Mani Inc

TSE:7730

Q3-2025 Earnings Call

[Masaya Watanabe, executive]

Thank you for taking the time off your busy schedules to break the heat and attend today's presentation. I would like to begin by explaining our financial results for the third quarter of fiscal year 2025.

The first issue on today's’ agenda is the state of the voluntary recall of MANI DIA-BURS in China. As previously announced, we started this recall in March, and it has been progressing smoothly for four months now. We expect this recall to be completed by August.

We now have a fairly accurate idea of the scale of this recall and of its impact on company results, which we have compiled into the table on page 2 and incorporated into the forecasts.

The main point I would like to make today is therefore the fact that we have already reflected the impact of this recall on the forecasts. The table shows the impact on sales and profit through the end of the third quarter on the left, and the full year forecast on the right.

As you can see, we are forecasting a full-year sales reduction of JPY 1.19 billion from reduced new shipments, and JPY 330 million from product returns due to the recall. Similarly, we expect this recall to weigh down on fiscal year 2025 profit results by JPY 1.2 billion.

Compared to the initial outlook announced back in the second quarter, the volume of recalled DIA-BURS has increased. Based on past experience, we initially expected about 10% of the DIA-BURS in the market to be returned. However, we are now seeing that around 25% have come back. Regardless of the actual percentage, we want to complete this recall so we can put this incident behind us and move forward constructively.

The following graph shows the outlook for our business in China for fiscal year 2025 and our expected recovery that will follow.

As shown here, unfortunately, our revenue forecast for fiscal year 2025 has been revised downward from JPY 8.0 billion to JPY 7.7 billion. This JPY 300 million decrease from our previous guidance is due to the increased recall volume, as I mentioned earlier. However, we view fiscal year 2025 as the bottom line, and we aim to get back on a growth track in fiscal years 2026 and 2027.

In fiscal year 2025, we will continue sales of products with no registration issues, which account for 50% of our entire product lineup, and expect approval of the amendment application for the remaining products to be approved by the Chinese regulatory authorities by March 2026.

Things are progressing slightly ahead of schedule. The graph does not show the number forecasts for the Surgical and Eyeless Needle segments, but, as you can see, we expect strong growth in sales of these products outside of the Dental segment.

In light of these factors, we have revised our full-year forecast for fiscal year 2025. The second column on the left shows that we are now guiding for JPY 29.6 billion in net sales, JPY 7.9 billion in operating income and 5.45 billion in net income. If we were to exclude the negative impact from the recall of our MANI DIA-BURS, the operating income margin would be close to the previous forecast of 29.5%. Furthermore, this indicates that our other segments are performing well.

Another factor is the effects of President Trump's tariff policy. We ship products from Vietnam, and according to reports, a 20% tariff has been agreed upon. We do around JPY 3 billion in business to the U.S. annually, so we can take this number and apply the tariff rate to get an estimate of the impact. We also sell to B2B customers, and the relationship with our customers is currently mixed. For example, some absorb the extra tariff costs, while others stock up before the tariffs are enforced.

Given this mix different clients will have different responses to the tariffs, making it quite difficult for us to predict the impact. Currently, we estimate that around 40% will be affected, and we have factored in a JPY 40 million impact.

This concludes my overview of the revised full-year forecast for fiscal year 2025.

Allow me to start with the consolidated financial results for the third quarter. As we went over just now, results were significantly impacted by the voluntary recall of DIA-BURS, but, conversely, the Surgical and Eyeless Needle segments delivered strong results. We recorded a year-on-year decrease in sales and income in the Dental segment.

This table provides a breakdown from operating income down to profit before income taxes on a year-on-year performance basis. The Japanese yen has appreciated slightly, so this constituted a headwind on the foreign exchange side, and furthermore, we also recorded an increase in depreciation related to the Hanaoka Factory, which was completed in January of this year. We recorded around JPY 120 million in depreciation over 4 months. If we extrapolate this figure, we expect around JPY 360 million on an annual basis.

This waterfall chart shows the net sales status by segment. As you can see, sales were negatively impacted by the voluntary recall of DIA-BURS and weak sales from MMG; however, sales by other segments have posted a year-on-year sales increase. I will explain the details of MMG's sales later on. In this context, you can see that the regions of Russia and India are growing, especially in MANI Dental.

Net sales grew globally across the board, with the sole significant exception being China. Sales growth from products in the Eyeless Needle and Dental segments was particularly pronounced in Central and South America, Russia, and Egypt.

We significantly enhanced sales and marketing efforts in collaboration with dental distributors in Japan, and these efforts have borne fruit in the form of sales growth in this market, as well.

As for the Americas, sales were down in North America, but higher in Central and South America. This is partly the result of our Eyeless Needle clients moving their factories from the U.S. to Central America. So, in reality, we have been able to grow sales in North America.

This next waterfall chart shows the operating income status. Operating income is down due to temporary factors like the voluntary recall of DIA-BURS in China and performance-linked bonuses from the previous fiscal year. As we've ’ve mentioned on previous occasions, bonus provisions for the previous fiscal year ended up being paid a lag, so this, together with the impact of the recalls, ended up having a temporary, non-recurring impact of approximately JPY 1.2 billion. Excluding these impacts, sales were up, and the cost of sales improved, while, conversely, SG&A expenses increased. All in all, these results were more or less in line with company forecasts.

Next are the financial results by segment. Net sales were up 16% in the Surgical segment, up 6% in the Eyeless Needle segment, and down 10% in the Dental segment.

Allow me to go over the results for each segment in more detail, starting with the Surgical segment.

Ophthalmic knives drove sales growth in the Surgical segment, where sales increased globally across the board, particularly in Europe, Asia, China and Japan. In addition, profitability improved due to price optimization and cost reduction, which has pushed back the increase in SG&A expenses and led to growth in operating income.

Our priority measures for the future are as follows: Firstly, we will continue to strengthen our sales and marketing activities around the world; secondly, we will actively promote the strategic alliance that we have formed with MST, Microsurgical Technology, in the U.S.; thirdly, in Europe and Asia, we already have high market shares in certain regions, so we will aim to expand these leading models in other regions.

The Eyeless Needle segment recorded a year-on-year sales growth of 6%, slightly exceeding the overall market growth, as we secured more market share. In China, we are promoting strategic partnerships with JINHUAN, and we are providing needles to suture manufacturers under the GPO (sic) [ VPO ], which also stands for volume purchase order and pertains to collective buying power purchases by the Chinese government.

Under this initiative, we benefit from tailwinds from China's preferential treatment of companies that manufacture products within its borders. Gross profit margin improved, but operating income margin declined slightly due to increased SG&A expenses.

Our priority measures for the future are as follows: Firstly, we will expand sales by taking advantage of our special needles’ product superiority; for example, our microsurgery needles and black needles. Secondly, we will enhance our efforts to counter emerging market competitors, with a particular focus on refining account strategies. Thirdly, we would also like to work on catching up in terms of manufacturing costs.

As for the Dental segment, while the results were affected by the voluntary recall of DIA-BURS, excluding this impact, we recorded 15% year-on-year growth. Our German subsidiary MMG, unfortunately, ended up unprofitable and is an issue for us.

This business needs a results turnaround, and we are carrying out structural transformation efforts to this end. Specifically, MMG has three major customers, and a decline in orders from these customers was a significant negative factor. Against this backdrop, we are working to deepen engagement with tier 2 customers and carry out cost reform initiatives.

As for JIZAI, annual shipments have reached 280,000 units, marking a 66% increase on a year-on-year basis, but our market share is still small, so we will continue to strengthen our efforts on this front. We are also developing JIZAI-2, which we expect to be able to bring to market next fiscal year.

Lastly, in the U.S., we will respond to large-scale inquiries in the country.

Next is the balance sheet. In terms of the key topics here: We invested in the construction of the Hanaoka Factory, which is now complete, and we are currently installing the necessary equipment. This has led to a decrease in cash and deposits, while noncurrent assets increased.

While inventories remained more or less flat at JPY 6.3 billion, sales have gone up, meaning a reduction of 4 holding days. In other words, we are seeing the results of our transformation efforts at the supply chain management level.

Next, I would like to introduce two key topics. The first key topic is the business progress in the North American market. We position business expansion in North America as a key initiative for MANI. As previously announced, we established a local subsidiary in the U.S. in September last year, called MANI MEDICAL AMERICA, INC.

We then entered a strategic partnership with MicroSurgical Technology in April of this year and additionally, we also hired a local manager with extensive industry experience, who has helped us make significant progress in strengthening our sales structure in the Surgical segment.

In light of these various initiatives, we position expanding our business presence in the U.S. as a key strategic investment theme. Specifically, we will work to increase our ophthalmic knife market share in the country from 10% to 30%. Additionally, as we develop a closer relationship with customers, the dynamic shifts away from the mere sale of medical devices and toward touch points with KOL doctors. As such, we want to leverage this to build a business in the U.S. based on a customer-centric approach.

The surgical device market in the U.S. centers primarily around pre-packaged kits. In particular, top industry players like Alcon have phacoemulsification machines, and their business revolves around disposable consumable components for these machines. This is a business model very particular to the U.S., and we are currently carrying out efforts to enter this business.

In this context, our alliance with MST is therefore very valuable, and both MANI and MST are now discussing and planning the best ways to offer each other’s products on a global scale. Then, we will be launching new products in the domain of ophthalmology, like vitreous forceps and hooks allowing us to grow our device lineup and expand into a broader business domain.

As for measures to cope with President Trump’'s tariff policy, although we do not have a perfect solution, one of our countermeasures is to promote changes in the commercial distribution channels. We have been selling directly from our factory in Vietnam to our customers, but going forward, we will shift to selling through MANI MEDICAL AMERICA, INC.

Additionally, we will engage in detailed and careful negotiations with B2B customers as it pertains to these tariffs. We have over 10 client accounts in the Eyeless Needle segment in the U.S., so we will work to create new opportunities by deepening relationships with these clients.

The sales trend is shown in the upper right, and the forecast for fiscal year 2025 is slightly above JPY 2.8 billion. Earlier, I mentioned the impact on Eyeless Needle segment sales of our U.S. customers relocating their factories to Central America, and, going forward, we intend to grow sales to the U.S.

The second key topic is the start of PPA, power purchase agreement, services at the Hanaoka Factory. This initiative involves the installation of a solar power system in collaboration with TOCHIGI BANK, LTD., and we have now begun operations using this system.

Lastly, during MANI's results presentation in January, we said we would be releasing the next medium-term management plan at some point between July and September, but we have now decided on October 8, 2025, as the date, which is the scheduled date for the full-year earnings announcement for fiscal year 2025.

This concludes today’s presentation.