YCP Holdings (Global) Limited Q4 FY2024 earnings call

• Company and Listing Background • YCP is a Singapore-headquartered firm listed on the Tokyo Stock Exchange via the JDR (Japanese Depositary Receipt) structure, which allows Japanese investors to trade in yen with the same tax treatment as domestic Japanese stocks, with Mitsubishi UFJ Trust Bank exercising voting rights on behalf of JDR holders. The company recognizes that information disclosure gaps exist for JDR and is working with the Tokyo Stock Exchange to improve transparency. • Founded 14 years ago (originally as Yamato Capital Partners in Japan), the firm now operates 17 locations across Asia and 22 global locations, with 450 consulting-focused employees and 700 total employees including consolidated investment holdings.

• FY2024 Consolidated Financial Results • Following IFRS requirements, SOLIA is classified as a discontinued operation and excluded from consolidated results. Reported FY2024 consolidated revenue is 86 million USD (approximately 13.6 billion yen). Underlying operational operating profit (before the Consus goodwill impairment) was 5.3 million USD (approximately 840 million yen). After a 4.5 million USD (600 million yen) goodwill impairment charge for Consus, reported operating profit was ~60 million yen. Net profit includes the 3.0 billion yen SOLIA sale gain, resulting in a net profit of 19 million USD (~3.0 billion yen). • Since its IPO in December 2021, group revenue has grown approximately 2.5x in 3 years, supported by the ~3.0 billion yen in capital raised at IPO.

• Core Business Model • Management Services is the firm's core legacy business, focused on on-site implementation support for corporate transformation and M&A integration, with long-term embedded client engagement as a key differentiator. • Professional Solutions was launched post-IPO in 2022 to build specialized service capabilities in high-demand growth verticals, with active investment to scale the business. • Principal Investing leverages the firm's operational expertise to grow portfolio companies, exiting mature assets to recycle capital into core consulting businesses.

1. Management Services Business: Revenue was 38.2 million USD (approximately 6.0 billion yen), accounting for 44.1% of total consolidated revenue (excluding SOLIA). The business delivered steady year-on-year revenue growth when measured in yen, despite a negative translation impact from the strengthening US dollar on USD-reported results. Over 70% of segment revenue comes from overseas markets, with rapid growth in India and recovering growth in Southeast Asia, and Japan has returned to 2022-level performance. In Q4 2024, the segment achieved a record high quarterly revenue of just under 1.7 billion yen. Management targets reaching 10.0 billion yen in segment revenue with a 15-20% operating margin.

2. Professional Solutions Business: Revenue reached 1.8 billion yen in FY2024, up from 1.1 billion yen in FY2023, accounting for 13.2% of total consolidated revenue (excluding SOLIA). Excluding impairment loss, the segment would have delivered an operating profit of just under 200 million yen, maintaining a ~10% profit margin as targeted. However, the segment reported an operating loss of just under 600 million yen in FY2024 due to a 700 million yen goodwill impairment charge related to the acquired Consus business in the supply chain solution vertical. The segment operates across four high-growth verticals: supply chain, DX, interactive, and sustainability, targeting 30-50% annual revenue growth.

3. Principal Investment Business: After the sale of SOLIA completed in December 2024, the largest investment holding is LifeMate, an animal hospital group, which delivered steady performance with slight yen-based revenue growth (flat in USD terms) in FY2024, as no large M&A transactions were completed. Other smaller strategic investments in areas like F&B, inbound, and senior care have limited impact on group results. The sale of SOLIA returned ~4.0 billion yen in capital to the group.

• The 3-year (2025-2027) mid-term management plan maintains the same three core strategic pillars as prior planning: 1) Scale the core Management Services business to 10.0 billion yen in revenue with 250 professionals currently, expanding to a 500-person team targeting a 15-20% operating margin; 2) Grow Professional Solutions across its four verticals, targeting 30-50% annual revenue growth; 3) Exit mature principal investment assets to recycle ~4.0 billion yen in proceeds from the SOLIA sale into accelerating growth of the core consulting businesses.
• For FY2025 (December 2025), the mid-term plan targets total consolidated revenue of ~19.0 billion yen (excluding SOLIA), with normal operating profit of ~930 million yen, approaching 1.0 billion yen. No M&A is pre-included in the base plan, and the combined target for Management Services plus Professional Solutions is 12.7 billion yen in FY2025 revenue.
• The long-term target is to grow the combined core consulting businesses to 30.0 billion yen in total revenue, maintaining an operating profit margin of just over 10%. With ~6.0 billion yen in available cash from the SOLIA sale, management will actively pursue M&A to accelerate growth of the core consulting businesses.
• The firm updated its shareholder return policy: following the SOLIA sale, it has shifted from SOLIA product shareholder perks to cash dividends, targeting a 50% payout ratio on recurring operating profit, with an annual dividend target of 3.0 to 5.0 billion yen. Any unutilized excess capital will be used to repurchase JDR units to return additional capital to shareholders.

• Foreign exchange volatility creates a significant headwind for USD-reported results, as the strengthening US dollar reduces the yen-translated value of emerging market revenue when converted to USD for group reporting.
• The Consus acquisition in the supply chain vertical resulted in a 600 million yen goodwill impairment after two key major clients were lost post-acquisition. Rapid client concentration risk was not adequately planned for, and headcount adjustment could not keep pace with the sudden revenue decline, leading to the full-year loss for the segment. Management acknowledges it needs to improve risk modeling for M&A transactions and client diversification planning.
• The JDR listing structure creates transparency and information disclosure challenges that have led to undervaluation by Japanese investors, and many retail brokerage accounts do not display accurate company information for the stock.
• Low-margin complex market research services are at increasing risk of displacement by generative AI, though this impact is not material to YCP's results as the firm does not focus on this line of business.
• M&A of fast-growing smaller firms carries inherent risk of unexpected performance shortfalls that can lead to impairment charges, as experienced with the Consus transaction.

Q: How has AI impacted YCP's business, and what is management's outlook and response? / A: Simple, non-complex work like basic market research is already being displaced by AI tools like DeepSearch, but YCP does not focus on this type of work, so there is no material negative impact on revenue. In fact, AI has a net positive impact: YCP sees growing client demand for AI strategy consulting, and the firm is actively using AI internally to improve productivity. Current internal initiatives include AI-powered automated drafting of meeting summaries, follow-up emails, and proposal templates built on 10 years of YCP's historical project data. While current output accuracy is only ~30%, management sees large potential productivity gains and is prioritizing AI adoption as a young, agile firm.

Q: Why is most of YCP's leadership team non-Japanese, and is cross-cultural organizational management working well? / A: 10 years ago, the entire leadership team was Japanese, but as over 70% of revenue now comes from overseas high-growth markets, it is natural that the leadership team reflects this geographic mix. Most of the international leadership is Indian, and YCP finds that Indian professionals are typically highly capable, ethical, and pro-Japanese, aligned with YCP's culture. Management is building a pan-Asian leadership team that reflects the firm's geographic footprint, and this diverse positioning helps YCP act as a guide for Japanese clients looking to enter high-growth emerging Asian markets.

Q: What is the reason for the Consus goodwill impairment, and what changes will management make going forward? / A: Management fully accepts the mistake and is already implementing changes. After the ownership change, two major clients departed, and because Consus was highly concentrated on a small number of large clients, this created an outsized negative impact on results that headcount adjustment could not offset in time. Going forward, management will require more rigorous pre-M&A analysis of client diversification, build explicit risk scenarios for major client churn, and adopt more conservative purchase pricing with earn-out structures that tie payments to future performance targets to mitigate this risk.

Q: YCP has 6.0 billion yen in cash and ~800-900 million yen in operating profit, but its market capitalization is only 13.2 billion yen. Does management agree it is undervalued, and what will it do to improve investor perception? / A: Management agrees that the current valuation is lower than it should be, and two key issues are the information disclosure limitations of the JDR structure and investor confusion about YCP's diversified business. To address this, management completed the SOLIA sale to sharpen strategic focus, and will now prioritize clearer communication with investors: YCP will emphasize its core focus on growing the consulting business to 30.0 billion yen in revenue with 3.0-4.0 billion yen in annual operating profit, to help investors understand the firm's long-term value creation path. Management expects 2025 to be an inflection point for communicating this progress.