Olympus Corporation applies the regulations in Note (31) listed in Form 2 of the “Cabinet Office Order on Disclosure of Corporate Affairs” following amendment in accordance with the “Cabinet Office Order Partially Amending the Cabinet Office Order on Disclosure of Corporate Affairs” (Cabinet Office Order No. 3 of January 31, 2019).
The business performances of the Olympus Group may be materially influenced by various risks (uncertainties) which may occur in the future. The Olympus Group is implementing risk management initiatives to achieve its “basic management policy,” which includes its management philosophy, corporate strategy, etc. Specifically, based on the “Policy of Risk Management and Crisis Response” and related rules, the Olympus Group is undertaking risk management from the perspective of both “offense” through active and appropriate risk taking for leading to sustainable growth and value creation for Olympus Corporation and “defense” to prevent illegalities and accidents.
In terms of risk management systems, we have established a global risk management system, defined categories of risks that could affect the achievement of Olympus Corporation’s business targets as well as the corporate strategy, and identified the Executive Officer responsible for each risk category (establishing risk assurance). Each Executive Officer executes the necessary measures (organizational structure, process preparation, focus measures, etc.) to keep within the permitted scope of their designated area of risk.
The Olympus Group also operates risk management processes with a PDCA cycle of risk assessment (identification, analysis and evaluation of risk and setting countermeasures), implementation of risk countermeasures, monitoring and reporting, and improvement.Risk assessment is linked to the process for formulating the fiscal year plan, with risk evaluated using common company-wide evaluation standards, and company-wide risk tracked and uniformly managed. In addition, the status of response to the Olympus Group’s significant risks are regularly reported to the Olympus Group Executive Committee, the Board of Directors, and the Audit Committee.
< Risk Management System >
< Risk Management to Achieve “Basic Management Policy” >
Set out below are our principal business risk factors, aside from managerial decisions made by the Olympus Group, which may affect Olympus Group’s business performances.
The future outlooks described below are based on the forecasts of the Olympus Group made as of the end of the fiscal year ended March 31, 2022.
Risks Associated with Business Environment
Risks Associated with Changes in Policy of Medical Administration and Product-related Laws and Regulations and Infection Prevention
In the medical field, healthcare system reforms are being continuously implemented in Japan and overseas with the aim of curbing medical care costs and improving the quality of life (QOL) of patients by improving the safety and efficacy of healthcare services. As a result, legal and regulatory requirements for medical device applications and registrations in each country, including the US Food and Drug Administration (FDA) and European Medical Device Regulations (EU-MDR), are increasing every year. In addition, the requirements concerning infection prevention and reprocessing (i.e., cleaning, disinfection, and sterilization) are becoming more complex.
The Olympus Group’s earnings may be adversely affected if: (i) amendments to healthcare laws and regulations or related administrative policies; and (ii)-a Olympus Group fails to launch new products or services in a timely manner or (ii)-b Olympus Group otherwise needs to take certain actions corresponding to such amendments or changes.
In March 2018, FDA has issued warning letters to duodenal endoscopy manufacturers including the Olympus Group, due to non-compliance with the mandatory post-marketing surveillance studies relating to the cleaning and disinfection of such products. Subsequently, we completed the post-marketing surveillance studies while cooperating with the FDA and in February 2020, we submitted the final report for the post-marketing surveillance studies. We are currently implementing the post-marketing surveillance studies concerning successor devices that we started selling in the U.S. in 2020, further regulatory actions may be taken by the FDA depending on the future progress.
The Olympus Group contributes to the improvement of patients’ quality of life through its product lineup that contributes to early diagnosis and minimally invasive treatment. Through product lifecycle management and infection prevention strategies, the Olympus Group is working on the development and selection of safe products, product development that is in compliance with laws and regulations, and the sharing of materials to be submitted to each country. In addition, through such efforts as training human resources and strengthening our capabilities to respond within the Olympus Group, such as sections dealing with quality and laws and regulations, Olympus Corporation, while continuing periodic audits and verification procedures, is improving the processes for corrective action and preventative action in order to quickly respond to change in market requirements. Furthermore, for matters related to policy of medical administration and regulations, Olympus Corporation, while conducting periodic monitoring and providing status updates to the management, is periodically training employees engaged in applicable operations to ensure best practices are shared by all while ensuring a thorough understanding of applicable laws and regulations.
Risks Associated with Market Competition
It is believed that there is a solid need for healthcare as societies progressively age, particularly in developed countries. In addition, the need for healthcare is also rising in emerging countries due to economic growth. There are efforts underway, chiefly in developed countries, to reform healthcare systems, aiming to optimize healthcare costs and provide effective, high quality healthcare services. These changes may adversely affect the Olympus Group’s earnings.
In addition, there are many competitors in the business areas in which the Olympus Group is involved, and technological innovation is also progressing. In order for Olympus Corporation to remain competitive in an environment of increasingly intense competition from competitors and the emergence of alternative technologies and products, it is necessary to launch products that are competitive in terms of price, technology, quality, etc. into the market in a timely manner, but earnings may be adversely affected depending on the results.
On the other hand, in cases where it becomes possible to launch competitive products into the market in a timely manner by catching up with the changes in market environment, and with the trends of alternative technologies and competitor products being launched into the market, there could be opportunities for increased earnings, etc. mainly through high unit price and expansion of Olympus Corporation’s share.
The Olympus Group is not limited to conducting business operations in specific regions, but instead is working towards providing diverse products and services in various business fields and regions worldwide. In addition, since it is important to increase the number of physicians able to operate endoscopes in emerging countries, the we are supporting the training of endoscopists.
Moreover, the Olympus Group monitors the competitive environment, including the emergence of alternative technologies and products in the market, and works towards expediting the selection and development of new technologies that should be adopted in cooperation with marketing, intellectual property and relevant departments. We actively consider not only inhouse development, but also the incorporation of external technologies through M&A and alliances, etc. The Olympus Group is working towards the development of new high-value added products and technologies that meet the market needs. In the Endoscopic Solutions Business in particular, we have maintained a strong position by expanding sales of the gastrointestinal endoscope system “EVIS X1,” and in the Therapeutic Solutions Business, we aim to increase earnings by strengthening our product lineup in the areas of GI endotherapy, Urology, and Respiratory, and by promoting the development of next-generation medical devices such as single-use endoscopes.
Risks Associated with Market
Risks Associated with Economic Environment
In addition to the war in Ukraine and trade friction between the U.S. and China, the Olympus Group’s earnings may be adversely affected by changes in the economic environment, such as the materialization of geopolitical risks and trends in resource prices.
The Olympus Group provides products and services in the endoscopic solutions business, therapeutic solutions business, scientific solutions business, etc. to customers worldwide. However, the earnings from these businesses are largely affected by the global economy and economic trends in each country.
Earnings in the medical field may be adversely affected if the national budgets of countries are curtailed or if there is a change in policy, etc.
Earnings in the life science field of the Scientific Solutions Business may be adversely affected if the national budgets of countries are curtailed as the proportion of sales to national and public research institutions is high. In the industrial field, there is a high proportion of sales to the automotive industry, aviation industry and oil-related industries and earnings may be adversely affected by capital investment trends.
In the meantime, opportunities may emerge for increased earnings, etc. in the life science field of the Scientific Solutions Business and the medical field, if there is an increase in related national budgets due to policy, etc., or in the industrial field of the Scientific Solutions Business, if there is an increase in demand for capital investment due to change in the business environment for companies.
Economic activities are picking up steam with the gradual easing of shutdowns due to the global spread of COVID-19. However, in some regions, restrictions on visits to customers such as medical institutions or postponement/cancellation of business negotiations have impacted selling activities. Our business activities have also been affected by factors such as the decrease in the volume of products sold due to the decrease in the number of procedures. Please see “(Risks Associated with COVID-19 Infections)” for details.
The Olympus Group is not limited to conducting business operations in specific regions, but instead is working towards providing diverse products and services in various business fields and regions worldwide. In the event a situation arises that requires particular attention with regard to a particular country’s policies for industrial development and protection of its own industries, etc., we will set up a task force and make regular inhouse reports as necessary.
Risks Associated with Foreign Currencies Exchange Rate Fluctuations
The Olympus Group provides products and services in various markets all over the world, and the overseas sales ratio on a consolidated basis accounts for approximately 84% in the fiscal year ended March 31, 2022. The Group’s performance may be adversely affected by a strong yen, while it may be positively affected by a weak yen. We hedge foreign currency-denominated receivables and payables where possible, however in the event that sudden exchange fluctuations occur or if receivables and payables being hedged differ significantly from expectations, the Olympus Group’s business performance may be adversely affected.
The Olympus Group uses forward exchange contracts, currency swaps, etc. to reduce the risk of foreign exchange fluctuations. Furthermore, we are working to reduce foreign currency-denominated receivables and payables through improving the efficiency of the Olympus Group’s funds by introducing global cash pooling.
Risks Associated with Financing
The Olympus Group finances itself by, amongst others, loans from financial institutions as well as issuance of bonds. Changes in the financial markets may have an adverse impact on our financing capacities.
Furthermore, if the financing cost rises due to the deterioration of the Olympus Group’s business performance, etc., the financing of the Olympus Group may be adversely affected, while if the financing cost decreases due to the improvement of the business performance, etc., it may be positively affected.
The Olympus Group is reducing funding costs through the diversification of funding methods such as the issuance of commercial paper and public bonds. The Olympus Group basically adopts a fixed interest rate policy for long-term interest-bearing debt to limit the impact of rising interest rates. In addition, we are working to improve the efficiency of the Olympus Group’s funds and strengthen financial management by introducing global cash pooling.
Risks Associated with Business Activities
Risks Associated with Development Activities
In the medical field, the Olympus Group faces more rapid changes and uncertainties in the social environment than ever before, mainly due to the COVID-19 pandemic, aging population, and growing environmental awareness. The hurdles and complexities for technology development are increasing due to changes in healthcare policies in various countries, reductions in healthcare costs, tighter healthcare-related laws and regulations, and further increased demands for infection prevention and reprocessing. Meanwhile, development cycles are getting shorter and shorter. On the technology front, digital transformation (DX) is accelerating across all domains, and the so-called technology innovation areas (AI/robotics/ICT) are entering their practical phase. Accordingly, the business environment is becoming more demanding, not only due to new and alternative technologies, but also due to the entrants into the medical industry from other industries, including the IT technology giants. Furthermore, in the medical field, the Olympus Group aims to improve patient outcomes by expanding the care pathway centered on GI endotherapy, Urology, and Respiratory and contributing to the improvement of medical care standards through technological development and innovation. We believe it is important to balance not only “continuous innovation,” in which improvements are made to existing products and technologies to meet customer needs, but also “disruptive innovation,” in which technologies are put to practical use based on new ideas in response to changes in the social environment. If market changes cannot be properly predicted or product development does not progress as planned, and the Olympus Group fails to develop new products which properly meets customers’ needs in a timely manner, the Olympus Group’s earnings may be adversely affected. In addition, there may be impairment losses on capitalized R&D assets due to an increase in expenses associated with a longer development period or a relative decrease in the recoverable amount.
Opportunities include the development of technology in the Olympus Group’s focused areas and its contribution to healthcare by providing solutions to unmet needs, as well as the potential for minimally invasive treatments, reduced healthcare costs, and reduced workloads for healthcare professionals through the spread of robotics technology in the medium and long term.
The Olympus Group has established an organizational structure for agile technological development focused on the medical field. In addition, we have adopted a comprehensive approach to technology development and innovation, including the following: (1) continuous technical development for existing businesses and products; (2) appropriate product lifecycle management to ensure product safety, improve development efficiency, and reduce development costs; (3) technology acquisition and product portfolio expansion through M&A; (4) consideration of business alliances, internal/external production, and other business strategies, taking into account Olympus Corporation’s core technologies, costs, and development timeframes; and (5) innovations for future business and products, etc.
Our technical approach to existing products must include initiatives to expand the product lineup, comply with product-related laws and regulations, support infection prevention and reprocessing, and enhance product security. In addition, preparing multiple lineups for single-use endoscopes, whose market needs are increasing due to increasing awareness of infection control, is a high-priority development theme. We are also accelerating our DX efforts and are about to start fully utilizing digital technology in our services. Furthermore, for the near future, in order to optimize the entire clinical process and build new business models, we are also studying the use of more advanced AI and ICT, and the use of robotics for next-generation minimally invasive surgery. Through these kinds of development activities, we will focus on and build solutions to improve, the series of care pathways that patients follow from prevention to care and prognosis.
Risks Associated with Supply Chain
The Olympus Group needs to develop products, procure necessary parts, etc. from outside suppliers, produce, and supply products in a timely manner. For products and parts, etc. that depend on certain suppliers, if the procurement is restrained, the Olympus Group’s ability to produce and supply products may be interrupted or delayed. With the recent global shortage of semiconductors and other components, etc., there is a possibility that the supply of these components, etc. will further decrease or that the shortage will be prolonged. If these risks materialize, it may adversely affect the Olympus Group’s earnings.
If the production and sales of products are stagnant due to geopolitical risks, natural disasters, plagues, wars, civil wars, riots, terrorism, cyber attacks, strikes by port workers, transportation accidents, etc., loss of sales opportunities due to delivery delays, and the increased cost of recovery measures may affect our profitability. E.g. in China, a strict lockdown has been implemented depending on the status of the spread of the novel coronavirus, and in particular, the lockdown in Shanghai in late March 2022 has affected the Group's supply chain in China and logistics flows globally.
The Olympus Group and its manufacturing contractors manufacture products in accordance with strict quality standards. However, if any product deficiency, malfunction, etc. occurs, not only substantial costs including those of a recall would be incurred but also the Olympus Group’s reputation from the market would be undermined, which may adversely affect the Olympus Group’s earnings.
With a view to business continuity and sustainable value creation, the Olympus Group has established the Supply Chain Policy and the Olympus Group Green Procurement Standards, and is working to strengthen compliance with laws, regulations, and social norms. For our suppliers, we have established concrete guidelines or complying with laws, regulations, and social norms, prohibiting corruption and bribes, promoting fair and lawful transactions, and taking the environment into consideration. Based on these guidelines, the Olympus Group is working to create and strengthen good relationships based on fair, just, and transparent transactions. The Olympus Group also ensures transparency in our supply chains and continue the procurement of parts and materials that does not cause human rights violations.
The Olympus Group aims to strengthen supply chain management (SCM) and constructs an End-to-End integrated supply chain that stretches from purchasing to delivery, and focuses on improving customer satisfaction and business agility, reduced supply chain costs and optimized inventories. Goal of the End-to-End Supply Chain Transformation is to enhance planning and distribution processes and capabilities to manage the effects of these risks in close collaboration with Manufacturing and Procurement, and limit the impacts of those external headwinds. Newly created global distribution function (part of the End-to-End Supply Chain Transformation) is overseeing and coordinating risk mitigation and countermeasures to ensure stable distribution and timely escalation of issues and support needs. We proceed close collaboration and quick decision structures between Supply Chain, Procurement, Manufacturing and business functions.
Olympus Corporation aims to reduce supply issues through measures such as grasping supplier trends and strengthening relations with suppliers and enhancing a business continuity plan (BCP) including backup plans. In particular, with regard to the procurement of semiconductors, Olympus Corporation has established a company-wide task force and is working to secure the necessary volume by strengthening relationships with suppliers. To ensure a stable supply of products, Olympus Corporation sets appropriate inventory levels at each site and takes measures to respond to changes in the supply chain by integrating manufacturing and procurement. In addition, Olympus Corporation aims to curtail quality issues by implementing quality improvement activities such as separating the product development process into business reviews, technology reviews, etc.
Risks Associated with Business Collaborations, Corporate Acquisitions, Sale of Business and Overall Investment and Others
In accordance with the corporate strategy announced in 2019 with the aim of transforming into a global medtech company, the Olympus Group has been focusing its business portfolio, prioritizing investments in the medical field, especially in the areas of GI, urology, and respiratory. The Group is investing in capital expenditures, research and development, and other investments related to its business, and its business performance and financial position may be adversely affected if there is an unforeseen change in circumstances, such as a sudden change in the external environment from the timing the decision was made in relation to such investment.
The Olympus Group has built long-term strategic partnerships with leading enterprises in connection with technologies, product development, sales and marketing. If these strategic partners have financial or any other business-related issues, or the Olympus Group and such partners fail to maintain their partnerships due to reasons such as change of strategies, the Olympus Group’s business activities may be adversely affected.
The Olympus Group may acquire a business enterprise in order to expand its business. If the Olympus Group fails to integrate the acquired business appropriately in line with its corporate strategy or to utilize the existing business or the acquired business in an efficient manner, the Olympus Group’s business execution may be adversely affected, or its business performance and financial position may be adversely affected due to impairment of goodwill, loss on sale of business, liquidation loss, or other related expenses.
The Olympus Group holds investment securities for business purposes which include facilitating business alliances. As such, our business performance and financial position may be adversely affected under some situations involving considerable volatility with respect to stock prices and valuations of such investments brought about by developments that include market fluctuations and changes in the financial position of entities targeted for investment.
In addition, as part of the strategic review of the business portfolio, Olympus Corporation may sell affiliated companies or businesses positioned as non-core, however, if changes in the laws and regulations of each country, economic conditions, and business conditions of counterparties make it difficult to implement the sale, or if there is a loss on sale or valuation loss occurs, it may have a management or financial impact on the Olympus Group. Olympus Corporation has been attempting to transfer of all the equity interests in Olympus (Shenzhen) Industrial Ltd., a consolidated subsidiary in Shenzhen, China and owned by Olympus (China) Co., Ltd., another consolidated subsidiary. Olympus Corporation is currently proceeding with its examination regarding a possible transfer to a third party of Scientific Solutions business. Depending on the result of the attempt, the Olympus Group’s business performance and financial position may be adversely affected.
Through business alliances and corporate acquisitions conducted under appropriate countermeasures, Olympus Corporation may expand the product portfolio and acquire new technologies, establish leading positions in targeted therapeutic areas and diseases, and realize long-term growth and corporate value.
The Olympus Group determines whether to invest or not, deliberating the appropriateness of the investment evaluation before investing, and continues to evaluate investments afterward in response to changes in the external environment and other factors. When considering M&A and investment, it is necessary to reduce the risk of serious problems being discovered after the conclusion of a contract. Accordingly, before making a decision on whether to proceed with an investment, Olympus Corporation deliberates the appropriateness of the investment evaluation in accordance with approval processes established by Olympus Corporation, while undertaking various types of due diligence and also using outside lawyers and financial advisors. In addition, Olympus Corporation is working towards improving the entire investment process through periodically revising the internal guidelines for adhering to compliance, the valuation model and the matters of due diligence, and monitoring the relevant business after the completion of the transaction.
Risks Associated with Business Structure Reform
In accordance with the corporate strategy announced in 2019, the Olympus Group is promoting company-wide efficiency improvement initiatives in order to be a truly global medtech company achieving sustainable growth and profitability.
If these initiatives do not progress as scheduled, the Olympus Group’s business performance and financial position may be adversely affected.
In addition to bottom-up measures, each Executive Officer will take the initiative to implement measures in priority areas to improve operating models and processes. In this way, we aim to further accelerate our efforts, foster a corporate culture capable of sustainable growth, and strengthen our management foundation. The progress of each initiative is also reported to the Global Executive Committee.
Risks affecting overall management
Risks Associated with Laws and Regulations
The Olympus Group and many of its distributors and suppliers engage in business with government-affiliated companies, medical institutions, and officials. The Olympus Group globally operates its businesses, including the medical business, which is a regulated business. We are subject to various laws, including the healthcare-related laws, antimonopoly laws both in Japan and other jurisdictions, as well as the anti-bribery provisions of the U.S. Foreign Corrupt Practices Act of 1977 (FCPA), the U.K. Anti-Bribery Act and other anti-bribery laws in other jurisdictions. We are also subject to various laws targeting fraud and misconduct in the healthcare industry, including the Act against Unjustifiable Premiums and Misleading Representations in Japan, and the Anti-Kickback Statute and the False Claims Act in the United States.
Violations of these laws may be punishable by criminal or civil fines and/or exclusion from participation in certain national healthcare programs. Furthermore, since many of our customers rely on reimbursement from public health insurance and other government programs to subsidize their medical expenditures, if our participation in such programs is restricted as a result of a violation of these laws, that could adversely affect the demand for our products and the number of surgical procedures performed with our devices.
The plea agreement, which we executed on December 3, 2018 with the U.S. Department of Justice, requires our subsidiary, Olympus Medical Systems, Corp. (OMSC), to “undertake steps to enhance its regulatory compliance processes and procedures, and to regularly make certain certifications that OMSC is meeting the expectations of the settlement.” Depending on OMSC’s performance of the said obligation, it may be subject to additional measures by the U.S. Department of Justice.
The Olympus Group is subject to privacy regulations worldwide. However, Olympus Corporation may be adversely issued with a fine or other penalty from a government agency or where a lawsuit may be adversely filed against Olympus Corporation by a stakeholder as a result of a violation of personal information protection laws of a particular country worldwide (Act on the Protection of Personal Information in Japan, General Data Protection Regulation (GDPR) in the EU, etc.)
The Olympus Group strives to fully comply with these laws, however, if the Olympus Group violates any of them, regardless such violation is intentionally or not, it may affect the Olympus Group’s business, financial position, results of operations, cash flows, and share price.
The Olympus Group makes its employees adhere thoroughly to the compliance of laws and regulations in their performance of duties as outlined in the Global Code of Conduct and provides training to employees on the importance of preventing corruption and compliance with each country’s competition-related laws. In addition, the Olympus Group conducts compliance trainings to local dealers in China.
Departments performing control functions, such as Legal Affairs, Compliance and Internal Audit, monitor the business activities from the perspective of whether such activities are complying with the laws, regulations and internal guidelines that are applicable to the Olympus Group. In addition, necessary and appropriate training and education is provided to employees. The Olympus Group is constructing a structure to collect information and monitor regulations related to Olympus Corporation’s business in all markets where business is being developed. In addition, if there are amendments or changes to applicable laws or regulations, the Olympus Group ensures there is a thorough knowledge of such changes by employees while swiftly developing and supplying products corresponding to such amendments or changes.
In response to risks related to personal information protection regulations, the Olympus Group has formulated a security and privacy compliance strategy in the fiscal year ended March 31, 2022, and are strengthening its response capabilities, including the assignment of specialized personnel related to personal information protection in each region, as well as strengthening its global structure to ensure cooperation throughout the Olympus Group.
Risks Associated with Litigation
The Olympus Group may be subject to lawsuits, disputes and other legal proceedings in connection with its domestic and international businesses. If a material lawsuit such as indemnity claim or injunction is filed by a third party, the Olympus Group’s business performance and financial position may be adversely affected.
The Olympus Group uses various intellectual property rights in the course of its R&D and production activities, and although it believes that the Olympus Group lawfully owns or are licensed to use such rights, if any third party asserts that the Olympus Group has unknowingly infringed any of these intellectual property rights and files litigation, the Olympus Group’s earnings may be adversely affected.
Olympus (Shenzhen) Industrial Ltd., a consolidated subsidiary in Shenzhen, China and owned by Olympus (China) Co., Ltd., another consolidated subsidiary, was sued by Shenzhen Anping Tai Investment and Development Co., Ltd. (“Anpingtai”) on December 23, 2016, and a judgement was issued on July 30, 2018. OSZ objected to this judgement and filed an appeal on August 17, 2018. On July 1, 2020, the Guangdong Higher People’s Court vacated the first judgement and remanded the case back to the first instance court for reconsideration because the basic facts of the case, such as the validity of the memorandum based on which Anpingtai made its claims, were unclear. The first instance court issued a judgment on December 31, 2021. OSZ objected to this judgement and filed an appeal on January 24, 2022. The Olympus Group’s business performance and financial position may be adversely affected depending on future developments.
Olympus Corporation has established a structure and process that enables timely consultation with external experts such as lawyers if a lawsuit or other legal proceeding arises and is strengthening the skills and expert knowledge in applicable departments in each regional headquarter in Japan, the Americas, Europe, China and Asia･Oceania. In addition, Olympus maintains insurance to prepare for certain types of unexpected losses due to lawsuits in order to minimize financial risk.
Risks Associated with Information Security
To ensure the stable and continuous supply of our products and services, Olympus Corporation strives to reduce information security risks, such as preventing the leakage of confidential and personal information of Olympus Corporation and stakeholders, and preventing violations of laws and regulations, in preparation for cyberattacks that could hinder business continuity. Nevertheless, due to the rapid increase in cyberattacks targeting medical institutions, manufacturers, and their supply chains worldwide, and the increasing sophistication and organization of these attacks, the following unforeseen events could damage the Olympus Group’s corporate value, reduce its business competitiveness, cause a loss of public trust, cause compensation to affected stakeholders, or result in sanctions or fines from authorities in other countries, which could affect its business performance and financial position.
- Cyberattacks targeting medical institutions that are Olympus Corporation’s customers may result in the leakage of patient information through the use of its products or their maintenance work, making it impossible for its customers to continue their business.
- A cyber-attack targeting Olympus Corporation or its supply chain could disrupt operations at Olympus Corporation or prevent it from providing maintenance services, resulting in the inability of medical institutions to continue examinations or treatment procedures.
- An incident where technological information or customer information is leaked or lost while stored in Olympus Corporation due to inadequate information security measures or internal misconduct.
In the fiscal year ended March 31, 2022, Olympus Corporation confirmed cybersecurity incidents in the Americas (U.S., Canada and Latin America) and in EMEA (Europe, Middle East, and Africa). According to the results of the investigation, no evidence of loss, unauthorized use or disclosure of our data has been detected due to the cybersecurity incidents in EMEA. However, some data may have been compromised due to the cybersecurity incidents in Americas. Out of an abundance of caution, Olympus Corporation is notifying current and former employees in the Americas and any impacted customers whose data may have been affected.
Various security enhancements are being made based on the analysis of incidents that occurred in 2021. In addition, in order to minimize the impact on customers, business partners, and Olympus Corporation’s business performance by responding more promptly in the event of unauthorized access due to cyberattacks, etc., the Olympus Group is working to strictly implement education on a periodic basis for all employees and establish an incident response system covering the entire Group.
In addition to the above, the Olympus Group has developed a new security and privacy compliance strategy for the fiscal year ended March 31, 2022, to further enhance its existing activities. This strategy includes the creation of a new governance model, which will enable the Olympus Group to manage information/cybersecurity and privacy risks across the Olympus Group and to consistently execute its multi-year strategic roadmap on a global basis. Specifically, the Olympus Group has strengthened functional alignment in line with its overall globalization progress, and clarified the responsibilities of each function involved in IT security, operational technology security, product security, privacy protection, and data protection. This will enable the Olympus Group:
- To increase resilience to cyberattacks not only in general IT systems, but also in product development and manufacturing environments.
- To ensure continuous product security throughout the product lifecycle, not just during development.
- To further enhance privacy protection based on the latest trends, and laws and regulations in each country and region, as well as provide protection and utilization of various types and levels of confidentiality of data.
Risks Associated with Human Resources
In order to remain competitive, the Olympus Group must continue to recruit and retain the talented and diverse human resources it needs to conduct its business. In the industries in which the Olympus Group operates, competition for talent is intensifying globally, and some regions have seen an increase in retirement rates due to changes in the labor market as a result of the COVID-19 pandemic. Recruitment, development, and retention of personnel is becoming increasingly important, and Olympus Corporation’s failure to recruit and retain highly skilled personnel could affect our ability to supply products and services, and sustain growth in the future.
The Olympus Group believes that it is important to ensure that each employee has a deep understanding of the Olympus Group’s common philosophy and values and that highly specialized personnel are placed in the right places on a global basis. To achieve this, we conduct activities to instill our philosophy and values, and develop skills training programs and similar initiatives. We have defined the duties required to carry out our corporate strategy, introduced a globally common talent management system, and created a successor development plan starting from the most important positions. We are also working to develop a system that will enable appropriate personnel, regardless of nationality or gender, to play an active role and continue to demonstrate a high level of professionalism. To this end, we have established a global common leadership competency model and are putting in place programs to support demonstration of leadership. With regard to compensation, we are always aware of market trends and offer competitive compensation levels and compensation packages to our employees. For example, in the Japan region, we are discussing with the labor union to shift to a compensation system that better reflects job performance and results. In addition, the Olympus Group as a whole, including Japan, ensures fairness through a common global job evaluation and compensation policy. Also, we will aim to raise the level of compensation and at the same time increase commitment to achieving medium- and long-term goals by granting stock-based compensation to employees above a certain level. With regard to human resources recruitment, including regular hiring of new graduates etc., we are hiring personnel with specialized skills on an irregular basis, and we are strengthening our human resources recruitment system and enhancing our onboarding efforts so that employees who join Olympus Corporation can play an active role as soon as possible.
Risks Associated with Internal Control System
No matter how effective the internal control system is, various factors may cause the internal control system to fail and unforeseen circumstances may arise. This may result in an adverse impact on our business from a loss of our social trust. Moreover, in such cases, we may suffer payment of fines under administrative action, penalties under criminal proceedings, or indemnity civil lawsuits, which in turn may cause an adverse impact on the Olympus Group’s operating results and financial position.
If the internal control system does not function effectively and management is unable to properly identify changes in the internal and external environment and make decisions promptly, it may adversely affect Olympus Corporation’s ability to achieve its management and business strategies.
The Olympus Group is developing, operating, and improving the internal control system at Olympus Corporation, Group, and global levels and instilling it through education and awareness activities. We are working to create mechanisms to enable our governance-related organizations to collaborate and optimize their efforts at the Olympus Group and global levels, and by linking them to strategic planning and the formulation of policies and measures, to enable business execution and supervisory activities to be carried out as a series of cycles. In addition, we monitor the operational status of the internal control system and make regular reports to management. Through these measures, we verify that the internal control system is functioning effectively and continuously improve it.
Risks Associated with Taxation
Olympus Corporation’s tax burden may be increased due to changes in applicable tax laws or changes in their interpretations and application guidelines in jurisdiction of each country in the world. The valuation allowance for deferred tax assets may need to be increased as a result of recoverability reassessment due to changes in business conditions or the implementation of organizational restructuring. If such situations occur, it may adversely affect the Olympus Group’s business performance and financial position.
In regard to changes in applicable tax laws in each jurisdiction, or changes in their interpretations and application guidelines, the Olympus Group is monitoring the amendments to laws and changes in regulations and making changes as appropriate to rules for transactions within the Olympus Group. In regard to deferred tax assets, the Olympus Group is monitoring the profitability of each group company and controlling the financial results so that the respective companies can appropriately secure profitability while also paying close attention in cases of business combinations for changes in profitability following such restructuring in order to minimize risks.
Risks Associated with Climate Change and Environmental Regulations
The Olympus Group recognizes environmental challenges such as mitigating and adapting to climate change, conserving water resources, sustainable resource use, and protecting biodiversity. The introduction of carbon taxes, carbon dioxide emission controls, resource recycling regulations, chemical substance management, and other regulations aimed at achieving a decarbonized and recycling-oriented society could increase business costs around the world. In addition, the intensification of natural disasters caused by climate change is likely to affect the operations and supply chains at our own sites. Failure to take appropriate action may result in loss of business opportunities, etc.
The Olympus Group has established specialized functions to promote environmental activities, and has established an environmental management system in line with ISO 14001. Under this system, we promote compliance with environmental laws and regulations through maintenance of rules and regulations, education of environmental managers and implementors, and monitoring and improvement of local operations.
In addition, in recognition of the importance of promoting environmental activities in coordination with society, the Olympus Group announced its support of the Task Force on Climate-Related Financial Disclosures in April 2021. In the same year, Olympus Corporation set two ambitious goals: to achieve virtually zero carbon dioxide emissions (Scope 1 and 2*) from our own sites by 2030, while aiming for carbon neutrality throughout the product lifecycle in the long term; and to obtain 100% of the electricity used at our sites from renewable energy sources by 2030.
To achieve these goals and to address environmental risks in our supply chain, we will continue to develop environmentally friendly products, improve logistics efficiency, and implement green procurement in cooperation with our suppliers, along with manufacturing improvement activities and the introduction of renewable energy at our sites around the world.
* Scope 1: Direct greenhouse gas emissions from onsite fuel use; Scope 2: Indirect greenhouse gas emissions from onsite electricity and heat use
Risks Associated with COVID-19 Infections
The severe situation caused by the global COVID-19 pandemic is gradually easing, vaccination is progressing, and economic activity is picking up. However, the global economy continues to face highly uncertain conditions including a second (or more) wave of infection in some regions.
Although the impact on the Olympus Group’s business activities has been easing, restrictions on visits to customers such as medical institutions or postponement/cancellation of business negotiations have continued to impact selling activities. In addition, our business activities have been affected by factors such as the decrease in the volume of products sold due to the decrease in the number of procedures. If medical institutions will be compelled to prioritize the responsive measures to COVID-19, the number of medical treatments related to our business may decrease, or capital expenditures may decrease. Under these and similar scenarios, the Olympus Group’s sales activities may be further adversely affected. In addition, the Olympus Group’s earnings and financial position may be adversely affected if constraints arise in the procurement of certain products and parts, or in manufacturing and product supply.
The Olympus Group is making every effort to prevent infections, including active use of work from home and other flexible work styles and taking into account infection conditions when planning business trips and events. In sales activities, the Olympus Group has continued to implement training, demonstration and seminars online, and strives to provide solutions responding to the new environment.
Natural Disasters, Infectious Diseases, War, Civil War and Other Risks
Occurrence of natural disaster, infection, war, civil war, riot, terrorist attack or economic sanction may adversely affect the Olympus Group’s earnings.
When there is a serious crisis, a Crisis Response Team is established in accordance with crisis response rules that are applicable to the Olympus Group as a whole, striving to manage the crisis to minimize the negative impact on corporate value. Moreover, the Olympus Group strengthens the response to business interruption risk through the formulation and periodic revision of a business continuity plan (BCP) and education and training to increase the effectiveness of the BCP even in peacetime.
May 16, 2022 Updated