Mani : Financial Results and Forecasts FY2023：Script for Financial Results Briefing

MANI, INC.

Financial Results Briefing for the Fiscal Year Ended August 2023

October 16, 2023

Event Summary

[Company Name]	MANI, INC.
[Company ID]	7730-QCODE
[Event Language]	JPN
[Event Type]	Earnings Announcement
[Event Name]	Financial Results Briefing for the Fiscal Year Ended August 2023
[Fiscal Period]	FY2023 Annual
[Date]	October 16, 2023
[Number of Pages]	32
[Time]	10:00 - 11:02
	(Total: 62 minutes, Presentation: 41 minutes, Q&A: 21 minutes)
[Venue]	Onsite venue: Nihonbashi Front AP Nihonbashi 6F,
	3-6-2 Nihonbashi, Chuo-ku, Tokyo 103-0026
	Webcast: Microsoft Teams webinar
[Venue Size]	494 m2
[Participants]	39 (number of onsite participants) and 72 (number of webinar participants)
[Number of Speakers]	2
	Masahiko Saito	Director, President and Representative
		Executive Officer, CEO, COO, CTO
	Kazuo Takahashi	Director, Executive Vice President and
		Executive Officer, CFO, CRO, Division
		Head of Corporate Planning Division
[Analyst Names]*	Shinnosuke Tokumoto	SMBC Nikko Securities
	Takashi Akahane	Tokai Tokyo Research Institute Co., Ltd.

*Analysts that SCRIPTS Asia was able to identify from the audio who spoke during Q&A or whose questions were read by moderator/company representatives.

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Presentation

Moderator: Thank you for waiting. We will now begin the financial results briefing for MANI, INC. The briefings session will be presented in a hybrid format, with a live-streaming online session in addition to the on-site session.

First, I would like to introduce two people from the Company. Masahiko Saito, President and Representative Executive Officer. Next is Kazuo Takahashi, Vice President and Executive Officer. Thank you.

Today, President Saito will give a presentation. After the presentation, there will be time for a question-and- answer session for the audience at the venue. Afterwards, we will take questions from those who are participating online, as long as time permits. Please ask questions from the live feed via chat. Questions will be accepted even during the presentation.

So, President Saito, please begin.

Saito: Thank you for taking the time off your busy schedules to participate in today's financial results presentation. I am Masashiko Saito, President and Representative Executive Officer of MANI. I am pleased to present our financial results for the fiscal year 2023. This time, we have decided to deliver the presentation on the web at the same time as the financial results presentation at the venue.

Shown here is today's agenda, first starting with the financial results for fiscal year 2023. Second are the financial forecasts for fiscal year 2024. Third are the Medium-term Management Plan and initiatives for future progress of the Company. The supplementary materials will not be explained at this time, but we would be happy if you would take a look at them when you have time.

To begin, let me briefly explain our three product segments. MANI's operations are divided into the Surgical segment, the Eyeless Needle segment, and the Dental segment.

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First is the Surgical segment, which covers our mainstay product category of ophthalmic instruments - such as ophthalmic knives - and surgical instruments.

Next is the Eyeless Needle segment. In this segment, the finalized products are needles with a thread attached. These needles are sterilized and ultimately used as suture needles in surgical procedures. The images on page 3 show the needles and we primarily produce the needle portion of this product on an OEM basis.

Last is the Dental segment, which consists of products used in dental treatment, more specifically, reamers and files used in root canal treatment, dia-burs used in the dental cavity treatment, and composite resins for dental restoration.

The majority of our products consist of instruments held and manipulated directly by doctors, who have good reviews in terms of the ease of use, precision, and quality of these instruments. This underscores our philosophy of manufacturing with a heavy focus on quality.

I will now explain the financial results for the fiscal year 2023. First of all, I would like to present the consolidated financial summary.

Overall, the negative impact of COVID-19 has eased, and sales accelerated as product demand expanded, resulting in higher sales and profits. On a year-on-year basis, net sales increased by 19.9%, operating income increased by 17.5%, and ordinary income increased by 6%. These were the highest results ever in the Company's history.

The section colored black shows the fiscal year 2023 forecasts, which the Company was able to meet and exceed across the board.

I would now like to explain each item in turn, starting with sales. Sales increased in Asia, Europe, and South America. In particular, the Eyeless Needle segment performed well. Net sales for the fiscal year 2023 were 24.488 billion yen. This is a year-on-year increase of 4.071 billion yen, a 19.9% increase.

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Next, cost of sales increased due to the impact of foreign exchange rates, but the cost of sales ratio improved

1.4 percentage points from 38.4% in the previous fiscal year to 37%, as the effects of productivity improvement have become apparent.

SG&A expenses increased by 1.765 billion yen, due to an increase in personnel expenses resulting from aggressive R&D and sales activities, and the strengthening of the organization. This is a year-on-year increase of 27.5%.

Operating income increased from 6.163 billion yen in fiscal year 2022 to 7.243 billion yen in fiscal year 2023, growing by 1.08 billion yen, or 17.5%. As for the operating income margin, it fell slightly below 30%, from 30.2% in the previous year to 29.6%. Despite this, we were able to exceed the forecast of 7.1 billion yen. Ordinary income was 7.995 billion yen, a year-on-year increase of 6%, and lastly, net income was 5.953 billion yen, a year-on-year increase of 12.5%.

Next is the sales status by segment.

A weaker yen boosted sales by 1.259 billion yen, but even excluding these positive foreign exchange effects, MANI was able to grow sales in all three segments. The Eyeless Needle segment, in particular, posted a strong performance.

In the Surgical segment, sales of ophthalmic knives grew in Asia and Europe, with this segment sales increased by 555 million yen.

In the Eyeless Needle segment, sales increased in Asia, especially in China, as well as in Europe and South America, growing by 1.838 billion yen overall.

In the Dental segment, sales of dental restorative materials by our German subsidiary MMG were strong in Europe and North America. Sales of MANI's dental products grew in Asia, mostly in China and India.

Overall sales in the Dental segment increased by 417 million yen, on a year-on-year basis.

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Next is the sales status by region. Sales grew mainly in Asia, mostly in China and India, in Europe, and in South America. We were also able to grow sales in North America, in other regions, and in Japan. For further details on a per segment basis, please refer to page 37 of the supplementary materials.

Next is the operating income status.

First, the impact of foreign exchange rate fluctuations made a positive year-on-year contribution of 236 million yen. Next is the gross profit impact. While inventory disposals weighed down on results in fiscal year 2022, this temporary factor did not recur in fiscal year 2023, and this resulted in a positive impact on operating

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income of 330 million yen. Higher sales volume made a contribution of 1.777 billion yen, and lastly, efforts to improve the cost of sales ratio are starting to bear fruit, with a contribution of 278 million yen.

Next, as for the impact of SG&A expenses, sales costs and G&A costs increased due to an increase in R&D costs and the strengthening of the organization. The combined effect of these factors had a negative impact of 1.539 billion yen on SG&A expenses. As a result, operating income stood at 7.243 billion yen. This is a year- on-year increase of 1.08 billion yen, or 17.5%.

Next are the financial results by segment.

All three segments recorded double-digit net sales growth. This growth was particularly pronounced in the Eyeless Needle segment, where sales increased by 37.2%.

In terms of operating income in the Surgical segment, production was constrained due to difficulties in the procurement of packaging materials, with a decrease in work in progress inventories. However, this procurement issue was resolved in the second half of the fiscal year, after which productivity improved.

In the Eyeless Needle segment, disposal of inventories had a negative impact of 312 million yen in fiscal year 2022. Such disposal was absent in fiscal year 2023, resulting in a recovery in operating income margin to favorable levels.

Lastly, in the Dental segment, sales grew, but operating income was negative compared to the previous year. This decrease resulted primarily from expenses associated with MMG's relocation to the new Head Office Factory, as well as higher sales and personnel and selling expenses.

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Next is the balance sheet status.

First, in assets, cash and deposits increased due to a year-on-year increase in sales and income. Additionally, construction in progress also increased, mainly due to the construction of the new Head Office Factory for MMG. As a result of these factors, total assets amounted to 54.977 billion yen.

Liabilities were up 450 million yen, due to an increase in current liabilities resulting from an increase in other accounts payable and allowance for bonuses. Lastly, an increase in retained earnings and foreign currency translation adjustments led to an increase in net assets of 4.412 billion yen.

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Next is the cash flow status.

Operating cash flow was positive 8.026 billion yen, year-on-year, thanks to a steady operating revenue performance. Investing cash flow was negative 4.016 billion yen, due to the execution of CAPEX for MANI's Kiyohara Head Office and overseas subsidiaries. Financing cash flow was negative 3.251 billion yen, due to an increase in dividend payments.

While MANI has been able to continuously generate positive free cash flow, we have significant CAPEX planned for fiscal year 2024.

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I would now like to explain the financial forecasts for fiscal year 2024.

First is an analysis of the external environment, starting with foreign exchange and prices. The current ongoing trend of yen depreciation is expected to continue, and we estimate the exchange rate for fiscal year 2024 will be 135 yen to the US dollar. Additionally, we expect wages to increase in Vietnam.

Next is an analysis of the business environment. Within this scope, we have identified as an opportunity an increase in market share for MANI's eyeless needle products, mainly in the North American and Chinese markets. We will therefore aim to grow our market share in these regions. Another opportunity is for MANI to capture the growing demand for medical products in the "Global South," mainly in India and Southeast Asian countries, as well as in South America.

In terms of tasks that need to be addressed, we need to prepare for the economic downturn in China and analyze the impact on local medical institutions. Additionally, we need to overcome issues in our Dental segment, more specifically, strengthening the competitiveness of JIZAI, our nickel-titanium rotary file.

Regarding other topics, such as regulations, we need to respond to various regulations in China, such as the Chinese government's "Buy China" policy and Anti-Corruption campaign.

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