Prospect Co., Ltd.€¦ · 2 Important notice Though Prospect Co., Ltd. (the “Company ”) has assumed the accuracy and completeness of all information available to it in preparing

Prospect Co., Ltd.

1st Half Results Briefing for Fiscal Year Ending March 31, 2018

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Important notice

Though Prospect Co., Ltd. (the “Company”) has assumed the accuracy and completeness of all information available to it in preparing this presentation, the Company makes no representation as to its actual accuracy or completeness. The information in this presentation is subject to change without prior notice. This report has been prepared solely for the purpose of providing information in English to shareholders of the Company and other interested parties and is not intended to be a recommendation or solicitation to buy or sell the Company shares or any other securities. Nothing contained in this presentation constitutes either an offer to sell, or invitation to purchase or subscribe for, any shares or other securities in the Company. Each recipient should consult its own legal, commercial and tax advisers as to legal, commercial, tax and related matters related to the contents of this presentation. None of the contents of this presentation may be used by any person for any purpose whatsoever without the prior written consent of the Company.

Neither the presentation (nor any part of it, nor the fact of its distribution) will form the basis of, nor may it be relied upon in connection with, any contract for the sale of shares in the Company. None of the Company nor its advisers, nor any of their respective officers, employees, agents or associated companies, nor any other person, make or have been authorized to make any representation or warranty, express or implied, as to the accuracy or completeness or fairness of such information. Nothing contained in this presentation, is, or should be relied on as, a promise, representation or warranty as to the historic, current or future performance of the Company. Accordingly, none of the Company, its advisers, nor any of their respective officers, employees, agents or associated companies shall be liable for any direct, indirect or consequential loss, loss of profit or damage suffered by any person as a result of relying on any statement, omission or alleged omission from the presentation.

This presentation is provided for the sole purpose of providing information in English to shareholders of the Company and other interested parties. Nothing herein constitutes an offer of securities for sale in the United States or any other jurisdiction in which required registration is absent or an exemption from registration under the applicable securities laws is not granted. Neither the US Securities and Exchange Commission nor any state securities commission has approved or disapproved of shares in the Company nor passed upon the adequacy or accuracy of the presentation. In this presentation, financial information for the year ended 31 March, 2017 and first half of the year ended 31 March, 2018 has been derived from the audited consolidated financial statements of the Company for those financial years prepared in accordance with Japanese GAAP.

As a consequence of legal restrictions, the release, publication or distribution of information contained in this presentation in certain jurisdictions or to certain persons may be restricted or unlawful. All persons who wish to view the presentation must first satisfy themselves that they are not subject to any local requirements that prohibit or restrict them from doing so and should inform themselves of, and observe, any applicable legal or regulatory requirements applicable in their jurisdiction.

Statements made in this presentation with respect to the Company’s current plans, estimates, strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of the Company and any enlarged group. Forward-looking statements include, but are not limited to, those statements using words such as believe, expect, plans, strategy, prospects, forecast, estimate, project, anticipate, aim, intend, seek, may, might, could or should, and words of similar meaning in connection with a discussion of future operations, financial performance, events or conditions. These statements are based on management’s assumptions, judgments and beliefs in light of the information currently available to it. The Company cautions recipients that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking statements, and therefore recipients should not place undue reliance on them. Recipients should not rely on any obligation of the Company to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Table of Contents

1. Introduction2. History & development 3. Group structure / affiliated companies4. Latest published financials5. Key business segments6. Advisory board

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� Second Section of Tokyo Stock exchange: Ticker 3528� Outstanding Shares: 403,448,312**� Number of Shareholders: 14,079*� Closing Share Price: JPY 52*� Market Cap: JPY 21 billion*� Total Shares traded in 2017: 1,164 million* = 451.6% of TSO (total shares outstanding)� Monthly Average % = 64.6% of TSO� Weekly Average % = 15.2% of TSO� Dividend forecast: 4 Yen per share. Prospect’s dividend yield of 7.69%* is one of the

highest in Japan.

Stock information

*As of 29 September 2017

**As described in the Quarterly Report of the Company dated 10 November, 2017, as at 30 September, 2017, 403,448,312 ordinary shares of the Company were issued and outstanding, and traded on the Tokyo Stock Exchange. As at the same date, Prospect held 2,775,408 ordinary shares (in treasury). Under Japanese practice, "the number of shares in issue and outstanding" includes the number of ordinary shares held in treasury. The number of shares in issue and outstanding outside of treasury was 400,672,904 as at 30 September 2017.

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1. INTRODUCTION

Prospect is a leading licensed Japanese Investment Company focused on:� Real Estate Development� Asset Management � Public Works Construction � Renewable Energy

Kidoh Construction Industry Co., Ltd.Construction’s track record exceeds 2,500 km of tunneling globally.

Sasaki Houseis a long-established home builder with 109years of experience.

Prospect Asset Management Inc. advises on Japanese equity investments.

Prospect delivers consistent services from selection of site, planning, construction, and sales to after-sales services for over 7,800 residential condominiums.

Source: Company Home Page5

2. HISTORY & DEVELOPMENT

1937Inami Kigyo Co., Ltd. established in Toyama PrefectureStarted production of special artificial silk for domestic demand (start of textiles business)

1961Changed trade name to Carolina Co., Ltd.Listed on Second Section of Osaka Stock Exchange (de-listed in March 2003)

1962 Listed on Second Section of Tokyo Stock Exchange (Ticker: 3528)

1993 Started internally developed condominium business

1994 Withdrew from textiles business

2001 Changed trade name to Gro-Bels Co., Ltd.

201250th anniversary of listing on Tokyo Stock ExchangeAcquired all shares of Sasaki House Co., Ltd.; made a consolidated subsidiary

2013Acquired all shares of (former) Prospect Co., Ltd.; made a consolidated subsidiaryStarted overseas real estate-related business

2014Acquired all shares of Kidoh Construction Co., Ltd.; made a consolidated subsidiaryEntry into renewable energy (solar) power generation businessAbsorption-type merger of subsidiary (former) Prospect Co., Ltd.; changed trade name to "Prospect Co., Ltd."

2015 Started solar power generation

2017 Acquired all shares of The Prospect Japan Fund Limited; made a consolidated subsidiary

Source: Company Home Page

Established in 1937, the textile business was the cornerstone of the Company. In the early 1990s, the Company changed its focus to the property business. The Company has developed and sold over 7,800 condominiums, mainly in the Tokyo metropolitan area.

The Company has been diversifying its revenue sources from its traditional condominium business since Curtis Freeze became President and now includes housing construction, investment advisory, public works construction and renewable energy businesses, as well as overseas real estate investments.

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3. GROUP STRUCTURE / AFFILIATED COMPANIES


�Established: 1937�Head Office: 1-30-8, Sendagaya, Shibuya-ku, Tokyo 151-0051, Japan�Total Employees of Prospect Group: 174�Directors: Curtis Freeze, Masato Tabata, Dominic Henderson

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General Shareholders Meeting

RepresentativeDirector,President

Board Meeting

Board of Auditors

Auditors

ManagementMeeting

Audit Office

General Affairs

Accounting

Business Promotion

Operation

Construction

Marketing

Business Development

Stock Research

AdministrativeDivision

PropertyDivision

AssetManagement

Division

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Prospect Co. Ltd.

Tokyo

(Japanese Ticker: 3528)

Prospect Asset Management (CI) Ltd.

(PAMCI)Guernsey Registered

Manager

Prospect Asset Management, Inc.

(PAMI)US SEC registered

Advisor

Sasaki House(Japan)

Single family home builder

Kidoh Construction(Japan)

Micro Tunneling

Prospect Energy Management

(Japan)

Renewable Energy

The Prospect Japan Fund Limited

(Guernsey)

Company Description Number of employees Company Management

Prospect Co., Ltd. Real Estate Developer 41C. Freeze, M. Tabata, Outside director D. Henderson

Sasaki House Co., Ltd. Home Builder 38K. Endo, sent in from Prospect to be President, has over 30 years of experience in Real Estate Development

Prospect Asset Management, Inc. Asset Management 4K. Matsumoto, H. Smith both have over 20 years of experience in investment and management

Kidoh Construction Co., Ltd. Public Works Construction 91M. Nakano, over 30 years of experience in construction. President of Japanese Micro-tunneling Association

Prospect Energy Management Co. Ltd.

Renewable Energy 5*Y. Yoda, over 20 years of experience in Trust Banks, JREIT and Real Estate

The Prospect Japan Fund Limited Investment Fund 0J. Hawkins, non-executive chairman, a director of a range of funds which include hedge funds and equity funds investing in Japan and Asia.

*employees of Prospect Co., Ltd.

4. LATEST PUBLISHED FINANCIALS

Source: Company Securities Report

Sales in the first half of fiscal year ended 31 March 2018 were JPY 3,486m, slightly decreased from last year’s JPY 3,989m. Operating loss was JPY 1,007m (vs. operating loss JPY 367m) largely due to increased legal and advisory costs on the acquisition of The Prospect Japan Fund Limited (TPJF).

Non-operating income improved primarily due to profits from the completion of the Keauhou Place condominium project in Honolulu, Hawaii.

In August 2017, the Company successfully acquired The Prospect Japan Fund Limited (TPJF). The excess of net assets in TPJF over the acquisition cost was recorded as negative goodwill with resulting JPY 2.4bn increase in extraordinary profits.

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FY 2017 FY 2018

2016/04 - 09 Full year 2017/04 - 09 YoY change

Unit: MM JPY

Sales 3,989 14,143 3,486 -503

Cost of Goods Sold 3,387 11,880 2,825 -562

Gross Profit on Sales 602 2,263 662 60

Selling, General and Administrative Expenses

970 2,307 1,669 699

Operating profits -367 -44 -1,007 -639

Non-operating income 253 1,416 926 673

Non-operating expenses 436 856 215 -221

Ordinary profits -550 516 -296 255

Extraordinary profits 9 9 2,420 2,411

Extraordinary losses 0 85 0 0

Net profit before silent partnership profit distribution and taxes

-541 440 2,134 2,675

Silent partnership profit distributions

10 7 15 5

(Included distributions to Prospect) 0 0 0 0

Net profit before taxes -551 433 2,119 2,670

Corporate, inhabitant and enterprise taxes

17 179 214 196

Adjustments on corporate tax, etc. 0 -221 0 0

Net profit attributable to non-controlling interests

0 -13 2 2

Net profits -568 489 1,903 2,472

Source: Company Securities Report 10

Current Assets24,753

Tangible fixed assets8,556

Intangible fixed assets 967

Investments and other assets4,887

Long-term liabilities7,580

Current liabilities7,736

Net Assets23,846

Unit: MM JPY

Total Assets: 39,162 Total Liability and Equity: 39,162

Equity ratio 61%

4. LATEST PUBLISHED FINANCIALS Balance Sheet Overview

5. KEY BUSINESS SEGMENTS

Real estate

development

business

Asset

management

business

Revenue: JPY 1,243m35.7% of total revenue

Revenue: JPY 133m3.8% of total revenue

Public works

construction

business


Renewable

energy business


Source: Company Securities Report11

Revenue

Segment

1st half of FY 2017 1st half of FY 2018 YoY change

2016/04 - 09 2017/04 - 09

Amount Share Amount ShareUnit: MM JPY % Unit: MM JPY % %

Real estate development 950 23.8 1,243 35.7 30.9

Condominiums 230 5.8 767 22.0 233.0

Land and buildings 299 7.5 0 0.0 -100.0

Custom-built houses 420 10.5 476 13.7 13.4

Asset management 174 4.4 133 3.8 -23.9

Public works construction 2,700 67.7 1,799 51.6 -33.4

Renewable energy 132 3.3 293 8.4 121.3

Total 3,956 99.2 3,468 99.5 -12.3

Others 33 0.8 18 0.5 -44.3

Elimination of intersegmenttransactions

0 0.0 0 0.0 0.0

Total 3,989 100.0 3,486 100.0 -12.6

Real estate development

36%

Asset management

4%

Public works construction

52%

Renewable energy

8%


Real estate development business


Gross Profit: JPY 276m41.6% of total Gross Profit


and latest Interim Report

Since entering the real estate business over 20 years ago, the Company has developed 7,873 condominiums, mainly in the Metropolitan Tokyo area. The Company takes into consideration factors such as “floor plan and/or location suitable for customer’s life plan” as well as “environmental symbiosis, health, child rearing, crime prevention, disaster preparedness” etc.

Sasaki House, single family home subsidiary

Gro-bel – Company’s condo brand

Keauhou Place, Hawaii condo tower

The Company jointly developed a mixed use project in Hawaii, comprising 422 residential units for sale and rental and commercial facilities including a parking lot. More than 98% of the units have been sold. The project was completed in October 2017.

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Recent property development




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Name: Gro-bel Koenji PremiumLocation: Koenji station

6 minutes from Shinjuku stationCompletion: 10/25/2017Units: 43

Name: Gro-bel Kokubunji CrystaLocation: Kokubunji station

19 minutes from Shinjuku stationCompletion: 11/15/2017Units: 36


Recent property development




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Name: Gro-bel ŌmoriLocation: Ōmori station

18 minutes from Shinjuku stationCompletion: June, 2018Units: 34

Name: Gro-bel Minami-ŌtsukaLocation: Ōtsuka station

8 minutes from Shinjuku stationCompletion: March, 2018Units: 41


Asset management business



【Subsidiary】Prospect Asset Management, Inc. (“PAMI”) is an Investment Advisor focusing on Japanese shares, primarily through advising the Prospect Japan Fund LimitedJoined Prospect Group in 2006

PAMI was founded in 1994 as a Japan focused Investment Advisor, and has a strong long-term track record.

In 2006 PAMI was acquired by former Prospect Co., Ltd., which is also a provider of non-discretionary investment advice.

Prospect Japan Fund Holdings *

Prospect Japan Fund Sector Weightings *

15*as of 29 September 2017

Security % of

total

assets

FUKUSHIMA BANK LTD 28.8

DAITO BANK LTD 27.4

SHAKLEE GLOBAL GROUP INC

10.3

MARUHACHI WAREHOUSE CO LTD

9.7

NAGANO BANK LTD 2.3

Sectors % of

total

assets

Banks 58.6

Retail 10.3

Storage/Warehousing 9.7

Total* 78.6

No of Positions 5


Public Works construction business



【Subsidiary】Kidoh Construction Industry Co., Ltd. (“Kidoh”)Construction track record exceeds 2,500km of tunneling.Joined Prospect Group in 2014.

Kidoh was established in 1946 as a civil engineering and construction contractor to commercialize its unique jacking method. The company is headquartered in Osaka, Japan and has branches in Kansai, Kanto, Nagoya, Kanazawa, and Kyushu, Japan. It has number of patents/utility models in relation to construction methods focused on underground jacking works for water/sewerage, gas, telephone, electrical tunnels and also prestressed concrete (PC) works for building/bridge construction.

Source: Company Home Page16

Large water tank in Toyama Prefecture

Water purification plant in Toyama Prefecture


Revenue: ( %)Operating income:No. of employees: Joined Prospect Group in

Renewable energy business




The Company has made significant progress in its efforts to make solar power generation a core part of its renewable energy business. The Company currently has 5 solar projects producing electricity and 6 additional projects under development and scheduled to come online over the next few years. Total output of the 11 projects is expected to be 101 mW.

In 2015, the Company started sales from its first solar project located in Asago City, Hyogo Prefecture. It has also started sales of electricity from projects in Rikuzentakata City (1.6 mW), Ushiku city (1.8 mW), Katori City (2.0 mW), and Sanmu City (5.1 mW). The Company aims to start operations at its projects in Utsunomiya City, Tochigi Prefecture (4.8 mW) by the end of 2017 and Sendai City, Miyagi Prefecture (1.8 mW) by early 2018.

Potential future buyers for the Company’s solar projects are pensions and life insurance companies looking for high yield investments in yen.

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Sanbu Higashi Project


Renewable energy business – Solar power plants

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Solar Plant Location

Output

Capacity

(mW)

Start

OperationSite Area ㎡㎡㎡㎡

Output from

3/2017 to

9/2017 (kWh)

Feed-in

Tariff

yen/kWh

Plants producing electricity

Asago Project Asago City, Hyogo 1.1 Mar-15 12,752 743,106 36Rikuzentakata Project Rikuzentakata City, Iwate 1.6 Jan-16 27,716 927,760 36Ushiku Project Ushiku City, Ibaraki 1.8 Feb-16 34,049 1,300,766 36Katori Project Katori City, Chiba 2.0 Jul-16 31,237 1,337,936 36Sanbu Higashi Project Sanmu City, Chiba 5.1 Mar-17 138,762 3,531,267 36

Plants under development

Sendai Project Sendai City, Miyagi 1.8 Jan-18 97,000 n/a 36Higashi Hiroshima Project Higashi Hiroshima City, Hiroshima 18.7 Jul-18 1,130,000 n/a 36Narita Kozaki Project Narita City, Chiba 24.0 Oct-18 540,000 n/a 36Tokujiro Utsunomiya I & II Utsunomiya City, Tochigi 4.8 Dec-17 93,800 n/a 36Okayama Aida Hikari CC Mimaku City, Okayama 38.0 Dec-20 606,000 n/a 32Sanbu Minami Project Sanmu City, Chiba 2.0 Sep-18 32,000 n/a 36


Revenue: ( %)Operating income:No. of employees: Joined Prospect Group in

Renewable energy - new business

Project: Wood Pellet Production for Biomass Power Generation

Location: Russia

Source: Company Press Release

dated 16th December 2016

Partner: RFP Group

Unused wood

Wood chip/pellet Biomass powerGeneration plant

As part of the Company’s increasing activities in the renewable energy business, it has signed two Letters of Intent (“LOI”) with regard to joint investments in wood pellet mill projects with the RFP Group. One LOI is for a financing effort to build a 90 thousand tons wood pellet plant in the Russian Far East. Pellets are the raw material for Biomass electrical production plants in Japan. The other is an LOI to develop additional wood pellet plants with total capacity of 500 thousand tons. This was announced at the subcommittee meeting of “Japan-Russia Economic Dialogue” which was held in Tokyo on 16 December 2016.

RFP Group is the largest forestry industry company in the Russian Far East. The Company believes that Russia has the potential to become Japan’s fastest growing source of biomass fuel. 19

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6. Advisory Board – established for the purpose of obtaining opinions from external experts who have thorough insight into financial, administrative and legal matters in developing multifaceted business strategies for the future.

Members:�Masamoto Yashiro – former Chairman of Shinsei Bank �Taro Kiritani – Former Managing Executive Officer of Sumitomo Mitsui Trust Bank �Bill Wilder – Former President and CIO of Nikko Asset Management�Yasuo Shida – Attorney, former official of Ministry of Finance

Documents

Prospect Co., Ltd.€¦ · 2 Important notice Though Prospect Co., Ltd. (the “Company ”) has assumed the accuracy and completeness of all information available to it in preparing