Script and Summary of Q&A of Earnings Briefing on Financial Results for the Second Quarter of the Fiscal Year Ending August 2026

Briefing on Financial Results for the Second Quarter of the Fiscal Year Ending August 2026 April 14, 2026

(Total: 50 minutes, Presentation: 28 minutes, Q&A: 22 minutes)

Webcast: Microsoft Teams webinar

Masaya Watanabe Director, President and Representative

Executive Officer, CEO

Takayuki Yamamoto Managing Executive Officer, CFO

Tomoko Yoshihara UBS Securities

*Analysts that SCRIPTS Asia was able to identify from the audio who spoke during Q&A or whose questions were read by moderator/company representatives.

To begin, I would like to introduce today's speakers. Mr. Masaya Watanabe, Director, President and Representative Executive Officer, CEO, and Mr. Takayuki Yamamoto, Managing Executive Officer, CFO.

For the Q&A session, we will first take questions from those attending on-site, and then from those joining online.

Now then, President Watanabe, please begin.

I will begin by explaining the results for the second quarter.

First of all, I would like to highlight three major topics from the second quarter. The first one is the business recovery of "MANI DIA-BURS" in China. The second is the progress in the dental restorative materials business at MMG in Germany. The third is the progress in new product development.

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 two 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 831 million yen, which represents an increase of 56% over the pre-recall three-month average. To provide some context for this significant boost, approximately 340 million yen 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 two consecutive years, our proximate 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 undergoing a significant transformation of our business model.

Up until now, MMG has had approximately 80 OEM customers, and the 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 three MANI-branded products: our MANIFill line of dental filling materials; our MANIBond line of dental bonding materials; and our MANIShine 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 worldwide, especially by leveraging MANI's sales network.

In addition, we are advancing initiatives to position MMG as MANI's European base for dental products. Historically, our 46 direct-export sales partners, representing approximately 1 billion yen 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 1.5 billion yen 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 three 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 two factors: our expansion into the Chinese market, where regulatory approval is expected to be obtained in May 2026, and the launch of JIZAI-2. By introducing models with higher cutting efficiency that allow 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

16.106 billion yen in net sales, 5.097 billion yen in operating income, and 3.898 billion yen 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 previous year results and our internal targets, closing the period with record quarterly highs in sales and operating income.

There were three factors behind the increase in revenue. First, growth in China, including the full-scale resumption of dia-bur 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 three 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 expense 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 non-operating expenses, amounting to 256 million yen.

The sales waterfall shows the breakdown of revenue changes. Foreign exchange impact contributed 491 million yen. 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 293 million yen. 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 400 million yen. 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, standalone quarterly sales reached 2.434 billion yen, 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.

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, 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 2.875 billion yen, coupled with an operating income margin of 44%.

This revenue growth was driven primarily by two 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 micro-surgery 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 2.967 billion yen, representing robust growth of 37% year-on-year and 25% quarter-on-quarter. The operating income margin also recovered significantly to 23%.

This strong performance was largely driven by the resumption of dia-bur 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 1.1 billion yen.

Consequently, accounts receivable decreased accordingly, which led to a decrease in other current assets.

Looking at our cash flow status, operating cash flow reached 6.324 billion yen, 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 air freight. We will continue to assess this situation very carefully.

FY2026 2Q Financial Results

(¥100 million)

Capital investment (cash basis) Depreciation

76.8

Ratio to consolidated sales

8.9% 8.8% 8.5%

66.7

22.7

24.7

30.6

23.7

7.9 12.1

23.9

26.2

12.1

28

FY24 FY25 FY26

Forecast

FY24 FY25 FY26

Forecast

19

Turning to capital investment and depreciation, as shown on the left side of the slide, our overall investment level has settled at around 3 billion yen following the completion of the investments for the Hanaoka Factory.

For the second half, we are planning approximately 1 billion yen of investment in the China Factory.

In terms of the Hanaoka Factory's mass production roadmap, 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 17 yen per share, and the full-year dividend forecast is 41 yen per share, which remains as originally planned.

This concludes today's financial results presentation. Thank you for your time.

We will first take questions from attendees at the venue.

First, you mentioned that performance in the first half was strong, but we have heard that in the second half, there may be impacts from the timing of R&D expenses as well as the situation in the Middle East. Regarding the Middle East in particular, you discussed the impact on revenues, but are there any cost-side concerns we should be aware of, such as raw material procurement or logistics costs?

In addition, given that inventory adjustments in China weighed on the first half, should we expect a recovery in the second half? Also, the effects of the alliance with MST in North America's surgical business appear to be somewhat delayed. If these factors materialize in the second half, excluding the Middle East, would it be reasonable to take a more optimistic view?

Could you explain the risks and opportunities for the second half from both perspectives?

Within that, with respect to the Middle East, it accounts for approximately 2.7% of our total sales, so the absolute impact on revenue is not particularly large. However, we are seeing increases in logistics costs. In addition, given the rapid changes in the situation and the difficulty in forecasting developments, we view this as a risk factor that must continue to be closely monitored.

On the other hand, from the perspective of revenue growth, we aim to continue growth in the second half in areas that performed relatively well in the first half, such as dia-bur sales in China, GPO contracts for eyeless needles are expanding in China, dental sales in India, and surgical sales in Europe.

Challenges include the progress of the inventory adjustment for ophthalmic knives in China, as well as trends among individual customers for surgical business in North America, and the extent to which the effects of the alliance with MST will materialize. We recognize these are issues which we need to acknowledge and will address with appropriate measures.

One of the key contributors to our performance has been the cost of sales, with the cost ratio improving by approximately 1.5 percentage points due to cost reduction efforts. In addition, we have effectively managed SG&A expenses. As these are factors within our control, we are addressing them with a high level of visibility and discipline.

in China. Should we also consider changes in the competitive environment, such as the emergence of new competitors? In addition, could you provide guidance on the timing for when inventory adjustments will be completed, and shipments return to normal levels?

While that explains the recent business progress in China, another important point is that the number of cataract surgeries in China remains overwhelmingly low compared to other countries. With approximately 4 million procedures annually, the number of surgeries per million population is around 4,000 in China, compared with approximately 12,000 to 13,000 in Japan, Europe, and the United States. In urban areas, the figure approaches 5,000, while in rural areas it is closer to 3,000, suggesting there is still significant room for improvement in medical standards.

This is not something that can be influenced by manufacturers alone. However, from a long-term perspective, we believe that medical standards and the number of cataract surgeries in China will increase. That is why we made the business decision to invest in the Chinese factory as well.

a truly niche strategy. However, producing thin and highly flexible files that do not break is technically very challenging.

We believed this was an area where MANI could succeed, and as a result of producing and selling these products, we achieved a 10% market share in Japan, as well as a market share of over 10% in Vietnam. That is the position we established with JIZAI-1.

With JIZAI-2, our objective is to fully cover the lineups offered by the major competitor, including products with higher cutting performance, and to respond to a wide range of demands. Strategically, we view this as entering a phase in which we aim to capture the market more comprehensively.

First, regarding the procurement of raw materials, are there any materials for which supply could become tight, such as those derived from naphtha? On the other hand, according to media reports, the Ministry of Health, Labor and Welfare will give considerable priority to medical device manufacturers, so please tell us about the status of procurement of raw materials, including this.

In addition, based on recent reports, it appears that Vietnam and other parts of Southeast Asia, where you operate, may face greater challenges in oil supply compared to Japan. Are there any operational risks currently recognized, such as impacts on power supply to the factory or employee commuting?

Specifically, in the Surgical segment, you mentioned price increases and manufacturing cost reductions. When were the price increases implemented, to what extent, and is there further room for increases?

For the Eyeless Needle segment, you mentioned the completion of depreciation at the Vietnam Factory. Is this a one-off factor, or could margins exceeding 40% be sustained going forward?

Finally, in the Dental segment, aside from product mix improvements, is there additional room for margin improvement through price increases?

For the Eyeless Needle segment, there is a positive impact from the completion of seven years of equipment depreciation, which does have a one-off aspect. On the other hand, the Smart Factory has not yet entered the mass production phase, and depreciation is currently recorded as non-operating expenses. JIZAI is scheduled to enter mass production from September 2026, and ophthalmic knives from 2027 onward, at which point depreciation will be included in operating expenses.

In the final year of the medium-term management plan 2029, we expect depreciation expenses of approximately 900 million yen. However, we believe this level can be sufficiently offset through various cost improvement measures. Including positive factors for the Smart Factory, our view is that cost of goods sold ratios will remain broadly at current levels over the next several years.

Regarding our inventory level of approximately five months, the pace of reduction has been somewhat slower compared to the previous update. Specifically, there were some lost orders at a public hospital, which modestly slowed the pace of inventory normalization.

Thank you for taking the time out of your busy schedule today to attend.

[END]

Document Notes

1. Portions of the document where the audio is unclear are marked with [inaudible].

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