JAFCO : Information Meeting for Financial Results for the Year Ended March 31, 2025

Keisuke Miyoshi President & CEO

Hiroaki Matsuda Corporate Officer, Administration

For approximately the next 30 minutes, President Miyoshi will explain the Company's financial results and business activities. After that, we will take questions from the audience. We will be using the "Earnings Presentation Materials for the Year Ended March 31, 2025."

For those attending in person, the materials have been distributed and they will also be projected onto the screen at the front of the venue in line with the presentation. Please note that the audio of those participating online will be muted during the presentation.

Now, we will begin with Miyoshi's presentation.

First, regarding the table of contents, the presentation is mainly divided into five parts.

The first section outlines the key points related to our future direction, presented as key messages. The second section covers the financial results, followed by a report on our initiatives in consideration of capital cost and stock price. The fourth section provides the overall status of our funds, and the last section details our initiatives during the fiscal year.

Now, moving on to page three. Regarding the financial results, net sales were JPY29.7 billion, ordinary income was JPY13.2 billion, and net income was JPY9.6 billion.

Next, in order to enhance corporate value, we have decided to focus on domestic investment, which demonstrates strong performance and in which we have a competitive advantage. Accordingly, we will transfer our overseas subsidiaries in the United States and Asia.

In addition, we have decided not to make any further investments in funds managed by our Group in the United States and Asia. However, we will continue to hold our existing investment interests in those funds and remain involved as a major investor.

As for dividends for the fiscal year ended March 2025, the annual dividend is planned to be JPY88 per share, which corresponds to 50% of net income and exceeds the amount equivalent to 3% of the average shareholders' equity at the beginning and end of the period, or JPY65 per share. Since an interim dividend has already been paid, the year-end dividend will be JPY56, calculated by subtracting the interim dividend of JPY32 from the total JPY88.

Also, taking into account the net available cash at the end of the fiscal year, we will conduct share buybacks of up to JPY5 billion. The effective total return ratio including share buybacks will be 102%.

Going forward, we will revise our dividend policy to strengthen shareholder returns. From the fiscal year ending March 2026 onward, the dividend policy will be to pay the greater of either 6% DOE or a 50% payout ratio.

Although the business is subject to market conditions and may incur losses in certain years, the DOE standard has been adopted as the basis for the dividend policy to ensure stable dividend payments.

In addition, going forward, DOE will be calculated based on shareholders' equity at the end of the previous fiscal year, and the minimum projected dividend amount will be announced at the beginning of each fiscal year. Accordingly, the minimum projected annual dividend for the fiscal year ending March 2026 is JPY133, with an interim dividend of JPY66.5 and year-end dividend of JPY66.5.

The adjusted ROE over the past five years was 6%. Going forward, by focusing on domestic investment and through active shareholder returns and the revision of the dividend policy this fiscal year, we will work toward achieving our medium- to long-term ROE target of 15% to 20%.

On the next page, I will explain the background behind these decisions.

This slide outlines the Company's historical developments. In the late 1980s through the 1990s, we expanded into overseas markets. Our aim was to capture investment opportunities in the United States, which leads the startup market, and in Asia, where growth was expected.

From the late 1990s through the 2000s, we began buyout investments in Japan and established specialized departments to follow up on overseas portfolio companies, thereby promoting global collaboration. In Japan, after expanding to capture all potential profit opportunities from unlisted investments, we shifted our strategy following the 2008 global financial crisis. Since 2010, in Japan, we have been proceeding with the current highly selective and intensive investment approach.

Looking at the overall picture of the business environment and our position, both the VC and buyout markets in Japan have continued to grow. While there are market fluctuations, we expect this growth trend to continue over the medium to long term.

From a global perspective, market instability driven by geopolitical risks and regulatory issues persist. Additionally, the VC business is inherently highly localized, making it extremely difficult to replicate successful models across borders under such business conditions.

The next page outlines the status and future direction of the Company in terms of investment and fundraising capabilities, as well as earnings. These are key elements of our growth strategy to enhance corporate value.

For investment performance, we have set a target average ROI of 2.5x or higher. When comparing domestic and overseas results, our domestic performance has exceeded the 2.5x target, while our overseas performance has fallen short of that benchmark.

As for the ratio of external investors' interests, our medium- to long-term goal is 80%. Although this is affected by market conditions, our most recent domestic fund has achieved this target ahead of schedule.

In Asia and the United States, it has been difficult to establish funds of sufficient size through external investments alone. As a result, the external capital ratio has fallen short of target levels, and JAFCO has had to make substantial contributions itself.

From a revenue perspective, our domestic operations have maintained a generally balanced core income structure. While capital gains are subject to market fluctuations, we have been able to realize them on a consistent basis.

As for our overseas operations, the ratio of external investors' interests has remained low and local costs have risen significantly, resulting in continued negative core income. Capital gains have also shown a heavy dependence on a very limited number of portfolio companies, leading to a relatively low ROI over time.

Taking all of this into account, we have decided to focus on domestic investments, where we see a competitive advantage in investment performance.

Following this decision, while our past ROI target had been 2.5x or higher, we have now set a new target of 3x or higher, and for the next domestic fund, we aim to achieve an 80% ratio of external capital contribution.

On page six, we once again outline the revision of our shareholder return policy, as mentioned earlier.

Page seven may be slightly out of order, but it presents the updated version of our basic policy for enhancing corporate value, reflecting the decisions explained earlier.

The main updates include setting a target ROI of 3x for domestic investments. We will continue to hold the Company's investment interests in currently active funds in Asia and the United States until maturity. Overseas ROI is projected at 1.6x, based on current conditions.

With the transfer of our overseas consolidated subsidiaries, core income is expected to improve.

From the fiscal year ending March 2026 onward, our investments will be limited to domestic funds. While this will result in a reduction in total capital commitments, it will also lower the amount of required capital, allowing us to reduce net assets accordingly. This reflects our policy of promoting the growth strategy while improving capital efficiency.

I will now explain the financial results for the fiscal year ended March 2025. Page nine covers changes in the business environment and their impact on portfolio companies. Market uncertainty has significantly intensified. The TSE Growth Market continues to remain sluggish. Even under such conditions, we successfully realized IPOs for portfolio companies at offering sizes that attracted global institutional investors.

However, we do not view the outlook as optimistic. We therefore recognize the need to continue closely monitoring political developments and monetary policy both in Japan and overseas, as well as domestic startup-related policy trends.

As for performance, there were eight IPOs in Japan, including two large-scale IPOs with initial market capitalizations exceeding JPY100 billion. Capital gains from both listed and unlisted shares totaled JPY12.7 billion.

The total amount of investments executed globally was JPY39.4 billion. As for our funds, as previously reported, in Q2 we transferred part of our interests in SV6 and SV7 to Japan's first publicly offered investment trust that includes unlisted securities.

From a sustainability perspective, we followed the TCFD recommendations by disclosing scenario analyses and greenhouse gas emissions. We also established a policy on harassment prevention and expanded our internal reporting system. An external contact point has been set up, and the scope of eligible users has been extended to include external stakeholders such as portfolio companies.

Lastly, shareholder returns, as mentioned at the beginning, are as previously explained.

From here, we will move on to the financial results. See page 10.

Capital gains totaled JPY12.7 billion, management fees were JPY4.3 billion, and success fees amounted to JPY1.6 billion. There was a reversal of additions to investment loss reserves of JPY300 million. SG&A expenses came to JPY5.2 billion, operating income was JPY12.5 billion, ordinary income was JPY13.2 billion, and profit attributable to JAFCO stockholders was JPY9.6 billion. ROE for the fiscal year was 6.9%.

Next is the trend in net sales and SG&A expenses. In each year's graph, the left bar represents revenue components, and the right bar represents SG&A expenses.

In the left bar, the top orange section shows capital gains, the middle section shows success fees, and the bottom blue section shows management fees. In the right bar, the upper gray section represents business taxes, while the lower gray section shows SG&A expenses excluding business taxes. Due to significant fluctuations in business taxes from gains on the sale of securities, we have presented them separately.

At the bottom, we have included the year-end number of employees. At the last section, we show the extent to which management fees cover SG&A expenses, excluding business taxes, expressed as the "admin expense coverage." We consider that, overall, management fees are at a level generally sufficient to cover SG&A expenses.

Skipping one page, we now move to page 13. From here, we present a breakdown of revenue by item, starting with management fees.

Our basic policy is to expand fund sizes in line with market growth by increasing external capital commitments. As new funds are established and external commitments in existing funds grow, management fees increase accordingly.

The bar graph shows the amount of management fees. The left-side gray bars represent actual results. Dark gray indicates domestic and light gray indicates overseas. As explained earlier, we will be focusing on domestic investments going forward.

For this reason, while the right-hand bars of future outlook show a temporary decline overall, we expect domestic management fees to rise.

The next page covers success fees. They totaled JPY1.6 billion. Success fees are recorded once the cumulative distributions of a fund under management exceed the original capital commitments, and they are recognized in line with subsequent exits.

The chart on the right shows an estimate of the cumulative amount of success fees that would be generated if the current balance of unlisted domestic investments were to achieve the target investment multiple of 3x.

The total unlisted investment balance across all funds is JPY143.6 billion. If this is managed at the target multiple of 3x, the potential capital gains would amount to approximately JPY285 billion. Assuming an external commitment ratio of around 65%, this translates to about JPY185 billion.

Success fees are 20% of the external investors' interests, which results in an estimated JPY37 billion. This figure represents the projected cumulative amount of success fees if the current unlisted investment balance is managed according to plan.

Lastly, we move on to capital gains. See page 15.

The bar graph shows capital gains, with the top green section representing gains and losses from listed exits and the bottom blue section representing those from unlisted exits.

The orange line graph indicates ROI. For this fiscal year, capital gains totaled JPY12.7 billion, with an investment multiple of 2.1x.

The pie chart on the right shows the breakdown of capital gains between venture investments and buyout investments.

Additionally, the appendix includes a historical trend of ROI since 2009.

The next page shows the trend in the balance of unlisted operational investment securities.

In the bar graph, the color breakdown is as follows: the gray section at the bottom represents the marked-down valuation, the middle blue section shows the reserve balance, and together these two represent the acquisition cost. The green section above that represents the fair value valuation. All figures in parentheses shown in smaller text indicate domestic-only values.

As of the fiscal year ended March 2025, the balance of unlisted operational investment securities was JPY84.2 billion, and the fair value valuation was JPY106 billion.

The bar on the far right illustrates a conceptual image of value at the time of exit based on the current balance. This is explained in the boxed section on the right. As mentioned earlier, the target investment multiple for domestic investments is 3x at the time of exit. This section shows the estimated cumulative sale proceeds, cumulative capital gains, and cumulative profit on the income statement, assuming a 2.5x investment multiple across both domestic and overseas investments. The figures in parentheses reflect domestic results under the assumption of a 3x investment multiple.

The average investment multiple based on actual results over the five years through the fiscal year ended March 2025 was 2.2x on an acquisition cost basis and 3.1x on a post-reserve valuation basis.

As for the reasons behind the decline in fair value, one factor is that while investments have been progressing, a significant portion of assets with high book value and fair value in the previous fiscal year were exited. Another factor is a general decline in valuation multiples compared to the previous year. These two factors are the main reasons for the decrease in fair value.

Page 17 shows the trend in additions to investment loss reserves. The blue bar graph on the left indicates the reserve balance, while the green bar graph on the right shows the amount of additions to reserves.

The orange line graph represents the reserve ratio, illustrating its trend over time. At the bottom of the chart, the balance of unlisted investments is shown. On the right-hand table, the balance of additions to investment loss reserves is broken down by region.

The next page presents the fair value valuation and valuation multiples of unlisted holdings. These figures are shown for reference.

Fair value valuation includes markdowns reflecting reserve adjustments and markups reflecting valuation of unlisted securities.

The chart on the left illustrates the valuation figures mentioned earlier in the discussion of unlisted operational investment securities. Assuming the acquisition cost of JPY84.2 billion as a baseline 1x, the post-reserve valuation is JPY70.8 billion, or 0.84x. The reserve ratio is 16%, which aligns with the figure explained previously.

To the right, the fair value valuation of unlisted investments attributable to JAFCO itself is JPY106 billion, which equates to 1.26x. If the post-reserve valuation is taken as 1x, then dividing 1.26 by 0.84 results in an implied multiple of 1.5x.

Moving to the middle chart this shows the valuation multiple for currently held investments. The average holding period for these investments is 4.1 years. The average exit multiple over the past five years, through FYE 3/2025, is 2.19x and 3.1x relative to post-reserve valuations. The average holding period for those exited investments is 6.4 years.

On the right-hand chart, valuation multiples are shown by holding period.

The next page covers JAFCO's asset composition and total fund assets under management as of the end of FY March 2025.

I will now go over it together with the following page on the status of cash and deposits.

The chart on the left provides a simplified view of JAFCO's asset composition. The chart on the right shows a comprehensive breakdown of fund-related items, including both the total for all funds and the portion attributable to JAFCO itself.

Referring to page 20, this page details the status of cash and deposits. As exits progressed steadily during the fiscal year, cash and deposits at the end of the period reached JPY72.5 billion. Accordingly, we have decided to conduct additional shareholder returns through a share buyback of up to JPY5 billion.

The current financial position is presented in specific figures, as shown below. From the period-end cash and deposits, after excluding fixed-purpose funds-including cash already paid into funds-the available cash and deposits amount to JPY52 billion.

The amount that JAFCO is scheduled to contribute to ongoing funds in line with investment progress is JPY21 billion, shown as item D. This is the same figure as noted in the bottom right of the previous page covering JAFCO's asset composition and total fund assets under management.

After accounting for unpaid commitments to funds, the remaining available cash and deposits total JPY31 billion. When subtracting outstanding convertible bonds and long-term interest-bearing liabilities, net available cash stands at JPY15.8 billion. This JPY15.8 billion will serve as the required capital for our next flagship fund.

Page 21 outlines the status of net assets.

Net assets for the fiscal year amounted to JPY141.1 billion. Net assets per share came to JPY2,586. As a reference, net assets per share reflecting post-tax fair value adjustments are also provided.

The next page shows the trend in shareholder returns. Regarding the dividend policy, since the fiscal year ended March 2024, it has been set at the higher of either 3% DOE or a 50% payout ratio.

To reiterate, for the current fiscal year, the payout ratio of 50% exceeded the 3% DOE, resulting in an annual dividend of JPY88 per share. Since an interim dividend was already paid, the year-end dividend will be JPY56.

In addition, as previously explained, we have decided to conduct share buybacks of up to JPY5 billion. The effective total return ratio including share buybacks will be 102%.

Looking ahead, starting from the fiscal year ending March 2026, we will further strengthen shareholder returns by adopting a stable dividend policy based on paying out the greater of either 6% DOE or a 50% payout ratio.

Going forward, since we will use shareholders' equity at the end of the previous fiscal year, rather than the average of the beginning and end of the period, for ROE calculations, we will now be able to announce a projected minimum dividend amount. Accordingly, the projected minimum dividend for the fiscal year ending March 2026 will be JPY66.5 for the interim dividend and JPY66.5 for the year-end dividend, for a total of JPY133 for the full year.

Page 24 presents the basic policy for initiatives mindful of capital costs and stock prices.

There are two main components in working toward our financial target of ROE between 15% and 20%.

The first is a review of our business portfolio, leading to a strategic focus on domestic investment. The second is the strengthening of shareholder returns. The details of each have been explained earlier.

Now, moving on to page 25. At the end of the fiscal year, we estimate our cost of equity to be around 6% to 9%. In comparison, our adjusted ROE over the past five years excluding loss-making periods was 6%.

To achieve an ROE level that exceeds our cost of equity and ultimately reach our financial target of 15% to 20%, we intend to move forward in phases aligned with our fund formation cycle, which occurs approximately every three and a half years.

The key points for this initiative are outlined on pages 27 and 28.

Skipping ahead to page 30, this slide shows the overall status of our funds.

This page includes an overview of our team structure, with the composition of the overseas team shown in the lower section.

Page 31 shows the trend in the balance of unlisted holdings. The figures presented here reflect investment balances that include only markdowns (i.e. reserves) and do not include any fair value gains, so-called markups. On the far right, the fair value valuation is shown as a reference, as explained earlier.

Page 32 presents the trend in investment activity. The total was JPY39.4 billion, of which JPY28 billion was domestic.

Given that new investments have typically been made over a three- to four-year period, and considering the expansion of fund sizes, we estimate that the annual investment execution will continue at a pace of around JPY35 billion to JPY40 billion. We believe progress is roughly in line with our expectations.

The next page shows the trend in new domestic venture investments. Our main investment targets are early-stage and seed-stage startups. While startup valuations have been trending slightly lower overall compared to previous periods, valuations at the earlier stages have remained relatively stable. We believe this reflects a persistently competitive environment.

Page 34 presents overall capital gains across all funds, along with a breakdown of the portfolio. There were eight IPOs in the domestic market and none overseas. For the entire fund portfolio, the investment multiple was 2.6x in Japan and 2.3x overall, including overseas investments.

Section 4 outlines the initiatives taken during the fiscal year.

Page 37 describes the process from sourcing to execution in domestic VC investments. Our investment approach remains unchanged. We conduct a large number of initial meetings and apply a selective process to enhance the reproducibility of success.

Page 38 lists the main investment destinations for this fiscal year.

Page 39 outlines the major exit achievements, listing investment cases from six venture investment companies and two buyout investment companies.

Skipping ahead to page 43, this slide details our initiatives related to sustainability, specifically the enhanced internal reporting system, which we have expanded ahead of the industry. The reporting system now includes external individuals such as prospective hires, portfolio companies, potential investment targets, and clients, with an external contact point set up to facilitate the process.

The next page provides details on governance checks for portfolio companies.

Finally, on page 45, we report on the IR and SR achievements for the fiscal year. Moving forward, we aim to continue improving stakeholder engagement.

This concludes today's presentation.

Please note that a transcript of today's information meeting will be published on our website, but the questions and answers will be posted anonymously, so we ask for your understanding.

Now, we will first take questions from those attending in person. I will bring the microphone to you, so if you have any questions, please raise your hand.

First, regarding the target of achieving an ROI of 3x in the future, I noticed that when we look at the average ROI for domestic investments for the past five years, it stands at 2.6x. Similarly, the investment multiple for the most recently concluded fiscal year, when viewed domestically, is also 2.6x, which seems to show a bit of a gap.

Given this, I believe there may be internal strategies or plans in place to move closer to the 3x target. Could you please explain the measures or roadmap for achieving this 3x ROI target, particularly in light of the current

2.6x performance?

I believe there are several key points to consider. One important factor is the changing landscape of domestic startups. Within this environment, the number of startups attracting significant attention, including from overseas institutional investors, is gradually increasing.

In this context, by fostering startups that have the potential to be globally competitive, including those that attract attention from overseas, the amount of investment required may be larger than before in certain cases. One of the key strategies for achieving a higher ROI is to generate substantial capital gains from these types of investments.

Another point is that, within Japan, we are gradually seeing a shift towards startup M&A activity, and I believe this will continue to evolve in the future. Many startups begin with the goal of aiming for an IPO, but as the landscape changes, a growing number of them will likely choose M&A as an option among their exit choices.

With the recent policy direction from the Tokyo Stock Exchange of reviewing listing maintenance standards in view of market recovery, although the number of IPOs may slightly decrease, I believe this is a reasonable and appropriate direction. In this broader context, I expect that opportunities such as M&A will continue to expand. By integrating these factors, we are aiming to reach the 3x target ROI level.

Regarding the new fund that will be established, if it's every three and a half years, I believe the formation will likely start in the latter half of this year.

I have two points regarding this. The first is about the scale of the fund. I believe the target for the new fund will be in the range of JPY100 billion to JPY150 billion going forward. However, given the current IPO market

environment, it is uncertain what the situation will be like in six months. My question is how the fundraising process will evolve in this context. Specifically, will there be any changes in attracting investors, including overseas investors and contributors?

Another point is that it has been stated that no new investments will be made overseas going forward. Historically, I believe your funds have included overseas investments as part of a multi-strategic approach. Now that the focus will shift to domestic VC and buyout investments, I would like to know if this shift will have any impact on the fundraising process. Could you provide some insight into this?

Regarding the fund size, as you mentioned earlier, we aim to gradually increase the size of our funds. However, this is based on the assumption that the market size will expand accordingly. In considering this, we would like to ultimately decide what the appropriate fund size should be.

Therefore, we are not operating with the mindset of simply aiming to create a large number based solely on a specific figure. However, indeed, we are not considering a model of shrinking balance.

As for investors, the impact of market conditions on fundraising from investors is significant. This influence is certainly quite substantial.

Therefore, how we proceed will depend on the future circumstances, but for the previous funds, as well as fund 6, which preceded fund 7, we have focused on domestic investments. Given this, we believe it is possible to raise funds with a focus solely on domestic investments and to achieve the target figures.

Lastly, as mentioned on slide 20, with the focus on domestic operations, the use of excess funds for further strengthening shareholder returns is highlighted. However, regarding the DOE-based approach, there is no mention in the wording that it will be progressive.

If we focus solely on the DOE-based approach, then, in the event of a significant loss due to reserves or similar factors, it would be prudent to consider a potential downside for dividends as well. Is that the correct understanding?

However, the dividend policy, including the current approach, has been set with the fundamental aim of ensuring stable dividends despite the nature of the business. We have decided on a DOE of 6%, and under this policy, our approach is not to avoid dividends even in the case of a significant loss but rather to pay dividends as much as possible even in such cases.

2.6x or 2.7x. However, when looking at specific fiscal years, there have been instances where the multiples exceeded 4x or even 5x.

While 3x is a high target, we do believe it is achievable. I just wanted to provide this additional context.

Are there any other questions? First, we will take questions from those attending in person.

First, it's a simple question. You've raised the DOE to 6%. How should we interpret this level? Is it simply a case of doubling the previous 3% target, or is there a more meaningful reason behind this specific number?

Also, looking ahead, do you plan to review the DOE flexibly in the future, say, after three or four years? I'd appreciate your insights on this as well.

As I explained earlier, the business environment and the goals we aim to achieve, including those related to our operations, are outlined. Given this context, a 3% DOE is still considered an achievable target, but with the goal of strengthening shareholder returns and improving ROE, we believe it is appropriate to raise it.

In determining the level, while it might seem like we have simply doubled the figure, we've set it at 6%. This gives us the flexibility to potentially raise it further based on our future business achievements and performance.

Regarding the potential for larger investments in portfolio companies, such as IPOs or M&A, could you share any specific strategies or methods for supporting your portfolio companies that would allow your fund to demonstrate a unique advantage? Could you explain what you are currently considering in this regard? I'd appreciate your insights on this.

In the early stages, this begins with organizational support, including the recruitment of core team members. We also provide sales and marketing assistance, and as the Company works towards an eventual IPO, we support the establishment of the necessary internal systems in a phased manner. I believe we are now starting to see the results of these efforts.

As I mentioned earlier, there is now a greater possibility of creating multiple large-scale companies, and one of the key factors is that while many business corporations are making various efforts, there are still many companies that have not been able to achieve significant results. In contrast, we have been strengthening our network with these business corporations significantly.

In this context, there is an increasing number of companies that are particularly focused on selective and large-scale investments. We believe that some of the initiatives we've been pursuing can indeed be turned into concrete outcomes.

Additionally, while overseas investors are approaching portfolio companies directly, they also have been approaching them through us. By potentially bringing these investors on board, we believe we can create even larger-scale startups.

This represents an extension of our previous efforts, and we think there's potential to further expand and deepen this approach.

This means that these funds will no longer be directed toward reinvestment and, therefore, they will become a source for future shareholder returns. So, it's not simply a case of doubling the DOE figure, but rather, the positive aspect of these recoveries not needing to be reinvested.

In some cases, even in situations like in the red scenario mentioned in earlier questions, we have calculated that the cash reserves will be sufficient. The 6% figure reflects this consideration, and you can think of it as a relatively conservative estimate. That's an additional point I wanted to clarify.

Is there anyone? Very well, since there are no further questions, we will now conclude 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.