Mani Inc Stock

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.

Thank you all for attending our earnings presentation today despite your busy schedules at the start of the year. I would like to begin by explaining Mani's financial results for the first quarter of the fiscal year 2026.

First of all, I would like to highlight 3 major topics from the first quarter. The first one is the sales recovery of Mani dia-burs in China. The second is an acquisition of a minority stake in iRIS EYE, our German distributor of ophthalmology. The third is the establishment of a new factory in China.

First, allow me to start with the sales resumption of Mani dia-burs in China. As previously announced, we obtained regulatory approval from the Chinese authorities on October 29, 2025. Since then, we have been putting a lot of effort into recovering our market share for this product. While our initial plan targeted a recovery to 90% of pre-recall levels, which were annual sales of JPY 2.4 billion within 2 years, I am pleased to report that our activities in the first 4 months have enabled us to progress ahead of schedule.

Specifically, cumulative sales from November through February, comprising actual results and our latest forecast totaled JPY 1.05 billion. Allow me to provide some context for these figures. Prior to the voluntary recall, annual sales of Mani dia-burs were approximately JPY 2.4 billion, which translates to roughly JPY 200 million on a monthly basis. Therefore, our sales forecast of JPY 1.05 billion includes monthly sales of JPY 200 million over 4 months, plus an additional JPY 250 million. This surplus is primarily due to inventory restocking by our distribution partners and LDs, and we anticipate that inventory levels will normalize by February or March.

In terms of end user retention, our monitoring shows that approximately 70% of public hospitals have started using Mani dia-burs again with the rate for clinics at around 50%. We recognize that some of our clients remain price sensitive and we are committed to intensive sales efforts to win them back. About 90% of our distributors have returned, providing us with significant momentum. As it stands, we expect sales to recover to more than 80% of pre-recall levels in the latter half of fiscal year 2026. That is during the period between March and August.

The second key topic is our share acquisition in iRIS EYE, our German ophthalmic distributor. In the Surgical segment, Japan, China and Europe represent 3 very large markets, especially for ophthalmic knives with Europe accounting for 30% of segment sales. Given that Germany is a dominant market within Europe, we are acquiring shares in iRIS EYE, a partner distributor with whom we have had a collaborative relationship going back over 20 years.

Following the retirement of one of the founders, we are acquiring their interest, marking the transition of iRIS EYE into a Mani equity-method affiliate. As you can see in the chart on the right, Mani aims to deepen our partnership with iRIS EYE in order to unlock significant synergies and drive sales growth. Specifically, you can see the blue synergy layer added on top of the gray baseline. Operationally, this involves adapting to the ongoing multinational consolidation of ophthalmic chains across Europe by positioning this partnership as a central hub with Mani as the facilitator.

On the supply chain front, by having either iRIS EYE or Mani operate supply chain warehouses, it will allow us to ensure a swifter response to market demands. Ultimately, we also intend to expand our contact points and engagement with KOL doctors to further amplify these synergies.

Third, I would like to address the establishment of a new factory in China as detailed in a press release that was just announced today, January 14, 2026, at 15:30. This initiative is a strategic response to China's domestic preferential policy and GPO, group purchasing organization pricing pressures that have intensified following the State Council of the People's Republic of China's comprehensive push starting January. Localizing production allows us to significantly enhance our regional competitiveness.

We intend to bring the automation production line developed at our smart factory, also known as the Hanaoka Factory to the new factory in China. This strategy will allow us to compress the launch time line into less than 2 years, while enabling us to effectively manage labor costs in China, which are already quite high through highly streamlined efficiency. As you can see here, we are building a factory in Foshan Guangdong Province, and the investment amount is JPY 1.2 billion. This facility serves several strategic purposes.

First, it allows for domestic product registration within China. Specifically, since our ophthalmic knives are categorized as Class II medical devices, we can apply for approval directly through the Guangdong Provincial authorities, effectively having regulatory waiting times from 18 months down to approximately 9 months. Furthermore, we are shifting toward local procurement, sourcing materials such as packaging from local suppliers thus optimizing the supply chain we use in our Chinese operations.

Based on this, how should we approach global production? So far, in addition to the mass production factory in Vietnam and the completion of the smart factory in Hanaoka, China is moving forward with production for the Chinese market. Our plan is to take the advanced manufacturing technologies developed at the smart factory and roll them out to both China and Vietnam in order to strengthen production in each region and to strengthen the total production system.

This concludes my overview of Mani's operational highlights.

I would now like to explain the financial results for the first quarter of fiscal year 2026. In the first quarter, we registered JPY 7.828 billion in net sales and JPY 2.255 billion in operating income, together with an operating income margin of 28.8%. We achieved growth in both sales and profit with our highest quarterly sales performance ever in the first quarter. Unfortunately, this is the second highest operating income, but the highest operating income for the first quarter.

Looking at the numbers, net sales increased by 2.3% on a year-on-year basis. Performance across segments was somewhat varied with growth being primarily driven by the Dental segment, specifically resulting from the resumption of sales of diverse and strong sales of the Eyeless Needle segment. On the expense side, SG&A expenses were as planned, while both ordinary and net income outperformed our initial targets.

Let's now look at the numbers below the operating income line. We are currently recording approximately JPY 120 million in annual depreciation expenses related to the Hanaoka factory. Since this factory is not yet operational, these costs are currently categorized as nonoperating expenses. But once mass production commences, these will later be reclassified as operating expenses.

The waterfall chart on Page 10 details a year-on-year net sales comparison between the first quarter of fiscal years 2025 and 2026. Foreign exchange had a positive impact of JPY 173 million, particularly due to the weakness of the yen against the euro. The year-over-year comparison shows a decline for the category of dia-burs due to a high baseline recorded in September and October 2024, which were normal trading months prior to the recall issues. This made for challenging comparables.

The Surgical segment saw a slight decline due to inventory adjustments in China, while the Eyeless Needle and Dental segments both posted gains. I will provide more detail on these shortly.

Looking at the net sales status by region, we saw incremental year-on-year growth across all major regions, including Japan, the Americas, Europe and Asia, as shown in the waterfall chart here. On the operating income front, we saw a JPY 158 million improvement in gross profit. As shown in the net sales and cost of sales breakdown, foreign exchange provided a significant tailwind. Specifically, while cost of sales improvements contributed JPY 37 million, the remainder of the gross profit gain was driven by foreign exchange impact.

Moving to SG&A expenses. In the first quarter, we benefited from the absence of a onetime issue last year, resulting from a posting issue related to performance-linked bonuses. That said, we also actively increased our sales investments in the U.S. and Asia, alongside improvements at our German subsidiary, MMG. I would now like to explain the financial results by segment, starting with the Surgical segment. First, you will notice that we have updated our reporting format starting this quarter.

At the top of the chart, we now include historical data for the most recent 9 quarters in order to provide a clearer view of current performance trends. Since each quarter is somewhat bumpy, we reviewed it this way to make it easier for you to understand. In the first quarter, we achieved the highest quarterly sales, reaching JPY 2.446 billion in net sales. Like I just said, quarterly results can fluctuate, but broadly speaking, we are guiding for an annual growth target of 9%, and we are currently tracking in line with that target.

Performance was particularly strong in Japan and Europe in the first quarter. The first quarter of fiscal year 2025 was an outlier at JPY 2.442 billion, driven by extraordinary factors, specifically timing differences in revenue recognition that had carried over from fiscal year 2024. We faced headwinds in the Chinese market, resulting from the number of cataract surgeries being suppressed due to the Chinese government's medical expenses policies resulting in high distribution inventory.

That said, we have made significant progress in normalizing inventory levels, which have dropped from 8 months toward the end of fiscal year 2025 to approximately 5 months today. We anticipate that this destocking process will be fully resolved within the second quarter.

Looking ahead, our future key measures include strengthening our capital and business alliance with iRIS EYE, promoting our alliance with MST and expanding our footprint in Southeast Asia through marketing with a particular focus on Indonesia, Malaysia and Thailand.

In the Eyeless Needle segment, we achieved record-breaking results with JPY 3 billion in net sales and an operating income margin of 37%. Growth has been especially strong in China following our success in GPO contracts. Following Fujian, a customer in Liaoning secured a GPO contract, which increased product supply. Also, we have recently secured a new client in Thailand, resulting in major orders. As for future key measures, we will continue to develop products where we have an advantage and compete with players in emerging markets.

We have also developed a new device, a resin tray used to automate the handling and winding of sutures when attaching them to our eyeless needles for shipment. We have already secured our first customer for this system, and the initial unit is now entering active operation, providing critical technical support to our clients' manufacturing process.

In the Dental segment, we recorded JPY 2.375 billion in net sales with an operating income margin of 14%. As for sales for dia-burs, they are recovering faster than planned, and we expect the positive financial impact to fully materialize in our second quarter results. Looking at our German subsidiary, MMG, we are actively implementing a turnaround plan toward profitability. In the first quarter, MMG recorded JPY 510 million in sales, though the unit continues to operate at a loss as we work through this transition. Among these, MMG has received larger orders from a major customer, particularly in the U.S.

We aim to improve MMG's profitability by increasing the number of standardized products, launching our own brand products and improving on-site production efficiency. While we didn't include GZI in today's discussion of our key measures, we sold approximately 90,000 units in the first quarter. Given that we moved approximately 400,000 units in fiscal year 2025, we are looking to accelerate this pace.

Our sales efforts remain centered in Japan, India and Vietnam, and we are committed to driving further growth in these markets. Our new GZI 2 product lineup remains on track for a market launch in September 2026, and we intend to further enhance our efforts in this area.

Within our balance sheet, cash and deposits have increased, primarily driven by JPY 4.4 billion in operating cash flow. This increase was partially offset by JPY 2.1 billion in dividend payments, and we recorded JPY 600 million in investment cash flow. Lastly, the decrease in other current assets is due to the negative impact of consumption tax refunds.

This concludes today's financial results presentation.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

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 and 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.]