Q&A - 9th Ordinary General Meeting of Shareholders

Question

Regarding the advance investments for the fiscal year ending March 2026, I have a question. Considering the market environment up to now, it seems possible to balance growth investments while securing profit growth. Could you please explain the reason for deciding to make large-scale advance investments at this timing, even if it pressures profits this period?

Answer

For this period, we are prioritizing the implementation of strategic and agile investments in areas directly linked to future revenue expansion and establishing competitive advantages. At the same time, it is a fact that with the rapid expansion of our organizational structure, we are seeing a decline in cost efficiency in some areas. From this fiscal year onward, under the new management system, we plan to improve efficiency through structural reforms while steadily recovering the results of investments over the medium-term horizon.

Question

The profit margin relative to sales is notably poor. Please explain the measures against this and why it has become this way.

Answer

In our company's case, we currently operate our EC ourselves, and in addition to manufacturing costs and other cost of goods, we account for EC-related payment fees and logistics expenses on the SG&A side. Additionally, we are implementing new investments such as studios and new businesses, so expenses for those investment portions are also incurred. Furthermore, there are areas where we are expanding personnel in advance for business expansion.

Our business is in a relatively new field, so we are balancing the operation of existing businesses and the development of new businesses. As explained in the earnings briefing materials and elsewhere, our medium- to long-term policy is to improve year by year through changes in the service mix.

Question

Your company's medium-term management plan sets targets of 100 billion yen in sales and 25 billion yen in operating profit for the fiscal year ending March 2030. At present, if you have annual-based sales and operating profit plans, as well as assumptions for changes in sales composition by major business segments (streaming/content, live/events, merchandising, TCG, licensing/tie-ups), please provide numerical guidelines.

Answer

In addition to the growth of existing businesses, we are also developing new businesses, and we anticipate that the mix will change to some extent. We expect the composition ratio of merchandising, licensing/tie-ups, and other new businesses including TCG and games to increase further. However, at this point, to flexibly respond to management changes such as business pivots, we are not disclosing specific numbers.

We will communicate progress and future outlook through quarterly earnings reports and such.

Question

In your company's medium-term plan, the expansion of overseas EC and TCG is positioned as growth drivers. On the other hand, regarding exchange rate fluctuations and rising logistics costs, if the exchange rate shifts 10% toward yen appreciation and logistics costs rise by 2-3%, what level of impact is expected on overseas sales and operating profit? Furthermore, please explain your current policy and preparation status for countermeasures (such as price pass-through, currency hedging, review of logistics systems, etc.).

Answer

We recognize that the exchange rates and logistics costs mentioned in your question are important external factors for our overseas business, and we are fully aware that fluctuations in exchange rates or increases in logistics costs could have a certain impact. At present, we have not reached a level where we can disclose simulations of specific impact amounts on sales and profits from exchange rate fluctuations or logistics cost increases, or individual countermeasure preparations. However, we are considering multiple options, including rationalization of production locations and supplier selection by product, flexibility in pricing strategies, potential for currency hedging, and possibilities for optimizing delivery systems. In the medium term, along with the expansion of overseas EC and TCG, we believe it is necessary to make both the revenue structure and cost structure of the business more resilient, and we will address strengthening resilience to such macroeconomic environmental changes as an important theme going forward.

Question

In announcing this medium-term management plan, there was no explanation about the progress or summary of the medium- to long-term management strategy described in the securities registration statement at the time of IPO. From the perspective of ensuring the credibility of the medium-term plan, please explain the review of the results and challenges of that strategy, as well as its relationship to the positioning in the new plan.

Answer

The medium-term targets disclosed by our company are based on the existing management strategy, with focus areas concretized and numerical targets updated. Additionally, in the "Business Plan and Growth Potential" section, we are maintaining the milestones listed since the IPO, and going forward, we will report on the progress of these milestones based on the medium-term targets.

Question

You have announced medium-term targets, but do you have plans to announce a specific plan document or similar?

Answer

In announcing the medium-term targets, we emphasize sharing the business direction and growth image externally, but at present, we do not plan to announce a formal document such as a medium-term management plan. On the other hand, regarding our company's medium- to long-term strategy and the progress of each business, we intend to communicate information as specifically and continuously as possible through future earnings briefings and IR activities. Taking into account interests like those pointed out, we will continue to value dialogue with the capital markets and strive for appropriate information disclosure.

Question

The earnings briefing materials are hard to understand. It seems you are allocating a large amount of funds to business investments this fiscal year, but please explain specifically what kinds of things and to what extent you plan to invest in. I think just looking at the earnings briefing materials is too vague.

Answer

Regarding the earnings briefing materials, we emphasize conveying our company's key policies within a limited number of pages, but we will take your feedback into reference and strive for easier-to-understand explanations going forward. For the fiscal year ending March 2026, we position it as an important investment phase to build a medium- to long-term growth foundation for our company. Specifically, we will focus investments on expanding production capabilities, R&D expenses related to new technologies/services development, enhancing systems for SCM efficiency, overseas business development, and strengthening the management foundation. While there are limits to disclosing amounts for each measure, from the perspective of how investment results connect to business growth, we will continue to enhance disclosure within possible ranges.

Question

Regarding the medium-term plan. The target of 100 billion yen in sales in 5 years lacks explanation of the process and lacks credibility. In particular, within 5 years, there is a possibility that performers with high sales contribution rates may graduate. Considering graduation risks, please provide supplementary explanations on intermediate targets or processes, such as expected progress in 3 years or the number of performers.

Answer

As you pointed out, human factors including talent graduations are important elements in our company's business operations. With that in mind, in realizing our medium-term management targets, we do not premise growth dependent only on specific talents; instead, we are working to build a stable business foundation while creating an environment where existing talents can engage in long-term activities. Additionally, we position as a key strategy the reproducible generation of top talents in multiple fields such as streaming, music, and games, forming new growth drivers in each field. Through this, we aim for a structure that can absorb risks such as graduations or changes in activity policies while continuing growth. Regarding the 3-year progress targets and talent number outlook you asked about, since they are greatly influenced by progress in business development by field and external environmental factors, we refrain from disclosing explicit numbers at this point. Note that through strengthening diverse revenue pillars such as monetization in TCG and game fields, and establishing overseas revenue foundations like overseas EC, we plan to gradually improve profitability along with business scale expansion.

Question

Regarding M&A as indicated in the medium-term plan, what industries or technology fields are you considering for business strengthening?

Answer

Strategically, we refrain from answering details on targets, but we aim to expand our business centered on VTubers, and one policy is M&A for vertical functional enhancements to accelerate that business. We are not setting medium-term targets premised on M&A; rather, if such opportunities arise, we intend to actively consider them.

Question

Regarding the application for transition to the Prime Market, it was applied in September 2024, but there was no IR announcement at that time, and it was announced at the timing of the February 2025 earnings announcement. What were the circumstances?

Answer

Following examples of other companies, we refrained from IR announcement at the time of application, but since the review took longer than expected, we considered it necessary to report the situation to shareholders and disclosed it in conjunction with the third-quarter earnings announcement.

Question

Regarding the market change from TSE Growth to Prime, what do you assume was the reason the review took time?

Answer

Including strengthening governance, disclosure systems, and internal management systems, we believe it is necessary to stably achieve a level that meets the Prime Market listing criteria, and we are continuously working on system development. We will report at an appropriate timing once progress is in place.

Question

If by any chance you don't get promoted to Prime, are you considering something else?

Answer

Our policy to aim for a segment change to the Prime Market remains unchanged, but we will determine the timing appropriately.

③ Company System/Business in General

Question

Regarding the violation of the Subcontract Act that received a recommendation from the Fair Trade Commission on October 25, Reiwa 6, are there no issues with subsequent contracts with subcontractors and accounting processing?

Answer

Based on the guidance from the Fair Trade Commission, we have established and are operating an appropriate implementation system, and we are practicing contract conclusions with appropriate content in accordance with the law. Additionally, for accounting processing, we have built a system for timely payments, and appropriate payments are being made based on that.

Question

Regarding the recommendation, what is the internal response regarding responsibility location or disciplinary actions for related parties?

Answer

Including the Audit Committee, we intend to continue working on improvements in collaboration with legal and related departments. Regarding disciplinary actions for related parties in this matter, they will be implemented by the company's Board of Directors and in accordance with internal regulations, but since there are differences in discretion and allocation widths, we refrain from specifics.

Question

In response to the 2024 Subcontract Act violation recommendation, how will you strengthen goods quality control and fair transactions with manufacturing partners? Please explain specific initiatives to prevent defective products or delivery delays through inspection process improvements, and to protect fan trust. Also, please provide the 2025 fiscal year plan for compliance strengthening.

Answer

The recommendation targeted matters related to information deliverables, but we are applying similar measures to goods-related transactions and conducting fair transactions. Regarding the inspection process, we established an organization to address supply chain improvements in fiscal 2024 and are working on continuous improvements.

Question

Please also explain the current evaluation of internal controls and future plans for regular disclosure.

Answer

We are considering disclosure by the deadline, so please check the "Internal Control Report."

Question

Measures such as participation in the Defamation Countermeasures Study Subcommittee and installation of a reporting form show a stance on countermeasures, but please explain the response performance as of 2024-2025 (number of reports, deletions, victim response completion rate, etc.) and system strengthening measures based on that.

Answer

We disclose the response situation for the previous year regularly every January, so please check that as well for details. Note that the number of responses last year was 252 cases. We have been continuously communicating the status of responses to rights infringements, with the latest press release on June 18. From a deterrence perspective, we are considering increasing the frequency of press releases on response matters, but since there is a risk of secondary harm, we do not publicly disclose in a way that identifies specific cases.

Question

I think last fiscal year was a year where many issues came to light. Losses due to many graduates, special losses due to printing errors/omissions and Subcontract Act violations, mistakes in sales start or posting timings, suspicions of information leaks, loss of trust in many areas to the extent not approved by TSE, SG&A ratio significantly higher than other companies (influence of special losses?). As directors in each field, please explain how you grasp the current situation and intend to improve it.

Answer

Regarding the current grasp, we receive reports at monthly regular board meetings, discuss as appropriate, and respond. In future business operations, under the instructions of each director, we are advancing countermeasures for the problematic events speedily from organizational, human, revenue, and other perspectives.

Question

Will outside directors plan to acquire company shares in the future? As an incentive for job performance, I would like them to acquire more shares.

Answer

It is not something the company can instruct, and we respect each individual's intentions, but we plan to consider incentives such as stock acquisition going forward. Currently, we recognize that they are sufficiently demonstrating their abilities in business execution.

Question

It seems there are many departures of talents from hololive EN. Please explain why you think the continuation of Director Suda at COVER USA is appropriate.

Answer

The reason for continuing the director is that, based on Director Suda's experience, we judged that his wide-ranging corporate and external networks, including foreign-affiliated ones, can continue to be utilized in building the COVER USA system.

Question

In the Q&A at last fiscal year's shareholders' meeting, there was a response to "prepare a system to regularly report on outside directors' activities." I think there were no particularly notable reports, but were there no activity results for the fiscal year ending March 2025?

Answer

They attend monthly board meetings, provide opinions and suggestions as appropriate, and additionally, we conduct interviews with the Audit Committee every half-year on management opinions and company operations, which are confirmed in the Audit Committee, and we understand this as resulting in business reports.

Question

Regarding the 147 million yen impairment loss mentioned in the capital expenditure status on p.18 of the convocation notice materials, please explain in more detail the reason that led to it, particularly the circumstances where functions initially developed as necessary became unnecessary upon review, and the content of the functions that were originally intended to be developed.

Answer

The said 147 million yen impairment loss is from the ERP system introduction project our company was advancing, where part of the development assets recorded as software in progress was impaired due to project review. In this project, we initially planned to introduce functions spanning multiple areas such as sales management, inventory management, and financial accounting to respond to rapid business expansion. Amid optimizing the system configuration considering actual business operations, priorities, and changes in the external environment, we decided not to introduce some already developed functions from operational and cost perspectives. As a result, for the portion of development costs for those functions where future utilization prospects are gone, we performed impairment accounting treatment. Note that this review is aimed at an optimal ERP configuration that contributes to company-wide operational efficiency and management foundation strengthening, and we will continue to introduce and improve necessary functions for future operational systems in stages.

Question

Graduations and health issues are frequent, public/announcement mistakes continue, Fair Trade issues persist, but responsibility locations are not clearly shown. If systemic deficiencies are the cause, visible explanations and clear responsibility indications are needed. Please explain your company's recognition and response policy.

Answer

Against the speed of the company's business growth, governance issues as pointed out remain, but by appointing Kaneko on the management side as an internal director, we will strengthen business oversight by management.

Question

In comparison with competitors or related industry companies, there are various situations, but please explain once again Cover's unique strengths, outlook, and management policy.

Answer

The business structures themselves differ, so simple comparisons are not possible, but our company is actively investing in overseas business development, R&D related to expression technologies, etc., for future growth, so short-term profit margins are inferior compared to competitors. As a result, our strengths include building a brand with multiple talents who have extremely strong individual appeal, enabling global expansion starting from the brand, and multi-faceted service operations like media mixes. Additionally, we can deliver high-quality content to the built fan base, enabling deployments that leverage business scale merits.

Question

In the earnings briefing materials, the trend in average monthly UU numbers is cited as evidence for expanding awareness to the mass layer, but the 2025 fiscal year figures may be influenced by temporary viewer increases due to successive graduation announcements and graduation lives, or abnormal plays by bots, raising concerns about the indicator's validity. Please consider disclosing indicators showing unique customer increases less affected by temporary factors, like ID numbers on EC sites disclosed by competitors.

Answer

We believe average UU numbers can average out sudden factors like temporary rises, so they do not greatly deviate from reality. On the other hand, we are developing a shared ID infrastructure that integrates our service foundations not limited to EC, but we will consider disclosing useful indicators for investment judgments beyond this.

Question

In the current situation where funding needs are expanding due to business scale growth and investments in new businesses, rather than sticking to debt-free management, how about utilizing borrowings to improve funding efficiency?

Answer

Our company's business investments mainly aim at personnel investments for content and business development, etc., and under current cash flow, they are investments without relying on borrowings. On the other hand, for considerations like M&A or capital expenditures, possibilities including utilizing borrowings may be examined.

Question

By nurturing businesses that give back to society (human resources, nature), a posture of continuous social involvement will be evaluated in the future, but is there any guideline on this?

Answer

As you recognize, fulfilling corporate social responsibility is also an important role. We have been engaging in charity projects and CSR activities, and we intend to implement points where we can contribute to society leveraging our strengths.

Question

Half of the advance investment expenditures are stated as system enhancements. We heard plans to slow hiring pace, so it's not personnel increase, but please explain individually what challenges this addresses.

Answer

Even if hiring pace slows, personnel numbers are expected to increase, and that increase is additional investment. Also, hiring will concentrate on expanding key areas and focus fields, so overall hiring numbers are decreasing. Our investment areas mainly focus on personnel investments for developing content and services rather than capital investments, and we will focus personnel expansion in fields such as content development, overseas business, new areas like games, and strengthening management foundations, which are future focus areas.

Question

Regarding advance investment expenditures, what challenges does the system enhancement in administrative departments for strengthening management foundations address, and what is the investment to strengthen? Please explain.

Answer

It is the expansion of administrative departments and back-office systems. Back-office includes finance/accounting, general affairs, information systems, legal, HR, labor, etc., necessary functions for business activities, and we intend to develop them in parallel with business development in preparation for future business scale expansion.

Question

For the performance forecast for the fiscal year ending March 26, what date's announced value is used for calculating the U.S. tariff rate?

Answer

We consider downside risks from retreats in overseas consumer demand related to changes in tariffs, prices, and exchange rates due to geopolitical risks, and we are not conservatively incorporating specific tariff rates into plans at present.

Question

In cost of sales and SG&A, outsourcing expenses are recorded in both; please explain the criteria for allocating them.

Answer

Our company classifies them as "cost of sales" or "selling, general and administrative expenses" according to the purpose of the expense occurrence. For outsourcing expenses, those directly related to providing content, services, products, etc., with strong correlation to sales, are cost of sales. On the other hand, outsourcing expenses recorded as SG&A are those related to advertising/promotion or administrative operations.

Question

Please disclose the assumed exchange rate for this fiscal year.

Answer

There is no change from previous policies. At present, transactions receiving revenue in foreign currencies are limited, so we do not formulate budgets using assumed USD/JPY rates, but depending on held foreign currency balances, exchange gains/losses affect PL as non-operating items. In the future, as dollar-denominated transactions increase with COVER USA activity expansion, we plan to incorporate exchange impacts at budget formulation.

Question

Please explain how you summarize initiatives that particularly yielded results in the previous period, or points that did not progress as expected. Also, based on those, please explain measures you will particularly focus on this period.

Answer

In the previous period, through multi-faceted deployments starting from our strength in talent content, we were able to achieve results in various areas.

Specifically:

- In addition to building continuous touchpoints with fans through streaming activities, exposure to mass media through music activities created synergies, advancing talent awareness expansion.

- Group measures with linked planning within the production promoted fan community activation.

- Through the trading card game (TCG) business, opportunities for offline fan interactions expanded.

- Through tournament planning and release of in-house brand games, we achieved presence improvement in the game area.

- Through live concerts, etc., we expanded touchpoints with overseas fans.

These are the main results from the previous period. On the other hand, challenges include the need for further development of support systems responding to the diversification of talents' activity histories and growth policies, and the need to improve overall business profitability and deployment power while enhancing support system quality. Based on this situation, this period we emphasize balancing "diversification of revenue structure" and "advancement of management system and creator support system," strengthening areas like TCG and games further, expanding management functions, developing talent management functions, etc., and continuing to aim for sustainable growth of content and business, centering on talent-fan relationships.

100

Question

Similar to competitors' IR, please disclose revenue contribution by debut year.

Answer

We will take the request for revenue contribution by debut year as reference for future disclosure methods. At present, since talents' activity styles and growth speeds are diverse, there are difficulties in quantitatively disclosing contributions individually or by year. However, new unit talents debuting since 2023 are each steadily expanding fan bases, and we strive to demonstrate reproducibility of hits and sustainable growth power. We will continue to consider disclosure forms that appropriately convey talents' and units' growth and overall business results.

101

Question

Similar to competitors' IR, please disclose the proportion of fan age groups.

Answer

We will take data disclosure on fan age groups as reference for future information disclosure. At present, our content has the most frequent layer in the 20s to early 30s, but viewers are expanding across all age groups, and recently, new inflows from late teens to early 20s young layers are progressing. We will continue to analyze fan layer expansion and consider disclosure methods more aligned with reality.

102

Question

I would like to know the ratio of domestic and overseas operating profits for the previous fiscal year.

Answer

Regarding detailed numerical disclosure of operating profits by region, we are not doing so at present, but we will take it as reference for future information disclosure. Speaking generally, in overseas business, costs for logistics, personnel, and setup for local events/concerts tend to be relatively higher than domestic, so profitability is somewhat lower than Japan business at present. However, going forward, by improving business operations efficiency and expanding high-margin areas like licensing deals and digital sales, we expect to gradually improve overall overseas business profitability. We will continue to precisely grasp business operation status by region and balance medium- to long-term growth and profitability.

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