Olympus report shows serious financial problems

December 15, 2011

Olympus Corp. may have staved off delisting for now, but the once-prestigious company appears to be facing serious financial difficulties down the road.

The company submitted revised financial statements for the past five years until March 2011 to the Kanto Finance Bureau before the deadline on Dec. 14, after admitting to concealing huge investment losses for more than 10 years.

The company the same day also released its midterm financial statement for April-September period of 2011, posting a consolidated net loss of 32.3 billion yen (about $430 million). Its sales declined 0.7 percent to 414.5 billion yen from the same period last year, while its operating profits fell 21.6 percent to 17.5 billion yen.

According to the revised statements, the company's debts never exceeded its assets during those five years.

But its capital fell to 42.8 billion yen in the April-September period, reducing its capital adequacy ratio, which reflects the financial soundness of a company, to only 4.5 percent.

Major manufacturing companies generally maintain a capital adequacy ratio of more than 10 percent. A lower ratio makes it difficult for a company to borrow from banks.

Olympus' main business of manufacturing endoscopes took a big hit in the aftermath of the March 11 Great East Japan Earthquake. Its camera business was also sluggish.

And the scandal now engulfing Olympus has seriously hurt the company's image, which could prove more damaging in the long run, especially for its digital camera operations.

"The digital camera business depends much on brand image. If the image is tarnished, there is a possibility that no one will buy them," said an analyst at a securities company.

In its business prospectus announced in June this year, Olympus forecast a 30-percent increase in operating profits in the year that ends in March 2012 from the previous year.

On Dec. 14, the company retracted that forecast, saying it cannot predict how much of an influence the loss-concealment scandal will have on its sales.

"It is difficult to make a reasonable prospectus," an Olympus official said.

Many companies and investment funds are willing to acquire Olympus due to the popularity of its endoscopes, which account for more than 70 percent of the world's market. And the company has said it will consider tie-ups to help the company rebuild.

But Olympus has another hurdle to overcome.

The Tokyo Stock Exchange plans to start a full-fledged investigation into Olympus on whether its previous false financial statements are serious enough to warrant a delisting.

The TSE will make a decision on Olympus shares within one or two months.

In its revised financial statements, Olympus capital decreased by about 50 billion yen to 120 billion yen each year. That was because its assets shrank when the losses concealed at outside organizations were transferred back to Olympus itself.

Auditing company KPMG Azsa LLC said Olympus' revised financial statements until March 2009 were "appropriate," but it had reservations because it was unable to obtain sufficient and appropriate evidence for the audits.

Ernst and Young ShinNihon LLC, which audited Olympus' revised financial statements for the later periods, said the reports were "appropriate" without reservations.

  • 1
submit to reddit
Olympus Corp. could face a rocky financial future. (Louis Templado)

Olympus Corp. could face a rocky financial future. (Louis Templado)

  • Olympus Corp. could face a rocky financial future. (Louis Templado)
  • The Asahi Shimbun

More AJW