JAFCO : Information Meeting for Financial Results for Q2 of the fiscal year ending March 31, 2026

Keisuke Miyoshi President and CEO

Hiroaki Matsuda Executive Officer, Administration

Our president, Mr. Miyoshi, will give an overview of our financial results and business activities for a little less than 30 mintures, and then I would like to take your questions. The materials used for the explanation will be the financial results presentation materials for Q2 of the fiscal year ending March 31, 2026.

We will be projecting the materials on a screen at the front of the hall as we explain them, as well as handing them out to all those in attendance. For those of you participating online, we will be sharing our screen with you. Please note that the audio for all online participants will be muted during the presentation.

Mr. Miyoshi will now begin his presentation.

First, the overall executive summary that we are projecting now, then the financial figures will be reported. Next, the overall fund situation. Finally, the initiatives for the current fiscal year. We will proceed in order.

Page three discusses the overview that I will explain today. First is the change in the business environment and its impact on the investment portfolio. Market uncertainty remains strong and is increasing further. The domestic Growth Market and IPOs remain low.

Domestic IPOs totaled 19, a decrease of 15 compared to 34 in the same period last year. We recognize that we need to continue to closely monitor domestic and international political trends, monetary policies, domestic startup-related policy trends, and the impact of TSE market reforms.

In terms of accomplishments, there was one IPO in Japan. Capital gains totaled JPY4.4 billion for both listed and unlisted companies.

Next is the investment execution amount. Since we have made the decision to concentrate on domestic investments, the amount of executed investments is shown in the domestic investment figures. It was JPY11.8 billion.

The transfer of the Asian subsidiary has been approved by the regulatory authorities and is scheduled for October 31. As a result, an extraordinary profit of approximately JPY1.8 billion is expected to be generated on a consolidated basis. In conjunction with the transfer, the Asian corporation will be managed by a new management team.

Regarding the US subsidiary, we are continuing the procedures for transferring the company during the current fiscal year. As previously announced, we will continue to hold our interests in the existing funds currently managed by the Asian and US companies after the transfer.

In terms of sustainability, it is the same as in Q1..

Finally, I would like to discuss shareholder returns. The JPY5 billion share buyback program that has been underway was completed as of yesterday, and the Company has decided to redeem 1.81 million shares or 3.2% of outstanding shares. Accordingly, the number of shares outstanding will be 54.25 million.

The interim dividend for the fiscal year ending March 31, 2026 will be JPY66.5 per share, in accordance with the current dividend policy, which was decided at the time of reporting the year-end financial results for the fiscal year ended March 31, 2025. The annual dividend is projected to be a minimum of JPY133 per share.

From here, we will report on the financial figures. We will explain our business performance up to page 17. Although we will concentrate on domestic investments, we will continue to hold interests in existing overseas funds even after the transfer of the US and Asian subsidiaries is completed, so the figures that include overseas investments, we have also provided the domestic portion alongside them for each section.

Page five, business performance. Capital gains was JPY4.4 billion, management fees was JPY2 billion, and success fees was JPY300 million. Additions to investment loss reserves was JPY0.8 billion. SG&A expenses will be JPY2.5 billion, operating income JPY3 billion, ordinary income JPY3.3 billion, and net income JPY1.9 billion.

Continued on page six, net sales and SG&A expenses. The bar graph on the left side of each year represents sales items, and the bar graph on the right side represents SG&A expenses.

The top orange of the bar graph on the left represents capital gains, the middle bar represents success fees, and the bottom blue represents management fees. In the bar chart on the right, the upper green line represents business taxes, and the lower gray line represents SG&A expenses, excluding business taxes. Since business taxes vary significantly depending on gains from the sale of securities holdings, they are classified as such.

The number of employees at the end of Q2 is added at the bottom of the table. The last column shows the management fee coverage ratio, which indicates how much of the SG&A expenses, excluding business tax, are covered by the management fee. When we anticipate the transfer of overseas corporations, management fees are generally at the level of covering SG&A expenses.

Please go to page eight after skipping one page.

Breakdown of net sales by item. The first place to start is with management fees. We are considering expanding the size of funda, as well as the amount of external investment, in line with the growth of the market. As new funds are established and the amount of external investment in funds under management grows, management fees will accumulate.

The bar graph shows the amount of management fees, and the gray bar graph on the left is the actual figure. The appendix contains the overall target figures outlined in the corporate value enhancement measures, updated during the fiscal year-end report at the end of March 2025, when the decision to concentrate on domestic investment was made, and the dotted bar graph on the right shows the increase in management fees, in line with the targets.

Next is page nine. It will be a success fee. It was JPY300 million. Success fees are accrued based on the accumulated distributions of funds under management, in excess of the principal amount and subsequent sales.

The figure on the right represents an estimate of the cumulative amount of success fees that would be incurred if the target MOIC, 3x, were to remain at the current level, based on the current balance of unlisted domestic investments. If the fund's total unlisted investments of JPY150.2 billion can be managed at the target MOIC of 3x, the potential capital gain is approximately JPY300 billion. Of this amount, if we assume that the ratio of outside investment is approximately 65% of the current level, we estimate that it will amount to about JPY195 billion.

The success fees are 20% of the amount of this percentage of external investment, which is approximately JPY39 billion. This amount is an estimate of the cumulative amount of success fees that would be incurred if the current unlisted investment balance were to be managed and advanced according to the planned figures.

Last page. The next and last page in the sales items shown is capital gains.

The bar graph shows the number of capital gains themselves. The green in the upper row shows the gain or loss from sales of listed securities, and the blue in the lower row shows the gain or loss from sales of unlisted securities. The orange line graph represents ROI. The ROI may rise or fall, but our target is an average of three times the ROI.

The MOIC for this quarter's capital gain of JPY4.4 billion was a low 1.8x. We recognize that this is because the ratio of exits with low multiples was high as a result, while exits did not progress in the current period.

The graph on the right shows the breakdown of capital gains into domestic and overseas, domestic venture investments and domestic buyout investments. The domestic MOIC is 2.3x, and the overseas MOIC is 0.8x.

Next, on page 11, the balance of unlisted operational investment securities.

The bar chart is color-coded from bottom to top, gray is the marked-down valuation, and the next blue is the allowance balance, so the acquisition cost is the one including up to blue. The amount that includes the green on it is the fair value assessment.

Acquisition cost of unlisted operating investment securities for Q2 of the fiscal year ending March 2026 was JPY83.8 billion. Of this, JPY46.4 billion was for domestic securities, while the fair value measurement amount was JPY109.2 billion, of which, JPY54.6 billion was for domestic securities.

The bar graph on the far right shows the image at the time of sale relative to the current balance. The bar graph shows the portion of the amount that is capital gain on the left and the portion of the amount that is profit/loss on the right.

The current combined domestic and overseas MOIC for the balance of unlisted operational investment securities (acquisition cost) is 2.5x, with domestic at 3x and overseas 1.6x. Assuming exit at 2.5x, the cumulative sales amount would be JPY209.5 billion. Cumulative capital gains amounted to JPY125.5 billion, and the accumulated profit in the income statement amounted to JPY139.5 billion.

The average MOIC on an actual basis for the five-year period ending March 31, 2025 is 2.2x on an acquisition cost basis and 3.1x on a marked-down valuation basis.

Next page, additions to investment loss reserves.

The blue bar on the left shows the balance of reserves, and the green bar on the right shows the provision for reserves. The orange line graph is the reserve ratio and shows the change from the past. The bottom line represents unlisted investment balances. In addition, the table on the right shows the balance of investment loss reserves broken down by region.

The allocation is determined on a quarterly basis based on a comprehensive review of the business performance, cash on hand, future cash requirements, timing, acquisition costs, and the expected amount of exit.

Page 13 represents the fair value valuation and valuation multiples of unlisted operational investment securities. This is a reference value. The fair value assessment of the entire fund is shown on page 20, and this is for JAFCO. While the fair value valuation for the US and Asian funds is audited on an annual basis, not for all funds in Japan the fair value valuation is audited. Therefore, they are provided for reference only.

The fair value valuation will be on a fair value basis, with markdowns reflecting reserves only, plus markups, which reflect unlisted valuation gains. This is represented in the figure on the left side of these three.

As noted earlier in the section on changes in unlisted operating investment securities balances, when the acquisition cost of JPY83.8 billion is at 1x, the valuation after markdowns is JPY69.6 billion or 0.83 times. The reserve ratio is 17%. This figure roughly approximates the reserve ratio figure explained earlier.

The JPY109.2 billion to the right of that figure is the unlisted fair value valuation of JAFCO's interest, or 1.3x. If we take the valuation after the markdown as the starting point at 1x, we divide 1.3 by 0.83, which gives us a figure of 1.57x the value of the property.

Next is the middle figure, represents the valuation multiplier during the holding. Assuming the holding period from the initial investment in the stock currently held as held, this is 4.3 years, then the right side of it, below the "average MOIC", it indicates the holding period until exit, which is 6.4 years.

The chart on the right shows the valuation multiples for each holding period. Generally, the fair value valuation multiples increases with the passage of time, but the number of companies with an elapsed period of more than nine years is limited, and the multiples may vary depending on the status of individual exits.

Next, page 14. Our asset composition and total funds under management. We will explain this in conjunction with the status of cash and deposits on the next page, 15.

The figure on the left side of this page, 14, shows a simplified view of the asset structure of JAFCO. The chart on the right shows the overall picture of those items as the fund as a whole and our interest in it.

Page 15, cash and deposits. Cash and deposits of JPY68.1 billion, excluding fixed-purpose cash and deposits, including cash paid into funds, amounted to JPY50.9 billion. It is the figure where it says C on the side.

The amount our company will pay into the fund going forward, in line with the investment progress, is JPY17.7 billion. This is indicated as D. This is the figure shown in the lower right-hand corner, which I explained earlier on page 14.

The available cash and deposits after taking into account unpaid fund commitments is JPY33.2 billion, but after taking into account CBs issued and long-term interest-bearing debts, et cetera, the net available cash and deposits are JPY18.1 billion. This net available cash would be used for our investment in the next fund.

The fundraising of the next flagship fund will be forthcoming but are expected in the latter half of H2 of the current fiscal year. The fund size is targeted at a level somewhat higher than the previous fund's level of JPY97.8 billion.

Next, page 16, net assets. Net assets as of the end of the period were JPY137.1 billion. Net assets per share were JPY2,594. Net assets per share reflecting after-tax fair value valuation are shown for reference.

Next, page 17, shareholder returns. As mentioned at the outset, the JPY5 billion share buyback program we have been conducting has been completed. We will cancel 3.2% of our outstanding shares. Accordingly, the number of shares outstanding will be 54.25 million.

The interim dividend for the fiscal year ending March 31, 2026 will be JPY66.5 per share, in accordance with the current dividend policy, which was decided at the end of the fiscal year ended March 31, 2025. We expect to pay a minimum annual dividend of JPY133 per share.

Here is an explanation of the fund's overall performance, page 19, investment structure. Here is the structure chart as of October 1. The situation overseas is described in the lower section.

Next is page 20, balance of unlisted holdings, assets under management of unlisted investments only.

The bar graph is divided into three categories. The upper gray line shows the number of reserves, the middle light-blue line shows the balance of overseas investments after reserves, and the blue line shows the balance of domestic investments after reserves. Both of these investment balances incorporate only allowances that

do not incorporate unlisted valuation gains, the so-called markups. The bar graph on the far right shows the fair value valuation explained earlier as a reference value.

Next, on page 21, investment activity. It is JPY13.7 billion, JPY11.8 billion in Japan and JPY2 billion overseas. Although progress on a semi-annual basis appears to be slow, we believe that progress in Japan is generally within the expected range in terms of the speed of fund allocation.

Page 22, new venture investments in Japan. The main targets for investment are early stage and seed stage.

The bar chart shows the average amount of new domestic VC investment. The average shareholdings is shown in the orange line graph. The bottom column of the table shows the post-money valuation.

The overall valuation in startup financing has been declining comparatively, but not much, especially in the early stages. In terms of the competitive environment, we continue to view the situation as challenging.

The reason why you may see the investment amount as low and the shareholding as high for the quarter ended September 30, 2025 is that there were few large investments during the quarter.

Next page, this is the achievements during the current fiscal year.

Page 24 shows three of the four new investments for July through September.

Next page, page 25, shows the exit results. With PAPABUBBLE JAPAN, the sale was made as an exit through M&A.

In the appendix, we have included information on the Japanese startup market, private equity market trends, VC-backed IPOs, and JAFCO-backed IPOs.

Finally, although we do not have any explanatory materials today, we are disclosing an adjustment to the conversion price of the zero coupon convertible bonds due 2028, due to the implementation of the interim dividend. The conversion price of JPY1,963.2 will be adjusted to JPY1,912.

We will briefly explain the scheme. The scheme includes a conversion restriction clause and an acquisition clause. The plan is designed to limit the number of shares to be delivered and the possibility of conversion into common stock.

The conversion restriction clause stipulates that during the exercise period of the stock acquisition rights, specifically up to May 28, 2028, four months before the maturity date of September 28, 2028, if the stock price does not exceed 130% of the conversion price, which is adjusted to JPY2,484.50 based on the current adjustment of JPY1,912, for 20 consecutive trading days at the end of a fiscal quarter, investors holding the CBs will not be allowed to request conversion.

In addition, the cash-settled acquisition clause is a clause that allows the Company to acquire the principal portion of the CB, JPY15 billion, in cash prior to maturity if the Company chooses to do so. Through these means, the Company has adopted a scheme with a storonger dept character, with limited dilution of shares.

That concludes today's report on the financial results.

Now first of all, I would like to take questions from the audience. Please raise your hand if you have any questions. I will bring the microphone to you.

I am looking at page 21 now, and it seems to me that the balance of the US and Asian funds will see a decrease. I believe that the balance of VC and buyout domestic funds will increase instead. Could you tell us a little about resource allocation, such as staff in the US and whether they will return to Japan to work again, and how such investment staff will be allocated?

Also, regarding the ratio of buyouts and VC, looking at this chart, the ratio of buyouts seems to be increasing, and I feel there are tremendous opportunities for domestic buyouts going forward, but could you speak about domestic buyouts in more detail and whether they will increase? Thank you.

As to whether we would have the staff in the those subsidiaries make investments domestically or engage in such activities, we don't do that. Therefore, the domestic business has been completed domestically, as it has been in the past, and the overseas members are already engaged in investment activities only overseas, so this transfer will eliminate that part of the business.

Another thing I think you are talking about is the ratio of buyouts. The current number of members will increase slightly in terms of investment structure in both venture and buyout members, but we estimate that the number of members will increase more in buyout. This is true for the next fund as well, and we still need more staff when we consider the actual investment style and management policy and we are still actively recruiting.

We are focusing on recruiting both for venture and buyout investment. We have two full-time recruiters, and we are continuing to search for the necessary personnel, with these two people playing a central role. I think it looks like the buyout division will increase a bit more.

On the other hand, as I mentioned earlier, the Growth Market and IPOs are sluggish, but I have a feeling that the number of foreign investors interested in domestic startups is, on the contrary, increasing.

We are also having more and more opportunities to talk directly with VC firms and funds overseas that are interested in domestic startups, and we believe that we are able to maintain our US network through them.

In this context, we have to look for keywords for our investment targets, such as in what areas domestic startups can expand their market by using AI and in what areas they can expand beyond that. We are always looking for such keywords. We are focusing on this.

In terms of the overall experience, there have been some articles recently on LLMs for Japan, and it is true that very large LLMs are a competition of financial strength. Therefore, startups are not easy to get into. In this context, we have to think of a very big plan if we want to compete domestically. This is already quite limited.

On the other hand, there are many factors unique to Japan, such as the efficiency improvement mentioned earlier and the use of AI as a new service. This is an area where Japanese startups will not be easily defeated if they come in from overseas in the same way, so we will have to find a way to work within this area.

In fact, VRAIN Solution, a company we invested in and has gone public, has grown by utilizing AI in the area of production line inspection. We want to identify these strengths within Japan. I think there is a reasonable market for that as well.

Can you tell us what you have reviewed so far, and also what you think about being reviewed or allowed to be reviewed in the future?

We also have to update the approach each time, and we have to ask the portfolio company to answer various questions, and make preparations, so we are repeatedly trying to improve the efficiency of this process.

However, I believe that you are also talking about alt Inc. as background to your question. It is quite difficult to take fundamental measures to deal with this kind of fraud by the management team as a whole.

However, I believe that we have no choice but to work on this theme as well, and that it is something that we must tackle. Based on this case, we will add more things that we need to do, and we will update them so that we can eliminate even one of them as a fundamental solution, although there is no way to solve all of the injustices by doing this.

Also, although this incident took place at a company in which we have invested, we are naturally aware that it has had a significant impact on Japanese startups as well. In this context, we would like to make efforts to contribute in some way to the overall ecosystem, not only within our own company, but also through industry and others.

Is there anyone who has questions? Yes, thank you. Go ahead.

To put it simply, I think that M&A activities are increasing. Is your company actively pursuing such initiatives in that area?

Although it is not possible to objectively determine the extent to which this matter is contributing to the decline in IPOs, there are still some entrepreneurs who do not want to go public with too small a size in view of the listing maintenance standards, and there are also cases where underwriting securities companies have decided that it is still too difficult at this time. I then wonder if this is the kind of phenomenon that resulted.

However, I still think that this direction is not necessarily a negative one, as the goal is to make the market more attractive to startups that will grow and develop in the market.

We are sure that there will be some impact, but our basic policy is to create a very large business. Our strategy has always been to increase the funds' performance by doing so. It is not as if this strategy will change. We are not saying that there will be no impact at all, but we do not intend to change our direction.

However, I do not feel that the mindset of entrepreneurs to start their own businesses has changed, but I think that entrepreneurs who have already raised funds may have some psychological impact on the corporate side as the environment for raising funds changes in various ways. Therefore, in our investment and management involvement, we must not only look at each investment individually, but we must also look at the overall impact from a bird's-eye view.

I wonder if there will be any direct impact in any discernible way or if it will change with a little bit of influence of various appearances. In this context, I believe that M&A, as I mentioned earlier, will increase to a certain extent, and that such forms will also emerge.

This concludes today's information meeting. Thank you very much.

Document Notes

1. Q stands for question. A stands for answer.

2. This document has been translated by SCRIPTS Asia and partially edited by the Company.