【 10 min FY2022 2nd Quarter Earnings 】

Earnings

Shuhei Abe, President and CEO, will explain the outline of the SPARX Group's Q2 FY2022 financial results and recent business activities.

[Financial Results for 2Q FY2022]

Q: Would you please explain this past second quarter's performance?

CEO: Shuhei Abe:

I will briefly summarize our financial results for the second quarter of our fiscal year 2022.
Our operating revenue was slightly down by 1.1% year on year, decreasing from 6.78 billion yen last year to 6.71 billion yen this year. Although management fees related to the recently-launched Mirai Creation Fund III were recognized, the lower operating revenue figure was caused by a decrease of 400 million yen in performance fees compared to the same period from the last year.
This quarter, management fees, after deducting commissions, rose by 6.4% year on year, or from 5.34 billion yen last year to 5.68 billion yen this year. This was mainly due to an increase of management fees from Mirai Creation Fund III, and it also led to a higher management fee rate for the quarter.
On the other hand, as I mentioned earlier, performance fees decreased from 512 million yen last year to 91 million yen this year. Due to the volatile stock markets, performance fees were almost entirely generated from our Real Assets investment strategy.
From a cost perspective, our ordinary expenses increased by 7.9% from 2.28 billion yen last year to 2.46 billion yen this year. This increase is the result of higher travel expenses and other expenses for new projects due to increased business and other activities.
Meanwhile, both ordinary profit and net profit have increased by 16% and 1.5%, respectively. These higher figures are mainly due to investment gains earned by our investment partnerships in our Real Assets investment strategy.
Considering all these factors, our base earnings increased by 5.3%, from 3.06 billion yen to 3.22 billion yen. Even during a time of severe market conditions, we have been able to strengthen our business to generate stable and reliable earnings.


[Latest Business Progress on the Four Pillars]

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

CEO: Shuhei Abe:

[Japanese Equity Investment Strategy]
First, regarding our strategy for Japanese equities, even though the Japanese stock market has performed poorly, subscriptions into our publicly offered investment trusts remain stable.
In fact, we were ranked among the top five investment managers in terms of amount of funds raised during the first six months of the fiscal year according to data provided by one of the investment trust consultants in Japan.
In addition, we were selected by one of the world's largest sovereign wealth funds in Europe to manage an investment mandate for our Japanese Equity Mid & Small Cap Strategy.
Unfortunately, mainly due to the negative performance of the stock market, our AUM fell from 1.02 trillion yen to 0.95 trillion yen compared to the previous fiscal year-end, or March 31st 2022.
While maintaining our ability to attract net subscriptions into our funds, I would like to continue improving SPARX's investment performance and become less influenced by the market's direction in order to make a significant recovery in the future.

[OneAsia Equity Investment Strategy]
Our OneAsia investment strategy was also affected mainly by the significant decline of the Korean stock market, therefore our AUM fell as well.
I truly believe our OneAsia investment strategy is one of the most important strategies for SPARX, so we will need to continually to work hard to develop it even though I believe it will be a challenge.
Our "Center for Asian Intelligence" flag was planted back in 2005. The goal is to be the center for Asian intelligence as an investment company. I believe we need to return to our starting point in order to rebuild our Asian operations and make it much stronger than ever.

[Real Assets Investment Strategy]
As for our Renewable Energy investment strategy, which is part of our Real Assets investment strategy, we have completed an investment of about 12 billion yen or about 80 million dollars in solar power plants that are already in operation.
We are proud to say that we have established a solid position in the industry since starting our Renewable Energy investment strategy about 10 years ago. SPARX has been receiving many proposals to invest in renewable energy plants that are currently in operation.

[Private Equity Investment Strategy)]
Finally, with regard to our Private Equity investment strategy, the AUM for our Mirai Creation Fund III was 67.5 billion yen as of September-end. Thanks to your support, total AUM of our Private Equity investment strategy amounted to 152.1 billion yen.
At our current size, it is my understanding that we have grown to be among the top three venture capital firms in Japan.
As an investor, we would like to continue to pave the way to support and participate in the growth of new Japan and the world by investing in unique startups that reflect the long-term view of SPARX.
Although our Real Assets and Private Equity investment strategies saw an increase in AUM, the substantial decline in the Japanese stock market caused the total AUM of SPARX to decrease by 4.3% over the past 2 quarters.
At the same time, our Japanese Equity investment strategy is receiving more inflow of capital than outflows, so we will continue to do our utmost to meet the expectations of our shareholders and work hard to achieve further growth.
I will do my best to continue to focus all of my efforts to make SPARX great again.
Therefore, 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.


Q: The Company has announced a stock buyback. Could you please tell me about this?

CEO: Shuhei Abe:

We intend to provide continuous and stable shareholder returns by conducting share buybacks and paying stable dividends.
Considering the growing strength of our stable platform together with the aim to improve both capital efficiency and shareholder returns, we have announced to buy back up to 300 million yen of our shares or up to 0.2 million shares, whichever comes first.
This amount is the same as last year. I will do my best to maintain or even further increase shareholder returns as the total growth of SPARX is being achieved.

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