JAFCO : Information Meeting for Financial Results for the Year Ended March 31, 2023

Information Meeting for Financial Results for the Year Ended March 31, 2023

Date: April 26, 2023

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

Moderator: Welcome to the information meeting on JAFCO Group Co., Ltd. and its financial results for the fiscal year ending March 2023.

Today's speaker is Mr. Miyoshi, President and CEO. Matsuda will serve as the facilitator.

In the next 30 minutes or so, our president, Miyoshi, will give an overview of the financial results and business activities, and then we would like to take your questions. The materials used for the presentation will be the earnings presentation for the fiscal year ending March 2023.

Mr. Miyoshi will now begin his explanation.

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Miyoshi: My name is Miyoshi. Disclosure was made later than scheduled today. We are very sorry.

I will explain based on the disclosed earnings presentation materials. This time, the materials have been entirely revamped.

Now, page three of the presentation material. We begin with a summary of the financial results for the period under review.

About changes in the business environment and their impact on the investment portfolio. The stock market has been nervous due to caution about global monetary tightening and domestic monetary policy revisions. Uncertainty about the future has not been dispelled, and conditions remain difficult for IPOs that involve large- scale fundraising.

This year's events, such as the collapse of Silicon Valley Bank and the bailout takeover of Credit Suisse by UBS, should be approached with more caution than ever before.

In terms of business performance, there were five IPOs in the domestic market. Capital gains were only JPY3.7 billion for listed, unlisted, and trade sales combined. The performance was weak due to the severe exit environment.

With regard to portfolio companies, a significant addition to investment losses reserves was recorded in Q4 to reflect the possibility that the financial environment will deteriorate, and the exit market will slump in the future.

Investment execution amounted to JPY41.8 billion on a global basis, up from the previous year, reflecting steady investment activities in Japan, the US, and Asia. Buyout investments were also active. This is the first time since the fiscal year ended March 2007 that the addition to investment loss reserves exceeded JPY40 billion.

We are establishing a new domestic fund, the SV7 Series, consisting of a VC fund, a buyout fund, and funds that will invest in both funds. As of today, April 26, the total capital commitments are JPY78.3 billion, including JAFCO's commitment.

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The first starting point in advancing the basic policy for enhancing corporate value is to promote fundraising by increasing the amount of capital raised from external investors . Fundraising activities will continue to focus on this area.

The restricted stock compensation was granted in July after the resolution was passed at the Annual General Meeting of Shareholders in June 2022. As a measure of the policy disclosed in November last year, we sold all of our shareholdings in Nomura Research Institute and conducted a TOB by issuer totaling JPY42 billion.

Emergency takeover defense measures were discontinued with the execution of tendering from tender offer agreement parties and expiration of the period of the tender offer by issuer.

Last but not least, we announced our "Purpose" formulated in February of this year. We also published an integrated report. Our company's desire is expressed in our Purpose, which is "Fueling perpetual growth; investing in bold visions".

Our management philosophy is described in the next section. Here I will only discuss our current investment structure and basic policy.

Let's move on to page seven. The global investment structure is shown here.

Personnel figures are as of April 1, 2023 and include those who joined the Company in April of this year. Compared to March 2022, the number of employees in the venture investment team increased from 35 to 41, the buyout investment team decreased from 16 to 15, and the BD team increased from 13 to 14.

We will continue to focus on recruiting a diverse workforce. We plan to increase the headcount of the investment team a bit more.

The US investment team has also increased from six to seven members, and the investment team in Asia has also increased from 10 to 15 members.

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Please skip to page 10. This is the policy we have already announced.

First is to improve investment management capabilities to expand profits, thereby increasing capital gains and success fees, and to increase fund management fees by strengthening fundraising capabilities. Second is to reduce cash and cash equivalents in excess of the necessary funds to reduce net assets and improve capital efficiency. These two are the key points.

Next, we report the financial figures in chapter two. We will discuss our performance on this page onward. Then, from page 24 onward, we explain the status of the fund management as a whole.

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Please turn to page 12 for our performance trends.

Again, capital gains were JPY3.7 billion, far below the previous year. Concomitantly, success fees also decreased significantly to JPY1 billion.

Fund management fees increased by JPY0.5 billion due to the establishment and fundraising of a new fund. The increase in the investment losses reserves will be explained again later.

As you can see, SG&A expenses increased to JPY5.5 billion, of which SG&A expenses excluding business tax increased to JPY4.3 billion.

This was due to the increase in personnel, stock-based compensation, and other factors, as well as expenses incurred in response to shareholders in the period under review. Operating loss was JPY4.4 billion, and ordinary loss was JPY3 billion.

Net income for the period under review was JPY40.6 billion, including the JPY63.8 billion gain from the sale of shares in Nomura Research Institute, as I mentioned earlier. The resulting ROE was 24.7%.

The next section shows profit and SG&A expenses. For each year, the bar graph on the left represents income sources and the bar graph on the right represents SG&A expenses.

The orange at the top of the left bar in the bar graph represents capital gains, the green in the middle represents success fees, and the blue at the bottom represents fund management fees. In the right bar, the light gray represents business taxes, and the lower dark gray represents SG&A expenses excluding business taxes.

The number of employees at the end of the period is added to the bottom line. The number of increases in the period under review through the end of March 2023 is shown in the above comment. In the column at the bottom, we have indicated the extent to which SG&A expenses, excluding business tax, are covered by the management fee as the administration expense coverage.

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