【 10 min FY2022 1st Quarter Earnings 】

Earnings

Shuhei Abe, President and CEO, will explain the outline of the SPARX Group's Q1 FY2022 financial results and recent business activities.

[Financial Results for 1Q FY2022]

Question: Would you please explain this past first quarter's performance?

CEO:Shuhei Abe:

I will briefly summarize our financial results for the first quarter of our fiscal year 2022.

Our operating revenue was up by 1.5% year on year, increasing from 3.31 billion yen last year to 3.36 billion yen this year. Although performance fees decreased by 200 million compared to the same period from last year, this quarter's increase in revenue was mainly due to management fees earned by the Mirai Creation Fund III. This quarter, management fees after deducting commissions rose by 8.8% year on year, or from 2.62 billion yen last year to 2.85 billion yen this year.

On the other hand, as I mentioned earlier, performance fees decreased from 252 million yen last year to 55 million yen this year. Due in part to the impact of the falling stock markets, performance fees came almost entirely from our real assets investment strategy this past quarter.

From a cost perspective, our ordinary expenses increased by 5.1% from 1.17 billion yen last year to 1.23 billion yen this year due to an increase in travel expenses and other expenses for new projects.

Considering all these factors together, our base earnings increased by 11.8%, from 1.44 billion yen to 1.61 billion yen. This gain demonstrates that our earnings power has been steadily getting stronger and we are in good shape.


[Latest Business Progress on the Four Pillars]

Question: Would you please explain about the most recent status of each investment strategy?

CEO:Shuhei Abe:

For our Japanese equity strategy, assets under management, or our AUM, decreased compared to last fiscal year-end or March 31, 2022. This was mainly due to a decline in the market values of our portfolios, which were affected by the weak stock markets. Subscriptions from domestic individual investors are steadily increasing, but we have experienced some redemptions from overseas institutional investors.

To stem this outflow, we are strengthening our face-to-face marketing overseas. In addition, this quarter we received the first prize for R&I Fund Awards 2022 for the second consecutive year.

I would like to promote further SPARX's investment capabilities.

Our OneAsia investment strategy was also affected by the weak stock markets, and our AUM fell compared to the previous fiscal year-end, mainly again due to a decline in our portfolios' market values. In order to strengthen sales of publicly offered investment trusts in South Korea, we have seeded a new fund, and we will leverage this product to expand our AUM.

For our Renewable Energy strategy, which represents a majority of our Real Assets strategy, we are actively considering projects other than solar, and we are also considering brownfield investments where we acquire renewable energy power plants that are already in operation.

Finally, with regard to our Private Equity strategy, AUM for the Mirai Creation Fund III as of June-end was 66.5 billion yen. We aim to raise a total of 100 billion yen and fundraising activities are currently underway. Meanwhile, the Space Frontier Fund, which was established two years ago, has steadily made investments in space-related startups and the fund is reaching full investment.

I would like to ask for your continued support as all of our employees are making their best efforts to reach our goal of 3 trillion yen in AUM by March 2026.


Question: Would you please tell us why you decided to issue digital bonds?

CEO:Shuhei Abe:

Regarding this question, I would like to have Fukami-san who is our Executive Deputy President, answer.

Executive Deputy President:Masatoshi Fukami:

With the purpose of "making the world wealthier, healthier, and happier (through our unique investment)," SPARX has always been creating new investment strategies and has been able to attract leading overseas institutional investors. Since our founding 33 years ago, we have been generating favorable investment returns for our investors over the medium- to long-term.

With time on their side, we hope that our younger generation will start to build their wealth over the medium- to long-term so that they can prosper and be healthy and happy. Therefore, we want to introduce investment opportunities developed with an assist from our network comprised of the world's most prestigious intuitional investors to younger Japanese.

We first issued digital bonds which is a relatively low-risk financial product like a corporate bond, through LINE Securities. Unlike traditional corporate bonds that require a large minimum investment, one can buy these digital bonds in smaller investment units, which is ideal for young retail investors.

Additionally, by offering these digital bonds to younger Japanese, we are able to establish new direct relationships. We are considering posting various materials to educate these new investors about SPARX's investment philosophy through LINE Securities. By communicating SPARX's thoughts and ideas on what are good investments, we hope to increase investors' interest in investing so that they become more serious about building their assets over the medium- to long-term, as well as build and increase our brand awareness.

Ultimately, we hope that this project will lead to the creation of a new market in which retail investors can access various financial products. SPARX aims to help build this market by first issuing digital bonds. This is our first step, and in the future, we would like to consider offering funds managed by SPARX via security tokens leveraging digital technology.

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