YCP Holdings (Global) Limited Q2 FY2025 earnings call

• Overall Business Performance: H1 FY2025 consolidated revenue reached 7 billion yen, 10% above plan and 13% higher than the prior year (adjusted to exclude SOLIA's contribution in the prior year). Profit was over 70% higher than the prior year and nearly double the original plan, marking significant outperformance against targets. Growth was led by strong M&A-driven performance in India and solid hiring and order growth in Japan. - Organizational & Operational Updates for Japan: The firm refreshed and strengthened Japan region leadership with the addition of Masahiro Matsuoka as regional head, a veteran of corporate restructuring from the former Industrial Revitalization Corporation of Japan. Under Matsuoka, partner counts have doubled in both the core Management Service business and the Professional Solution DX vertical, with 2 new partners added for the new sustainability vertical. Headcount in Japan grew from 90 to 117 in the first two quarters of FY2025 after years of stagnation. The Tokyo office was relocated to a new doubled-sized space in Akasaka to accommodate growth, with cost increases carefully managed to maintain profitability. - Geographic Headcount Strategy: Japan and India have both seen strong, steady hiring growth: India grew via large M&A in 2022 and 2023 plus continued organic hiring, while Southeast Asia prioritizes higher-value projects over headcount growth, leading to higher revenue per employee despite a slight net headcount reduction. China is facing sustained macro headwinds and the firm has slowed investment there, focusing on maintaining an appropriately sized team rather than aggressive growth. - Strategic Framework: The group's three-pillar growth strategy is: (1) Grow core Management Service to 10 billion yen in annual revenue as soon as possible; (2) Grow the four verticals of Professional Solution to a combined 20 billion to 30 billion yen in annual revenue, with each vertical targeting 5 billion to 10 billion yen individually; (3) Use proceeds from non-core asset sales (including 6 billion yen in cash retained from the sale of SOLIA) to accelerate growth via M&A, with most capital allocated to core consulting business expansion.

1. Management Service Business: In Q2 FY2025, the segment achieved 14.4 billion yen in revenue (990 million USD). Regionally: Japan reached 450 million yen (310 million USD), its strongest Q2 result in years after years of stagnation below 300 million USD; India showed a 10% apparent revenue decline which is solely due to internal project reallocation to the Professional Solution segment's DX vertical, with underlying business remaining strong; Southeast Asia saw revenue grow 1.5x over 2 years despite headcount reduction, driven by higher average project value and improved profitability from focusing on high-complexity, high-margin projects. For the first half of FY2025, the full-year target for this segment is 6.5 billion to 7 billion yen, up from 6 billion yen in FY2024. It contributes approximately 68% of the group's core consulting revenue. 2. Professional Solution Business: In Q2 FY2025, the segment reported 710 million yen in total revenue with 150 million yen in operating profit, nearly doubling revenue year-over-year and increasing profit approximately 10x year-over-year. By vertical: (1) Supply chain: Revenue remained flat year-over-year, but profitability improved significantly after extensive cost and headcount restructuring that eliminated the large loss seen in the prior year period; (2) DX: Revenue grew 2.7x year-over-year, with 2.5x organic growth after excluding internal project transfers from Management Service, driven by strong partner hiring growth in Japan; (3) Interactive: Revenue grew 1.5x year-over-year; (4) Sustainability (new vertical launched in late 2024): Generated 70 million USD in revenue in Q2. The full-year FY2025 target for this segment is 2.6 billion yen, with management expecting upside to 3 billion to 4 billion yen, up from 1.7 billion yen in FY2024. It contributes approximately 32% of the group's core consulting revenue. 3. Principal Investment Business: Following the sale of SOLIA in December 2024, the segment's revenue is near flat year-over-year. The core current holding is Life Mate, a veterinary hospital group focused on business succession acquisition, which saw flat revenue as expected without new M&A in the period. Other smaller strategic investments (including F&B chains such as Hachikyo in Sapporo and Singapore) are also broadly flat. Management expects the segment's reported consolidated revenue to trend toward near zero over time as the firm shifts to non-consolidated minority investment to avoid distorting group P&L structure.

• Core Business Revenue Guidance: Excluding additional M&A, Management Service is expected to reach 6.5 billion to 7 billion yen in FY2025, up from 6 billion yen in FY2024, with a long-term target of 10 billion yen. Professional Solution is guided to 2.6 billion yen, with upside potential to 3 billion to 4 billion yen in FY2025, up from 1.7 billion yen in FY2024, with a long-term target of 20 billion to 30 billion yen including M&A. - Dividend Guidance: The firm maintains its full-year dividend guidance of 13 yen per share (9 cents USD total, 2 cents interim and 7 cents final), with a 50% payout ratio for recurring operating profit. The interim dividend was paid as scheduled, and management will adjust the final dividend upward after full-year results if full-year profit exceeds plan, while maintaining the 50% payout ratio. - Strategic Investment Guidance: Principal investing will shift to non-consolidated investments going forward, and consolidated revenue from the segment will gradually approach zero. The group is actively pruning underperforming smaller investments to focus capital on core consulting growth. - Long-term Group Target: The group aims to build a 30 billion to 40 billion yen total revenue professional services firm combining the 10 billion yen Management Service and 20 billion to 30 billion yen Professional Solution businesses.

• China Market Risk: The China consulting market is facing severe headwinds, with major global firms cutting headcount by 20-50% due to reduced demand from foreign companies entering or expanding in China. YCP Holdings also has significant exposure to this demand slowdown and has already slowed investment, with the market expected to remain challenging for the next several years. - Macro Industry Headwinds: Other listed mid-sized Japanese consulting firms have reported weak results, though YCP attributes its outperformance to its Asia-focused diversified portfolio that reduces reliance on any single market. - Foreign Exchange Risk: The group operates across multiple currencies including JPY, USD, CNY, and INR, but hedging costs are considered too high to implement broad hedging programs. - Talent Shortage Risk: Japan faces a structural macro shortage of young professional talent, with the available pool of new graduates roughly half what it was 20-30 years ago, creating competitive pressure for hiring.

Q: Many listed mid-sized consulting firms are reporting weak results, but YCP has outperformed. What is your view on industry conditions and your performance? / A: Management believes the overall Asian consulting industry is still relatively strong, with particularly strong growth in Southeast Asia and India. YCP's diversified geographic portfolio across Asia is different from most domestic Japanese mid-sized consulting firms, leading to differing performance. China is the main weak market, where YCP already slowed investment before the current downturn and is managing exposure carefully. In Japan, demand from Japanese companies expanding into India and Southeast Asia remains solid, and YCP's differentiated focus on Asia and AI capability building sets it apart from peers. YCP's core strategy is to capture growth across the large and fragmented Asian consulting market while diversifying risk across regions.

Q: How is YCP handling hiring in Japan's tight talent market? / A: Hiring in Japan has been relatively successful so far: headcount grew from 90 to 117 in the first half of FY2025, with targets of 130-140 by year end and 180-200 by next year. YCP addresses the talent shortage by offering competitive salaries on par with top foreign consulting firms, while maintaining a more flexible, open boutique culture that is more accessible than large foreign global firms. This combination has successfully attracted strong new graduate and young talent to date.

Q: What have been the integration benefits of the acquisition of Octus Advisors in India, and what is your future M&A strategy? / A: The Octus acquisition has delivered strong results: it buffered YCP's USD-denominated results from yen depreciation in 2024, and strategically opened up new cross-border opportunities. Prior to acquisition, 100% of Octus's revenue came from Indian conglomerates; now 10% comes from Japanese clients and 10% from Western clients, diversifying its revenue base. YCP India expertise is now a key differentiator for YCP Japan, amid growing Japanese corporate interest in India. For future M&A, one Management Service deal is expected to close soon, with two more targeted for next year, and there is also a material M&A pipeline for Professional Solution. Management will use M&A to accelerate organic growth in the core businesses.

Q: What is your approach to shareholder returns? / A: YCP follows three core principles: first, return 50% of recurring operating profit from core consulting businesses via dividends. Second, large capital gains from principal investment exits are primarily allocated to fund new M&A for core business growth. Third, if excess cash exceeds 5 billion yen after funding M&A, the firm will return additional capital via special dividends or share buybacks of its JDRs.