ジャフコ　グループ（8595） – Matters available on the website in relation to the Notice of Convocation of the 50th Annual General Meeting of Shareholders

Matters available on the website in relation to the Notice of Convocation of the 50th Annual General Meeting of Shareholders (1) Systems for Ensuring Appropriate Operations …………………………… (2) Overview of the Operation Status of the Systems for Ensuring Appropriate Operations ……………………………………… (3) Notes to Consolidated Financial Statements ……………………………… (4) Notes to Non-Consolidated Financial Statements ……………………… 1 4 6 20 The above information is made available on the website of JAFCO Group Co., Ltd. (the “Company”) at: https://www.jafco.co.jp/english/ir/shareholder/meeting/ pursuant to relevant laws and Article 15 of the Company’s Articles of Incorporation. JAFCO Group Co., Ltd. This is a translation of the Japanese original for convenience only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. Systems for Ensuring Appropriate Operations The outline of a resolution by the Company’s Board of Directors with regard to the systems to ensure that directors’ execution of their duties is in compliance with laws and regulations and the Articles of Incorporation, and other systems to ensure appropriate operations of the Company and the corporate group comprising the Company and its subsidiaries, is as follows. The Company shall implement and operate the following systems to ensure appropriate operations of the Company and its subsidiaries (collectively referred to as the “Company Group”) and the systems necessary for operations of the Board-Audit Committee: 1. Systems to ensure that execution of duties by directors, etc. and employees of the Company Group is in compliance with laws and regulations and the Articles of Incorporation Based on the recognition that compliance with laws and regulations and the like is the precondition of all of corporate activities, directors, corporate officers and partners of the Company Group (including persons with duties equivalent to these; referred as the “Directors” hereinafter) shall lead efforts to ensure thorough compliance with laws and regulations by the Company Group from the group-wide perspective, and a compliance officer designated by the President of the Company shall supervise overall initiatives for the Company Group’s compliance with laws and regulations. The Company shall create a global compliance policy that is common to the Company Group, and all group companies shall thoroughly implement systems for complying with laws and regulations and the like based on the policy in consideration of legal systems in the countries where they are located, their business scales, their organizational structures and other characteristics. The Company shall sever any relationships with antisocial forces and stand firmly against them. The Company shall take an organization-wide initiative and establish a dedicated department that works closely with external professional institutions, including police and attorneys-at-law. The Internal Audit Division audits and reports the status of the Company Group’s compliance with laws and regulations and the like to the President and the Board-Audit Committee, and, as necessary, to the Board of Directors. The audited departments and subsidiaries shall promptly address any issues that need to be corrected or improved. The JAFCO hotline shall be established and operated as means for officers, employees and others at the Company Group to directly provide information to the Company regarding conduct that is in violation of, or risks violating, laws and regulations. 2. Systems for retention and management of information pertaining to execution of duties by the Directors In accordance with laws and regulations and internal rules, the Company shall appropriately retain and manage records concerning decision-making at the Board of Directors and other important meetings, and other important documents and information pertaining to execution of duties by the Directors. 3. Regulations and other systems concerning management of risk of loss at the Company Group The Directors shall retain authority and responsibility to implement systems and measures for risk management. In addition, director in charge of administration shall push forward the cross-company initiatives for the risk management of the Company Group. At the Company, in order to manage risks associated with private equity investment, which is the Company’s main business, investment decisions are made based on deliberations by the investment 1 committee composed of the President and partners in accordance with internal rules. For making decisions, opinions of staff in charge of evaluation shall be asked separately from the investment division. In addition, the investment division shall update the status of business operations of unlisted portfolio companies on an as-needed and regular basis and take necessary actions. At overseas subsidiaries, appropriate systems shall be established in consideration of the countries where they are located, their business scales, their organizational structures and other characteristics, with the aim of making investment decisions, assessing business operations of portfolio companies, and managing risks associated with private equity investment. If a risk with a significant impact on the management of the Company Group becomes apparent, the Directors shall promptly report this to the Company’s officer in charge of administration and the Company shall take appropriate actions in accordance with the risk. 4. Systems to ensure effective execution of duties by the Directors The Company clarifies the duties of its Directors, establish internal rules regarding the division of duties and official authority to achieve efficient operations through role sharing and a chain of command. The Company holds monthly meetings of the Board of Directors and extraordinary meetings as necessary to determine important issues in business execution and supervise the status of business execution by directors. Thoroughly manage investment performance by enhancing portfolio management by the Company Group and its funds and regularly reporting the status at meetings of the Board of Directors. In light of the characteristics of private equity investment, which differ by country and region, committees for investment and fund management and other necessary meeting bodies shall be established at each of tri-polar bases of the Company Group in Japan, Asia and the US, and efforts shall be made to enhance efficiency in decision-making regarding private equity investment. 5. Systems for reporting to the Company on matters relating to execution of duties by directors of subsidiaries and systems to ensure properness of operations at the Company Group Directors, corporate officers or employees of the Company shall be assigned as officers at subsidiaries, and presidents of subsidiaries shall periodically report to the Board of Directors of the Company on important execution of operations at respective subsidiaries. Subsidiaries shall periodically report to the Company on their financial information and the performance of the funds they manage. Furthermore, the Company and subsidiaries shall collaborate to ensure proper operations through information exchange, etc. between departments that are relevant in the course of business. The presidents of subsidiaries shall have the authority and the responsibility to implement systems and measures, etc. to ensure proper operations of respective subsidiaries. Subsidiaries are also subject to internal audits by the Company and audits by the Board-Audit Committee of the Company. 6. Matters regarding directors/employees who shall assist the Board-Audit Committee with their duties, independence of such directors/employees from other directors (excluding Directors serving as Board-Audit Committee Members) and assurance of effectiveness of instructions to such directors/employees Directors or employees who shall assist the duties of the Board-Audit Committee shall be assigned as necessary, and personnel affairs of such employees shall be discussed between directors and the Board-Audit Committee. 2 The Board-Audit Committee shall have the authority to give instructions and orders to such employees in executing their assistant duties. The Internal Audit Division’s audit results shall be used for audits by the Board-Audit Committee. Based on discussions with the Board-Audit Committee, the Internal Audit Division shall conduct internal audits on matters requested by the Committee as needed and report the result to the Committee. 7. Systems for reporting to the Company’s Board-Audit Committee by Directors and employees of the Company Group and systems to ensure that reporting persons do not receive unfair treatment because of such reporting The Directors and employees shall report the status of their execution of duties and operations upon request from the Board-Audit Committee. The Directors and employees shall promptly report matters that may cause a serious impact on the Company and its subsidiaries, violations of laws and regulations and the Articles of Incorporation, improper conduct by directors, and serious matters reported to the JAFCO hotline to the Board-Audit Committee. The JAFCO hotline contacts shall include a member of the Board-Audit Committee of the Company. Persons reporting matters to the JAFCO hotline or to the Board-Audit Committee of the Company shall not receive unfair treatment because of such reporting. 8. Matters regarding the policy for handling the expenses, etc. arising from the execution of duties by members of the Board-Audit Committee For various expenses associated with audits by members of the Board-Audit Committee, a budget necessary to ensure the effectiveness of the audits shall be established, and when the Board-Audit Committee requests payment of expenses, the accounting department shall handle the request after confirmation. 9. Other systems to ensure effective audits by the Board-Audit Committee Representative directors shall provide opportunities for members of the Board-Audit Committee to regularly exchange opinions. The Directors shall secure opportunities for members of the Board-Audit Committee to attend important internal meetings or committees. The Board-Audit Committee, the Internal Audit Division and the financial auditor shall have opportunities for regular consultations and reinforce their relationships through information and opinion exchanges. 3 Overview of the Operation Status of the Systems for Ensuring Appropriate Operations An overview of the operation status of the systems for ensuring appropriate operations in the current fiscal year was as follows. 1. Compliance management The Company took necessary measures to address revisions to the Act on the Provision of Financial Services, Act on the Protection of Personal Information, Corporate Governance Code and other laws and regulations related to the Company’s business and corporate governance, etc., after discussing their impact on internal rules and workflow at relevant divisions. Once a year, all of the Company’s officers and employees are asked to submit a pledge of compliance with laws and regulations and internal rules related to data management, restriction of insider trading and personal stock trading, etc., with the aim of raising compliance awareness. As for measures to sever any relationships with antisocial forces and prevent money laundering and terrorist financing, the Company conducts verification at the time of transaction related to fund investment, collect related information, and cooperate with external professional institutions, including the police and attorneys-at-law. The Company has established the Rules on Internal Control over Financial Reporting. Implementation, operation and evaluation of internal control over financial reporting are carried out in cooperation with the financial auditor. The Company has established the JAFCO hotline, which provides direct contacts with the Compliance Officer, the administration department and an independent director of the Company, to prevent improper conduct and detect violations of laws and regulations, etc. at an early stage. The hotline is made known companywide via the intranet and through other means. 2. Risk management The Internal Audit Division conducts internal audits of each division and overseas subsidiaries of the Company based on the internal audit plans, and reports the results to the President, the Board-Audit Committee and the Board of Directors. The director in charge of overseas operations regularly reports important matters related to investment and fund management at overseas bases and other overseas operations at the Board of Directors meetings. The status of compliance management and risk management is reported regularly to the Board of Directors. When it is judged highly likely at Company’s valuation meetings that the estimated recovery amount of capital invested in an unlisted portfolio company falls below 70% of the acquisition cost, we record the estimated amount of loss based on the estimated recovery amount as an investment loss reserve in accordance with the “Valuation Markdown Standard for Unlisted Operational Investment Securities” set by the Company. The Company has worked to grasp issues related to portfolio companies’ businesses, corporate governance, compliance and risk management, and the investment division takes the initiative in addressing the issues with portfolio companies. Also, such information will be shared in-house to the extent possible for future reference purposes. For operation of SV6, established in 2019, the Company has strengthened measures to prevent conflicts of interest, etc. in advance by asking the Advisory Board, composed of representatives of limited partners, for advice concerning potential conflicts of interest, etc. between the fund and the Company, etc. 4 3. Efficiency of execution of duties The regular meeting of the Board of Directors is held once a month, in principle, to make decisions on important management matters and oversee the status of business execution. Decision-making on investment in unlisted companies is conducted by the investment committee locally set up at each operating base in Japan, Asia and the US. This allows proper risk management and efficient execution of duties in line with the business environment in each region. Partners, investment staff in charge, and other members involved discuss and take concrete actions to realize the assumed growth scenario of portfolio companies on an as-needed and regular basis. Reports on portfolio status are made every month at meetings of the Board of Directors to ensure strict portfolio management by each division/ subsidiary/ fund, and to improve fund performance. The Company works to conduct smooth operations, improve operating efficiency and productivity in the prolonged COVID-19 pandemic by continuously reviewing internal work process, while introducing and renewing IT and other operational infrastructures, promoting remote work, and reviewing remuneration/ evaluation systems and workstyles, etc. In September 2021, the Chubu, Kansai and Kyushu branches were integrated as the West Japan Branch. By merging our resources in each region and knowledge of our members, we will enhance investment activities and contribute to building a regional venture ecosystem. 4. Audit and supervision by the Board-Audit Committee The Board-Audit Committee members, led by a full-time member, cooperate with the Internal Audit Division and supervise the business execution by attending the investment committee and other important internal meetings and expressing opinions as necessary. Members of the Board-Audit Committee conduct interviews with directors, corporate officers, partners, and investment and other division heads and their members in charge, to receive explanations about important decision-makings and the status of execution of duties. Written approvals from representative directors or the director/ corporate officer in charge are circulated to a full-time member of the Board-Audit Committee. The Board-Audit Committee regularly receives reports separately on the status of such approvals from the division in charge. Employees at the internal audit and administration divisions assist in operation of the Board-Audit Committee as necessary. Members of the Board-Audit Committee exchange opinions with representative directors at the Nomination and Remuneration Committee, etc. The Board-Audit Committee also holds discussions with the Internal Audit Division and the financial auditor on a regular basis. It has been informed via the intranet and by other means that anyone who conducts internal reporting through the JAFCO hotline or to the Board-Audit Committee will not receive unfair treatment because of such reporting. 5 Notes to Consolidated Financial Statements 1. Significant matters for the preparation of consolidated financial statements (1) Scope of consolidation 1) Consolidated subsidiaries Number of consolidated subsidiaries: Names of major consolidated subsidiaries: 13 2) Non-consolidated subsidiaries Names of unconsolidated subsidiaries: Rationale for exclusion from the scope of consolidation: Names of 4 major consolidated subsidiaries are as described in “6. Significant subsidiaries” of “I. Current Status of JAFCO Group Co., Ltd. and its Subsidiaries” of Business Report. (Note) The other 9 subsidiaries are the entities held for the purpose of establishing funds that the Company Group manages. JAFCO America Ventures Inc. JAFCO SV4-J Investment Limited Partnership SV6 Partners Limited Liability Partnership JAFCO ASIA S-8 Fund L.P. and 5 other companies With regard to JAFCO America Ventures Inc., JAFCO SV4-J Investment Limited Partnership, SV6 Partners Limited Liability Partnership, JAFCO ASIA S-8 Fund L.P. and 5 other companies, their sizes are small, and their total assets, net sales, net income or losses, retained earnings, etc. do not have a significant impact on the consolidated financial statements. (2) Application of the equity method 1) Associates accounted for by the equity method There is no associate accounted for by the equity method. 2) Unconsolidated subsidiaries and associates not accounted for by the equity method JAFCO SV4-J Investment Limited Partnership, SV6 Partners Limited Liability Partnership, JAFCO ASIA S-8 Fund L.P. and 2 other companies are excluded from the application of the equity method since their total amounts of assets, liabilities, income and expenses are stated in proportion to the JAFCO Group’s interests and their impact on net income and retained earnings is therefore immaterial. Non-consolidated subsidiary JAFCO America Ventures Inc. and 3 other companies, Chushin Venture Capital Co., Ltd. and one other associate are also excluded from the application of the equity method as their impact on net income and retained earnings is immaterial. 3) Entities not treated as associates regardless of the Company’s ownership of between 20% and 50% of the voting rights Names of the companies Rationale for not being treated as an associate Pacific Rundum Co., Ltd. Stocks of the such entities were acquired with the Company’s main business objective of investment, not with the objective of having a significant impact on such portfolio companies’ operations, personnel, funds and other transactions. (3) Fiscal year of consolidated subsidiaries For the consolidated subsidiaries with a fiscal-year end different from that of the Company, the tentative financial statements of the respective consolidated subsidiaries as of the consolidated balance sheet date are used for preparation of the consolidated financial statements. (4) Accounting policies 1) Basis and method of valuation for securities Available-for-sale securities (including operational investment securities) Other than stock, etc. without market value 6 Stock, etc. without market value 2) Depreciation and amortization methods for depreciable and amortizable non-current assets A. Property, plant and equipment Stated at fair market value based on the market price as of the consolidated balance sheet date. Valuation differences of warrants and convertible bonds of unlisted portfolio companies and securities other than stock are booked directly in net assets, and those of the other securities are booked partially in net assets. The cost of securities sold is determined by the moving-average method. Stated at cost determined by the moving-average method. The declining-balance depreciation method is used at the Company and its domestic subsidiaries, and the straight-line method is used at its overseas subsidiaries in accordance with accounting principles generally accepted in their respective countries of domicile. However, facilities attached to buildings and structures obtained on or after April 1, 2016 are depreciated by the straight-line method. Useful lives of principal property, plant and equipment are as follows: Buildings 8 to 18 years Furniture and fixture 3 to 15 years Software for internal use is amortized by the straight-line method over the expected useful life (5 years). Investment loss reserves are provided for based on estimated losses on unlisted operational investment securities held as of the consolidated balance sheet date, assessing business performance of portfolio companies. The difference between the balances of investment loss reserves as of the end of the current fiscal year and that of previous fiscal year is presented as “(Reversal of) Additions to investment loss reserves” in the consolidated statements of income. For unlisted operational investment securities that have been written down, the amount equivalent to the write-down has been included in additions to investment loss reserves, and has not been directly deducted from acquisition cost. For payment of employees’ bonuses, the provision for employees’ bonuses is provided for in the amount that is expected to be paid for the current fiscal year. For payment of extraordinary compensation for directors, allowance is provided for in the amount that is expected to be paid for the current fiscal year. For the calculation of projected benefit obligation and benefit expenses, the simplified method, which assumes the Company’s benefit obligation to be equal to the benefits payable due to the voluntary retirement at the fiscal year-end, is applied. With regard to the accounting treatment for investments in funds managed by the Company Group, total amounts of assets, liabilities, income and expenses of the funds are stated in proportion to the Company Group’s 7 B. Intangible assets 3) Basis of reserves, allowances and provisions A. Investment loss reserves B. Provision for bonuses C. Allowance for extraordinary compensation for directors 4) Other significant matters for the preparation of consolidated financial statements A. Accounting for retirement benefits B. Accounting treatment for investments in funds C. Policy for translation of significant foreign-currency-denominated assets or liabilities into Japanese yen interests based on the financial statements as of the consolidated balance sheet date for the funds with the same balance sheet date, and based on the tentative financial statements as of the consolidated balance sheet date for the funds with a balance sheet date other than the consolidated balance sheet date. Foreign-currency-denominated monetary receivables and payables are translated into Japanese yen at the spot exchange rates prevailing at the consolidated balance sheet date, and the differences arising from the translation are recognized in profit or loss. The assets and liabilities of foreign consolidated subsidiaries are translated into Japanese yen at the spot exchange rates prevailing at the consolidated balance sheet date. The income and expenses of foreign consolidated subsidiaries are translated into Japanese yen at the average exchange rates for the period. The translation differences are recorded in foreign currency translation adjustment and profit attributable to non-controlling interests under net assets. Operational investment securities are classified into those whose gains (losses) on the sale have been realized and unrealized. To clarify the investment performance of those that have been realized and the fluctuation status of expected losses on those that have not been realized, the item gross profit excluding the portion of expected losses has been established in the Consolidated Statements of Income. Subsequently, the difference between the balance of investment loss reserves at the end of the current fiscal year and that of the previous fiscal year is presented as “(Reversal of) Additions to investment loss reserves,” and regarding the valuation difference of operational investment securities (excluding those whose valuation difference is booked directly in net assets), the amount of fair values falling below acquisition costs for the current fiscal year (net of such amount at the end of the previous fiscal year) is presented as “(Reversal of) unrealized losses on operational investment securities.” Consumption taxes are excluded from transaction amounts. Non-deductible consumption taxes are expensed as selling, general and administrative expenses. However, non-deductible consumption taxes related to the acquisition of noncurrent assets are included in “Other” under “Investments and other assets” and amortized equally in accordance with the Corporation Tax Act. a. Details of performance obligations in the Company’s mainstay business The Company is obligated to manage and operate funds managed by the Company and its consolidated subsidiaries in accordance with the partnership agreements, and the performance obligations are satisfied continuously over a certain period of time. b. Standard point in time at which revenues related to a. 8 D. Gross profit presentation E. Accounting treatment of consumption taxes F. Standard for recording important revenue and expenses above is recognized (Management fees) Revenues is recognized when the performance obligations are satisfied over a specified period. (Success fees) Success fees received from funds managed by the Company and its subsidiaries are variable compensation, and revenue is recognized when a significant decrease in revenue is deemed highly unlikely at the end of fiscal year. 2. Notes to changes in accounting principles (Adoption of accounting standards for fair value measurement) The Company has adopted the “Accounting Standards for Fair Value Measurement” (Corporate Accounting Standard No. 30 issued on July 4, 2019; hereinafter “Fair Value Measurement Standards”) since the beginning of the current fiscal year, with the aim of applying new accounting principles set out in the Fair Value Measurement Standards, etc. in accordance with the transitional treatment provided in Article 19 of the Fair Value Measurement Standards and Article 44-2 of the Accounting Standards for Financial Instruments (Corporate Accounting Standards No. 10 issued on July 4, 2019). As a result, of available-for-sale securities, the figures on the consolidated B/S for non-equity investments, etc., including in warrants and convertible bonds, refer to market value, instead of acquisition cost up to the end of the previous year, and valuation difference is booked directly in net assets from the beginning of the current fiscal year. Furthermore, a note to matters concerning the classification of levels of fair value of financial instruments is given in “8. Notes to financial instruments.” 3. Notes to changes in methods of presentation (Consolidated Balance Sheet) “Investments in capital” under “Investments and other assets,” which was independently presented in the previous fiscal year, is included in “Other” in the current fiscal year, as it has become insignificant in terms of amount. To reflect this change in presentation, the financial statements for the previous fiscal year have been reclassified. As a result, \0 million presented as “Investments in capital” in “Investments and other assets” in the balance sheet in the previous fiscal year has been reclassified as “Other.” (Adoption of accounting standards for revenue recognition) The Company has adopted the “Accounting Standards for Revenue Recognition” (Corporate Accounting Standard No. 29 issued on March 31, 2020; hereinafter “Revenue Recognition Standards”) since the beginning of the current fiscal year. Please note that the “Accounting Standards for Revenue Recognition” issued on March 30, 2018 has been applied since the beginning of the fiscal year ended March 31, 2019. As a result, the breakdown of revenue from contracts with customers for the current fiscal year, the basic information for understanding revenue, and information for understanding revenue amount for the current and next fiscal year is given under “9. Notes to revenue recognition.” 4. Notes to accounting estimates (1) Investment loss reserves 1) Amount recorded in consolidated financial statements for the current fiscal year 2) Information that facilitates the understanding of accounting estimates Investment loss reserves \8,969 million A. Calculation method Investment loss reserves are made to provide for losses from unlisted operational investment securities held as of the fiscal year-end, and the estimated amounts of such losses, taking into account the actual situation of portfolio companies, are recorded, as described in “(4) Accounting policies, 3) Basis of reserves, allowances and provisions, A. Investment loss reserves” in “1. Significant matters for the preparation of consolidated financial statements.” In light of deteriorating performance and financing situations reflecting the most recent available data collected from each portfolio company, and based on portfolio company’s financial 9 strength (including performance recovery) judged by the ability to continue operations over the next year or so, the estimated recovery amount of operational investment securities is calculated to be used for the calculation of the estimated amount of loss. As a result, if it is judged highly likely that the estimated recovery amount of capital invested in such operational investment securities falls below 70% of the acquisition cost at Company’s valuation meetings, we record the estimated amount of loss based on the estimated recovery amount in accordance with the “Valuation Markdown Standard for Unlisted Operational Investment Securities” set by the Company. B. Key assumptions The estimated amount of losses is calculated by taking into account portfolio companies’ actual situations (most recent financing, revenue, profit and other KPI achievement against business plans and estimates, viability of IPO, trade sale, etc., expected sales proceeds, cash flows, condition of the management team and customers, etc.). We assume that the COVID-19 pandemic and the resultant slowdown in economic activities will continue over the next year or so and be contained after that. C. Impact on consolidated financial statements for the following fiscal year Key assumptions used for estimates are highly uncertain and may affect investment loss reserves recorded in the consolidated financial statements for the following fiscal year, because when a portfolio company’s business results differ substantially from expected targets in business plans, or when the situation of the COVID-19 pandemic and its impact on the economic environment change, portfolio companies’ business and fundraising activities as well as exits of their shares may be significantly affected. (2) Recoverability of deferred tax assets Deferred tax assets: \279 million 1) Amount recorded in consolidated financial statements for the current fiscal year (The amount before offsetting deferred tax liabilities is \2,403 million.) 2) Information that facilitates the understanding of accounting estimates A. Calculation method Against deductible temporary difference, recoverability of deferred tax assets is judged based on taxable income stemming from future earning capacity and tax planning. As it is difficult to make accurate forecasts in further earnings when estimating future taxable income due to the Company’s business characteristics, we calculate deferred tax assets based on the forecasts using past business results, etc. incorporating market fluctuations over a certain period of time. However, as the Company’s business is significantly affected by domestic and overseas stock markets and the IPO market due to its characteristics, when there are actual changes in the market environment, etc., we judge recoverability of deferred tax assets by taking into account the possibility of a long-term slowdown in performance. B. Key assumptions Based on the assumption that the ROI over a certain period of time in the past is the expected ROI over the period when estimate is possible, we predict future earnings by putting a certain stress of future uncertainty. We assume that the COVID-19 pandemic and the resultant slowdown in economic activities will continue over the next year or so and be contained after that. C. Impact on consolidated financial statements for the following fiscal year As stated above, there is a risk that the judgement of recoverability of deferred tax assets may be significantly affected by changes in taxable income estimates in line with big changes in earnings levels due to the impact of market environment, etc. As a result, the amount of deferred fix assets on the consolidated financial statements for the following fiscal year may be greatly affected. 5. Notes to Consolidated Balance Sheet (1) Assets pledged as collateral No assets were pledged as collateral and secured debts as of the current fiscal year-end. However, the following assets were pledged as collateral for the debts of portfolio companies of the Company: Operational investment securities \8,645 million 10 (2) Accumulated depreciation of property, plant and equipment \418 million 6. Notes to Consolidated Statement of Changes in Net Assets (1) Class and total number of shares issued No. of shares as of April 1, 2021 32,550 thousand shares 53,940 thousand shares Common stock Increase Class Decrease 5,580 thousand shares No. of shares as of March 31, 2022 80,910 thousand shares Notes: 1. The Company conducted a 3-for-1 common stock split as of February 1, 2022. 2. The increase of 53,940 thousand shares in total number of shares issued is due to the 3. The decrease of 5,580 thousand shares in total number of shares issued is due to the stock split. cancellation of treasury shares. (2) Class and total number of treasury shares No. of shares as of April 1, 2021 3,130 thousand shares Common stock Class Increase Decrease 12,077 thousand shares 5,580 thousand shares No. of shares as of March 31, 2022 9,628 thousand shares Notes: 1. The Company conducted a 3-for-1 common stock split as of February 1, 2022. 2. The breakdown of increase in treasury shares is 7,771 thousand shares due to the share buyback based on the resolution of the Board of Directors, 4,305 thousand shares due to the stock split, and 0 thousand shares due to the purchase of less than standard unit. Of 7,771 thousand treasury shares bought back, 4,601 thousand shares were bought back before the stock split and 3,169 thousand shares after the stock split. 3. The decrease of 5,580 thousand treasury shares is due the cancellation of treasury shares. (3) Dividends 1) Dividends paid Dividends resolved by the Board of Directors on May 12, 2021 Total amount of dividends Source of dividends Dividends per share Record date Effective date Note: The Company conducted a 3-for-1 common stock split as of February 1, 2022. Dividends \4,059 million Retained earnings \138 March 31, 2021 May 26, 2021 per share shows the actual amount paid before the stock split. 2) Dividend payments for which the record date is in the current fiscal year and the effective date is in the following fiscal year Dividends resolved by the Board of Directors on May 12, 2022 Total amount of dividends Source of dividends Dividends per share Record date Effective date Note: The Company conducted a 3-for-1 common stock split as of February 1, 2022. Dividends \3,635 million Retained earnings \51 March 31, 2022 May 26, 2022 per share shows the actual amount paid after the stock split. 7. Notes to tax effect accounting (1) Significant components of deferred tax assets and deferred tax liabilities (Deferred tax assets) Investment loss reserves Accumulated foreign exchange adjustment expenses Accrued enterprise tax Loss on valuation of investment securities Loss on valuation of membership (Millions of yen)2,624 15 1 1,330 20 11 Net defined benefit liability Loss carried forward Others Subtotal deferred tax assets Valuation allowance Total deferred tax assets (Deferred tax liabilities) Valuation difference on available-for-sale securities Others Total deferred tax liabilities Net deferred tax liabilities 129 119 1,445 5,686 (3,282) 2,403 (Millions of yen)32,479 163 32,642 30,239 (Millions of yen)279 30,518 Net deferred tax liabilities are included in the following items in the consolidated balance sheet. Non-current assets – Deferred tax assets Non-current liabilities – Deferred tax liabilities (2) Breakdown of major items that cause differences between effective statutory tax rates and income tax burden after tax effect accounting is applied Effective statutory tax rates (Reconciliation) Permanently non-deductible expenses such as entertainment expenses Income permanently excluded from taxable income such as dividend income Difference of tax rate between Japan and the foreign subsidiaries Anti-tax haven taxation Increase (decrease) in valuation allowance Others Income tax burden after tax effect accounting is applied (%)30.62 0.19 (0.66) (0.48) 0.49 (11.59) 0.13 18.69 8. Notes to financial instruments (1) Status of financial instruments 1) Policy for financial instruments The Company Group operates investment management business targeting unlisted stocks mainly in Japan, Asia and the United States of America through funds managed by the Company Group. While limiting investment activities within the scope of its shareholders’ equity in principle, the Company Group raises funds for investment through bank loans, etc., as necessary. The Company Group invests its temporary surplus fund in safe and highly liquid financial assets and does not enter into speculative transactions or derivative transactions. 2) Nature and risks of financial instruments As to the operational investment securities and investment securities held by the Company Group mainly with the objective of business development, listed stocks are exposed to fluctuation risk of market prices. Operational investment securities denominated in foreign currencies are exposed to fluctuation risk of exchange rates in addition to the above-mentioned risk. Unlisted companies, which are main portfolio companies of the Company Group, are easily affected by the economic environment due to their unstable profit and financial bases and limited management resources compared with listed companies. Therefore, the following risks are involved with investments in unlisted companies: A. There is no guarantee of capital gains from investments. B. There is risk of capital losses for investments. C. Although we invest in companies for which an IPO or trade sale can be expected by the end of the fund term, the actual IPO timing or trade sales of invested stocks may differ from those previously expected. D. Liquidity of unlisted stocks is significantly lower than the stocks of listed companies. 12 Loans payable are mainly used for investment activities and exposed to liquidity risk. 3) Risk management system relating to financial instruments A. Management of risk of investments in unlisted stocks The objective of investment management business of the Company Group is to increase invested funds. The Company Group mainly invests in unlisted companies which are expected to generate capital gains on IPO, M&A and trade sale, etc. in the future. As to investments in unlisted companies, investee candidates are assessed by the Investment Division from the viewpoint of business feasibility, technological capabilities, financial condition, management evaluation, etc., and by staff in charge of investment evaluation, which is independent from the Investment Division. After both assessments, the Investment Committee makes investment decisions. After making investment, the Investment Division regularly monitors business status of portfolio companies to identify financial difficulties, delay of business plans, etc. If losses are expected to exceed a certain level, investment loss reserves are provided to prepare for future possible losses. In case a portfolio company’s IPO is uncertain due to its poor business performance or other reasons, or in case corporate value of a portfolio company is deemed unlikely to increase, the Company Group liquidates such stocks by selling them to third parties, etc. at the unlisted stage. B. Management of market risk (fluctuation risk of market price, foreign currency exchange rates, etc.) The Company Group liquidates listed operational investment securities at an appropriate price and timing by assessing the market prices and the business condition of issuers on an ongoing basis instead of by a quantitative analysis of market risk. As to the operational investment securities denominated in foreign currencies, foreign exchange fluctuation is monitored on a continuous basis. Moreover, as to the investment securities, which mainly consist of the stocks of companies with which the Company has a business relationship, the Company Group performs risk management by assessing the market prices and the business condition on a regular basis and by reviewing the investment securities on an ongoing basis by taking into account the relationships with the Company, instead of by a quantitative analysis. Disclosure of information regarding reasonable assumptions of fluctuation in the risk variables Stock price risk (Domestic listed operational investment securities and investment securities) The main financial instruments held by the Company Group that are affected by stock price risk of domestic stock markets are operational investment securities and investment securities listed on the domestic stock markets. The balance of these positions amounts to \105,161 million in total in the consolidated balance sheet. If all other risk variables were assumed to be fixed, a 10% decrease of stock prices as of March 31, 2022 would decrease the fair values of net amount of the respective financial assets and liabilities by \10,516 million. Conversely, a 10% increase of stock prices would increase the said fair values by \10,516 million. (Overseas listed operational investment securities) The main financial instruments held by the Company Group that are affected by stock price risk of overseas stock markets are operational investment securities listed on the foreign stock markets. The balance of the position amounts to \6,045 million in the consolidated balance sheet. If all other risk variables were assumed to be fixed, a 10% decrease of stock prices as of March 31, 2022 would decrease the fair values of net amount of the respective financial assets and liabilities by \604 million. Conversely, a 10% increase of stock prices would increase the said fair values by \604 million. Foreign exchange risk The main financial instruments held by the Company Group that are affected by foreign exchange risk (mainly yen-U. S. dollar exchange rate) are listed operational investment securities denominated in foreign currencies. The balance of the position amounts to \6,367 million in the consolidated balance sheet. If all other risk variables were assumed to be fixed, a 10% depreciation of Japanese yen against U.S. dollar as of March 31, 2022 would increase the fair values of net amount of the 13 respective financial assets and liabilities by \636 million. Conversely, a 10% appreciation of Japanese yen would decrease the said fair values by \636 million. C. Management of liquidity risk associated with fundraising (risk of default on payment date) Loans payable are exposed to liquidity risk. The Company Group manages liquidity risk by preparing and updating cash flow plans in a timely manner at each group company. 4) Supplemental remarks on fair value of financial instruments Fair values of financial instruments include values based on market prices or reasonably calculated values if there are no market prices available. As variable factors are incorporated in calculating such values, the values may vary if different assumptions are used. (2) Fair values of financial instruments Figures on the consolidated balance sheet, fair values, and the differences between these values as of March 31, 2022 (the balance sheet date of the current fiscal year) are as follows. Unlisted stock, etc. are not included in the following table. (Please refer to Note 2.) Figures on the consolidated B/S as of March 31, 2022 (Millions of yen)Fair value Difference (1) Operational investment securities (2) Investment securities Total assets (1) Long-term loans payable Total liabilities 17,819 96,087 113,906 183 183 17,819 96,087 113,906 183 183 – – – 0 0 Notes: 1. Cash and deposits are omitted from the current fiscal year because deposits are settled in a short period of time and the book value approximates the fair value. 2. Operational investment securities and investment securities that are not included in the table above Operational investment securities Unlisted stocks (*1) Unlisted domestic and foreign bonds (*2) Others (*2) Investment securities Unlisted stocks (*1) Others (*3) (Millions of yen)Figures on the consolidated B/S as of March 31, 2022 70,361 – – 800 364 (*1) Unlisted stocks are excluded from “(1) Operational investment securities” and “(2) Investment securities” described above because they do not have market prices. Stocks listed on the TOKYO Pro Market and the Emerging Stock Board (ESB) of the Taipei Exchange (TPEx), which have no market prices and whose fair values are deemed extremely difficult to determine, or which are traded on a stock exchange or over-the counter but actual transactions are very few, are included in (1) Operational investment securities because fair value valuation was introduced at the beginning of the current fiscal year in line with the adoption of the “Accounting Standard for Fair Value Measurement.” (*2) “Unlisted stocks” and “Unlisted domestic and foreign bonds” under operational investment securities are included in (1) Operational investment securities from the current fiscal year onward as fair value valuation was introduced at the beginning of the current fiscal year in line with the adoption of the “Accounting Standard for Fair Value Measurement.” (*3) ”Others” under investment securities are mainly investments in other funds. Since such investments are recorded on the consolidated balance sheet at the net amount of the Company’s interests, they are not included in “(2) Investment securities” in accordance with Paragraph 24-16 of the “Guidance on Accounting Standard for Measurement of Fair Value” 14 (ASBJ Guidance No. 31, issued on June 17, 2021). The total amount of such investments on the consolidated balance sheet as of the end of the current fiscal year was \364 million yen. 3. Redemption schedule of monetary receivables after the consolidated balance sheet date Due within 1 year Due after 1 year through 5 years Due after 5 years through 10 years Cash and deposits Total 52,603 52,603 – – (Millions of yen)Due after 10 years – – – – (Millions of yen) 4. Repayment schedule of long-term loans payable after the consolidated balance sheet date Due within 1 year Due after 1 year through 2 years Due after 2 years through 3 years Due after 3 years through 4 years Due after 4 years through 5 years Due after 5 years Long-term loans payable Total 134 134 34 34 15 15 – – – – – – (3) Matters concerning the classification of levels of fair value of financial instruments The fair value of financial instruments is classified into the following 3 levels based on the observability and significance of inputs used to measure fair value. Level 1: Of the observable inputs used for fair value measurement, fair value measured based on the quoted prices in active markets for assets or liabilities subject to relevant fair value measurement Level 2: Of the observable inputs used for fair value measurement, fair value measured based on inputs for fair value measurement other than Level 1 inputs Level 3: Fair value measured based on unobservable inputs for fair value measurement If multiple inputs with a significant impact on fair value measurement are used, the fair value is classified to the lowest priority level of fair value measurement in which each input belongs 1) Financial instruments stated at fair value on the consolidated balance sheet 209 – 209 183 183 (Millions of yen) 3,343 – 3,343 Total 17,819 96,087 113,906 (Millions of yen) Level 1 Level 2 Level 3 Fair value Classification Operational investment securities Investment securities Total assets 14,266 96,087 110,353 2) Financial instruments other than those stated at fair value on the consolidated balance sheet Classification Long-term loans payable Total liabilities Level 1 Level 2 Level 3 Total Fair value – – – – 183 183 Notes: 1. Description of the techniques and inputs used for fair value measurement Operational investment securities Of operational investment securities, the fair values of listed stocks are based on the market prices. They are classified as Level 1 because listed stocks are traded on active markets. Further, of operational investment securities, the fair values of stocks listed on the TOKYO PRO market and the Emerging Stock Board (ESB) of the Taipei Exchange (TPEx) are, in principle, based on the market prices and classified as Level 2 after taking the liquidity of these markets into account. (Of the above, the fair values of some stocks with 15 extremely low liquidity are measured based on expected recovery amounts after taking portfolio companies’ actual situations into account. As the fair values are measured using mainly unobservable inputs, they are classified to Level 3.) Additionally, of operational investment securities, the shareholder value of investments other than stocks, including warrants and convertible bonds of unlisted portfolio companies, is calculated using valuation techniques based on market prices of similar companies, transaction cases that take into account last traded prices, preferred terms of class shares and other factors, etc. The shareholder value is then allocated to the fair value of each investment using option pricing models, etc. These investments are classified as Level 3 because the fair values are calculated primarily using unobservable inputs. The unobservable inputs used to measure the fair value of these operational investment securities classified as Level 3 are primarily valuation multiples, illiquidity discounts, volatility, and estimated time to expiration. Investment securities Long-term loans payable The fair values of stocks are based on the market prices. The fair values of listed stocks are classified as Level 1 because they are traded on active markets. Of long-term loans payable, the fair values of those with fluctuating interest rates are their book values as they are considered to approximate their fair values as market interest rates are reflected in a short period of time and the Company’s credit standing has not drastically changed since the transaction. The fair values of those with fixed interest rates are measured based on the present value, which is calculated by discounting the total principal and interest of such long-term loans payable classified by a certain period of time by the interest rate assumed for similar loans. The fair values of these long-term loans payable are classified as Level 2. 2. Information about Level 3 fair values of financial assets and liabilities stated at fair value on the consolidated balance sheet (1) Quantitative information related to significant unobservable inputs Classification Measurement technique Range of inputs Operational investment securities Valuation techniques based on market prices of similar companies Option pricing models Significant unobservable inputs Price-sales ratio EBITDA multiples Illiquidity discounts Volatility Estimated time to expiration From 1.8x to 20.0x From 9.2x to 10.1x From 12.3% to 29.6% From 50.2% to 105.8% From 1.0 yrs. to 5.0 yrs. The table above show inputs used for fair value measurement of investments other than stocks, such as warrants and convertible bonds of unlisted portfolio companies held by the Company Group. (2) Reconciliation between the opening balance and the closing balance Opening balance as of April 1, 2021 Recognized in other comprehensive income Acquired Sold Conversion from warrants and convertible bonds. etc. to stocks of unlisted portfolio companies Others Closing balance as of March 31, 2022 (3) Explanation of fair value measurement processes (Millions of yen) Operational investment securities 3,587 (166) 522 (20) (581) 2 3,343 For financial instruments classified as Level 3, in accordance with the Company’s policy and procedures for fair value measurement, the measurement staff determines the valuation 16 method of the subject financial instruments, and measures and analyzes the fair value. The results of fair value measurement shall be approved by the appropriate responsible person. (4) Explanation on the impact on fair value when the significant unobservable input is changed In the measurement technique based on market prices of similar companies, the fair value of operating investment securities significantly increases (decreases) when the price-sales ratio and EBITDA multiples of similar companies increase (decrease) significantly. On the other hand, a significant increase (decrease) in the illiquidity discount will result in a significant decrease (increase) in the fair value of operating investment securities. In the option pricing model, a significant increase (decrease) in volatility and estimated time to expiration will result in a significant increase (decrease) in option value, and consequently the fair values of operating investment securities will change. The volatility, estimated time to expiration, illiquidity discount, and other inputs are not necessarily independent of each other, but rather there are multiple combinations of correlations among them, and the fair values of operational investment securities increase or decrease depending on the combination of these factors. 9. Notes to revenue recognition (1) Breakdown of revenue from contracts with customers The Company Group operates in a single segment of the fund management business. Of net sales, income from partnership management consisting of management fees and success fees is derived from contracts with customers. The breakdown of the said revenue from contracts with customers by fund series is given below. Fund Name Established Term end JAFCO SV3 Series JAFCO SV4 Series JAFCO SV5 Series JAFCO SV6 Series JAFCO Asia Technology Fund VI L.P. JAFCO Asia Technology Fund VII L.P. Others Total July 2007 Mar. 2013 Aug. 2016 June 2019 Dec. 2021 Dec. 2022 Dec. 2026 Dec. 2029 Mar. 2013 Dec. 2022 Apr. 2017 Dec. 2026 – – – – (Millions of yen) For the year ended March 31, 2022 (from April 1, 2021 to March 31,2022) Income from partnership management Success fees 2,870 1,277 – – Manage-ment fees – 275 703 1,244 2,870 1,553 703 1,244 Total 132 197 395 2,949 303 – 9 4,461 436 197 404 7,410 (Management fees expected to be recognized in and after the next fiscal year) Management fees are generally received quarterly, based on the total amount of commitments, etc. multiplied by a certain rate, and the rate decreases as the fund approaches maturity. (2) Basic information for understanding revenue A. 1) Information on contract and performance obligations Information on performance obligations Information on performance obligations is presented in “(4) Accounting policies – 4) Other significant matters for the preparation of consolidated financial statement – F. Basis for recording significant revenues and expenses in 1. Significant matters for the preparation of consolidated financial statement.” Information on significant payment terms Management fees are generally received in stages based on the progress of performance obligations in accordance with the contract. The Company receives success fees at the time of distribution from funds whose cumulative distributions to investors exceed total capital contributions. B. 2) Information on the calculation of transaction prices 17 Management fees are calculated by multiplying the contract-based rate by the total commitment amount, etc. Success fees are calculated by multiplying the contract-based rate by the amount calculated by subcontracting the total commitment amount from the sum of cumulative distributions and current distributable amount. Success fees are variable compensation because the fees are determined based on fund performance. Since the fund performance is susceptible to factors over which the Group has no influence, such as market volatility or the decisions or actions of third parties, there is significant uncertainty in estimating the amount of variable compensation, and therefore, only the portion that is highly unlikely to result in a significant reduction in revenue is included in the transaction price. 3) Information on the calculation of the amounts allocated to performance obligations Management fees and success fees are recognized as a single performance obligation, and the transaction price is not allocated to performance obligation. 4) Information on the timing of satisfaction of performance obligations Information on the timing of satisfaction of performance obligations is presented in “(4) Accounting policies – 4) Other significant matters for the preparation of consolidated financial statement – F. Basis for recording significant revenues and expenses in 1. Significant matters for the preparation of consolidated financial statement.” (3) Information on the relationship between the satisfaction of performance obligations under contracts with customers and cash flows arising from such contracts, and the amount and timing of revenue expected to be recognized in or after the next fiscal year from contracts with customers that existed at the end of the current fiscal year 1) Balance of contract assets and liabilities (Millions of yen) For the year ended March 31, 2022 Receivables arising from contracts with customers (opening balance) Receivables arising from contracts with customers (closing balance) Contract assets (opening balance) Contract assets (closing balance) 350 – 53 435 Contract assets is related to the Company Group’s rights to success fees, which are the consideration for management obligations of a fund. Such consideration is recognized as a contract asset from the point in time when a significant reduction in revenue at fiscal year end is deemed highly unlikely in accordance with the contract, and is received each time the fund makes a distribution. 2) Transaction prices allocated to remaining performance obligations Information on management fees expected to be recognized in or after the next fiscal year is presented in “(1) Breakdown of revenues arising from contracts with clients”. As for success fees, for which the consideration is determined based on fund performance, the amount of variable compensation is susceptible to factors beyond the influence of the Company Group and the performance of each fund is difficult to forecast, as described in “2) Information on the calculation of transaction prices in (2) Basic information for understanding revenue.” Until significant uncertainty regarding the estimate of variable compensation is resolved, the estimate is not calculated and revenue is not recognized. Accordingly, information regarding success fees expected to be recognized in or after the next fiscal year has been omitted from this note. 10. Notes to per-share information (1) Net assets per share \2,769.16 (2) Net income per share \192.50 Note: The Company conducted a 3-for-1 common stock split as of February 1, 2022. Net assets per share and net income per share are calculated based on the premise that the stock split took place at the beginning of the current fiscal year. 18 11. Notes to significant subsequent events (Share buyback) The Company has passed the resolution regarding the following items relate to the share buyback based on the Articles of Incorporation complying with Article 459, Paragraph 1 of the Companies Act, at the meeting of the Board of Directors held on October 22, 2021, and implemented a share buyback as shown below. Please note that “No. of shares in (2) Items related to the share buyback” below has been changed to 7.5 million shares (upper limit) (2.5 million shares (upper limit) before change) due to the February 2022 stock split based on the BOD resolution as of December 8, 2021. (1) Reason for the share buyback After giving careful consideration by taking into account the amount of funds necessary for future investment, cash and equivalents on hand, and mark-to-market valuation (after tax) of shareholdings of Nomura Research Institute, Inc. (“NRI”), etc., the Company determined to buy back shares for the purpose of shareholder returns. (2) Items related to the share buyback 1) Type of stock: 2) No. of shares: 3) Total amount: 4) Period: JAFCO Group Co., Ltd. common stock 7.5 million shares (upper limit) (9.6% of the number of outstanding shares excluding treasury shares) \15 billion yen (upper limit) From October 25, 2021 to June 23, 2022 (excluding the last five business days of each quarter and the five business days from the first day of the month following the month of quarterly financial result announcement) 5) Buyback method: Market purchase on the Tokyo Stock Exchange (3) Status of share buyback Please note that numbers of shares below reflect a 3-for-1 stock split as