Digital Garage, Inc.

2017 Financial Report and New Mid-term Plan

2017.5.12

Table of Contents
Mission and Business Model ・・・・・・・・・・ 3
Investment Highlights ・・・・・・・・・・・・・ 7Group Financial Performance Review ・・・・・ 9
Segment Performance Review ・・・・・・・・ 16
New 3-year Mid-term Plan Digest・・・・・・・ 27
Appendix・・・・・・・・・・・・・・・・・・・・32
Copyright © 2017 Digital Garage, Inc. All Rights Reserved2Mission & Business Model

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

3Corporate Mission
As aDigital Garage creates innovative
business context for the new
Internet age and provides uniquebusiness solutions for new
lifestyles, society, and industries bylinking
Real & Cyber
Local & International
Marketing & Technology
Present & Future

Copyright © 2017 Digital Garage, Inc. All Rights Reserved4

DG’s Business Model
Producing and incubating Internet businesses by optimizing
our 3 core strengths: IT, MT, and FTInformation
Technology

Information
Technology

MarketingTechnology

MarketingTechnology

Financial
Technology

Financial
Technology

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

5Enabling Platform for DG’s Incubation Model
DG continues to incubate and develop unique Internet services
through its Enabling Platform since the early days of the Internet

Ⅰ

Ⅱ

Ⅲ

Portal/Search

e-commerce/
Destination Site

Social Media

1995-2000

2000 -

2008-2015

Advertising2016 -

Payment
環亞智富有限公司

Advertising / Promotion

Big Data Businesse-Commerce / Online Settlement Platform

Enabling Platform – Two Revenue Sources
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

6Investment Highlights

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

7Investment Highlights
Income before income taxes 5.8 B JPY +28% YoY* for 3Q Cumulative FY17.3〜 Not achieved target by strategy shift in IT segment, rolling/rebuilding the Mid-term Plan 〜Ⅰ

MT/FT(advertising/payment): Double digit growth in sale and profit, and expansion of revenue sources MT: Performance-based ads penetrates in all businesses includes financials and marked double digit growth.
YoY Sales +38% 20.4 B JPY, income before taxes +13% 1 B JPY

Ⅱ FT: Above-average significant growth in transaction which achieved approx. 1 T JPY, YoY +16%. Increased
Non-EC payment (food, real estate etc), launched preparations of public fund payment. Established a JV“ANA Digital Gate” with ANA Group
IT(investment in and incubation): Not achieved budget, while designing dynamic project as a core of DG Lab

 Shift to long-term incubation intend to mid-long term holding/ DG grouping. Reviewed portfolio originallyto be sold and booked impairment loss conservatively as a result of rebuilding a new Mid-term Plan
 Launched ”DG Lab Fund” for investment in next-gen startups and started investment to strategic area indomestic and global with “DG Lab”

Ⅲ

Design the new Mid-term Plan aiming to technological innovation for year 2020
 As the target of coming 3 years, newly set growth indicator and hurdle rate for investment.
Shareholder return and capital efficiency target will not be changed
 Drive forward the strategic investment and alliance focusing on Blockchain, AI, VR/AR, Security, andBiotechnology. Accelerate the growth of DG group with “Open Incubation toward 2020”

Note:* Compared FY17.3 3Q with FY16.6 3Q as follows due to change of fiscal term
Companies whose fiscal term was March ending prior to the change : FY16.6 3Q (Apr. – Dec. ) vs FY17.3 3Q (Apr. – Mar.)Companies which changed fiscal term to March ending: FY16.6 3Q (Jul. – Mar. ) vs FY17.3 3Q (Jul. – Mar.)Copyright © 2017 Digital Garage, Inc. All Rights Reserved8Group Financial Performance Review

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

9

FY17.3(Cumulative) Consolidated P/L Summary
YoY Sales grew* by 16％, Ordinary income decreased by 20%～ Income before income taxes increased by 23%, although initial forecast was short by 18% ～A

FY16.6

FY16.6 3Q

Full Year Act

Cumulative Act

Net sales

43,76331,474

Operating income

4,201

Non-operating income

JPY in Millions

B

FY17.3 (9 month)
InitialC (=B/A-1)
YoY

Act vs Fcst

Full Year Act%

Amount%Amount36,451+15.8+4,976-2.8-1,048

3,104

723

-76.7

-2,380

3,031

2,156

3,257

+51.1

+1,100

2,406

1,687

2,539

+50.5

+851

Foreign exchange gain

-

-

171

-

+171

Non-operating expenses

1,040

678

292

-56.9

-386

Foreign exchange loss

689

400

-

-

-400

Ordinary income

6,193

4,582

3,688

-19.5

-893

Extraordinary income

1,392

164

2,265

13.8 x+2,101

-

-

1,829

-

+1,829

10

10

124

11.9 x

+113

-

-

104

-

+104

Income before income taxes

7,574

4,735

5,829

+23.1

+1,093-17.9-1,270

Income taxes

2,385

1,412

1,525

+8.0

+112

Net income attributable to owners of parent

5,165

3,307

4,299

+30.0

+991

-18.9

-1,000Investment profit on equity method

Gain on sales of investments in securities

Extraordinary loss
Impairment loss

Forecast

37,500

7,100
5,300

Note:* Compared FY17.3 3Q with FY16.6 3Q as follows due to change of fiscal term
Companies whose fiscal term was March ending prior to the change : FY16.6 3Q (Apr. – Dec. ) vs FY17.3 3Q (Apr. – Mar.)Companies which changed fiscal term to March ending: FY16.6 3Q (Jul. – Mar. ) vs FY17.3 3Q (Jul. – Mar.)Copyright © 2017 Digital Garage, Inc. All Rights Reserved

10

FY17.3(Cumulative) Consolidated Segment P/L Summary
Both MT and FT showed sustainable increase and maintained double digit growth in sales and profit
IT: Did not achieved forecast due to revising portfolio originally to be sold and booking of impairment
loss of acquired stocks conservatively

FY16.6
JPY in Millions

A

FY16.6 3Q

B

FY17.3 (9 month)

Cumulative

InitialAct

Forecast

43,76331,474IT Incubation Technology

6,343

MT Marketing Technology
FT Financial Technology

YoY

Act vs Fcst

Full Year Act%

Amount%Amount37,50036,451+15.8+4,976-2.8-1,048

4,421

6,500

1,817

-58.9

-2,604-72.0-4,682

21,02814,88017,50020,494+37.7+5,613+17.1+2,994

16,392

12,172

13,50014,140+16.2+1,967

+4.7

+640

-

-

-

-

-

-

-

-

7,574

4,735

7,100

5,829

+23.1

+1,093-17.9-1,270IT Incubation Technology

3,105

1,728

2,500

588

-66.0

-1,139-76.5-1,911MT Marketing Technology

1,396

947

1,100

1,074

+13.5

+127

-2.3

-25

FT Financial Technology

1,758

1,307

1,500

1,478

+13.1

+171

-1.4

-21

MI Media Incubation

3,052

1,878

2,900

3,087

+64.4

+1,209+6.5+187

Net sales

MI Media Incubation
Income before income taxes

Full Year Act

C (=B/A-1)

Note: Income before income taxes per segment is based on figures prior to elimination or group deduction, etc
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

11

FY17.3(Cumulative) Income before income taxes analysis

JPY in Millions

FY17.3 (9 month)
InitialAct vs Fcst

 Incubation strategy with mid-long term view/
Review portfolio originally to be sold: -1.2 B JPY
 Booking of impairment loss conservatively by

Full Year Act

Amount

7,100

5,829

-1,270

IT

2,500

588

-1,911

MT

1,100

1,074

-25

FT

1,500

1,478

-21

MI

2,900

3,087

+187



HQ / Elimination

-900

-399

+500



Sales of stock of related companies



Incubation effects by listing of internet infinity Inc.

Forecast

Income before
income taxes

setting new Mid-term Plan : -0.7 B JPY➡ In addition to short term exit, aiming to attainbusiness profit in mid-long term
➡ see details in “New Mid-term Plan Digest”

Investment profit on equity method did not achievetarget amount: 0.38 B JPY

Sales of investment account securities: 0.46 B JPYForeign exchange gain: 0.16 B JPY

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

12

FY17.3 Consolidated B/S Summary
JPY in Million

FY16.6

FY17.3Difference

Reason for change / Remarks

Current assets

48,324

59,624+11,300

Cash and deposits

15,70323,029+7,326

Receivables

13,946

15,422+1,476

Money held in trust

2,592

2,264

-328

11,164

11,856+692

Fixed assets

29,011

32,070+3,058Investment securities

14,844

18,366+3,521

Goodwill

5,765

5,411

-353

Total assets

77,33591,695+14,359

Current liabilities

30,18738,815+8,628Deposits

21,87625,127+3,251

Expansion of FT business

Short-term borrowing

3,200

6,937

+3,737

Fixed liabilities

16,484

18,499+2,015

Transfer from Long-term borrowing, demand for working capital

Long-term borrowing

15,37017,207+1,836

Total liabilities

46,671

57,315+10,643

Net assets

30,66434,379+3,715

Shareholders' equity

28,61031,642+3,032

Common stock

7,435

7,437

+2

Capital surplus

2,825

2,946

+121

Retained earnings

18,41921,309+2,889

Accumulated other comprehensive income

1,502

1,956

+454

Unrealized gains on securities

138

641

+502

77,33591,695+14,359

Operational investment securities

Liabilities / Net assets

Increased new borrowings, Sales of stocks, etc
Expansion of FT business
New investment, Mark-to-market, etc
New investment, Increased investment profit on equity method, etc

Increased borrowings for demand for working capital

Increased net profit

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

13Forecast of March 2018
Forecasting sales 58.5 B JPY, income before taxes 8.0 B JPY, net income 5.5 B JPY～ Plan to achieve the first record high net income in 9 years and YoY +20% rise in dividend ～FY16.6

FY17.3

FY18.39 month

JPY in Millions(Full Year Act) (Full Year Act)Net sales(Forecast)

43,76336,45158,500IT

Incubation Technology

6,343

1,817

6,000

MT

Marketing Technology

21,02820,49432,000

FT

Financial Technology

16,392

14,14020,500LTILong Term Incubation

-

-

-

7,574

5,829

8,000

Income before income taxes
IT

Incubation Technology

3,105

588

3,800

MT

Marketing Technology

1,396

1,074

1,750

FT

Financial Technology

1,758

1,478

2,300

LTI

Long Term Incubation

3,052

3,087

2,500

5,165

4,299

5,500

30 Yen20 Yen24 Yen(15 Yen)(20 Yen)(24 Yen)

Net income attributable to owners of parent

Dividend
Per Share(Ordinary)(Commemorative)(15 Yen)MI segment will be changed to LTI segment from FY18.3
See details in “New 3-Year Mid-term Plan Digest”※ FY16.6 and FY17.3 of LTI are equal to the ones of MI.

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

14Forecast of March 2018（for reference）
Forecasting sales 58.5 B JPY, income before taxes 8.0 B JPY, net income 5.5 B JPY～ Forecast compared to FY17.3 annualized rate: Sales YoY +21%, income before tax YoY +19% ～FY17.3
JPY in Million

Net sales

A

B

FY17.3

FY18.3C (=B/A-1)
YoY

9 months

12 months conversion(Full Year Act)

(Reference)(Forecast)(Reference)

36,451

48,48058,500+21%(12 months conversion)

IT

Incubation Technology

1,817

2,416

6,000

2.5 x

MT

Marketing Technology

20,49427,25732,000+17%

FT

Financial Technology

14,14018,806

20,500+9%

LTILong Term Incubation

-

-

-

-

5,829

6,716

8,000

+19%

Income before income taxes
IT

Incubation Technology

588

782

3,800

4.9 x

MT

Marketing Technology

1,074

1,429

1,750

+22%

FT

Financial Technology

1,478

1,966

2,300

+17%

LTI

Long Term Incubation

3,087

3,068

2,500

-19%

Net income attributable to owners of parent

4,299

4,709

5,500

+17%

Note: Due to the change of segment
structure, the above LTI FY17.3 is equal to MI.

For reference, FY17.3 figure is the annualized one.
Kakaku.com, Inc.‘s fiscal term is March ending prior
to the change therefore not annualized.
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

15

Segment Performance Review

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

16

IT Segment
Ⅰ

Incubation Technology Segment
Net Sales

Income Before
Income Taxes

FY16.63Q(7-3) Actual

4,421 M JPY

1,728 M JPY

FY17.33Q(7-3) Actual

1,817 M JPY

588 M JPY

FY18.3

Forecast

6,000 M JPY

3,800 M JPY➤ DG Incubation, Inc.

Invests in and incubates cutting-edge Internet startups➤ Open Network Lab, Inc.

Provides support to Internet-business entrepreneurs with global visions➤ Digital Garage US, Inc.

The US-based global strategy headquarters➤ DK Gate, Inc. （66％ stake）

Invests in and incubates next generation content with Kodansha globally➤ DG Technologies, Inc. （80％ stake）

Drives strategic technology development with DG Lab➤ DG Daiwa Ventures, Inc.（50％ stake／equity method）
Manages DG Lab Fund to invest in startups with next-generation technologies

 Kodansha Advanced Media LLC（19％ stake／investment）

Marketing in digital distribution in US and English-speaking countries, film adaptation, event planning, etc
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

17

IT Segment Highlights
FY 16.6# ofcompanies

FY 17.3# ofcompanies

Book Value(B Yen)Book Value(B Yen)Equity

110

10.4

130

11.3

Domestic

32

1.8

42

1.9

Overseas

78

8.5

88

9.3

Fund

6

0.7

6

0.7

Total

116

11.1

136

12.0

Note)
DG Incubation’s investment balanceMark-to-market as of quarter end for listed
stocks. Equity includes convertible noteBook value totals may not match details
because of rounding down fractions

Major Portfolio
Blockstream [U.S. /Canada]

Droom [India]

Wevr [U.S.]

Estimote [U.S.]

Develops sidechain
technologies, parallel
blockchains that areinteroperable

A leading online marketplace for
new and second-hand automobiles
in India

Virtual reality community and
VR media player for aspiringand professional
creatives

Provides small, wirelesssensors and location
technology to retailers

Welby [Japan]

Goodpatch [Japan]

Monstar Lab [Japan]

Panair [Japan]

Builds apps for patients withchronic malady, diabetes, cancers

Web development and consulting
service firm

Operates Sekai Lab, a global
outsourcing platform that provides
a network of over 10 k engineers inover 15 countries

Provides “Odin”, an automatedelectricity retail platform thatuses cloud computing andartificial intelligence.

Copyright © 2017 Digital Garage, Inc. All Rights Reserved18

MT Segment
Ⅱ

Marketing Technology Segment
Net Sales

Income Before
Income Taxes

FY16.63Q(7-3) Actual

14,880 M JPY

947 M JPY

FY17.33Q(7-3) Actual

20,494 M JPY

1,074 M JPY

FY18.3

Forecast

32,000 M JPY

1,750 M JPY➤ Marketing Technology Company

Supports client’s business through performance-based ads, Online to Offline strategy
and web marketing➤ Business Design Company
Offers consulting-based marketing➤ BI.Garage, Inc.

Develops and provides ad products incorporating data science, social marketing,and cutting edge ad technology➤ NaviPlus Co., Ltd.

Offers website support tools including personalized recommendation engines

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

19

MT Segment Highlights
Net sales grew +38% YoY, operating income grew +25% YoY

Performance-based ads grew by double digits penetrates in all businesses includes financials【Sales from Performance-based ads】

（100 M Yen）

Net sales（100 M Yen）

FY16.6

FY17.3

1-3Q

1-3Q

148.8

204.9

+38%

YoY

Gross profit

(A)

27.8

33.9

+22%

Op. income

(B)

9.5

11.9

+25%

Operatingmargin ※

(B)
(A)

34.2%

35.1%

+0.9 points

160

+51%
Smartphone/
app
+78％

106

Cosmetics/
Others+71％
Financial+24％
FY16.6
1-3Q

FY17.3
1-3Q※ Operating margin : Op. income ÷ Gross profit x100

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

20

FT Segment
Ⅲ

Financial Technology Segment
Net Sales

Income Before
Income Taxes

FY16.63Q(7-3) Actual

12,172 M JPY

1,307 M JPY

FY17.33Q(7-3) Actual

14,140 M JPY

1,478 M JPY

FY18.3

Forecast

20,500 M JPY

2,300 M JPY➤ econtext ASIA Ltd.

Payment corporation to expand e-commerce platforms globally➤ econtext, Inc.

Integrates online and offline business as the convenience store payment pioneer➤ VeriTrans Inc.

Provides leading e-commerce payment solutions➤ ANA Digital Gate, Inc.（49％ stake／equity method）
Develops and offers the new payment solution by FinTech➢ PT MIDTRANS（Veritrans Indonesia) (21.81% owned by econtext ASIA／Non-consolidated）
Indonesian JV➢ Sendo Technology JSC (12.89%／Investment)
On-line marketplace for C2C and B2C in Vietnam

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

21

FT Segment Highlights
Transaction expanded to approx. 1 T JPY, grew +16% YoY
Operating income grew +12％ YoY【FT’s Track Record】
FY15.6

FY16.6

FY17.3

1-3Q

1-3Q

1-3Q

Transaction volume

7,208

8,562

9,955

+16%

Net sales

107.5

121.7

141.4

+16%

Op. income

9.8

13.2

14.8

+12%

Dep., Amortization of goodwill※

6.2

6.3

6.7

16.0

19.5

21.5

14.9%

16.0%

15.2%

（100 M Yen）

Op. income before
Dep., Amortization of goodwill% to Net sales※Dep., Amortization of goodwill＝Depreciation + Depreciation of goodwill

YoY【Transaction record and revenue breakdown】（100 M Yen）
9,955(+16%)
8,562(+19%)7,208

FY15.6
15.6期
3Q累計
1-3Q

FY16.6
16.6期
3Q累計
1-3Q

FY17.3
17.3期
3Q累計
1-3Q

Others+10%

Data processing 4.2%

Convenience store
24.6%<Revenue

7.3%

Creditcard
63.9%

Breakdown>
Copyright © 2017 Digital Garage, Inc. All Rights Reserved22

MI Segment
Ⅳ

Media Incubation Segment
Net Sales

Income Before
Income Taxes

FY16.63Q(7-3) Actual-

1,878 M JPY

FY17.33Q(7-3) Actual-

3,087 M JPY

FY18.3

Forecast-

2,500 M JPY➤ Kakaku.com, Inc.（20％／Equity method affiliate）

Operates purchase support service, Kakaku.com and restaurant review andrestaurant service, tabelog, etc.

➤ DK Media, Inc.（50%／Equity method affiliate）

Internet media business utilizing fashion magazines by Kodansha

Copyright © 2017 Digital Garage, Inc. All Rights Reserved23

MI Segment Highlight (Change to LTI Segment from FY18.3)
Income before income taxes increased slightly due to decrease of
extra ordinary income, while Kakaku showed stable growth【Income before income taxes】(100 M Yen)

Profit on sale ofrelated companies
Gain on change inequityInvestment
profit on
equitymethod

30.5
4.4
1.5

24.4

FY16.616.6期 通期
Full year

30.8
3.8
0.4

26.5

FY17.3
17.3期 3Q累計
1-3Q

Collaborating with Kakaku
and driving media development■Alliance with big players■Invest/Develop in mid-long term■Collaboration of DG Lab/ Lab Fund

Change to LTI Segment from
FY18.3（See New 3-year Mid-term Plan Digest）※ Kakaku.com, Inc’s fiscal term is March therefore amount of “FY17.3 1-3Q” above
includes full year results of Kakaku.com, Inc. Because it covers large amount in
MI segment, here we compared FY16.6 Full year with FY17.3 1-3Q.
Copyright © 2017 Digital Garage, Inc. All Rights Reserved24

MI Segment (LTI Segment from FY18.3) : Development of Next Generation MediaDeveloping digital media with Kodansha by combining content from women’s magazines with AI〜 Leverage high-quality of content held by publishers to create post curation media 〜< DK Media, JV with Kodansha >< Overview of compilation media >DK Media × AI
Internet media business using
women’s fashion magazines b Kodansha

Store view logs
Content
project（Publishers,
etc.）

Kodansha and DG have driven digital content＜Participating
business for global expansion of Japanese contents
magazines ＞
and new business incubations since capital andbusiness alliance in 2015.
As a third initiative, we formed a JV, DK Media, Inc.,
to operate internet media that utilizes women’s
fashion magazines.

Provide content

DK Media, Inc.

Users

Content
database

Evaluation dataof content

Clients

Editorialdepartment

Compilation
media

Use for corporate
marketing activities

Collaboration is expected to involve major publishing companies in the form of consortium(Details will be announced in June)
Copyright © 2017 Digital Garage, Inc. All Rights Reserved25

MI Segment (LTI Segment from FY18.3) : DG Life Design

Launching DG Group’s First Lifestyle Business for Exclusives
Long-Term Incubation

First project of long-held investment

Work style reform
Life care business

Wine business-Support andmanagement service-Location information
service (children/theelderly)#1 Wine School
In JapanMedia-application
business
Application
for smartphones

Sports marketingbusiness

Collaboration withother companies-Business support for
sports andentertainment-Healthcare business-Asset managementadvisory business andothersLifespan extension
to 100 years old

Business collaboration with strategic partners will be released on June

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

26

New 3-year Mid-term Plan Digest

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

27

Design New Mid-term Plan and Streamline Business Environment
DG Group 10 years track record (2007-2017)
2007
◯◯◯
MT
◯◯◯
Ad volume◯

FTTransactions

IT

Book Value

25 x

 Performance based-ads andsmartphone ads

1,327.5(B JPY)

15 x

 Two payment engines

12.0(B JPY)

3.2 x

0.9

(B JPY)

23.0

87.5

(B JPY)(B JPY)

3.7

Growth Drivers

2017(B JPY)（econtext and VeriTrans）

 W wings investment network（Japan and Silicon Valley/Silicon Alley）

MT and FT show full year conversion (MT: Web advertisement) IT: Book value of DGICreation and Destruction
What technological innovation provides toward 2020

■ Evolution of semiconductor（Moore’s Law）
■ High speeding up of mobile communication network (5G network）■ UI transformation triggered by devices such as smartphones (payment/
video/ AR/ second generation applications etc..）■ Commoditization of gene analysis/synthesis (beginning of explosive biotech era）

Users' lifestyle and industry structure will change drastically
Build a rolling mid-term plan after reviewing the current mid-term plan with the view of DG group
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

28

Concept of New Mid-term Plan and Six Actions

Open Incubation toward 2020
～ Moving to the 4 th Phase of Incubation for 2020, the 25 th Anniversary of DG ～Collaborating with forward-looking companies from startups and big players,connecting new businesses with technological innovation in contexts
and incubate a new Japan＜ Six Actions to Achieve Open Incubation ＞
Ⅰ

Open platform R&D projectto lead the 4 th industrial
revolution (DG Lab)Ⅱ

Incubation of investments by thestrategy of long term holding（LTI）

Ⅲ

Designing projects leading
financial reform by using
blockchainⅣ

Collaboration and JV with startups
in global and big players/research
institutes

Ⅴ

Design the futuristic city/boost the
local economy by using AI, VR/ARand IoTⅥ

Establishing Japanese Biotech
Ecosystem utilizing computerscience
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

29New Mid-term Plan Outline by Segments
Optimizing segments due to the change of business environment

IT

MT

Incubation Technology

Long-Term Incubation

Focusing on exit (selling), ROI x2.5 performance
And go beyond

Collaborating with Kakaku (equity method
affiliate) and driving media development

Setting the new criteria andstrategically sorting out mid-long termholding stock from short term stockMid-long term holding of investments andlong-term incubation by developing the
new business

Marketing Technology

Financial Technology

Business developing centering on
performance based-ads and smartphone ads

Payment solution business centering on credit
card payment and convenience store payment

Accelerating data marketing shift in tune
with fast penetration of AI technology

Hybrid FinTech business utilizing
blockchain and AI

LTI

FT

Copyright © 2017 Digital Garage, Inc. All Rights Reserved30New Mid-term Plan Target (FY18.3 - FY20.3)

Growth Indicators (Income before income taxes CAGR)
FY17.3 (Full year conversion)

CAGR (17.3 – 20.3)

MT

1.4

15 ％

 Accelerating data marketing shift intune with fast penetration of AI
technology

FT

1.9

15 ％

 Hybrid FinTech business utilizing
blockchain and AI(B JPY)(B JPY)

Hurdle Rate for Investment（ROI/Return on Investment）


IT

LTI

2.5 x



Setting the new criteria and strategically sortingout mid-long term holding stock from shortterm stockMid-long term holding of investments and longterm incubation by developing the new business

Capital Efficiency

ROE

20 ％

Shareholder Return

Dividend
payout ratio

20 ％Copyright © 2017 Digital Garage, Inc. All Rights Reserved31Appendix

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

32

Progress of “DG Lab”
Increased numbers of sponsors / participating companies in DG Lab on top ofincreased investment in fund. Driving R&D projects to create new business with
next-gen open innovation platform
BLOCK
CHAIN

Driving R&D project utilizing blockchain

Blockstream released demo program on thelatest block chain platform on April 2017. Codeveloping products such as community
currency with Kakaku and Credit Saison Co.,Ltd.
based on blockchain technology utilizing
Blockstream technology.

AI

Collaborating with Wevr, a company creates highquality VR contents. Will tie up with Japanesecreators as well.

BIOTECH

Establishing foundation for Bio Incubation Center
Aiming for establishing eco system developing Bio related
startups. Driving collaboration with Bio Incubation Center in
US and startup developing companies.

Develop service collaborating with data science business
Planning to develop service and product based on the analysis by
AI collaborating with various data by partner companies. Web
action data by Kakaku and advertising data by Dentsu group will
be utilized. AI related seminars will be held periodically.

Collaborating with studio works for high
新たな顧客体験をもたらすサービスを実現へ
quality VR contents

VR/AR

SECURITY

Aiming for new concept security technology
Studying development of new concept security technology
for protecting data which increase significantly bysmartphone and IoTStarted making an investment from Fund (AI / BIO related)
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

33

Web media ”DG Lab Haus”

http://media.dglab.com/

Interview experts involved in AI andreports large event of VR in overseas• Interview Dr. Ishiguro of Osaka University, well-known researcher of android【Interview Dr. Ishiguro】(Japanese only)

http://media.dglab.com/2017/03/31-interview-ishiguro/• Game Developers Conference at San Francisco (Feb. 27-Mar.3 2017)①New development process by VR technology and challenges of immersive design

http://media.dglab.com/2017/04/11-event-gdc-01/②Contents after VR

http://media.dglab.com/2017/04/14-event-gdc-02/③Transition of VR/AR market and impacts on commerce

http://media.dglab.com/2017/04/18-event-gdc-03/• Interview professor Takashi Ikegami of Tokyo University, well-known researcher ofartificial life
【Interview prof. Ikegami】(Japanese only)

http://media.dglab.com/2017/02/23-interview-ikegami-01/

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

34

Quarterly Consolidated Sales / Income before income taxes
FY17.3 (1-3Q) Sales grew +16% in YoY, income before income taxes grew +23% in YoY to 5.8 B JPY- IT has not achieved target, while MT and FT marked double digits growth 【Net Sales】（JPY in Million）【Income Before Income Taxes】
4,000

15,00012,00012,634
12,28812,258
11,631
11,558
10,336
9,507

3,148
2,838

3,000

9,000

2,000

1,941

1,933
1,561

6,000

860

1,000

3,000

1,118

0

0
1Q

2Q

3Q

2016.6期
FY16.6

4Q

1Q

2Q
2017.3期
FY17.3

3Q

1Q

2Q

3Q

FY16.62016.6期

4Q

1Q

2Q

3Q

FY17.32017.3期
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

35Quarterly Comparison of IT Segment
Achieved big exit in 1Q. Review of portfolio originally to be sold and booked impairment loss

～ Enhanced domestic and global portfolio. Investment balance reached about 12 B Yen ～【Net Sales】（JPY in Million）【Income Before Income Taxes】

3,000

2,000

1,899

1,000

1,863

1,921

657

496

596

723

0
1Q

2Q

3Q

2016.6期
FY16.6

4Q

1Q

2Q
2017.3期
FY17.3

3Q

FY16.6

FY17.3Copyright © 2017 Digital Garage, Inc. All Rights Reserved36Quarterly Comparison of MT Segment
Achieved significant sales growth +38% YoY～ Growth gaining traction in performance-based ads. Data science business grew steadily ～（JPY in Million）【Net Sales】【Income Before Income Taxes】
500

448
386

400

415
368

313
300

290

247

200

100

0
1Q

FY16.6

FY17.32Q

3Q

FY16.62016.6期

4Q

1Q

2Q

3Q

FY17.32017.3期

Copyright © 2017 Digital Garage, Inc. All Rights Reserved37Quarterly Comparison of FT Segment
Achieved net sales +16% YoY with significant growth of transaction volume~ Payment grew in CtoC domain relating to event ticket selling in addition to growth of inbound payment ~（JPY in Million）【Net Sales】

FY16.6【Income Before Income Taxes】

FY17.3

FY16.6

FY17.3Copyright © 2017 Digital Garage, Inc. All Rights Reserved38

Quarterly Comparison of MI Segment
Income before income taxes increased slightly due to decrease of extra ordinary income, while
investment profit on equity method of Kakaku showed stable growth~ Launching incubation business with media as a core ~【Net Sales】（JPY in Million）【GMS growth for consumables】

1,500

1,292

Kakaku.com

1,174【Number of online reservations】

Tabelog

1,103

1,000

627

691

683
566

500

0
1Q

2Q

3Q

2016.6期
FY16.6

4Q

1Q

2Q
2017.3期
FY17.3

3Q
Ref. Kakaku.com, Inc. Results Briefing for FY2017/3

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

39Quarterly Profit and Loss (Consolidated)

JPY in Million

FY16.6

FY17.3

1Q

2Q

3Q

4Q

1Q

2Q

Net sales

10,336

9,507

11,631

12,288

11,55812,258 12,634

Operating income

1,425

201

1,477

1,097

412

493

-182

Ordinary income

1,863

831

1,887

1,610

1,781

1,541

365

Income before income taxes

1,941

860

1,933

2,838

3,148

1,561

1,118

1,196

599

1,510

1,857

2,689

1,011

597

Net income attributableto owners of parent

3Q

Copyright © 2017 Digital Garage, Inc. All Rights Reserved40Quarterly Segment Profit and Loss (Consolidated)

JPY in Million

Net sales

FY16.6

FY17.3

1Q

2Q

3Q

4Q

1Q

2Q

3Q

10,336

9,507

11,631

12,288

11,55812,258 12,634

IT

Incubation Technology

1,899

657

1,863

1,921

496

596

723

MT

Marketing Technology

4,502

4,730

5,648

6,147

6,550

6,843

7,100

FT

Financial Technology

3,934

4,118

4,119

4,219

4,511

4,818

4,810

MI

Media Incubation

-

-

-

-

-

-

-

1,941

860

1,933

2,838

3,148

1,561

1,118

Income before income taxes
IT

Incubation Technology

1,064

-215

879

1,376

1,340

119

-871

MT

Marketing Technology

247

313

386

448

368

415

290

FT

Financial Technology

413

453

440

451

468

462

547

MI

Media Incubation

627

566

683

1,174

1,292

691

1,103

Note: Income before income taxes per segment is based on figures prior to elimination or group deduction, etc
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

41

Press Releases
Date

Title

2017.4.5

Blockstream Launches New Confidential Assets Feature for Enterprise Bockchain Customers (Press
Release of Blockstream)

2017.2.3

Digital Garage to jointly develop next-generation platform technology with leading blockchain
technology company, Blockstream

2017.1.19

Japan's first preferred point service for cross-border EC malls aimed at members of "HAPPY GO",
Taiwan's largest multi-store loyalty program, is launched2017.1.12

Digital Garage Invests in Mind Fund, a Hong Kong Based Startup Studio and Investor

2016.12.7

Digital Garage collaborates with Toyota to build the future's mobility society support for operation of
the open innovation program TOYOTA NEXT2016.10.19

Digital Garage and DG Lab will host THE NEW CONTEXT CONFERENCE 2016 SAN FRANCISCO

2016.9.20

Apple Pay Coming to VeriTrans2016.8.24

Digital Garage and TIS to Establish Strategic Technological Development Company DG Technologies toDevelop FinTech-related Business2016.7.22

Digital Garage and Daiwa Securities Group establish "DG Lab Fund," a fund directed towards startups
that specialize in next generation technology

2016.7.4

Digital Garage, Kakaku.com, and Credit Saison establish open innovation-based R&D organization "DGLab"Copyright © 2017 Digital Garage, Inc. All Rights Reserved42

Please note that the business forecasts and strategies covered in today’s presentation are based on our current evaluation and future results may vary significantly depending
on unforeseeable events or circumstances. This announcement is solely for the purpose of the investors relationship and is not for making any solicitation for investment inany securities. This announcement does not constitute an offer to sell or the solicitation of an offer to buy any securities in the United States or any other jurisdiction in whichsuch offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. Any securities of our consolidated
subsidiaries have not been registered under the U.S. Securities Act of 1933, as amended (the "U.S. Securities Act") and may not be offered or sold in the United States absent
registration or an applicable exemption from the registration requirements of the U.S. Securities Act. Any public offering of securities to be made in the United States will bemade by means of a prospectus. Such prospectus will contain detailed information about the company making the offer and its management and financial statements.