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

Thank you for taking the time to attend our earnings presentation today covering the second quarter of the fiscal year ending August 2026. I will begin by explaining the results for the second quarter. First of all, I would like to highlight 3 major topics from the second quarter. The first key topic I would like to introduce is the business recovery of MANI DIA-BURS in China. Since resuming sales in November 2025, the recovery progress has been substantial. We had previously established a target to recover 90% of pre-recall sales over 2 years. And I am pleased to report that as of the second quarter, we are tracking ahead of schedule. Our current outlook indicates that monthly sales are expected to reach approximately 90% of pre-recall levels by August 2026. Looking at the performance figures on the top right, second quarter sales for MANI DIA-BURS reached JPY 831 million, which represents an increase of 56% over the pre-recall 3-month average. To provide some context for this significant boost, approximately JPY 340 million is included as inventory buildup for our logistics dealers, with the remainder representing shipments to customers based on actual demand. Therefore, the index for February, the final month of the second quarter was 74%. From here, we aim to steadily improve this figure each month and reach the 90% level by the fiscal year-end in August. Turning to the repurchase rate by customer segment. If you'll remember, we previously noted that clinics lagged somewhat at 50% I am now pleased to report that recovery has progressed in the clinic segment and that we are seeing solid customer return rates across all segments. This brings us to the question of why customers are coming back and purchasing our MANI DIA-BURS. As highlighted in the voice of customer section on the bottom right, we have received very revealing feedback from our customers. These comments include feedback such as customers choosing MANI after comparing with Chinese-made products due to superior tactile feel and quality, customers who have used MANI products for 40 years since graduating from university and comments noting that MANI has become the de facto standard with an extremely wide product lineup. Encouraged by these customer evaluations, we will continue to strengthen our competitiveness with quality as our core focus and aim for further recovery and growth. The second key topic I will address is the progress of the dental restorative materials business, MMG in Germany. After operating at a loss for 2 consecutive years, our approximate target is to return this business to profitability this fiscal year. Looking further ahead to fiscal year 2029, we are actively implementing measures to achieve an operating income margin of 10%. What I would like to discuss today is the strategy toward that goal. We are currently in the process of significantly transforming our business model. Up until now, MMG has had approximately 80 OEM customers, and our business has been built by responding to their customization needs, but we will focus on selection and concentration in this area. At the same time, we are in the process of shifting to a business model of launching our own branded products and selling them globally. We have clearly shifted our strategic course and are currently navigating this transition. To give you some specifics, as shown on the right side of the slide, we have launched 3 MANI branded products, our MANI Fill line of dental filling materials, our MANI Bond line of dental bonding materials and our MANI Shine line of dental whitening materials. We also have additional products currently in R&D that we plan to launch in the future. We will shift to a model that delivers these products to customers around the world, especially by taking advantage of MANI's sales network. Historically, our 46 direct export sales partners, representing approximately JPY 1 billion in annual sales were managed directly from Japan. We are now transferring these accounts to MMG to foster closer customer engagement and accelerate regional growth. As for the figures for the first half, which will be presented later, we have successfully narrowed down our losses and now have an outlook for full year profitability. It should be noted that the additional JPY 1.5 billion in sales expected under Reform Measure 3 does not represent newly accumulated external sales, but rather sales that were previously recorded under MANI headquarters accounts and will be transferred to MMG. The third key topic is our progress in the development of new products. And on the left side of this presentation is a summary of the product development we are working on. We have 3 product segments: Surgical, Eyeless Needle and Dental. In terms of the time axis, basic development involves adding new item numbers to existing products. Next-generation core products are those that will be launched and nurtured during the current medium-term management plan from 2026 to 2029. Beyond 2029, initiatives are aimed at creating the next growth pillars. Within this framework, the areas highlighted with red circles represent our primary development priorities. And as we have previously communicated, we are currently focusing on JIZAI and vitreous forceps. Looking at JIZAI, sales are primarily focused on Japan, India and Vietnam. Following shipments of 400,000 pieces last fiscal year, our first half volume remained relatively flat, but we estimate we have reached an approximate 10% market share in Japan. We view this as the first phase of our growth with the second acceleration phase being driven by 2 factors: our expansion into China, where Chinese regulatory approval is expected to be obtained in May 2026 and the launch of JIZAI 2. Introducing models with higher cutting efficiency allows us to compete more directly with our global top competitor. Through this second phase, we aim to expand and drive further sales expansion. Our second focus area is vitreous forceps. Following the launch in April, we implemented product improvements based directly on customer feedback from the doctors who use our products. Specifically, we added a Type 25 gauge and improved the grip design to enhance usability. With these enhancements, we are now ready for a full-scale commercial rollout. Next, let us review our consolidated financial results. The second column from the left shows our performance for the first half of fiscal year 2026. We recorded JPY 16.106 billion in net sales, JPY 5.097 billion in operating income and JPY 3.898 billion in net income. For reference, the third column from the right provides a year-on-year comparison, and the far right column shows our progress against the forecast for the first half. I am pleased to report that we outperformed both our prior year results and our internal targets, closing the period with record quarterly highs in sales and operating income. There were 3 factors behind the increase in revenue. First, growth in China, including the full-scale resumption of DIA-BURS sales and supply of Eyeless Needles under provincial GPO contracts obtained by customers. Second, we benefited from a favorable foreign exchange environment, particularly the weaker yen against the euro. Lastly, we maintained steady progress across all business segments with continued growth in areas such as Eyeless Needles and Dental in India. Turning to the profit growth drivers. There are 3 primary factors. First, higher sales volumes led to a direct increase in gross profit. Second, our cost of sales ratio improved by 2.5 percentage points. driven by an improvement in the product mix and ongoing cost reduction efforts. Third, while SG&A expenses rose in absolute terms, the SG&A ratio remained well under control. This slide illustrates the transition from operating income to profit before income taxes. Among these, the Hanaoka factory has not yet commenced mass production, and therefore, depreciation expenses are being recorded as nonoperating expenses, amounting to JPY 256 million. The sales waterfall shows the breakdown of revenue changes. Foreign exchange impact contributed JPY 491 million. On a per segment basis, growth was primarily led by the Dental segment, including both MANI Dental and MMG in Germany, while the Surgical and Eyeless Needle segments also maintained their steady upward trajectory. Looking at our regional performance, Asia was a significant growth driver with particularly strong results emerging from China, India and Thailand. In the Americas, a temporary negative impact arose due to delays and postponements in shipments to certain individual OEM customers in the U.S. and to factories in Central and South America. Turning to operating income. Foreign exchange provided a positive impact of JPY 283 million. As illustrated on the waterfall chart, gross profit benefited from both higher sales and cost ratio improvements. For SG&A expenses, if we factor out the elimination of a temporary performance-linked bonus recorded in the prior year, core spending increased by approximately JPY 400 million. This reflects our ongoing strategic investments, specifically aimed at strengthening our U.S. sales structure, driving business transformation at MMG and exploring further strategic actions. Next, let us review our performance by business segment, beginning with the Surgical segment. As indicated in the top right section in the second quarter, stand-alone quarterly sales reached JPY 2.434 billion, and the operating income margin stood at 37%. A regional breakdown of these sales is provided in the table at the bottom right. As for our core product, the ophthalmic knife, we will provide an update on our market position and our latest internal survey indicates that our global share in ophthalmic knives has reached 36% on a unit basis. While we have previously indicated a share of around 30%, this new data confirms a sustained improvement in our competitive standing. Within this segment, our growth rate in China has been somewhat challenging, coming in at 84% year-on-year and 94% quarter-on-quarter, as shown in the table on the bottom right. While customer shipments in China actually increased year-on-year by 3%, sales from MANI declined due to the continued inventory adjustments by customers over the last few quarters. That said, while the near-term environment remains challenging, the number of cataract surgeries in China is currently around 4 million per year. However, based on comparisons with other countries, including developed markets as well as various projections, this is expected to grow to around 7 million in the mid- to long term. Turning to profitability. Our operating income margin improved by 3 percentage points on a quarter-on-quarter basis was driven by price increases and manufacturing cost reductions, alongside better overall control of SG&A expenses. Looking ahead at our future key measures, we will focus on strengthening our position in Europe through a capital and business alliance with iRIS EYE, and we will also promote our alliance with MST. Next, we will discuss the Eyeless Needle segment. In the second quarter, we recorded JPY 2.875 billion, coupled with an operating income margin of 44%. This revenue growth was driven primarily by 2 factors: First, our customers secured GPO contracts in China. These initially covered Fujian province and subsequently expanded to Liaoning province, plus an additional 23 provinces. As a result, approximately 30% of the overall Chinese market has become subject to GPO coverage. This has contributed to the growth in our sales with the full impact expected to materialize from the second half of the fiscal year. Another factor contributing to the revenue increase was that new orders were successfully secured from specific customers in Thailand and India. Additionally, our improved profitability reflects the completion of depreciation for certain production equipment at our Vietnam factory. Going forward, we will continue to drive growth through our high-end offerings, particularly focusing on microsurgery needles and black needles. Furthermore, to better support our customers, shipments of the new resin tray are scheduled to begin in September 2026. Turning to the Dental segment. Net sales reached JPY 2.967 billion, representing robust growth of 37% year-on-year and 25% quarter-on-quarter. The operating income margin also recovered significantly, reaching 23%. This strong performance was largely driven by the resumption of DIA-BURS sales in China, which made a significant contribution to our results. Looking at MMG, second quarter sales and profits are as outlined on the slide. Losses have narrowed year-on-year, primarily due to increased orders from a major OEM customer in North America. Lastly, as I touched on earlier, we will focus on expanding sales of JIZAI, while simultaneously advancing key measures and structural reforms at MMG in Germany. Turning to the balance sheet status. We saw an increase in cash and deposits. This was primarily driven by net income and refunds of consumption tax receivables, which amounted to approximately JPY 1.1 billion. Consequently, accounts receivable decreased accordingly, which led to a decrease in other current assets. Looking at our cash flow status, operating cash flow reached JPY 6.324 billion, demonstrating our strong capacity for free cash flow generation. On the investing side, CapEx decreased following the completion of equipment investments at the Hanaoka Factory. Lastly, let us review the financial forecasts for fiscal year 2026. As I have just explained, the first half results outperformed the plan with operating profit reaching 55.4% of the full year forecast. As for the second half, there are many uncertainties such as the impact of the Middle East region and other factors, and we are proceeding with our initial full year targets. As for the Middle East, shipments had been suspended for a while. But as of the day before yesterday, we recently resumed deliveries to customers via airfreight. We will continue to assess this situation very carefully. Turning to capital investment and depreciation, as shown on the left side of the slide, our overall investment level has settled at around JPY 3 billion following the completion of the investments for the Hanaoka Factory. For the second half, we are planning approximately JPY 1 billion of investment in the China factory. In terms of the Hanaoka Factory's mass production road map, our schedule is now clear. Mass production for JIZAI will begin from September 2026. With respect to ophthalmic knives, demand can be met with our production capacity in Vietnam, and we, therefore, plan to commence mass production from 2027 onward. Moving to R&D investments. First half performance came in slightly below plan, primarily because some OEM projects ended up being deferred to the second half. That said, as an R&D-driven company, we remain fully committed to making the necessary investments to deliver concrete results. Finally, let us review our dividend outlook. We will pay an interim dividend of JPY 17 per share, and the full year dividend forecast is JPY 41 per share, which remains as originally planned. This concludes today's financial results presentation.