Mercuria Holdings Co.,Ltd. Q4 FY2024 earnings call

20th Anniversary Strategic Direction

• Celebrates 20 years since founding in 2025, with a core strategic focus on adapting to the changing macro environment, centering on the belief that finance should follow real economy supply chain demand.
• Mission as an alternative asset manager: Break down "market barriers" between money markets, bond markets and physical markets, convert real businesses and assets with real demand into investable partnership securities, and enable capital circulation to the physical market.
• Governance improvements: Planned transition to an Audit and Supervisory Committee system, preparing for enhanced fair value disclosure of portfolio investments, and strengthening fund management reporting quality for both LPs and shareholders.

Business Segment Operational Progress

• Buyout Business: Buyout 1 Fund has exited 5 investments, with a DPI of 1.23x (returned more capital than investors committed) as of end-2024, and has entered the carried interest stage (the firm receives 20% of all distributions above an 8% compound hurdle rate). Buyout 2 Fund is progressing well with 6 investments to date, and is expected to be near fully invested by early 2026, with planning for Buyout 3 Fund fundraising starting in H2 2025.
• New Business Investment Lines: Added Structured Equity Investment (minority focus) as a third pillar of business investment alongside buyout and growth investment. Launched advisory for the co-established YUAN (縁) Structured Equity Fund with Japan Development Bank and Charoen Pokphand Group. The Supply Chain Fund (successor to the BizTech growth fund focused on logistics/supply chain startups) has completed 5 investments to date.
• Asset Investment New Initiatives: Aircraft investment is a current priority focus, as it is an inflation-resistant physical asset with high risk-adjusted returns, low correlation to other asset classes, high global liquidity and standardization. The firm is planning a new long-term focused aircraft fund. The firm is also preparing a new industrial real estate fund focused on Kyushu, Japan, to capitalize on the semiconductor supply chain growth driven by TSMC's entry into Kumamoto.
• Overseas Business: Expanded Thai real estate consulting business to Vietnam, currently manages 18 projects with over 33.3 billion yen (3.33 billion USD equivalent) in committed Japanese investment, with total project scale exceeding 100 billion yen (10 billion USD equivalent). Overall, 50% of the group's employees are non-Japanese across regional hubs.

1. Business Investment Segment: Centered on ~65 billion yen (6.5 billion USD equivalent) of buyout funds (Buyout 1 and Buyout 2). Generated 960 million yen (0.96 billion USD equivalent) in carried interest in 2024, with a ~1 billion yen (0.1 billion USD equivalent) annual management fee for the combined buyout funds. One investment experienced impairment, but the overall portfolio remains solid. Total management fee base assets for the segment are 60.1 billion yen (6.01 billion USD equivalent), contributing over 40% of annual stable gross profit, and ~30% of total invested capital. 2. Asset Investment Segment: Centered on ~250 billion yen (25 billion USD equivalent) of Spring REIT. Spring REIT contributes ~2 billion yen (0.2 billion USD equivalent) in annual revenue from management fees and dividend income on the firm's co-investment, but recorded a 480 million yen (0.048 billion USD equivalent) mark-to-market loss in 2024 due to lower public unit prices. The segment overall accounts for over 40% of annual stable gross profit, and ~30% of total invested capital. Aircraft funds are fully invested and performing well post-COVID, with the second aircraft fund reaching full investment after acquiring its 4th aircraft. Taiwan solar power Phase 2 project is completed. 3. Planning Business: The firm has allocated ~15% of its total invested capital to this segment for next-generation core fund development, including the Supply Chain Fund, Structured Equity Fund, and Southeast Asian consulting business, targeting long-term growth.

• 2025 full-year guidance: Gross operating profit of 6.3 billion yen to 9.0 billion yen (0.63 billion USD to 0.9 billion USD), recurring profit of 2.3 billion yen to 3.9 billion yen (0.23 billion USD to 0.39 billion USD), targeting a new all-time high profit.
• Management fees are expected to increase from the 3 billion yen (0.3 billion USD) level, driven by new fund formations including the new aircraft fund and growth funds.
• Carried income is expected to come from 1 to 2 exits from Buyout 1 Fund, with the wide forecast range used due to the variability of exit timing for carried interest.
• The firm is targeting to grow total assets under management (AUM) from the current ~330 billion yen (33 billion USD) to a medium-term target of 500 billion yen (50 billion USD), driven by expansion into new investor categories including individual investors, university endowments, pension funds, and overseas investors.
• The business investment segment targets to grow its management fee base to 200 billion yen (20 billion USD) within 5 years.

• Spring REIT, which holds primarily Beijing office properties, has seen its public unit price decline due to market concerns over the Chinese real estate sector, resulting in mark-to-market losses that negatively impacted 2024 full-year earnings, even though underlying property operating fundamentals (high occupancy, stable income) remain solid.
• One investment in the buyout portfolio recorded an impairment charge in 2024, contributing to lower-than-planned full-year earnings.
• Exit of one planned buyout investment was delayed in 2024, pushing the recognition of related carried interest and co-investment gains to future periods, resulting in 2024 profit coming in below initial guidance.
• The firm is currently out of compliance with the Prime Market listing maintenance threshold after meeting it in 2024, and must improve profitability and investor sentiment to retain its listing on the Prime Market.

Q: Why does the firm disclose 2025 guidance as a range rather than a fixed point figure? / A: Management explained that after the 2024 earnings miss and downward guidance revision, the firm changed its disclosure policy. Once buyout funds reach the carried interest stage, total profit depends heavily on the timing of investment exits, which can shift unexpectedly, even though delayed exits do not reduce the underlying value of the investment. Fixed point guidance often leads to investor misunderstanding and unnecessary disappointment when exit timelines shift, so a range is more appropriate to reflect this volatility. Management also committed to providing clear balance sheet information to help investors understand the underlying value of the firm's investment portfolio.

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