olympus financial results

Previous Forcast

At the end of FY2016 forecasts for the FY2017 were to maintain overall sales and profits by reducing costs, despite the negative impact of a strong ¥en. Sales were to be down just -1% year-on-year and operating income down -14% year-on-year whilst Net Income would rise by +4% to ¥65B. The exchange rate forecast was for ¥/$ at 108/1 and ¥/€ at 120/1.

In the imaging segment of the business things were not so 'rosy'. In line with expectations of the market continuing to decline, Net Sales were set to decline by 11% but Operating Income would improve to wipe out any further losses. Most of the pain was due in the first half of the year but the second half would see an improvement as new products hit the market. The impact of a major earthquake was not factored in at this stage. So how did things work out in the first quarter of FY2017, April to June 2016?

Q1 FY2017 Results

Overall Business Results

For the first quarter FY2017 results have slipped with Net Sales down 10% and Operating Income down 37% for the overall business. Both Sales and Operating Income have been badly hit with a strong ¥en. Taking the exchange rate out of the equation, sales in the Scientific Solutions and Imaging segments are both down significantly.

Imaging Business

Note: The rest of the article will concentrate on the Imaging side of the business as that is our main interest here

How bad are things in the imaging business? Net Sales are down -26% year-on-year and Operating Income turned negative to -¥0.2B. The downturn is across all Camera Types. The effects of the Kumamoto Earthquake and lack of new Mirrorless products are blamed for the poor results.

Sales by Geographical Region

Sales have fallen in all areas with just Asia/Oceania reasonably stable.

Sales by Camera Type

The first quarter has not been good for either camera type. We expected the Compact Cameras to suffer under the onslaught of smart devices but the Mirrorless Cameras have also struggled to sell. I don't think you can blame the Earthquake for that rather they have not offered good value for money, unlike DSLRs.

In terms of units sold the story is similar. Both types have had similar falls in quantity.

The average unit costs have been steady for both type in terms of Yen value but Mirrorless have increased slightly.

Cost Savings

As part of the cost and resource savings, Digital Camera inventories were reduced from ¥14.4B to ¥13.2B. Very frustrating if you are trying to sell these cameras and stocks are not forthcoming.

Foreign Exchange Effects

In the first quarter, foreign exchange movement has had a major effect on sales and profits with the ¥/$ 108/1 and ¥/€ at 122/1. These rates have already come under pressure and by the end of June 2016 exchange rates were at ¥/$ 103/1 and ¥/€ at 115/1.

R & D Expenditure

Spending on research and development, so vital for tech companies, fell year-on-year by -39% from ¥1.75B to ¥1.11B.

Forecast for FY2017

Given the exchange rate pressure, the forecast for the rest of FY2017 has been revised with Net Sales down another -3% from initial forecasts and Operating Income down a further -12%. This will lead to a year-on-year reduction in Net Income from ¥62.6B to ¥57B.

In the Imaging Business the outlook is even worse. The new forecast is for Net Sales to shrink by -28% in the first half and then -13% in the second. Operating Income will be -¥2B in each half taking full year losses from 0 to -¥4B. So most of the pain will come in the first half of the year but that may change if the exchange rate deteriorates of new products don't catch on as quickly as expected.

Conclusions

Any positive outlook that was forecast before the year started has been dampened by what has been a serious downturn both in the business as a whole and especially the imaging business. The Imaging segment is now forecast to reduce from 9.7% to just 8% of Total Net Sales for FY2017. Whilst forecast losses of -¥4B are not a major problem for Olympus, as the Medical Business is set to make ¥120B, stemming this loss and keeping a sustainable Camera business will be challenging.