JAFCO : Information Meeting for Financial Results for the Six Months ended September 30, 2022

Information Meeting for Financial Results for the Six Months Ended September 30, 2022

Date: October 28, 2022

Location: Station Conference TOKYO (Real time streaming on Zoom Webinar)

Moderator : Thank you very much for taking time out of your busy schedule to join us today.

Now we will begin the information meeting for financial results for the six months ended September 30, 2022 of JAFCO Group Co., Ltd.

Today's speaker is Mr. Miyoshi, President & CEO. And, Matsuda will serve as the facilitator. For about 30 minutes, President Miyoshi, will give an overview of the financial results and business activities, and then we would like to take questions from everyone.

The materials used for the explanation will be the presentation materials for Q2 of the fiscal year ending March 31, 2023. We have distributed the materials to all those in attendance, but will be projecting it on a screen in the front of the room during the explanation. We would also like to ask all online participants to view this information via screen sharing.

Mr. Miyoshi will now begin his explanation.

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Miyoshi: My name is Miyoshi.

I will begin my explanation in order based on the financial results disclosed yesterday.

I will now begin with page 3 of the document, which is a summary of the financial results for Q2 of the fiscal year ending March 31, 2023.

First, the changes in the operating environment and its impact on the portfolio companies. We recognize that the uncertainty is further strengthened by the impact of COVID-19, the rapid rise in inflation due to the Ukrainian crisis, exchange rate fluctuations associated with monetary policy, and concerns of an economic slowdown due to global monetary tightening.

We believe that the stock market will remain unpredictable. In the meantime, we see that the emerging markets and IPOs are becoming more and more selective.

Adjustments in valuations in the public market have also affected private equity financing. In light of this environment, we are concerned about the possibility of further changes in the business performance and fundraising conditions of the companies in which we invest.

As for business performance, capital gains amounted to JPY1.2 billion and there were two IPOs in Japan. Performance has been weak due to the severe exit environment.

Investment amounted to JPY30.9 billion on a global basis, up from the previous year. Investment is steady in Japan, the US, and Asia.

We have established the SV7 Series, a new domestic fund consisting of a VC fund, a buyout fund, and funds that invest in both funds. The current status of fundraising has also been disclosed.

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Including JAFCO's investment, the latest total commitments are JPY50 billion. Fundraising has undershot initial target mainly due to significant impact of buying-up of JAFCO shares by shareholders related to Mr. Yoshiaki Murakami. We will continue fundraising activities.

As disclosed on August 15, from the viewpoint of maximizing the common interests of shareholders, we have introduced emergency takeover defense measures in response to concerns over large-scale purchase actions, etc. by shareholders related to Mr. Yoshiaki Murakami.

We granted the restricted stock compensation in July 2002 after a resolution was passed at the General Meeting of Shareholders in June 2022.

Next, financial results.

Capital gains were approximately JPY1.2 billion, well below the previous year's level.

In addition, success fees decreased significantly to JPY571 million.

I will explain about the additions to investment loss reserves later on.

Expenses related to the fundraising have been added to cost of sales. SG&A expenses rose due to an increase in personnel expenses in line with an increase in the number of employees, as well as the start of stock-based compensation.

Operating loss was JPY684 million.

Ordinary income was JPY350 million. An extraordinary gain of JPY 888 million was recorded due to the repayment of a loan, which had previously been written off.

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Continued on page 5, the status of funds under management.

First, the left chart. The long bars on the left are the total commitments. Total commitments (for the period under review) amounted to JPY387.7 billion, an increase of JPY55.4 billion.

The short gray bars are the amounts subject to management fees. In the period under review, the amount subject to management fees increased due to the establishment of SV7, a new fund series.

Next, chart on the right. The darker gray shows net assets and the lighter blue shows the distribution amount.

Net assets increased due to the progress of investment and the accompanying payments in SV7.

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Continued on page 6. Income from fund management and SG&A expenses.

The dark blue is the management fees and the light blue is the success fee. The management fees (for the period under review) include those for SV7.

The green bar graph on the right shows SG&A expenses of JPY2.2 billion. As explained earlier, the main reason for this is the increase in personnel costs in line with the increase in headcount. The number of employees, shown in the bottom row, which has been increasing.

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