olympus had an amazing brand, great people, great legacy of technology and just a history of innovation.

And what I found is those are true. We have amazing people. We have incredible customer relationships who stuck with us. And our position in really important markets is what fundamentally drives our success. I talked about the chart. If you're in a market that's growing at 5%, that's a great market to be in. And at the same time, our opportunity to reshape the future of endoscopy-enabled care is what is so exciting.

We've got the great legacy and an opportunity to reshape the future. And so when we talk about artificial intelligence, robotics, what care will look like in the future, that's where Olympus is positioned to be. Because, as I mentioned, when you think about our installed base and how we are powering and forming the foundation for much of the world, endoscopy-enabled care, that's a beautiful platform to get on.

Now similarly, though, we need to drive our innovation faster. Absolutely. We need to get better commercially, 100%. We need to think about our global operations footprint, those things I talked about. So I think we have a pragmatic view, but I've spent time in the past 7 months all over the world talking to customers, meeting with our employees, and it's great to see not only the pride and the commitment of our employees, but the commitment of our customers to Olympus and what we mean to them in their practice.

Thank you so much. Great. So actually, what do you think about the reorganization from ESD and TSD business to GIS and SIS business so far. I think Olympus changed many things to focus on patient first in the couple of last 2 or 3 years. So what do you think about the effect of changes, many changes?

Yes. Thanks for the question. What my colleague, the moderate mentioned through a lot of acronyms at you. All that meant was we moved to a divisional model to get really close within our GI business and our surgical business. And we did that very intentionally to align with our customers and how our customers operate.

And so when we think about the future of the endoscopy suite, that's how we align. And I think it's a really good sign that when we think about Olympus, we think about how do we dynamically adapt to where the market is going, to where our customers' needs are going. And that's why this intelligent ecosystem is so important for us. So we really -- I really like our businesses. They're well positioned in good markets, but we'll always change and adapt. So thank you.

So how is the situation with the FDA reinspection? So do you have any update for us?

Yes. Thanks for the question. So as I've talked about on previous earnings call, the FDA has come in and we inspected it. It's an open regulatory matter. So I can't talk about the details, but know that we're committed and have been, and will be committed to complete transparency with the agency, very regular communication with them, and we look forward that to continue.

Thank you very much. So we look forward to the additional updates going forward. [Operator Instructions]

And what is -- what are your thoughts on the market share for GI endoscope going forward? So I feel competition is intensifying, especially in China.

Yes. Thank you for the question. We're fortunate, but we never take it for granted to have a 70-ish percent market share around the world. We come into that knowing we have to earn that every day. I want to pick up your question specifically about China. And when I think about China and talk to also my medtech peer CEOs, you may get different perspectives.

Well, let me show you our view on China. China for medtech has historically been a strong double-digit growth market with great margins. But there's been three fundamental changes that have taken place in the China market over time. The first was the move to volume-based purchasing, which took a lot of margin out of the channel, very clear. The second was the anticorruption campaign that the Chinese government did. Of course, Olympus wasn't involved in any of that, but it did actually put a chill into the marketplace as hospital executives didn't know where they were going to be.

But the third one and most fundamentally is the buy in China, a policy that the Chinese government has put in place, which is why I think smart companies adapt their strategy. So you saw us move to localization in China with the factory. I talked about that on the pages. But in addition to that, changing our commercial model, strengthening and thinking about our service and repair environment, strengthening our government relations involvement as well. So you bring those together in a new strategy that I believe.

And then final point is China, like many other markets has segments of the marketplace. And so when we looked where we were a shared donor, it was in the low and mid-tier segments of the market more than in the high tier. So we're going to adjust our strategy to get at that. So I look where our strategy is, I like the actions we're taking, and my expectation for China is just to be at market growth. I think it's a reasonable inspection for a company as big and strong as Olympus to be in China at market growth levels.

Thank you very much. Also. How about U.S. and other areas, GI endoscopy market shares?

Yes. Thanks for that. There are pockets where I believe our share moves around a little bit. And I would offer to you where we have donated share is because we had gaps in our portfolio and competitors filled in those gaps or where we weren't as good commercially as we needed to be.

The beauty of that is both of those are very fixable problems. So we have the opportunity to build the portfolio, as I mentioned, with the road map that's very focused on what our division leaders said, these are the products we need. So those are the products we're building. And then much more -- when I talked about the third pillar of our road map being accountability, much more of a performance culture that rewards execution and excellence.

So back to the question of China. You mentioned there is signs of recovery in China. So what do you think about China outlook in fiscal year 2027 and going forward? So would you like to continue to China businesses going forward?

Thanks for the question. I'd like to think about gradual recovery in China. It's not going to turn out overnight. Just getting products out of our factory, change the commercial model to now be very specific. So the salespeople don't carry everything. They carry products specific to their business unit.

And like I mentioned, the other steps we're taking. So -- but we're click, we should see quarter-on-quarter improvement in our performance in China, and I or my executives will be satisfied until I said we're at or above market growth. That's our position we should be at.

Thank you very much. Do you have any questions?

[ Derek ] A question for you. Is there any sector or stage or specific guidance you've given your business development team for future acquisitions as you're looking to fill your pipeline and innovation with external assets?

Yes. Thanks for the question. When we think about business development, the way we think about it with inside of Olympus, it begins with strategy. So every one of our businesses have a very clear strategy and a pathway to leadership. And that pathway to leadership is born on what are we going to do organically. And if we don't have an organic pathway to leadership, what are we going to do inorganically.

And to this point specifically on BP, we think about it in terms of three categories: one, tuck-in M&A. We've got a nice robust pipeline of that. Two distribution deals and partnerships and structured relationships like you saw us do with MacroLux and GORE to get a tuck-in of an added technology. And third, of course, joint ventures. As you saw us do with Revival Healthcare Capital to create Swan EndoSurgical, which we're pretty convinced we would not be able to do that internally. So for each one of those, we have clear targets in areas that we think will accelerate our growth.

The other final thing I'd say to your comment, when we think about M&A in med tech, oftentimes, it's about buying R&D. It's about buying a technology that you can add in your bag, develop and you become the better owner of. And it's rarely you could buy a channel because generally, what we're trying to do in M&A is sit into our existing channel. But this is about driving our weighted average market growth up. So we're going to do acquisitions. We're going to do partnerships. It's about increase our WAM.

So your corporate strategy for the next 3 years shows an accelerating sales growth target. So 3%, 4% and 5% in the next 3 years. So you explained the scenario, but could you more? Elaborate about this?

Yes, sure. So the 3, 4, 5 plan, as I talked about, is pragmatically based on fundamental drivers inside our pipeline. So we have very focused business units. And each of our division leaders have said these are the specific products that we need to fulfill the portfolio. So when we look at the products that are in our pipeline are those that are generating to our revenue growth.

Of course, we said our internal plans higher than the 3, 4, 5 plan, as we said and noticed the 3, 4, 5 plan. Importantly does not include any M&A. So we think what we wanted to do is establish credibility deliver a track record of hitting our numbers, knowing that we didn't put a ceiling on that and we'll accelerate it as we go. That's how we think about the plan driving that important organic engine first and foremost, which is the real pipeline.

So next fiscal year, 3% sales growth might be somewhat conservative. What do you think about it?

We're not in a position to talk about guidance here today. So let's -- we're going to move into it. We're going to do our best, and we'll see. Ultimately, you'll tell me whether it was conservative or not and how we do.

In your 3-year corporate strategy also aims to improve OP margin. I understand that the main factor in is JPY 24 billion impact from structural reform. But I assume you are also planning to improve cost of goods sold. How do you plan to achieve cost improvement as sales of single-use products expand, I think it won't be the cost ratio?

Thank you. Again, it's a pretty thoughtful question. So -- but just to be clarified, when we talked about the 100 basis points improvement year-on-year, we say short term, these are very specific tactical actions. This is a restructuring we announced back in November the 2,000 positions between our fiscal year '26, which we're in right now in fiscal year '27. Those plans are well underway being executed.

And then longer term, we talked about structural improvement drive down COGS. This gets at our footprint. This gets at how our supplier base is leveraged. It gets at as we think about the value stream end-to-end, so all of that is being looked at, which we gives us confidence not only in the ability to execute our short-term actions, which we are, but actually drive sustainable structural improvements which means that's consistent margin expansion path. So that's why we feel confident that it's not just -- we took a few heads out in order to minimize that, but we know we can do that. This is also about becoming a better operator for the business.

So your major authors tariff impact progressing smoothly. What is your target regarding tariffs in your 3-year corporate strategy?

My target?

The target of regarding tariff impact in your 3-year corporate...

In our 3-year strategy. I think the highest impact is doing what I outlined, which is driving organic development, two, paving the way with creating the future of the OLYSENSE ecosystem or the AI ecosystem powered by our OLYSENSE solution. And that's where we're going to execute on the top line side. Thank you.

I'd like to ask you about your thoughts on the durability of your dominance on GI endoscope. So I think it's been long discussed that whether it's liquid biopsy, single-use, there's challenges have come and gone in terms of potential disruption. But just wondering if there's anything on the horizon that you're watching closely and what your countermeasures are?

Thanks for the thoughtful question. There's a lot on the horizon that we watch and then we ask ourselves, do we have offensive mitigation plans in place? Or are we going to play defense on the evolution of reusable and single-use. We think there are important markets for single-use, and we're very active internally on those development plans as well.

And then you've seen us in certain segments where we thought we could increase our speed to market, why we did a distribution deal with MacroLux to put a product in the portfolio. You began your question with the durability of a Olympus' position. And here's what gives us confidence, but yet we know we earn it every day is with the world's largest number of installed endoscopy towers that gives us a presence. And our plans are all about shaping the future of the endoscopy suite as well.

And so therefore, you see our move with OLYSENSE and robotics. And so the way we think about Olympus, when we step back, we think about seeing, reaching and treating. So seen is all about the amazing images that the optic technology that Olympus is known for, also leveraging AI to give physicians better eyes in effect.

Then the reaching, we're not standing still because once you see a disease, you got to reach it, and that's where you see our movement into robotics and similarly. But once you see it in your reach, you got to treat it. And that's why we're investing heavily in our therapeutic portfolio.

So the CReach Treat is foundational to Olympus. And that's why we feel good about how we're positioned to continue to form the basis of much of the world's endoscopy-enabled care.

So your 3-year corporate strategy, what specific areas do you want to improve to raise ROE and free cash flow?

Yes. Thank you. As I mentioned in our slide, free cash flow is a very important topic for the -- not only the executive leadership team, but all of Olympus. So we're taking very specific actions across all our functions, first, to drive free cash flow, understand what that means in terms of everything inventory to working capital and how we drive that. So that's a big piece of it. So you're going to see that. You saw my commitment and our team's commitment to do that. And we're going to say that's an important one for us.

What do you think about the balance between buyback and R&D innovation?

Yes. Thank you. When I think about our capital allocation, it begins with our strategic growth drivers, right? We want to invest in those growth drivers to drive our WAM GORE up. And so that's first and foremost. Next to that is we've talked about M&A, good question in the back there about how we think about M&A. That's an important use as well.

Third, we talked about our dividend policy. We've been clear that we want a stable increasing dividend, and we're committed to that. But on the share buybacks, we're going to dynamically look at that, where it makes sense, when it makes sense to do that. And I think that's what our investors expect from us, and that's what we'll do.

Thank you very much. Do you have any questions? So you started Olympus Innovation Ventures. So what do you think about your M&A track record? So maybe M&A will be changed in the future?

It's a 2-part question there, right? We -- when you think about our track record, like many large medtech companies, I think we had some good ones, we've had some bad ones. All of those lessons learned are now how we think about M&A going forward.

Olympus Innovation Ventures, though is a really important vehicle for us because, yes, that could potentially lead to M&A, but we like about it because it gives us an opportunity to participate in an early round of Board observers see a position with these companies. But importantly, when we look at Olympus innovations, we do those in areas that are really important to affect our growth. So you're going to see us continue to be active in that and continue to get better atM&A.

Thank you very much. So do you have any other message to the investors?

No. Thank you.

So this concludes today's presentation and Q&A session. Thank you so much, Mr. White. Thank you.