Mani Inc

TSE:7730

Earnings Call Transcript 2022-Q4

[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 fiscal year 2022.

First, I would like to briefly explain the 3 product segments of our group. First is the Surgical segment, which includes surgical instruments centered around our mainstay product category of 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, and 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%. The overseas sales ratio stands at approximately 80%, and we sell our products in over 120 countries worldwide.

Shown here is today's agenda consisting of the financial results for fiscal year 2022, the financial forecasts for fiscal year 2023 and lastly, a report on progress in the medium-term management plan. I will now explain the financial results for fiscal year 2022.

Shown here are the consolidated financial results for fiscal year 2022. From left to right, you will find the results for fiscal year 2021, followed by the results for fiscal year 2022 in the section with the blue background. Additionally, further to the right, the numbers within the blue border represent the forecasts for fiscal year 2022, which were revised higher in the third quarter.

Regarding the results for fiscal year 2022, demand recovery in Europe and Asia and the impacts of yen depreciation led to a year-on-year increase of 18.8% in net sales, 15.2% in operating income and 32.8% in ordinary income. As such, these 3 line items marked the highest figures ever, and we were furthermore able to meet the revised forecasts.

I would now like to present the status for each line item, starting with net sales. Net sales stood at JPY 17.19 billion in fiscal year 2021, growing to JPY 20.416 billion in fiscal year 2022. This is a year-on-year increase of JPY 3.226 billion or 18.8%.

Next is the cost of sales ratio. The cost of sales ratio worsened by 2.4 points year-on-year from 36% to 38.4%, mostly due to inventory disposal, primarily in the Eyeless Needle segment, which occurred in the second and third quarters.

An enhancement in management systems resulted in higher personnel expenses, resulting in a year-on-year increase of JPY 755 million or 13.4% in SG&A expenses. Operating income went from JPY 5.348 billion in fiscal year 2021 to JPY 6.163 billion in fiscal year 2022. This represents a year-on-year increase of JPY 815 million or 15.2%.

While the operating income ratio worsened year-on-year, going from 31.1% in fiscal year 2021 to 30.2% in fiscal year 2022, it's nevertheless remained above 30%. Lastly, net income went from JPY 4.291 billion to JPY 5.29 billion. This represents a year-on-year increase of JPY 999 million or 23.3%.

Next, I would now like to present the sales status by product segment. First, regarding the impact of foreign exchange, the Japanese yen depreciated significantly against the U.S. dollar from JPY 107.13 last fiscal year to JPY 121.73 this fiscal year, against the euro from JPY 128.07 last fiscal year to JPY 133.48 this fiscal year, and against the Chinese yuan from JPY 16.38 last fiscal year to JPY 18.68 this fiscal year. Foreign exchange, therefore, had a positive impact of JPY 1.169 billion.

In the Surgical segment, there was a year-on-year increase of JPY 827 million due to strong sales performance opthalmic knives in Europe, Asia and Japan.

In the Eyeless Needle segment, there was a year-on-year increase of JPY 848 million due to strong sales in Asia, North America and Europe, thanks to product demand recovery following the slump caused by the COVID-19 pandemic.

In the Dental/GDF segment, there was a year-on-year increase of JPY 381 million due to sales increase of diaburs and reamer files in India and strong sales results of GDF products. In light of these various factors, net sales went from JPY 17.19 billion in fiscal year 2021 to JPY 20.416 billion in fiscal year 2022. This is a year-on-year increase of JPY 3.226 billion or 18.8%.

Next is the sales status by region. In broad strokes, the results are more or less as I explained earlier with a demand recovery in Asia, mainly in China and India as well as in Europe, resulting in a significant year-on-year increase. Sales in Japan only increased slightly due to the impact of voluntary product recall.

Next is the operating income status. The sections colored blue in the waterfall chart show factors contributing to a 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 436 million, and an increase in sales volume had a positive impact of JPY 1.212 billion year-on-year. On the other hand, the cost of sales ratio worsened by JPY 347 million year-on-year due to inventory disposals. Conversely, gross profit at GDF improved, making a positive contribution of JPY 223 million. Putting these together, the gross profit impact on operating income was positive JPY 1.088 billion.

Enhancement in management systems resulted in an increase in selling and administrative expenses. Putting these together, the SG&A expenses impact on operating income was negative JPY 709 million. Overall, operating income increased year-on-year from JPY 5.348 billion in fiscal year 2021 to JPY 6.163 billion in fiscal year 2022. This represents a year-on-year increase of JPY 815 million or 15.2%.

Next, I would like to present the balance sheet, starting with the site of assets first. A year-on-year increase in sales and profits led to an increase in cash and deposits. Furthermore, machinery equipment and vehicles increased, as did fixed assets due to the acquisition of land for GDF, our German subsidiary, for its new factory. As such, total assets increased from JPY 42.6 billion in fiscal year 2021 to JPY 50.1 billion in fiscal year 2022.

Next, I would like to explain about liabilities and net assets. Net assets increased from JPY 39.2 billion in fiscal year 2021 to JPY 45.4 billion in fiscal year 2022 due to an increase in retained earnings and foreign currency translation adjustments.

Next is the cash flow. Net cash provided by operating activities increased from JPY 6.384 billion to JPY 6.559 billion. Despite an increase in net income, the amount in income taxes paid also increased.

Next is net cash provided by investing activities. Last fiscal year, there was an increase in fixed assets due to the acquisition of land for MANI's new headquarters and R&D center. In fiscal year 2022, GDF acquired land for the construction of a new factory, which led to an expenditure of JPY 2.1 billion.

Lastly, net cash provided by financing activities went from negative JPY 2.2 billion in fiscal year 2021 to negative JPY 2.4 billion in fiscal year 2022 on account of an increase in dividends paid.

Next, I will explain the full year forecast for fiscal year 2023. This page contains a summary of the financial forecasts of fiscal year 2023. We expect net sales will have significant growth due to a recovery from COVID-19 in China and strong market conditions in the dental and eyeless needle markets. Due to the recovery from COVID-19, we expect there to be an increase in sales marketing expenses such as business travels or exhibitions and an increase in investment expenses for research and development. Though ordinary income and net income will decrease due to the absence of foreign exchange gains, like the ones seen in the previous fiscal year, operating income is expected to reach the highest figures.

The foreign exchange rate forecast for fiscal year 2023 are JPY 130 against the U.S. dollar, JPY 135 against the euro and JPY 19 against the Chinese yuan.

The net sales forecast for fiscal year 2023 is JPY 23.4 billion, a year-on-year increase of 14.6%. Operating income is expected to reach JPY 7.1 billion for a year-on-year increase of 15.2%, which represents our double-digit growth target. Possible risks include geopolitical risk, impact from supply chains and soaring raw material prices.

Next are the financial forecast by segment for fiscal year 2023. Shown here is the net sales forecast for each product segment. We expect year-on-year net sales growth in the Surgical segment to be just shy of 10%, taking into account global shortages of packaging materials for sterilized products.

We expect elevated year-on-year net sales growth of 16% for the Eyeless Needle segment and 17% for the Dental/GDF segment, respectively.

Allow me to continue the overview of the sales forecast for fiscal year 2023 on a per segment basis. Our sales forces will be proactively carrying out sales activities, primarily centered around regions with sales bases to specifically address the unique circumstances and needs of each country and region. Through this, we seek to increase the market share of existing products and expanded the introduction of new products, allowing us to reach the highest ever net sales and establish a foundation towards achieving the targets outlined in the medium-term management plan.

Foreign exchange is expected to have a positive sales impact of JPY 368 million.

In the Surgical segment, we expect a year-on-year increase in sales of JPY 497 million, primarily on account of continued strong sales for ophthalmic knives.

In the Eyeless Needle segment, we expect sales to continue to perform well, as it did in the previous fiscal year, leading to a year-on-year increase of JPY 870 million.

In the Dental/GDF segment, we expect a year-on-year increase of JPY 1.249 billion due to sales increase in China, India and Europe. After tallying the various impacts, the full year sales forecast for fiscal year 2023 is JPY 23.4 billion, a year-on-year increase of JPY 2.983 billion or 14.6%.

Next is the operating income forecast. We forecast a gross profit impact of JPY 2.36 billion as we expect profit to increase due to a sales expansion resulting from a focus on sales activities. We forecast a negative impact of JPY 1.4 billion from SG&A expenses as we expect increases in R&D, sales and G&A expenses for the enhancement of management systems. Overall, we forecast a year-on-year increase of JPY 936 million or 15.2% in operating income.

Next is the status for capital and R&D investment. Capital investments for the fiscal year 2023 stood at JPY 1.9 billion. We had planned to carry out approximately JPY 1.5 billion in investments related to the new GDF factory. However, these expenditures are now planned for fiscal year 2023. The capital investment forecast for fiscal year 2023 is approximately JPY 4.6 billion, of which JPY 2 billion is earmarked for investments related to the new GDF factory.

Next is the topic of R&D investment. R&D investment stood at approximately JPY 1.5 billion in fiscal year 2022, against the backdrop of the selection and concentration of development themes with the ratio to consolidated sales at 7.6%. We will be enhancing development marketing from fiscal year 2023 onwards. So we expect the ratio to consolidated sales to rise to 9.2%. Going forward, we will continue to further dedicate efforts toward R&D.

Next is the topic of dividends. The fiscal year 2022 year-end dividend has been decided at JPY 18 per share for an annual dividend of JPY 30 per share. As you can see from the graph, the section colored navy blue represents the dividend per share, which has grown for 9 consecutive fiscal years, starting in fiscal year 2013.

For fiscal year 2023, we hope to distribute an annual dividend of JPY 33 per share and realized dividend growth for the tenth consecutive fiscal year. The dividend payout ratio forecast stands at 65%, which is an elevated level going forward. We would like to continue carrying out stable and proactive shareholder returns.

Next, I will explain progress in the medium-term management plan. The outline of the medium-term management plan is as follows. MANI's corporate philosophy is to contribute to the world welfare through development, production and distribution of the products beneficial to patients and doctors. This corporate philosophy is MANI's raison d'être. And furthermore, in order to achieve the goal of our corporate philosophy, we formulated 6 corporate policies within the medium-term management plan. These are business model innovation, R&D with KOLs in the world, expanding global market shares through community-based sales, establishing a high-quality and low-cost global production system, introducing a new personnel system and lastly, promoting MANI sustainability. The consolidated financial targets for fiscal year 2026 are JPY 30 billion in sales, JPY 10 billion in operating income, ROE of 12% and stable dividend increases.

Next is the topic of business model innovation. In terms of our past evolution, first, we established a development platform, allowing us to aim for the best quality in the world with an established production basis overseas, primarily in Vietnam, as a manufacturing platform, allowing us to carry out high-quality and low-cost manufacturing.

Lastly, we established overseas sales bases in Vietnam, China and India to function as a sales platform to promote community-based sales globally. The right-hand section of the table with the yellow background details our future evolution within the scope of the medium-term management plan. For sales the future evolution will be global marketing. We will be establishing new sales bases in Europe and Southeast Asia to grow our market share so that we can deliver the world's best quality throughout the world.

For manufacturing, the future evolution will be the smart factory. In order to avoid over concentration at our Vietnam factory we will be building a factory in Japan, featuring automation and leveraging, for example, inspections carried out using AI. MANI defines smart factory as an automated factory that can produce products as the same manufacturing costs as our factory in Vietnam.

For development, the future evolution will be product development with KOLs throughout the world. The expansion of our sales base has also allowed us to jointly develop with doctors who are global key opinion leaders around the world. Against this backdrop, we will be carrying out product development, addressing the preferences and needs of customers in each country and region. Additionally, we will establish an R&D center in Japan to accelerate the launch of new products by promoting the digitalization of development and to the automation of the entire process from prototyping to mass production.

Next are the financial targets within the medium-term management plan. Our central target here is to achieve continuous double-digit growth in operating income. In the first year of the medium-term management plan, our operating income was JPY 6.16 billion. We are on schedule to achieve our operating income target of JPY 10 billion for the final fiscal year with a progress rate of 61.6%.

In fiscal year 2022, ROE stood at 12.5% and exceeded the fiscal year 2026 target. The net sales target for fiscal year 2026 is JPY 30 billion. And in fiscal year 2022, our net sales is JPY 20.4 billion, which is a progress rate of 67.9%. These results are progressing according to plan.

In terms of shareholder returns, we believe we have been able to continuously raise dividends in a stable manner. In fiscal year 2023, which is the second year of the medium-term management plan, we are aiming for an operating income growth of 15.2%. While ROE will be lower, we expect other items to progress according to plan.

Next is a review of the results for the major initiatives carried out during the first year of the medium-term management plan. Regarding the promotion of global marketing, we were able to expand sales of dental products in the Indian market and launched a representative office in Malaysia. Furthermore, we are planning to establish a sales base in Malaysia in fiscal year 2023.

Lastly, we began MANI product sales activities based in GDF. Evaluations are represented by circles for achieved, crosses for not achieved and triangles for pending. In fiscal year 2022, we made good progress in promoting global marketing. Therefore, our evaluation is a circle.

Regarding the establishment of a global production system, we began construction of GDFs new headquarters and factory, completed the smart factory's conceptualization and will now begin concrete to design. In fiscal year 2022, we made good progress in establishing a global production system. Therefore, our evaluation is a circle.

Regarding R&D with KOLs in the world, the launch of the new Vitreous Forceps, which is a new vitreous surgery instrument in the ophthalmology field, is approximately 6 months behind schedule. We established the new business development group to strengthen the research function in R&D and continue to consider the R&D center's concept.

In fiscal year 2022, we made some progress in advancing R&D with KOLs in the world. Therefore, our evaluation is a triangle.

Regarding the introduction of a new personnel system, we established a satellite office in Tokyo to increase diversity in working styles. We have introduced a wide range of open recruitment systems to support the voluntary career choices and are currently in the process of establishing an education system to support the roles required for a new function qualification.

In fiscal year 2022, we made some progress in introducing a new personnel system. Therefore, our evaluation is a triangle.

Lastly, regarding the promotion of MANI Sustainability, in January of 2022, we registered as a Tochigi SDG's promotion company. Additionally, we introduced renewable energy within our offices in Japan. In fiscal year 2022, we made good progress in promoting MANI Sustainability. Therefore, our evaluation is a circle.

Next, I will explain future initiatives. Regarding the promotion of global marketing, we will be further enhancing the marketing and sales forces of existing sales bases in China, India and Vietnam and additionally, expand market share by strengthening sales systems in Southeast Asia and Europe.

Regarding the establishment of a global production system, GDFs new headquarters and factory will be completed in August of 2023, and sales within Asia and North America will expand. Additionally, we will be constructing a new factory, a smart factory, in fact, in order to avoid risks from the over concentrated production at our Vietnam factory. The site for this factory will be in Takanezawa, which is where MANI was originally founded.

Lastly, we will consider construction of logistics centers, including third countries as part of strategies to enhance supply chain management. Regarding R&D with KOLs in the world, development and sales divisions will cooperate to discover new KOLs and strengthen relationships with them. Additionally, we will complete creating the R&D centers concept and begin construction and aim to accelerate to the launch speed of new products through digitalization of development.

Regarding the introduction of a new personnel system, we will establish an educational system by rank and division, and also introduce training programs for specialists and young employees.

Lastly, regarding the promotion of MANI Sustainability, we will increase the ratio of female managers by promoting diversity, implement measures to reduce CO2 emissions at group companies and strengthen company-wide risk management and group governance.

Next, I will explain about new business domains, new products and future initiatives. Here, I will present a progress report for the 3 products we deemed as key products within the medium-term management plan. The first key product is MANI nickel-titanium rotary file, which marks an evolution from a manual dental endodontic product into an engine-driven dental endodontic products. Mainly in Japan, adoption of this product at university hospitals has accelerated, and an increase in treatment cases will further expand product use in clinics and other countries as well. Additionally, we will be developing and expanding advanced dental endodontic instruments in cooperation with global KOLs.

The second key product is our Vitreous Forceps, which marks an evolution from use in the field of cataract surgery into the field of vitreous and glaucoma surgery. This product obtained regulatory certification in fiscal year 2022, and we are conducting clinical evaluations. Additionally, we will be promoting product development in the vitreous and glaucoma surgery field, where markets are expected to grow.

The third key product is a new composite resin, which was developed at GDF. GDF's composite resin is primarily sold on an OEM basis, but we have plans to market it under the MANI brand as MANI EG Composite. While we developed this product with a view toward commercialization in Asian markets, the resulting product ultimately turned out to be competitive on a global scale. Therefore, we plan to obtain European Medical Device Regulation, MDR, in December 2022 and launched the product in Europe first. In Asia, the product will be sold in Vietnam and India. And furthermore, we will begin to sell in Japan and China after regulatory approval is obtained.

Next, I would like to explain about the global production system. This page shows the current construction progress status for GDFs new headquarters and factory. Construction has progressed significantly. Completion is scheduled for August of 2023, and progress is being made according to plan.

Next, I would like to explain about MANI's new headquarters, R&D center and smart factory. MANI manufacturing is characterized by products with a long useful lifespan, so we continuously make improvements to manufacturing processes. For example, recently, we have started automating processes at our Vietnam factory. Going forward for new products within process planning in Japan, we will carry out from the very start research for mass production through to automation.

Against this backdrop, we will be building a smart factory in Japan and automated processes related to the manufacturing of new products in the form of JIZAI, our new nickel-titanium rotary file product and Vitreous Forceps. Increasing the speed of mass production that makes it possible for us to accelerate the sales expansion of new products in overseas markets.

In terms of existing products, in order to avoid over concentration at our Vietnam factory, we will be making it possible to manufacture products like ophthalmic knives in Japan. R&D center is a place where MANI group experts come together to realize the development of revolutionary new products. It is an R&D base, allowing for the integration of the latest technologies with MANI accumulated technology and technological expertise acquired over time, and a place to provide sustained training to technical experts over a long-term horizon.

Furthermore, we are also advancing this initiative as a place for joint development with KOLs in the world. The planning stages will start in earnest, and construction is scheduled for completion in fiscal year 2026.

This concludes today's presentation on the financial results for fiscal year 2022. Thank you very much for your kind attention.