Mani Inc

TSE:7730

Earnings Call Transcript 2022-Q2

[齊藤 雅彦, executive]

I am Masahiko Saito, President and Representative Executive Officer of MANI Inc. I would like to begin explaining our financial results for the second quarter of fiscal year 2022. Furthermore, on April 4, 2022, MANI Inc. shifted to the Prime Market, a new market segment of the Tokyo Stock Exchange. We are determined to keep our focus on delivering sustainable growth and enhance our corporate value over the medium to long term.

As such, we request your continued support and understanding. First, although I believe you are already familiar with this information, I would like to explain the product segments of our Group for the benefit of stakeholders joining us for the first time. There are 3 product segments: Surgical, Eyeless Needle and Dental/GDF.

First is the Surgical segment. The Surgical segment includes surgical instruments centered around ophthalmic instruments, such as ophthalmic knives and skin staplers.

Second 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 a medical setting. We primarily produce the needle portion of this product on an OEM basis. Additionally, we also sell eyeless needles with a thread attached as finalized products under the MANI brand. These consist of surgical sutures and dental sutures.

Third is the Dental/GDF segment. This segment consists of products used in the treatment of dental cavities, such as dental endodontic instruments like reamer files, and dental rotary and cutting instruments such as Dia-burs. We also develop, manufacture and sell dental restoration materials at GDF, our German subsidiary, and these are categorized as part of the dental segment.

As for the volume of sales of each segment, the Surgical and Eyeless Needle segments each account for 30% of total sales with the Dental/GDF segment accounting for approximately 40%. For the history of our main products, please refer to Page 27 of the supplementary materials if you have time.

Shown here is today's agenda. To begin, I would like to present the summary of our consolidated financial results for the second quarter of fiscal year 2022, the 6-month period from September 2021 to February 2022. Next, I will report on our full year financial forecast for fiscal year 2022. And lastly, I will introduce our key products and explain our sustainability initiatives. I will not explain the supplementary materials at this time, but I would be happy if you could take a look at them when you have time.

I will now explain the financial results for the second quarter of fiscal year 2022. Shown here are the consolidated financial results for the second quarter of fiscal year 2022. As you can see highlighted in the blue column, net sales and operating income increased year-on-year by 16.2% and 15.6%, respectively. This represents an increase in both sales and profits.

I will now be going over each line item in order, starting with net sales at the top. We saw a recovery in sales demand in Asia and Europe. Net sales increased from JPY 8.304 billion in the first half of fiscal year 2021 to JPY 9.651 billion in the first half of fiscal year 2022. This is a year-on-year increase of JPY 1.347 billion or 16.2%.

Next is the cost of sales ratio. The cost of sales ratio worsened by 2.8 points year-on-year from 35.4% to 38.2%. This was due to the disposal of dead stock that have no expectation of shipment in the future. SG&A expenses went up slightly year-on-year, increasing by JPY 183 million or 6.8%. Operating income increased from JPY 2.665 billion in the first half of fiscal year 2021 to JPY 3.079 billion in the first half of fiscal year 2022. This is a year-on-year increase of JPY 414 million or 15.6%.

While the operating income ratio worsened slightly from 32.1% to 31.9%, a decrease in the SG&A expenses ratio allowed us to secure the same level as in the previous fiscal year. Ordinary income increased from JPY 2.740 billion in the first half of fiscal year 2021 to JPY 3.390 billion in the first half of fiscal year 2022. This is a year-on-year increase of JPY 650 million or 23.7%, which was larger than the increase in operating income, mainly due to foreign exchange gains resulting from the Yen's depreciation trend.

Lastly, net income increased from JPY 2.014 billion in the first half of fiscal year 2021 to JPY 2.333 billion in the first half of fiscal year 2022. This is a year-on-year increase of JPY 318 million for a percentage increase, mostly in line with the increase in sales.

Next, I would now like to present the sales status by product segment. First, regarding the impact of foreign exchange, the Japanese Yen has depreciated significantly against the U.S. dollar from JPY 104.72 last fiscal year to JPY 113.57 this fiscal year against the Euro from JPY 125.32 last fiscal year to JPY 130.10 in this fiscal year. And against the Chinese Yuan from JPY 15.87 last fiscal year to JPY 17.77 this fiscal year. Foreign exchange, therefore, had a positive impact of JPY 455 million.

In the Surgical segment, there was a year-on-year increase of JPY 414 million due to aggressive promotional activities for ophthalmic knives in China as well as a recovery in demand in Europe. In the eyeless needle segment, there was a year-on-year increase of JPY 290 million due to strong sales in China and Europe.

In the Dental/GDF segment, in addition to a sales increase of Dia-burs and reamer files in China and India, GDF products for the North American market also posted strong results, resulting in a year-on-year increase of JPY 186 million. In light of these various factors, net sales went from JPY 8.304 billion in the first half of fiscal year 2021 to JPY 9.651 billion in the first half of fiscal year 2022. This is a year-on-year increase of JPY 1.347 billion or 16.2%.

Next is the sales status by region. As I mentioned in the previous slide, demand recovery in Asia, mainly in China and India as well as in Europe resulted in a significant year-on-year increase. On the other hand, those sales in Japan declined slightly due to the impact of a voluntary product recall. Overall sales have increased.

Next is the operating income status. The sections colored blue in the waterfall chart show factors contributing to year-on-year increase in operating income, while the sections colored gray show the opposite. Foreign exchange made a positive year-on-year contribution of JPY 210 million. Thanks to the continued depreciation of the Japanese Yen.

Next, an increase in sales volume had a positive impact of JPY 515 million year-on-year. While on the other hand, the cost of sales ratio worsened on the account of the disposal of dead stock, weighing down on operating income by JPY 216 million. Additionally, gross profit at GDF improved, making a positive contribution of JPY 31 million. Putting these factors together, the gross profit impact was positive JPY 330 million.

Next is SG&A expenses. Sales costs and G&A costs increased due to expenses for enhancement in systems. Putting these together, the SG&A expenses impact was negative JPY 125 million. Overall, operating income increased year-on-year from JPY 2.665 billion in the first half of fiscal year 2021 to JPY 3.079 billion in the first half of fiscal year 2022. This represents a year-on-year increase of JPY 414 million or 15.6%.

Next, I would like to present the balance sheet, starting with the side of assets, first. A year-on-year increase in sales and profits led to an increase in cash and deposits. Additionally, GDF, our German subsidiary, acquired land for the construction of a factory. As such, total assets increased from JPY 42.6 billion to JPY 44.3 billion.

Next, I would like to explain about liabilities and net assets. Liabilities decreased from JPY 3.4 billion to JPY 3.3 billion due to a decrease in income taxes payable and others. Lastly, net assets increased due to an increase in retained earnings from JPY 39.2 billion to JPY 41 billion.

Next is the cash flow. Net cash provided by operating activities decreased by approximately JPY 9 million from JPY 3.017 billion to JPY 3.008 billion. While net income increased, this decrease was due to higher income taxes payable.

Next, net cash provided by investing activities went from around negative JPY 500 million to negative JPY 2 billion due to the acquisition of land for the new GDF factory.

Lastly, net cash provided by financing activities went from negative JPY 1.1 billion to negative JPY 1.2 billion on account of an increase in dividends paid. As a result of these 3 cash flows, the cash and cash equivalents balance at the end of February 2022 increased from JPY 18 billion at the end of last fiscal year to JPY 18.2 billion.

Next, I will explain the full year forecast for fiscal year 2022. This page contains a summary of the fiscal year 2022 financial forecasts. The aforementioned cumulative results for the end of the second quarter exceeded the forecasts disclosed on October 8, 2021, in terms of sales and profits. Actual net sales stood at JPY 9.651 billion, while the plan was JPY 8.944 billion, resulting in a progress rate of 108%, an increase compared to the plan.

Actual operating income stood at JPY 3.079 billion compared to JPY 2.692 billion in the plan, resulting in a progress rate of 114%, also an increase compared to the plan. While there is a need to consider geopolitical risks, the full fiscal year forecasts for fiscal year 2022 as disclosed on October 8, 2021, currently remain unchanged. The rightmost column colored blue shows the fiscal year 2022 forecast, which calls for JPY 18.801 billion in net sales and JPY 5.892 billion in operating income. Although we refrain from disclosing detailed figures, our sales to Russia account for about 5% of our total sales.

Furthermore, while the impact from supply chains and soaring raw material prices was somewhat limited as of the end of the second quarter, the situation remains fluid and prone to change on a day-to-day basis. If there are any additional matters that needed to be announced, we will promptly disclose them on our website or other channels. The status of capital investment and R&D investment is as follows: Capital investment for the second quarter of fiscal year 2022 stood at JPY 1.3 billion. The full fiscal year forecast is of JPY 2.8 billion, of which investments related to GDF's new factory is expected to account for approximately JPY 1.5 billion.

Next is R&D investment. During fiscal year 2022, we continue to advance a framework targeting the selection and concentration of development themes. R&D investment for the second quarter of fiscal year 2022 stood at JPY 700 million, and the full year forecast is JPY 1.51 billion for a ratio to consolidated sales of 8.1%. With that being said, our stated policy of allocating to R&D, the equivalent of approximately 10% of total sales remains unchanged as we plan to aggressively invest in R&D in the next fiscal year and beyond.

Next is the topic of dividends. As originally planned, for fiscal year 2022, we have decided to pay an interim dividend of JPY 12 per share. Additionally, we are planning to pay a year-end dividend of JPY 13 per share as originally planned. As you can see from the graph, the section colored navy blue represents the dividend per share, which grew for 8 consecutive fiscal years starting in fiscal year 2013.

For fiscal year 2022, we hope to distribute an annual dividend of JPY 25 per share and realize dividend growth for the ninth consecutive fiscal year. The dividend payout ratio forecast for fiscal year 2022 is 61.7%. Going forward, we would like to continue carrying out stable and proactive shareholder returns.

I would like to conclude today's presentation by reporting 2 recent topics. First, allow me to introduce 2 key products, starting with JIZAI, a nickel titanium rotary file for use in root canal treatment. This product features a combination of our original cross-sectional shapes, unique heat treatment and processing technologies and was developed with an emphasis on traceability towards bent root canals. It was also designed in order to reduce unintended pull-ins at the time of use, prioritizing ease of use by dentists.

The second product is a vitreous forceps product. This product is used in vitreous surgery and allows instruments to be inserted into the ocular area through microscopic holes of about 0.5 millimeters in diameter to perform precise treatment. The product design, it takes full advantage of our company's microfabrication technology, which is one of our strengths and is capable of meeting the needs of physicians who perform delicate treatments.

Starting on the next page, I would like to explain the nickel titanium rotary file, JIZAI and the vitreous forceps in detail using video clips. This video shows JIZAI, our nickel titanium rotary file product, being used in a S-curved root canal model. JIZAI draws its name from the fact that it can be manipulated at will, in a manner exactly as intended by dentists. As you can see, the shape of the file has changed in accordance with the curved shape of the root canal. This product offers superior root canal centering ability and minimizing deviations from the root canal. We offer a more in-depth conceptual breakdown in the supplementary materials on Page 28. So we welcome you to consult these if you have time.

This video shows the vitreous forceps instrument I mentioned earlier, in action. In this test, we used quail eggs to simulate a surgery targeting the proliferative membrane found in the posterior ocular cavity in humans. As you can see, this instrument allows for a firm grip on this extremely thin membrane surface. The concept for this vitreous forces product is good visibility, rigidity and the ability for precise movements exactly as intended by the user. The plan for the mass production of JIZAI is proceeding as planned.

As for sales, since surgery using this product is carried out differently. There is a need for us to hold hands-on seminars to explain and demonstrate how to use the product. Up until the end of the second quarter, we had difficulties in holding seminars due to the pandemic. However, for the second half of the year, we plan to strengthen sales promotion, including holding seminars. We have been receiving very positive feedbacks from dentists who have attended our seminars. As for our vitreous forceps, nonclinical evaluation by a doctor has been completed and was very favorable.

Going forward, we plan on gaining regulatory approval in the third quarter and then commence actual clinical evaluation in actual surgeries. The official launch is scheduled for August of this fiscal year.

Next, I would like to discuss about our sustainability initiatives. We promote various sustainability activities to achieve both our company's growth and a sustainable society. In January 2022, we registered under the Tochigi SDG's Promotion Company Registration System to disclose our environmental, social and economic initiatives. As a specific initiative, we are planning to switch to substantially 100% renewable energy sources at our offices in Japan during fiscal year 2022.

We are, therefore, making significant progress toward completely eliminating direct CO2 emissions in Japan. On the other hand, emissions at MHC, our production base in Vietnam, account for the majority of emissions for the MANI Group as a whole. As such, we will continue to promote efforts to reduce CO2 emissions. Furthermore, in March of 2022, we carried out a donation of JPY 10 million through the Japanese Red Cross Society, directed to providing humanitarian aid to Ukraine.

This concludes today's financial results presentation for MANI Inc. covering the second quarter of fiscal year 2022. Thank you very much for your kind attention.