MTI : Financial Results for Q2 FY2023

UNOFFICIAL TRANSLATION

The formal official document is in Japanese

Summary of Consolidated Financial Results for the First Half of

Fiscal Year ending September 30, 2023 (Japanese Accounting Standards)

			May 11, 2023
Listed Company Name: MTI Ltd.	Listing Exchanges:	Tokyo Stock Exchange
Securities Code:	9438	URL:https://ir.mti.co.jp/eng/
Representative:	Toshihiro Maeta, President and Chief Executive Officer
Contact:	Hiroshi Matsumoto, Senior Managing Director	Phone: [phone]

Scheduled date to submit the Quarterly Securities Report (Shihanki Houkokusho): May 15, 2023

Scheduled date of dividend payment: June 16, 2023

Supplementary documents for quarterly results: Yes

Quarterly results briefing: Yes (for securities analysts and institutional investors (on demand))

(Figures less than one millions of yen are omitted)

1. Consolidated business results for the six months ended March 31, 2023 (October 1, 2022 - March 31, 2023)

(1) Consolidated operating results (cumulative total)			(Percentages represent year-on-year changes)
	Net sales	Operating income	Ordinary income	Profit attributable to
	owners of parent
	Millions of yen	%	Millions of yen	%	Millions of yen		%	Millions of yen		%
First half of fiscal year ending	13,613	4.9	(18)	-	187		(36.1)	(326)		-
September 30, 2023
First half of fiscal year ended	12,975	(0.5)	599	(51.4)	292		(65.2)	123		-
September 30, 2022
(Note) Comprehensive income:	Six months ended March 31, 2023: (391) millions of yen -%
	Six months ended March 31, 2022: 47 millions of yen	-%
	Net income	Net income
	per share	per share/diluted
		Yen		Yen
First half of fiscal year ending		(5.95)		-
September 30, 2023
First half of fiscal year ended		2.25		2.25
September 30, 2022
(2) Consolidated financial position
	Total assets	Net assets	Equity ratio
	Millions of yen	Millions of yen			%
As of March 31, 2023		28,879		17,052			46.2
As of September 30, 2022		29,265		17,877			48.1
(Reference) Shareholders' equity:	As of March 31, 2023: 13,349 millions of yen
	As of September 30, 2022: 14,065 millions of yen

2. Dividends

			Dividend per share
	End of first	End of second	End of third		Year end	Annual
	quarter	quarter	quarter
	Yen	Yen	Yen		Yen	Yen
Fiscal year ended September	-	8.00	-		8.00	16.00
30, 2022
Fiscal year ending September 30,	-	8.00
2023
Fiscal year ending			-		8.00	16.00
September 30, 2023(forecast)
(Note) Revisions to dividend forecasts published most recently: No

3. Forecast for consolidated business results for the fiscal year ending September 30, 2023 (October 1, 2022 - September 30, 2023)

(Percentages represent year-on-year changes.)

Net sales

Operating income

Ordinary income

Profit attributable to

Net income

owners of parent

per share

Millions of yen

%

Millions of yen

%

Millions of yen

%

Millions of yen

%

Yen

Full year

26,800

1.2

200

(77.0)

400

(17.7)

(400)

-

(7.29)

(Note) Revisions to forecasts for consolidated business results published most recently: Yes

* Note:

(1) Important changes of subsidiaries during the term

(changes in specified subsidiaries resulting in change in scope of consolidation): Not applicable

New: -

Exception: -

1. Application of specific accounting treatment to the preparation of quarterly consolidated financial statements: Not applicable
2. Changes in accounting policies and changes or restatement of accounting estimates

(i)	Changes in accounting policies due to the modification in accounting methods:	Not applicable
(ii)	Changes in accounting policies other than (i):	Not applicable
(iii)	Changes in accounting estimates:	Not applicable
(iv)	Restatement:	Not applicable

1. Number of outstanding shares (common shares)

1. Number of shares outstanding at the end of period (including treasury shares):

3/23:61,263,000 shares	9/22:	61,263,000 shares
(ii) Number of treasury shares at the end of period
3/23: 6,399,973 shares	9/22:	6,450,273 shares

(iii) Average number of shares during the period (quarterly consolidated cumulative period)

Six months ended 3/2023: 54,820,844 shares

Six months ended 3/2022: 54,762,393 shares

* Status of a quarterly review

This earnings release is not subject to an audit.

* Cautionary statement with respect to forward-looking statements

The forward-looking statements included in this material are based on the Company's judgments, assumptions, and convictions

based on information available to the Company at the time of publication of this document and may differ materially from actual results for a range of factors, including conditions of Japanese and overseas economies, changes in the situation of operations in Japan and overseas, and uncertainties and potential risks inherent in forward-looking statements. The risks and uncertainties include unforeseeable effects of future events. The information on consolidated earnings forecasts and other future forecasts on page 4 of the Accompanying Materials describes notes on the assumptions of the earnings forecasts and the use of the earnings forecasts.

A video (Japanese) of the briefing on earnings for the first half for securities analysts and institutional investors will be made available on demand on the Company's website.

Accompanying materials - Contents
1. Qualitative information on financial results for the current settlement	2
(1)	Explanation on operating results	2
(2)	Explanation on financial position	3
(3)	Explanation of future forecast information including consolidated forecast	4
2. Quarterly consolidated financial statement and important notes	5
(1)	Quarterly consolidated balance sheet	5
(2)	Quarterly consolidated statement of income and quarterly consolidated statement
	of comprehensive income	7
(3)	Quarterly consolidated statement of cash flows	9
(4)	Notes concerning quarterly consolidated financial statements	11
	(Notes concerning going concern assumption)	11
	(Notes in the event of significant changes in shareholders' equity)	11
	(Segment information, etc.)	11

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1. Qualitative information on financial results for the current settlement

(1) Explanation on operating results

Overview of the first half ended March 31, 2023 (Period from October 1, 2022 to March 31, 2023)

The Group is actively engaged in the healthcare business and the school DX business, both of which are expected to expand in the future, in order to enhance its corporate value over the medium to long term.

During the first half under review, consolidated net sales stood at ¥13,613 million (up 4.9% year on year) and gross profit at ¥9,132 million (down 3.0 % year on year), attributable to an increase in cost of sales.

The operating loss was ¥18 million (compared to operating income of ¥599 million in the same period of the previous year) due to an increase in selling, general and administrative (SG&A) expenses due chiefly to a rise in advertising expenses and outsourcing expenses.

Ordinary income stood at ¥187 million (down 36.1% year on year) due to equity-method investment profit of ¥174 million (compared to equity-method investment loss of ¥329 million in the same period of the previous year).

A loss attributable to owners of parent came to ¥326 million (compared to profit of ¥123 million in the same of the previous year). This mainly reflected the postponement of the recording of deferred tax assets and income taxes-deferred in the consolidated financial statements in accordance with the current accounting standards for the income tax-related treatment of a gain on the transfer of shares, associated with the transfer of some of the shares in Boshimo Ltd., a consolidated subsidiary, to MTI Healthcare Holdings Inc., a consolidated subsidiary, in October 2022, which more than offset gain on changes in equity of ¥139 million posted as an extraordinary income.

Consolidated business results

(Period from October 1, 2022 to March 31, 2023)

	First half of the fiscal year	First half of the fiscal year	Change
	ending September 30, 2022	ending September 30, 2022	Amount		Percentage
	Millions of yen	Millions of yen	Millions of yen		%
Net sales	13,613	12,975	+638		+4.9
Cost of sales	4,481	3,814	+666		+17.5
Gross profit	9,132	9,160	(28)		(0.3)
SG&A	9,151	8,561	+589		+6.9
Operating income	(18)	599	(617)		－
Ordinary income	187	292	(105)		(36.1)
Profit attributable	(326)	123	(449)		－
to owners of parent

Breakdown of SG&A

(Period from October 1, 2022 to March 31, 2023)

	First half of the fiscal year	First half of the fiscal year	Change
	ending September 30, 2022	ending September 30, 2021	Amount		Percentage
	Millions of yen	Millions of yen	Millions of yen		%
Total	9,151	8,561	+589		+6.9
Advertising expenses	1,016	758	+258		+34.1
Personnel expenses	3,947	3,835	+111		+2.9
Commission fee	1,491	1,538	(46)		(3.0)
Subcontract expenses	1,041	885	+155		+17.6
Depreciation	591	633	(42)		(6.7)
Other	1,062	909	+152		+16.8

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Operating results by segment are as follows.

Effective from the first quarter of the consolidated fiscal year under review, the classification of reportable segments has been revised. Comparison and analysis for the first half under review are based on the new segments.

• Content business
  The content business includes B2C monthly billing services (excluding the "Luna-Luna" healthcare service for women and the "CARADA medica" health Q&A service in cooperation with healthcare professionals) and the B2B original comic distribution business that offers original comic content to comic distributors.
  This segment served 3.16 million of paying subscribers. The figure was 40 thousand smaller than at the end of September 2022. The number of paying subscribers was nearly level, reflecting an increase in the number of paying subscribers to the "AdGuard" security-related app.
  Net sales came to ¥9,502 million (up 4.7% year on year) mainly due to video sales at the consolidated subsidiary Video Market Corporation, despite a decrease in the number of paying subscribers compared to the same period last year.
  Operating income was ¥2,794 million (down 2.2% year-on-year) due to an increase in SG&A expenses resulting from a rise in advertising expenses to promote "AdGuard" membership.

• Healthcare business
  The healthcare business includes B2C monthly billing services under the "Luna-Luna" and "CARADA medica" brands and B2B and B2B2C healthcare services for medical institutions and local governments, such as the cloud drug record service and the maternal health record book app.
  This segment served 570 thousand of paying subscribers. The figure was 20 thousand smaller than at the end of September 2022. On the other hand, the number of pharmacies that offer the cloud drug record service came to 1,532 at the end of March 2023 (up 268 from the end of September 2022), as the result of great efforts focused on increasing the number of pharmacies whose motivation to introduce such service is growing.
  Net sales came to ¥2,242 million (up 18.9% year on year), given expanded sales of Cloud drug record service and Childcare DX service, etc. Operating loss stood at ¥219 million (compared to a loss of ¥648 million in the same period of the previous year), attributable to the effect of increased sales and cost containment measures.

• School DX business
  The school DX business includes school DX business developed for educational institutions by the consolidated subsidiary Motivation Works Inc.
  Net sales amounted to ¥309 million (up 155.1% year on year) due to an increase in monthly usage fees from educational institutions that newly introduced the "BLEND" cloud-based school business support system in April 2022. Despite the significant increase in net sales, the operating loss amounted to ¥461 million (compared to a loss of ¥232 million in the same period of the previous year) due to an increase in subcontracting expenses resulting from stricter recording of software assets from the second half of the previous fiscal year.

• Other business
  Other business includes the B2B AI business operated by Automagi Inc., a consolidated subsidiary, and the Company's DX support business for large companies and solution business.
  Net sales amounted to ¥2,417 million (down 4.8% year on year) due to a decrease in orders for the AI business. Operating loss was ¥807 million (compared to an operating loss of 176 million yen in the same period of the previous year), primarily reflecting an increase in the cost of sales as a result of the ongoing response to low-margin projects in the DX support business for major corporate customers in addition to decreased sales in the AI business.

1. Explanation on financial position

• Assets, liabilities and net assets

At the end of the first half under review, total assets decreased ¥386 million from the end of September 2022, to ¥28,879 million.

Current assets decreased ¥553 million mainly due to a fall in consumption taxes refund receivable despite an increase in cash and deposits. Non-current assets rose ¥167 million chiefly due to an increase in investment securities, which more than offset a decrease in goodwill and customer-related assets.

Current liabilities increased ¥741 million, mainly reflecting rises in income taxes payable. Non-current liabilities fell ¥302 million chiefly due to a decline in long-term borrowings.

Net assets decreased ¥825 million due to a loss attributable to owners of parent of ¥326 million and dividend payments.

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