Nakanishi : Business Report for 2nd quarter ended Jun. 30, 2022

• Notes for shareholders

Securities code		7716
Fiscal year		From January 1 to December 31
Annual general meeting		March
of shareholders
Shareholder registration		Record date for the exercise of voting rights at the annual general meeting of shareholders	December 31
date		Record date for year-end dividends	December 31
		Record date for interim dividends	June 30
Shareholder registry		Sumitomo Mitsui Trust Bank, Limited
administrator and special		1-4-1 Marunouchi, Chiyoda-ku,
account management		Tokyo
institution
Contact details		2-8-4 Izumi, Suginami-ku, Tokyo Stock Transfer Agency Business Planning Dept., Sumitomo Mitsui Trust Bank
		0120-782-031(toll-free)
Method of public notice		Public notices are posted on the Company's website. If the Company cannot publish electronic public
		notices due to unavoidable circumstances, it will publish public notices in the Nihon Keizai Shimbun.
Share unit		100 shares
Stock exchange listing		Tokyo Stock Exchange Standard
Notice		Change of address, request for purchase of fractional shares
		Inquire with a securities company where you have your account. If you do not have an account at any
		securities company and have opened a special account, please inquire with Sumitomo Mitsui Trust
		Bank, which manages special accounts.
		Payment of accrued dividends
		Please inquire with Sumitomo Mitsui Trust Bank, the administrator of the shareholder register.

Cover photo: SPIRAL.UQ

A stainless gure placed in front of the main entrance of the headquarters in commemoration of the 90th anniversary. The gure is the work that sculptor Osamu Kido has created as the culmination of his works when he was retiring as a professor at the Tokyo University of the Arts. The title of the work, SPIRAL, connotes ultra-high-speed rotation, the Company's core technology. "UQ" represents our wish for everlasting (yukyu [ju:kju:]-no) evolution and development.

NAKANISHI INC. 700 Shimohinata, Kanuma, Tochigi 322-8666 TEL [phone] FAX [phone]

BUSINESS REPORT

71st Fiscal Year (Interim)

January 1, 2022 to June 30, 2022

NAKANISHI INC.

MESSAGE	[To Our Shareholders]	BUSINESS SUMMARY

I would like to take this opportunity to express my gratitude to our shareholders for your continued support.

Operating results in the first half of FY2022

Trends in quarterly net sales

Both sales and income in the rst half of 2022 rose year on year on the strength of rm demand worldwide and the weaker JPY. Net sales rose in all segments, namely the Dental, Surgical, and Industrial segments. Operating income, ordinary income, and income attributable to owners of parent hit record highs.

We fully tapped into increased demand after the COVID-19 pandemic subsided and the scale of our business expanded signicantly. The urgent issue now is to increase production capacity. To address the issue, we started the construction of a parts processing factory, A1+, in November last year. The factory was completed on September 5 and is starting operation. We have decided to build a new assembly factory, M1, on the site of the headquarters, and have begun planning construction. We will implement initiatives to boost production and will establish the foundations to achieve growth over the medium to long term.

Trends in global demand were firm overall, although trends varied from market to market. Business inquiries increased in each business-Dental, Surgical, and Industrial-and sales grew steadily in the first half of 2022. Quarterly sales exceeded sales a year earlier, which were high. Quarterly sales were about the same level as a year earlier except for the effect of exchange rates (the positive effect of the weaker JPY on sales).

B of JPY		2020	2021	2022
15.0		12.4
	11.9		11.3
12.5
10.0	11.3	11.6	10.4	10.7

7.5					8.5
7.2	6.3
5.0
2.5
0
		1Q	2Q	3Q	4Q
			(Jan-Mar)	(Apr-Jun)	(Jul-Sep)	(Oct-Dec)

Considering the latest business trends and exchange rates, we have prepared a mid-term management plan rolling plan, NV2025+ (please refer to P. 05). While maintaining earnings at high levels and working to increase them, we will evolve our management and emphasize capital efciency to enhance corporate value.

Given prolonged supply chain disruptions, production activities remain unpredictable. Even in this environment, all employees will work as one to

Net sales

Operatingincome

Income attributable to owners of parents

YoY

YoY

6.7 B of JPY

YoY

24.4 B of JPY

+6.3％

8.1 B of JPY

+6.3％

+25.8％

First half

Full year

First half

Full year

First half

Full year

provide products to customers worldwide as soon as possible.

We hope that we can continue to count on your support as we achieve further growth.

President & Group CEO

Eiichi Nakanishi

B of JPY
50.0			Forecast
40.0		44.8	45.7
30.0	33.0
20.0		23.0	24.4
10.0	13.6
0
	2020	2021	2022

B of JPY 15.0

12.5		13.7	Forecast
	12.6
10.0
7.5	8.5	7.6	8.1
5.0
2.5	2.3
0	2020	2021	2022

B of JPY 15.0

12.5
10.0		10.1	Forecast
		9.6
7.5
5.0	6.4	5.3	6.7
2.5
0	1.8
2020	2021	2022

01 BUSINESS REPORT

02

BUSINESS SUMMARY

The reporting segments changed at the beginning of FY2022.

Dental Business

Trends in net sales in Dental Business

Business summary in 1st half

Engages in the development, manufacture, and sale of dental equipment for a range of dental treatment, including restorative dentistry, periodontics, mobile dental care, and oral surgery.

						B of JPY			First half				Full year
						50.0
						40.0
						30.0							38.2
						20.0			28.0
														20.5
												19.8
Dental hand piece	Oral surgery system		Oral hygiene system		Autoclave	10.0
		11.2
Ti-Max Z Series	Surgic Pro2		Varios Combi Pro		iClave mini2
						0
							2020		2021	2022

Japan		Sales trend
	YoY
Europe		Sales trend
		YoY
North		Sales trend
America		YoY
Asia		Sales trend
	YoY
Other		Sales trend
		YoY

OEM sales were firm. However, demand ran its course when government grants ended in March last year, and sales declined.

Sales of dental hand pieces and oral surgery system, our mainstay products, rose. Sales for the U.K., in particular, were strong.

Sales of dental hand pieces and micro motors expanded. Both private brand and OEM items sold well. Net sales increased significantly.

Sales recovered in Southeast Asia. Sales in South Korea remained flat from a year ago. Overall sales decreased due to the significant effects of lockdowns in China.

Sales were weak in Russia, but rose significantly in South America. Sales in Australia and the Middle East were firm. Overall, sales increased.

Surgical Business

Trends in net sales in Surgical Business

Business summary in 1st half

Engages in the development, manufacture, and sale of drills for bone cutting for surgery that are used in medical fields such as neurosurgery, spine surgery, and orthopedic surgery.

						B of JPY		First half				Full year
						4.0
						3.0
						2.0						2.7
									2.1
														1.6
						1.0						1.3
Total surgical system	Slim motor		Attachment	Surgical burs
			0.9
Primado2	P200-SMH Series		P300 Attachment Series	Attachment Burs
Control Unit						0
						2020		2021		2022

Japan		Sales trend
	YoY
Europe		Sales trend
	YoY
North		Sales trend
America		YoY
Asia		Sales trend
	YoY

Sales grew due to successful sales activities to spine surgery in addition to the existing neurosurgery.

Sales rose significantly due to replacement demand from existing customers and major deals with core hospitals.

Sales increased, reflecting the high marks that the Company's products have received in the North American market and the expansion of sales channels in cooperation with other companies.

Although sales were strong at the beginning of the fiscal year, sales declined due to lockdowns in China.

Industrial Business

Trends in net sales in Industrial Busines

Business summary in 1st half

Engages in the development, manufacture, and sale of spindles and hand grinders used in micromachining and precision processing in a wide range of manufacturing fields such as the automobile, aircraft, and precision equipment industries.

Industrial spindles	Industrial spindles	Micro grinder	Ultrasonic polisher
E-4000 Series	Air-Speed Series	EmaxEVOlution	Sheenus ZERO

B of JPY		First half		Full year
5.0

4.0
3.0		3.8
2.0	2.9
		2.2
		1.7
1.0	1.4
0	2020	2021	2022

Japan		Sales trend
	YoY
Europe		Sales trend
	YoY
North		Sales trend
America		YoY
Asia		Sales trend
	YoY

Sales of spindles for deburring, drilling, and substrate dividing rose due to large capital expenditures at manufacturers.

We resumed holding trade shows, where we received large numbers of business inquiries. Sales rose, reflecting strong orders resulting from those inquiries.

Appetite for capital expenditures was firm in the North American market. Sales, particularly sales of spindles, were strong and rose significantly.

Although demand was strong, we had to reduce production due to parts shortages. Sales remained flat from a year earlier.

03 BUSINESS REPORT

04

TOPICS [Mid-Term Management Plan]

Mid-Term Management Plan Rolling Plan NV2025+

Amid the COVID-19 pandemic, sterilizing at dental clinics has become commonplace, and demand for dental equipment rose worldwide. We fully tapped into strong demand worldwide, and the base line for global sales of the Company's products have risen significantly. The latest operating results have far exceeded the targets set in the mid-term management plan. Meanwhile, the JPY has weakened, and the assumptions for performance targets have changed significantly. In this environment, we have prepared a mid-term management plan rolling plan "NV2025+", based on the present business plan.

Basic policies, priority measures

(Note) No changes from the previous plan, NV2025

• Strategic expansion of the dental business in the global market
• Development of new businesses to respond to needs in a rapidly aging society
• Building a management base for speedy development and by far the strongest cost competitiveness

Performance targets, nancial targets

• Evolving management from PL-oriented management to management that also emphasizes capital efciency
• Cash allocation in consideration of a balance among growth investment, shareholder return, and risk tolerance

Previous plan

Net sales

Operating

Operating

income

income

margin

NV2025

50.0 B of JPY

14.0 B of JPY

28%

▼

▼

▼

Rolling Plan

Net sales

Operating

Operating

Total

Cash & marketable

income

+

ROE

+

+

securities to

income

payout ratio

+

margin

monthly sales ratio

NV2025

55.0 B of JPY

16.5 B of JPY

30%

11%

50%

12 months

05 BUSINESS REPORT

[Completion of New Factory A1+]

New parts factory A1+ completed on September 5

A new factory, A1+, was completed on September 5 in Utsunomiya Nishi Chukaku Indusrial Park (Kanuma, Tochigi), next to the A1 factory. The total floor space is 5,500 square meters. A total of 1,600 solar panels are installed across the entire rooftop, which enables the factory to contribute to increasing production capacity and reducing its impact on the environment.

A1

A1

At the new factory A1+, we will take steps to increase the capacities of production lines and human resources.

Increasing parts processing capacities

We will seek to increase parts (primary) processing capacities, a bottleneck in production activities. We will pursue automation and streamlining in the production process and build efficient production lines. We will change the existing production lines in the same manner.

Implementing a human resources cultivation program

We will start a new human resources development program, ASK*, to expedite the cultivation of a homogeneous group of technicians who handle ultra-precision parts processing. We will cultivate human resources for advanced manufacturing through a systematic training program.

* Academy of Sessaku (cutting) & Kenma (polishing): Cutting and polishing are basic and the most important techniques in parts processing at the Company.

06

TOPICS [NSK Teams Expanding into the World]

NSK Dental Nordic

Frankfurt Number of employees: 43 Established: 2003

Gothenburg Number of employees: 12 Established: 2018

Shanghai Number of employees: 32 Established: 2005

Chicago Number of employees: 73 Established: 1984

London Number of employees: 29 Established: 2007

Seoul Number of employees: 10

Established: 2014

				Singapore Number of employees: 3
Paris Number of employees: 30 Established: 2005	Established: 2009

NSK RUS

Joinville Number of employees: 20

Sydney/Auckland Number of employees: 17

Madrid Number of employees: 19 Established: 2008

Thiene Number of employees: 61 Established: 2013

Dubai Number of employees: 4 Established: 2000

Moscow Number of employees: 6 Established: 2007

Established: 2007

Established: 2013

07 BUSINESS REPORT

08