SPARX:Consolidated Financial Results for FY2021 (Apr. 2021 - Mar. 2022)

Earnings

SPARX Group’s Founder and President Shuhei Abe Fiscal Year ended March 2022 Review and Outlook

【Consolidated Financial Results for FY2021】

Q: Would you please explain this past fiscal year's performance?

<Abe-san>

I am pleased to report our Fiscal Year 2021 full-year results.

Overall, operating revenue slightly decreased by 1.8% from 14.2 billion yen to 14.0 billion yen compared to the prior year.

Our average assets under management, or AUM, rose by 228.1 billion yen from 1.34 trillion yen to 1.57 trillion yen.

As a result, our management fees increased by 15% to 12.5 billion yen versus 10.9 billion yen last year.

On the other hand, performance fees decreased by 1.9 billion yen, or 3.1 billion yen to 1.2 billion yen this year.

This fiscal year, our renewable energy and Japanese equities strategies each generated performance fees of 600 million yen, respectively.

From a cost perspective, our ordinary expenses fell by 1.8% to 4.7 billion yen compared to 4.8 billion yen in the previous year, due in part to lower office-related expenses but partially offset by higher personnel-related expenses and other expenses due to an increase in headcount.

I believe that our earnings power is steadily getting stronger as our Base Earnings has reached a record high due to higher management fees earned.

This fiscal year, our Mirai Creation Fund Three was established, which resulted in an increase in our AUM for our private equity strategy.

On the other hand, I believe it is our challenge to increase our Japanese equities AUM as inflows into our funds were sluggish mainly due to global macro concerns that increased stock market volatility.

At the same time, the high quality of our Japanese equities strategy continues to be recognized with R&I, a prominent funds rating organization, recently awarding us as one of the best performing Fund with 10 year track record for the third consecutive year this past April. For more details, please refer to our recent press release.

Although having previously reported about this fiscal year's dividend amount, I would like to mention again that this year's dividend will be 12 yen per share, or 1 yen more than last fiscal year's dividend.

In addition, a proposal for a reverse stock split will be submitted at this year's Ordinary General Meeting of Shareholders.

Under the Securities Listing Regulations of the Tokyo Stock Exchange, the ideal range for a company's trading value where one trading unit is equal to hundred shares is "more than fifty-thousand yen and less than five-hundred thousand yen." Currently, our trading value is less than fifty-thousand yen, so a reverse stock split would remedy this situation and hopefully improve market convenience for investors.

The Reverse Stock Split ratio will be one share for every five shares. As a result, total outstanding number of shares of SPARX will be approximately 40 million shares compared to approximately 209 million shares today.

We will continue to undertake our utmost efforts to maintain our earnings growth and provide reliable shareholder returns.

【Reflection on the Four Pillars and its Goals】

Q: Would you please review each of the four (4) business pillars and outline the goals for this fiscal year?

<Abe-san>

First of all, as of March 31, 2022, the Group's assets under management, or AUM, increased by 1.3% to 1.5 trillion yen compared to the same time last year. Our target is to double our AUM to 3 trillion yen over the next four years, or March 31, 2026.

We are determined to achieve this goal, while maintaining the quality of our investment performance by our outstanding professionals.

We will also further strengthen our hybrid investment model that combines high profitability and stability.

As an example, our long-short strategy is one that can earn performance fees.

I am pleased to report that this strategy has recovered to reach its target AUM of 100 billion yen, mainly supported by new subscriptions.

I am proud to say that SPARX was the first Japanese asset management firm to start a long-short strategy back in 1997, with the goal of delivering stable returns to investors regardless of changes in the stock market.

It is my belief that this strategy represents SPARX's character, a strategy that has been consistently delivering stable and very high returns for more than 20 years and is considered to be our signature strategy by investors around the world.

For this strategy, we will continue to focus on delivering the highest quality performance to our investors, rather than just pursuing growth for the sake of becoming bigger.

Increasing AUM for these type of strategies that earn performance fees is one of SPARX's strengths and the foundation of our uniqueness.

In addition, amid the growing demand for so-called ESG investments, we are receiving investment mandates from mainly European institutional investors.

Assets under management for this strategy increased by 10% from 106.9 billion yen at the end of March 2021 to 117.9 billion yen at the end of March 2022.

I believe that this strategy has the potential for even greater growth, so we are strengthening our investment capabilities and hope it becomes one of our major strategies going forward.

ESG has always been part of the SPARX investment philosophy since I founded the company, where we emphasize the importance of management's mindset - honesty and sincerity to others - and corporate governance.

At SPARX, we are proud to be a pioneer of ESG investment in Japan and look forward to sharing it with the rest of the world.

Concerning our second pillar - or, our OneAsia strategy - we received a Korean mandate from a major European public institutional investor in 2019.

As a result, AUM significantly increased and our Korean subsidiary has achieved profitability on a stand-alone basis.

I believe that this recognition by the world's leading investor will provide an opportunity for SPARX's high-quality investment in Korean market to be appreciated by other investors around the world as well.

SPARX is a unique investment company in the world with research teams in Hong Kong and Korea.

Looking ahead to the next three to five years, one of my goals is to have our Asian investment business become the same size or even bigger than our Japanese equities business.

The third pillar - or, our Renewable Energy strategy - continues to grow, since COVID-19 as large Japanese companies reevaluate their investments in renewable energy power plants, which until now have been funded by their own balance sheets.

There is an ongoing trend to sell such power plants.

At the same time, I currently believe that the market has become overheated due to the aggressive acquisition of these power plants.

Regarding this situation, our goal remains the same where we want to invest in high-quality power plants but need to remain disciplined and be only willing to pay a fair price as an investor.

As an investment company, we intend to actively participate in the significant themes of our times, namely renewable energy and climate change. We are also seeking opportunities to create new value by leveraging the group of more than 30 renewable energy power plants that SPARX manages in Japan.

Finally, with regard to our private equity strategy - or, the fourth pillar - the Mirai Creation Fund Two (2) has made steady investment progress and Mirai Creation Fund Three was started late last year.

I believe that we have become one of the most prominent venture capitalist firms in Japan in terms of both size and investment performance.

We will enter into the phase in which we will begin to earn performance fees from our Mirai Funds as exits start to take place such as IPOs.

We will continue to do our best so that I can provide more details to our shareholders in the near future.

Q: Would you please tell us about the progress and goals concerning your new businesses?

<Abe-san>

In order to strengthen our fund business, we intend to continue to invest in new growth areas.

I believe that the growth areas for the new era are energy, healthcare, and fintech, where the use of AI is needed.

We will do our best to provide a clear view of the new forms of businesses that will drive SPARX's future growth to our shareholders.

In the energy sector, we believe that we have entered into a new phase of development of this business. We have to utilize the nationwide network of renewable power plants that SPARX has built over the past 10 years, and the experience and knowledge that our team has accumulated.

This year, we are planning to create a SPARX-funded facility that will produce green hydrogen using renewable energy.

We would like to gain experience and knowledge from developing and operating this test facility to determine how to use hydrogen.

I plan to be involved in this project in order to know how to create a new business together with our team members.

Motivated to shape a new era of carbon-free energy and a carbon-neutral world, I would like to work on this major task by expanding into new areas of energy in Japan and around the world.

As for the healthcare sector, with the support of the Goyokai Medical Association, one of our employees who is a qualified physician has been working at a maternity and gynecology hospital to provide consulting and hospital management services to improve the quality of medical care and profitability of the facility.

Efficient growth in healthcare is one of our social missions, and I believe that it is an area in which we should participate and contribute as an investment company.

Rather than simply increasing the number and size of hospitals and pursuing short-term profits, SPARX will utilize the knowledge which has accumulated through its investments to provide patients better services and a more comfortable environment for hospital staff to work so that all parties are happy.

Regarding fintech, this sector brings together finance and information technology, but for us, it doesn't mean just gathering a bunch of money through digital means and then using robots to manage funds.

I believe that the potential to use technology to create a better economic life that so many people desire is tremendous. Unfortunately, no one has yet been able to provide a clear solution to this.

So what can SPARX do in this area?

This fiscal year will be the year in which everyone will see specific activities in the fintech area that only SPARX can provide, where we will make small discoveries and support projects that will eventually be leverage to form specific business units within SPARX as we see fit.

In addition, we are also pursuing business with Sigma-I in the area of quantum computing, and are aiming at an IPO within the next four or five years.

We are working hard to build a concrete business that utilizes quantum annealing for the first time in Japan.

Quantum computing is an area that is attracting a lot of attention, and SPARX, in collaboration with Tohoku University, has been focusing on this area to become a leading expert in quantum computing over past four (4) years.

Sigma-I is the company that we have established in 2019 together with professor Ozeki, the leading expert of quantum annealing computing.

I think that we can deliver more concrete details to our shareholders in the next fiscal year.

SPARX is a unique company unlike any other company in the world that creates and then packages businesses. This expertise is something that we have steadily built for the past few years.

All of us at SPARX will continue to do our best to deliver results as quickly as possible.

Q: Would you please share SPARX's challenges for the coming fiscal year and beyond?

<Abe-san>

The most valuable assets of SPARX are the people who are working with me now.

My goal is to create a company where people can work happily with dreams and continue to grow as professionals and as a result, SPARX will be an ever-growing company.

I believe that the basic model has been completed.

I would like to further strengthen SPARX's uniqueness and strong business model by continuing to make good investments.

With such a big goal in mind, I have been moving forward step by step since SPARX's inception. We are proud to be the only independent investment company that has survived and grown for over 33 years.

I want to continue this for next 100 years.

To this end, it is more important than 100 years into the future, we must fulfill the duties that lie in front of us while maintaining a significant long-term vision - think what we are trying to do for tomorrow and the day after tomorrow.

By becoming a company that can manage 3 trillion yen in AUM by 2026, we will plant more seeds along the way and steadily prepare step by step for the challenges to enter these new business areas with sincere efforts.

I repeatedly tell SPARXONS every day that we can do this.

I am very encouraged and proud to have colleagues who can do such things together.

In addition, some institutional investors around the world, including those in Europe and the United States, have pointed out that our shareholders' value has not fully reflected the intrinsic value of us.

There is a very large gap between the intrinsic value of SPARX and the share price in the market today. For example, they also advised us over the past few years, there is a large gap between SPARX's profits growth and the share price movement.

I think that many of our shareholders feel this way.

We will do our best to become a company that can be fairly valued in the stock market and remain unwaveringly focused to become the most trusted and respected investment company in the world.

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