Nihon Kohden : Consolidated Financial Results for the Fiscal Year Ended March 31, 2024 (Japan GAAP)

These documents have been translated from Japanese originals for reference purposes only. In the event of any discrepancy between these translated documents and the Japanese originals, the originals shall prevail.

[Summary]

May 13, 2024

Consolidated Financial Results for the Fiscal Year Ended March 31, 2024 (Japan GAAP)

NIHON KOHDEN CORPORATION (6849)

Stock Exchange Listing:	Prime Market, Tokyo Stock Exchange
Head Office:	Tokyo
Representative:	Hirokazu Ogino, Representative Director, President and Chief Executive Officer
Contact:	Fumio Izumida, Operating Officer, General Manager of Corporate Strategy Division
	Phone: +81 / 3 - 5996 - 8003	（URL https://www.nihonkohden.co.jp）

(Amounts are rounded down to the nearest million yen)

1. Consolidated Financial Highlights for FY2023 (From April 1, 2023 to March 31, 2024)

(1) Consolidated Operating Results

Note: Percentages indicate increase/decrease over the corresponding period in the previous fiscal year.

	Net sales		Operating income	Ordinary income	Income attributable to
		owners of parent
	Millions of yen	%	Millions of yen	%	Millions of yen	%	Millions of yen	%
FY2023	221,986	7.4	19,591	-7.2	25,589	6.1	17,026	-0.5
FY2022	206,603	0.7	21,120	-31.9	24,122	-30.2	17,110	-27.0

Note: Comprehensive income:	FY2023: 20,497 million yen (10.0%)	FY2022: 18,626 million yen (-24.7%)
	Net income	Net income	Return on equity	Ordinary income	Operating income
	per share - Basic	per share - Diluted		to total assets	margin
	yen	yen	％		％	％
FY2023	202.45	―	9.8		11.4	8.8
FY2022	203.28	―	10.6		11.3	10.2

Reference: Investment income for equity method:	FY2023: －million yen	FY2022: －million yen
(2) Consolidated Financial Conditions
	Total assets		Net assets		Equity ratio	Net assets per share
	Millions of yen		Millions of yen			%	Yen
FY2023	233,233		181,082			77.6	2,158.40
FY2022	216,728		167,604			77.3	1,992.30
Reference: Equity capital:	FY2023: 181,082 million yen	FY2022: 167,604 million yen
(3) Consolidated Cash Flows
	Cash flows from	Cash flows from	Cash flows from	Cash and cash equivalents,
	operating activities	investing activities	financing activities	end of the period
	Millions of yen		Millions of yen		Millions of yen	Millions of yen
FY2023	15,607		-5,208			-6,968	49,877
FY2022	-2,513		-7,647			-7,485	43,988

2. Dividends

		Dividends per share			Total	Dividend	Dividend on
	First quarter	Interim	Third quarter	Year-end	Full-year	dividends	payout ratio	equity ratio
	(Annual)	(Consolidated)	(Consolidated)
	(Second quarter)
	yen	yen	yen	yen	yen Millions of yen	%	%
FY2022	―	20.00	―	41.00	61.00	5,131	30.0	3.2
FY2023	―	30.00	―	31.00	61.00	5,125	30.1	2.9
FY2024 (Forecast)	―	15.00	―	16.00	31.00		32.5

Note: At the Board of Directors' meeting held on May 13, 2024, the Company resolved the Company resolved that each share of common stock will be split into two shares effective on July 1, 2024. The annual dividends per share for the fiscal year ending March 31, 2025 (forecast) are based on the amount taking into consideration the stock split. Annual dividends per share for the fiscal year ending March 31, 2025 (forecast) without taking the stock split into account would be 62.00 yen.

－ 1 －

3. Consolidated Forecast for FY2024 (From April 1, 2024 to March 31, 2025)

	Net sales		Operating income	Ordinary income	Income attributable to	Net income
		owners of parent	per share - Basic
	Millions of yen	%	Millions of yen	%	Millions of yen	%	Millions of yen	%	Yen
First half	104,000	0.4	7,000	-6.6	7,000	-44.2	4,500	-43.7	26.82
Full year	229,000	3.2	23,000	17.4	23,000	-10.1	16,000	-6.0	95.36

Note: At the Board of Directors' meeting held on May 13, 2024, the Company resolved that each share of common stock will be split into two shares effective on July 1, 2024. Basic earnings per share for the fiscal year ending March 31, 2025 are based on the amount taking into consideration the stock split. Basic earnings per share for the fiscal year ending March 31, 2025 without taking the stock split into account would be 53.64 yen for the first half and 190.71 yen for full year

* Notes

1. Changes in significant subsidiaries during the period (changes in specified subsidiaries resulting in the change in scope of consolidation): Yes

Newly included: 1 Company name (Nihon Kohden OrangeMed, LLC)

Excluded: 1Company name (Resuscitation Solution, Inc.)

Note: For details, please refer to "4. Consolicated Financial Statements and Primary Notes (5) Notes to Consolidated Financial Statements (Business Combinations)" on page 22 of the attachment.

1. Changes in accounting policies, changes in accounting estimates, and restatement

1. Changes in accounting policies due to revisions to accounting standards and other regulations: None
2. Changes in accounting policies due to other reasons: None
3. Changes in accounting estimates: None
4. Restatement: None

1. Number of issued shares (common shares)

(i) Total number of issued shares at the end of the period	FY2023	88,230,980
(including treasury shares)	FY2022	88,230,980
(ii) Number of treasury shares at the end of the period	FY2023	4,334,266
	FY2022	4,104,612
(iii) Average number of shares outstanding during the period	FY2023	84,102,066
	FY2022	84,170,968

shares shares

shares shares

shares shares

(Reference) Non-Consolidated Financial Highlights

1. Non-Consolidated Financial Highlights for FY2023 (From April 1, 2023 to March 31, 2024)

(1) Non-Consolidated Operating Results

Note: Percentages indicate increase/decrease over the corresponding period in the previous fiscal year.

	Net sales		Operating income	Ordinary income	Net income
	Millions of yen	%	Millions of yen	%	Millions of yen	%	Millions of yen	%
FY2023	167,006	4.8	21,620	2.4	30,476	15.8	18,781	-5.5
FY2022	159,415	-1.6	21,109	-17.7	26,313	-17.7	19,865	-6.7
	Net income per share	Net income per share
	- Basic		- Diluted
		Yen		Yen
FY2023	223.32		―
FY2022	236.01		―

－ 2 －

(2) Non-Consolidated Financial Conditions

	Total assets	Net assets	Equity ratio	Net assets per share
	Millions of yen	Millions of yen	%	Yen
FY2023	204,803	164,836	80.5	1,964.75
FY2022	193,538	152,654	78.9	1,814.59
Reference: Equity capital:	FY2023: 164,836 million yen	FY2022: 152,654 million yen

• This summary of financial result is not subject to audit procedures.
• In domestic sales of the Nihon Kohden group, sales to public medical institutions (which include national hospitals, national universities, public agencies, and municipal hospitals) account for a relatively high percentage of total sales. Therefore, the bulk of orders tend to be concentrated in September and March due to these hospitals' budget executions. In particular, sales and income are highly concentrated in the fourth quarter of the fiscal year.
• Earnings forecasts and other forward-looking statements in this release are based on information currently available and certain assumptions that the Company believes are reasonable. Therefore, they do not constitute a guarantee that they will be realized. Actual results may differ from such estimates due to unforeseen circumstances.

－ 3 －

Content of Supplementary Materials

1. Overview of Financial Results	…	5
(1)	Review of Operations	…	5
(2)	Financial Position	…	7
(3)	Cash Flows	…	7
(4)	Basic Policy on Distribution of Profits and Dividends	…	8
(5)	Consolicated forecast for FY2024	…	8
2. Management Policy	…	9
(1)	Basic Policies for Corporate Management	…	9
(2)	Target Management Indices	…	9
(3)	Challenges to be addressed and Mid-toLong-term Management Strategy	…	9
(4)	Other Significant Matters for Corporate Management	…	11
3. Basic Approach to Selection of Accounting Standards	…	11
4. Consolicated Financial Statements and Primary Notes	…	12
(1)	Consolidated Balance Sheets	…	12
(2)	Consolidated Statements of Income and Comprehensive Income	…	14
(3)	Consolidated Statements of Changes in Equity	…	16
(4)	Consolidated Statnemtns of Cash Flows	…	18
(5)	Notes to Consolidated Financial Statements	…	19
	(Assumption of Going Concern)	…	19
	(Basic of Presentation of the Consolidated Financial Statements)	…	19
	(Notes to the Consolidated Statements of Income)	…	21
	(Business Combinations)	…	22
	(Segment Information)	…	23
	(Per Share Information)	…	26
	(Subsequent Event)	…	26
4. Non-consolicated Financial Statements	…	28
(1)	Non-consolidated Balance Sheets	…	28
(2)	Non-consolidated Statements of Income	…	31
(3)	Non-consolidated Statements of Changes in Equity	…	32

－ 4 －

1. Overview of Financial Results

(1) Review of Operations

During the term under review (April 1, 2023 to March 31, 2024), the global economic outlook remained uncertain due to tight monetary policy in the U.S. and Europe as well as higher geopolitical risks. In Japan, each prefecture revised its healthcare system, and task shifting and operational efficiency were further required in medical institutions, because work style reforms for medical staff took effect in April 2024. Medical equipment companies were strongly required to provide solutions which contribute to improving the quality and efficiency of medical care. Internationally, overall demand for medical equipment which contributes to easing medical staff workloads remained steady, while the shortage of nurses and inflation of prices in the U.S. and Europe as well as the economic slowdown and anti-corruption campaign in China continued to have a negative impact.

Under these circumstances, Nihon Kohden implemented its Three-year Business Plan, BEACON 2030 Phase I, which sets FY2023 as its final year. The Company formulated the basic policies of the plan as follows: i) Embracing sustainability across business and corporate activities, ii) Ensuring strict compliance and strengthening group governance, iii) Improving the profitability of existing businesses and making strategic upfront investments, and iv) Establishing global SCM and strengthening core functions of operations. The Company introduced its first syringe pump control software for assisting with total intravenous anesthesia in Japan. The Company also launched a home sleep recorder and a next-generation automated chest compression device, both of which were developed in North America, as well as affordable models of bedside monitors developed in Shanghai. The Company strengthened its overseas business structure through reorganizing its U.S. subsidiaries into a holding company structure in April 2023 and completing the transition in January 2024.

As a result, overall sales during the term under review increased 7.4% over FY2022 to ¥221,986 million. Operating income decreased 7.2% to ¥19,591 million because of increases in the cost of goods sold due to an increase in devaluation of inventories, as well as increased SG&A expenses due to the strengthening of human resources and R&D investment. Ordinary income increased 6.1% to ¥25,589 million, reflecting foreign exchange gains. Income attributable to owners of parent decreased 0.5% to ¥17,026 million because of an increase in the tax burden ratio due to an impact of losses before income taxes in some subsidiaries of the Company, while gain on revision of retirement benefit plan was recorded as extraordinary income.

[Sales by region]

Japan: Nihon Kohden concentrated on enhancing sales activities which match each market; the acute care hospital market, the small and mid-sized hospital market, and the clinic market. The Company also focused on its consumables and services business as well as strengthening its marketing and service capabilities, creating customer value which contributed to improving medical safety, patient outcomes, and operating efficiency. As a result of these initiatives, sales in all markets and all product categories increased. Sales in the public hospital and private hospital markets increased favorably driven by IT system solutions. Sales in the clinic market increased favorably and sales in the university market also increased. Sales of Physiological Measuring Equipment and Treatment Equipment increased favorably. Sales of Patient Monitors and Other Medical Equipment also increased. As a result, domestic sales increased 4.9% over FY2022 to ¥142,370 million.

International: Overseas sales showed double-digit growth due to yen depreciation and the impact of a change in the fiscal term of Defibtech, LLC according to the reorganization of subsidiaries in the U.S. In the Americas, sales in North America and Latin America showed double-digit growth. In North America, sales of Treatment Equipment increased significantly, while sales of Patient Monitors decreased. In Latin America, a large order in Costa Rica contributed to the sales increase. Sales in Mexico and Columbia also showed strong growth. Sales in Europe decreased on a comparable basis and increased on a yen basis. Sales in Germany and Russia decreased, while sales in Netherlands and Italy increased favorably. In Asia & Other, sales in the Middle East and Africa increased significantly, thanks to a large order in Morocco. Sales in Taiwan and Vietnam also increased favorably. Sales in China decreased due to the impact of the anti-corruption campaign from the third quarter of FY2023. As a result of the above developments, overseas sales increased 12.3% over FY2022 to ¥79,615 million.

• Defibtech, LLC changed its fiscal term from end on December 31 to end on March 31, according to Nihon Kohden's reorganization of its U.S. subsidiaries. In FY2023 ended March 31, 2024, Nihon Kohden consolidated the 15 months of Defibtech's operating results from January 1, 2023 to March 31, 2024.

[Sales by product category]

Physiological Measuring Equipment: In Japan, sales of diagnostic information systems and EEGs achieved double-digit growth. Sales of polygraphs for cath lab increased favorably and sales of ECGs also increased. Internationally, sales of EEGs increased favorably in Europe and Asia & Other, while sales of ECGs decreased in Asia & Other and Europe. Overall, sales increased 7.5% over the previous fiscal year to ¥46,517 million.

Patient Monitors: In Japan, sales of clinical information systems increased significantly and sales of consumables such as sensors also increased. Sales of transmitters and bedside monitors decreased. Internationally, sales in Latin America increased significantly thanks to large orders. Sales in Europe and Asia & Other decreased on a comparable basis and increased on a yen basis. Sales in North America decreased. Overall, sales increased 4.1% over the previous fiscal year to ¥84,130 million. Treatment Equipment: In Japan, sales of pacemakers and ICDs, ablation catheters in other treatment equipment, and defibrillators increased favorably. Sales of AEDs also increased. Internationally, sales of Defibtech AEDs and a mask-type ventilator increased significantly. Overall, sales increased 16.2% over the previous fiscal year to ¥51,665 million.

Other Medical Equipment: In Japan, sales of installation and maintenance services for medical devices as well as sales of hematology instruments and reagents increased favorably. Sales of locally purchased products decreased. Internationally, sales of hematology instruments and reagents increased favorably in Asia & Other. Overall, sales increased 4.3% over the previous fiscal year to ¥39,673 million.

－ 5 －

(Consolidated Sales Results by Product Category)

		(Millions of yen)
	FY2023
	Amount	Growth rate (%)
Physiological Measuring Equipment	46,517
Patient Monitors	84,130	+4.1
Treatment Equipment	51,665	+16.2
Other Medical Equipment	39,673	+4.3
Total	221,986	+7.4
Products	115,638	+6.2
Consumables and Services	106,347	+8.9
(Reference) Sales by Region
Domestic Sales	142,370	+4.9
Overseas Sales	79,615	+12.3
North America	37,058	+14.7
Latin America	6,039	+33.8
Europe	13,104	+6.1
Asia & Other	23,413	+7.9

• Salse in the Americas are disclosed separately for sales in North America and Latin America due to the completion of the reorganization of the U.S. subsidiaries.

Previously, the Nihon Kohden Group conducted its business activities within a single segment, medical electronic equipment- related business, which was internally subdivided into functions such as development, manufacturing, and sales. To further expand its overseas business, the Company has been focusing on strengthening its local R&D, production, and sales capabilities as well as increasing synergies. In April 2023, with the aim of achieving more efficient group governance and operations, the Company reorganized its U.S. subsidiaries into a holding company structure. Following the reorganization, which was completed in January 2024, the Company has shifted to a framework that comprehensively manages development, manufacturing, and sales in each region. Starting from the third quarter of FY2023, Nihon Kohden has also reclassified its reporting segments into three categories: Japan, North America, and Rest of World.

(Operating Results by Reporting Segments)

Japan: Sales increased 5.2% to ¥143,939 million and segment income decreased 8.4% to ¥20,605 million in FY2023.

North America: Sales increased 19.2% to ¥41,996 million and segment loss was ¥2,203 million in FY2023 (Segment loss of ¥1,182 million in FY2022).

Rest of World: Sales increased 4.3% to ¥36,050 million and segment income increased 57.0% to ¥2,309 million in FY2023.

－ 6 －

(2) Financial Position

Total assets at the end of the current fiscal year increased by ¥16,504 million compared with the end of the previous fiscal year to ¥233,233 million.

Current assets increased by ¥11,833 million to ¥184,333 million compared with the end of the previous fiscal year. This was mainly due to an increase in cash and deposits, accounts receivable (trade), securities (negotiable certificates of deposit) resulting from increasing the sales.

Fixed assets increased by ¥4,671 million to ¥48,899 million compared with the end of the previous fiscal year. This was mainly due to a decrease in deferred tax assets, as well as an increase in net defined benefit asset resulting from the influence of the revision of retirement benefit plans.

Total liabilities at the end of the current fiscal year increased by ¥3,026 million compared with the end of the previous fiscal year to ¥52,151 million. This was mainly due to an increase in accrued income taxes.

Total net assets at the end of the current fiscal year increased by ¥13,478 million compared with the end of the previous fiscal year to ¥181,082 million. This was mainly due to an increase in retained earnings.

As a result, net assets per share increased by ¥166.10 to ¥2,158.40 and the equity ratio increased by 0.3 percentage points from 77.3% at the end of the previous fiscal year to 77.6%.

(3) Cash Flows	Amounts (Millions of yen)
		Classification	FY2022	FY2023
	Cash and cash equivalents at beginning of period	60,095	43,988
		Cash flows from operating activities	-2,513	15,607
		Cash flows from investing activities	-7,647	-5,208
		Cash flows from financing activities	-7,485	-6,968
		Effect of exchange rate change on cash and cash equivalents	1,539	2,458
	Net increase (decrease) in cash and cash equivalents	-16,107	5,889
	Cash and cash equivalents at end of period	43,988	49,877

Cash and cash equivalents (hereinafter referred to as "funds") on a consolidated basis at the end of the current fiscal year increased by ¥5,889 million compared with the end of the previous fiscal year to ¥49,877 million.

The status of each cash flow and their factors in the current fiscal year are as follows. (Cash flows from operating activities)

Funds provided by operating activities increased ¥15,607 million (expenditure of ¥2,513 million in the previous year). This is mainly due to income before income taxes of ¥29,369 million, a decrease in inventories of ¥3,859 million, an increase in trade receivables of ¥4,088 million, a decrease in trade payables of ¥4,933 million.

(Cash flows from investing activities)

Funds used in investing activities decreased by ¥2,439 million year-on-year to ¥5,208 million. This is mainly due to the purchase of property, plant and equipment, amounting to ¥3,626 million, and the purchase of intangible assets such as PLM/MES systems, amounting to ¥1,106 million.

• PLM: Product Life-cycle Management, MES: Manufacturing Execution System. (Cash flows from financing activities)
  Funds used in financing activities decreased by ¥517 million year-on-year to ¥6,968 million. This is mainly due to cash dividends paid of ¥5,968 million and purchase of treasury shares of ¥1,124 million.

(Reference) Trends in Cash Flow-Related Indices

	FY2019	FY2020	FY2021	FY2022	FY2023
Equity ratio (%)	72.6	72.0	74.4	77.3	77.6
Market cap-based equity ratio (%)	206.1	142.5	118.5	139.4	144.0
Interest-bearing debt to cash flow ratio	4.4	2.9	1.4	-17.6	4.2
(%)
Interest coverage ratio (x)	1,009.1	6,826.2	12,712.9	-1,089.0	773.6

Equity ratio: Total net assets / Total assets

Market cap-based equity ratio: Total market capitalization / Total assets

Interest-bearing debt to cash flow ratio: Interest-bearing debt / Cash flow

Interest coverage ratio: Cash flow / Total interest payments *All of the above is calculated on a consolidated basis.

*Market capitalization is based on the total number of shares outstanding excluding treasury shares.

*The cash flow above is the cash flow from operating activities as stated in the consolidated statements of cash flows.

*The interest-bearing debt includes all liabilities posted in the consolidated balance sheets on which the company pays interest.

－ 7 －

(4) Basic Policy on Distribution of Profits and Dividends

Nihon Kohden recognizes that returning profits to shareholders is one of management's most important tasks. The basic policy on distribution of profits and dividends is to make investments for future business expansion and enhance shareholder returns as well as securing a sound financial foundation. The priority for distribution of profits is i) investment necessary for future business expansion used in R&D investments, capital investments, M&A or alliances, and development of human resources, and ii) shareholder returns. In terms of shareholder returns, the Company will increase dividends in a stable manner in line with growth in business performance. Share buybacks are conducted in a flexible manner, taking into account comprehensively the Company's future business deployment, investment plans, retained earnings, and stock price level. The Company has revised the indicators and targets for shareholder returns from a consolidated dividend payout ratio of 30% or more to a consolidated total return ratio of 35% or more.

The Company decided to pay the year-end dividend of 31 yen per share. As a result, the full-year dividend for FY2023 will be

61 yen per share, including the interim dividend of 30 yen per share. The Company also acquired ¥1,123 million of own shares on February 5, 2024, pursuant to the Board of Directors' resolution of February 2, 2024.

In consideration of business performance, the full-year dividend for FY2024 will be 31 yen per share, which consists of interim dividend of 15 yen and year-end dividend of 16 yen. Effective July 1, 2024, each share of common stock will be split into two shares pursuant to the Board of Directors' resolution of May 13, 2024. The Company calculates dividends per share for FY2024 based on number of shares after the stock split.

In addition, as described in the press release regarding the acquisition of own shares and cancellation of treasury shares announced today, the Company will acquire its own shares up to 10 billion yen between August 5, 2024 and March 31, 2025, and cancel 5.5 million shares* of its treasury shares on July 19, 2024.

• Based on number of shares after the stock split.

1. Consolidated Forecast for FY2024

The global economic outlook is expected to remain uncertain due to tight monetary policy in the U.S. and Europe as well as higher geopolitical risks. In Japan, as work style reforms for medical staff have taken effect in April 2024 and the medical treatment fee revision will occur in June 2024, task shifting and operational efficiency are further required in medical institutions. Each prefecture will also discuss a regional vision of the healthcare system in 2040. Internationally, medical institutions' business is gradually improving as the number of testing and surgical procedures increases. On the other hand, capital expenditure by medical institutions is still cautious due in part to inflation. In some emerging countries, there are the move towards protectionism and regulatory tightening for medical devices. Medical equipment companies are expected to face a severe business environment because they are required to react to such changes in the market environment promptly and flexibly and to meet the needs of medical institutions for solutions which contribute to improve the quality and efficiency of medical care.

Under these circumstances, Nihon Kohden will implement its Three-year Business Plan, BEACON 2030 Phase Ⅱ, starting from FY2024. The Company will implement the reform of the profit structure, make investments in growth areas, and establish collaborations between new business models and existing businesses. The Company aims to achieve targets for three indicators, which consist of growth, profitability, and capital efficiency, by conducting six key measures such as "Enhance Product Competitiveness" and "Focus on Growth of North America Business".

In Japan, Nihon Kohden will concentrate on enhancing sales activities which match each market; the acute care hospital market, the small and mid-sized hospital market, and the clinic market. The Company will also focus on consumables and services business as well as strengthening its marketing and service capabilities, creating customer value propositions that contribute to improving medical safety, patient outcomes, and operating efficiency. Demand for IT system solutions is expected to settle down compared to the strong growth in FY2023. However, demand for medical equipment and services which contribute to improving the quality and efficiency of medical care is expected to remain steady, especially for patient monitors and treatment equipment.

Internationally, sales are expected to be high-single digit growth on a comparable basis excluding the currency effect and the impact of a change in the fiscal term of Defibtech, LLC in FY2023. In North America, the Company will enhance its proposals for patient monitors by adding digital health solutions, while demand for AEDs is expected to settle down compared to the strong growth in FY2023. The Company will also focus on expanding sales of a mask-type ventilator, for which demand is increasing, and launch a mid-range ventilator. In the Rest of World, in China, there will be a reactionary decline compared to the first half of FY2023, when demand increased due to expansion of ICUs as well as the impact of the anti-corruption campaign. In Southeast Asia, the Company plans to establish a sales subsidiary in Vietnam in June 2024 and start local production in Indonesia by the end of FY2024. The Company will also strengthen its business structure and increase sales by meeting the needs of medical institutions.

Gross profit margin is expected to improve as devaluation of inventories will decrease. SG&A expenses are expected to increase due to wage increases. The Company will focus on improving personnel productivity through the reform of the profit structure of the entire Group.

Nihon Kohden will undertake capital investments for advancing global supply chain management. In India, the Company will start operation of a new hematology factory in Summer 2024. The Company will also build a new production facility both for manufacturing consumables and for R&D of automated production technology, with the acquisition of a site in Tsurugashima City, Saitama Prefecture, Japan, occurring in 2023, and the start of construction scheduled for July 2024, the completion of construction at the end of 2025, and the start of operation in 2026. To further the implementation of corporate DX, the Company will introduce PLM/MES* systems and generative AI.

* PLM: Product Life-cycle Management, MES: Manufacturing Execution System.

The Company forecasts its overall sales, operating income, ordinary income, and income attributable to owners of parent for FY2024 to be ¥229,000 million, ¥23,000 million, ¥23,000 million, and ¥16,000 million, respectively.

The Company's forecast for FY2024 is based on an exchange rate of 140 yen to the U.S. dollar and 150 yen to the euro.

－ 8 －

(Consolidated Forecast for FY2024 by Product Category)

		(Millions of yen)
	FY2024 (Forecast)
	Amount	Growth rate (%)
Physiological Measuring Equipment	47,900	+3.0
Patient Monitors	87,200	+3.6
Treatment Equipment	53,200	+3.0
Other Medical Equipment	40,700	+2.6
Total	229,000	+3.2
Products	117,900	+2.0
Consumables and Services	111,100	+4.5
(Reference) Sales by Region
Domestic Sales	147,000	+3.3
Overseas Sales	82,000	+3.0
North America	38,100	+2.8
Latin America	5,200	-13.9
Europe	12,400	-5.4
Asia & Other	26,300	+12.3

2. Management Policy

(1) Basic policies for corporate management

Nihon Kohden's Management Philosophy as a medical electronics manufacturer is that we contribute to the world by fighting disease and improving health with advanced technology, and create a fulfilling life for our employees. To realize its Management Philosophy, the Company aims at achieving sustained growth and establishing reliance as a company that is highly evaluated by the customers, shareholders, clients, and society in all aspects including products, service, technology, financial strength, and the quality of its employees.

In order to realize this basic policy and increase corporate value over the mid-tolong-term, the Company recognizes that enhancing corporate governance, by establishing a management structure aimed at improving the soundness, transparency, and efficiency of management, is an important management issue. In FY2023, the ratio of independent outside directors to the Board of Directors is more than one-third and is expected to be 50% subject to the approval at the 73rd Ordinary General Meeting of Shareholders to be held on June 26, 2024. Considering the issues of gender and international diversity, the Company has nominated two female directors and a foreign director as candidates.

The Company has adopted a Company with Audit & Supervisory Committee structure for strengthening supervisory functions, improving management transparency and soundness, and speeding up decision-making. At the same time, the Company has established a Nomination & Remuneration Committee, which is composed of three independent outside directors and the committee chair is also an independent outside director.

(2) Target management indices

Nihon Kohden aims to increase ROE to enhance corporate and shareholder value. The Company sets its target consolidated ROE at 12%, which exceeds its cost of capital, in its Three-year Business Plan, BEACON 2030 Phase Ⅱ, which starts from April 2024. The Company currently estimates that its cost of capital is around 5%, which are reviewed every year.

In order to achieve the target, the Company will focus on improving its profitability by implementing its Three-year Business Plan. The Company will also improve working capital by introducing Nihon Kohden's own ROIC formula and reducing the cash conversion cycle through measures such as reduction of inventories and faster debt collection, as well as establishing investment decision criteria and enhancing shareholder return.

To respond to increased demand due to the COVID-19 pandemic and the shortage of semiconductors, the Company has increased inventories of finished goods and parts. This has resulted in a longer cash conversion cycle, 232 days in FY2023. In FY2024, the Company will aim at 190 days, a similar level to FY2021 through further inventory control mainly at Production Operations, which was newly established in April 2024, as well as by faster debt collection.

To increase corporate value through investment in future business expansion, the Company has adopted Net Present Value (NPV) and Internal Rate of Return (IRR) as investment decision criteria and started evaluating new investment projects in FY2022. In Phase Ⅱ, the Company will set its target IRR at 12%, which exceeds its cost of capital. The Board of Directors verifies the progress and effectiveness of investment projects beyond a certain amount every year.

(3) Challenges to be addressed and mid-tolong-term management strategy

In 2020, Nihon Kohden set out its Long-term Vision, BEACON 2030, for the next ten years to 2030. The Company aims to create a better future for people and healthcare by solving global medical issues. The Company has also set three transformations to be achieved: Transforming into a global company creating high added value, Creating a solution business providing superior customer value, and Establishing a global organization founded on Operational Excellence.

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Three-year Business Plan, BEACON 2030 Phase I, covering FY2021 to FY2023>

In Japan, the Company promoted creating customer value propositions that contributed to improving medical safety, patient outcomes, and operating efficiency, as healthcare systems to respond to emerging infectious diseases were established and work style reforms for medical staff were implemented. Internationally, while the shortage of nurses and inflation of prices continued to have a negative impact, the Company focused on proposing medical equipment which contributed to easing medical staff workloads and enhancing its business foundation in the U.S. and emerging markets. The Company launched a series of its first new high-value-added products such as a fully automatic AED, a resuscitation monitor for neonates, syringe pump control software for assisting with total intravenous anesthesia, and a mid-range ventilator developed by Nihon Kohden OrangeMed, LLC in the U.S. Internationally, Nihon Kohden strengthened its business structure. The Company acquired AMP3D, LLC in the U.S. and Software Team Srl in Italy. The Company also reorganized its U.S. subsidiaries into a holding company structure.

As a result, in FY2023 ended March 2024, which was the final year of BEACON 2030 Phase I, domestic sales increased favorably. Overseas sales fell short of the Company's target on a comparable basis excluding the impact of foreign exchange rates, due to changes in the market environment mainly in the U.S. and China, which the Company has focused on. In addition to actual overseas sales fell short of its target, operating income margin fell short of its target because of increases in the cost of goods sold due to an increase in devaluation of inventories, as well as increased SG&A expenses due to the strengthening of human resources, wage increase, and inflation. Thus, improvement of profitability remains an issue. Additionally, the increased inventories of finished goods and parts due to the shortage of semiconductors led to a longer cash conversion cycle, while the Company promoted supply chain management reforms and continued to supply products globally.

	¥100 million	Target for FY2023	Results in FY2023
Sales	1,970	2,219
	Domestic Sales	1,340	1,423
	Overseas Sales	630	796
Operating Income	200	195
Operating Income Margin	10.2%	8.8%
Income attributable to	138	170
owners of parent
ROE	10%	9.8%

<> Business Plan, BEACON 2030 Phase II, covering FY2024 to FY2026>

Faced with a rapidly changing global situation and a difficult business environment, in BEACON 2030 Phase II, Nihon Kohden will implement the reform of the profit structure, make investments in growth areas, and establish collaborations between new business models and existing businesses, based on the results and issues of the previous Three-year Business Plan.

1. Three Indicators and Six Key Measures

Nihon Kohden will strengthen its growth, profitability, and capital efficiency, as well as the practice of Sustainability Management.

[Growth] Sales CAGR of 5% (FY2023-FY2026)

Enhance product competitiveness, Focus on growth of North America Business [Profitability] Operating income margin of 15% (FY2026)

Implement the reform of the profit structure of the entire Group, Advance global supply chain management [Capital efficiency] ROE of 12% (FY2026)

Introduce Nihon Kohden's own ROIC formula, Reduce cash conversion cycle

(1) [Growth] Enhance product competitiveness

Nihon Kohden will focus on strengthening its core Patient Monitoring Business and expanding Treatment Equipment Business including ventilators which are expected to grow rapidly as well as Consumables and Services Business and Solution Business including digital health solutions.

The Company will establish a common design platform and multi-plant design, refine cybersecurity measures, and strengthen QA/RA structures. The Company will also shorten the development time for new products by promoting R&D process reforms in addition to the introduction of PLM/MES systems.

• QA: Quality Assurance, RA: Regulatory Affairs, PLM: Product Life-cycle Management, MES: Manufacturing Execution System.
  (2) [Growth] Focus on growth of North America Business
  Nihon Kohden will focus on the market strategy in three regions: Japan, North America, Rest of World. In North America, which is expected to high growth, the Company aims to expand its market share and improve its profitability by prioritizing allocation of resources.
  [Japan] Strengthen customer base and achieve sustainable growth by enhancing customer value proposition
  [North America] Strengthen ties with the major IDN/GPO & DoD/VA and improve brand awareness and profitability
  [Rest of World] Comply with laws and regulations related to medical equipment and strengthen local R&D, production, sales, and service capabilities
• IDN: Integrated Delivery Network, GPO: Group Purchase Organization, DoD: Department of Defense, VA: Veterans Affairs.
  (3) [Profitability] Implement the reform of the profit structure of the entire Group Implement several measures to improve product mix, productivity, and supply chains

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