SHOFU INC.
Q2 Financial Results Briefing for the Fiscal Year Ending March 2024
November 22, 2023

Event Summary[Company Name]SHOFU INC.

[Company ID]

7979-QCODE[Event Language]

JPN[Event Type]Earnings Announcement[Event Name]

Q2 Financial Results Briefing for the Fiscal Year Ending March 2024

[Fiscal Period]

FY2024 Q2[Date]

November 22, 2023

[Number of Pages]

34[Time]

16:00 – 16:59(Total: 59 minutes, Presentation: 54 minutes, Q&A: 14 minutes)[Venue]Webcast[Venue Size][Participants][Number of Speakers]

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Tetsuo Takami
Fumitaka Yamazaki

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Presentation
Moderator: It is now time to start. Welcome to the financial results briefing of SHOFU INC. for Q2 of the
fiscal year ending March 2024.
We would like to thank you for your participation in the financial results briefing today, despite your busy
schedules. First, I would like to make requests and announcements in connection with the event. We will
have a presentation on the financial results, followed by a question-and-answer session.
We will move to the question-and-answer session at approximately 4:40 PM and read and answer questions
we receive. We may not be able to answer all of your questions due to time constraints. We kindly ask foryour understanding.
Now, Mr. Tetsuo Takami, President and COO, will present the financial results for Q2 of the fiscal year
ending March 2024.

Takami: Thank you very much for attending today's financial results briefing of SHOFU INC. My name is
Takami, President and COO of the Company. Thank you very much.
Today, I will give an overview of our business results for Q2 of the fiscal year ending March 2024 and thendiscuss our full-year forecast for the fiscal year ending March 2024, the future business environment, ourmid- to long-term strategy, and some recent topics.

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I will now first provide an overview of the Q2 results for the fiscal year ending March 2024. First is thefinancial summary.
Net sales were JPY16.447 billion, and operating income was JPY2.155 billion. Three points can be mentioned
as characteristics: the ratio of overseas sales to total sales reached 57.6%, a new record high; the expansionof overseas sales was supplemented by an increase in revenue due to the yen's depreciation; on the other
hand, progress in SG&A expenses was slightly slower than planned at the beginning of the fiscal year.
As a result, the overall results were higher than the initial plan announced on May 10 of this year.
I would like to discuss the progress of the full-year plan. Prior to the announcement of the Q2 financial
results on November 2, we revised our financial results upward on October 24, based on our past
performance, the current supply and demand situation, and our future outlook.
In terms of progress toward the revised full-year plan, we are making very solid progress, with 47.1% of net
sales and 50% of operating income achieved in Q2. We expect to reach the target by the end of this year,
thanks to our efforts to strengthen production and improve efficiency, which have been successful inaddressing the supply constraints and backlog of orders for chemical products—these had been a concern
since the previous fiscal year.
From H2 of the fiscal year onward, we intend to achieve further growth in business performance by ensuringthat we not only conduct aggressive sales activities in the domestic market but also capture the current solid
expansion of demand, especially in overseas markets.

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I will now explain specific performance figures.
Sales increased 3.9% YoY to JPY16.447 billion. Domestic sales declined 3.9% to JPY6.977 billion, while
overseas sales increased 10.5% to JPY9.47 billion.
Domestic sales decreased slightly from the previous year. This was due to the fact that the demand for new
introduction of our CAD/CAM system, SHOFU S-WAVE, which had received strong inquiries in the previous
fiscal year following the expansion of insurance coverage for CAD/CAM dental crowns and related
machinery and devices, had run their course.
We also believe that the supply side restrictions placed on some of the resin blocks for CAD/CAM dentalcrowns had an impact, although this is now largely being resolved.
Meanwhile, overseas sales remained steady. We will provide more details by region later, but overall
demand is recovering. We also recognize that exchange rate fluctuations due to the overall depreciation of
the yen had a positive impact on this performance.
Despite the increased revenue and gross margin, profit shrank by JPY82 million YoY to JPY2.155 billion due
to an increase in selling, general, and administrative expenses associated with the expansion of businessscale, strengthening of sales activities, and future investments.
Ordinary income decreased by JPY357 million YoY to JPY2.387 billion, and net income decreased by JPY574
million YoY to JPY1.559 billion. Net income per share for Q2 was JPY87.98 and ROE was 4.2%.

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4Now, we will look again at the profit structure. This figure is shown in comparison with the previous year.
Sales were up 3.9% to JPY16.447 billion. This increase was mainly due to the expansion of overseas sales andthe accompanying impact of foreign exchange rates.
On the profit side, selling, general, and administrative expenses increased due to business scale expansion,stronger sales activities, and future investments. On the other hand, the growth of SG&A expenses did not
directly affect operating income because the cost-to-sales ratio improved, mainly due to a favorable
turnaround in the sales mix resulting from a lower composition ratio of low-margin machinery andequipment, including CAD/CAM-related machinery, and lower costs in overseas operations due to theweaker yen.
As a result, the operating income margin was 13.1%, a slight decrease of one percentage point from thesame period of the previous year, but still meeting the operating income margin target of 12% according toour mid-term business plan.

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Next, we will break down the sales situation compared to the same quarter of the previous fiscal year.
First, we will discuss sales by product category. Of the total revenue increase of JPY615 million, the positive
impact of exchange rate fluctuations was JPY546 million. Excluding the above, the dental business is JPY27
million in essence. The nail care business increased by JPY49 million. Other businesses reported a decline of
JPY8 million in revenues.
In the dental business, sales growth was mainly driven by chemical products, followed by artificial teeth. The
main chemical products are dental filling and restorative materials made from resin materials and CAD/CAM
resin blocks for the domestic market.
In the area of dental filling and restorative materials, efforts are underway to strengthen and streamline theproduction system in response to the supply constraints that have arisen since the previous fiscal year due
to the surging demand in Japan and overseas. We recognize that these effects are being reflected in ourbusiness performance.
The supply constraints have not yet been completely resolved but are expected to be resolved within theyear. We intend to continue taking measures to increase production. We also believe that the increase insales of artificial teeth is due to the increasing demand for zirconia materials for CAD/CAM in Japan andoverseas as well as for ceramic materials overseas.

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Next, we break down sales by region compared to the same period last year.
As I mentioned earlier in the summary, the main reason for the decline in domestic sales is that the special
demand for newly introduced CAD/CAM systems in the same period of the previous year has run its course.
In addition, there were some restrictions on the supply of resin blocks for CAD/CAM, but as I mentioned
earlier, these are now being resolved. The Q2 results were generally in line with expectations.
Overseas, as in Q1, sales in North America and Latin America declined from the same period of the previous
year due to a gap period before the launch of the next model of digital cameras and distribution inventory
adjustments of grinding materials. However, compared to the Q1 results, the decline in sales has narrowed.
This was due to the stabilization of the production and supply of filling and restoration materials, which had
been difficult to actively promote in the previous fiscal year due to supply constraints, and the start of fullscale sales activities in the region.
And for China, this figure includes the effect of the lockdown at the beginning of the year due to the threemonth difference in the fiscal year end. Although sales declined slightly YoY in Q1, demand recovered fromQ2 onward, making a significant contribution to overseas sales.
Sales in Asia, excluding Europe and China, remained strong, contributing to revenue growth as well.

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Next, we will explain the factors of YoY changes in operating income.
The cost-to-sales ratio declined due to a favorable turnaround in the sales mix, growth in overseas sales, anda reduction in overseas cost of sales due to the effect of the yen's depreciation. On the other hand, SG&A
expenses increased by JPY818 million, or 11.8%, from the same period of the previous year due toaggressive investments for future business expansion, including personnel and R&D expenses.
As a result, operating income decreased by JPY82 million, or 3.7%, from the same period last year.

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8Next, I will explain the balance sheet. In total assets, the main factors were an increase in inventories and anincrease in investment securities due to higher market value.
Liabilities have decreased due to a decrease in accounts payable for equipment and borrowings. Net assets
increased due to an increase in valuation difference on securities and foreign currency translation
adjustments, in addition to retained earnings.
Financial soundness has remained strong, with an equity ratio of 83.6%. Based on this sound financial
position, the Company sees the efficient use of capital to continuously increase corporate value as a major
management issue.

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9Next, we will explain cash flow.
Operating cash flow increased to JPY1.18 billion, mainly due to higher profit despite higher income taxes
paid and higher inventories. Investment cash flow decreased by JPY1.017 billion due to the acquisition of
fixed assets, and free cash flow—the sum of operating and investment cash flow—increased by JPY163
million.
Financing cash flow decreased by JPY1.601 billion due to dividend payments and repayment of borrowings,
resulting in cash and cash equivalents of JPY7.775 billion at the end of the period.

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I will now explain the outlook for the full year.
For the full fiscal year ending March 2024, we expect to achieve a third consecutive year of growth in bothsales and income, and a new record high. The dental market is expanding worldwide, and we expect strong
demand to continue, especially in emerging countries. We will continue to aggressively pursue businessdevelopment against the backdrop of a full-fledged recovery in global economic activities after the COVID19 disaster.
To this end, the Company will promote research and development, train and actively recruit humanresources, invest in new facilities and upgrade current facilities in anticipation of increased demand, andstrengthen sales activities to increase corporate value in the future. These will be actively and continuously
implemented.
In the business environment, there are issues such as high costs due to rising raw material and energy prices,which will be covered by improving production and sales efficiency and implementing product pricerevisions.
The sales of investment securities and settlements received, which are one-time positive impacts on
earnings in the previous year that are not attributable to the core business, are not assumed in the current
full-year results either. However, since the yen has weakened significantly compared to the initialassumption, the assumed exchange rate for the full-year forecast has been changed to the actual figure for
Q2.
In addition, we have been working to eliminate the backlog of orders that occurred in the previous fiscal
year when we were unable to respond to the sharp increase in demand by improving production efficiency.

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As a result, we expect to fully resolve the filling and restorative materials of the chemical products by theend of this year.
However, since demand for this product is expected to continue to grow in the future, we intend to actively
invest in production facilities as well as develop a system and structure within the Group to avoid loss ofbusiness opportunities.

I will now explain specific performance figures.
Net sales are expected to increase 10.1% from the previous year to JPY34.888 billion. Domestic sales areseen increasing by 4% to JPY14.851 billion and overseas sales by a substantial 15.2% to JPY20.037 billion.
The ratio of overseas sales to total sales is expected to rise to 57.4%.
Operating income is expected to be JPY4.308 billion, up 12.6% from the previous year.
Recurring profit is expected to increase by 7.9% YoY to JPY4.572 billion, mainly due to the increase inoperating profit, although foreign exchange gains based on the current exchange rate assumption havebeen factored in. Although we do not expect one-time extraordinary gains such as gain on sales ofinvestment securities and settlement income from the previous fiscal year, net income is expected toincrease by 2.2% from the previous fiscal year to JPY3.204 billion on the back of increased operating income
as in the case of ordinary income.
As a result, we expect net sales to reach a record high for the third consecutive year, operating income andordinary income for the fifth consecutive year, and net income for the fourth consecutive year.

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12Next, this chart shows sales by business segment.
As in the past, the dental business accounts for about 93% of total sales.
Operating income is not detailed by segment but is expected to stem generally from the dental business, asis the sales ratio.

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Next, we will break down the sales forecast by region.
As you can see, we expect organic growth in all regions, both domestically and internationally. As explained
earlier in the Q2 results, we have been actively promoting and marketing chemical products, especiallyfilling and restoration materials, since we were unable to fully meet demand in the previous fiscal year due
to production constraints. The Company has been able to increase production to a certain extent.
Let's look at it by region. First, let's talk about domestic.
We expect demand for CAD/CAM-related products and filling and restoration materials to remain strong,
continuing from the previous fiscal year.
In addition, the digital camera for dental use, which was launched in June, has been contributing to theCompany's performance since the Q2 results. We also expect that the self-adhesive resin cement, which welaunched in October and can be bonded to various prosthetic devices in Japan under the product name
BeautyLink SA, and the toothpaste sold exclusively at dental clinics, Merssage Self-care Series, willcontribute to our business performance in H2 of the fiscal year and beyond.
Overseas, we expect a lull in demand in India, where we temporarily built up distribution inventories in theprevious fiscal year as part of our response to regulatory approval.
Meanwhile, in China, demand has recovered from the COVID-19 disaster and inquiries for artificial teeth andchemical products have been increasing. In North America and Latin America, where sales activities wererestrained in the previous fiscal year due to supply constraints on chemical products, we expect sales togrow as inventory adjustments in the distribution of abrasive materials are winding down and new digital
cameras go on sale this fall.
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In Europe, we expect sales to increase on the back of strong demand in Germany, Italy, and other countries,
as well as an increase in demand for initial inventory due to the expansion of our distributor network
handling our products in the Middle East.
In the current fiscal year, the yen is expected to remain weak, and we currently project a positive impact of
JPY94 million from exchange rate fluctuations.

This table on page 17 shows the impact of exchange rate fluctuations on the forecast for the current fiscal
year by major currency.
The forecast exchange rates for the fiscal year ending March 2024 are JPY141.31 for the US dollar,
JPY153.51 for the euro, and JPY19.65 for the Chinese yuan, which are the actual exchange rates for Q2. We
assume that the yen will weaken compared to the previous year's results.
While the ratio of overseas production is 15%, overseas sales exceed 50% and are on a further upward trend.
Currently, our business performance is positively affected when the yen depreciates, but we will continue tomonitor trends closely as exchange rate fluctuations have a significant impact on our business performance.

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I will continue with an explanation of the future business environment and our mid- to long-term strategy.
There are three key points to the story of our future growth. The first is to further strengthen the domestic
business base and create new product services. The second is to expand the business scale or domain byincreasing market share in developed countries such as Europe and the US through proprietary technologies
and services that are not available from other global manufacturers. The third is to directly capture thegrowth of emerging markets. These are the three key points.
First, in Japan, the domestic dental market as a whole is expected to maintain a certain size due to thedeclining population and dental caries; it is difficult to expect significant growth in terms of treatment.
In Japan, however, there are new roles and expectations for dental care in terms of the relationshipbetween teeth and overall health. Dental awareness, or dental IQ, is on the rise. In addition, dental
checkups and treatment at an early age are also greatly assisted by legal aid, resulting in a decrease indental caries and early treatment of minor dental caries.
With the recent policy theme of universal dental checkups, we recognize that there are many potential
business opportunities in the domestic dental market, especially in the field of prevention.
Next, let us look at overseas markets. A huge market already exists in developed countries, especially inEurope. The dental market is expected to continue to expand, especially with the enhancement ofpreventive and cosmetic services.
Furthermore, in emerging countries, new markets are forming in areas where dental treatment itself has not
yet prevailed. In these countries and regions, demand for high value-added treatment is expected toincrease steadily, as in developed countries, due to future economic growth and improved living standards.
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Therefore, the dental market is expected to grow significantly, even taking into account differences in pricelevels.
As we continue our research and development, academic networking, and marketing activities in the global
dental market, we will always promote our business with an eye to creating new businesses and contributeto global dental care.

In view of this business environment and future prospects, we always recognize how to improve ourcorporate value as an important management issue. The four perspectives shown here are particularly
important to us because they embody our management philosophy of contributing to global dental carethrough our creative corporate activities.
Among these, human resources are the foundation of our corporate value. This is not limited to the dental
industry, but the landscape has been changing at a dizzying pace in the past two to three years alone, withthe pandemic of COVID-19, the acceleration of digitalization, and the rise of generative AI.
In this environment, we have been actively recruiting people who share our management philosophy, whichis the foundation of our company. In other words, people who have high aspirations to provide better
dental treatment and dental care to the world, people who are always alert to information, and people who
are willing to think and act without fear of change.
In addition, many specialists such as dentists, dental hygienists, dental technicians, and pharmacists areactive in Japan and overseas, and we are promoting mutual growth through personnel exchanges
throughout our group.

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In addition, we take the time to develop human resources, provide opportunities and support for selfdevelopment, and take other measures to ensure that each employee can work with vitality and experience
personal growth.
In addition to putting in place mechanisms and systems to improve employee engagement, we intend tomeasure the effectiveness of such systems and systems to promote human capital management and,ultimately, maximize corporate value for the group as a whole.

In light of the business environment and corporate value described above, I would like to discuss ourcompany's mid- to long-term vision.
To reiterate, our corporate philosophy is to contribute to global dental care through creative corporate
activities. However, the global dental equipment market is currently worth approximately JPY5.2 trillion, of
which the dental materials market, our main business domain, is estimated to be worth approximately
JPY1.6 trillion, and our contribution and presence in this market are still insufficient.
We believe that the barometer of our contribution is our sales, and the barometer of our presence is to be
one of the top 10 companies in the world. As the first step toward this goal, we will first achieve group salesof JPY50 billion and operating income of JPY7.5 billion and increase our contribution to and presence in the
global dental community.

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18Here are the company-wide targets of the fourth mid-term management plan, which started in the fiscal
year ended March 2022.
Our mid-term management plan is not rolled over on an annual basis but is formulated over a certain spanof time. This fiscal year is the final year of the current mid-term management plan, and we expect to achieve
all the goals set at the time of its formulation.
The issues we have been working on to achieve these goals cover a wide range of areas, including R&D,
production, sales, human resources, and finance. Among these, I will explain R&D, production, sales, andcollaboration with external parties.

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First are specific R&D efforts. We are an R&D-oriented company, and as a KPI and benchmark, with a targetof 20% of new product sales as a percentage of total sales, we aim to create added value and develop new
products that match the needs of each region.
Our research and development requires a wide range of technologies in organic chemistry, inorganic
chemistry, metals, machinery, digital, electrical/electronics, biotechnology, etc. Our great strength is ouraccumulated technologies and our ability to conduct R&D through optimal integration.
We will continue to focus on product development from a global perspective to support global growth,
product development adapted to each region, and research and development with a sense of speed toestablish fields within dentistry and new markets that we have not yet fully addressed.

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Next, I would like to discuss specific initiatives related to production.
On the production side, the challenges are to increase production capacity and improve pricecompetitiveness. We have promoted the effective utilization of our subsidiaries and the reallocation of
production bases in Japan and overseas. Most recently, in 2021, we established a production company inVietnam that started operation at the end of last year. SHOFU plans to increase its overseas production ratioby shifting production from Japan to overseas with a view to establishing production bases in the future.
As a major measure for the future, we are planning to rebuild part of our headquarters factory here in Kyoto,specifically the chemical products production factory. Construction will begin this quarter and the building
will be constructed in two phases, with final completion scheduled for September 2026. The investment will
be approximately JPY4 billion, including buildings and machinery and equipment.
The production capacity after completion will simply double that of the current production system, but sincescale-up and automation will be promoted at the same time, the actual production capacity is expected to
be increased by more than that.

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Next, we would like to discuss specific initiatives related to sales.
The most important task in sales, both domestically and internationally, is to make our products,
characteristics, and clinical superiority well known to dental professionals, who are our end customers. The
first measure to achieve this goal is the development of sales bases and expansion of the sales network.
Establishing a new location apart from business expansion at an existing location is both time-consuming
and costly, as it requires an increase in personnel. However, the effects of these efforts have been steadily
manifested in the acquisition of new customers and sales growth in emerging markets. We will continue togradually develop our sales network in key countries and regions.
Second, we are actively building an academic network by holding our own seminars with key opinion leaders,
KOLs, or influential doctors in the field of dentistry, exhibiting at trade shows in Japan and overseas, andconducting hands-on seminars.
Through these sales activities, the Company will seek to increase recognition and promote the achievementof its management plan in line with the Company's mid- to long-term basic policy.

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22Here is an overview of the strengthening of the capital and business alliance with Mitsui Chemicals, Inc. andSun Medical Company, Ltd.
In May 2020, we signed a capital and business alliance agreement with Mitsui Chemicals, Inc. and its
subsidiary, Sun Medical Company, Ltd., a dental materials manufacturer. Our collaboration with Mitsui
Chemicals, Inc. began in 2009 with the supply of materials such as low-shrinkage fillers and high-strength
resin materials for chemical products.
Taking this a step further, a project team was formed among the three companies for the capital andbusiness alliance with the addition of Sun Medical Company, Ltd. We are working to create synergies on awide range of themes, including the promotion of product development that takes advantage of therespective strengths of each company, the expansion of product lineups accordingly, the complementationand sharing of production functions, and the utilization of sales networks.
This most recent achievement was the commencement of sales of Sun Medical's flagship product, Super
Bond dental adhesive materials, in Brazil through the Company's Brazilian subsidiary. We will continue toreport our results to you through disclosure and other means.
In addition to creating synergies through alliances with Mitsui Chemicals, Inc. and Sun Medical Company,
Ltd., we also recognize the promotion of M&A and the establishment of a group governance structure as
key issues in terms of achieving the goals of the mid-term management plan.
M&As may be used to strengthen dental-related business areas that we are not currently engaged in or
product lines that are not competitive enough, or to make up for the areas outside our sales network. Under
our mid- to long-term basic policy, we will consider such discontinuous measures from time to time.

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Next is the dividend policy.
Our dividend policy targets a consolidated dividend payout ratio of at least 30% and a ratio of dividends to
net assets of 1.7%. The Company has maintained or increased the ordinary dividend and has paid acommemorative dividend in addition to the ordinary dividend every five years for two fiscal years.
For the fiscal year ended March 2023, we have decided to pay a commemorative dividend of JPY10 per
share to celebrate our 100th anniversary in light of our record performance, resulting in an annual dividendof JPY57 per share.
The annual dividend for the current fiscal year is planned to be JPY47 per share, maintaining the regulardividend amount of the previous fiscal year.

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24This is a list of our key sustainability themes and issues to be addressed.
The starting point of our company is our mission to create teeth for the Japanese people, and ourmanagement stance is to contribute to society by solving social issues through technology.
We believe that responding to the demands of society through dental care is the source of our raison d'etre
and corporate value. We will continue to work on solving social issues through our corporate activities,
aiming to increase our corporate value over the medium to long term and realize a sustainable society at thesame time.

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Lastly, I would like to talk about topics.
First is the new product information. We have expanded our lineup of Merssage Self-care toothpastes,
which are sold exclusively at dental clinics, and have renewed the series as Merssage Self-care, adding three
new types to the four existing types.
As the series name indicates, these products are sold to the general public through dental clinics. In order tomaintain the effectiveness of professional care at the dentist's office, it is very important to perform good
self-care under the guidance of a specialist.
As I mentioned earlier regarding the business environment and future prospects, recently there has been agreat increase in awareness of preventive and cosmetic dentistry, such as regular dental checkups andcleanings. We intend to focus on this point and continue to build a new revenue base by enhancing our
products and services in the preventive and esthetic fields.

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Next is information on exhibitions and events.
The 9th World Dental Show 2023 was held at Pacifico Yokohama at the end of September this year, and we
also exhibited at the show. In addition to our original S-PRG technology and related products, the CAD/CAM
system, SHOFU S-WAVE, and the latest digital camera for oral use, Eye-Special C-V, which was launched inJune of this year, and the Merssage Self-care Series, which I mentioned earlier, were displayed for the firsttime.
As you can see on this slide, a great many people were really interested and came to see these products. As
we see this kind of scene, we are reminded of the high level of interest in preventive dentistry .

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Finally, I would like to introduce our social initiatives.
In order to raise awareness of the importance of dentistry among many people, we are actively engaged in
educational activities on oral care with the cooperation of dentists. Our company's dental education website,haiku.com, provides easy-to-understand information on dental care and oral health.
We are also holding a photo contest on the theme of tooth replacement, and we are inviting haiku about
teeth, and the winning haiku will be featured in ads on the train tracks in Kyoto City.
This concludes our presentation of the financial results for Q2. We place great importance on dialogue with
our investors. We have received a great deal of suggestions through various meetings and company
information sessions. We take these suggestions seriously and apply them to the formulation of future
management strategies and plans, as well as to the enhancement of our investor relations activities.
We look forward to actively engaging in dialogue with all of you. Thank you very much for your participation
until the end.
Moderator: Thank you very much, Mr. Takami.

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Question & Answer

Moderator [M]: We will now move on to the question-and-answer session. I will read out the question.
Participant [Q]: With regard to the current fiscal year, the forecast is revised with stronger figures than for
the fiscal year ending March 2023; what is the basis for this? Also, please let us know if the numbers areconservative or not.
Takami [A]: There are three main possible bases for the forecast. The first are the eased and eliminatedconstraints on the supply of chemical products. There have been various restrictions on the supply of filling
and restoration materials and resin blocks for CAD/CAM due to a greater-than-expected increase in demand.
This problem has been largely resolved with the exception of a few cases, thanks to efforts to increase
production, and we expect to capture demand that had been missed until now.
Second, we expect a positive impact from new product launches and rebranding. We have been sellingthese products overseas since September of this year, including a dental digital camera that was first sold inJapan in June 2023, and this is a new product that is attracting a great deal of interest.
In addition, we have also renewed and rebranded the self-care dental toothpaste I mentioned earlier toenhance the lineup of both products, which we believe will contribute to sales.
And third and last, we have factored in the impact of exchange rate fluctuations. In addition to the foreignexchange effects, the positive effects on performance due to the sales mix and other factors have beenfactored in as foreign exchange rates have been revised and overseas sales continue to grow.
As to your question on whether the figures are conservative or not, our approach to formulating earnings
forecasts is the same as it has been in the past. We recognize that we are preparing plans with a high degreeof certainty based on comprehensive consideration of the inquiries we are currently receiving and theprospects for supply and demand, and we have revised our earnings forecasts based on these factors.
That is all from me.
Moderator [M]: I will read the next question.
Participant [Q]: What are your thoughts on shareholder return policy? In particular, regarding the dividend
for this fiscal year, we did not revise the dividend, although the dividend payout ratio is expected to fall
below your benchmark of 30% due to the recent earnings revision. I would like to know why and what isyour plan for the future. Mr. Takami, please.
Takami [M]: Thank you very much. Mr. Yamazaki, our Senior Managing Executive Officer, will answer.
Yamazaki [A]: My name is Yamazaki, Senior Managing Executive Officer. Thank you for your question. As
you have pointed out, the Company has a dividend payout ratio of 30% and a DOE of 1.7% and has neverreduced its ordinary dividend before.
No change will be made to the dividend amount for this fiscal year at this time. The Company had
determined that the amount needed to be examined more closely in light of future business performance.
However, as you pointed out, the profit level has increased due to the recent earnings revision, and we willconsider a review at the appropriate time.
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We also recognize that share repurchases are one of the measures to return profits to shareholders, andthat it is also important from the perspective of the liquidity of our company's shares in the market. We willconsider this matter flexibly, taking into account market trends, trends in policy shareholdings, the wishes ofshareholders, and other factors.
That is all from me.
Takami [A]: As Yamazaki just mentioned, we are considering this issue.
Moderator [M]: I will read the next question.
Participant [Q]: What measures have you taken to address shortages in the supply of chemical products?
Please provide as many details as possible. Is there a risk of similar problems in the future?
Takami [M]: Mr. Yamazaki will again answer this question as he is a director in charge of production.
Yamazaki [A]: This is Yamazaki. Thank you for your question. First, chemical products are currently produced
at the Kyoto head office.
We work with the R&D, engineering departments, and other such technology-related departments to carryout production. In our production system, R&D will first develop the product, and then, our researchers
work together to establish the production process and technology.
Because of these factors, it is difficult to make large capital investments in a short period of time. Our
researchers, technical department, and such members are supporting us on holidays and after hours, and inthat way, we try to extend the operating hours first.
In addition, we are promoting scale-up, which we call batch-up. We are trying to increase production
efficiency by increasing the production volume per batch, for example, from 10 kilograms to 30 kilograms.
First, we are now working to increase production. This is still going on.
In addition, we are planning to rebuild our headquarters factory, as already disclosed in our annual
securities report, based on the idea that more drastic expansion is necessary for the future growth of thisfield.
Over the next three years, we plan to invest approximately JPY4 billion to build a production factory that will
mainly produce chemical products.
The production capacity will approximately double that of the current production system. In conjunction
with this, as I mentioned earlier, we will also promote scale-up and automation, so we expect to be able tomore than double our production capacity.
That is all from me.
Takami [A]: We are aware of the production aspect as an issue. This issue had been apparent for a while,
but measures are being implemented ahead of the original plan. At present, there was a large backlog oforders at one time, but this has been resolved. In the future, we plan to implement the new factory that was
just mentioned.
Participant [Q]: One of the questions we received just now was whether there is a risk of similar problems
occurring in the future. Could you also answer that?

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Yamazaki [A]: Expanding production capacity will continue to be a major issue in the future, and I believethat chemical products are a field that will grow worldwide. Therefore, we would like to be proactive in
expanding our production capacity to be able to respond to that growth, rather than addressing the risk.
That is all.
Participant [Q]: Next question.
I would like to ask you about the Chinese market. Are the effects of the economic downturn and the anticorruption campaign of particular concern? Also, what is your company's view on the impact of new systems
such as international preferences and centralized purchasing? Thank you.
Takami [A]: Thank you for your question. We are aware of the concerns you have raised. In particular,
domestic preferences are for medical equipment and large machines. We have heard that the impact has
already begun to be felt.
However, we have not yet been affected by any specific restrictions or price limits on our dental materials.
However, there is a risk of this happening in the future, so we plan to make such preparations as soon as
possible.
Currently, we have production facilities in China, but the majority of these are exported from China rather
than consumed in China. Most of the products sold in China are imported from Japan, so there is an
imbalance.
We believe that the expansion of production functions in China is an issue for us and that we must takemeasures as soon as possible. Does Mr. Yamazaki have any additional information? That is all from me.
Moderator [M]: Thank you very much. Now that the time for closing is approaching, we will conclude with
the next question. I will read out the question.
Participant [Q]: Gross profit improved in Q2. What are the factors behind it? It also appears to be expected
to decline in H2 of the year. What are the possibilities and factors behind this?
Takami [A]: I will answer your question.
In H1 of the year, the ratio of overseas sales to total sales increased, as we have mentioned earlier. As aresult, the gross profit margin increased due in part to a favorable turnaround in the sales mix and in part tothe sale of higher-margin items.
In H2 of the fiscal year, it is based on the plan established at the beginning of the fiscal year, and it istherefore lower than the results of H1. However, at this point, we do not see any particular reason for a
decline in gross profit margin.
Therefore, there is a possibility that the gross profit margin will exceed the planned figure for H2 of the year
due to the continuation of the positive cycle seen in H1 of the year. That is all from me.
Moderator [M]: Thank you very much. Thank you all for the many questions. This concludes the questionand-answer session.
We will continue to receive your messages through the survey, so please use it as well.
Finally, Mr. Takami, President, will say a few words.

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Takami [M]: Thank you all very much for your time today. We will continue to place importance on this kindof dialogue with our investors, and we would like to hear various opinions from you so that we can make thebest use of them in our management. Thank you very much for your time today.
Moderator [M]: Now that our time is up, we will conclude the financial results briefing of SHOFU INC. forthe fiscal year ending March 2024.
Thank you very much for watching and joining us to the end today.
Takami [M]: Thank you very much.
[END]______________
Document Notes
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TollfreePortions of the document where the audio is unclear are marked with [Inaudible].
Portions of the document where the audio is obscured by technical difficulty are marked with [TD].
Speaker speech is classified based on whether it [Q] asks a question to the Company, [A] provides ananswer from the Company, or [M] neither asks nor answers a question.
This document has been translated by SCRIPTS Asia.

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