MESSAGE

This year, the number of people infected with COVID-19 has exploded, not only in Japan but also around the world, and many people in Japan are suffering. Our deepest sympathies go to all those who have suffered and to their loved ones.

This year began with a murky environment that clouded our ability to anticipate the effects of COVID-19; however, it will be a year in which we implement a variety of measures to achieve further growth, such as by investing in areas we believe to be growth areas. In the following section, I would like to summarize the previous year's results and provide an outlook for the future.

*In this document, "this year," "last year," and "two years ago" refer to FY3/2021, FY3/2020, and FY3/2019, respectively.

Last year, the Group's average assets under management (AUM) rose by 2.3% over that of two years ago. The average rate for management fees also increased by two basis points, meaning that our basic earning power has remained strong. In addition, due to the increase in performance fees, operating profit increased from ¥3.901 billion two years ago to ¥4.479 billion in the previous fiscal year. This was an increase of 14.8% over the previous fiscal year. Our hybrid profit model of management fees and performance fees, which is unique to SPARX, is working, and our basic earning power is steadily improving. I think the most significant issue we must tackle is how to leverage the management ability and performance we have built up to expand our future AUM. I believe it is critical that, rather than just pursuing growth, we maintain the best possible management results and aim for greater heights as we improve. On this point, we have been highly rated by top global investors, which I believe is extremely significant. For example, in March, we were appointed by a leading European institutional investor to manage a Japanese equity portfolio under the Japanese Equity Sustainable Investment Strategy. In last December, we were appointed by a major public institutional investor in Europe to manage small and mid-cap stocks in South Korea under the OneAsia Investment Strategy as well.

Taking into consideration the fact that our financial position remains stable and that the prospect of a steady increase in our basic earning power is becoming apparent, we will raise the ordinary dividend to ¥9 per share, an increase of ¥2 per share over the previous fiscal year. We will continue our efforts to build a healthy organization that will realize long-term growth, meet all our shareholders' expectations, and continue to increase shareholder returns.

Moreover, while targeting the expansion of our basic earning power and AUM, we began last year to invest in new growth sectors to enhance our existing fund businesses.

In a new era in which the use of artificial intelligence (AI) has become a prerequisite, we believe that growth areas will include energy, medical and nursing care, and quantum computers, and we are steadily moving forward, step by step, to make them the next pillar of SPARX's business. As an investment in the quantum computing field, we participated in a new company specializing in this field, Sigma-i Co., Ltd. since its founding, with the cooperation of Masayuki Ozeki, Associate Professor of Tohoku University, a world-renowned authority on quantum annealing computers. We have also taken a small step in medical and nursing care. Specifically, we provide consulting services with support from Goyokai an incorporated medical association. We believe that efficient growth in the medical field is a social mission and that this is an area in which we should participate and contribute as an investment company. Rather than simply chasing short-term profits, we will embrace the demands of our age and continue the good investment practices SPARX has developed as a financial investor in cooperation with respected medical institutions and the excellent medical professionals who support them.

Since its inception in 1989, SPARX has wholly devoted itself to empirically sound research activities, through which we thoroughly investigate companies, one by one, and make investment decisions after seeing their operations in person. After the outbreak of COVID-19, the world is expected to shift to contactless systems in all areas-- including education, medicine, and autonomous driving--using technologies such as fifth-generation mobile communication systems (5G) and AI.

In this transition to a contactless society, SPARX Group is considering how to maintain and reinforce the values we have long cherished, such as the importance of communication and of observing a company's operations in person, and I would like to take the lead in confronting these changes. In addition, I believe that the most vital project for me as a manager is to nurture--through our Buffet Club, the investment study group we have held continuously since our founding--exceptionally personable managers with a high degree of expertise and discernment who will be responsible for future generations. I will continue passing down our corporate culture and unwavering investment philosophy to the younger generation, while putting my heart and soul into building a robust organization that can continue engaging in new fields.

We will make every effort to meet the expectations of our shareholders who have supported us, as well as to steadily increase our corporate value and ensure that our growth can be measured. We look forward to further progress in this year's business and to your continued guidance and support.

In closing, I would like to express my sincere wishes for the continued health of our shareholders.

Shuhei Abe
President, CEO
SPARX Group Co. Ltd.
June 2020

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