In the first part of this report, I looked at the results for Olympus from 2012 to 2015 and what they were looking to achieve in FY2016. With three-quarters of the year have been accounted for, how are they getting on so far. I will look at the aspects of Net Sales Income, Gross Profit, SG&A Expenses and Operating Income.
Total Net Sales up to Q3 2016
While Q3 has been a steady quarter for Olympus if we look at the year for the 9 months so far, for the whole company things have improved significantly.
Net Sales have increased year-on-year by 8%. Gross Profit has had a bigger improvement by 12% year-on-year. This, however, was offset by an 11% rise in SG&A leaving the Operating Income up 19% year-on-year.
Effects of Currency Fluctuations
Changes in currency exchange rates can have a big effect on multinational companies and with the current climate of ‘currency wars,’ this has to be watched closely.
During this period, the Dollar appreciated from ¥107 to ¥122 while the Euro depreciated from ¥140 to ¥134. The impact of these is to improve sales by ¥26B and operating income by ¥12.5B. However, this has reversed considerably in the last few months.
In can be said then that the increase is sales is more than half due to currency fluctuations and not an improving market.
Imaging Segment Net Sales up to Q3 2016
Now for the part I am most interested in, the Imaging Segment. It has been a poor Q3 for sales in Imaging down by 11% year-on-year. Over the first 9 months, Net Sales are up 2.3% year-on-year and Operating Income has turned positive. So the Imaging business is still on track to break even for the year.
Imaging now accounts for 10.5% of the overall business down from 11% the same period the previous year.
Imaging Sales by Type
One of the expectations was a further fall in the Digital Camera sales. Whilst Compact Cameras did fall in the first 9 months from ¥15.8B to ¥13.5B, the sales of Mirrorless increased from ¥37.1B to ¥41B. This improvement however happen in the first half got the year and the third quarter was not so healthy.
Imaging Sales by Region
Sales to Asia/Oceania continued to contract from ¥13.1B to ¥11.9B but this contraction was made up for by increases in Europe, North America and Japan.
R&D expenditure fell from ¥4.5B to ¥3.5B making it about half of what was spent in the same period of 2012. I know there are now fewer products but reducing R&D will have an impact on the future of this Imaging business as competition keeps spending.
Inventories in Digital Cameras fell by 8% to ¥15.7B, that will help put money back in the coffers.
SG&A expenses reduced year-on-year from ¥10.9B to ¥8.7B for Q3.
All of this is leading in the right direction to accomplish the necessary return to profitability and steady growth into the future.
There are some positives to take from the Imaging side of the business with increased sales and reduced costs leading to a break even position. The Overall business is doing well and can sustain the changes required to the Imaging Segment.
Anecdotally, Olympus are doing well in the Camera business and on these results there is room for optimism. It will not be until we see how the full year unfolds before we can be sure this will be sustained.
On the downside, I think the Camera business has suffered a further significant fall since Dec 2015 with more to come in the next years. Can reducing R&D and limiting to high-value products win the day, probably not. Other larger players with lower base costs and greater marketing budgets will squeeze smaller operators.
It is a bit like the stingy farmer who just manages to teach his donkey to not eat, then it dies on him.