Consolidated Financial Results for the Year Ended March 31, 2012 [Japanese Standards]

Transcription

1 This document has been translated from Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. JAIC assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translation. Consolidated Financial Results for the Year Ended March 31, 2012 [Japanese Standards] (Summary of Japanese announcement) May 11, 2012 Company name: Listed on: First Section of the Tokyo Stock Exchange (Stock code: 8518) URL: Head office: Tokyo Representative: Moriyoshi Matsumoto, President and CEO Contact: Tetsuro Shimomura, Executive Managing Director Tel: (main) Scheduled date for ordinary general meeting of shareholders: June 26, 2012 Scheduled date for submission of annual report: June 28, 2012 Scheduled date for start of payment of dividends: (Throughout this report, fractional amounts have been rounded down to the nearest one million yen.) 1. Consolidated business results for the year ended March 31, 2012 (April 1, 2011 to March 31, 2012) (1) Consolidated results of operations (Percentages indicate year-on-year increase or decrease) Operating revenue Operating income Ordinary income Net income Millions of yen % change Millions of yen % change Millions of yen % change Millions of yen % change March 31, ,860 (41.7) (2,449) (3,111) (3,078) March 31, , , (2,039) (Note) Comprehensive Income March 31, 2012: (3,087 millions of yen) (-%) March 31, 2011: (1,021 millions of yen) (-%) Net income per share Return on equity Ordinary income to Operating income Diluted net income total assets to operating per share revenues Yen Yen % % % March 31, 2012 (26.12) (105.9) (6.9) (35.7) March 31, 2011 (17.30) (42.6) (Reference)Equity in earnings (loss) of affiliates March : (4 millions of yen) March : 5 millions of yen (2) Consolidated financial position Total assets Net assets Equity ratio Net assets per share As of March 31, 2012 As of March 31, 2011 Millions of yen 41,094 48,736 Millions of yen 10,063 13,171 % Yen (Reference) Total shareholders' equity As of March 31, 2012: 1,424 millions of yen As of March 31, 2011: 4,391 millions of yen 1

2 (3) Cash flows March 31, 2012 March 31, 2011 Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Cash and cash equivalents at year-end Millions of yen Millions of yen Millions of yen Millions of yen (4,056) 6,813 7,137 2,215 (7,886) 9, Dividends Dividends per share (Base date) End of first quarter End of second quarter End of third quarter End of year Year Yen Yen Yen Yen Yen Year ended March 31, Year ended March 31, Year ending March 31, 2013 (forecast) (Note) The expected dividend for the year ending March 31, 2013 has not yet been determined. 3. Outlook for the fiscal year ending March 31, 2013 (April 1, 2012 to March 31, 2013) The overall investment business conducted by the Group (including investment partnerships) is significantly affected by changing factors such as stock markets, given the characteristics of the business. In addition, it has been difficult to forecast results reasonably in the rapidly changing environment. We determined it is not always useful for stakeholders to disclose the result forecast based on a certain premise in this environment. We have therefore decided not to disclose the results forecast at this time. The Group will continue to make efforts to promptly disclose the results of the quarterly settlement of accounts, and when it becomes possible to generate a reasonable results forecast, we will disclose it without delay. 4. Other matters (1) Changes among significant subsidiaries (Changes among specific subsidiaries resulting in changes in the scope of consolidation): Yes [New 3 companies (company name: 3 Investment Funds) Excluded 4 companies (company name: 4 Investment Funds)] (2) Changes in accounting principles, accounting estimates and correction of prior period errors (i) Changes in accounting principles due to revisions to accounting standards: No (ii) Changes other than shown in (i) above: No (iii) Changes in accounting estimates: No (iv)correction of prior period errors: No (3) No. of shares issued and outstanding (common stock) (i) Shares issued and outstanding at the end of each period (including treasury stock) The year ended March 31, 2012: 119,993,475 shares Year ended March 31, 2011: 119,993,475 shares (ii) Shares of treasury stock at the end of each period The year ended March 31, 2012: 2,122,586shares Year ended March 31, 2011: 2,122,586shares (iii) Average number of shares during the period (cumulative quarterly consolidated period) The year ended March 31, 2012: 117,870,889shares The year ended March 31, 2011: 117,871,182shares 2

3 Reference: Non-consolidated results 1. Business results for the year ended March 31, 2012 (April 1, 2011 to March 31, 2012) (1) Results of operations March 31, 2012 March 31, 2011 (Percentages indicate year-on-year increase or decrease) Operating revenues Operating income Ordinary income Net income Millions of yen % change Millions of yen % change Millions of yen % change Millions of yen % change 4,758 (53.9) (1,458) (2,036) (2,227) 10, (1,914) March 31, 2012 March 31, 2011 Net income per share Diluted net income per share Yen Yen (18.90) (16.24) (2) Financial position Total assets Net assets Equity ratio Net assets per share As of March 31, 2012 As of March 31, 2011 Millions of yen 31,484 37,753 Millions of yen 2,148 3,927 % Yen (Reference) Total shareholders' equity As of March 31, 2012: 2,079 millions of yen As of March 31, 2011: 3,906 millions of yen 2. Outlook for the fiscal year ending March 31, 2013 (April 1, 2012 to March 31, 2013) The overall investment business conducted by the Company is significantly affected by changing factors such as stock markets, given the characteristics of the business. In addition, it has been difficult to forecast results reasonably in the rapidly changing environment. We determined it is not always useful for stakeholders to disclose the result forecast based on a certain premise in this environment. We have therefore decided not to disclose the results forecast at this time. When it becomes possible to generate a reasonable results forecast, we will disclose it without delay. * Disclosure regarding the implementation of audit procedures The above financial results are not subject to the audit procedures required under the Financial Instruments and Exchange Act. The audit procedures for consolidated financial statements under the Act had not been completed at the time of disclosure. *Cautionary Statements with Respect to Forward-looking Statements and Other Notes The presentation material for the year ended March 31, 2012 was released on our website on May 11,

4 1. Business Performance (1) Analysis of Business Performance 1) Overview of the Consolidated Fiscal Year Ended March 31, 2012 During the consolidated fiscal year under review (from April 1, 2011 to March 31, 2012), the future of the economy became more uncertain due to the influence of the Great East Japan Earthquake, confused energy policies, a record strong yen, disconnection of the supply chain as a result of flooding in Thailand, and other factors. Although the impact of the financial crisis in Europe and the risk of further strengthening of the yen were temporarily reduced as we moved into 2012, the economic recovery failed to continue and the environment remained uncertain. Other countries in Asia, which have a vital link to the businesses of the Group, continued to maintain high economic growth, although the stock market remained bearish due to the implementation of tight money policy to counter inflationary risks, and other factors. In this environment, the Group executed the following initiatives during the consolidated fiscal year under review. i. Buildup of assets under management through the creation of funds and new quality investment assets The Group has been taking RM (relationship management) steps to bolster our relations with financial institutions, businesses, and government agencies both in Japan and overseas. As a result of these efforts, the Group achieved the establishment and an increase in assets of six unique funds with a total commitment amount of 11,926 million yen during the consolidated fiscal year under review. (For details, refer to page 53). In the investment program, the Group focuses on investment in growing companies (growth equity) which seek to expand their business in Asia where the Group has advantages. A joint venture company was established in China by the Group and the Development Bank of Japan to promote growth equity investment in that country, and the joint venture is currently operationally active. In addition, in China, Japan, and Southeast Asian countries the Group made efforts to select promising investee companies in which investment will be made mainly by growth equity funds established in the consolidated fiscal year under review. ii. Investment exits through efforts for improvement of the value of companies included in the investment portfolio, and steady reduction of costs and borrowed indebtedness For each investment portfolio, the Group makes active efforts to improve the value of companies and increase the amount of the investment exits. For example, the Group made exits which facilitated growth strategies and the capital policies of companies, including IPOs. As a result, the total number of domestic and overseas companies which conducted IPOs increased to 15 (as against 6 in the previous consolidated fiscal year). However, both domestic and overseas stock markets abruptly turned bearish in and after August 2011 and the yen rose to a record level. Under this harsh external environment, capital gains decreased and there was a loss from valuation of securities and an increase in allowances. As a result, investment losses totaled 968 million yen (investment gains of 1,953 million yen in the previous consolidated fiscal year). The Group achieved 7.4 % reduction in selling, general and administrative expenses as compared with the previous consolidated fiscal year, due to successful continuous cost reduction efforts. The Group also worked to steadily reduce indebtedness. The cumulative total of repayment of borrowings was 2,631million yen in the consolidated fiscal year under review. The Group also repaid 2,632 million yen at the end of April

5 As a result of the initiatives described above, operating revenues for the consolidated fiscal year under review totaled 6,860 million yen, a decrease of 41.7% year on year. Operating loss was 2,499 million yen, compared with an operating income of 1,154 million yen for the previous fiscal year. Ordinary loss was 3,111 million yen, compared with an ordinary income of 111 million yen for the previous fiscal year and a net loss came to 3,078 million yen, compared with a net loss of 2,039 million yen for the previous fiscal year. On 24 March 2009, the Group approached all transacting financial institutions concerned with its borrowings and corporate bonds (private placement bonds) and requested changes to be made to the agreement conditions, mainly with respect to repayment schedules. After discussions about this business turnaround plan, our proposal was accepted by the financial institutions on 24 June 2009, including the changes to the repayment schedules. Since then, the Group has continued its efforts to achieve the plan s objectives until the consolidated fiscal year under review, which is the last year of the plan. The JAIC Business Turnaround Plan had the following three main policies. Their progress is as follows: i. Transformation into a fund management company: - Freeze principal investment (direct investment using equity funds) and integrate into investment from funds, and meanwhile decrease the investment ratio in funds, so that the Group will reduce risk assets - Reinforce the fund placement system, to ensure the investment fund utilizing external funds, and stable profits such as management fees As a result of limitations on principal investment, principal investment balance, which totaled 25,911 million yen (venture capital investment) at the end of the term ending March 2009, decreased to 11,500 million yen in total (for venture capital investment and other private equity investments) at the end of the term ending March As for the investment ratio for funds, the Group made efforts to decrease its investment ratio in newly established funds through negotiations with other fund stakeholders, including partner companies, at the planning stage. The Group succeeded in establishing 12 funds for a total amount of 23,140 million yen (total of new establishment and asset increase ) by focusing on relationship management (RM) (targeting customers) from the term ending March 2010 to the term ending March 2012 inclusive. However, establishment of the funds was delayed beyond the original timeframe due to deterioration in the environment for fund placement, including the public finance crisis in the U.S. and Europe and regulations regarding the risk assets of financial institutions. For these reasons, revenue from management fees did not increase to a level at which it could compensate for the decrease of fees due to the expiration of existing funds. In the future, the Group aims at creating a framework by which business can be stabilized by further enhancing relations with domestic and overseas partners, forming funds attractive to investors, improving investment performance and increasing revenue from management fees. ii. Strengthen competitiveness in Asia: - Reinforce investment in Asia, centering on China, which is expected to grow in the future as well - Reinforce the liaison function between Asia and Headquarters. The Group positioned China as a priority investment region, and invested human resources, including placement of a director to Beijing as General Manager for China, creation of a China Business Development Department which functions as a liaison in Japan, and the employment of venture partners with a wealth of experience investing in China, in order to enhance 5

6 cross-boundary investment activities between Japan and China. As a result, investment activities were enhanced, and four new funds of a total amount of 7,558 million yen were established from the term ending March 2010 to the term ending March 2012 inclusive, and these funds are now operational. In addition, a joint venture company, which was established in China by the Company and the Development Bank of Japan to promote growth equity investment in that country, is currently operationally active. At present, the director is winding up his duties in China as an expatriate, and the China Business Development Department is being transformed into a frontline department which mainly conducts investment activities in order to reinforce investment operations and improve earning power. In addition, a growth equity fund for the Southeast Asian region was established jointly with the Development Bank of Japan, and started operations. iii. Reinforcement of private equity investment business outside venture capital investment: The Group will restructure its portfolio, from the focus on venture capital investments into innovative venture companies at early stage to a portfolio oriented to investments into companies at sustainable growth stage, buyout investments and PE secondary investments. As a result, the ratio of private equity investment other than venture capital investment to actual amount of investment (11,751 million yen) from the term ending March 2010 to the term ending March 2012 stood at 43.2%. As mentioned in item i above, the number of funds for growth equities in particular increased during the consolidated fiscal year under review. Since it takes time to secure further increases in investment amount efforts to restructure the portfolios have not yet been completed. However, the Group is now making efforts to change from the present investment style (focusing on the IPOs as an exit strategy) to a new investment style (diversified exit strategies can be adopted) by further enhancing the function of providing value to investee companies. In addition, the Group makes efforts to identify better investee companies, for example, by targeting growing Asian companies seeking global business expansion. Since remaining debts are coming due, we had negotiations on new repayment plans with all financial institutions concerned. As a result, the repayment plans were accepted by all of the financial institutions. For management policy and key management issues, as mentioned in the business plan, which are preconditions to the repayment plans, please refer to 2. Management Policy (3) Medium-term management strategies and (4) Key management issues on page 13. With a goal of becoming the preferred equity partner for all stakeholders, including investors, entrepreneurs and outstanding management team, the Group is aiming to contribute to the improvement of value of investee companies, and makes positive efforts to form funds as a source of revenues and to increase the number of quality investment assets. 6

7 2) Business Performance and Financial Condition (1) Revenue from Fund Activities March 31, 2011 (April 1, 2010 to March 31, 2011) March 31, 2012 (April 1, 2011 to March 31, 2012) Total investment funds management fees Management fees Contingency fees (2) Capital Gains March 31, 2011 (April 1, 2010 to March 31, 2011) March 31, 2012 (April 1, 2011 to March 31, 2012) Proceeds of sales of operational investment securities(a) 9,929 5,803 Cost of securities sold (B) (Note) 7,461 4,604 Realized capital gains (A)-(B) 2,468 1,199 Investment write-offs (C) Provision for allowance for possible investment losses (D) (377) 1,365 Investment income (A)-(B)-(C)-(D) 1,953 (968) (Note)The amount of Cost of securities sold (B) in above table does not include the amount of Investment write-offs (C). (3)Unrealized Gains As of March 31, 2011 As of March 31, 2012 Acquisition cost 1,229 1,579 Carrying value on consolidated balance sheet 1,294 1,898 Difference (Unrealized capital gains)

8 (2) Risk Factors Risks associated with the business of JAIC and the Group that may significantly influence the decisions of investors are outlined below. JAIC recognizes the possibility of these risks occurring and works to avoid such risks and to respond appropriately if they occur. This section includes matters related to the future and reflects management s assumptions and assessments based on information available as of May 11, ) Risk Relating to the Economic Environment and Investment Environment The core business of the Group is based on investing in unlisted stocks, etc. primarily in Japan, Asia and the United States using self-funding and the resources of funds managed and operated by the Group and then later selling the stock through IPOs of the investee companies and to third parties for capital gains, as well as collecting success fees and management fees from funds managed and operated by the Group. The business results and financial position of the Group are therefore affected by the stock markets in countries around the world and the economic environments of target investment areas. In the event of a major downturn in the world economy, the value of the assets in which the Group invests may decline with a downturn in the performance of investee companies. Moreover, during the recovery phase for invested funds, if a weak stock market and stagnant IPO market or unfavorable economic environment adversely affects sales negotiations, capital gains and success fees earned by the Group may decrease, and the business performance and financial position of the Group may be adversely affected. 2) Results Fluctuation Risk One of the primary revenue sources for the Group is capital gains earned through sales on the stock market by IPOs of investee companies and sales of stock and other assets to third parties. The selling prices of sales transactions may fluctuate unexpectedly, affected by the stock market conditions in the accounting year when the revenues are recorded, characteristics of individual investee companies and other factors. The capital gains earned by the Group in each accounting year therefore fluctuates significantly and the business performance and financial position of the Group may be affected. The Group is also active in making other PE investments*, including buyout and turnaround investments, which require a larger investment per deal than venture capital investments. The size of the sale transactions and the contract signing time of the private equity investments may affect the business performance and financial position of the Group for the accounting year concerned. *Non-venture capital private equity investments, including buyout investments, turnaround investments and PE secondary investments. 3) Investment Risk Involved in Unlisted Companies The primary target for investments by the Group is unlisted stock, and the following risks are involved with investments in unlisted stock: i. The unlisted companies that are the primary targets for investment by the Group are companies in the growth phase, such as recently established companies. They therefore include risk factors such as unstable profit and financial bases, and limited management resources. Consequently, the Group may incur losses if an invested company suffers a decline in corporate value or becomes bankrupt after investment. 8

9 ii. There is generally quite a long lead time between the Group s investment in unlisted stocks and the investee company's IPO or the Group s sale of the stock to third parties. There is therefore a risk that the corporate value of the invested company may change contrary to initial predictions due to poor business performance, or other reasons. There is also a risk of a decline in capital gains, or capital loss or valuation loss due to significantly lower than expected investment returns affected by external factors such as the economic environment and stock market trends. iii. Unlisted shares and other securities in which the Group invests are extremely illiquid compared with shares in listed companies. The terms and conditions associated with investment recovery could therefore change materially, depending on the intentions of transaction participants, and there is no guarantee that securities will be sold at the prices and timing that the Group seeks. Moreover, the Group could incur capital losses or may be unable to sell securities for long periods. 4) Stock Market Risk The Group holds marketable stocks due to the IPOs, etc. of investee companies. If stock prices fall in the stock market, securities held by the Group may incur valuation losses and capital gains earned through the sale of stocks may decline, and the business performance and financial position of the Group may be adversely affected. Moreover, sales of some newly listed stocks may be restricted for a certain period of time after listing because of the relevant regulations of respective stock exchanges or agreements with investee companies. Consequently, if the stock price declines during the period concerned, the business performance and financial position of the Group may be adversely affected. 5) Exchange Risk Given the attributes of private equity investment, the investment recovery period will be long, and the amounts recovered and the time required for recovery cannot be identified. It is therefore difficult to forecast future cash flows, and JAIC does not make seek to hedge the risks of exchange rate fluctuations, including the risks associated with foreign exchange contracts, except for short-term transactions at the time of the sale of securities. 6) Deterioration Risk The financing operations of the Group are regulated by the Money-Lending Business Control and Regulation Law, and the Law Concerning the Regulation of Receiving of Capital Subscription, Deposits, and Interest on Deposits (hereinafter referred to as the Capital Subscription Act ). The Group calculates an allowance for doubtful accounts based on assumptions and estimations about the borrowers financial positions, the value of collateral provided and general economic conditions. However, actual bad debts may become greater than assumed or estimated as a result of changes in the positions of individual borrowers and external factors such as changes in economic environments. As a result, the allowance for doubtful accounts may become insufficient, and the business activities, business performance, and financial position of the Group may be adversely affected. 7) Indemnity Risk Associated with the Provision of Non-Executive Directors The Group dispatches its directors and employees as non-executive directors of investee companies. Should directors provided by the Group to an invested company be subject to claim for damage or other legal action, the Group may be obliged to bear employer s liability and to pay the relevant compensation. 9

10 8) Funding Risk i. Owing to the length of time needed to recover an investment, the total amount of capital required for investment at any particular time may exceed the total amount available from funding sources, including capital recovered from investments. Such an imbalance may cause dramatic short-term fluctuations and deterioration in the Group s financial position and cash flow. ii. JAIC needs to reliably raise the funds necessary for business through debt financing, due to the nature of its business as mentioned in (i) above. If the financial position of JAIC deteriorates due to changes in factors such as the economic circumstances and market trends, JAIC may encounter difficulty in financing, be forced to procure funding at a higher cost than usual and be unable to raise funds easily through debt financing or refinancing. The emergence of such liquidity risk may cause restrictions on the business of the Group and the financial position and business performance of the Group may be significantly affected. iii. On March 24, 2009, the Group requested all financial institutions concerned to agree to the change of contractual conditions mainly the change of repayment schedule for borrowings and bonds (private placement bonds). On June 24, 2009, the Group received approval from all financial institutions concerned for the JAIC Business Restructuring Plan, including the change of contractual conditions. Since then, the Group has continued its efforts to achieve the plan targets before the end of the consolidated fiscal year under review, which is the last fiscal year of the JAIC Business Restructuring Plan. Considering that the remaining debts will become due for payment, the Company had consultations with all financial institutions concerning a new repayment plan. As a result, the Company received approval from all financial institutions concerned. However, certain financial covenants are attached to the remaining debts. In case any such covenants are violated, the Company will submit a proposal for improvement to all financial institutions concerned and have consultations with them. If requested by majority lenders (creditors having 66.7% or more of the outstanding debt principal) after consultation, the Company may lose the benefit of term. Therefore, such covenants may affect business activities, financial conditions and business performance of the Group. 9) Exposure to Risk in Asia and the United States The Group makes investments through group companies in Asia and the United States. There is therefore an inherent risk that in the event of economic, political or legal changes, or occurrence of events that disrupt social order such as terrorist attacks or disease outbreaks in countries where the Group carries out business activities, the business activities of the subsidiaries of the Group and investee companies may be affected. 10) Personnel Turnover Risk Nurturing and retaining top-quality venture capital professionals and fund managers is an essential prerequisite for success in private equity investment. Retaining such staff is a key source of the Group s competitive advantage. Reflecting this fact, personnel costs may rise to accommodate the introduction of incentive programs and other measures to retain talented employees. Furthermore, if it is unable to retain top employees, the future growth, business activities, business performance, and financial position of the Group may be adversely affected. 10

11 11) Legal and Regulatory Risk i. The Group engages in fund management and investment businesses in Japan, Asia, the United States and in locations used for offshore banking, such as the Cayman Islands. Consequently, the Group s business is affected by legal regulations in these regions (corporate laws, financial instruments and exchange laws, antimonopoly laws, taxation laws, laws relating to limited liability partnership agreements, foreign exchange control laws, financial accounting related laws, etc.). The costs associated with these laws may increase, and the business activities, business performance, and financial position of the Group may be adversely affected. ii. The Group includes companies that are registered to engage in the investment management business as well as the investment advisory and agency businesses under the Financial Instruments and Exchange Law. Should these registrations be annulled for some reason, execution of the relevant business may be hindered and public credibility of the Group may be harmed, and the business activities, business performance and financial position of the Group may be adversely affected. iii. Concerning specially permitted business for qualified institutional investors, etc. The Group includes JAIC and other companies that have submitted a notification of engaging in specially permitted business for qualified institutional investors, etc. pursuant to Article 63 of the Financial Instruments and Exchange Law with respect to fund management and operation business that they conduct in Japan. In accordance with this notification, funds managed and operated by the Group must satisfy certain requirements, such as limiting fund investors primarily to qualified institutional investors. If any event not satisfying the above requirements occurred in the business conducted by one of the Group companies, or if such business ceased to fall within the scope of a specially permitted business for qualified institutional investor, etc. due to a change in the official interpretation of the applicable laws and ordinances or for any other reasons, execution of the business concerned may be hindered. In such case the public credibility of the Group may be harmed, and the business activities, business performance, and financial position of the Group may be adversely affected. 12) Risks Relating to Competition and Participation Financial institutions, enterprises and foreign companies, etc. with significant funding ability may participate in the private equity investment industry, which is engaged in the venture capital business and to which the Group belongs. If the venture capital and private equity investment companies from these groups expand their investment activities aggressively, the business activities, business performance, and financial position of the Group may be adversely affected due to a decrease in investment opportunities for the Group, which is an independent group. Moreover, if competitors build up superior portfolios and realize high investment returns and provide low-priced services and so forth, it may cause the relative competitiveness of the Group to decline, and the business activities, business performance and financial position of the Group may be adversely affected. 13) Risks Associated with Investment Funds (Investment Partnerships, etc.) i. Fundraising Investment funds (including investment partnerships) are not only investment capital for the Group, but are also sources of revenues such as management fees and success fees, and are effective vehicles for producing synergies through alliances with various companies. If sufficient funds cannot be collected from fund investors via fundraising activities, investment activities may be hindered and management fees may decrease, adversely affecting the business performance and financial position of the Group. 11

12 ii. Risk of lawsuits relating to fund management The Group has established multiple funds, and there is a risk that as an unlimited liability partner or general partner, it will incur losses that exceed the amount of its investment. Moreover, there is a risk of the Group being subject to a lawsuit grounded on breach of due diligence obligations as an executive partner of a fund or because of a conflict of interest either between funds, between the Group and a fund or fund investors, or between equity investors. In the event that the Group was to bear liability due to such a lawsuit or other legal action against it, the business activities, business performance, and financial position of the Group may be adversely affected, not only by the liability but also by a decline in public credibility. 14) Information Management Risks With respect to the management and control of important information pertaining to trading partners and personal information held by the Group, the Group has established various internal regulations, made the internal regulations fully known to all executives and employees, reinforced the security of information systems and established an information management system. However, if such information is leaked because of unexpected events in the future, the business activities, business performance, and financial position of the Group may be adversely affected by claims for damages and a loss of social credibility. 12

13 2.Management Policy (1) Basic Management Policy, (2) Targeted Management Indicators Disclosures are omitted because there have been no material changes from those described in Consolidated Financial Results (Kessan Tanshin) for the fiscal year ended March 2010 (released on May 11, 2010). The relevant Consolidated Financial Results can be found on the following web pages: The Company's web page (3) Medium-term management strategies The Group has adopted the following medium-term management strategies: (i) Preferred equity partner for all stakeholders: Aiming to become an equity partner that is preferred by investors, entrepreneurs and outstanding management team, the Group will focus on developing professional human resources. (ii) Strengthen competitiveness in Asia: The Group will further strengthen relationship management, primarily based on the network and partners it has developed, particularly in China and southeast Asia where the economy is likely to continue to grow in the future. It will also bolster the competitiveness of the Group by strengthening functions, in which the Group excels that link Asia and Japan. In particular, the Group will implement an investment policy in which priority is placed on investment in growing companies located mainly in Asia which seek global business. The Group will assist Japanese companies in entering Asian markets, and Asian companies in collaborating with Japanese companies. (iii) Build up quality new investment assets and establish a well-balanced portfolio The Group will build up quality investment assets which can be the source of revenues in the future by adopting an investment style which emphasizes the provision of value to investee companies. The Group will restructure its portfolio, from the focus on venture capital investments in innovative companies at an early stage to a portfolio oriented to investments in companies at the sustainable growth stage, buyout investments and PE secondary investments. (4) Key management issues The Group regards the following items as key management issues: (i) Maximize the recovery of existing investment assets The Group will seek to improve its investment performance through comprehensive initiatives to improve the corporate value of portfolio companies and through the provision and realization of optimum exit (investment recovery) scenarios for portfolio companies. (ii) Build up AUM (assets under management) by establishing funds that meet investor needs The Group will aim to improve investment results by establishing funds through attractive fund proposals and designs, appealing to investors based on an accurate understanding of investor needs and communications with investors, and creating a system to stabilize business management by increasing revenues from management fees. (iii) Build up quality new investment assets and establish a well-balanced portfolio From the viewpoint of asset allocation by investment program, the Group will restructure its portfolio, by increasing a portfolio oriented to investments in companies at the sustainable growth stage, buyout investments and PE secondary investments. In venture capital investments, the Group will further strengthen the function of providing value to investee companies and invest by adding a new twist to the investment share and methods, considering exit strategies that do not depend on an IPO. (iv) Review the existing operation system The Group will continue to strengthen profitability management, promote efficient operations by establishing an operation system which is suitable for the size and particulars of assets, and improve profitability by taking measures such as development of human resources. 13

14 (v) Strengthen the network and the customer base The Group will take steps to strengthen relationships with financial institutions and businesses, and will seek to deepen and expand its network, thereby establishing funds, increasing the corporate value of portfolio companies, and maximizing the investment recovery. 14

15 3.Consolidated Financial Statements (1) Consolidated Balance Sheets As of March 31, 2011 As of March 31, 2012 Consolidated balance sheets Assets Current assets Cash and deposits 15,698 13,280 Short-term investment securities Operational investment securities 35,268 29,422 Allowance for possible investment loss (7,973) (6,601) Operating loans Deferred tax assets - 0 Other Allowance for doubtful accounts (19) (19) Total current assets 44,435 37,288 Noncurrent assets Property, plant and equipment Buildings and structures Accumulated depreciation (39) (47) Buildings and structures, net Vehicles, tools, furniture and fixtures Accumulated depreciation (46) (46) Vehicles, tools, furniture and fixtures, net Land Lease assets 3 3 Accumulated depreciation (1) (2) Lease assets, net 1 1 Total property, plant and equipment Intangible assets Other Total intangible assets Investments and other assets Investment securities 3,230 2,744 Claims provable in bankruptcy, claims provable in rehabilitation and other 1, Deferred tax assets 4 3 Other Allowance for doubtful accounts (439) (320) Total investments and other assets 4,120 3,488 Total noncurrent assets 4,301 3,805 Total assets 48,736 41,094 15

16 As of March 31, 2011 As of March 31, 2012 Liabilities Current liabilities Short-term loans payable 1,865 2,842 Current portion of bonds with subscription rights to shares 1,420 - Lease obligations 0 0 Accrued expenses Income taxes payable Accrued consumption taxes 20 8 Deferred tax liabilities 0 - Provision for bonuses Provision for loss on liquidation of subsidiaries and affiliates - 95 Other Total current liabilities 4,466 3,831 Noncurrent liabilities Long-term loans payable 30,052 26,444 Lease obligations 1 0 Deferred tax liabilities 1 0 Provision for retirement benefits Provision for directors' retirement benefits Deposits received from silent partnership Other Total noncurrent liabilities 31,098 27,199 Total liabilities 35,564 31,030 Net assets Shareholders' equity Capital stock 27,166 4,000 Capital surplus - 2,118 Retained earnings (19,794) (1,825) Treasury stock (415) (415) Total shareholders' equity 6,956 3,878 Accumulated other comprehensive income Valuation difference on available-for-sale securities (1,043) (1,001) Deferred gains or losses on hedges (1) - Foreign currency translation adjustment (1,520) (1,452) Total accumulated other comprehensive income (2,565) (2,453) Subscription rights to shares Minority interests 8,760 8,570 Total net assets 13,171 10,063 Total liabilities and net assets 48,736 41,094 16

17 (2) Consolidated Statements of Income March 31, 2011 (April 1, 2010, to March 31, 2011), March 31, 2012 (April 1, 2011, to March 31, 2012) Consolidated statements of income Operating revenue 11,764 6,860 Operating cost 8,371 7,235 Operating gross profit (loss) 3,393 (375) Salaries and allowances Operations consignment expenses Provision for bonuses Retirement benefit expenses Provision of allowance for doubtful accounts - (81) Rent expenses Depreciation Bad debts expenses Fund interests expenses Other Selling, general and administrative expenses 2,239 2,073 Operating income (loss) 1,154 (2,449) Non-operating income Interest income Dividends income Equity in earnings of affiliates 5 - Gain on hedge trading Cancelation income 80 - Gain on investments in partnership - 87 Miscellaneous income Total non-operating income Non-operating expenses Interest expenses Commission fee 0 1 Equity in losses of affiliates 0 4 Loss on investments in partnership - 11 Foreign exchange losses Miscellaneous loss 7 1 Total non-operating expenses 1, Ordinary income (loss) 111 (3,111) 17

18 March 31, 2011 (April 1, 2010, to March 31, 2011), March 31, 2012 (April 1, 2011, to March 31, 2012) Extraordinary income Reversal of allowance for doubtful accounts 17 - Gain on sales of investment securities 46 - Gain on redemption of investment securities - 45 Gain on sales of subsidiaries and affiliates' stocks - 7 Gain on retirement by purchase of bonds with subscription rights to shares Gain on sales of noncurrent assets - 4 Reversal of provision for business restructuring 28 - Total extraordinary income Extraordinary loss Impairment loss 61 - Loss on sales of investment securities 1,094 - Loss on valuation of investment securities Loss on redemption of investment securities - 57 Provision for loss on liquidation of subsidiaries and affiliates - 95 Business restructuring expenses 1, Loss on disposition of foreign currency translation adjustments 92 - Expenses incurred as a result of the revision of personnel plans 53 - Loss on change in equity - 3 Total extraordinary losses 2, Loss before dividends distribution from silent partnership, income taxes (2,028) (3,503) Dividends distribution from silent partnership (15) (167) Loss before income taxes and minority interests (2,013) (3,335) Income taxes-current Refund of income taxes - (30) Income taxes-deferred (0) 0 Total income taxes Loss before minority interests (2,177) (3,387) Minority interests in loss (137) (308) Net loss (2,039) (3,078) 18

19 (3) Consolidated Statements of Comprehensive Income March 31, 2011 (April 1, 2010, to March 31, 2011), March 31, 2012 (April 1, 2011, to March 31, 2012) Consolidated statements of comprehensive income Loss before minority interests (2,177) (3,387) Other comprehensive income Valuation difference on available-for-sale securities 1, Deferred gains or losses on hedges 8 1 Foreign currency translation adjustment Share of other comprehensive income of associates accounted for using equity method (248) 5 Total other comprehensive income 1, Comprehensive income (1,021) (3,087) Comprehensive income attributable to Comprehensive income attributable to owners of the parent (787) (2,967) Comprehensive income attributable to minority interests (233) (120) 19

20 (4)Consolidated Statements of Changes in Net Assets Account Period March 31, 2011 (April 1, 2010, to March 31, 2011), March 31, 2012 (April 1, 2011, to March 31, 2012) Shareholders' equity Capital stock Balance at the beginning of current period 27,166 27,166 Changes of items during the period Transfer to other capital surplus from capital stock - (23,166) Total changes of items during the period - (23,166) Balance at the end of current period 27,166 4,000 Capital surplus Balance at the beginning of current period - - Changes of items during the period Transfer to other capital surplus from capital stock - 23,166 Deficit disposition - (21,047) Total changes of items during the period - 2,118 Balance at the end of current period - 2,118 Retained earnings Balance at the beginning of current period (17,754) (19,794) Changes of items during the period Deficit disposition - 21,047 Net loss (2,039) (3,078) Total changes of items during the period (2,039) 17,969 Balance at the end of current period (19,794) (1,825) Treasury stock Balance at the beginning of current period (415) (415) Changes of items during the period Purchase of treasury stock (0) - Total changes of items during the period (0) - Balance at the end of current period (415) (415) Total shareholders' equity Balance at the beginning of current period 8,996 6,956 Changes of items during the period Transfer to other capital surplus from capital stock - - Deficit disposition - - Net loss (2,039) (3,078) Purchase of treasury stock (0) - Total changes of items during the period (2,039) (3,078) Balance at the end of current period 6,956 3,878 20

21 Account Period March 31, 2011 (April 1, 2010, to March 31, 2011), March 31, 2012 (April 1, 2011, to March 31, 2012) Accumulated other comprehensive income Valuation difference on available-for-sale securities Balance at the beginning of current period (2,137) (1,043) Changes of items during the period Net changes of items other than shareholders' equity 1, Total changes of items during the period 1, Balance at the end of current period (1,043) (1,001) Deferred gains or losses on hedges Balance at the beginning of current period (9) (1) Changes of items during the period Net changes of items other than shareholders' equity 8 1 Total changes of items during the period 8 1 Balance at the end of current period (1) - Foreign currency translation adjustment Balance at the beginning of current period (1,670) (1,520) Changes of items during the period Net changes of items other than shareholders' equity Total changes of items during the period Balance at the end of current period (1,520) (1,452) Total accumulated other comprehensive income Balance at the beginning of current period (3,817) (2,565) Changes of items during the period Net changes of items other than shareholders' equity 1, Total changes of items during the period 1, Balance at the end of current period (2,565) (2,453) Subscription rights to shares Balance at the beginning of current period - 20 Changes of items during the period Net changes of items other than shareholders' equity Total changes of items during the period Balance at the end of current period Minority interests Balance at the beginning of current period 9,763 8,760 Changes of items during the period Net changes of items other than shareholders' equity (1,003) (189) Total changes of items during the period (1,003) (189) Balance at the end of current period 8,760 8,570 Total net assets Balance at the beginning of current period 14,942 13,171 Changes of items during the period Transfer to other capital surplus from capital stock - - Deficit disposition - - Net loss (2,039) (3,078) Purchase of treasury stock (0) - Net changes of items other than shareholders' equity 268 (29) Total changes of items during the period (1,770) (3,108) Balance at the end of current period 13,171 10,063 21

22 (5)Consolidated Statements of Cash Flows Account Period March 31, 2011 (April 1, 2010, to March 31, 2011), March 31, 2012 (April 1, 2011, to March 31, 2012) Ⅰ Cash flows from operating activities : Loss before income taxes and minority interests (2,013) (3,335) Depreciation and amortization Impairment loss 61 - Increase (decrease) in allowance for investment loss (2,796) (855) Increase (decrease) in provision for business restructuring (25) - Gain on hedge trading (105) (53) Increase (decrease) in allowance for doubtful accounts (479) (142) Increase (decrease) in provision for bonuses 23 (10) Increase (decrease) in provision for retirement benefits 6 (88) Increase (decrease) in provision for directors' retirement benefits (5) - Increase (decrease) in provision for loss on liquidation of subsidiaries and affiliates - 95 Interest and dividends income (64) (34) Interest expenses Equity in (earnings) losses of affiliates (4) 4 Loss (gain) on sales of noncurrent assets - (4) Loss (gain) on sales of investment securities 1,048 - Loss (gain) on valuation of investment securities Loss (gain) on redemption of investment securities - (39) Loss (gain) on sales of stocks of subsidiaries and affiliates 2 (7) Business restructuring expenses 1,203 - Loss on valuation of operational investment securities Decrease (increase) in investment securities for sale 8,665 4,121 Decrease (increase) in operating loans receivable Decrease (increase) in claims provable in bankruptcy, claims provable in rehabilitation Gain on retirement of bonds with subscription rights to shares (374) - Payment for purchase of investment funds (683) (3,122) Dividends from investment funds 1,977 3,006 Loss on disposition of foreign currency translation adjustments 92 - Increase (decrease) in investment funds of minority interest Loss (gain) on investments in partnership - (75) Other, net (654) 117 Subtotal 8,139 1,401 Interest and dividends income received Interest expenses paid (833) (616) Income taxes paid (231) (111) Income taxes refund - 30 Net cash provided by (used in) operating activities 7, Ⅱ Cash flows from invesitng activities: Purchase of property, plant and equipment (9) (47) Proceeds from sales of property, plant and equipment Purchase of intangible assets (0) (6) Purchase of investment securities (11) (135) Proceeds from sales of investment securities 1,468 6 Proceeds from liquidation of investment securities 5 94 Proceeds from redemption of investment securities Decrease (increase) in time deposits 333 (45) Proceeds from repayment of deposits Deposits paid for office rental (9) (1) Decrease (increase) in other investments 3 15 Proceeds from purchase of investments in subsidiaries resulting in change in scope of consolidation - 36 Payments for sales of investments in subsidiaries resulting in change in scope of consolidation - (4) Proceeds from sales of investments in subsidiaries resulting in change in scope of consolidation 68 - Net cash provided by (used in) investing activities 2,