Mani, Inc. (7730) Earnings Call Transcript & Summary

Thank you for taking the time out of your busy schedules to view MANI's briefing on financial results for fiscal year 2025 and the company's new medium-term management plan 2029. Mr. Takayuki Yamamoto has assumed the position of CFO starting this September. Until now, Mr. Kazuo Takahashi had been the liaison with stakeholders, and Mr. Yamamoto has now taken on this role. I would now like to explain MANI's financial results for fiscal year 2025. Allow me to start with an update on the voluntary recall of MANI DIA-BURS in China. As previously announced, this voluntary recall began in March 2025 and was mostly completed by August 2025. The company recalled a total of 4.2 million dia-burs. The impact on business performance is shown in the table below. The voluntary recall led to a decrease in new orders and sales, and we also incurred costs associated with the cancellation of the original sales invoices for the products sold prior to the recall. All in all, the negative impact on profit totaled JPY 1.192 billion. We have applied for regulatory modification of the corrected products, and inquiries from the regulatory authority have, for the most part, been satisfied. It's the PRC National week holiday in China right now, so there's this hiatus, but we expect to obtain approval after that. In summary, we anticipate sales of our full lineup of dia-burs to resume from the second quarter of fiscal year 2026, starting in December 2025. Our outlook for the business in China is premised on the developments I just outlined. As you can see from the chart, the recall led to a sales slump in fiscal year 2025. While sales of dia-burs fell to approximately 50% of pre-recall levels, we are targeting a sales recovery in this category and a return to over 90% of pre-recall levels by fiscal year 2027. In fact, among our customers, 90% are using MANI's dia-burs, while also combining them with domestically produced Chinese dia-burs. We are in touch with our clients, so we will work to achieve a recovery on this front. The Surgical and Eyeless Needle segments achieved solid sales growth in fiscal year 2025. Regarding the forecasts for fiscal year 2026 and beyond, we will work on a recovery back to a growth trajectory, responding to and capitalizing on China's localization trend. The consolidated financial results for the fiscal year ended August 2025 were as follows: we recorded JPY 29.968 billion in net sales, JPY 8.193 billion in operating income and 27.3% in operating income margin. As you'll remember, we lowered the full year guidance back in July. The revised forecasts can be found on the second column from the right and show a net sales and operating income outperformance of JPY 300 million. In this fiscal year's results, we conducted an asset reevaluation, which included 2 major items. The first was an impairment loss on the noncurrent assets of MMG in Germany. MMG posted its second consecutive year of losses, meaning these assets were at risk of an impairment. As such, we carried out a stress test and recorded JPY 1.19 billion in extraordinary losses. Specifically, we impaired the value of plant infrastructure and manufacturing equipment assets by 32%. The second element of this asset reevaluation was the inventory disposal of long stagnant products. We usually do just under JPY 50 million in inventory write-offs, but we ended up with an inventory disposal totaling JPY 98 million. This table shows the detailed results for operating income, ordinary income and profit before income taxes. Noteworthy here was an increase in depreciation related to the Hanaoka Factory. The factory was inoperational during the first 8 months of the year, starting in January. So we recorded the appropriate depreciation amount under nonoperating expenses. We also recorded the aforementioned impairment of noncurrent assets at MMG, totaling JPY 1.19 billion under extraordinary losses. This waterfall chart shows each segment's respective contribution to net sales. While the voluntary recall of MANI DIA-BURS in China negatively impacted sales, the Surgical, Eyeless Needle and Dental, excluding the category of dia-burs, all recorded year-on-year sales growth. On the other hand, sales decreased by JPY 37 million at MMG, mainly due to sluggish sales performance, especially with major customers in Europe. This waterfall chart breaks down the net sales status by region. By and large, we saw sales growth across the board. In Japan, we strengthened sales efforts in the Dental segment, allowing us to grow sales by 40%. Operating income was negatively impacted by unfavorable foreign exchange rates, the voluntary recall of our dia-burs and allowances for performance-linked bonuses, which carried over from the prior fiscal year. As I've explained before, this is a temporary factor that is offset by a positive gross profit impact, thanks to an increase in sales and an improvement in the cost of sales. Additionally, while the personnel headcount grew, SG&A expenses remained under control. I would now like to explain the financial results by segment. The upper row shows net sales, while the bottom row shows operating income. We will be looking at the results for each segment, starting with Surgical. In the fourth quarter, we saw strong sales in North America due to the partnership with MST, Microsurgical Technology. We achieved growth on a full year basis, as sales increased by 13.8% year-on-year. Simultaneously, profitability improved due to price optimization and cost reductions. Going forward, we want to operate our business globally in the United States, China, Europe and Asia. Regarding the Eyeless Needle segment in the fourth quarter, sales increased due to orders from suture manufacturer customers in China that acquired a contract through GPO. Including this, we registered a year-on-year sales growth of 9.4%. Profit was down slightly, although gross profit improved, selling, general and administrative expenses increased by a greater amount, resulting in a slight decline in profit. In terms of future key measures, we will expand sales in the high-end segment by leveraging our special needles' product superiority, for example, microsurgery and black needles. Lastly, we will also work to achieve a reduction in manufacturing costs and enhance competitiveness amid increasing competition with emerging market players, particularly manufacturers in India. Regarding the Dental segment, despite a strong performance in Japan, the Dental segment saw a year-on-year sales contraction of 6.2%. Additionally, our dental restoration material business at MMG, our German subsidiary, recorded an operating loss of JPY 320 million. This, in turn, led to the impairment of noncurrent assets at MMG. JIZAI continued seeing steady sales growth with 340,000 units shipped cumulatively in fiscal year 2025 and exceeding JPY 200 million in sales. That said, we view these results as merely a checkpoint on the way to new heights, so we will continue sales promotion efforts going forward. We position a robust recovery in dia-bur sales in fiscal year 2026 as a key target. Cash and deposits decreased on the balance sheet due to the completion of the Hanaoka Factory, resulting in an accompanying increase in noncurrent assets. Please refer to Page 14 for other balance sheet items and details. We recorded a cash inflow of JPY 7.017 billion from operating activities, accompanied by a cash outflow of JPY 7.154 billion from investing activities. Operating cash flow was down on a year-on-year basis due to the payment of consumption tax related to completed construction at the Hanaoka Factory. This amount will be reimbursed to us next fiscal year. So when you factor this, operating cash flow was mostly in line with the prior year's results. I would now like to explain the consolidated financial forecasts for fiscal year 2026. We are guiding for JPY 32.8 billion in net sales, which is a year-on-year increase of 9.4%. The operating income guidance is JPY 9.2 billion, which corresponds to a margin of 28%, and lastly, we are targeting JPY 6.45 billion in net income. We position fiscal year 2026 as the first fiscal year of the recovery from the dia-burs recall as well as the first of the 4 fiscal years that make up our new medium-term management plan 2029. MANI will carry out initiatives to enhance our business and deliver growth. I will be going over the details during my explanation of the medium-term management plan 2029. But broadly speaking, we are targeting JPY 45 billion in organic growth and an operating income margin of 32% by fiscal year 2029. MANI's management team's commitment this year is to sow the seeds we believe will ultimately allow us to achieve these goals. That said, these targets require a variety of upfront investments, and this is expected to weigh on profit somewhat. The execution of strategic initiatives like business development and strengthening the management foundation is expected to have an impact of approximately 2 percentage points. Including these various initiatives, we want to build a robust foundation during the first 2 years so that we can drive growth. As shown here, we are guiding for sales and profit increases across all 3 segments. Specifically, while we do expect the rate of growth to slow down in the Surgical and Eyeless Needle segments, growth in the Dental segment is expected to make up for this, driven by a recovery in dia-bur sales, the launch of JIZAI and further market expansion in Japan. All in all, we expect the overall portfolio to grow by just under approximately 10%. Now that we have completed construction of our Smart Factory, we are guiding for JPY 3 billion in CapEx on a cash basis in fiscal year 2026. We believe this amount represents what could be termed cruising altitude when it comes to the baseline for CapEx investment. MANI will continue targeting 8.5% in R&D expenses. The annual dividend forecast for fiscal year 2026 is JPY 41 per share, up JPY 2 per share from the prior year. This concludes our overview of the financial results for fiscal year 2025. [Statements in English on this transcript were spoken by an interpreter present on the live call.]