Olympus Corporation (7733) Earnings Call Transcript & Summary

Hello, everyone. I'm Stefan Kaufmann, CEO of Olympus Corporation. I would like to thank you for participating in this conference. Fiscal year 2024 provided us with numerous challenges. In this environment, our organization and people have proven to be resilient our business model to be robust and our relationship with our customers to be stable. For fiscal year 2025, we are confident that we will see a strong recovery bolstered by the significant potential of our strong business model and our grown self-confidence to overcome obstacles. Our purpose and refreshed core values, the three strategic guiding principles of patient safety and sustainability, innovation for growth and productivity, and the 4 value pools, build the foundation and define the direction for sustainable growth in the future. As introduced in our company strategy and in relation to our first priority, patient safety and sustainability, we are implementing numerous initiatives to strengthen our QARA system processes and capabilities over the 3 years from fiscal year '24 to fiscal year '26. So far, we have made great progress. To give you a few tangible examples. In fiscal year '24, we undertook several initiatives to improve our ability to perform root cause analysis, which is central to our efforts to create the most effective corrective and preventive actions. We have also improved our complaint handling effectiveness, resulting in more consistent medical device reporting and even quicker responses to patient safety signals. Also, our regulatory compliance functions have enhanced the operational impact significantly. The Elevate program will help to unleash Olympus full potential improving our sustainability and creating a strong backbone for future innovation. We have successfully put in place stepping stones for future growth. A solid pipeline of growth drivers in our defined clinical focus areas is in place, and we are leveraging our value pools. With those in our proven business model, we anticipate a strong recovery and more stable operations overall in fiscal year 2025. We have identified strong opportunities across our value pools. With its release in the U.S., our flagship EVIS X1 sees a very high demand. In addition, our broader GI portfolio shows significant growth momentum in North America. The emerging markets show relevant growth opportunities and high future demand. Also, our pipeline features relevant care pathway extensions. For example, we are very proud of the recent clearance for our first single-use ureteroscope, RenaFlex. And there's more to come. We are excited that our intelligent endoscopy ecosystem should start to see its first releases in Europe in the second half. Let's now have a look at those value pools in more detail. Since the introduction of EVIS X1 in the U.S. last October, our GI endoscopy business gained strong momentum and grew 20% year-on-year in North America after FX adjustment. The latest order situation is very favorable, and we expect high growth in fiscal year '25. As you might be aware, the North American market accounts for about 35% of our total sales in the GI endoscopy segment. Also, our GI EndoTherapy business has been a strong performer. North America accounts for about 25% of our total sales in this segment and has been growing at a double-digit year-on-year rate for the last 2 years. We had strong growth from all three core clinical areas; colorectal cancer detection, colorectal cancer treatment and HBP diseases. The colonoscope distill and attachment ENDOCUFF VISION and the hemostasis powder EndoClot are 2 of our uniquely differentiated products that are high growth drivers, especially in the U.S. ESD Knives and ERCP devices such as Multi-3V Plus extraction balloons show repeated double-digit growth. We will continue to focus on these business areas and capture further global expansion opportunities. Wherever I meet customers in the world, their feedback about EVIS X1 is overwhelmingly positive. Dr. Serouya, a U.S. clinician claimed that the EVIS X1 enables visualization that we did not think possible, supporting safe, efficient and high-level care for our patients. The X1 endoscopy system is our most advanced system. It introduces several easy-to-use technologies that aim to revolutionalize the detection characterization, confirmation and treatment of gastrointestinal disorders. The imaging advancement, including TXI and RDI improved the quality of endoscopic diagnosis and treatment. A recent article in the endoscopic journal Gastroenterology demonstrated the clinical value of TXI and concluded that TXI improves both the adenoma detection rate and the adenoma per colonoscopy. To date, this is the first randomized controlled study using TXI during colonoscopy and highlights the potential benefit of more widespread uptake in enhancing the quality of colonoscopy screening and surveillance for all patients. We are excited to continue elevating the standard of care with EVIS X1. Another growth driver and opportunity for global expansion is the emerging markets. In emerging countries, demand for medical equipment is expanding due to quickly growing populations, lifestyle changes resulting from rising incomes associated with economic growth and the expansion of medical infrastructure. The need for gastrointestinal endoscopy, which contributes to the early detection and treatment of GI cancers is increasing as the incidence of cancer is expected to rise in the future. Conversely, emerging countries are facing a shortage of highly specialized endoscopists. Therefore, we will strengthen our investments in training activities for endoscopists in emerging regions such as Africa, India and Latin America. Although emerging countries still account for a low percentage of our total medical business sales, our CAGR over the past few years have been very high at 20% and more, and we expect continued high growth in the future. In addition to many opportunities for business and global expansion, we are progressing in our Care Pathway Enhancement efforts. As the leader in endoscopy, our goal is to provide the right scope for every patient, procedure and site of care. The 510(k) clearance for RenaFlex, our first single-use endoscope is therefore an important strategic milestone for us. RenaFlex will complement our innovative portfolio for endoscopic stone management procedures, which are in growing demand due to increasing prevalence. It will allow customers to optimize workflows. For example, in case of unexpected events where reusable ureteroscope may be unavailable to avoid cancellations or delays. Featuring the economic and visualization capabilities for which Olympus is renowned, RenaFlex is scheduled to launch in the U.S. and APAC during fiscal year 2025. Another important value pool for growth is our vision of the intelligent AI-driven endoscopy ecosystem. We are very excited to bring this vision into reality. The feedback we have received from our customers is very reassuring as we are able to address many of their currently unmet needs. The ecosystem we built is not limited to software products, but includes endoscopes infection prevention solutions, services and integration with multiple hospital systems. We aim to leverage the power of data and AI to improve clinical outcomes and efficiency. Customers subscribing to our intelligent ecosystem will find multiple artificial intelligence algorithms developed to improve their clinical outcomes as well as solutions to improve their workflows, gain insights into their clinical performance and manage their endoscopic assets. The initial solutions are co-created with 5 hospitals in Europe, and we expect to open an additional 10 reference centers by the end of 2024. Let me close with emphasis on the fact that we expect strong recovery in fiscal year 2025, both in sales and profit. Obviously, some of the growth is supported by exchange rate effects but even without these tailwinds, we will make significant progress towards our targets announced in May 2023 of revenue CAGR of approximately 5% and 20% operating margin. And now you might be curious to meet our new CFO, Tatsuya Izumi, who joined us at the beginning of April. Please give him a warm welcome. The stage is yours, Tatsuya.

[Interpreted] Thank you, Stefan. Hello, everyone. I am Tatsuya Izumi, I was appointed as CFO this April. I'm proud to bring my extensive experience in the financial field and global business to Olympus. By actively engaging in dialogue with external stakeholders, I hope to contribute to further strengthening Olympus' corporate value. Your support is appreciated. I would like to provide our consolidated financial results for fiscal '24 and the full year forecast for fiscal '25. These are the highlights of the fourth quarter and full year results for FY '24. In FY '24, we achieved increased revenue on constant currency despite headwinds such as decreased sales in China, the Noto Peninsula earthquake and temporary shipment suspensions of some products. On a reporting basis, the Medical business achieved a record high for both the fourth quarter and the full year. Operating profit and adjusted operating profit decreased due to several onetime expenses. Total profit, including those continuing and discontinued operations reached a record high of JPY 242.6 billion, with EPS of JPY 200 due to a gain on the transfer of Scientific Solutions business evident recorded in the first quarter. Next, full year forecast for FY '25. Well, FY '24 posted a decline in OP due to multiple onetime expenses and other factors, FY '25 expects a return to a growth trajectory and to achieve a revenue of JPY 1,021 billion, up 9% year-on-year. On a reporting basis, and 5% after exchange rate adjustments. OP is projected at JPY 177 billion, marking a significant increase driven by a higher revenue and lower long-term expenses, coupled with the favorable impact of foreign exchange. A significant increase expected on constant currency as well. Adjusted OP is projected at JPY 198.5 billion, up 31% year-on-year on a reporting basis and up 22% on constant currency. Adjusted operating margin is expected to be 19.4%, close to our financial guidance and company strategy of 20%. We project profit of JPY 121 billion with EPS of JPY 106 on an absence of gain on transfer of evidence in the previous year. Dividends for FY '25 are forecasted to be JPY 20 per share, up JPY 2 from the previous year in light of the financial forecast under our policy of stable and gradual increase. As announced in the timely disclosure release today, we have decided on a share buyback of JPY 100 billion, marking this the second consecutive fiscal year to execute a share buyback. Now some details of the results for FY '24. Consolidated revenue amounted to JPY 936.2 billion, achieving increased revenue on constant currency with strong performance in North America and A-P-A-C or APAC. Particularly in North America, we are seeing momentum building up led by EVIS X1 launched in October of last year. In the meantime, sales in China declined due to a significant impact of purchases decisions to delay tenders as they manage the effects of the anticorruption campaign in various segments. Gross profit was JPY 625.1 billion, with gross margin deteriorating 2.9 points due to an expense of approximately JPY 5.2 billion for the field corrective action for a high speed insufflator and provision of approximately JPY 4.2 billion for the voluntary recall of small intestine endoscopy system and others. SG&A expenses were JPY 473.2 billion with SG&A ratio deteriorating 2.9 points. Major factors include an increase in expenses related to the Elevate program and expenses for improving efficiency and strengthening of operational infrastructure for sustainable growth. OP declined JPY 43.6 billion, down 77%. The OP margin deteriorated 16 points to 4.7%. Regarding other income and expenses, a loss of JPY 108.3 billion was posted. Major expenses include about JPY 51.9 billion for the discontinuation of manufacturing and sales of electromagnetic navigation systems and others by Veran Medica about JPY 23 billion related to the Elevate program, about JPY 8.6 billion for losses related to Orthopedics business and about JPY 10.6 billion for impairment losses on the development assets and work in process R&D projects in ESD. Expenses related to Elevate program totaled approximately JPY 31.5 billion, with approximately JPY 8.5 billion under SG&A and approximately JPY 23 billion under others. Adjusted OP declined to JPY 151.5 billion, down 14% with an adjusted OP margin deteriorating 3.9 points to 16.2%. Profit from continuing operations was JPY 27 billion. With the completion of the transfer of discontinued operation in April 2023, we recorded a gain on the transfer in the first quarter. Total profit, including both continuing and discontinued operations was JPY 242.6 billion, with EPS of JPY 200. We plan to pay a dividend of JPY 18 per share for FY '24, up JPY 2 year-on-year, as announced previously. I will not touch on details by segment, the consolidated statement of financial position or the consolidated cash flows. Please refer to the presentation with script available on our website for details. This slide shows the factors that affected operating profit compared to the forecast presented in February when we announced the third quarter results. Although the impact of the Noto Peninsula earthquake was smaller than expected, we recorded additional expenses in other expenses, including losses related to the Orthopedics business and the impairment losses on development assets and work in process R&D projects in ESD. This was because those assets and projects were reduced to the recoverable amounts to reflect changes in the market environment and other factors that made it impossible to achieve the expected revenues. Although these expenses have not been factored in as of February 14, when the third quarter is also announced, we believe that we need to make improvements to enhance the accuracy of budgeting and forecasting. And I believe that this is my personal obligation. Next, I would like to explain our full year forecast for fiscal 2025. As Stefan explained earlier, we view fiscal 2025 as the year in which we return to a growth trajectory, expecting top line growth of 9% on a reporting basis and 5% after FX adjustment. In addition, as we completed the process to eliminate future concerns in the previous fiscal year, onetime expenses that had large toll on the previous year's results are expected to decrease. And with the tailwind of FX pushing up revenue, we expect a significant increase in the operating profit, also expected to increase significantly after FX adjustment. Adjusted operating margin is expected to be 19.4% close to our financial guidance of 20% indicated in our company strategy. Lastly, I would like to explain our capital allocation. Our capital allocation policy remains unchanged. Strategic investments in highly profitable exiting businesses and growth opportunities will be given top priority in allocation and shareholder returns will be based on stable and gradual dividend increase. We will consider share buyback when there are surplus funds available after securing sufficient liquidity on hand for working capital and investments. As announced today, we have decided on share buyback of JPY 100 billion. Based on our capital allocation policy, this will be share buyback in the amount of JPY 100 billion for the second consecutive fiscal year, while securing sufficient liquidity for working capital and future investments. The annual dividend forecast is JPY 20. Going forward, we continue to allocate capital to ensure stable returns to shareholders with top priority being placed on business investments that increase shareholder value. This concludes my presentation. Thank you for your attention.

[Operator Instructions] We will now move to the Q&A session. Slide 42.

[Interpreted] The variance analysis for the operating profit for FY '25, I understand that others will decrease from JPY 88 billion, what are the likelihood of achieving this. Other expenses or one-time expenses increased quite a bit, especially compared to the forecast for February. But for the next fiscal year, for fiscal '25, you are projecting a large decrease, is that because you have a system in place to control the on-term expenses? In other words, you feel that you have a better visibility.

Thank you very much for your question. Izumi-san has done an amazing job just within 6 weeks to deeply understand our business and our numbers. So I dare to transfer this question to him.

[Interpreted] Thank you for your question. True, we have made lots of downward revisions in the past. So I can understand the reason why you doubt our ability. But looking at the current asset or business situation, I don't see any reasons for a large loss going forward. During fiscal '24, given that it was the first year under the leadership of Dr. Kaufmann, lots of actions were taken to eliminate those doubtful assets. So right now, we don't see any suspicious assets. And this is also my responsibility as well to have a better visibility. And I'm already seeing improvement. We can't commit to this, but I am confident that we can achieve improvement. I hope that answers your question.

[Interpreted] One follow-up question. So conversely, I know you've been in office for a very short period of time. But what do you think were the negative factors in the past? In other words, what do you think you need to focus to ensure improvement? This is a question for Izumi-san.

[Interpreted] Well, it's very hard to give you a very specific answer at this juncture but there are two things. One is M&A governance on mergers and acquisitions. We want to set up a committee to enhance this under the Chief Strategy Officer, Gabriela. So we are enhancing that capability. Another is the better communication internally for information. Not just on the CXO basis, for each division, we have excellent talent. But when it comes to the interdivisional -- interfunctional communication, I think there has been room for improvement. So by addressing that, I think quite a bit of the negatives could be addressed. That's my projection now.

[Interpreted] I have one question. I may have missed this, but expense for Elevate for this year, how much is it expected at for this fiscal year? And how is it different from what you have estimated in the past?

I'll take this question and then maybe Izumi-san can support me if my answer might not be sufficient. So when we announced in May 2023, our transformation and remediation program, at the time it was not called yet Elevate, we estimated the total cost to be in the corridor of JPY 60 billion. I think in the earnings call for the second quarter results, I received a similar question, do we believe that this cost will remain in this amount? And my answer was plus/minus 10%, and that answer remains true until today. What has come, unfortunately, or fortunately, it depends on the perspective you take is the currency effect. So on a sales perspective, we are very glad about the currency. Depreciation, on a cost perspective, the currency depreciation of the yen leads to higher costs for us. And this is also an implication on the Elevate program. So I believe at the end of this period, we will be above the JPY 70 billion amount for our remediation and transformation efforts. What is important to understand is that fiscal year '24 and fiscal year '25 is very much focused on remediation activities and we will close our remediation activities in fiscal year '25 and focus then more on transformation, which we do in order to gain a competitive advantage by being a company that puts quality first and has a strong patient focus in all our activities. So that means after fiscal year '25, we will focus more on transformation and less on remediation because our remediation activities have been close to that stage. To answer your question concretely, I think in fiscal year '24, we had around 315 (indiscernible) as total costs for our remediation and transformation activities. And I think the cost for fiscal year '25 are in a similar range of 320.

[Interpreted] I'm sorry to be technical, but how does it split between operating profit versus others?

Well, rule of thumb has not changed so much. So basically 1/3 we see in the operating income, 2/3 we see in other expenses, and the route basically is everything which is one-time effects, which are related to remediation and costs that will go away are booked under other expenses, while those costs we build in order to mature our organization, our systems, our processes are booked under SG&A.

[Interpreted] So after '25, onetime cost will be basically very small but there's no additional increase or -- increased part for the OP part, is that correct?

That question is not so easy to answer. So basically, what we have focused on the last 1.5 years very successfully is to progress in our remediation. And there, the progress is really great. We have also enhanced capabilities in many areas that help us to become more productive, more efficient, but also help us in innovation and in our manufacturing processes. What the job for the next 1.5 to 2 years is to look forward and design the quality regulatory organization we need in order to sustain the levels we have accomplished. And this will then basically the future cost of our QARA organization. And at the moment, my expectation is that we will be best-in-class compared to our peers because we use at the moment, a lot of the investment also to bring in technologies, which will help us to build up an efficient organization. But it's too early to give you a definite answer already now what the cost of QARA in fiscal year '26 will be.

[Interpreted] I think it was 85 versus 230, the elevated SG&A and others. Can you give us the similar breakdown for this fiscal year? And I'm looking at Page 42. Others are improvement, a large improvement. Looks like Elevate expenses itself would not change much, surplus impairment loss would be decreased quite a bit. And looking at Slide 40, in Q4, something new, quite a bit of something new were added, which gives us suspicion as to whether this would not be repeated this fiscal year, again, in the fourth quarter, Taewoong, Veran, and then there's Orthopedics as well. So why is it that in FY '24, you had so many impairment losses, and you are so confident that this will not be repeated in FY '25. That's my question.

I think this was directly a question to you, Tatsuya. So please.

[Interpreted] First, your first question under Elevates FY '25. SG&A, JPY 12.4 billion and JPY 19.3 billion for others, that's for FY '25. This corresponds to what Stefan said earlier. So impairment losses, would there be no impairment losses this fiscal year. In other words, all we can say now is that we don't see any reasons for impairment losses as of now, but economic situations would change. So we can't say that it would not happen. We can't commit to no impairment losses. But what is visible to us now, the factors where we should expect impairment losses. We don't see any of those as of now. That is all I can say for now.

[Interpreted] Impairment losses, yes, for March '24, there were quite a number of them. So can you say that you have sort of exhausted them all. Why is it Taewoong, Veran, Orthopedics. I think this is [indiscernible] ortho. Why is it that you had recorded so many of them in the fourth quarter of FY '24?

[Interpreted] The way I see it, it just so happened that, that was the case. But the policy of the company is that, if there are any concerns, we should proactively address them. That, I think, was the policy, that was a message from Stefan. So for FY '24, there were many challenges. And therefore, we should get rid of the suspicious ones as much as possible during '24 so that we can make a clean start in FY '25. I think that was a sort of a message from Stefan. Very clear. another factor, if I may. -- the backdrop. And I guess this is true for Taewoong. Patient focus is our core value so in that sense, we wanted to be conservative on many fronts, given priority to safety, the patient first policy. I think that was also a factor to be taken into consideration. But that's just my guess because I've been with the company only since April. So this is a sort of a third-party view.

To supplement the answer from Izumi-san because maybe indeed not easy to answer for him, just being with us for 6 weeks. So I think I can derive 2 reasons why you find so many impairment losses in fiscal year '24 and why we are more optimistic that fiscal year '25, there will be significantly less. The First one is fiscal year '24. We were -- that was the starting point of our remediation activities. And obviously, in the first year, we have found a lot of areas where we felt that patient safety could not always be secured, and this has led to decisions, which in the one or the other case has triggered an impairment on a company or on an asset or on a product. That's the first answer. The second answer is that we understand that in fiscal year '25, we have provided you one of the other time with surprises and our intention for the future is to eliminate all surprises and become reliable in our forecast and in our predictions with the connotation that we all live in a world of uncertainty in an environment that is highly volatile, and that we are still in the process of remediating and working on the findings that have been identified during the inspections of FDA. But having said this, we believe that in fiscal year '25, we will be much more reliable in our forecast than we have been in fiscal year '24 because we have more stability, and we also take a stronger and more rigid lens on our business risks.

[Interpreted] I have a question about ESD. China, anticorruption campaign, in FY '24 second half -- starting from second half toward FY '25. What kind of improvement momentum do you see in relation to anticorruption campaign and if possible, please share with us how the bidding process is improving and what the competitive landscape looks like? That's my first question.

Thank you for your question. Maybe I can give a general answer about the situation in China, and then I would ask Frank to answer your question from an ESG perspective. So first of all, our stance towards China has not changed. So we do see midterm a huge growth potential in China for Olympus because there are significant unmet needs, and we believe that we, as a company, are very well prepared to improve access and outcome in health care in China because we have a long-lasting history in China. We have a very strong installed base, and we have long-lasting relationships with our customers. So our general viewpoint on China remained unchanged. We do believe that China will provide us with significant growth opportunities. Fiscal year '24 has been difficult for us because we have seen impacts from Buy China, from value-based purchasing, but obviously also impacts from the anticorruption campaign. And we do expect that this will also carry forward for the first couple of months of fiscal year '25. Nevertheless, also in China, like the entire company in fiscal year '25, we have the strong intention and the plan to return to growth. And before I have covered all the topics. I now hand over to Frank to specify a bit on ESG and give you some more insights on the business situation on fiscal year '25 and '24 and what we can expect in fiscal year '25.

Yes. Thank you, Stefan, and thanks for the question. I think I have covered already the lower overall [indiscernible] there. You also asked about bidding process and competition. Let me dive a little deeper on the point of the competition because what we obviously see with the Buy China policy is that we have a tendency to struggle in some tenders as a non-Chinese company. And as we have explained and announced earlier, we are toward ramping up our production and manufacturing capabilities in China as well to be able to be more competitive in those situations. The anticorruption campaign was very -- was and is very difficult to predict in its length and its impact on our sales numbers. The hesitation in many customers to actually go forward with investments is still there. We were hoping that this would reduce its impact already earlier this year. We are now, as Stefan pointed out, predicting that this will only really ease around the second half of this year. And that is something that obviously impacts everyone. That's not an Olympus or is the only impact. There are more, as we all know, more geo-critical and China economic question marks at the horizon. So -- but as pointed out already, we have intensified our teamwork with the Chinese management team and we are confident that with the growing demand for endoscopy in general, we will go back to a high single-digit growth hopefully, already in the second half of this year, but that's definitely our midterm ambition, and we are gearing up all our capabilities to get there.

[Interpreted] Another question I have for you, Frank, is about your outlook into FY March 2025 period in U.S. in ESD. You've ended up your business in U.S. with like 2.4% growth Y-o-Y. I believe it was right constant currency basis. How much growth do you direct expect for the new year, given that you are bringing the new system called as X1. And also if we just look at your FQ4, it was growing by 12%, so I just like to know -- better understand what could probably be the better estimate for your U.S. ESD business?

Yes. Thank you for the question. And many of us have just returned from the American National sales, the annual kickoff meeting, and we're happy to report that there has been a very positive atmosphere and a high motivation level. The numbers of last year, especially around the X1, have been in the last 2 months, impacted by the Noto Peninsula situation. So we have to be a bit careful in taking the 2.4% for face value. The expectation in simple terms, also adding additional products to the X1 lineup because as we all know, the X1 processor, the box is launched. But the number of scopes that are being launched from the new generation will now steadily increase over the coming months. So our expectation for ESD in total for America is in the range of about 7% for next year, the year-on-year level. So we are quite optimistic and bullish with the American market. And as it was pointed out on a lot of the slides from Stefan, it's still with 35% of our global turnover. The biggest market we are taking care of.

Just to clarify that number, you said plus 7%? Thank you.

[Interpreted] My first question, the full year forecast operating profit variance analysis, Slide 42. SG&A JPY 12.7 billion. And so we need to subtract the impact of foreign exchange, of course. Is there a likelihood of upside or downside in this projection for SG&A expenses? Is there any buffer to address that gap? I understand that currently, you're not foreseeing any impairment loss but I think SG&A expenses had been a big factor in the gap in the past. So I'd like to know how sure you are of the SG&A expenses forecast for this year?

Well then let me start to answer the question and if Izumi-san has something to add, please supplement. So basically, in this budget fiscal year '25, there is no buffer built in but it's also a budget where we believe that it's realistic to achieve. So I think it's a good balance between the opportunities and risks we see in fiscal year '25, and that applies to the top line and that applies also to the bottom line. the bottom line, sees 2 different trends caused by the SG&A. One is that we have increasing costs obviously for Elevate, for building up our QARA function. At the same time, we have initiated a couple of cost containment programs for business support functions. You might have seen also that we had voluntary early retirement programs, not only in Japan, but also in other regions and this will give us some release on the cost. And all in all, we want to improve our SG&A ratio significantly to fiscal year '24 but we also have to take into consideration that we are in the remediation that we are building capabilities in QARA but also in other areas, and we have to find a wise balance between areas where we think that we have room for improvement in other areas where we believe that we need to invest and build capabilities. So long answer to your short question now. I believe that the SG&A you'll find in our fiscal year '25 are realistic and achievable but not without effort.

[Interpreted] I don't have much to add. But regarding SG&A, the strengthened control by the company is to show effect. So I believe that this is controllable. That's the way I see it.

[Interpreted] Related question, earlier you've talked about the control. And you said that you do see the effect. And you said that impairment loss is not being projected. So in terms of the measures showing effects, could you elaborate on that? Do you have a better line? Do you see more control on the front line? Can you elaborate on the things that you are implementing this year?

[Interpreted] Again, that's a difficult question to answer. The effect in everyone's mindset, not just under CFO, but in business, in strategy, in all organizations, when I talk to them, everybody is aware that the numerical control is one area that we need to improve, and there is a mindset to address that. Another thing, the assets -- we have a deputy CFO to control this under me, and he has a better contact with relevant organizations. So I have confidence there. But as for what message I can send to the market, I'm afraid I've been in this position for still a very short period of time.

Want to add from my side, what we also have done for fiscal year '25, we have further clarified budget responsibility and accountability. You know that one of our core -- refreshed core values has impact, and that goes hand-in-hand with accountability, and we have linked budget responsibility also more with the performance management in the MBO system than we have done in the past. So we believe that this will be all important changes in order to improve our scrutiny and control of cost.

[Interpreted] I have a question about the forecast of the expense for Elevate. Earlier, you answered that in total, it would be about JPY 70 billion, and last year and this year, you have accounted for certain amounts. And that means in FY '26, this expense will be much, much smaller. Is that the correct understanding? And also the original plan was three years program. So does this mean that this program will be completed at the end -- by the end of the next fiscal year?

Thank you so much for the question. So the first one I can answer with a simple yes. So we expect that costs for Elevate in fiscal year '26 will be lower than it has been in the years fiscal year '24 and fiscal year '25. The second question is not so easy to answer. So Elevate consists of 2 parts. One is the remediation. Remediation means that we fix the issues that have been identified by FDA, and which resulted into the 3 warning letters we received. As soon as we have fixed these issues, we will be ready for a new inspection by FDA. And then hopefully, we will be able to lift the warning letters. We expect that we have done the remediation work at the end of fiscal year '25. That does not mean that our transformation stops because transformation is much broader than remediation. And that's one of the discussions I'm having at the moment with FDA and the leadership team. So to be compliant with regulations does not mean that the company is already focused and has a quality first mindset. And our ambition is that we become a company that is not only compliant but it has a true quality first and patient-focused mindset. And obviously, there's much more to do than just to fulfill regulatory requirements, and we are working on this in parallel to the remediation already now but this will be the focus theme of fiscal year '26 and most likely also beyond because I believe that this journey will be ever over. I hope that clarifies your question. But that does not mean -- last point, that not mean that we need extra dedicated budget for this. So this will be part of our normal operations and of all normal improvement processes and of our cultural change journey.