DIGITAL GARAGE ANNUAL REPORT 2019

DIGITAL GARAGE
ANNUAL REPORT 2019
This annual report was prepared using information current as of August 29, 2019.
Digital Garage, Inc. has been newly selected as a constituent of the “JPX-Nikkei
400,” a stock price index jointly developed by Japan Exchange Group, Inc., Tokyo
Stock Exchange, Inc. and Nikkei Inc.

Digital Garage, Inc.
DG Bldg., 3-5-7 Ebisu Minami, Shibuya-ku, Tokyo 150-0022, Japanwww.garage.co.jp
FY 2019

CONTENTS
03 MISSION
05 HIGHLIGHTS
07 Message from the CEO
11 Message from the Executive in Charge of Finance13 Consolidated Financial Highlights
15 PHILOSOPHY
17 HISTORY
19 FOUR SEGMENTS
20 BUSINESS MODELCONTEXT COMPANY

21 BUSINESS OVERVIEW
23 Financial Technology Segment
25 Marketing Technology Segment
27 Incubation Technology Segment
29 Long-term Incubation Segment
31 Special Conversation
The Two Co-Founders Present Future Business
Policies
37 Feature for the next generation
39 Digital Garageʼs Relationship with Society
41 Management System
43 Corporate Governance
48 Non-Financial Information
49 Financial Information
55 GROUP BUSINESS ACTIVITIES
57 Company & Stock Information

Cautionary Statement
Discussions of Digital Garageʼs current plans and strategies, and outlooks for
future performance, included in this annual report are based on information
available as of the preparation of this report. Digital Garage believes the views
expressed are reasonable as of the time this report was prepared. Nevertheless,risk and uncertainty are inherent in discussions of the future. Users of this report
should bear in mind that various factors may cause actual results to differ fromexpectations or outlooks expressed in this annual report.

01| DIGITAL GARAGE

DIGITAL GARAGE |02

ANNU AL REPOR T 201 9

MISSIONCONTEXTCOMPANY
&
REAL
LOCAL
MARKETINGPRESENTCYBER
INTERNATIONALTECHNOLOGY
FUTURE

Since its establishment 24 years ago, Digital Garage has put itself
forward as a company that creates contexts for the internet era. In
using the word, “context,” we mean shared understanding based onrelationships, environments, culture, and ideas. We established DG
as a company that would explore ways for creating internet contexts
incorporating real space and cyberspace which is set to expandby leaps and bounds and linking Japan with the rest of the world,
marketing with technology, and the present with the future. We alsoestablished DG to be a company that would create contexts useful for
the world. And, indeed, DG has built a solid track record of constantly
being at the cutting edge of internet development, and taking on “firstin-Japan” projects.
We are proud that the history of DG is the history of the internet in
Japan. Looking to the future, we will remain steadfast in our efforts to
add a new page to the history of the internet by creating new services
that contribute to society. We aim to accomplish much and welcome
anticipation of our results.

03| DIGITAL GARAGE

DIGITAL GARAGE |04

HIGHLIGHTSHIGHLIGHTSFY 2019 Highlights

IFRS* Profit before tax in the first fiscal year of
application rose 60% YoY to 13.4 billion JPY,
a record highAll business segments posted
at least double-digit gains YoY

Profit before tax

Consolidated profit before tax by segment(JPY in Millions)(JPY in Millions)

The Financial Technology Segment and Long-term Incubation Segment were both steady, posting double-digit increases
in profits YoY, while the Incubation Technology Segment also posted a substantial 5-fold increase in profits YoYFTDIGITAL GARAGE GROUP(JPY in Millions)MT

FINANCIAL TECHNOLOGY SEGMENT

3,500

13,42414,000

3,000

2,539

2,500

2,000

12,000

1,500

1,758
1,335

2,809

3,174

1,959

1,000

1,478

7,619

7,574

1,390

1,396
1,074

1,061

500

8,376

0

0
FY 15.6

FY 16.6

FY 17.3(change of closing date)

FY 18.3

FY 18.3

JGAAP

IT

IFRS

FY 16.6

FY 17.3(change of closing date)

LTI

6,889

5,000

4,378

4,000

3,621

FY 17.3

FY 18.3

FY 18.3

FY 19.3(change of closing date)

JGAAP

IFRS

2,899

3,176

3,105
2,000

2,000

FY 16.6

3,052

3,000

4,000

0

IFRS

4,477

2,804

FY 19.3

LONG-TERM INCUBATION SEGMENT

5,000

3,000

FY 18.3

JGAAP

INCUBATION TECHNOLOGY SEGMENT

6,000

2,000

FY 18.3(JPY in Millions)

7,000

4,000

FY 15.6

FY 19.3(JPY in Millions)

5,829

6,000

FY 15.6

1,856

500

9,248

8,000

2,000

1,500

1,000

10,000

MARKETING TECHNOLOGY SEGMENT

1,000

766

1,325

1,321

FY 18.3

FY 18.3

1,000

0

0
FY 15.6

FY 16.6

FY 17.3(change of closing date)

JGAAP

FY 19.3

IFRS

FY 15.6

FY 16.6

FY 17.3(change of closing date)

JGAAP

FY 18.3

FY 18.3

FY 19.3

IFRS* International Financial Reporting Standards (IFRS) have been voluntarily applied since FY 2019.

05| DIGITAL GARAGE

DIGITAL GARAGE |06

Kaoru Hayashi
Representative Director, President
Executive Officer and Group CEO
Digital Garage, Inc.
KAORU HAYASHIMESSAGE FROM THE CEO

Using the stable growth ofrecurring businesses as a base,we have accelerated
strategic investment andalliances in the realm ofnext generation technologies.

FY 2019 Financial Summary
Performance went well in FY 2019, the first fiscal year for
adopting IFRS*1, and we were able to achieve a record profit
before tax of 13.4 billion JPY. This is also considered to be
the result of initiatives that are in line with the concept of“A company that creates ʻContextsʼ for the internet era” that
we have proclaimed since our foundation and with our Midterm Business Plan that started in FY 2018 under the slogan“Open Incubation Toward 2020*2.”
In addition, DG voluntarily adopted IFRS from its FY 2019consolidated financial statements. The objective of adopting
IFRS was mainly to shift from the previous presentationof total gross sales to presentation of net revenue in the
FT (Financial Technology) Segment and MT (MarketingTechnology) Segment as the recurring businesses to provide
a clearer picture of the state of revenues. In addition, for theIT (Incubation Technology) Segment, by more adequately
presenting the fair value of the equity value of investee
companies in the financial statements, we indicate thisas being an important guidance for the evaluation of DGʼs
corporate value.
Revenues in FY 2019, the first fiscal year in which IFRS
applied, rose 39.9% YoY to 35.7 billion JPY, profit before tax
rose 60.3% YoY to 13.4 billion JPY, and profit attributable toowners of parent rose 52.4% YoY to 9.8 billion JPY, postinga record profit. Double-digit increases or more in revenues
were secured for all businesses and revenues in recurringbusinesses such as the FT/MT Segments rose 25% YoY. In
terms of profit, we achieved a substantial increase in profits
with a rise in the fair value of securities held in the IT/LTI(Long-term Incubation) Segments.
In the FT Segment, revenue rose 12.9% YoY and profit
before tax rose 13.0% YoY to reach 3.2 billion JPY. Totalamount of payments handled continued to rise 34% YoY to
2.1 trillion JPY, and the number of payments handled rose
*1 IFRS: International Financial Reporting Standards

33% YoY to 390 million transactions. There was a sharp
approximate 3-fold increase YoY in the strategic areas of
non-EC payments/face-to-face payments, which drove
growth of the segment as a whole.
In the MT Segment, revenue rose 37.6% YoY and profit
before tax fell 25.1% YoY, resulting in increased revenue
and lower profit. In our mainline handling of advertisements,
in addition to the real estate sector, revenue increased to thestrong financial sector. On the other hand, enhancements
to our consulting strength for national clients, which is
expected to grow, and upfront investment in branding
advertisements and video advertisements lead to lower
profits.
Revenues in the IT Segment rose 3.1x YoY to 8.0 billion JPY,
and profit before tax rose 5.2x YoY to 6.9 billion JPY, driving
overall earnings. The fair value amount for the specificevaluation of financial instruments under IFRS (investee
stock evaluation) substantially increased over the previous
period. In particular, this was attributed to the large
increase in corporate value of investees mainly in Asia. In
addition, Welby Inc. (Tokyo Stock Exchange Mothers: 4438),
which is a strategic investee in the domestic BioHealthsector, conducted an IPO on March 29 that is forecast to bereflected in DGʼs corporate value in FY 2020.
In the LTI Segment, revenue rose 13.2% YoY and profit
before tax was 4.4 billion JPY, a 20.9% increase in profits.
The performance of equity-method affiliate Kakaku.com,
Inc. also produced an operating profit that was virtually inline with forecasts and steadily contributed to the segmentʼs
performance.
Furthermore, we also believe we were able to steadily
implement the various policies forming the first step toward
future growth at in the IT Segment, LTI Segment, and DG
Lab, our R&D platform.

*2 Cultivating potential businesses in an open eco-system through tie-ups with other companies

DIGITAL GARAGE |08

Message from the CEO

ANNU AL REPOR T 201 9

Spur the expansion of a cashless society

Discovering promising start-ups in various sectors through the Open Network Lab

Looking broadly at our individual businesses, the FT Segment
is being spurred by the sharply expanding cashless society as
well as the steady growth of the EC market. The year has beenmarked by enhancements to the multi-payment service thatprovides unification of diverse payment methods and certain
progress in increasing our share of the non-EC market suchas public-funds sector. Symbolic of this was the establishmentof the joint venture multi-payment solutions company “TD
Payment Corporation ” announced by VeriTrans Inc. withTOSHIBA TEC, which has No.1 domestic market share of POS,
in November 2018. TD Payment provides speedy solutions to
the need to implements diverse cashless payments to deal withaspects such as the increase in inbound customers. As the firstarrow, targeting businesses currently using TOSHIBA TECʼs POS
system, the company provides the non-maintenance of credit
card information for security enhancements and multi-payment
solutions that can easily introduce various payment methods
such as domestic QR/barcode payments such as LINE Pay and d
Payment® and QR/barcode payments for inbound customers andvarious electronic money payments.
In the public-funds sector, econtext, Inc. was contracted
by the National Tax Agency to provide a QR Code-based tax
collection service for convenience stores in 2018. Throughthis, econtext commenced the provision of convenience store
payments services for the National Tax Agency at FamilyMart,
Lawson and MINISTOP on January 4, 2019. In addition, VeriTrans
commenced the provision of credit card payments service forthe credit card payment collection system for patent and otherfees launched by the Japan Patent Office on April 1, 2019. In the
future, as the provider of payment services that have grown withsocial infrastructure, we will support with the improvement in
the efficiency of various government collections and improvethe convenience for taxpayers to pay taxes by providing payment

Operating since 2010 for the purpose of cultivating
entrepreneurs aiming for the world “Open Network Lab” hasbecome well-known as one of Japanʼs leading seed accelerator
programs and it has accelerated initiatives in specific sectors
and targeted at specific regions.
Even the “Open Network Lab HOKKAIDO, ” which was thefirst regional specific program and implemented in 2018,
is focused on D2 Garage, a joint venture between DG and
Hokkaido Shimbun Press, and has recruited for its second
year. Taking account of the performance in the first year, theplan is to select team members focused on start-ups involvedin businesses that utilize Hokkaido assets such as primaryindustry, tourism and the abundant nature. In addition, in May
2019 we commenced the “Open Network Lab FUKUOKA” tocultivate start-up companies to realize a Smart City using the
Fukuoka region as a test place in a tie-up with the Fukuoka
Directive Council and Fukuoka Growth Next. In the future, wewill establish programs to cultivate local specific start-ups
aimed at regional revitalization, while cooperating with othermajor cities in Japan.
The “Open Network Lab Resi-Tech” commenced in November
2018 as an area specific program targeting real estate
related start-ups. Following 3 months of cultivation, teams
participating in the first period celebrated a Demo Day, which
was held in July to present the outcomes to investees andbusiness partners. This program brings together a consortium

solutions for the public-funds sector,
R e g a rd i n g t h e p a y m e n t b u s i n e s s , w i t h a v i e w t ocommercialization in a few years, DG Lab is leading ourdevelopment of new payment solutions using blockchain.
Crypto Garage, Inc. was established as a joint-venture with
Tokyo Tanshi Co., Ltd. and Blockstream for the purpose ofdeveloping blockchain financial services and it received official
authorization to conduct the first Fintech project under the
Cabinet Officeʼs “Regulatory Sandbox” system in January 2019.
Based on this sandbox system, Crypto Garage commenced
cooperation with multiple business partners in trial experimentsfor payment service by issuing JPY-Token and simultaneously
exchanging crypto assets.
Apart from this, we also commenced the realization of thegrowth strategy that combines the FT business and MT
business. Providing the CRM & payment platform to Kyushu
Railway Company (JR Kyushu) announced in March 2019.
Starting with the JR Kyushu point service “JR Kyupo,” developinga smartphone app aimed at increasing engagement between
users and the JR Kyushu Group. In the future, by providing
this CRM & payment platform to various businesses, we willcontinue to develop business spanning the payment businessand the marketing business with the aim of this becoming a newpillar of revenues for the DG Group.
In addition, in May 2019 we commenced the provision of “Cloud
Pay,” which is a merchant-presented mode (MPM) multi-QR
Code payment solution that makes it possible for consumers
to scan QR Codes displayed at stores with their smartphones
to make payments. Stores that have introduced the system only
have one QR code in the store but are able to conduct multiple
QR and barcode payment services such as d Payment®, Alipay,
WeChat Pay, Merpay, and LINE Pay.

Investment business is in a harvest period
There has been substantial growth for a number of investees
in the Asian region where the IT business, which discovers
promising start-up companies around the world and supportsbusiness, has been putting its efforts during the past 5 years, andwe are heading for a period of reaping the investment returns.
In particular, major ride-hailing company in Indonesia, GO-JEKGroup, has grown as one of a few unicorn companies in thatcountry. Droom Technology Private Limited, which operates
the largest online automobile marketplace in India, and Sen
Do Technology, which is developing the management of a C2C
and B2C marketplace in Vietnam have both grown substantiallyfrom when DG first invested. Overseas, investment activity in
Silicon Valley is also lively. Apart from investing in major ridesharing service for electric scooters, Lime (Neutron Holdings,Inc.), in March 2019, we are also a lead investor in GrubMarket,
Inc., which is involved in a marketplace to link producers ofagricultural products with restaurants, etc.
Japanese investee Welby Inc., which is involved in the businessof supporting individual health management through an app
that records data such as blood sugar level, blood pressureand diet listed on the Tokyo Stock Exchange Mothers Sectionin March 2019. DG sees Welby Inc.ʼs service as the gateway
to PHR (personal health records) and we are building a

09| DIGITAL GARAGE

platform to use Big Data for health and medical information ofindividuals in particular through alliances with nationwide local
governments bodies, national health insurance and insurance
schemes, medical institutions, pharmaceutical companies andhealth-related businesses. Apart from this, within Japanese
investees there has been increase in the number of start-ups
for future generations such as WHILL, Inc., which develops
and provides the world with new personal mobility by a teamthat has graduated from the Open Network Lab, and Idein Inc.
in the AI sector, which has an established reputation for its
technological strength in edge computing. In the future, we willfurther strengthen the global incubation stream connecting
North America and Japan, Asia and Europe to invest in promisingoverseas start-ups, support development in Japan and Asia, as
well as support the global expansion of Japanese start-ups.

of major domestic real estate companies, construction andlifeline companies and is managed together with 9 partnercompanies. The plan is to turn out successive promising
Resi-Tech start-ups involved in housing, real estate services
and life-style services as the cumulation of IoT through thisprogram.
In area specific programs, considerable interest has
been continued to generate from major pharmaceuticalmanufacturers and medical companies in “ Open Network
Lab BioHealth” which aims to promote open innovation andcultivation of start-ups in the biotechnology and healthcare
sectors. In January 2019, following the Demo Day for the
first period, preparations for the programʼs second period
commenced with enhanced details. Apart from this, for startup support in the bio-sector, we are also enhancing the tieup with PureTech Health with which we have had a businessalliance since 2017. There are many promising start-ups
under the PureTech Health umbrella, and in particular DG has
provided support to Akili Interactive Labs, Inc., which has been
producing results in the so-called Digital Therapeutics (DTx)sector that treats using digital technologies as an alternative
to drugs. DG plans to develop new markets together with Akili
Interactives Labs, through the establishment of an industry
leading consortium and by increasing awareness of DTx inJapan.

Shareholder Returns
Although the dividend payout ratio was only 13.3%, treasury
share was purchased in August 2018, and if this is taken into
consideration the total return ratio was 64.3%.
In 2020, Digital Garage will welcome the 25th anniversaryof its founding. As a company that would create “contexts”
useful for the world, since its establishment, DG has built asolid track record of constantly being at the cutting edge ofinternet development, and taking on “first-in-Japan” projects.
The DG Group will maintain its spirit of the “First Penguin”
and use DG Lab as a place for experiments while accurately
grasping the trends in cutting-edge technologies and alsoutilizing the know-how and global network for incubation built
to date to generate context for the next 50 years. I would liketo take this opportunity to ask all our stakeholders, including
our shareholders, for an even greater level of support andencouragement.

DG views shareholder returns as one of its principal
management concerns. We make decisions on shareholder
returns based on considerations of factors such as financial
condition, business performance outlook, and capital needs
for growth investments. The Mid-Term Business Plan calls
for us to achieve a dividend payout ratio of 20% as a target
for shareholder distribution while ensuring internal reserves
necessary for growth investments and enhancing the financialbase. Due to the voluntary application of IFRS, gains and losses
on fair value valuation not associated with cash flows could
account for a higher proportion of profit before tax than in thepast, but there may be adjustments through comprehensive
consideration of effective cash flows with deduction gains
and losses on fair value valuation from profit before tax. Notethat the FY 2019 year-end dividend was up 4 JPY per sharefrom the previous period with an ordinary dividend of 28 JPY.

FY 14.6

FY 15.6

FY 16.6

FY 17.3

FY 18.3

FY 19.3

Ordinary dividend

5 JPY

5 JPY

15 JPY

20 JPY

24 JPY

28 JPY

Commemorative
dividendー(20th anniversary)

ー

ー

ー

(JGAAP)

Total cash
dividends(JGAAP)

20 JPY(JGAAP)

15 JPY(Commemorative dividend on the occasion of
the move to the TSE First Section)(JGAAP)(JGAAP)(IFRS)

0.23 billion JPY 1.17 billion JPY 1.41 billion JPY 0.94 billion JPY 1.13 billion JPY 1.28 billion JPY

Purchase oftreasury shares

ー

ー

ー

ー

ー

5.0 billion JPY

Ordinary dividend
payout ratio

8.2%

4.5%

13.7%

22.0%

20.7%

13.3%

Total return ratio

8.2%

23.1%

27.3%

22.0%

20.7%

64.3%

DIGITAL GARAGE |10

Message from the Executive in Charge of Finance

ANNU AL REPOR T 201 9

Message from the Executive in Charge of Finance

JPY in Millions

Commenced applying IFRS, with financial statementsthat better reflect the business of the DG Group
Promoting growth investment and a financial strategy
to maximize shareholder value

Member, Board of Directors, Senior Executive
Officer and Senior Executive Vice President

MAKOTO SODAIn FY 2019, the first fiscal year in which IFRS was adopted, profit before tax rose 60% YoY to 13.4 billion JPY, a record high.
In FY 2019, revenues were 35,687 million JPY (+39.9% YoY), profit
before tax was 13,424 million JPY (+60.3% YoY), profit attributableto owners of parent was 9,771 million JPY (+52.4% YoY), andcomprehensive income was 9,515 million JPY (+49.4% YoY). Profit
before tax, profit attributable to owners of parent and comprehensive
income all achieved record highs.
A substantial upward revision was achieved when compared to theinitial plans, with earnings at 106.5% of the initial forecast of 33,500
million JPY, and profit before tax, and indicator DG places significant
weight on, was 149.2% of the initial forecast of 9,000 million JPY, andprofit was 157.6% of the initial forecast of 6,200 million JPY.
By business segment, all segments secured more than double-digit
FY 19.3(Full Year Act)

Revenue
Revenue in recurring business
Revenue in operational investment securities
Other income
Finance income
Share of profit of entities accounted for using equity method
Expenses
Cost of sales
Selling, general and administrative expenses
Other expenses
Finance costs
Profit before tax

25,50318,141
1,007
2,111
764
3,481
17,127
7,187
9,095
542
303
8,376

35,68722,713
6,090
1,933
117
4,835
22,264
10,401
11,296332
235
13,424

+39.9
+25.2
6.0 X
-8.4
-84.7
+38.9
+30.0
+44.7
+24.2
-38.8
-22.5
+60.3

33,500

9,000

+49.2

Profit attributable to owners of parent

6,412

9,771

+52.4

6,200

+57.6

Comprehensive income

6,368

9,515

+49.4

FY 18.3(Full Year Act)FY 19.3(Full Year Act)

YoY

78,77639,45021,33016,74540,7697,959

99,18648,15423,254
26,69547,704
6,575+20,410+8,704+1,924+9,950+6,935-1,384

JPY in Millions
Current assets
Cash and cash equivalents
Trade and other receivables
Operational investment securities
Non-current assets
Goodwill
Investments accounted for using equity method

YoY
(%)

FY 19.3(Initial Forecast)

Act vs Fcst(%)

FY 18.3(Full Year Act)JPY in Millions

11

increases in revenue. In the MT Segment, profit fell 25.1% YoY, while
there were double-digit increases in profits for both the FT and LTI
Segments, and the IT Segment posted a substantial 5-fold increasein profits.
ROE, which is one numerical target in the Mid-Term Business Plan,rose 5.8 percentage points YoY to 21.9%, achieving the 20% target
for the final year of the Mid-Term Business Plan (FY 2020) one
year in advance. Although the dividend payout ratio was only 13.3%
compared to the target of 20%, the total return ratio when treasury
share purchases are included was 64%. The year was one in which
improved capital efficiencies and enhanced shareholder returns
were achieved.

+6.5

FY 19.3(Full Year Act)

25,503
5,929
9,939
2,553
6,301
8,376
2,809
1,856
1,321
3,621

35,687
6,693
13,676
8,022
7,133
13,424
3,174
1,390
6,889
4,378

Revenue
FT
Financial Technology
MTMarketing Technology
IT
Incubation Technology
LTI
Long Term Incubation
Profit before tax
FT
Financial Technology
MTMarketing Technology
IT
Incubation Technology
LTI
Long Term Incubation

YoY
(%)

FY 19.3(Initial Forecast)

+39.9
+12.9
+37.6
3.1 X
+13.2
+60.3
+13.0
-25.1
5.2 X
+20.9

33,5006,500
14,500
3,100
6,500
9,000
3,200
2,250
1,350
3,450

Act vs Fcst
(%)
+6.5
+3.0
-5.7
2.6 X
+9.7
+49.2
-0.8
-38.2
5.1 X
+26.9

* Segment revenues and profit before tax are before adjusting for eliminations of intersegment transactions between segments, all company revenues and expenses

Commencement of voluntarily application of the International Financial Reporting Standards (IFRS)JPY. In addition, share of profit of entities accounted for using
equity method that were previously posted as non-operating
income under J-GAAP are posted as revenues under IFRS, whichrose 39% YoY in FY 2019 to 4.8 billion JPY. In addition to the strong
performance of equity-method affiliate Kakaku.com, Inc., this was
attributed to the results of a successful strategy with FT Segment
alliance partners.
The generally-used method for evaluation of corporate valueof a company such as the DG Group, which has multiple diverse
businesses is to calculate the value of each business segment
then add them to calculate the total value, in what is the so-called“Sum-of-the-parts.” We believe we have provided shareholders andinvestors with materials to discuss the DG Groupʼs corporate value(business value, asset value) by adopting IFRS.
Engagement with shareholders and investors has been more
active through the financial report in accordance with IFRS, and webelieve this has led to maximization of corporate value.

We have voluntarily applied the International Financial ReportingStandards (IFRS) for the consolidated financial statements fromFY 2019, replacing the Japanese Generally Accepted Accounting
Principles (JGAAP) previously applied. Consolidated financial
results for FY 2018 and FY 2019 are disclosed in accordance withIFRS.
The objective of adopting IFRS was to enable the financial
statements to better reflect DG Group ʼ s business to enable
stakeholders such as shareholders and investors to have more
useful information. Specifically, in the FT and MT Segments as therecurring businesses, the shift from the previous presentation of
total gross sales to presentation of net revenue was to provide aclear picture of the state of earnings, while in the IT Segment, theequity value of investee companies was posted more appropriately
as fair value on the balance sheet. The FY 2018 fair value amountwas 1.3-fold the book value of 12.3 billion JPY at 16.7 billion JPY,
while the FY 2019 fair value amount rose 60% YoY to 26.7 billion

We have voluntarily applied the International Financial Reporting Standards (IFRS) forthe consolidated financial statements from FY 2019.
- More accurately reflecting the state of revenues for FT/MT and the fair value for the investment business FY 18.3

Ⅰ

More accurately reflecting the Groupʼsbusiness in the IFRS financial statements

Recurring

FT■ FT and MT ： Clearer reflection of the state of revenues byshifting from the previous presentation of the total grossamount to the presentation of net revenue■ IT and LTI ： Appropriately post the evaluation amount on

Funding through the issuance of convertible bonds, purchase of treasury share, repayment of loans, etc.
FT business-related items
Increase in new investment and fair value amount of investee companies
Decrease and impairment due to sale of shares
Investment profit on equity method, increase in thefair value amount of equity-method fund investees
New investment and market valuation of listed shares

19,139+5,224

Other financial assets
Total assets

5,010
119,545

6,662
146,890+1,652+27,345

Current liabilities
Borrowings
Trade and other payables
Non-current liabilities

48,044
4,623
39,40728,302

52,4202,211
45,79947,125+4,376-2,413+6,392+18,822

Partial allocation of funds raised through issuance of convertible bonds to repay loans
FT business-related items

Bonds and borrowings

19,24335,959+16,716

Deferred tax liabilities
Total liabilities

2,754
76,346

4,744
99,545+1,990+23,199

Issuance of convertible bonds, partial allocation of funds
raised through issuance of convertible bonds to repay loans
Estimated tax pertaining to gains on valuation of securities

Total equity
Equity attributable to owners of parent
Share capital
Capital surplus
Treasury shares
Other components of equity
Retained earnings
Non-controlling interests
Total liabilities and equity

43,19942,717
7,465
3,748
-26
1,575
29,955483
119,545

47,34546,6097,504
4,235-5,026
1,303
38,593736
146,890+4,146+3,892+39+487-5,000-272+8,638+254+27,345

Acquisition of treasury share
Included in profit
The fair value amount of investee companies is 26.7 billion JPY
ROE achieved 22%, exceeding the 20% target in the Mid-TermBusiness PlanROE

FY 18.3

FY 19.3

16%

22%

MT

the balance sheet by taking the fair value ofthe investee companies.

Main fluctuation factors / Remarks

13,915| DIGITAL GARAGEFY 18.3(Full Year Act)

Ⅰ
Ⅰ

Improves the ability for international comparison offinancial information in the capital markets

Ⅰ
Ⅰ
Ⅰ

Rapid response to Group businessenhancements / M&A and reorganizations

21.0 (billion JPY)
2.5 (billion JPY)
Rate of return 12 %

LTI

IFRS

IFRS

5.9 (billion JPY)
2.8 (billion JPY)
Rate of return 47 %

6.7 (billion JPY)
3.2 (billion JPY)47 %Net sales

Revenue

Profit before tax

Profit before tax

34.9 (billion JPY)
2.0 (billion JPY)
Rate of return6%

9.9 (billion JPY) 13.7 (billion JPY)
1.9 (billion JPY) 1.4 (billion JPY)
Rate of return 19 %10 %Net sales

Revenue

Profit before tax

Profit before tax

FY 18.3

Investment／
IncubationIT

FY 19.3

JGAAP

FY 19.3

JGAAP

IFRS

IFRS

Acquisition cost*

Fair value*

Fair value*

Investeeevaluation

12.3 (billion JPY)

Investeeevaluation

16.7 (billion JPY) 26.7 (billion JPY)

* Refer to the figures for operational investment securities in the Consolidated Balance Sheet (JGAAP)/Consolidated Statement of Financial Position (IFRS).

25.0 billion JPY in funding through issuance of euro-yen convertible bond-type bonds with share acquisition rights 5.0 billion JPY treasury share acquisition
DG has a financial strategy that is mindful of an optimal capital
structure and is constantly taking note of the balance between capitaland liabilities for the Groupʼs medium to long-term strategy and to
maximize corporate value.
Based on this type of financial strategy, we are promoting the MidTerm Business Plan slogan “Open Incubation Toward 2020” andaiming to maximize corporate value through growth investment
in DG Groupʼs business segments, investment in the development
and commercialization of DG Lab, improving capital efficiency andenhancing the financial base, so in September 2018, we raised 25.0
billion JPY through the issuance of euro-yen convertible bond-typebonds with share acquisition rights. This was the large financing

in 7 years since the 8.0 billion JPY capital increases through public
offerings in 2011, which promoted the creation of a platform for thesecond chapter in DGʼs rapid progress. Note, that this convertible
bond was issued with a zero coupon at over par, so we achieved low
cost funding.
Furthermore, part of the funds raised were used for DGʼs first 5.0
billion JPY treasury share acquisition, which was aimed to improve
capital efficiency and enhance shareholder returns.
Based on the balance between promoting growth investment,
securing financial soundness and enhancing shareholder returns, wewill continue to implement a financial strategy that is conscious of an
optimal capital structure.

DIGITAL GARAGE |12Consolidated Financial Highlights

ANNU AL REPOR T 201 9

Key Performance Indicators
Revenue

Ratio of equity attributable to owners of parent to total assets (equity ratio)(JPY in Millions)60,16860,00050,00040,00038,08743,76335,68736,451

30,00025,50320,00010,0000

FY 15.6

FY 16.6 *FY 17.3 FY 18.3

FY 18.3

FY 19.3

IFRS

JGAAP

Revenue rose 39.9% YoY, to 35.7 billion JPY in FY
2019. In the FT Segment, apart from the steady trend
in the amount of payments handled and the numberof payments transacted, there was an increase thevolume handled in the MT Segment and revenues fromrecurring business increased over the previous year. In
addition, for the IT Segment, apart from the expansionof revenue in operational investment securities with
the increase in equity-method value of investees
through fair value calculation, the share of profit ofentities accounted for using equity method for Kakaku.
com, which belongs to the LTI Segment, was 3.4 billion
JPY, and results surpassed the previous year for all
segments.
Note the adoption of IFRS from this period meant there
was a shift in the FT/MT Segments from presenting
total gross sales to presenting net revenue.

Profit Before Tax

38.9%

40%

36.6%
35%

34.7%

33.1%

35.7%

31.7%

30%
25%
20%

FY 15.6

FY 16.6 *FY 17.3 FY 18.3

FY 18.3 FY 19.3
IFRS

JGAAP

Operational investment securities(JPY in Millions)

13,42414,00012,00010,000

9,248
7,619
5,829

6,000
4,000
2,000
0

FY 15.6

FY 16.6 *FY 17.3 FY 18.3

FY 18.3

FY 19.3(JPY in Millions)

10,000
8,000

6,412
5,460
4,289

4,000
2,000
0

FY 15.6

FY 16.6 *FY 17.3 FY 18.3
JGAAP

16,74515,00010,00011,164

FY 18.3

11,856

12,364

8,208

5,000
0

FY 15.6

FY 16.6 *FY 17.3 FY 18.3

FY 18.3

FY 19.3

IFRS

Due to the adoption of IFRS from this period, there
was a change in accounting treatment to evaluate
operational investment securities at fair value
at the end of the period and record them on thebalance sheet. Consequently, the equity-method
value of investee companies in the IT Segment wasreflected more accurately on the balance sheet.
The balance of operational investment securities
rose 60% YoY, to 26.7 billion JPY in FY 2019. There
was portfolio switching in the IT Segment withsome securities sold as part of the incubation
results while there was 7.0 billion JPY in newinvestment. In addition, the fair value amount ofoperational investment securities that continue tobe held grew, the amount of increase from the end
the previous year was 4.0 billion JPY.

ROE

9,771

5,165

20,000JGAAP

Profit Attributable to Owners of Parent

5,081

25,000

IFRS

JGAAP

6,000

26,695(JPY in Millions)

Profit before tax rose 60.3% YoY, to 13.4
billion JPY in FY 2019. Apart from increasing
the number of strategic personnel in the MT
Segment, selling, general and administrative
expenses increased due to upfront investment
in DG Lab, etc. However, revenue surpassed
expenses, so there was a substantial increase inprofits exceeding the initial forecast.

8,376
7,574

8,000

The ratio of equity attributable to ownersof parent to total assets fell 4.0 percentage
points YoY, to 31.7% in FY 2019. 25.0 billion
JPY in convertible bond-type bonds with shareacquisition rights was issued in September
2018, and 5.0 billion JPY was strategically used
to acquire treasury share. DG has a financial
strategy that is mindful of an optimal capital
structure and takes note of the balance between
capital and liabilities. This convertible bond wasissued at favorable timing in the stock market
and we were able to raise funds at low cost.
Going forward, we will maintain financial healthwhile conducting the financial and IR strategy
utilizing some level of asset/equity ratio.

FY 19.3

IFRS

FY 2019 profit attributable to owners of parentrose 52.4% YoY to 9.8 billion JPY, posting arecord high for the second consecutive period.
High growth continues, with a 28.0% CAGR in
the most recent five fiscal years. The FT/MT
Segments achieved medium to long-term stable
growth particularly in recurring earnings. In
addition, in the IT Segment, the increase in thefair value amount of operational investment
securities contributed to earnings which isthought to have been the outcome of past
initiatives to increase investment value.

30%

21.9%
20%

17.2%

17.6%
13.5%

15.3%

16.1%

10%

0%

FY 15.6

FY 16.6 *FY 17.3 FY 18.3
JGAAP

FY 18.3

FY 19.3

In FY 2019, ROE rose 5.8 percentage points
YoY, to 21.9%. This fiscal year, in addition to thedecline in equity with the acquisition of 5.0 billion
JPY in treasury share, there was considerable
increase in the profit attributable to owners ofparent. Therefore, the target for ROE of 20%
in the Mid-term Business Plan released in
May 2017 was achieved one year in advance.
Effort will be made to maintain a ROE level of
20% through management that is focused on
profitability and capital efficiency.

IFRS* FY 17.3 was a nine months accounting period, so the figures shown are annualized.

13| DIGITAL GARAGE

DIGITAL GARAGE |14

PHILOSOPHY

ANNU AL REPOR T 201 9

PHILOSOPHYFIRST PENGUINSPIRITFor a colony of penguins to survive, they require their staple food: fish. However, the deep ocean
where fish thrive is also home to dangerous predators such as killer whales and leopard seals
that prey on penguins. The penguin that courageously decides to be the first to take the plunge,
despite the possibility of encountering such predators, is referred to as the “First Penguin.” TheEntering the 4th Stage of Incubation toward
our 25th Anniversary in 2020

Digital Garage Group was founded on the creed of being the “First Penguin” -having the courage

In the one year leading up to the 2020 Tokyo Olympic and Paralympic

and unshakeable will to be the first to step forward and take up a challenge.

Games, the business environment is expected to experience the end of someexisting businesses and the creation of new businesses, brought about byWith all of our employees guided by the spirit of leading and being the “First Penguin,” we will

unprecedented rapid technological innovation. To respond to these major shifts,

move forward to provide services that are useful to the world.

DG launched a new Mid-term Business Plan with the slogan “Open Incubation,”
which is the next step for “Open Innovation.”

THINK FOR YOURSELF AND QUESTION AUTHORITY- Timothy Leary

With DG Lab, an open innovation platform for R&D established in July
2016, at the core, DG will support the creation of a new Japan and further
expand business. We will accomplish this by using context to connect new
businesses created by technological innovation while collaborating with various
corporations, from startups to major corporations, engaged in progressive
initiatives.

15| DIGITAL GARAGE

DIGITAL GARAGE |16

DG HISTORY

Digital Garageʼs history

2019

2019

While forming the incubation stream, the experience andEstablished the joint-venturecompany TD Payment
Corporation with VeriTrans Inc.
and TOSHIBA TEC CORPORATION
to develop multi-payment
solutions for POS systems

Commenced provision of read-only
multi-QR code payment solution ”Cloud Pay”

1995-2019

The track record of business incubation is formed by the main part of Japanʼs

JPY/acquired the first authorization for “Regulatory Sandbox in Japan” in theinternet history. Crawler-based search services/blog search/price comparison

FinTech field (Crypto Garage, Inc.).

track record accumulated while constantly being

with e-commerce (Kakaku.com)/restaurant search site (tabelog.com)/

Then now, “Open Innovation” has been jointly created by group companies andinvolved in cutting-edge Japan and overseas internet

localization support and advertisements for social media (Twitter, Facebook,partner companies and is fully operational with DG Lab as the platform. In

businesses has become a strength of Digital Garage

LinkedIn)/total handled by two companies in the convenience store payment

addition, Japan and overseas investment is accelerating in the DG Lab FundGroup, which has been the source for generating highplatform (econtext, Inc.) and credit card payment platform (VeriTrans Inc.) is 2.1(anticipate a total of 30.0 billion JPY for DG Lab Funds I and II) in the areas ofvalue-added context.

trillion JPY/total OMO* handled in the digital marketing sector is 36.5 billion

blockchain, AI, VR/AR, BioHealth and security.

Launched the first transverse consortium program in theindustry dedicated to the area of residences and living

1995
Created Japanʼs first personal
homepage “Tomigaya,” andestablished Digital Garage toplan and create internet-based
advertising.

2017

2000

Digital Garage was listed

Established econtext, Inc. toon the OTC (now the Tokyo

provide payment and other

Stock Exchange JASDAQ).

e-commerce solutions.

2004

2005

Kakaku.com was listed on

Made DG&Ibex, a company providing
advertising and promotion services
by fusing real space and cyberspace,into a consolidated subsidiary.

Established DG Incubation to

the Tokyo Stock Exchange
Mothers Index.

2011

DG Lab developed DG Lab DVEP™,
an all-purpose framework to issue
unique virtual currencies on the
Bitcoinʼs blockchain.

2008

2016

2016

2016

Launched an R&D platform by

Established ANA Digital Gate, Inc.,a joint venture between VeriTrans
Inc. and ALL NIPPON AIRWAYS
TRADING CO., LTD. developing
new payment solutions.

Invested in Blockstream,Inc., which develops
blockchain technology.

Entered into a business

invest in and provide businessalliance with Twitter, Inc. andsupport to venture companies.

provided localization support.

2012

2013

2011

2013
DG, Kakaku.com, and Credit

Established the Open

Established DGUS, the DG

Made VeriTrans Inc. into a

Established the incubation

Network Lab to support

Groupʼs US base of

consolidated subsidiary tocenter, DG717, in the heartwith the Dentsu Group,

next-generation startups.

operations, to accelerate US

become one of Japanʼsof San Francisco.

embarked on a big data

incubation activities.

largest payment platforms.

2000’95-’00
PORTAL SEARCH

Established an internet advertisingbusiness with a high-traffic portalsite and crawler-based searchengine at its core.

1995

Microsoft introduces
Windows 95

1998

2018
Launched the open innovation type accelerator
program in the biotechnology and healthcare sectors

2003

1995

Acquired the first authorization
for the blockchain sector by theRegulatory Sandbox in Japan in
the FinTech field.

協力パートナー

2000

Key Web
Milestones

2019

2018

BI. Garage, a joint venture

2008’O0 E-COMMERCE
DESTINATION SITE

’O8
SOCIAL MEDIA

Expanded advertising/marketingbusinesses for a new era ofusers utilizing blogs, Twitter, andother forms of social media.

Hybrid Solution

Social Media Incubator

2000

Google introduces a Japaneselanguage search service

businesses, DG Lab.

operations mission.

Established an operational basethrough by developing a settlement
service targeting e-commerce sites, andby investing in Kakaku.com, a company
developing a price- comparison site.

Number of Internet users
in Japan surpasses 10 million

Saison to create new

2007

Apple introduces
the iPhone

2008

Number of fiber-optic service users
exceeds number of ADSL users in Japan

2016 2017 2018
Established “DG Lab,”an R&D platform, withthe aim of developing
technology that
supports next
generation businesses.

In anticipation of thebusiness environment in
the year 2020 and beyond,starting preparations todevelop new businesses
through open incubation.

IT/MT/FT
2014

Number of smartphone subscribers
exceeds number of feature phone subscribers

2017

O p e n I nn oRecorded an all-time high for profit
for the first time in nine periods, and
DG Lab began full-scale initiatives
aimed at commercialization.

vationAI program called “AlphaGo” beats the best
professional Go player in the world

2018

n
Ope

GDPR is enacted

2019’19 FUTURE…

Profit before tax for the
first year under IFRS
rose 60% YoY to 13.4
billion JPY, a record
high.

on
ati
b
u
Inc

2019

0
02
2
d
ar
w
to

5G network launches

2020

Tokyo Olympic and Paralympic
Games* Online Merges with Offline. A marketing philosophy that merges online and offline to remove the border between the two and have the starting point for everything begin online.

17| DIGITAL GARAGE

DIGITAL GARAGE |18

FOUR SEGMENTS / BUSINESS MODEL

ANNU AL REPOR T 201 9

FOUR SEGMENTS
FOUR SEGMENTS and BUSINESS CONCEPTS

BUSINESS MODEL
THE DIGITAL GARAGE GROUPʼS THREE EARNINGS BASES

Business ModelWe create innovative internet
services with open innovation
in four s egment s. A dding tosustainable growth in marketing(MT) and payment services (FT),
which are indispensable for the
profitability of internet-related
businesses, we will discern the
future of technology evolution andcreate new businesses through DG
Lab, an open innovation platform.

IT

Incubation Technology
Segment

LTI

MT

Long-term Incubation
Segment

Marketing Technology
Segment

FT

Financial Technology
Segment

POINT 01

MT

E-COMMERCE
DESTINATION SITE

SOCIAL MEDIA

1995-2000

2000-

2008-20152016 MARKETINGPAYMENT

Organic growth in the IT, MT, and
FT Segments.

POINT 02

環亞智富有限公司

Advertising | Promotion

Big data businesse-Commerce | Online Settlement Platform

Acceleration of incubation with DGʼsunique cross-segment platform.

ENABLING PLATFORM | 2 EARNINGS BASES

POINT 03

ENABLING PLATFORM | 2 EARNINGS BASES

Continuously bringing incubation
results into the DG Group.

FT

Segment
Marketing Technology

PORTALSEARCH

Advertising | Promotion

Big data businesse-Commerce | Online Settlement Platform

Segment
Financial Technology

環亞智富有限公司

Connecting diverse business areas with contexts, discerning the evolution oftechnology, and buildinga system capable of ongoing business growth
Segment

Incubation model applying the enabling platform

DG applies three fundamental technologies – IT (Information Technology), MT (Marketing Technology) and FT (Financial

The Marketing Technology Segment and Financial Technology Segment are generating stable earnings as two earnings

Technology) – to create new contexts for the internet era. These new contexts, projected onto business areas, have given

1995-2000
2000- model uses
2008-2015
this enabling platform to invest in and nurturebases (enabling platform).
Digital Garageʼs incubation

rise to our Incubation Technology Segment, Marketing Technology Segment, Financial Technology Segment, and Long-

MEDIA
companies in Japan and abroad.
to this incubationSOCIAL
model,
we are striving to continue contributing to
PORTAL Adding DG Lab
E-COMMERCE

term Incubation Segment.

society by further accelerating incubation, and developing and providing useful services.

LTI

MARKETINGPAYMENT2016 -

Long-term Incubation

SEARCHDESTINATION SITE

IT

Segment
Incubation Technology

19| DIGITAL GARAGE

DIGITAL GARAGE |20

BUSINESS OVERVIEW

ANNU AL REPOR T 201 9

BUSINESS OVERVIEW
Principal Companies

FT
FINANCIAL TECHNOLOGYSEGMENTMT
MARKETING TECHNOLOGYSEGMENT
P.26

IT
INCUBATION TECHNOLOGYSEGMENTLTI
LONG-TERM INCUBATIONSEGMENT

21| DIGITAL GARAGE■As one of Japanʼs largest payment systemprov ider s, we prov ide a di ver sit y o fcomprehensive payment platforms including
credit card payment, convenience store
payment, and QR code payment (Cloud Pay)systems, etc.

In addition to e-commerce, face-to-face and public sector
payments have increased, and we grew our position in social
infrastructure
In addition to e-commerce (EC) market, development into the non-EC market, including
face-to-face payments in response to inbound consumption by foreign visitors to Japan, is
expanding, and we are continuing to realize growth exceeding the market. Furthermore,
our provision of public sector payment services, such as card payment clearing for national
pension premiums and convenience store payments of national taxes and administrative
processing fees to Osaka Prefecture meant the role of DGʼs payment business as a form ofsocial infrastructure has grown in importance each year.

■Growth continues to top the EC market, total
amount of payments handled grew 34% YoY
to 2.1 trillion JPY■Providing clients in a variety of industries
with end-to-end marketing solutions that
integrate the digital and real

Providing clients with marketing that is rapidly transitioning from mass
marketing to digital marketing, and in addition to all kinds of internet
advertising, we provide a broad range of marketing solutions including improved
engagement such as CRM, data analysis, AI use, and payment coordination
Although strong performance in the core sectors of financial and real estate wasaccompanied by revenue increasing 38% from the previous fiscal year, factors such as
the enhancement of human resources and upfront investment in new projects resulted
in a 25% decrease in profit before taxes. As digital marketing methods rapidly advanceand diversify, the segment is collaborating with DG Lab to apply the most advanced
technologies and collaborating with the FT segment to create next-generation marketing
solutions that provide FinTech in package form.

(TSE Mothers 7069)

The fair value of investment securities grew, and we aim tocontinuously improve the value of investments through a strategic
support system centered on the global incubation stream

The Long-term Incubation Segment is comprised of companies such as equity-method
affiliate Kakaku.com, Inc., and Crypto Garage, Inc. (a blockchain service business in the
FinTech field established through a joint venture with Tokyo Tanshi Co., Ltd., and Blockstream
Corporation). Going forward we aim to create long-term, continuous cash inflow bycollaborating with companies receiving DG and DG Group investment, as well as further
initiatives such as establishing joint ventures with other local collaboration partners.

■Strong performance in the financial andreal estate sectors raised revenue by 38%
YoY, but factors such as the enhancement of
human resources and upfront investment in
new projects resulted in a 25% decrease inprofit before taxes■Revenue grew by about three times, profit
before taxes by about five times, and thevalue of investment securities held grewsignificantly

The fair value of investment securities grew resulting in profit before taxes increasing tofive times the value of the previous fiscal year at 6.9 billion JPY and the value of investment
securities held rose by approximately 60% to 26.7 billion JPY. We aim to continuously
improve the value of investments through a strategic support system centered on the global
incubation stream for an investment destination. Also, the Open Network Lab, Japanʼs first
seed accelerator program, has launched over 100 new startup companies to present. We
are continuing to collaborate globally and develop new sector and area-specific programs.

We aim to cre ate long- ter m, continuous cash inflow
by collaborating with companies receiving DG and DG
Group investment, as well as further initiatives such as
establishing joint ventures with other collaboration partners

FY 2019 Highlights■ L aun c hin g s e c t o r an d are a - s p e c i f i cbusiness development programs(TSE First Section 2371)■Kakaku.com ʼ s share of profit of entities
accounted for using equity method remains
steady, profit before taxes of 4.4 billion JPY■Crypto Garage, Inc. received first approvalthrough the Regulatory Sandbox in Japan in
the FinTech field

DIGITAL GARAGE |22

In addition to e-commerce, face-to-face and public sector payments
have increased, and we grew our position in social infrastructure

FT

In addition to e-commerce (EC) markets, development is expanding in areas such as face-to-facepayments in response to inbound consumption by foreign visitors to Japan and various markets otherthan EC where digitalization is not progressing, and we are continuing to realize growth exceeding
the market. Furthermore, the importance of DGʼs payment business as a form of social infrastructure
has grown each year, including card payment clearing for national pension premiums, convenience
store payments of national taxes and administrative processing fees to Osaka Prefecture, andregistration business for the “Point Reward Project for Consumers using Cashless Payment” being
implemented by the Japanese government to accompany the rise in consumption tax.

FINANCIAL TECHNOLOGYSEGMENTKEY FIGURES FY 2019
Segment
Revenue Ratio
FY 201918.8%

Segment revenue

6.7

billion JPY

Segment profit before tax

3.2

billion JPY

Amount of transactions

Approx.

2.1

trillion JPY(2,088.3 billion JPY)

Business Model
As one of Japanʼs largest payment system providers handling the settlement of approximately 2.1 trillion JPY, we provide a diversityof comprehensive payment platforms including credit card payment, convenience store payment, and QR code payment systems
The Financial Technology Segment is responsible forplatform). As a payment service provider (PSP), in addition
to credit card payments and convenience store payments,
we collectively provide EC businesses and face-to-face retailstores with an ever-increasing number of diverse payment
methods including QR code payment services such as Apple
Pay, Google Pay, d Payment®, LINE Pay, PayPay, Alipay, andWeChat Pay, as well as digital money services that are alsoavailable to foreign visitors to Japan, starting with Suica.
With cashless payments also being promoted as national
policy, for EC businesses and face-to-face retail stores, while
introducing the wide variety of payment methods demandedby consumers is important, individually carrying out systemdevelopment, managing personal information including
payment data, and conducting payment receiving operations

Business model and stakeholders
Credit card payments

Bank payments

Market Environment and Business Overview
Growth continues to top the EC market, total amount of payments handled grew 34% YoY to more thanapproximately 2.1 trillion JPY and the number of payments handled grew to 390 million
In calendar year 2018 , EC market of Japanʼs BtoC grew by a solid 9.0%,
to 17.9845 trillion JPY, according to “Results of FY2018 E-CommerceMarket Survey” of the Ministry of Economy, Trade and Industry (METI).
Also, Japanʼs ratio of cashless payments is low compared to foreigncountries, at 19.8% in 2016, and in order to respond to inbound demandahead of the 2020 Tokyo Olympics and Paralympic, and EXPO 2025
Osaka, METI released its “Cashless Vision” in April 2018, which aims toachieve a cashless payment ratio of 40% by June 2025. We predict that
progression toward a cashless society will rapidly expand the market.
Furthermore, with the amendments to the Installment Sales Act in June
2018, face-to-face retail stores are required to prepare a transaction
environment that includes not maintaining credit card information andaccepting IC cards by March 2020. Additionally, verification testing has
begun for unstaffed stores and unstaffed registers due to the issue of
spiking personnel costs from personnel shortages.

Amount of transactions

Number of transactions

Revenue(JPY in Billions)(Millions)(JPY in Billions)

1,557.8

International payments

2,088.3

FY 18.3

392.93293.98+34%

Convenience store

FY 18.3
Data processing

6.69

5.93
+13%

+33%

FY 19.3
Credit card

Carrier payments

In FY 2019, the first fiscal year in which IFRS was applied, the Financial
Technology Segment reported revenue of 6.693 billion JPY (+12.9%YoY)
and profit before tax of 3.174 billion JPY (+13.0% YoY). Operating
subsidiaries in the segment VeriTrans Inc. and econtext Inc. grew their
total amount of payments handled by 34% YoY to 2.0883 trillion JPY,
achieving growth that largely exceeded the growth rate of the overallmarket. In addition to growth in the EC market, increased transactionsin the non-EC market including face-to-face payments, contributing tothis growth.
Regarding compound annual growth rate (CAGR), one of the growthindicators in our Mid-term Business Plan, we set a target of 15% growthfor profit before taxes, and while the current fiscal year alone saw yearon-year of 12.9%, CAGR for the period up to the current fiscal year,
which is the second year of the Mid-term Business Plan, continues to
exceed the growth indicator at 17%.

FY 19.3

FY 18.3

Monthly basic charge and payment OEM

FT - FINANCIAL TECHNOLOGY SEGMENT

is a large challenge due to the complexity of these processes.
Furthermore, recently it has become commonplace toconduct sales promotions based on payment and purchasingdata analysis. The Financial Technology Segmentʼs businessis to collectively provide comprehensive payment platforms
to those types of retail businesses.
The basic business model for payments is to subtract
the commissions paid to the credit card companies andconvenience store chains from the payment commissions
resulting from multiplying the amount of payments handled
by retail businesses by the commission rate and record it asrevenue. Additionally, transaction types are diversifying, as
commissions are being collected by the number of payments
handled through the provision of capabilities such as fraud
detection systems and QR code issuing systems.

“payment,” one of Digital Garageʼs earnings bases (enabling

ANNU AL REPOR T 201 9

FY 19.3Other

QR Code payments

Growth Strategy
Multi-QR code payments

Convenience store payments

Electronic money/point payments

ID payments

As a payment platformer, use the tailwind provided by the governmentʼs cashless promotion policies to expand
various payment methods in diverse fields, and create a FinTech business to handle social infrastructure

Cryptocurrency payments

Progressing shift to a cashless society is a tailwind for DGʼs paymentbusiness. Since the economies of scale from increased transaction
volume and transaction numbers will lead to increased profitability, we
will focus on the following initiatives.

Post-settlement payments

1 Developing the non-EC market(Affiliate of VeriTrans Inc.)

OnlineEC businesses

Real

Member stores

Face-to-face retail stores

Alliance strategy

・Recruit(mobile POS)

・TOSHIBA TEC(POS)・ANA Group

Users

23

| DIGITAL GARAGE

In addition to expanding our share in the EC market, one of our main
sectors, we will work to further develop the non-EC market which still
has ample room for growth. Regarding face-to-face payments, weare providing multi-payment solutions packaged with TOSHIBA TECCORPORATIONʼs POS registers, primarily for large-scale retail stores.
Also, in collaboration with Recruit Group and ANA Group, we have started
to provide “Cloud Pay”, a payment solution using mobile POS and mPOS
terminals that enables multiple QR code payments to be introduced at
the same time in a simple manner by just setting up a single QR code ina store. By providing this and other payment services we are covering theretail store market comprehensively.
We started providing “Cloud Pay” in May 2019 and while it initially
supports QR code payments from d Payment®, Alipay, WEChat Pay,
Merpay, and LINE Pay, we add various other payment services going
forward.
Furthermore, in addition to engaging cashless promotion in specificmarkets where digitalization is not progressing, such as real estate,
restaurants, and funerals services, we are also working to handle
payment services that are becoming popular overseas, including
responding to the QR code payment services that are becoming usedin various countries and contactless payment, in which a payment iscompleted by just holding a card up to a terminal.

2 Growth in public sector use
We are continuing to promote growth in public sector use. By providing
public sector payment services, such as card payments of national
pension premiums for the Ministry of Health, Labour and Welfare andfees including patent fees for the Japan Patent Office, and convenience
store payments of national taxes for the National Tax Agency and various
administrative processing fees for Osaka Prefecture, we will focus on
expanding the use of electronic payments in the public sector for the
relevant government agencies in accordance with cashless promotion
by the Japanese government.

3 Promoting alliances
As our alliance strategy, we will continue to promote businessexpansion through system collaboration or business alliances withbusiness partners with large-scale customers or core systems.
Following the establishment of a joint venture company with the
ANA Group, we have started our entry into the market for multipayment solutions for face-to-face retail stores through TD Payment
Corporation, a joint venture company established with TOSHIBA TECCORPORATION, which holds the top share of the Japanese market in
POS systems. Furthermore, at SCORE, a post-settlement payment joint
venture business with major mail-order retailer Nissen Co., Ltd., we are
increasing the number of participating member stores.
Based on longstanding knowledge and technological capabilities, wewill accelerate the growth of payment systems which have become
an extremely important part of social infrastructure, as a new FinTech
platform.

DIGITAL GARAGE |24

We provide clients with marketing that is rapidly transitioning from mass
marketing to digital marketing, and in addition to all kinds of internet
advertising, we provide a broad range of marketing solutions including improved
engagement such as CRM, data analysis, AI use, and payment coordination

MT

Although strong performance in the core sectors of financial and real estate was accompanied
by revenue increasing 38% from the previous fiscal year, factors such as the enhancementof human resources and upfront investment in new projects resulted in a 25% decrease inprofit before tax. As digital marketing methods rapidly advance and diversify, the segment iscollaborating with DG Lab to apply the most advanced technologies and collaborating with the FT
segment to create next-generation marketing solutions that provide FinTech in package form.

Marketing TECHNOLOGYSEGMENTKEY FIGURES FY 2019
Segment
Revenue Ratio
FY 201938.3%

Segment revenue

13.7

Segment profit before tax

billion JPY

1.4

billion JPY

Balance of advertising handled ofmarketing technology segment

36.5

ANNU AL REPOR T 201 9

advertising expenditures continued its expansion, rising 3.3
percentage points YoY, to 26.9%. Furthermore, given that internet
advertisingʼs share of total advertising expenditures in the U.S. isaround 50%, the Japanese internet advertising market still has
room for growth. In terms of trends in recent years, the growthInternet Advertising Expenditures in Japan

Balance of advertising handled(JPY in Trillions)(JPY in Billions)

７.0

6.0

billion JPY

5.0

6.3
6.0 6.2 6.2
5.7 5.9

6.4 6.5

3.0

Providing clients in a variety of industries with end-to-end marketing solutions that integrate the digital and real

2.0
1.0

The Marketing Technology Segment is responsible for“ marketing ” , one of Digital Garage ʼ s enabling platforms.
Specifically, by providing optimal solutions for our clientsʼ needs

Structure of the MT Segment
We provided businesses in a variety of industries with end-to-end marketing scenarios and solutions that integrate the digital and the real world.
Clients

MT Segment

Contact point

Banks/credit card/
securities/payments/
financial in general

Digital field

Web media

Cosmetics/
consumer goods
manufacturers

Data analysis
DMP

Web/
app development

Apps/games/
content services
such as e-books

Recognition-building advertising
Advertising for capturing
new members

Influencer marketing
SNS accountmanagement

Attracting EC
customers
Sales promotion

App

Real estatedevelopers
Distribution/retail
Other/human resources/
transportation/
hotels/travel/etc.

Search engine

OMO* field
Mass media

OMO marketing
Formulating overall
strategy

Attracting retail customers
using apps/Web/payment services
CRM

Store design/VMD
Event planning
Sampling

Real store* “Online Merges with Offline”. A marketing philosophy that merges online and offline to remove the border between the two and have the starting point for everything begin
online.

Market Environment and Business Overview
Strong performance in the financial and real estate sectors raised revenue by 38% YoY, but factors such as theenhancement of human resources and upfront investment in new projects resulted in a 25% decrease in profit before tax
The Marketing Technology Segment posted FY 2019 revenueof 13.676 billion JPY (+37.6% YoY) and profit before tax of 1.39
billion JPY (-25.1% YoY). Due to the strong performance ofperformance-based ads by Marketing Technology Company
in the financial sector and DG Communications Co., Ltd. in
the real estate sector, the balance of advertising handledgrew smoothly to 36.5 billion JPY (+12% YoY). However, the* Dentsu Inc., 2018 Advertising Expenditures in Japan

25| DIGITAL GARAGE

19%
14% 15% 16% 17%

21% 24%

27%
1.8

CAGR

12%

enhancement of human resources and an increase in upfront
investment costs related to projects such as the developmentof a digital advertising business resulted in profit before tax
decreasing.
In terms of the market environment, internet advertisingexpenditures in Japan grew by 16.5% to 1.7589 trillion JPY in
calendar year 2018, and internet advertisingʼs share of total

2.3

1.9
2.2

2.5

Amount oftransactions FY 18.3 FY 19.3
by industries

YoY

Real estate

4.6 billion
JPY

9.2 billion
JPY

2.0 X

1.9

Smartphone/app

9.4 billion
JPY

7.1 billion
JPY‒ 24 ％

2.2

Cosmetics/
HR/Others

8.4 billion
JPY+ 0.3 ％
8.5 billion
JPY

9.9 billion
11.5 billion
JPY
JPY

+16 ％

32.5 billion
36.5 billion
JPY
JPY

+12 ％

9.8

8.2 2.4
1.9

1.6

1.9

1.6

2.2

2.0

1.9

2.2

2.0

1.9

2.1

2.3

2.4

3.0

2.7

2.8

2.7

3.2

Financial

2Q

3Q

4Q

1Q

2Q

3Q

4Q

Total

Real
estate*Due to the application of IFRS, DG Communications
Co., Ltd. has been consolidated as a subsidiarysince the second half of FY 18.3

(2011-2018)

1Q

2011 2012 2013 2014 2015 2016 2017 2018

Overall advertisingexpenditure in Japan

2.5

1.9

Internet Advertising
Expenditures

FY 18.3
Financial

FY 19.3

Cosmetics/
HR/Others

Smartphone/app

Growth Strategy
Development of new digital marketing that solves issues regarding things like brand safety and ad
fraud, differentiate and strengthen our competitive edge through an integrated strategy with the FinTechbusiness (FT), and use the momentum created by personal information protection, information banks, andthe like to advance the full-scale development of data marketing.

1 Collaboration with FT Segment

SNS

Mail order/EC

3.5

Although we expect the internet advertising market to continue
expanding, in the increasingly complex area of digital marketing
we will realize the advantages offered by the combination of DGʼsstrengths in payment business, investment business, and R&D.

Consumer

Digital marketing
Formulating overall
strategy

Ratio of overall advertising expenditure
spent on internet advertising

9.0 9.3

2.1

1.9

0.8
0

6.3

9.8

As with major QR code payment service providers, payments
and marketing are becoming to be our two core businesses. DG
is advancing strategy integration with the financial technology(FT) segment, one of the major payment platforms in the
FinTech industry, to realize a rare business model that realizes
monetization in both the payment and marketing businesses.
We collaborated with the JR Kyushu Group to build a CRM andpayment platform and jointly develop the “JR Kyupo app”. By using
DGʼs wallet platform, which incorporates CRM, point management
and payment, various marketing functions such as coupons, and a
QR code payment function, we will develop cashless payment anddigital marketing in the OMO sector.
Also, for “Cloud Pay” which enables various QR payments to beprocessed by reading a single QR code that has been set up ina store, the MT segment is responsible for providing a payment
management app for stores and managing member stores, while
the FT segment is responsible for payment gateways.

2 DG Communications Co., Ltd. and Open Network Lab
DG Communications Co., Ltd., a subsidiary that operates ourmarketing business in the real estate field, and Open Network
Lab collaborated to develop “Open Network Lab Resi-Tech”, aglobal education program for real estate-related startups. It iscollaborating with DG Lab and will jointly advance a new real estateservice that utilizes 5G (fifth-generation telecommunications) and
IoT, a lifestyle-related service, and urban development businesswith each of its existing clients, a major developer and a major
construction company.

3 Establishment of Japan Premium Media Consortium
38 of Japanʼs major media companies (newspapers, magazines,
TV, radio, online media) have jointly established “the Japan
Premium Media Consortium” with the aim of improving advertising
effectiveness and media value. This media content that pursues
quality has been well received by users and joint research andverification testing is being conducted regarding the synergies
between advertising and content. By using the results of research
to further improve the quality of internet advertising and spreading
new indicators for advertising value that reflect premier media
values, we will ultimately arrive at new digital marketing that solves
pressing issues such as brand safety and ad fraud.

4 Integrating CyberBuzz, Inc. into the GroupIn order to strengthen on the social media marketing sector,
CyberBuzz, Inc. has been made an equity-method affiliatecompany. It has been added as a function of the MT segment,
providing the planning and operation of brand content advertising
distribution that uses social media. It will leverage its networkof over 16,000 influencers to provide services such as influencer
marketing and SNS account operation to a large number of national
brands as a package of products that show the appeal of DGʼsmarketing solutions.

5 Data Science Business
The DG Group has fully launched a data science business thatutilizes the unique data possessed by collaborator companies. To
present, management of the Group mediaʼs big data is represented
by businesses such as Group company Kakaku.com, Inc.ʼs “Kakaku.
com” and “Tabelog”, and we will continue to develop marketing
solutions using the vast and varied data that DG has access to,including payment data and location information. In addition toadvanced technologies such as blockchain, BioHealth, AI, andsecurity, which are primary focus areas of “DG lab”, our R&D
platform, we will engage in creating new business based on data
science for marketing and a wide range of other areas.

DIGITAL GARAGE |26

MT - Marketing TECHNOLOGY SEGMENT

and challenges in a range of industries including financial,
payment business provision, app development (games, etc.), EC
site operation, real estate developer, and manufacturing, we
maximize our clientsʼ marketing ROI (cost-effectiveness).
We are providing a one-stop service ranging from streamlining
advertising using agency functions, affiliate and targetedmarketing, analysis and the like, and providing creative output toapp development and planning consultation. At BI. Garage, Inc., ajoint venture with the Dentsu Group and the ADK Group, we areproviding a large number of national clients with solutions basedon data analytics utilizing the various big data owned by the DG
Group and data provided by collaboration partners.
By providing this kind of variety of marketing solutions, we aremonetizing a wide range of business models, including pay-perperformance, profit sharing, and development on a contract basis.

7.9 8.4

CAGR

2%(2011-2018)

4.0

Business Modelof actively managed ads and video ads has accelerated, but wethink factors such as concern among clients regarding brandsafety and efforts to tackle the ad fraud problem are leading theentire internet advertising industry into a period of transition.

The fair value of investment securities grew, and we aim tocontinuously improve the value of investments through a strategic
support system centered on the global incubation stream

IT

The fair value of investment securities grew resulting in profit before tax increasing to five times thevalue of the previous fiscal year at 6.9 billion JPY and the value of investment securities held rose byapproximately 60% to 26.7 billion JPY. We will aim to continuously improve the value of investments
through a strategic support system centered on the global incubation stream as an investment
destination. Also, the Open Network Lab, Japanʼs first seed accelerator program, has produced over
100 new startup companies to present. We are continuing to collaborate globally and develop new
sector and area-specific programs.

Incubation TECHNOLOGYSEGMENTKEY FIGURES FY 2019
Segment
Revenue Ratio
FY 201922.5%

Segment revenue

8.0

Segment profit before taxes

billion JPY

6.9

Investment amount

7.0

billion JPY

billion JPY

Business Model

ANNU AL REPOR T 201 9

Market Environment and Business Overview
Revenue grew by about three times, profit before taxes by about five times, and the value of investment securities held grew significantly
In the IT segment, although until now we have been recording thesale of investment securities as sales, in accordance with the adoptionof IFRS, we have changed our accounting method so that investment
securities are valued at fair value and any increase or decrease invalues from the end of the previous fiscal year have been recorded asgains or losses.
For FY2019, revenue and profit before taxes both grew significantly.
Revenue was 8.022 billion JPY (+214.2% YoY) and profit before taxes
was 6.889 billion JPY (+421.6% YoY). Also, at the end of the fiscal year,
the value of investment securities held was 26.7 billion JPY, a 59.4%
increase on the previous fiscal year.
Annual investment for Japanese VCs and CVCs in FY2018 grewsignificantly to total 249.8 billion JPY (+40% YoY)*, as healthy
PL

Providing investment companies with support by a wide range of growth stages, from seed to later-stage
In the Incubation Technology segment we are proceeding
to invest in next-generation technologies in global areas
including Japan, the US, and Asia, targeting venturecompanies at a wide range of growth stages, from seed andearly-stage startups through to later-stage businesses. By
supporting the acceleration of business expansion throughcollaborations in payment and marketing, fields in which

Revenue

PL(JPY in Billions)

Profit before tax(JPY in Billions)

Main exited investments（IPO, M&A, sale）

Main exited investments（IPO, M&A, sale）

Bengo4.com（TSE Mothers: 6027）

iRidge（TSE Mothers: 3917）

Twitter（NYSE: TWTR）

Facebook（NASDAQ: FB）

MEDIA DO HOLDINGS（TSE First Section: 3678）

CrowdWorks（TSE Mothers: 3900）

LinkedIn（NYSE: LNKD）

Gojek

Aucfan（TSE Mothers: 3674）

FablicTwilio（NYSE: TWLO）

Context Logic

FY 18.3

16.7

5.2X

2.55

26.7

IT - incubation TECHNOLOGY SEGMENT

Overseas

Operational investment securities

6.89

3.1X

Prolific investment results and track record

BS(JPY in Billions)

8.02

the DG Group operates, and collaborations in new fields oftechnological development being worked on by DG Lab, wewill aim to increase the value of the companies we invest in.
Also, by advancing a cycle in which the funds raised throughexits are invested in new startups, we are aiming to enhancethe value of DGʼs investments.

Japan

investment appetites for VCs and CVCs continued.
In this kind of market environment, this fiscal year we were able toimplement large-scale up-round financing, particularly of companies
we have invested in in Asia, which resulted in a massive increase in thefair value of our investment securities.
DG is supporting the business growth of our investments in both
Japan and overseas through a strategic support system centered on
the global incubation stream, which supports overseas companies
developing into Japan and Japanese companies developing overseas.
Going forward we will advance our investment in the growing
markets of Asia and strive to increase the value of investments bystrengthening strategic support systems in Japan and overseas inorder to support business growth.

1.32
FY 19.3

FY 18.3

FY 19.3

FY 18.3

FY 19.3*Source: Venture Enterprise Center “Quarterly Trend”

FY 2019 Key Initiatives
Starting sector and area-specific business development programs

Main current investments

Main current investments

Monstar Lab

Pocket Change

Tokopedia

Sen Do Technology

Welby（TSE Mothers: 4438）

Goodpatch

Droom

Expedient Healthcare Marketing（Healthians）

This fiscal year has been the 10th year since Open Network
Lab was launched in 2010 as Japanʼs first seed accelerator
program. To present it has developed and launched over 100
new startup companies.
Open Network Lab has been collaborating with partners
including leading companies, research institutes, and local
governments to advance new sector and area-specificbusiness development programs. Among others, it launched“Open Network Lab HOKKAIDO” in April 2018 with the aim ofdeveloping startup companies and realizing open innovation in
Hokkaido, “Open Network Lab BioHealth” in May 2018 whichtargets the biotechnology and healthcare sectors, “Open
Network Lab Resi-Tech” in November 2018 which targets
the real estate sector, and “Open Network Lab FUKUOKA”
in Fukuoka in May 2019 with the aim of supporting startup
companies that possess technologies for realizing smart cities.

Growth Strategy
QD Laser

Moneytree

Include some stocks of non-IT Segment.

27| DIGITAL GARAGE

WHILL

Repro

NoBroker Technologies Solutions（NoBroker）

Grub Market

Neutron Holdings（Lime）

Game Closure

Aim to strengthen structure for promoting the continuous improvement of the value of investments
In our Mid-term Business Plan announced in May 2017, weestablished new investment criteria and clarified investment
standards, and we are engaged in building the groundworkfor generating stable revenue. The plan included a numericaltarget of 2.5× ROI* but as of the end of the second year of the
Mid-term Business Plan, we are recording levels that exceed
this target, which we think is the result of the success of ourinvestments so far.

On the other hand, as we are applying IFRS from this fiscal
year, the assessment of investment securities held using
fair value has had a big impact on revenue so when sellinginvestments going forward, it will be important to consider not
only ROI, but also the continuous improvement of the value ofinvestments. We will strengthen support for improving thevalue of companies we invest in more than ever before.

*ROI: Return On Investment. An indicator for measuring the effectiveness of an investment, calculated as “total received through sale divided by total invested.”

DIGITAL GARAGE |28

We aim to create long-term, continuous cash inflow bycollaborating with companies receiving DG and DG Groupinvestment, as well as further initiatives such as establishingjoint ventures with other collaboration partners.

LTI

The Long-term Incubation Segment is comprised of companies including our equity-method affiliates Kakaku.
com, Inc., and Crypto Garage, Inc. (a blockchain service business in the Fintech field established through a
joint venture with Tokyo Tanshi Co., Ltd., and Blockstream Corporation) and it is aiming for a business model inwhich the results of continuous incubation are retained in the value of the DG Groupʼs investments, causing thevalue of these investments to rise in the long term. Going forward, we will aim to create long-term, continuous
cash inflow by collaborating with companies receiving DG and DG Groupʻ investment, as well as further
initiatives such as establishing joint ventures with other local collaboration partners.

LONG-TERM INCUBATIONSEGMENTKEY FIGURES FY 2019
Segment
Revenue Ratio

Segment revenue

Segment profit before tax

7.1

FY 2019

20.0%

4.4

billion JPY

Number of monthly users of Kakaku.com

271.18billion JPY

millionMarket Environment and Business Overview

ANNU AL REPOR T 201 9

Growth Strategy
For the creation of medium- to long-term, continuous cash inflow
DG is known as an internet incubator, and to realize oneof its missions of creating new businesses, we believe it isimportant to create not only short-term incubation results(gains on sales of shares), but also long-term, continuous
cash inflow as represented by our investment and businessdevelopment at Kakaku.com, Inc.
DG has been investing as an incubator from the seed or
early stage, but for investments that are expected to realize
synergies with the DG Group or further business growth, weare executing additional investments, and aiming of raising
the value of the consolidated business in this segment.

Also, the activities of DG Lab, an open innovation platform
for R&D jointly operated by DG and DGʼs collaboration
partners, are transitioning from the R&D phase to thecommercialization phase and we are aiming to utilize its
alliance structure in ways such as establishing joint ventureswith collaboration partners, and to commercialize the seeds
generated by this structure.
Through these initiatives we will realize the creation ofLong-term, continuous cash inflow and expand a recurring
earnings model in the incubation field as well.

Kakaku.com, Inc.ʼs share of profit of entities accounted for using equity method remains steady, profit before tax of 4.4 billion JPY
For FY2019, revenue was 7.133 billion JPY (+13.2% YoY)
and profit before tax was 4.378 billion JPY (+20.9% YoY).
This was primarily due the good performance of Kakaku.
com, Inc. in areas such as new media, and share of profit
of entities accounted for using equity method remaining

strong. Additionally, regarding share of profit of entities
accounted for using equity method, under the previous
Japanese standards this was recorded as non-operating
income but under IFRS it is recorded as revenue.

Kakaku.com, Inc.ʼs main business progress(Millions of people)

300

YoY

+7.9 %
icotto200

Kyujin Box
TASCLAP
Kinarino
webCG
eiga.com

Topics of the Group companies
In FY2019, we jointly
established Crypto
Garage, Inc. in
September 2018, with theaim of implementing R&D and commercializing blockchain
financial services in the Fintech field. The company isleveraging blockchain technology to accelerate efforts
to commercialize financial services. Crypto Garage, Inc.
developed “SETTLENET”, a project that provides membersthat deliver financial services, including cryptocurrency
exchanges, with the functionality they require. In January

2019, it received first approval in the blockchain Fintech
field through the regulatory sandbox system. Also, in
April 2019, Crypto Garage, Inc. used a peer-to-peer crypto
asset derivative contract protocol it has developed inhouse, entered into and implemented a contract with
Blockstream Corporation in order to hedge against Bitcoin
price fluctuation risk, thereby completed the verification of
the technology. Going forward, centering on Crypto Garage,
we will advance the development of blockchain-related
applications and aim to realize the implementation of a
blockchain society.

Sumaity100

4travelLow price trips
Bus Hikaku Navi
priceprice.com
Tabelog
Kakaku.com

0

Other

MAR

JUN

SEP

2016

DEC

MAR

JUN

SEP

2017

DEC

MAR

JUN

SEP

2018

DEC

MAR

2019

*Extracted from Kakaku.com, Inc.ʼs Results Briefing for FY2019/3

29| DIGITAL GARAGE

DIGITAL GARAGE |30

LTI - Long-term incubation SEGMENT[Kakaku.com, Inc. Group Accumulated Traffic]
Monthly users for the overall group are increasing year by year, totaling 271.18 million users, a 7.9%
YoY increase

The Two Co-Founders Present
Near-Future Business Policies

Here, DGʼ s co-founders, Kaoru Hayashi (Representative Director, President Executive

Officer and Group CEO) and Joi Ito (Director and Co-founder, Digital Garage, Inc.;| DIGITAL GARAGE

Director, MIT Media Lab) discuss the environment surrounding DGʼ s business andfuture focus businesses.

31

The Two Co-Founders Present Near-Future Business Policies

Joi ItoDirector and Co-Founder /Director, MIT Media Lab

Kaoru Hayashi
Representative Director,
President Executive Officer
and Group CEO

Hayashi
Biohealth has rapidly picked up steam
in DGʼs business areas as well, with
the IPO of Welby Inc., DGʼs strategic
investee that handles healthcare data,
and the high marks received from many
major pharmaceutical companies by“Open Network Lab BioHealth*1,” which
nurtures startups in the biohealth field.
Ito
When we started saying, “Bio is the new
Digital*2” at the MIT Media Lab, I thinkthat people had their doubts. It was
similar to the skeptical reaction that I
got from many people when I said, “TheInternet era is coming.” in the early
1990s.
HayashiYes, thatʼs right. At first, people thoughtthat bio was still a bit further away, but
recently many people now believe thatthe era of biohealth is coming. What arelikely to be the key points in this area
going forward?
Ito
I have a habit of comparing everything
to t h e In te r n e t , b u t t h e c ur re n tenvironment surrounding the major
pharmaceutical companies resembles
the situation of the telephone companies
when the Internet started to become
popular. The telephone companies
are still around and play an importantrole. However, as a result of various
communication-related ecosystems
being created on the Internet, the valueof the telephone companies as an
infrastructure has decreased in relative
terms.
With respect to bio as well, I think thatthe existing structures centered aroundthe major pharmaceutical companies
will remain as a foundation going
forward, but I think that what will be
important instead are the ecosystems
which create new biohealth businesses
that use digital technologies. DG should
lead such new initiatives. When theInternet started to take hold, there
were many companies who thought, “ITtechnologies have nothing to do with ourcompany,” and they were left behind by
the changing times. I think that the samething will happen in biohealth, too.
Hayashi“ Digital Therapeutics (DTx) *3 , ” forexample, which uses digital contents
instead of medicines to treat disease
will attract attention in the future asa business that uses both digital andbiotechnologies. It is said that there areeven examples where having patientsconcentrate on a specially developed
video game demonstrates an evengreater therapeutic effect than a dose of
medication.
Ito
DTx is able to simultaneously provide
a diagnosis and treatment and canpersonalize the treatment to eachindividual patient. Expectations arehigh for its ability to enable treatments
which were not possible with previous
medicines. However, as it is a newly
created field, there are a few experts,
and it will be important to develop
talented people who can lead theindustry.

*1 Open Network Lab BioHealth: A program for nurturing startup companies specializing in the biohealth field, which is operated by DG in cooperation with 20 ormore partners including major pharmaceutical companies.
*2 Bio is the new Digital: Statement by MIT Media Lab founder Nicholas Negroponte regarding the significant impact that biotechnology will have on society.
*3 Digital Therapeutics (DTx): Systems to conduct evidence-based interventions, using high-quality software in preventive care, health care and treatment. DTxrefers to those approved by regulators that are used independently or in combination with existing medical instruments and medicines.

DIGITAL GARAGE |32

S P E C I A L C R O S S TA L K

KAORU HAYASHIJOI ITO

HayashiFacebookʼs announcement of its own
Libra *4 cryptocurrency is making
headlines, but how much of an impact
do you think it will have on the world?
Ito
Started by Facebook, which has alarge number of users, it will, as might
be expected, have an impact, but theeffects will likely be felt by personal
money transfer services such as PayPal
and Venmo. Bitcoin does not seem to be
directly related. I think that the questionof whether Libra will become populardepends on how well Facebook canprotect user privacy.
Hayashi
For that reason, they are locating the

HayashiOn the subject of FinTech, at the“ G20 Finance Ministers and Central
Bank Governors Meeting ” hosted in
Fukuoka, Japan in June, it was statedthat governance provided through thecooperation of financial authorities,
developers, universities and otheracademic institutions was important
for the stable spread of new financial
systems based on Distributed Ledger
Technology*5 such as blockchain. It felt
like a real paradigm shift in the sensethat some authority previously heldby the financial authorities would betransferred to other parties. Throughits subsidiary Crypto Garage*6 receiving
the first authorization in the FinTech
field from the Cabinet Office under the“Regulatory Sandbox in Japan,” DG will
also field-test real-time payments using
Bitcoin and Yen-denominated tokens.
Such cooperation between the authorities

Collaboration between regulatory authorities andBlockchain becoming
mainstream

ItoAmong my friends, opinions are divided
between those who are of the opinion
that Facebook should be dismantled
into separate services to reduce its
influence and those who believe thatconcentrating power in one company
makes it easy for the authorities tomanage, so it should be left as it is.

brilliant engineers will create

Ito
DTx is different from conventional IT
technologies in that it is directly involved
with human life, so scientific testing will
become extremely important. In thatsense, popularizing DTx will require notjust marketing and technology but also
knowledge of medical science. As for
DG, too, I think that cultivating knowhow about core bio areas at DG Lab will
become important.

consortium headquarters in Switzerland
and using the fact that it will not directly
manage Libra to show off its neutrality
to users. However, when you think
about it, Facebook controls a significant
portion of social media traffic from
WhatsApp to Instagram. With such astrong influence, they could accelerate
the acceptance of a service like Libra if
they do things right. However, if they fail,the effects will spread to other personal
money transfer services.

Japanese FinTech in the blockchain era

Hayashi
In Japan, DG has taken the lead in trying
to launch a DTx industry consortium. It
also seems to be attracting attention
from the pharmaceutical companies
as well. First, we will coordinate withcompanies that are interested and startby strengthening the foundation to
popularize DTx.

The Two Co-Founders Present Near-Future Business Policies

and developers is likely to become more
and more important in the future.
Ito
If many brilliant engineers join theregulatory authorities and become
part of the process to hammer out thefinancial policies of the blockchain era, I
think that things will become interesting
as they did during the dawn of theInternet.
HayashiCan cryptography engineers descended
from the cypherpunks *7 who faced
off against government agencies
successfully cooperate with authorities
going forward?
Ito
I think that the situation has significantly
changed from the era established by
the cypherpunks back in the 1980s. The
core cypherpunks from that time havegotten older and more mellow. Unlikethat time period, we are now at the point
where businesses are finally launching.

*4 Libra: A virtual currency announced by Facebook that is intended to be used by people around the world.
*5 Distributed Ledger Technology: Technology enabling network participants to share the same value records. This approach stands in contrast to centralizedarchitectures which are dependent on one ledger.

33| DIGITAL GARAGE

information within one company but
to cooperate with various business
partners to provide attentive andconsiderate services to customers in
an open platform approach. As for big
data analysis, a prominent data scientist
in Japan joined us in April as the Chief
Data Officer.

Previous marketing methods
should be fundamentally changed
HayashiA view toward protecting personal
information is essential in big data
analysis. How can we balance theregulations to protect privacy withthe use of personal information bycompanies?

Hayashi
After all, Bitcoin will play a key rolein the new financial system. The
fluctuations in value have largely
subsided, and it finally seems to be
shifting from the speculative phaseto t he pr ac t ical u s e ph a s e a s acryptocurrency.
Ito
It is not clear how long it will take until
the price stabilizes, but as of right now,
I think that Bitcoin is the likely winner.
The depth of engineers involved in
Bitcoin development is overwhelming
compared to other cryptocurrencies.

a joint venture with TOSHIBA TECCORPORATION, the industry leader
in POS systems, for the purpose of
deploying multiple payment solutions
across the country. Combining QR
code payments through Cloud Pay with
POS terminal payments will allow us
to cover the “surface” of the customer
facing payments market at physicalstores. I would also like to put someeffort into the development of new
businesses using the big data obtained
from those operations. I think that the
key point is not to “wall off” all of the

Ito
Companies that provide services using
personal information without properly
considering privacy are like factories
that produce environmental pollution. It
is simply irresponsible. In the meantime,
one cannot help but say that from theperspective of protecting personal
information, current regulations arefull of flaws. It is like building a houseon sand. I do not think that you canbuild a good service under the current
regulations. In order to do so, we mustfirst understand technology properly
and then create flexible and robust
regulations which are meaningful forboth companies and individuals overthe medium to long term. Viewed from

Hayashi
Recently in DGʼs payment business, the“Cloud Pay” service announced in May
has been attracting attention as a way
to combine multiple QR code payment
services into one QR code. It also
supports NTT DOCOMOʼs “d Payment®,”
so NTT DOCOMO is helping to introduce
Cloud Pay to retail stores across thecountry. AliPay and WeChat Pay are also
supported, so use by inbound customers
can be expected. Is QR code-based
payment used in the US?
Ito
Such payment systems are rarely seen,
but they might be convenient with asystem like Cloud Pay. It might beinteresting to disseminate Cloud Pay in
the US as well.
HayashiIn retail store payments, we established*6 Crypto Garage: A company founded in September 2018 by DG and Tokyo Tanshi Co., Ltd. for the purpose of researching, developing, and commercializing
blockchain financial services.
*7 Cypherpunks: Activists who aimed to transform society and politics through the use of cryptography. The cypherpunk movement started in the late 1980s.

DIGITAL GARAGE |34

S P E C I A L C R O S S TA L K

KAORU HAYASHIJOI ITO

Hayashi
In 1984, Apple, which was then as t ar t up , re le a s e d a S up e r B o w lcommercial that called IBM “ Big
Brother” and created a stir in the PC
market monopoly. However, 35 years
later Apple has become a platform as apart of GAFA*10. It feels as if we are in atruly different age.

Innovation in space-related
technologies
Hayashi
It is now 50 years since the Apollo

From crypto to biohealth andItoThat is certainly true. In the US,
personal information is star tingto circulate not only through web
sites and Cookies but also location
information and satellite photos, etc.
There are various proposals for ways
to manage privacy including ideas suchas entrusting personal information
to intermediaries. I think that we areapproaching the time when all of societyneeds to imagine a near future in which
personal information leaks onto the net
and discuss the ideal ways to manage
such information.

Ito
Similar to the way that the rise of
biotechnology resembles the dawn of
the Internet, space projects are also
undergoing a paradigm shift. Space andthe Internet resemble each other verymuch in that the infrastructure wasoriginally created through military andnational R&D expenses. In the case of
the Internet, it transitioned from beinga military network to the commercial
Internet, and the supporting service
providers appeared like mushrooms
after a rainstorm. Everyone in Japan
also created service providers. Various
services were created on top of thispopular, commercial Internet, which
has created a platform that is far more
efficient and has a higher degree of
freedom than telephones.
The same thing is now happening
in the space industry. The original
Internet started by spending enormous
cost on connecting large researchlabs with supercomputers, and thespace industry is also based on thedevelopment race costing the US andthe Soviet Union at that time a massive
budget. Now, private companies suchas SpaceX *12 and Blue Origin*13 haveentered the market, and the cost oflaunching payloads into space by rocket
has dramatically fallen to roughly one
percent of the historical costs. You caneven launch small satellites for a few
hundred thousand yen.

space-related technologies

Ito
I think that issue should also be
examined. When the current situation
surrounding privacy is considered,
it is clearly time to reconsider themarketing approach used so far of
simply presenting items that consumers
may want. The problem is when to
make the switch. For example, aplatform business such as the current
Amazon is like a monopoly economy
that appeared before we realized it.
Thatʼs not really good for competitors
or individual consumers. As the namewould indicate, “surveillance capitalism”
which uses private information to
conduct marketing is not necessarily
for the benefit of individuals. It would be
ideal if people were only presented with
the information that they truly require.
For example, advertisers should reallystop showing ads for alcohol to those
who are trying to stop drinking or ads
for cookies in the middle of the night
to people who have decided to abstain
for health reasons. I would rather
buy advertisements for myself. For
example, a system that displays gym

Hayashi
It would be well suited to a service suchas an information bank where eachindividual consumer can opt in to decide
how their own personal information is
used.

Program moon landings, and DG has
also participated in the MIT MediaLabʼs “Space Exploration Initiative*11”
space project, but why did you become
interested in space, Joi?

Moving to the stage of designing a sustainable context

Hayashi
Recently, there are even discussions
that you should properly obtain theconsent of users when using the
Cookies*9 which are essential to Internet
advertising.

advertisements when it gets dark tomotivate myself to exercise. I would pay
money for a system like that.

through technological innovationthat perspective, the GDPR*8 enforced inEurope is a good idea, but the technicalfoundations are poor, and the costs fell
mostly on small to medium companies,
while there was very little impact onlarge companies.

The Two Co-Founders Present Near-Future Business Policies

Using the Internet as an example, thisis similar to the period of excessive
comp e t i t ion w hen m an y s er v ice
providers were created. In other words,
if you are entering the space businessright now, I think that you should
use the inexpensive launch costs as
infrastructure to consider what you

will do in space instead of joining thecompetition to develop rockets.
Hayashi
How do you think that the MIT Media Lab
and DG can collaborate with each otherin this environment?
Ito
Similar to the Internet, space projects
also have a well-designed protocol
for different teams to collaborate witheach other. For that reason, projects
such as the space station have beenachieved with participation fromvarious countries. With many different
companies entering the space businessdue to the decrease in rocket launchcosts, the question of how to overlay
businesses on top of that infrastructure
while maintaining previously cultivatedcollaboration protocols will become
an issue. The MIT Media Lab plans toshoulder the responsibility for thatcoordination. A researcher by thename of Maria Zuber is in charge of all
research at MIT, and she was involved
with space missions at NASA for many
years. She and I are guiding MITʼs space
initiative as leaders. In May 2019, Blue
Origin and MIT announced that they are
working together on a lunar surface
exploration project.
They are also starting to work on aplatform which will enable various zerogravity experiments to take place ona free-falling aircraft. I would like toadvance projects suited to the MIT MediaLab, such as music, bio, and art, on topof that platform. Projects such as how togrow plants or create new materials ina zero-gravity space. I think that we will
see space factories for mass-producing
materials that are difficult to create on
earth. In the US, they started a classlevel project to let high school students
design an artificial satellite, actually
launch it, and have the students analyze
the data obtained from that artificial
satellite on their own PCs. There iseven an idea to make the satellite
specifications open and let junior andhigh school students hack the satellite.

If DG hosted satellite data hackathons
through the Open Network Lab, someinteresting startups might be created.
Hayashi
We founded DG as a company which
professes to be a “context company,”
and it will soon celebrate its 25th
anniversary in 2020. Having focusedwholeheartedly on creating a businessthat contributes to society for the past
25 years, how do you think the next 25
years will turn out?
ItoFrom the time that we first founded thecompany, we have conducted businesswith an awareness of contributing tosociety and culture. However, thatway of thinking is now finally being
incorporated in part of compliance bysociety in the form of SDGs*14. Instead ofincorporating the SDG way of thinking
as a checklist item, however, I think thatthe attitude of contributing to society
through various means of expression
as DG has done from way back isimportant. For example, the MIT MediaLab has recently been researching
Impac t In vestment *15 . Instead ofinvesting simply to make money, youneed properly to measure the pluses
and minuses to society as a whole
including the IR and marketing aspects
for an investment in a certain businessto make the optimal decision for society.
HayashiC er tainly , in the s en s e tha t theimportance of social contribution isincreasing, I feel that philosophy isundergoing a significant change withinsociety. In contrast to the material
civilization of the West, I have a hunchthat a culture similar to Shinto, which
considers the entire planet including
nature is growing in importance. I feelthat there is significant potential for theentire Internet industry to grow to thenext stage if DG creates a role model for
Impact Investing and put it into practicein cooperation with our business
partners and portfolio companies.

*8 GDPR: General Data Protection Regulation, which was enforced by the EU in May 2018 for the purpose ofrestoring the rights concerning the control of personal information to consumers.
*9 Cookies: Data concerning a userʼs behavior on a web site which is stored for a select time period.
Cookies are used in targeted advertisements, etc.
*10 GAFA: Acronym which refers to the four companies: Google, Amazon, Facebook, and Apple.
*11 Space Exploration Initiative: A project announced by the MIT Media Lab in July 2019 for the purpose of
democratizing access to space, which promotes research and development through zero gravity flight
experiments, etc.
*12 SpaceX: A company established by Elon Musk which aims to create a space transportation businessthrough rockets and spacecraft.
*13 Blue Origin: A company established by Amazon founder Jeff Bezos which aims to create a space
tourism business, etc.
*14 SDGs: Sustainable Development Goals. SDGs were adopted by the United Nations Summit in September
2015.
*15 Impact Investing: Investing which considers not only the economic return but also the social return.

35| DIGITAL GARAGE

DIGITAL GARAGE |36

Feature for the next generation

ANNU AL REPOR T 201 9

OPEN INNOVATION PLATFORM
An open innovation platform for business into the next generation

DG LAB FUND
DG Lab Fundʼs investments in promising startups in DG Labʼs five focus areas are on track.
The second fund was established in April 2019 to enhance investment in promising startups in Japan and abroad
and further deepen collaboration with DG Lab.

Business Development through Co-creation with
our Partners and Portfolio Companies Starts in Full Swing

Enterprises (sponsors and fund investors)
LP investment“DG Lab,” an R&D platform operated by DG, together with Kakaku.com, Credit Saison and KDDI with the aim of creatingproducts and services that will serve as new business pillars using cutting-edge technologies is accelerating activity towardbusiness development in the five top priority research areas. Through collaborating with DG Lab partners, DG Lab Fund portfolio
companies and others, DG Lab will create a series of businesses that play roles in society from a global perspective.

VR / AR

Core Partners

BIOHEALTH

Design × Data × Technology【 Data 】

I&CO

BI.GARAGE【 Technology 】

DG Technologies

Investment
tie-upBLOCKCHAIN

AI

VR / AR

Formed in April 2019
The network has been strengthened due to Fund No. 1ʼs investment activity.
With connection to Global Incubation Stream, the targeted investment
regions have been expanded globally (North America, Asia, and Europe).

BIOHEALTHSECURITY

Major portfolio companies
BLOCKCHAIN

The HAUS website provides information regarding
innovation happening around the world throughintroductions to various events related to DG
Labʼs five priority research areas, interviews withfamous individuals, and more.
https://media.dglab.com

R&D and proof of concept testing in the five
strategic areas: blockchain, AI, VR/AR, security
and biohealth

As is seen in Crypto Garage and others, businesscollaboration with DG Lab is steadily being carried out.

Together with TIS Inc., DG established an
independent R&D platform to engage in rapid
development in each of DG Labʼs research areas.

SECURITY【 Design 】

Invested in 31 companies

No. 2

AI

Together with the headquarters of Daiwa
Securities Group, DG formed joint funds to invest
in startup companies that have next-generation
technologies relevant to DG Labʼs five focus areas,
and to support their efforts to increase corporate
value through collaboration with DG Lab.

Investment area: Linked with DG Labʼs five priority areas
blockchain, AI, VR/AR, security, and biohealthNo. 1

Initiatives involving DG LabBLOCKCHAIN

Business collaboration/
R&D results

Sponsor

ReturnBlockstream [Canada]

Development and provision of “Sidechain” platform
technology enabling versatile application ofblockchain with easeAI

Idein [Japan]

AI

BIOHEALTH

Development of an optimization compiler for deep learning models
Enabling edge computing with inexpensive general purpose hardware

Skydisc [Japan]

Development of sensor devices for manufacturingindustry and provision of AI × IoT solutions such asdata analysis using AI

Akili Interactive Labs [US]Development of digital medicine using digitalcontents as a medicine. Targeting neurologicaldiseases (ADHD and depression) etc.

Projects being pursued by DG Lab toward commercialization (partial excerpt)
BIOHEALTH × AI

Smart contract

Personal Health Record

Sound AR Platform

Supporting Crypto Garage in service development

Launching a proof of concept project to build a PHR platform

Planning applications in various industries

DG Lab launched a proof of concept project in Fukuoka City, Japan
from May 2019 to build a platform for health and medical information
held by individuals (Personal Health Record: PHR). DG Lab along with
Welby Inc. (TSE Mothers-listed from March 2019) is providing PHR
services for patients with lifestyle-related diseases. In addition, thefood image analysis technology developed by DG Labʼs AI team is used
to automatically compute information such as the nutritional balancefrom images of participantsʼ meals, and promote individual healthconsciousness and behavior modification. In the future, PHR will belinked with local governments, national and health insurance, medical
institutions, pharmaceutical companies, and health-related business
operators to build a person-centered health and medical data platform.

DG Lab built a sound AR platform that links location information andsound contents by using its “Web AR” technology. It performed proof
of concept testing in Roppongi, Tokyo in October 2018 and in Sapporo
in February 2019. Web AR has lower hurdles to cross before it isadopted than application development and is easy to embed in existing
services and applications. In the future, DG Lab will use the technology
in areas such as events andentertainment and collaborate
with local governments and theservices of O2O businesses, etc.
that DG Lab partner enterprises
have, aiming to provide a newuser experience using “Web AR”
technology.

DVEP

Technology for “digital asset issuance” and“digital asset exchange,” etc.
Using the DG Lab-developed “DVEP” framework thatallows original asset issuance on blockchain, various
businesses can quickly, inexpensively, and securely
build applications on the same blockchain. DG Lab iscollaborating with DG Lab partners, point providers,
and local governments using DG Lab DVEP technology
to enable “digital asset issuance” and “digital asset
exchange” for e-money and points, etc.

37

| DIGITAL GARAGE

Protocol for crypto asset derivative transactions

DLCs(DG Lab deliverable)

Smart contract technology that enables
conditional payments based on future forecasts

DG Lab is supporting the development of “ P2P
derivatives”, a P2P protocol developed by Crypto Garage
that enables crypto asset derivatives transactions.
This protocol uses “DLCs “(Discreet Log Contracts)”
smart contract technology that enables conditional
payments based on future forecasts which was jointly
developed by DG Lab and MIT Media Lab.

×

DIGITAL GARAGE |38

ANNU AL REPOR T 201 9

Relationship between DG and society

Conference discussing the future brought by cutting-edge internet technology

Incubating startups looking to succeed on a global stage

THE NEW CONTEXT CONFERENCE

OPEN NETWORK LAB

DG has been transmitting information to society via “THE NEW CONTEXT CONFERENCE” themed around cutting-edge
internet technology and the businesses which emerge from it, which has been held continuously since 2005 in Tokyoand San Francisco.

DG has been operating “Open Network Lab (Onlab)” since April 2010 with the purpose of “incubating startups that can compete
on a global stage.” As a pioneer of seed accelerator programs in Japan, Onlab has supported and cultivated over 100 startups
through its program. Since 2018 we have been accelerating efforts to develop Onlab by specializing in specific fields andregions. Through Onlab programs, we are supporting the startups of people with promising business ideas.

Vol. 19

Japanʼs first seed accelerator program is evolving in various segments

THE NEW CONTEXTCONFERENCE 2019 TOKYOOpen Network Lab

June 24, 2019 ＠ Roppongi Academyhills
On the theme of “How to Build a Data Ecosystem,”
we discussed protection and utilization of personal
information whose data volume is expected toincrease explosi vely wi t h t he wide use of webs e r v i c e s , m o b i l e a p p s a n d I oT d e v i c e s . T h e
conference explored how to build a data ecosystemenabling beneﬁcial use of personal information forboth ordinary citizens and corporates, from diverse
perspectives covering regulation , consor tium ,technologies, marketing and business developmentin two conference rooms.

DG started Onlab as Japanʼs【2010〜2019】 first seed accelerator programand it has grown steadily.

Launched in 2010
FY19 marks Onlabʼstenth year

The 18th program
has completed.
Applications are open
for the 19th program.

BioHealthResi-Tech
An industry-first,
cross-functional consortium dedicated tohousing/real estate and daily life services.

Over 100 startups
have graduated fromthe program

22 participating companies
Japanʼs first open incubation program

Vol. 18

THE NEW CONTEXTCONFERENCE 2018 SAN FRANCISCO

Corporation
Partners

November 14, 2018 ＠ San Francisco DG717
Focusing on “Design Intelligence,” a new concept that represents theconvergence of AI (ar tiﬁcial intelligence) and Design, we deepened
discussions on questions such as “Is AI going to make Design worthless?
How can Design be used to infuse more humanity into AI? What are thepositive inﬂuences that Design and AI can have on each other?”

HOKKAIDOFUKUOKA

Running in collaboration between industry, government and academia with
D2 Garage, a joint venture of DG and The Hokkaido Shimbun Press playing an anchor role,
Onlab Hokkaido is developing its activities throughout the area.

Startups are planning andconducting proof of concept projects withpartner companies in Fukuoka.

THE NEW CONTEXT CONFERENCE HIGHLIGHT
Vol. 03

Vol. 06

Vol. 09Vol. 11Vol. 18

Partners

Vol. 192007 TOKYO 2011 TOKYO

2013 SF

2015 TOKYO 2018 SF

2019 TOKYOOn the theme of “The Usersʼ
Web” and “Web Visionaries,”
we gave a d d re s s e s o n
infrastructure and services
for next generation internet.

Biz Stone, Co-founder of
Tw i t t e r, I n c . , g a v e a
key n ote a d d re s s a n dleading researchers took
the stage.

We discussed “Digital
Currency” and “Vir tual
Re a l i t y ” a n d h ow t h e s etechnologies would createbusiness opportunities in
the next ﬁve to ten years
and whether they wouldchange our lives.

On the theme of “How to
Build a Data Ecosystem,”
we discussed protection
and utilization of personaldata.

On the theme of “The
Future of Social Mediaa s a L i ve l i h o o d ,” wed e e p e n e d d i s cu s s i o n s
on the fu ture of social
media which has become
an indispensable part ofpeopleʼs lives.

The theme was “Convergenceof AI and design leads the
beginning of the ʻdesign
intelligenceʼ era”

Supporters (universities)(As of June 11, 2019)

TOPICS

Jimmy Wales
Wikipedia
Founder

Abdur Chowdhury
Twitter, Inc.
Chief Scientist

Biz Stone
Twitter, Inc.
Co-founder

Daito Manabe
Rhizomatiks co.,ltd.
Director

John Maeda

Automattic Inc.
Head of Computational Design & Inclusion

Lawrence Lessig
Harvard Law School
Professor

In 2019, DG appointed a Corporate Officer in charge of
SDGs in the United States, an advanced country in ESG

DG believes that SDGs are one of the objectives that should be examined not only torealize a sustainable society but also to determine how future corporations should
behave. Such as by establishing a preparatory committee, we are going ahead withconsideration of how to incorporate SDGs into business from multiple perspectives.

Corporate Ofﬁcer
Debbie Altomonte※Participantsʼ titles are as at time of the conference.

39| DIGITAL GARAGE

DIGITAL GARAGE |40

Management System

ANNU AL REPOR T 201 9

Directors

Kaoru
HayashiJOI
ITO

Representative Director

Member, Board of Directors and Co-Founder

JOICHI ITO

MAKOTO SODA

Apr 1983

Aug 1995

Jun 1994

KAORU HAYASHI
Aug 1995

Representative Director, From
Garage, Inc.

Founded Digital Garage, Inc.
Representative Director, Digital
Garage, Inc.

Member, Board of Directors

Jun 1997

Member, Board of Directors

Joined Dresdner Kleinwort Benson
Securities, Ltd.
Joined Daiwa Institute of ResearchLtd.

Sep 2006

Director, Digital Garage, Inc. (current)

Jun 2003

Chairman and Director, Kakaku. com,
Inc. (current)

Apr 2011

Director, MIT Media Lab (current)

Apr 2000

Joined Monex Securities Inc.

Jun 2012

Mar 2007

Nov 2004

Representative Director, President
and Group CEO, Digital Garage, Inc.

Board Member, The New York Times
Company (current)

Jun 2013

Director, Sony Corporation

Joined Digital Garage, Inc. Executive
Officer in charge of the Corporate
Strategy Division

May 2015

Board Member, Chairman, PureTech
Health plc (current)

Sep 2009

Director, Head of the Group CEO
Office, Digital Garage, Inc.

Director, Credit Saison Co., Ltd.
(current)

Jul 2016

Director Chairman and CEO, Digital
Garage US, Inc. (current)

Sep 2016

Representative Director, President
Executive Officer and Group CEO,
Digital Garage, Inc. (current)

May 2017

Jan 2012
Sep 2016

Representative Director, Chairman
and President, DG Incubation, Inc.
(current)

Director, Senior Executive Officer,
in charge of the Corporate Strategy
Division and the Media Incubation
Technology Segment, Digital Garage,Inc.

Jun 2017

Director, econtext Asia Limited(current)

Apr 2019

Director, Senior Executive Officer,
in charge of the Corporate Strategy
Division and the Long-term
Incubation Segment, Digital Garage,Inc.

Jun 2019

Kenji
Fujiwara

Director, in charge of the Corporate
Strategy Division, Digital Garage, Inc.

Director, Senior Executive Officer,
in charge of the Corporate Strategy
Division, Digital Garage, Inc. (current)

Emi
Omura

MasashiTanakaMember, Board of Directors

KEIZO ODORIFounded Digital Garage, Inc.
Representative Director, Digital
Garage, Inc.

Jun 2016

Keizo
Odori

MakotoSoda

MASASHI TANAKA

Joined Faith, Inc.

Aug 2001

Joined Digital Garage, Inc.

Apr 1999

Joined Mitsubishi Corporation

Director, Faith, Inc.

Jul 2006

Mar 2011

Joined FAST RETAILING CO., LTD.

Sep 2010

Director, Digital Garage, Inc.

Sep 2012

Director, in charge of the Payment
Segment (now the Financial
Technology Segment), Digital Garage,
Inc.

Director, DG&Ibex Company (nowMarketing Technology Company)
Senior Operating Officer, Digital Garage, Inc.
Executive Vice President, DG&Ibex
Company (now Marketing Technology
Company)
Director, Head of Corporate Strategy
Division, Digital Garage, Inc.
Executive Vice President of DG&Ibex
Company (now Marketing Technology
Company)
Director President, Digital Garage US, Inc.
(current)
Representative Director, DG Technologies,
Inc. (current)
Director, Vice President and COO, DG
Incubation, Inc. (current)
Director, DK Gate, Inc. (current)
Director, Senior Executive Officer, in chargeof DG Lab and the Incubation Technology
Segment, Digital Garage, Inc.
Director, Senior Executive Officer, in chargeof DG Lab, the Incubation Technology
Segment and Group CEO Division, Digital
Garage, Inc.
Director, Crypto Garage, Inc. (current)
Director, Senior Executive Officer, in chargeof DG Lab, in charge of the Incubation
Technology Segment, and in charge of theGroup CEO Division Executive Director,
Digital Garage, Inc. (current)

Oct 2013

Representative Director and President,
Econtext, Inc. (current)

Aug 2016

Representative Director and President,
DK Media, Inc. (current)

Sep 2016

Director, Senior Executive Officer, incharge of the Financial Technology
Segment, Digital Garage, Inc.

Jun 2017

Representative Director and President,
DK Gate, Inc. (current)

Jun 2018

Director, DG MARKETING DESIGN, Inc.
(current)

Oct 2018

Director, Senior Executive Officer, incharge of the Financial Technology
Segment, and the MarketingTechnology Segment, Digital Garage,
Inc. (current)

Jan 2019

Director, TD Payment Corporation(current)

Feb 2019

Director, CyberBuzz, Inc. (current)

Jan 2011

Sep 2012

Jul 2016
Sep 2016
May 2017
Jun 2017
Jun 2017
May 2018

Sep 2018
Jun 2019

MakotoSakai

Admitted to practice law in Japan(Nagoya Bar Association)

Apr 1974
Apr 2003

Apr 1988

Jul 2011

Director and COO, Digital Garage, Inc.

Registered to the Tokyo Bar
Association

Jun 2003

Sep 2012

Director and Vice President, in chargeof the Incubation Segment (now the
Incubation Technology Segment),
Digital Garage, Inc.

Sep 2008

Outside Director, Digital Garage, Inc.
(current)

Jun 2009

Director, Kakaku.com, Inc. (current)

Jan 2014

Director, the Office of International
Affairs, Japan Federation of Bar
Associations

Sep 2014

Outside Director, Digital Garage, Inc.
(current)

Jun 2019

41| DIGITAL GARAGE

Kamiyacho International Law Office(current)

Jul 2013

Director, Digital Garage US, Inc.

Sep 2016

Director, Vice President Executive
Officer, in charge of the Incubation
Technology Segment, Digital Garage, Inc.

Apr 2017

Director, Vice President Executive
Officer, Digital Garage, Inc.

Jun 2018

Director, Audit and Supervisory
Committee Chairperson, Digital
Garage, Inc. (current)

Sep 2018

Corporate Auditor, Crypto Garage,
Inc. (current)

Apr 2018

Executive Officer and COO of DG Lab,
Digital Garage, Inc.

Jun 2018

Director, Senior Executive Officer,
COO of DG Lab, Head of Group CEO
Division, Digital Garage, Inc.

Sep 2018

President, Crypto Garage, Inc.

Dec 2018

Director, Senior Executive Officer,
COO of DG Lab, Head of Group CEO
Division, Digital Garage, Inc.

Apr 2019

President and CEO, Crypto Garage,
Inc. (current)

Jun 2019

Representative Director, DG Daiwa
Ventures, Inc. (current)

Jun 2019

Director, Senior Executive Officer,
Head of Group CEO Division, incharge of the Long-term Incubation
Segment, and COO of DG Lab, Digital
Garage, Inc. (current)

Joined KPMG Minato Audit Firm (nowKPMG AZSA LLC) Tokyo OfficeApr 1986

Representative Director andPresident, DG Incubation, Inc.

President, Representative Director,
FANCL CORPORATION

Director COO, Digital Garage US, Inc.
(current)

Oct 1988

Director, Digital Garage, Inc.

Mar 2011

Jun 2003

Director, DG Incubation, Inc. (current)

Dec 2017

KOJI MAKINO

Dec 1995

Associate Expert, International
Labour Office in Geneva, theInternational Labour Organization(ILO)

May 2017

JUNJI INOUE

Oct 2002

Partner, Athena Law Office

Executive Officer and COO of DG Lab,
Digital Garage, Inc.

Outside Director, Audit and Supervisory
Committee Member

Apr 1969

Jul 2008

Apr 2017

Outside Director, Audit and Supervisory
Committee Member

MAKOTO SAKAI

Sep 2010

Joined Digital Garage, Inc.

Outside Director, Audit and Supervisory
Committee Member

YASUYUKI ROKUYATA

Representative Director & President,
Daiei Convenience Systems, Co. Ltd.
(now Lawson, Inc.)

Vice President, UNIQLO USA LLC

Nov 2016

Koji
MakinoEMI OMURA

Jun 1994

Dec 2015

Junji
Inoue

YasuyukiRokuyata

KENJI FUJIWARA

Admitted to practice law in Japan(Tokyo Bar Association)

MASAHITO OKUMA

Apr 2000

Director (Audit and Supervisory
Committee Chairperson)

Joined Shufu-no-mise Daiei, Inc.
(now The Daiei, Inc.)

Member, Board of Directors

Jun 2005

Outside Director

Outside Director

Masahito
Okuma

Aug 2000

Established the Sakai Makoto Law
OfficeMar 2005

Established the Sirius Law Office

Sep 2010

Outside Auditor, Digital Garage, Inc.

Sep 2016

Outside Director, Audit andSupervisory Committee Member,
Digital Garage, Inc. (current)

Mar 2019

Attorney at law, the Sakai Makoto Law
Office (current)

Jun 2007
Sep 2012
Sep 2016

Joined Mitsubishi Corporation
Executive Officer, Mitsubishi
Corporation
Director, Executive Officer & President,
IT Frontier Corp.
Director, e-Access Ltd.
Outside Auditor, Digital Garage, Inc.
Outside Director, Audit and Supervisory
Committee Member, Digital Garage,
Inc. (current)

Aug 1992

Became a Certified Public Accountant

Jan 2006

Established and Representative,
Makino Koji Certified Public Accountant
Office (current)

Feb 2009

Director, BE1 Accounting Office(current)

Sep 2012

Outside Auditor, Digital Garage, Inc.

Sep 2016

Outside Director, Audit and Supervisory
Committee Member, Digital Garage,
Inc. (current)(as of July 1, 2019)
DIGITAL GARAGE |42

Corporate Governance

ANNU AL REPOR T 201 9

Corporate Governance
Basic Concepts
medium- to long-term increases in corporate value,by enhancing and strengthening corporate governancethat emphasizes transparency, fairness, and speedy,
resolute decision-making.

Consistent with our philosophy and credo, as
described below, Digital Garage, Inc. (DG) is committed
to living up to the faith of our shareholders and all otherstakeholders, and to achieving ongoing growth and＜Philosophy＞＜Credo＞
TENACITY

We contribute new value to society by using

OPENNESS

the internet and other resources to link

INTEGRITY

developments across different fields and create

AGILITY

contexts that are useful for the world.

COURAGE

Corporate Governancethe 21st Shareholdersʼ General Meeting, convened on
September 29, 2016. Under the “company with audit
and supervisory committee” form of organization,
directors who are Audit and Supervisory Committee
members perform oversight for management decision
making and the performance of duties by directors
in meetings of the Board of Directors. The Audit andSupervisory Committee, meanwhile, oversees theperformance of duties by directors more broadly.

DG has always viewed corporate governance as a
critical management concern and striven to takethe steps necessary to ensure strong governance.
However, given the adoption of Japanʼs Corporate
Governance Code, we switched to the “company withaudit and supervisory committee” form of organizationto achieve the “growth-oriented governance” called forby the code. This organizational change was formalize
following the approval of a resolution to that effect at

Corporate Governance Organization Chart(as of July 16, 2019)

Propose/Report

Select/Oversee
Delegate decisionmaking for important
operational matters

Audit/ Report

Audit and Supervisory Committee
DirectReportAdvisory Committee

Internal Audit OfficeConsult

Report

Audit

Audit

Cooperate

Exercise Shareholder
Rights at General
Shareholder Meetings

Independently Audit

President, Executive Officer
ReportReportExecutive Officers

43| DIGITAL GARAGE

Deliberate

Management
Committee

DG segments, departments, offices,and group companies

Internal Control System
To provide an environment that supports appropriate
risk taking by directors and others, the Board of
Directors has acted to build and maintain properinternal control and risk management systems.
The Board of Directors supervises these systems toensure their effective operation. It has also approved
resolutions for the formulation of the Basic Policies
on the Construction of an Internal Control System, in
accordance with Japanʼs Companies Act, Ordinancefor Enforcement of the Companies Act, and Financial
Instruments and Exchange Act.

During the fiscal year ended March 2019, we addressed the following points by taking steps to strengthen ourgovernance in accordance with the fundamental principles of the Corporate Governance Code established by the
Tokyo Stock Exchange.

Director Remuneration

Delegate certain
management
authority andresponsibility

Audit and Supervisory Committee
DGʼs Audit and Supervisory Committee consists of four
members - one director and three outside directors.
Audit and Supervisory Committee members attend
Audit and Supervisory Committee meetings held after
regular monthly meetings of the Board of Directors.
They attend other important meetings, including thoseof the Board of Directors, as well, and are free toexpress their opinions and contribute in other ways toenhance the effectiveness of corporate governance.

Stronger Governance from Compliance with the Corporate Governance CodeElect/Dismiss

Cooperate

ReportEstablish
Submit forconsideration/
ReportReport/Express opinions

Independent Auditor

Board of Directors

Elect/Dismiss

Board of Directors
The Board of Directors of Digital Garage, Inc. consistsof 12 members. Four of the 12 members are also
Audit and Supervisory Committee members, and threeof these four members are outside directors. Of theeight members who are not Audit and Supervisory
Committee members, two are outside directors. In
addition to its regular monthly meetings, the Boardof Directors meets at other times, as necessary. In
FY 2019, meetings of the Board of Directors were
held a total of 16 times. The Board of Directors
makes decisions on important matters set forth inlaws and regulations, the Articles of Incorporation,
and Board of Directors Provisions. It also oversees
the activities of board members as they performtheir duties. Outside directors perform governancefunctions by drawing on their individual expertise,management experience and insight, to oversee board
activities and contribute advice, from an independent
perspective. Five of the 12 members of the Boardof Directors are outside directors, making up morethan one third of all members, and these five outside
directors are independent directors in accordance withthe regulations of the Tokyo Stock Exchange. In thisway, we believe a system is in place at the Board of
Directors to conduct highly effective oversight.

Outline of initiatives based on the fundamental principles of the Corporate Governance CodeShareholdersʼ General Meeting
Elect/Dismiss

While realizing a greater strengthening of corporate
governance through ensuring no less than a 1-to-3
ratio of outside directors in the Board of Directors, DG
has introduced an executive officer system to clearly
separate the business execution function from thedecision making and supervisory functions with theaim of bringing greater speed and efficiency to the
execution of business.

Consult

Cooperate

Compliance Committee
Information Security Committee, etc.

To provide shareholders enough time to consider the general meeting agenda, the following decisions were made at the 24th
Ordinary Shareholdersʼ General Meeting. (Supplementary principle 1-2 (2))
・Convening notices will be sent promptly by postal mail 18 days prior to the general meeting date.
・Convening notices will be posted on the web 22 days prior to the general meeting date.
Scheduling the general meeting to avoid the peak day (Supplementary principle 1-2 (3))
・The 24th Ordinary Shareholdersʼ General Meeting was scheduled to be held on June 21, 2019 to avoid the so-called
general meeting peak day.
Promoting disclosure and provision of information in English in consideration of the share of overseas investors, etc.
(Supplementary principle 3-1 (2))
・Operation of an English language version of the Companyʼs website.
・Creation of English language versions of convocation notices, financial results and important press releases.
Establishment of optional advisory committees (Supplementary principle 4-10 (1))
To enhance the transparency of the remuneration determination process, the following actions were taken.
・Evaluating directors on the performance of their duties and contributions to the company based on a director grading
system.
・Implementation of reporting by an advisory committee consisting of the representative director(s) and at least one outside
director on proposed remuneration for the representative director(s).
The following steps were taken as measures related to provision of incentives to Directors.
・Performance-based remuneration plan
・Stock option plan

Implemented the evaluation and analysis of overall board effectiveness. Evaluations and analyses are based on self-evaluations
by individual directors and cover matters such as the composition of the board, operation of the board, matters concerning board
deliberations, and the role and duties of the board. The evaluation results for FY 2019 confirmed that the overall board effectivenessEvaluation, Analysis,
has been sufficiently ensured.promote dialogue with shareholders. In particular, the evaluation indicated DG maintains a frameworkand Disclosure of Board
that facilitates swift decision-making related to important operational matters, lively discussions on medium-to-long term strategy andEffectivenessplanning, and proactive information disclosure to promote dialogue with shareholders. At the same time, the evaluation recognizedsuccession planning and human resource development, the establishment of independent voluntary committees, etc., as issues toconsider to further enhance overall board effectiveness.

DIGITAL GARAGE |44

Corporate Governance

ANNU AL REPOR T 201 9

Compliance and Risk Management

Compliance Statement
The corporate philosophy of Digital Garage is tocreate new business opportunities and contribute to
the betterment of society through providing digitalcontexts that connect multiple elements from various
domains via internet business.
In order to achieve this and ensure our sustainablegrowth, each and every employee is called upon tounderstand changes in society and ensure that ouractions resonate with our environment, in the spiritof the “first penguin.” We recognize the irreplaceable
roles that our employees play in our efforts andthe importance of providing them with a rewarding

Basic Information Security Policy
working environment that they are proud to be apart of. In addition, individuals must also commit toregulatory compliance.
DG has established a compliance program outlining
standards for individual business conduct withintegrity and efficiency based on our shared ethicalvalues.
In order to exercise the aforementioned corporate
philosophy, every staff member at DG is committed
to adhering to the compliance program guidelines asdetailed in the following seven articles in our code of
conduct.

＜Code of Conduct＞
1. Hold high ethical standards and conduct business in compliance with laws
2. Respect fundamental individual rights and diversity and maintain a healthy work environment free fromdiscrimination and harassment
3. Promote harmonious co-existence with society and conduct environmentally-responsible business activities
4. Foster transparency of business and fair and free competition
5. Maintain fair and healthy relationships with government and other public offices
6. Disclose necessary corporate information to stakeholders fairly and openly
7. Manage and utilize corporate assets and information appropriately and effectively

DG regards the information we possess and our
information systems (computers, networks, etc.)
for executing business by DG and our subsidiaries("DG Group") as "information assets." We make best
efforts for information security to safely handle theseassets.

Operational structure for information security
CEO and directors in charge of information security appoint a
chief information security officer (CISO), who serves as a central
information hub in security management throughout the overall
DG Group. Because the DG Group implements different businessformats in each segment and different security risks must be
dealt with in each company, the group is taking required security

measures and acquires ex ternal cer tifications. CISO al so
conducts reviews for multifaceted confirmation of the security
structure. A structure is set up in which, if a serious security
incident occurs in the DG Group, CISO serves a central role topromptly work with DG's management and respond appropriately
to the problem.

Certifications
The DG Group is qualified to obtain third-party certifications according
to the special characteristics of our businesses.
DG has received PrivacyMark certification for our personal
information protection management system complying to JIS Q 15001.
DG and our subsidiaries have received certification as a group for
ISO/IEC 27001:2013, an international standard for information security

management systems (ISMS), and JIS Q 27001:2014, a Japanesestandard. Our subsidiaries that handle credit card information havealso received Payment Card Industry Data Security Standard (PCI
DSS) certification, the international security standard of credit card
industry for the safe handling of credit card information.

Measures against cyber attacks
The DG Group recognizes the threat of increasingly diverse,
sophisticated cyber attacks, and is taking continual measuresagainst such attacks. These include incorporating multilayer

defense and the latest defense technologies into our systems.
We also educate officers and employees about threats to guard
against attacks involving internal parties (targeted attacks, etc.).

Business continuity
DG’s Compliance Statement can be viewed on the following webpage.
https://www.garage.co.jp/en/compliance/

DG believes our social mission is to provide a range of online
services. In the event of a disaster, cyber terrorism, system failure,or other serious danger, we will first ensure securely and accurately

safekeeping customer information and continuing our services tothe maximum level possible, at the same time the safety of ourofficers and employees and their family members.

Setting and promoting understanding of information security rules

Personal Information Protection Policy
In operating its businesses, DG receives and/orcollects personal information from customers,
business partners, employees, etc. DG recognizes

the importance of personal information and pays
utmost care in protecting it.

For information on the Personal Information Protection Policy, please refer to the webpage below.
https://www.garage.co.jp/en/policy/

45

An employee who breaches laws, ordinances, this Basic Information Security
Policy, information security-related rules, or internal regulations will be
subject to penalties in compliance with the company regulation manual, etc.

Code of Conduct
・DG employees strictly adhere to all information security provisions and practice stringent compliance management in accordance with theprotocols of applicable regulations, industry business norms and our code of conduct, as well as contractual security obligations.
・We set information security objectives to maintain an appropriate level of information security and work to reliably achieve them.
・We conduct ongoing activities related to the Basic Information Security Policy and have established a risk management cycle to counter new
threats. We work to constantly review and continuously improve this policy.

List of certifications obtained by DG and our subsidiaries

Disclosure Policy
E m p h a s i z i n g t ra n s p a re n c y , fa i r n e ss , a n dcontinuity, DG endeavors to provide information
in a timely manner to all of its shareholders,investors and other stakeholders. Our basic policy
is to disclose information in compliance withthe regulations on timely disclosure established

DG establishes information security rules and continually promotes thoroughunderstanding of them among officers and employees by conducting security
training for new hires, as well as annual security training.

under the Financial Instruments and Exchange Act
and by Tokyo Stock Exchange, Inc. DG also strives
to disclose as proactively and quickly as possible
even information to which the timely disclosure
regulations do not apply, if we consider it useful inpromoting understanding of DG.

PrivacyMark

ISMS

Digital Garage, Inc.

○○

econtext Inc.

○

○

○

VeriTrans Inc.

○

○

○

DG Communications Co., Ltd.

○○

BI.Garage, Inc.
NaviPlus Co., Ltd.

○○DG Incubation, Inc.
Academie du Vin Co., Ltd.

○For information on the Disclosure Policy, please refer to the webpage below.

For information on the Basic Information Security Policy, please refer to the webpage below.

https://www.garage.co.jp/en/ir/disclosurepolicy/

https://www.garage.co.jp/en/compliance/security/| DIGITAL GARAGE

PCIDSSDIGITAL GARAGE |46

Corporate Governance / Non-Financial Information

ANNU AL REPOR T 201 9

DG’s Corporate Governance System as Seen by the Audit andSupervisory Committee Chairperson

Director (Audit and Supervisory Committee Chairperson)

Yasuyuki Rokuyata

DG is advancing business development in Japan and overseas under the slogan of “Open
Incubation” and, from a global perspective, we recognize that it is important to have Audit andSupervisory Committee Members familiar with various specialist fields working closely together
and implementing appropriate auditing. To this end, DG aims to constantly stay one step aheadin this ever-changing world and to realize an auditing system that is able to respond to suchchanges with agility in order to meet the expectations of our shareholders.

Functions and Roles of Outside Directors
The five outside directors actively express opinions from a position independent of management.
Outside Director

Outside Director Emi Omura

Throughout the last 11 years I havewatched over DG with an outside
perspective. DG is still “a company
that initiates change. ” DG is acompany that incorporates a senseof scale in its outlook on globalchanges. The balance between“ earning power and appropriate
distributions to shareholders ” isimportant. From this perspective,
I am determined to carry out mygreat responsibilities for the year.

Innovative ideas are born froman unshakeable tenacity and they
thrive in an open environment. I feelthat active information exchange
and an approach that also respects
the role of Out side Direc tors
are strengths of the DG Group. I
expect the DC Group will realize
diverse value and achieve further
development.

Outside Director (Audit andSupervisory Committee Member)

Outside Director (Audit andSupervisory Committee Member)

As we stand at threshold of atransformative age, I realize that DG
is a corporate group that is creating
new contexts making the best useof IT (Information Technology), MT(Marketing Technology), and FT(Financial Technology). From thestandpoint of an Audit and Supervisory
Committee Member, I want toprovide our full support to where new
business is born and growing.

Technological innovation anddi ver s i f i ca t i on o f s o c i e t y are
increasingly accelerating. Standingat the crest of that wave, in order for
DG to continue as a company thatcreates new value, I will support
enhancement and strengthening ofan effective corporate governancesystem that sustains speedy andhighly acc ura te m an agemen t
decision making.

Outside Director (Audit andSupervisory Committee Member)

Koji Makino

The only certainty in the future isthat today ʼs common knowledge,
at some future date, will inevitably
be reworked by someone. In thatage, DG Group questions common
knowledge and continues to stayahead of the times. As governanceleaders supporting growth, I think
we also want to respond with agility.

47| DIGITAL GARAGE

Number ofGroup employees899(as of March 31, 2019)

Number of
employees worldwide*67(as of March 31, 2019)

The number of DG Group employees
has increased to 899 with the expansionof business.

DG has been recruiting diverse humanresources globally and has 67 employees
worldwide now active.
*Number of non-Japanese employees in DG Group

Kenji Fujiwara

Makoto Sakai

Non-financial Highlights

Number ofGroup companies

30(as of March 31, 2019)

Group ratio of
female employees

35.3%(as of March 31, 2019)

There are 30 DG Group companies, ofwhich 18 are consolidated subsidiaries
and 12 are equity-method affiliates.

There are many women active in DG and
the Group ratio of female employees is35.3%.

Junji Inoue

Number of employees
taking childcare leave/Return rate after childcare leave

Paid leave acquisition rate

12/100%(April 1, 2018 – March 31, 2019)

48.9%(April 1, 2018 – March 31, 2019)

Number of Independent
Outside Directors/Ratio

5/41.7%(as of March 31, 2019)

DG emphasizes work life balance for eachand every employee and is implementing
programs and a leave system to support
work and childrearing as well as caring.
As a result, all employees that have taken
childcare leave have returned to work.

To increase the productivity of eachand every employee, DG is actively
recommending all employees takeleave.

Five Independent Outside Directors
have been appointed, accounting for41.7% of the total of 12 Directors.

DIGITAL GARAGE |48

Financial Information

ANNU AL REPOR T 201 9

Summary of Consolidated Business Performance Indicators
Key Performance Indicators (JPY in Millions)
JGAAP

IFRS
FY 14

FY 15

FY 16

FY 17 (9 months)

FY 18

FY 18

FY 19

33,751

38,08743,76336,45260,16825,50335,687

Operating profit

2,608

4,810

4,201

723

2,310

Profit before tax

8,376

13,424

Profit before income taxes

5,035

9,248

7,574

5,819

7,619

Profit

6,337

9,790

Profit attributable to owners of parent

2,847

5,081

5,165

4,289

5,460

Profit attributable to owners of parent

6,412

9,771

Total assets

71,00986,504

77,33591,695

108,791

Total assets

119,545

146,890

Net assets

36,48929,07430,664

34,38039,017

Total equity

43,19947,345

Cash flows from operating activities

-34

5,040

-2,618

4,148

14,293

Cash flows from operating activities

12,316

2,580

Cash flows from investing activities-5,155508-1,071-1,452

1,008

Cash flows from investing activities

2,883-2,397

Cash flows from financial activities

11,2601,390-11,637

4,176-2,307

Cash flows from financing activities

174

8,509

Cash and cash equivalents at end of year

25,18334,07718,321

25,33538,248Cash and cash equivalents at end of period

39,45048,154

Net sales

Revenue

as ofMarch 31,2019
Changedlisting to the TSEFirst Section on

May 9,
2016

Trends in Share Price

Listed on

Dec. 14,
2000

49| DIGITAL GARAGE

DIGITAL GARAGE |50

Financial Information

ANNU AL REPOR T 201 9

Consolidated Balance Sheet and Consolidated Statement of Financial Position (JPY in Millions)
JGAAP
Current assets

FY 10

FY 11

FY 12

FY 13

FY 14

FY 15

FY 16

FY 17 (9 months)

FY 18
Current assets

FY 18

FY 19

14,20814,34528,00533,83745,45557,752

48,324

59,62475,49678,77699,186

Cash and deposits

4,799

4,784

12,30815,32924,29430,956

15,70323,02932,922

Cash and cash equivalents

39,45048,154

Notes and accounts receivable

2,238

1,466

2,479

2,688

3,658

3,824

5,441

7,056

7,741

Trade and other receivables

21,33023,254

Money held in trust

3,155

2,501

3,404

3,768

889

3,120

2,592

2,264

5,307

Inventories

323

912

1,904

2,641

8,063

8,208

11,164

11,856

12,364

Operational investment securities

3,413

4,351

7,577

9,037

8,596

11,646

13,946

15,422

16,889

277

329

329

372

-48

-2

-524

-5

270

5,497

6,075

21,333

22,17325,55428,75229,011

32,06133,295

Operational investment securities
Receivables
Other
Non-current assets
Tangible fixed assets

429

377

912

2,038

2,158

2,250

2,279

2,245

2,338

2,248

2,102

13,08011,093

8,587

7,574

7,455

7,224

9,869

Software

283

316

959

1,106

1,210

1,314

1,664

1,784

2,019

Goodwill

1,945

1,768

12,104

9,968

7,354

6,237

5,765

5,411

7,822

19

17

16

18

23

22

25

27

28

2,818

3,595

7,340

9,041

14,80818,927

19,276

22,592

21,087

2,504

3,305

4,299

5,521

10,644

14,22014,844

18,357

16,552

314

290

3,040

3,519

4,163

4,706

4,432

4,235

4,535

19,706

20,42149,33856,01071,00986,504

77,33591,695

108,791

9,941

9,933

28,50521,801

25,461

50,62330,18738,81549,540Intangible assets

Other
Investments and other assets
Investment securities
Other
Total assets
Current liabilities
Notes and accounts payable

1,021

540

1,154

1,232

1,629

2,039

2,728

3,713

5,018

Short-term borrowing

2,809

2,519

10,740305

3,690

23,533

3,200

6,937

4,137

Income taxes payable

4

46

740

810

1,241

2,147

720

435

1,008

5,743

6,168

14,956

18,22916,43420,99821,87625,12736,499

362

658

914

1,224

2,464

1,904

1,660

2,601

2,876

935

592

355

6,950

9,058

6,805

16,484

18,49920,233

Deposits
Other
Non-current liabilities
Bonds payable

-

-

-

-

-

-

-

-

-

Long-term borrowing

670

351

183

6,799

8,841

5,546

15,37017,207

18,890

Deferred tax liabilities

5

30

-

20

43

938

596

488

551

259

210

172

129

174

321

517

803

792

Other
Total liabilities
Shareholders’ equity

10,876

10,52528,861

8,785

9,759

20,155

Common stock

1,835

1,872

6,017

Capital surplus

5,521

5,558

9,703

Retained earnings

1,497

2,398

4,505

-69

-69

Accumulated other comprehensive income-17

Valuation difference on available-for-sale securities-17

Treasury stock

Foreign currency translation adjustment
Minority interests
Share acquisition rights
Total net assets
Total liabilities/net assets

51

IFRS

| DIGITAL GARAGE

28,752
25,27934,51957,42946,671

57,31569,774283

232

16,745

26,695

Other financial assets

442

451

Income taxes receivable

44

6

Other current assets

482

394

40,76947,704

Property, plant and equipment

8,495

9,421

Goodwill

7,959

6,575

Intangible assets

2,104

2,575

Non-current assets

Investment property

2,966

3,046

Investments accounted for using equity method

13,915

19,139Other financial assets

5,010

6,662

Deferred tax assets

195

137

Other non-current assets

124

148

119,545

146,890

Total assets
Current liabilities

48,04452,420Borrowings

4,623

2,211

Trade and other payables

39,40745,799Other financial liabilities

760

853

Income taxes payable

1,010

1,076

Other current liabilities

2,244

2,482

Non-current liabilities

28,302

47,125

Bonds and borrowings

19,24335,959Other financial liabilities

5,244

5,430

Retirement benefit liability

544

565

Provisions

326

321

Deferred tax liabilities

2,754

4,744

Other non-current liabilities

191

106

Total liabilities

76,34699,545

Share capital

7,465

7,504

Capital surplus

3,748

4,235

Retained earnings

29,95538,593-26-5,026

1,575

1,303

27,762

24,65028,61031,63336,363

7,330

7,399

7,426

7,435

7,437

7,464

11,016

10,817

2,854

2,825

2,946

3,104

7,003

9,615

14,43918,41921,30025,819

-69

-69

-69

-69

-69

-50

-26

64

115

426

2,679

4,002

1,502

1,956

1,440

64

-76

31

2,193

2,585

138

644

339

-

-

191

394

485

1,416

1,363

1,312

1,100

Other components of equity

61

71

174

1,468

5,906

126

119

132

369

Total equity attributable to owners of parent

42,71746,609

-

-

31

84

141

295

431

648

844

Non-controlling interests

483

736

43,19947,345

119,545

146,890

8,829

9,895

20,47627,25836,48929,07430,664

34,38039,017

19,706

20,42149,33856,01071,00986,504

77,33591,695

108,791

Treasury shares

Total equity
Total liabilities and equity

DIGITAL GARAGE |52

Financial Information

ANNU AL REPOR T 201 9

Consolidated Statements of Income (JPY in Millions)
JGAAP
FY 10

FY 11

FY 12

FY 13

FY 14

FY 15

FY 16

Net sales
Cost of sales

8,346
6,630

11,067
8,282

14,903
10,64427,964
21,53333,751
25,53438,08727,301

43,76332,27336,451
29,83860,16848,524Gross profit

1,716

2,784

4,258

6,431

8,216

10,785

11,4906,613

11,644

Selling, general and administrative expenses
Directors’ compensation
Salaries
Bonuses
Legal welfare expenses
Welfare expenses
Retirement benefit expenses
Advertising expenses
Travel and transportation expenses
Taxes and dues
Commission fees
Business consignment expenses
Research and development expenses
Rent expenses
Depreciation
Amortization of goodwill
Other

2,676
247
911
11
113
23
7
20
55
30
132
95
39
219
59
249
461

2,649
286
851
40
128
21
6
31
52
34
137
75
29
269
66
177
439

2,637
287
825
77
128
25
9
39
84
58
124
76
52
274
39
188
343

5,109
403
1,319
65
162
48
33
95
157
111
203
291
38
404
99
940
731

5,608
458
1,428
85
199
82
34
190
200
91
277
241
59
430
107
756
962

5,975
523
1,509
90
211
101
52
100
188
128
285
288
79
433
122
754
1,105

7,288
466
2,599
171
381
99
66
194
167
143
317
306
56
644
140
471
1,062

5,889
330
1,998
181
306
74
49
127
125
131
228
258
114
447
120
353
1,039

9,333
481
3,178
276
496
105
72
180
212
217
478
416
252
658
153
570
1,581

Operating profit
Operating profit rate

-960
-11.5%

135
1.2%

1,621
10.9%

1,322
4.7%

2,608
7.7%

4,810
12.6%

4,201
9.6%

723
2.0%

2,310
3.8%

616
24
11
547
33
113
84
6
22

925
17
11
866
30
88
43
6
30
0

1,215
8
42
1,004
112
32
15
128
49
1
13
62

2,179
14
43
1,361
499
222
38
423
102
50
127
94
48

2,307
7
30
1,741
143
278
105
472
88
0
189
191
3

3,736
18
0
2,080
1,090
337
209
936
97
554
275
8

3,031
18
0
2,406
371
236
1,040
85
689
248
16

3,246
5
29
2,528
331
352
292
56
0
223
10

3,305
9
0
2,768
359
167
597
79
66
160
259
31

Ordinary profit
Ordinary profit rate

-457
-5.5%

972
8.8%

2,708
18.2%

3,078
11.0%

4,442
13.2%

7,610
20.0%

6,193
14.2%

3,678
10.1%

5,017
8.3%

Extraordinary income
Gain on change in equity
Gain on sales of investment securities
Gain on sales of shares of subsidiaries and associates
Other
Extraordinary losses
Loss on retirement of non-current assets
Loss on liquidation of subsidiaries and associates
Impairment loss
Loss on valuation of investment securities
Other

49
30
15
3
1,775
4
1,435
332
1

58
46
0
0
71
9
22
0

63
20
42
0
236
3
222
8
2

1,304
18
153
1,131
1
168
22
88
33
23

630
374
220
35
38
7
0
30

2,463
2,363
99
824
27
77
657
62

1,392
157
521
713
10
8
1

2,265
47
1,829
386
2
124
16
104
3

2,669
33
1,032
1,471
131
67
31
25
10
0

Profit before income taxes
Profit before income taxes rate

-2,183-26.2%

958
8.7%

2,535
17.0%

4,215
15.1%

5,035
14.9%

9,248
24.3%

7,574
17.3%

5,819
16.0%

7,619
12.7%

3
3

47
9

409
19

1,520
-9
-11

1,919
-32
300

3,699
155
312

2,241
143
24

1,647
-121
4

2,028
104
25

Non-operating income
Interest income
Dividends income
Investment profit on equity method
Foreign exchange gains
Rent expenses on real estates
Other
Non-operating expenses
Interest expenses
Commission fees
Foreign exchange losses
Rent cost of real estate
Listed expenses
Investment loss on equity method
Other

Income taxes–current
Income taxes–deferred
Profit attributable to non-controlling interests
Profit attributable to owners of parent
Profit rate

53

IFRS

| DIGITAL GARAGE-2,207-26.5%

901
8.1%

2,106
14.1%

2,715
9.7%

2,847
8.4%

5,081
13.3%

5,165
11.8%

FY 17 (9 months)

4,289
11.8%

FY 18

5,460
9.1%

FY 18

FY 19

Revenue in recurring business
Revenuein operational‌18,141

22,713

investment securities

1,007

6,090

Other income

2,111

1,933

Finance income

764

117

Continuing operations

‌
Share
of profit of investments
accounted for using equity method

3,481

4,835

25,50335,687

Cost of sales
Selling,
general and
‌

7,187

10,401

9,095

11,296

Other expenses

542

332

Finance costs

303

235

17,12722,264

Profit before tax

8,376

13,424

Income tac expense

1,857

4,088

Profit from continuing operations

6,518

9,336

Revenue

3,260

1,261

Expenses‌Profit (loss) before tax from

3,403

1,655

-143

-394

Income tax expense
Profit(loss) after tax from
‌

38

-225

-181

-169

-

898

Total

administrative expenses

Total

Discontinued operations

discontinued operations

discontinued operations
‌Loss (gain) on sales on
discontinued operations
‌Income tax expense from saleof discontinued operations
‌Profit (loss) fromdiscontinued operations

Profit

-

275

-181

454

6,337

9,790

6,412

9,771

-75

19

139.66199.93

Profit (loss) attributable to
Owners of parent
Non-controlling interests
Earnings (loss) per share (Yen)
Basic earnings (loss) per share
Continuing operations
Discontinued operations

-3.68

10.35

135.99210.28Continuing operations

138.63189.51

Discontinued operations

-3.65

9.75

134.98199.26

Total
Diluted earnings (loss) per share

Total

DIGITAL GARAGE |54

GROUP BUSINESS ACTIVITIESFINANCIAL TECHNOLOGY SEGMENT
econtext Asia Limited
Consolidated subsidiary

econtext Inc.
Consolidated subsidiary

VeriTrans Inc.
Consolidated subsidiary

ANA Digital Gate, Inc.
Affiliate

SCORE Co., Ltd
Affiliate

TD Payment Corporation
Affiliate

econtext Asia is a holding company for payment businesses for the global use of EC
platforms of all types.

INCUBATION TECHNOLOGY SEGMENT
DG Incubation, Inc.
Consolidated subsidiary

econtext Inc. pioneered cash payments using kiosk terminals at convenience storesand has promoted the provision of online payment services to EC businesses
centered on convenience store payments. As a money transfer business, it also
operates a money sending service.

Open Network Lab, Inc.

Since its establishment in 1997, VeriTrans Inc. has provided a credit card payment
system incorporating the latest security technology in the US, and been a leader
in the payment aspect of e-commerce in Japan. Going forward, VeriTrans Inc. will
focus on developing, and introducing cashless payment systems, in major markets
where electronic payment has yet to be adopted.

Digital Garage US, Inc.

ANA Digital Gate is a joint venture between VeriTrans Inc. and the ANA Groupʼs ALL
NIPPON AIRWAYS TRADING CO., LTD., that is developing a corporation-oriented
payment solution business that uses FinTech.

DK Gate, Inc.

SCORE is a joint venture between VeriTrans Inc. and Nissen Co., Ltd. providing postsettlement payment services. The two companies combine their payment businessknowledge, technologies, and other strengths with the aim of developing Fintech
services incorporating new marketing elements, such as credit monitoring, scoring,and purchasing promotion.
TD Payment is a joint venture between VeriTrans Inc. and TOSHIBA TECCORPORATION offering multiple payment solutions for POS systems to meet
diversifying cashless payment needs.

Consolidated subsidiary

Consolidated subsidiary

Consolidated subsidiary

DG Technologies, Inc.
Consolidated subsidiary

D2Garage, Inc.
Consolidated subsidiary

MARKETING TECHNOLOGY SEGMENT
Digital Garage
Marketing Technology
Company
Company

DG Communications Co., Ltd.
Consolidated subsidiary

BI.Garage, Inc.
Consolidated subsidiary

In addition to advertising awareness and acquisition advertising, Digital Garage MarketingTechnology Company provides a wide range of marketing solutions from CRM and othersolutions to improve engagement, through to data analysis, AI applications, and settlement
systems. It leverages the cutting-edge technology and assets of the DG Group to develop andoffer unique solutions, and provide support to clients, the market, and the world as a businessstrategy partner with continuous assistance and business creation akin to social infrastructure.
Utilizing the real-estate-advertisement-related knowhow cultivated andaccumulated over many years including knowledge, experience, and data, as wellas the DG Groupʼs advanced technology and sophisticated strategy management,
DG Communicationsʼ business does not stop at property sales in the real estate
field, but uses real estate as a gateway to provide solutions to help people live more
comfortable lives.
Based on the philosophy that data creates new marketing context ― combines,
processes, and analyzes payment data accumulated by the Digital Garage Group,purchase behavior data owned by Kakaku.com, Inc., and advertising-related
data of the Dentsu Group ― a major DG shareholder ― to optimize customer
communications for company marketing activities.

DG Daiwa Ventures, Inc.
Affiliate

Consolidated subsidiary

CyberBuzz, Inc.
（TSE Mothers 7069）

Affiliate

DG Marketing Design, Inc.
Affiliate

I&CO
Capital allianceOpen Network Lab was established in April 2010 for the purpose of cultivating
startups that build world-class products. Through its Seed Accelerator Program,Open Network Lab has already nurtured and supported several dozen startups.

Digital Garage US is the DG Groupʼs US-based global strategy headquarters. It
operates the DG717 incubation center established in the heart of San Francisco in2013, supporting entrepreneurs and engineers from around the world.
A joint venture of Digital Garage and Kodansha Ltd., the purpose of DK Gate is tomake strategic investments in content businesses. DK Gate focuses on identifying
and nurturing companies pursuing next-generation content businesses throughout
the world.
As a strategic company that supports the technological aspects of DG Lab, DG
Technologies engages in research and development with an eye toward businessapplication and promotes the development of cutting-edge technology by combining
the technological capabilities, etc. of Digital Garage and TIS Inc.
The “Open Network Lab HOKKAIDO” business is creating a start-up support
program that aims to build a start-up ecosystem in Hokkaido and investing indeveloping start-ups that leverage Hokkaido's resources and issues such as
primary industry, tourism, and rich natural world.
DG Daiwa Ventures operates DG Lab First Investment Limited Partnership (DG
Lab Fund), which was established with the merger between Digital Garage, Inc.
and Daiwa Securities Group Inc. The purpose of this fund is to promote investmentin promising Japanese and overseas startups with advanced technologies in the
research areas DG Lab has designated as high priorities.

LONG-TERM INCUBATION SEGMENT
Kakaku.com, Inc.
（TSE First Section 2371）

Affiliate

Crypto Garage, Inc.
NaviPlus Co., Ltd.

As the investment arm of the Digital Garage Group, DG Incubation supports Internet
entrepreneurs throughout the world. Targeting startup companies that can be
expected to give rise to synergies with the DG Groupʼs various businesses, DG
Incubation, going beyond simple investment, focuses on being an incubator thatengages in collaborative business creation.

Based on its proprietary technology, provides marketing solutions, such as searchengines and recommendation engines that optimize the content and navigation ofEC sites using collected and analyzed data.

Consolidated subsidiary

CyberBuzz is developing a social media marketing business centered on influencers
under the vision of “changing communication into value and changing the world.”
CyberBuzz is providing services such as promotion support using the influencer
network, social media account management service, and “to buy,” the influencer
commerce media.

Dentsu ScienceJam Inc.

Provides integrated marketing solutions from planning, to creative, to data analysis
that surpass the barriers of real and digital in promotions, conversions, andrelations in the marketing field.

New Context Services, Inc.

I&CO was established by internationally renowned digital creator Rei Inamoto.
I&CO creates hybrid businesses for global incubation by combining its world-classcreative ability with the data science business, etc. that Digital Garage operates.

Academie du Vin Co. Ltd.

Affiliate

Consolidated subsidiary

Consolidated subsidiary

Kakaku.com operates a price comparison site (kakaku.com) and a restaurant
review and advertising site (tabelog.com).

Crypto Garage is a joint-venture between Digital Garage, Tokyo Tanshi Co., Ltd.
and Blockstream, Inc. that is accelerating R&D and commercialization of advanced
financial services leveraging blockchain in the Fintech field.

Dentsu ScienceJam commercializes scientific research results.

New Context Services provides security systems for all manner of services,
including infrastructure, for daily life.

Academie du Vin manages the wine school business started in Paris by globallyrenowned wine critic Mr. Steven Spurrier and is expanding a wine wholesale
business.

(as of August 29, 2019)55| DIGITAL GARAGE

DIGITAL GARAGE |56

Company & Stock Information

ANNU AL REPOR T 201 9

COMPANY INFORMATION(as of March 31, 2019)

Basic Information

STOCK INFORMATION
Stock Information(as of March 31, 2019)

Company Name

Digital Garage, Inc.

Authorized shares

120,000,000

H e a dDG Bldg., 3-5-7 Ebisu Minami, Shibuya-ku, Tokyo 150-0022, Japan

Total number of shares issued

47,341,600

O f f i ce

E s t a b l i s h e dAugust 17th, 1995

Voting rights

459,436Pe03-6367-1111 (Main)

Shareholders

7,406

x

03-6367-1119

F

h

o
a

n

Stock listings

Tokyo Stock Exchange 1st section (4819)

Fiscal year end

March 31

Stock Capitalization

7,504 million yen

Total number of shares issued
Number of employees

Major Shareholders(as of March 31, 2019)

Shares Owned

Ownership Percentage

Kaoru Hayashi

6,815,400

14.83

47,341,600

Dentsu Inc.

3,300,000

7.18

899 [consolidated] / 448 [non-consolidated]

The Master Trust Bank of Japan, Ltd. (Trust accounts)

3,163,700

6.89

TIS Inc.

2,364,500

5.15

J.P. Morgan Bank Luxembourg S.A. 385576

1,548,016

3.37

The Bank of New York Mellon 140051

1,242,800

2.70Japan Trustee Services Bank, Ltd. (Trust accounts)

1,216,300

2.65Japan Trustee Services Bank, Ltd. (Trust accounts 9)

1,039,100

2.26

State Street Bank and Trust Company 505025

890,700

1.94

Japan Trustee Services Bank, Ltd. (Trust accounts 5)749,200

1.63

DIGITAL GARAGE GROUP CHART(as of April 1, 2019)

Organization Chart
Shareholdersʼ General Meeting* Share ownership percentages were calculated based on issued shares net of treasury shares (1,391,452 shares).

Board of Directors Audit and Supervisory Committee

Internal Audit Office

Number of Shareholders

Representative Director,
President Executive Officer and Group CEO

19,00017,821

17,000Management Committee

15,06915,000Presidentʼs OfficeGroup CEO Div.

Business Innovation Dept.

Smart City Planning Dept.
Open Network Lab Promotion Dept.

14,836
13,066

13,00010,87911,0009,000
7,000

Biomedical Project Office

15,917

12,235

10,127

7,892

11,085
9,621

9,408

8,595

8,610
6,174 6,388

7,680

7,406

5,000
3,000

2010.12 2011.6 2011.12 2012.6 2012.12 2013.6 2013.12 2014.6 2014.12 2015.6 2015.12 2016.6 2016.12 2017.3 2017.9 2018.3 2018.9 2019.3

Share Ownership Distribution(as of March 31, 2019)

DG Lab
Corporate Strategy Div.

Corporate Strategy Dept.
Accounting Dept.

Treasury shares
2.94%（1,391,452）

Investment securities firms
1.11%（526,637）

Legal Dept.
Working Engagement Dept.
Human Resources Dept.
Marketing Technology Company

Business Strategy Div.

| DIGITAL GARAGE

Shares47,341,600

Performance Marketing Div.
CRM Strategy Div.

57

Non-Japanese individuals
36.38%（17,221,825）

Individuals/other25.58%（12,108,037）

Other Japanese institutions
14.86%（7,035,149）

Financial institutions
19.13%（9,058,500）

DIGITAL GARAGE |58