MTI : Financial Results for FY2023

UNOFFICIAL TRANSLATION

The formal official document is in Japanese

Summary of Consolidated Financial Results

for the Fiscal Year ended September 30, 2023 (Japanese Accounting Standards)

								November 8, 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 of annual meeting of shareholders: December 23, 2023
Scheduled date to submit the Securities Report (Yuka Shoken Houkokusho): December 25, 2023
Scheduled date of dividend payment: December 25, 2023
Supplementary documents for financial results: Yes
Financial results briefing: Yes (for securities analysts and institutional investors (On-demand))
					(Figures less than one millions of yen are omitted)
1. Consolidated financial results for the year ended September 30, 2023
(October 1, 2022 - September 30, 2023)
(1) Consolidated operating results				(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	%
For the year ended September 30, 2023	26,798	1.2	298	(65.7)	458	(5.7)	753	-
For the year ended September 30, 2022	26,479	2.9	870	(54.9)	485	(64.5)	(930)	-

(Note) Comprehensive income:	Year ended September 30, 2023: 778 million yen, (-%)
	Year months ended September 30, 2022: (1,137) million yen, (-%)
	Net income	Net income	Return on	Return on Assets	Net income
	per share	per share/diluted	Equity
	Yen	Yen	％		％	％
For the year ended September 30, 2023	13.73	-	5.4		1.6	1.1
For the year ended September 30, 2022	(16.99)	-	(5.9)		1.6	3.3
(Reference) Equity in earnings (losses) of affiliates: Year ended September 30 2023: 102 millions of yen
	Year ended September 30 2022: (457) millions of yen

(2) Consolidated financial position

	Total assets	Net assets	Equity ratio	Net assets per share
	Millions of yen	Millions of yen	%	Yen
Year ended September 30, 2023	29,155	17,583	47.9	254.36
Year ended September 30, 2022	29,265	17,877	48.1	256.61
(Reference) Shareholders' equity:	Year ended September 30, 2023: 13,953 millions of yen
	Year ended September 30, 2022: 14,065 millions of yen

(3) Consolidated cash flows

	Net cash provided	Net cash provided	Net cash provided by	Cash and cash
	by (used in)	by (used in)	(used in) financing
	equivalent
	operating activities	investing activities	activities
	Millions of yen	Millions of yen	Millions of yen	Millions of yen
For the year ended September 30, 2023	4,764	(1,349)	(1,784)	13,720
For the year ended September 30, 2022	(1,393)	(2,460)	343	12,097

2. Dividends

For the year ended September 30, 2022 For the year ended September 30, 2023

For the year ending September 30, 2024 (forecast)

Dividend per share

End of	End of	End of			Amount of	Dividend ratio	Dividends on
		dividends paid	equity
first	second	third	Year end	Annual	(Consolidated)
(Total)	(Consolidated)
quarter	period	quarter
Yen	Yen	Yen	Yen	Yen		%	%
-	8.00	-	8.00	16.00	880	-	5.6
-	8.00	-	8.00	16.00	880	116.5	6.3
-	8.00	-	8.00	16.00		-

3. Forecast for consolidated financial results for the fiscal year ending September 30, 2024 (October 1, 2023 - September 30, 2024)

						(Percentages represent year-on-year changes)
	Net sales		Operating income	Ordinary income	Profit attributable to	Net income
		owners of parent	per share
					Millions of
	Millions of yen	%	Millions of yen	%	%	Millions of yen	%	Yen
	yen
For the first half	13,000	(4.5)	200	-	+6.9	50	-	0.91
200
Full year	27,000	+0.8	1,000	+235.1	1,000	+118.1	400	(46.9)	7.32

* Notes

(1) Important changes of subsidiaries during the term (changes in specified subsidiaries resulting in change in scope of

consolidation): Not applicable	Exception: -
New: -
(2) Changes in accounting policies and changes or restatement of accounting estimates	Not applicable
(i)	Changes in accounting policies due to the modification in accounting methods:
(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 outstanding shares at the end of period (including treasury shares):

(ii)	9/23: 61,264,600 shares	9/22: 61,263,000 shares
Number of treasury shares at the end of period	9/22:	6,450,273 shares
(iii)	9/23:	6,405,973 shares
Average number of shares during the period	9/22:	54,781,561 shares
	9/23:	54,839,609 shares

(Reference) Summary of financial results

1. Nonconsolidated financial results for the year ended September 30, 2023 (From October 1, 2022 - September 30, 2023)

(1) Nonconsolidated operating results					(Percentages are shown as year-on-year changes)
	Net sales			Operating income	Ordinary income	Net income
For the year ended	Millions of yen	(	％	Millions of yen	(	％	Millions of yen	％	Millions of yen	％
20,763	3.2)	1,477	48.7)	761	40.9)	2,404	-
September 30, 2023
For the year ended	21,445	3.6	2,879	18.0	1,289	(43.6)	(3,524)	-
September 30, 2022		(
	Net income per		Fully diluted net
	share			income per share
For the year ended			Yen			Yen
	43.69			-
September 30, 2023
For the year ended		(64.10)			-
September 30, 2022

1. Nonconsolidatedfinancial position

	Total assets
For the year ended	Millions of yen
26,817
September 30, 2023
For the year ended	25,048
September 30, 2022

(Reference) Shareholders' equity

As of September 30, 2023: 16,490 millions of yen

Net assets	Equity ratio	Net assets per share
Millions of yen	％	Yen
16,549	61.5	299.51
15,043	59.6	271.45
As of September 30, 2022:	14,932 millions of yen

* Status of review

Financial results is out of 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. For the assumptions underlying the forecasts and other notice on the use of earnings forecasts, please refer to "(4) Future outlook" on page 4 in the accompanying material.

While the Company planned to hold an online briefing on earnings chiefly for securities analysts and institutional investors on Thursday, November 9, 2023, for original Japanese.

Accompanying materials - Contents

1. Overview of operating results.....……………….…………………………..………………. 2

(1)	Overview of operating results for the current fiscal year…………………….……….	2
(2)	Overview of financial position for the current fiscal year…………………………..…	3
(3)	Overview of cash flow for the current fiscal year….…………………………..………	3

1. Future outlook………………………………………………………………………... 4

2.	Basic policy for the selection of accounting standard…………….…………………………	4
3.	Consolidated financial statements and important notes………….…………………………	5
	(1)	Consolidated balance sheet…………………………………………………………...	5
	(2)	Consolidated statement of income and comprehensive income……………………...	7
	(3)	Consolidated statement of changes in shareholders' equity………………………….	9

1. Consolidated statement of cash flows………………………………………………... 11

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1. Overview of operating results

(1) Overview of operating results for the current fiscal year

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 current fiscal year under review, consolidated net sales stood at ¥26,798 million (up 1.2% year on year) and gross profit at ¥18,373 million (down 1.7 % year on year), attributable to an increase in cost of sales.

Operating income stood at ¥298 million (down 65.7 % year on year)) due to an increase in selling, general and administrative expenses due chiefly to a rise in advertising expenses.

Ordinary income stood at ¥458 million (down 5.7% year on year) chiefly due to a share of profit of entities accounted for using equity method of ¥102 million (compared to a share of loss of entities accounted for using equity method of ¥457 million in the previous year).

Profit attributable to owners of parent amounted to ¥753 million (a loss of ¥930 million in the previous fiscal year) as a result of a significant increase in extraordinary income due to consumption taxes refund and gain on change in equity and a substantial decrease in extraordinary losses compared from the previous fiscal year.

Consolidated operating results

(Period from October 1, 2022 to September 30, 2023)

	Fiscal year ended	Fiscal year ended	Change
	September 30, 2023	September 30, 2022	Amount	Percentage
	Millions of yen	Millions of yen	Millions of yen	%
Net sales	26,798	26,479	+319	+1.2
Cost of sales	8,425	7,787	+638	+8.2
Gross profit	18,373	18,691	(318)	(1.7)
SG&A	18,074	17,820	+253	+1.4
Operating income	298	870	(572)	(65.7)
Ordinary income	458	485	(27)	(5.7)
Profit attributable to	753	(930)	+1,683	-
Owners of parent

Breakdown of SG&A

(Period from October 1, 2022 to September 30, 2023)

	Fiscal year ended	Fiscal year ended	Change
	September 30, 2023	September 30, 2022	Amount	Percentage
	Millions of yen	Millions of yen	Millions of yen	%
Total	18,074	17,820	+253	+1.4
Advertising expenses	2,136	1,580	+555	+35.2
Personnel expenses	7,714	7,718	(4)	(0.1)
Commission fee	2,954	3,094	(139)	(4.5)
Subcontract expenses	1,965	2,136	(171)	(8.0)
Depreciation	1,265	1,352	(86)	(6.4)
Other	2,038	1,937	+100	+5.2

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 current fiscal year 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 3.13 million of paying subscribers. The figure was 70 thousand smaller than at the end of September 2022. The number of paying subscribers was nearly level, reflecting an increase in the number of

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paying subscribers to the "AdGuard" security-related app.

Net sales totaled ¥18,108 million (down 2.2% year on year) due to a year-on-year decrease in the number of paying subscribers, which more than offset the video sales at Video Market Corporation, a consolidated subsidiary of the Company.

Operating income was ¥5,224 million (down 15.7% 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, the maternal health record book app and the childcare DX service.

This segment served 550 thousand of paying subscribers. The figure was 40 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 1,793 at the end of September 2023 (up 529 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 ¥4,616 million (up 14.6% year on year), given expanded sales of Cloud drug record service and Childcare DX service, etc. The operating loss reduced to ¥224 million (loss of ¥1,108 million in the previous fiscal year) due to the effect of increased sales and implemented 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 ¥852 million (up 100.0% year on year) due to an increase in monthly usage fees from educational institutions that have introduced the "BLEND" cloud-based school business support system. "BLEND" has been used by 566 educational institutions since April 2023 (226 institutions more than a year ago). Operating loss was ¥668 million (loss of ¥841 million in the previous fiscal year) as a result of a decrease in deficit due to a significant increase in sales.

• 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.

Sales decreased to ¥4,822 million (down 0.5% year on year) due to a fall in orders for the AI business, more than offsetting an increase in orders for corporate DX support business. The operating loss was ¥1,398 million (loss of ¥826 million in the previous year), primarily reflecting an increase in the cost of sales as a result of responses to projects in deficit in the corporate DX support business in addition to decreased sales in the AI business.

(2) Overview of financial position for the current fiscal year

As of the end of the fiscal year under review, total assets decreased ¥110 million from the end of September 2022, to ¥29,155 million.

Current assets increased ¥161 million mainly due to an increase in cash and deposits despite a decrease in consumption taxes refund receivable. Non-current assets declined ¥272 million chiefly due to a decrease in goodwill and customer-related assets, which more than offset an increase in investment securities.

Current liabilities increased ¥944 million, mainly reflecting rises in income taxes payable and contract liabilities. Non-current liabilities fell ¥760 million chiefly due to a decline in long-term borrowings.

Net assets decreased ¥293 million chiefly due dividend payments, despite a profit attributable to owners of parent of ¥753 million.

(3) Overview of cash flow position for the current fiscal year

As of the end of the fiscal year under review, cash and cash equivalents amounted to ¥13,720 million, an increase of ¥1,623 million from September 30, 2022. Cash flow by activity and principal factors in the fiscal year under review were as follows.

Net cash provided by operating activities stood at ¥4,764 million (net cash used of ¥1,393 million in the previous fiscal year), reflecting primarily profit before income taxes posted and reception of depreciation and consumption taxes refund receivable.

Net cash used in investing activities stood at ¥1,349 million (outflow of ¥2,460 million in the previous fiscal year). Principal factors included the acquisition of intangible assets (mainly purchase of software).

Net cash used in financing activities amounted to ¥1,784 million (net cash provided of ¥343 million in the previous fiscal year), which was attributable principally to repayment of long-term borrowings and dividends paid.

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(4) Future outlook

The Company will work hard to expand sales and turn a profit in the healthcare business, which is expected to be a driving force for future performance growth. In the content business, it will make every effort to increase the number of paying subscribers by expanding sales of the "AdGuard" security-related app and striving to bolster the original comic distribution business.

Also, the Group will focus on expanding the school DX business that Motivation Works Inc., a subsidiary of the Company, is actively working to develop. Given the large number of business inquiries related to "BLEND", the cloud-based school affairs support system provided by Motivation Works, the Group is earnestly working to increase the number of schools that will introduce this system beginning in April 2024.

The Company takes medium- and long-term perspectives in its engagement in the healthcare business, which has strong potential for future growth and compared with B2C transactions, may move toward a more stable stock-type business through the establishment of long-term business relationships with customers. Therefore, the Company is committed to implementing a variety of measures to achieve sales growth.

The cloud drug record service is particularly in high demand in dispensing pharmacies and we will increase the number of introducing stores through enhancing cooperation with Medipal Holdings, our business partner. This is because it can contribute to the sustained growth of sales in the healthcare business.

It will also enhance childcare-related services with a focus on local governments that have introduced the "Boshimo", a maternal health record book app, and will advance digital cooperation among local governments, hospitals, and residents, thereby advancing its "Boshimo" childcare DX platform strategy to enable the healthcare business to make a contribution to profit in the medium term.

[Assumptions for forecast values]

The impact of undetermined new businesses and low-probability mergers and acquisitions in the Group are not taken into account and are not incorporated in the forecast figures. The Company will promptly disclose any deviation between forecasts and results that should be disclosed.

Earnings forecast for the six months of the fiscal year ending September 30, 2024 (Period from October 1, 2023 toMarch 30, 2024)

Consolidated	(Millions of yen)	YoY(%)
Net sales	13,000	(4.5)
Operating profit	200	(loss of ¥18 million in the
previous fiscal year)
Ordinary profit	200	+6.9
Profit attributable to	50	(loss of ¥326 million in the
owners of parent	previous fiscal year)

Earnings forecast for the fiscal year ending September 30, 2024

(Period from October 1, 2023 to September 30, 2024)

Consolidated	(Millions of yen)	YoY(%)
Net sales	27,000	+0.8
Operating profit	1,000	+235.1
Ordinary profit	1,000	+118.1
Profit attributable to	400	(46.9)
owners of parent

2. Basic policy for the selection of accounting standards

The Group intends to compile its consolidated financial statements based on the Japanese accounting standard for the time being, considering the possibility of comparing the terms of financial statements and performances between companies.

It will adopt the International Financial Reporting Standards (IFRS), factoring in the situations in Japan and abroad.

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3．Consolidated financial statements and important notes

(1) Consolidated balance sheet

		（Unit: thousands of yen）
	Previous fiscal year	Current fiscal year
	(As of September 30, 2022)	(As of September 30, 2023)
Assets
Current assets
Cash and deposits	12,097,658	13,720,915
Notes and accounts receivable - trade, and contract	4,294,825	4,197,136
assets
Advance payments-trade	230,049	214,194
Prepaid expenses	434,784	414,268
Accounts receivable-other	71,031	131,853
Income taxes receivable	485,089	10,630
Other	1,199,240	285,346
Allowance for doubtful accounts	(34,097)	(33,941)
Total current assets	18,778,582	18,940,404
Non-current assets
Property, plant and equipment
Facilities attached to buildings	308,888	328,982
Accumulated depreciation	(242,130)	(243,495)
Facilities attached to buildings, net	66,758	85,487
Vehicles	277	478
Accumulated depreciation	(277)	(333)
Vehicles, net	0	144
Tools, furniture, and fixtures	601,076	625,599
Accumulated depreciation	(474,773)	(497,520)
Tools, furniture and fixtures, net	126,302	128,079
Total property, plant and equipment	193,060	213,711
Intangible assets
Software	2,058,982	1,894,135
Goodwill	655,709	240,012
Customer-related assets	912,600	491,400
Other	163,473	230,614
Total intangible assets	3,790,765	2,856,162
Investments and other assets
Investment securities	3,675,499	4,081,380
Lease and guarantee deposits	337,475	305,268
Deferred tax assets	2,394,793	2,658,854
Other	106,411	110,361
Allowance for doubtful accounts	(10,904)	(10,704)
Total investments and other assets	6,503,275	7,145,160
Total non-current assets	10,487,102	10,215,035
Total assets	29,265,684	29,155,439

5

		（Unit: thousands of yen）
	Previous fiscal year	Current fiscal year
	(As of September 30, 2022)	(As of September 30, 2023)
Liabilities
Current liabilities
Accounts payable-trade	1,068,638	1,023,077
Current portion of long-term loans payable	751,780	747,600
Accounts payable-other	1,221,218	1,279,759
Accrued expenses	501,487	502,655
Income taxes payable	19,236	637,619
Accrued consumption taxes	23,161	316,185
Contract liabilities	2,356,643	2,567,914
Provision for directors' bonuses	30,609	28,862
Other	413,577	227,086
Total current liabilities	6,386,353	7,330,762
Non-current liabilities
Long-term loans payable	3,178,010	2,431,250
Net defined benefit liability	1,816,159	1,786,153
Other	7,432	23,449
Total non-current liabilities	5,001,601	4,240,853
Total liabilities	11,387,955	11,571,615
Net assets
Shareholders' equity
Capital stock	5,218,512	5,232,677
Capital surplus	6,768,841	6,485,816
Retained earnings	5,224,287	5,143,458
Treasury shares	(3,257,237)	(3,230,813)
Total shareholders' equity	13,954,404	13,631,139
Accumulated other comprehensive income
Valuation difference on available-for-sale securities	75,554	165,132
Foreign currency translation adjustment	89,490	97,848
Remeasurements of defined benefit plans	(53,931)	59,594
Total accumulated other comprehensive income	111,114	322,575
Subscription rights to shares	110,774	59,147
Non-controlling interests	3,701,436	3,570,962
Total net assets	17,877,729	17,583,824
Total liabilities and net assets	29,265,684	29,155,439

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(2) Consolidated statement of income and consolidated comprehensive income Consolidated statement of income

		（Unit: thousands of yen）
	Previous fiscal year	Current fiscal year
	(from October 1, 2021	(from October 1, 2022
	to September 30, 2022)	to September 30, 2023)
Net sales	26,479,310	26,798,991
Cost of sales	7,787,727	8,425,737
Gross profits	18,691,583	18,373,254
Selling, general and administrative expenses	17,820,953	18,074,827
Operating income	870,629	298,426
Non-operating income
Interest income	135	104
Dividend income	7,012	3,961
Foreign exchange gains	102,308	38,170
Share of profit of entities accounted for using equity method	－	102,204
Compensation income	503	34,759
Other	37,819	29,395
Total non-operating income	147,777	208,596
Non-operating expenses
Interest expenses	5,491	11,489
Share of loss of entities accounted for using equity method	457,088	－
Consumption tax difference	17,018	22,562
Commission expenses	9,231	7,903
Other	43,621	6,615
Total non-operating expenses	532,451	48,571
Ordinary income	485,955	458,451
Extraordinary income
Gain on sale of non-current assets	－	501
Gain on sales of investment securities	－	14
Gain on sale of shares of subsidiaries and associates	12,417	19,904
Gain on change in equity	76,481	237,588
Gain on reversal of share acquisition rights	54,027	51,424
Consumption taxes refund	－	873,339
Total extraordinary income	142,925	1,182,773
Extraordinary losses
Loss on sales of non-current assets	119	－
Loss on retirement of non-current assets	27,816	25,691
Impairment loss	897,949	347,842
Loss on sale of investment securities	3,240	13,450
Loss on valuation of investment securities	－	55,689
Loss on step acquisitions	4,700	－
Total extraordinary losses	933,826	442,673
Profit (loss) before income taxes	(304,944)	1,198,550
Income taxes - current	718,258	947,796
Income taxes-deferred	40,756	(316,777)
Total income taxes	759,015	631,019
Profit (loss)	(1,063,960)	567,530
Profit (loss) attributable to non-controlling interests	(133,485)	(185,689)
Profit (loss) attributable to owners of parent	(930,474)	753,220

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Consolidated statement of comprehensive income

Profit (loss)

Other comprehensive income

Valuation difference on available-for-sale securities Foreign currency translation adjustment

Remeasurements of defined benefit plans, net of tax

Share of other comprehensive income of entities accounted for using equity method

Total other comprehensive income Comprehensive income (Comprehensive income attributable to)

Comprehensive income attributable to owners of parent

Comprehensive income attributable to non-controlling interests

	（Unit: thousands of yen）
Previous fiscal year	Current fiscal year
(from October 1, 2021	(from October 1, 2022
to September 30, 2022)	to September 30, 2023)
(1,063,960)	567,530
(89,830)	5,191
82,773	4,520
(67,810)	113,525
1,597	88,224
(73,270)	211,461
(1,137,230)	778,992
(1,004,354)	964,681
(132,876)	(185,689)

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