DIGITAL GARAGE ANNUAL REPORT 2017

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

REAL & CYBERLOCAL & INTERNATIONAL
MARKETING & TECHNOLOGYPRESENT & FUTURE

Mission

Since its establishment 22 years ago, Digital Garage has put itself forward as acompany that creates contexts for the internet era. In using the word, “context,”
we mean shared understanding based on relationships, environments, culture,and ideas. We established DG as a company that would explore ways forcreating internet contexts incorporating real space and cyberspace ̶ which
is set to expand by leaps and bounds ̶ and linking Japan with the rest of theworld, marketing with technology, and the present with the future. We also

CONTENTSDIGITAL GARAGE
ANNUAL REPORT 2017

MISSION

01

PHILOSOPHY

02

HISTORY

04

BUSINESS SEGMENTS

06

BUSINESS MODEL07

Message from the CEO

08

New Mid-term Business Plan 12
Message from the Executive 14
in Charge of FinanceConsolidated Financial
Highlights

16

Special Conversation
Technologies Supporting
Digital Garageʼs Future18

established 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 cuttingedge of internet development, and taking on “ first-in-Japan” projects. We areproud 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 thehistory of the internet by creating new services that contribute to society. We
aim to accomplish much and welcome anticipation of our results.

Feature: DG Lab

34

Incubation Technology Segment 26

Management System

36

Marketing Technology Segment 28

Corporate Governance

38

Financial Information

42

BUSINESS OVERVIEW

24

Cautionary Statement
Discussions of Digital Garageʼs current plans and strategies, and outlooks for future performance, included inthis annual report are based on information available as

Financial Technology Segment 30of the preparation of this report. Digital Garage believes
the views expressed are reasonable as of the time thisreport was prepared. Nevertheless, risk and uncertainty
are inherent in discussions of the future. Users of thisreport should bear in mind that various factors may

32
Media Incubation Segment/
Long-term Incubation Segment

Company & Stock Information 50

cause actual results to differ from expectations or
outlooks expressed in this annual report.

DIGITAL GARAGE|

01

PHILOSOPHY

Annual Report 2017

For 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 sharks and seals that prey on penguins. The penguin thatcourageously decides to be the first to take the plunge, despite the possibilityof encountering such predators, is referred to as the “First Penguin.”
The Digital Garage Group was founded on the creed of being the “First Penguin”
̶having the courage and unshakeable will to be the first to step forward andtake up a challenge. With all of our employees guided by the spirit of leading
and being the “First Penguin,” we will move forward to provide services thatare useful to the world.

Philosophy

DG is moving into the fourth stage of incubation in preparation for 2020 andthe 25th anniversary of its founding.
In the three years leading up to the 2020 Tokyo Olympic and Paralympic Games, the business environmentis expected to experience the end of some existing businesses and the creation of new businesses, brought
about by unprecedented rapid technological innovation. To respond to these major shifts, DG formulated a
new Mid-term Business Plan with the slogan “Open Incubation,” which is the next step for “Open Innovation.”With DG Lab, an open innovation platform for R&D established in July 2016, at the core, DG will support thecreation 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.

02|

DIGITAL GARAGE

THINK FOR YOURSELF AND
QUESTION AUTHORITY- Timothy Leary

DIGITAL GARAGE|

03

HISTORY

Annual Report 2017

The past and future of Digital Garage, a company thathas applied IT (Information Technology), MT (MarketingTechnology), FT (Financial Technology) to give rise to
new value in the age of the internet
What DG
has doneA history of making the most of networks in Japan and abroad to pioneer pathways forinternet development.
Experience and a track record of performance, at the leading edge of internet business, is DGʼs strength andthe source of the high-value-added contexts it creates.

Key Web Milestones

1995

1998

Microsoft introduces
Windows 95

1995

2000

Number of Internet users inJapan surpasses 10 million

2000’95 -’00
PORTAL SEARCH

2007

Google introduces a Japaneselanguage search service

Apple introduces
the iPhone’00
E-COMMERCE DESTINATION SITE

Established an operational base through bydeveloping a settlement service targeting
e-commerce sites, and by investing in Kakaku.com,
a company developing a price- comparison site.

Established an internet advertisingbusiness with a high-traffic portal site andcrawler-based search engine at its core.

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

2008

2011

2014

’08
SOCIAL MEDIA

2017

AI program called “AlphaGo” beats
the best professional Go player inthe world

2016

2017

Established “DG Lab,” an R&D
platform, with the aim of developing
technology that supports nextgeneration businesses.

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

Social Media
Incubator

IT/MT/FT × Open Innovation

1995

2000

2005

2008

2011

2012

2013

2016

2017

Created Japanʼs ﬁrst
personal homepage“Tomigaya,” andestablished Digital
Garage to create Internet-based advertising.

Digital Garage was listed on the OTC (now theTokyo Stock Exchange
JASDAQ).

Established DG&Ibex, acompany providing advertising and promotion services by fusing real spaceand cyberspace, into a
consolidated subsidiary.

Entered into a businessalliance with Twitter,
Inc. and provided localization support.

Established the OpenNetwork Lab to support next-generation
startups.

Made VeriTrans Inc.
into a consolidated
subsidiary in order tobecome Japanʼs largest payment platform.

BI. Garage, a joint venture with the Dentsu
Group, embarked ona big data operations
mission.

Launched an R&D
platform by DG,
Kakaku.com, andCredit Saison to create
new businesses.

Started a lifestyle support business as theﬁrst proposition of theLong-term Incubation.

|

2000

2003

2005

2011

2012

2013

2016

Established econtext,
Inc. to provide payment
and other e-commerce
solutions.

Kakaku.com was listedon the Tokyo Stock
Exchange Mothers
Index.

Established DG
Incubation to invest in
and provide businesssupport to venturecompanies.

Established DGUS, theDG Groupʼs US base ofoperations, to accelerate US incubation
activities.

Entered into a capitaland business tie-up
with Dentsu Inc. andbegan collaborating in
all aspects of digitalmarketing.

Established the incubation center, DG717,
in the heart of San
Francisco.

Established DK Media,
a joint-venture internet
media company thatutilizes the womenʼsmagazines of Kodansha Ltd.

DIGITAL GARAGE

2020

Number of smartphone
subscribers exceeds numberof feature phone subscribers

Number of SNS
users in Japanexceeds 40 million

Expanded advertising/marketing businesses
for a new era of users utilizing blogs, Twitter,and other forms of social media.

HybridSolution04

2008

Tokyo Olympic andParalympic Games’17
FUTURE…

Open Incubation toward
2020

DIGITAL GARAGE|

05

BUSINESS SEGMENTS

FOUR SEGMENTS
FOUR SEGMENTS and BUSINESS CONCEPTS

Annual Report 2017

BUSINESS MODEL
THE DIGITAL GARAGE GROUPʼS THREE EARNINGS BASES

Creating innovative internet services with open innovation in four segments.
Business
Model

Adding to sustainable growth in marketing (MT) and payment services (FT), which are indispensablefor the profitability of internet-related businesses, we will discern the future of technology
evolution and create new businesses through DG Lab, an open innovation platform.

IT

POINT

Incubation Technology
Segment

POINT

LTI

MT

Long-term Incubation
Segment

Marketing Technology
Segment

01

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

02

FT

Financial Technology
Segment

Ⅱ

Ⅲ

PORTALSEARCH

E-COMMERCE
DESTINATION SITE

SOCIAL MEDIA

1995-2000

2000-

2008-

2016 -

Acceleration of incubation with
DG ʼ s unique cross-segment
platform.

POINT

Ⅰ

ADVERTISING

03

PAYMENT
環亞智富有限公司

A c h i e v e m e n t o f lo n g - t e r mbenefits from business incubation by bringing incubatedbusinesses into the DG Group.

Advertising | Promotion

Big data businesse-Commerce | Online Settlement Platform

ENABLING PLATFORM | 2 EARNINGS BASES

Connecting diverse business areas with contexts, discerning the evolution oftechnology, and building a business capable of ongoing earnings expansion

Incubation model applying the enabling platforms

DG applies three fundamental technologies ̶IT (Information Technology), MT (Marketing Technology)

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

and FT (Financial Technology) ̶to create new contexts for the internet era. These new contexts, project-as an enabling platform. Digital Garage ʼs incubation model uses this enabling platform to invest in anded onto business areas, have given rise to our Incubation Technology Segment, Marketing Technology

nurture companies in Japan and abroad. Adding DG Lab to this incubation model, we are striving to

Segment, Financial Technology Segment, and Long-term Incubation Segment. As of FY2017, the Media

continue contributing to society by further accelerating incubation, and developing and providing useful

Incubation Segment was renamed to the Long-term Incubation Segment.

services.

06|

DIGITAL GARAGE

DIGITAL GARAGE|

07

Message from the CEO

Annual Report 2017

MESSAGE FR OM THE CEOEntering the 4th Stage of Incubation toward our

25th Anniversary in 2020

Track Record of DG Group Segments (5-year period)
MTMarketing Technology Segment
Net sales (JPY in Billions)

Incubation Technology Segment
Investment Balance (JPY in Billions)

27.3

30

IT

(12-month conversion)

14

12.0

12

25

20.5

20

10
8

15

8.5

10

6
4

5

2

0

FT

2012

2017

Financial Technology Segment
Amount of transactions(JPY in Billions)

1,400
1,200

995.5

1,000

|

(JPY in Billions)

3.5

2.5

1.5

400

1.0

DIGITAL GARAGE

2012

3.1

3.0

600

0

2017

Long-term Incubation Segment
Income before income taxes

2.0

182.5

2012

MI/LTI Media Incubation Segment /

800

200

08

1,327.3(12-month conversion)

0

2.1

1.0

0.5

2017

0

2012

2017

At the start of FY 2016 (ended June 30, 2016), we
commenced a Mid-term Business Plan under theslogan - “IT/MT/FT x Open Innovation - Creating New
Contexts For A Better Society.” In the ﬁnancial results for FY 2017 (ended March 31, 2017), the second
year covered by this three-year plan, we posted net
sales of 36.4 billion JPY, income before income taxes of 5.8 billion JPY, and net income attributable toowners of parent of 4.2 billion JPY. Although it was anine-month irregular account settlement period as
result of the change of closing date, if we compare
these results with the same period of previous ﬁscal
year (ﬁrst nine months of FY 2016), we see a 15.8%
rise in net sales and a 23.1% rise in income before
income taxes, which is a management indicator.
As for our individual business segments, Marketing Technology (MT) and Financial Technology (FT),
both achieved two-digit increases in both sales andearnings. In the Incubation Technology (IT) Segment,
meanwhile, despite initial forecasts of income before
income taxes of 2,500 million JPY, the actual result
was 588 million JPY. This reﬂected DG revising a plan
to sell shares of multiple companies, estimated at
the start of the ﬁscal year to realize gains of approximately 1,200 million JPY, and instead increasing equity interest in certain companies to make them companies of the DG Group. We made this decision on
the grounds that the medium to long term businessinterests we expect to gain would contribute more to
the expansion of shareholder value than the shortterm capital gains from investment would have provided. In the Media Incubation (MI) segment, which
captured equity interest of Kakaku.com, Inc., income
before income taxes was 3,087 million JPY, which isslightly higher than the 3,050 million JPY of FY 2016.
Each segment has grown signiﬁcantly as shown by
their trends in KPI over the past ﬁve years (left table).
We believe that this is proof of the stable businessfoundations possessed by each segment. In the future, although we expect the business environment
will change greatly as technology progresses, we aim
to convert such change into business opportunity andrealize further growth.

Kaoru
Hayashi
Representative Director,
President
Executive Officer andGroup CEO
Digital Garage, Inc.

DIGITAL GARAGE|

09

MESSAGE FROM THE CEO

OPEN INCUBATIONTOWARD 2020

KAORU HAYASHI
Representative Director, President
Executive Ofﬁcer and Group CEO

Formulating a new Mid-term Business Plan inLine with the Changing Business Environment
The wave of open incubation, which began with
the internet, is now reaching the ﬁelds of ﬁnance,
hardware, and biotechnology, and the environment
surrounding DGʼs business is experiencing majorchange. This is because of the constant advancementof various technological innovations, including thepenetration of the blockchain technology, an elementof social infrastructure supporting a wide range ofbusiness transactions; the commercialization of 5G
networks, which could realize 100 times or more the
network capacity we have now; and the commodiﬁcation of genetic analysis and synthesis - each of whichhaving the potential to cause paradigm shifts.
To ensure that we ride the waves of the dramatic technological innovations occurring in the future
and achieve remarkable growth of our businesses,
we recognize the importance of taking a proactive
stance toward the creation of new businesses thatcut across various ﬁelds under ﬂexible policies freefrom the trappings of preconceived notions. This is in
response to recent efforts to accelerate the trend ofdeveloping new technologies in the interdisciplinary
domain where the research of different ﬁelds overlap
and converge.
To anticipate these rapid changes of the times andstrengthen our business foundation, even though wewere only through the second year of a three-year
Mid-term Business Plan, we formulated a new threeyear Mid-term Business Plan starting in FY 2018 under the slogan of “Open Incubation toward 2020.”
In the new three-year Mid-term Business Plan, weare simply including the phrase “Open Incubation,”
which aims to further advance the technological innovation taking place through the cooperation of various companies in the form of “Open Innovation,” andto develop businesses with future potential, including new business areas, through an open ecosystemfacilitated by collaboration with other companies.
The breakdown and creation of the existing businessenvironment brought about by the emergent rapid
technological innovation offer a chance for business

10|

DIGITAL GARAGE

expansion. To take advantage of this chance, while going beyond the boundaries of business areas, we must
collaborate openly with all companies taking a forward-thinking approach, from startups to major companies. If we donʼt collaborate in this way in the future,
it may be difﬁcult to recognize the technological innovation that arises from the interdisciplinary domain as
the potential of budding new businesses and develop
them at opportune timing into a pillar of our business.

Establishing the Long-term Incubation
Another reform at the foundation of the new threeyear Mid-term Business Plan is the medium-tolong-term development of companies in which DG
has invested who wish to collaborate with DG. To realize one of our missions as a company representing
being an internet incubator, the creation of new businesses, in addition to short-term incubation results(gains on sales of shares), we renewed our focus on
the importance of creating long-term, continuous
cash inﬂow. To clarify the management stance ofenhancing the business development of medium-tolong-term holdings, starting in FY 2018 we changed
the name of the MI (Media Incubation) segment,
whose business had focused mainly on investment
proﬁt on equity method and media development at
Kakaku.com, to the LTI (Long-term Incubation) segment.
In the LTI segment, we added the businesses of
DG Life Design, Inc., which is developing a lifestylesupport business that includes Japanʼs largest wine
school under its umbrella by offering “Valuable Life.”
We also added DK Media, Inc., established as a joint
venture with Kodansha to manage the distributionof “compilation media” that optimally re-edits content beyond the framework of individual magazines
through the combination of quality articles from multiple magazines and AI technology. As the ﬁrst step, in
June 2017 DK Media launched “HOLICS” to distributecontent based on womenʼs magazine articles.
Through these businesses, the LTI segment will pursue continuous cash inﬂow including investing in andnurturing new businesses and business alliances.

Start in Full Swing of R&D at DG Lab that
Anticipates New Businesses
In anticipation of the 2020 Tokyo Olympic andParalympic Games and beyond, we are steadily moving forward with preparations to develop new businesses utilizing cutting-edge technologies. To do so,“DG Lab,” an open innovation R&D platform we established with Kakaku.com and Credit Saison in July
2016, has fully begun R&D premised on commercialization centered on the blockchain technology andAI, two of DG Labʼs ﬁve priority ﬁelds. Regarding theblockchain technology, based on our technologicalcollaboration Blockstream, Inc., in which we invest,
we are rapidly developing a platform technology for arange of applications utilizing the blockchain technology, which is used in bitcoin. In addition to launchinga proof-of-concept implementation of regional currencies using the blockchain technology by Autumn
2017, we are making preparations with our strategic
partners for the commercialization of point exchangesystems and smart contracts.

In the ﬁeld of AI, we built an open platform forinteractive agent technology that provides a dialogue-type user experience using voice and text for
smartphone and home appliance users. As the ﬁrst
project using this open platform, we developed a prototype of a restaurant search service that uses therestaurant information of “Tabelog,” the food blog
operated by Kakaku.com. Going forward, we plan tocontinue to evolve the platform to make it even moreuser-friendly by accumulating knowhow through collaboration with a range of companies.
Additionally, regarding VR/AR and biotechnology,
through collaboration with the investment targets of
the DG Lab Fund, we aim to produce research results
while functioning as a hub connecting startups andmajor companies, creating a framework to develop
new businesses.
Moreover, to evaluate the research results at DG
Lab, we plan to create proof-of-concept implementations of services aimed at realizing “smart cities” thatenrich peopleʼs lives through collaboration with local
governments and companies in designated regions.

Shareholder Returns

Maintain a Dividend Payout Ratioof 20% in FY 2018
DG views shareholder returns as one of its principal management concerns. We make decisions
on shareholder returns based on considerations offactors such as ﬁnancial condition, business performance outlook, and capital needs for growth investments. The three-year Mid-term Business Plan calls
for us to achieve 20% dividend payout ratio.
In light of that target, we paid an ordinary dividendof 20 JPY per share as a year-end dividend in FY 2017.
This resulted in a dividend payout ratio of 21.9%. In
the new three-year Mid-term Business Plan starting in FY 2018 as well, we plan to maintain a dividend
payout ratio of 20%. I would like to take this opportunity to express our gratitude to our shareholders fortheir ongoing support and encouragement.

27.3%
15
JPY

23.1%

20
JPY

21.9%

13.7%
15
JPY

5
JPY

20.6%

24
JPY

20
JPY

4.5%

FY 15.6

FY 16.6

FY 17.3

FY 18.3(Forecast)■Commemorative dividend ■Ordinary dividend

Dividend payout ratio

Ordinary dividend payout ratio

DIGITAL GARAGE|

11

CEOメッセージ

New Mid-term Business Plan

(FY18.3 - FY20.3)

Concept of New Mid-term Business Plan
DG has experienced remarkable growth in its IT,
MT, and FT segments in the past ten years, and webelieve that our management fundamentals havenow stabilized. The investment balance in our IT
segment has grown by 3.2 times to 12.0 billion JPY;
net sales in the MT segment have grown by 30 times
to 27.3 billion JPY; and transaction volume in the FT
segment has grown by 15 times to 1.30 trillion JPY.
However, large structural changes are occurring in
the business environment surrounding DG due tothe rapid technological innovation in what can aptly
be called the “4th Industrial Revolution.” The effectsof the coming technological innovation on DGʼs business will not be insigniﬁcant, and rather a prompt
response is required. Given this type of businessenvironment, we have reconsidered the Mid-term

New Mid-term Business Plan Outline
Business Plan released in August 2015 from thestandpoint of the group, and reached the decisionthat a rolling plan is required. Therefore, we haveformulated a new Mid-term Business Plan startingin FY 2018 and looking forward three years to the25th anniversary of our founding in 2020.
We see these major changes as a business opportunity, and to expand business, Open Innovation thatcollaborates with startups and major companies
alike and takes a forward-thinking approach is required. To further evolve Open Innovation in DG, themain concept of the new Mid-term Business Plan is“Open Incubation” that connects the new businesses
created by technological innovation through context.
Based on the slogan of “Open Incubation Toward
2020,” we will advance the following six action steps.

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

The first action step is to advance projects
through the open innovation R&D platform of“DG Lab.”

As we approach the 4th Industrial Revolution, the creation of open
ecosystems will become more and more important. We wish to work
together with a range of industry partner companies to create innovation that crosses industry boundaries.

Ⅱ

The second action step is a long-term-ownershipinvestment strategy that employs the entire
group to develop the superior companies inwhich we have invested.

In addition to short-term incubation results, we will work to create asystem that realizes long-term, continuous cash inflow. We will build andadvance an incubation system that incorporates the new cash inflow fromthe businesses of the superior companies in which we have invested.

Ⅲ

The third action step is the design of a projectthat drives financial innovation utilizing theblockchain technology.

FinTech, the typification of blockchain technology, holds the possibilityof creating dramatic changes in both existing payment services and thebusiness of financial institutions. By utilizing blockchain technology, we
will work to create next-generation payment platforms and produce
innovative payment solutions.

12|

DIGITAL GARAGE

Annual Report 2017

IV

The fourth action step is the establishment of collaborations
and joint ventures among startups, major companies, andresearch institutions both in Japan and overseas.

In an open innovation framework that aggressively utilizes external
resources, an approach that makes use of alliances and joint ventures isessential. Through mutually supportive collaboration utilizing eachpartner’s strengths, we will build a platform for co-creation and advancebusinesses that create new value.

V

The fifth action step is the design of future city
projects and projects that boost local businesses
utilizing AI, VR/AR, and IoT.

The rapid evolution in technology will likely result in new types of urban
city development and economic activities, as well as large changes in the
makeup of society itself. Regional collaboration is also becoming more
and more important from the standpoint of increased inbound tourism.
Through close collaboration with local governments and companies, wewill focus on future city projects and projects that boost local business.

VI

The sixth action step is the establishment of aJapanese-style biotech ecosystem utilizing
computer science.

The fusion between IT technology and biotechnology is projected toadvance further going forward. We will expand the scope of the incubation business DG has developed to include the biotechnology field andbuild an ecosystem to develop startups in the next-generation bio field.

We are optimizing (pivoting) our business direction
to ﬂexibly respond to changes in the business en-ITvironment on an individual business segment basis
while maintaining continuous earnings expansion.

Long-term Incubation LTI

Incubation Technology
We have established new investment criteria and clarified
investment standards. By establishing high ROI and a reinvestment cycle, we will aim to continuously realize incubation results.

While the business had been centered on the investment profit
on equity method and media development of Kakaku.com, fromFY 2018 we will change the segment name to LTI, and throughmedium-to-long-term ownership in the companies in which weinvest, as well as business development and nurturing new
businesses, we will work to create continuous cash inflow.

MT Marketing Technology

FT

Financial Technology

As a new business pillar to follow the performance-based
ads that have driven results thus far, we will accelerate theshift to data marketing, and through collaboration with DG
Lab, grow the business into high profitability over the medium-to-long-term.

As a payment platformer boasting 1 trillion JPY in annualtransaction volume, we are aiming for even greater future
growth. Based on card payments as well as cash and convenience-store-based cash payments, we will pursue anext-generation FinTech business utilizing the blockchain
technology and AI.

New Mid-term Business Plan Target
Looking forward toward FY 2020 in the new Midterm Business Plan, we have disclosed the KPI for
each business segment and committed to thosenumerical targets as target values in the Mid-term
Business Plan. Speciﬁcally, in the MT Segment andFT Segment, while ﬁrmly maintaining the goal ofcontinuous business growth, we have chosen the
CAGR based on income before income taxes as one
KPI and set our goal at 15%, above the industry average. Regarding incubation results, we have set ROI,
an indicator of return on investment, as another KPI,
with 2.5× ROI as our numerical target in both the IT

and LTI segments.
As company-wide numerical targets, we have chosen ROE, a metric showing the proﬁtability of capital, and the dividend payout ratio, which shows returns to shareholders. By achieving the KPI for eachsegment and implementing an optimal ﬁnancial
strategy, we can in turn achieve our company-wide
metrics, and as a result, increase corporate value.
Moreover, we aim to clear 20% ROE in the ﬁnal ﬁscal
year of the Mid-term Business Plan while maintaining a 20% dividend payout ratio in each ﬁscal year.

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

1.4 (B JPY)
1.9(B JPY)MTFTCAGR (17.3 –20.3)

15%
15%

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

IT

Capital Efficiency
Shareholder Return

2.5 x
ROE
20%
Dividend payout ratio 20%

DIGITAL GARAGE|

13

Message from the Executive in Charge of FinanceMaximizing Shareholder Value throughOngoing Growth Investment and
Financial Strategies
MAKOTO SODA
Member, Board of Directors, Senior Executive Ofﬁcer
and Senior Executive Vice President

In FY 2017, Net Sales Rose 16% YoY, and Income before Income Taxes Rose 23% YoYCreating a Framework to Enjoy Incubation Results over the Long Term

DG changed its ﬁscal year end from June 30 toMarch 31. Because of this change, a simple comparison to FY 2016 is not possible, and as such wehave reviewed performance by comparing the results through the third quarter of FY 2016 to FY
2017. For FY 2017, we posted net sales of 36.4 billion
JPY (+15.8% YoY), ordinary income of 3.6 billion JPY(-19.5% YoY), income before income taxes of 5.8 billion JPY (+23.1% YoY), and net income attributableto owners of parent of 4.2 billion JPY (+30.0% YoY).
Net sales, income before income taxes, and net income attributable to owners of parent all greatly exceeded prior period ﬁgures (total through the third
quarter of FY 2016). However, when compared to theinitial plans, while net sales were almost in line with
our initial forecast (37.5 billion JPY), income before

Thus far, DG has realized incubation results
through the divestment of shares in companies inwhich we invest. While this business has played arole in supporting DGʼs growth, the incubation results enjoyed through share divestment are temporary, and we cannot enjoy the results of the growthin those companies following the sales. This trend
was particularly apparent for companies with which
DG maintained a deep relationship and with which

income taxes, an indicator DG places signiﬁcantweight on, missed our initial projection of 7.1 billion
JPY by 1.27 billion JPY, and net income attributableto owners of parent fell below the initial forecast of
5.3 billion JPY by 1.0 billion JPY. This occurred because of missed results in the incubation technology segment, speciﬁcally due to the postponementof planned share divestment and the recording ofconservative impairment in shares owned by DG
group. That said, the postponement of planned
share divestment was due to the proactive reasonof changing our sales strategy from one that seeks
to enjoy incubation results not only through shortterm gains on sales to one that looks to also enjoy
continuous results by capturing cash inﬂow throughbringing incubated businesses into the DG Group.

FY16.6

FY16.6 3Q

FY17.3 (9 month)

Full Year Act

Cumulative
Act

InitialForecast

Full Year Act%

Amount%AmountNet sales

43,76331,47437,50036,451+15.8+4,976-2.8-1,048Operating income

4,201

3,104

723

-76.7

-2,380JPY in Millions

YoY

Act vs Fcst

Non-operating income

3,031

2,156

3,257

+51.1

+1,100Investment proﬁt on equity method

2,406

1,687

2,539

+50.5

+851

Foreign exchange gain

-

-

171

-

+171

Non-operating expenses

1,040

678

292

-56.9

-386

Foreign exchange loss

689

400

-

-

-400

Ordinary income

6,193

4,582

3,688

-19.5

-893

Extraordinary income

1,392

164

2,265

13.8 x+2,101Gain on sales of investments insecurities

-

-

1,829

-

+1,829Extraordinary loss

10

10

124

11.9 x+113

Impairment loss

-

-

104

-

+104

Income before income taxes

7,574

4,735

5,829

+23.1

+1,093

Income taxes

2,385

1,412

1,525

+8.0

+112

Net income attributable to ownersof parent

14|

DIGITAL GARAGE

5,165

3,307

7,100

5,300

4,299

+30.0

+991

-17.9

-18.9

-1,270-1,000we continued to collaborate after the sale. To resolve
this issue, for companies in which DG has invested
and with which we plan to deepen collaboration,
as well as for joint ventures established with major
companies, we will no longer engage in share divestment. Instead, we have decided to evaluate policy
to increase our holding ratio, make more afﬁliates
group companies, and by incorporating cash inﬂow
in DG, continuously capture incubation results.

Promoting Aggressive Investment and Returns to Shareholders
Growth investment is fundamental to DGʼs strategy as a company whose future is intimately tied to
the growth of its incubation business. Success inclosely linking and balancing investment with thegrowth of our MT and FT segments, which function
as enabling platforms, is fundamentally importantto our ﬁnancial strategy. That we have made income
before income taxes the key indicator for assessing segment earnings is because this performancemeasure reﬂects incubation results. Determining optimal structures for liabilities and capital toachieve an optimal overall capital structure, basedon income before income taxes and ROE as measures of earnings and capital efﬁciency, respectively, and linking this capital structure to our incubation
activities is the nucleus of DGʼs ﬁnancial strategy. In
FY 2017, aiming for the following growth targets, weinvested in making one company in which we invest
an afﬁliated company to implement a scheme to realize continuous incubation results. Additionally, bycontinuing our normal incubation investment, we
expanded our total assets to 91.6 billion JPY. FY 2017
also marked the ﬁrst step in our investment strategy
aimed at future growth. However, the change in theaccounting year meant the FY 2017 accounting year
only included nine months, resulting in FY 2017 in-come before income taxes of only 5.8 billion JPY andROE of 13.5%, falling 4.1 percentage points YoY. Dueto the effects of the change in the accounting year, asimple comparison to the prior year is not possible.
However, we will work to achieve the target ROE of
20% in FY2020, the ﬁnal year of the new Mid-term
Business Plan, while maintaining a balance between
growth and capital efﬁciency. We also succeeded inmaintaining a dividend payout ratio of 20%, with our
year-end dividend of 20 JPY resulting in a dividend
payout ratio of 21.9%. Going forward, the Mid-term
Business Planʼs target dividend payout ratio of 20%
for FY 2018 will serve as a standard for balancing
our growth investments with shareholder returns.
FY 16.6

FY 17.3

Total Assets：

77.3 billion JPY → 91.6 billion JPY

Net Assets：

30.6 billion JPY → 34.3 billion JPY

Asset/Equity Ratio：

2.57x

→

2.73x

ROA：

6.7%

→

5.1%

ROE：

17.6%

→

13.5%

Notes: 1. FY 2017 was the 9-month period, due to a change of the ﬁscal year end.
2. The ﬁgures used when calculating the ﬁnancial leverage, ROA, and ROE,
are from the end of the ﬁscal year.

DIGITAL GARAGE|

15

Message from the Executive in Charge of Finance

Annual Report 2017

Key Performance Indicators
Net Sales

Ordinary Income(JPY in Millions)(JPY in Millions)

50,00036,45140,000Equity Ratio

Asset/Equity Ratio(Times)

8,000

50%

6,000

45%

30,000

3,688

4,000

4.00

3.00

40%

2.73

20,0002,000

10,0000

FY 13.6

FY 14.6

FY 15.6

FY 16.6

FY 17.3

0

2.00

35%

FY 13.6

FY 14.6

FY 15.6

FY 16.6

FY 17.330%

36.6%
FY 13.6

FY 14.6

FY 15.6

FY 16.6

FY 17.3

1.00

FY 13.6

FY 14.6

FY 15.6

FY 16.6

FY 17.3

Net sales rose 15.8% YoY, to 36.4 billion JPY in
FY 2017. This is 48.4 billion JPY annualized, as
DG continued its strong growth, with a CAGR of
26.6% over the most recent ﬁve ﬁscal years. The
MT segment, which continued its strong growthcentered on performance-based ads, as well as
the FT segment, which continued to achieve results exceeding the e-commerce market, both
stably posted double-digit gains, driving growthin sales for the entire company.

Ordinary income fell 19.5% YoY, to 3.6 billion
JPY in FY 2017. This is 3.9 billion JPY annualized, with the CAGR over the most recent ﬁve
ﬁscal years limited to 8.0%. In the IT segment,
the main factors in the YoY decline were a revision of our divestment portfolio and a shift to amore conservative stance. This led us to declare
impairment for certain securities for which we
postponed divestment and instead held in our
portfolio.

The equity ratio fell 2.3 percentage points
YoY, to 36.6% in FY 2017. This ﬁscal year, DG
launched a new approach to continuously capture incubation results and made aggressive investments in the next business pillars. As a result, we saw a large expansion in total assets. In
an environment of continuing low interest rates,by proactively utilizing interest-bearing bonds,
we lowered our equity ratio. We still believe thisis an entirely acceptable level in terms of ﬁnancial health.

In FY 2017, the asset/equity ratio rose by 0.2
percentage points YoY, to 2.73. We consciously
covered this ﬁscal yearʼs investment througha balance of operating income, cash ﬂow, andbank loans, and as a result, the asset/equity ratio remained at around the same level of lastyear. Going forward, we will continue to maintain ﬁnancial health while conducting management utilizing some level of asset/equity ratio.

Income Before Income Taxes

Net income attributable to owners of parent

ROA

ROE

(JPY in Millions)(JPY in Millions)

10%

20%

8%

18%

10,000

6,000

8,000

5,829

6,000

4,299

4,500

5.1％

6%

14%

3,000
4,000

4%
1,500

2,000
0

FY 13.6

FY 14.6

FY 15.6

FY 16.6

FY 17.3

Income before income taxes rose 23.1% YoY,
to 5.8 billion JPY in FY 2017. This is 6.7 billion
JPY annualized, with a CAGR of 21.5% overthe most recent ﬁve ﬁscal years, representing
growth exceeding 20%. The reason for the large
increase in ordinary income was the nearly 1.8
billion JPY in extraordinary gains recorded fromgains on divestment shares held by subsidiaries
and DG itself. All of these sales came througheither M&A or IPOs, and we consider them DG
incubation results.

0

16%

12%

2%

FY 13.6

FY 14.6

FY 15.6

FY 16.6

FY 17.3

Net income attributable to owners of parentrose 30.0% YoY, to 4.2 billion JPY in FY 2017.
This is 4.7 billion JPY annualized, with a CAGR
of 17.5% over the most recent ﬁve ﬁscal years,
and we have succeeded in recording stable
growth in the form of six straight years of increased income until the previous ﬁscal year.
We believe this is the result of having created aframework to stably produce incubation resultsin the IT segment, in addition to sustainablebusiness growth in the MT and FT segments.

0%

13.5%

10%
FY 13.6

FY 14.6

FY 15.6

FY 16.6

FY 17.3

As the FY 2017 accounting year was only ninemonths, a simple YoY comparison is not possible, and net income attributable to owners ofparent has been annualized for the comparison.
While FY 2017 ROA fell 1.5 percentage points
YoY, to 5.1%, this was due to increased total assets as a result of the aforementioned aggressive investments. Because the results of theseinvestments have not yet appeared as revenue,
we believe that a temporary decline in ROA is
unavoidable. However, by recouping these investments in the new Mid-term Business Plan,
we will work to improve ROA.

8%

FY 13.6

FY 14.6

FY 15.6

FY 16.6

FY 17.3

As the FY 2017 accounting year was only ninemonths, a simple YoY comparison is not possible, and net income attributable to owners ofparent has been annualized for the comparison.
In FY 2017, ROE fell 2.8 percentage points YoY,
to 14.8%. Compared to the increase in net assets from the increase in retained earnings, thefactor was net income attributable to ownersof parent falling below plans due to the reconsideration of divestment with the change in the
IT segment strategy. DG will place every effort
into achieving the 20% ROE set forth as a target
in the new Mid-term Business Plan, taking into
account proﬁtability and capital efﬁciency.

Note: Due to irregular accounting settlement period as a result of the change of closing date, the YoY comparison is calculated as a simple comparison between the nine months
ended March 31, 2016 of FY 2016 (ended June 30, 2016), and the nine months ended March 31, 2017 of FY 2017 (ended March 31, 2017) as follows.
In case of companies that had a closing date of March 31 before the change of closing date: Comparison between the nine months (April - December) of FY 2016 (ended
June 30, 2016) and the twelve months (April - March) of FY 2017 (ended March 31, 2017) / Companies that changed to March 31 closing date: Comparison between the ninemonths (July - March) of FY 2016 (ended June 30, 2016) and the nine months (July - March) of FY 2017 (ended March 31, 2017)16|

DIGITAL GARAGE

DIGITAL GARAGE|

17

SPECIAL
CROSS
TALK

Special Conversation Technologies Supporting Digital Garageʼs Future

Annual Report 2017

Technologies Supporting Digital Garageʼs Future
JOI ITO
Member of the Board of Directors and Co-Founder,
Digital Garage, Inc.
Director, MIT Media Lab

KAORU HAYASHI
Representative Director, President
Executive Officer and Group CEO
Digital Garage, Inc.
Location courtesy of Andaz Tokyo hotel

Here, DGʼs co-founders, Kaoru Hayashi (Representative Director, President Executive Ofﬁcer
and Group CEO) and Joi Ito (Director, Digital
Garage, Inc.; Director, MIT Media Lab), discuss
the evolution of advanced technologies thatwill support DGʼs future business expansion:from AI and user interfaces to blockchain andbiotechnology.

18|

DIGITAL GARAGE

Hayashi Technology is evolving at incredible speed,from artiﬁcial intelligence (AI) to blockchain and biotechnology. How does the situation look to you?
Ito I think weʼve reached an age where we need tothink about using advanced technologies with a focus
on how we can make people happy. Some say that
despite the current penetration of IT, people havenʼt
made any productivity gains. Itʼs possible that people

who ran freely around the forests in ancient times
were actually happier than modern people. Goingforward, rather than simply increasing speed and efﬁciency, thinking about how technology can be used
to enrich peopleʼs lives in a real way will lead directly
to DGʼs aspiration of “creating businesses for a better
society.” I think we need to view things at the level ofsociety and cities.

Hayashi The impact of AI on society and the associated ethical issues are also closely connected tohuman happiness, arenʼt they?
Ito Americans are more concerned than Japanesepeople about the potential for the evolution of AI to
make people obsolete. People are discussing whatkind of relationship will exist between people and AI
if self-driving cars become a reality, and what the
DIGITAL GARAGE|

19

Special Conversation Technologies Supporting Digital Garageʼs Futureideal balance is between driver assist, where AI assists the driver, and fully self-driving cars. I think theimportant thing is to create products where humans
and machines can assist one another in their activities by designing the human-machine interface well.
Hayashi When the fax machine appeared, some said
that newspaper delivery would become a thing of thepast, and the invention of the ATM was said to herald
the end of bank tellers. And yet, in the end nothingchanged. I feel that the same might be said of AI.

Ito To take companies as an example, large companies have already become complex systems that are
beyond the scope of understanding of an individual
person. Various forms of AI are already starting to beincorporated as elements that make up these systems. It is now commonplace for judges, pilots, anddoctors to rely on assistance from AI to make decisions. Stock trading is actually carried out by computers following algorithms in most cases. If we consider
this, then we can say that AI is assisting human decision-making in various scenarios right now. It is already a driving force accelerating the evolution of ourworld. Therefore, if AI evolves in the wrong direction,

20|

DIGITAL GARAGE

then society will be accelerated in the wrong direction.
To ensure that society itself is heading in the right direction, we need to guide the evolution of AI.
Hayashi The key here is ethics- and values-based
design, donʼt you think?
Ito Right now in Japan, the normal values are thathaving more material goods will make one happier.
Long ago, however, values were aligned with a balance between nature and people, and not wanting tohave more than is needed. Under the Western value
system of controlling nature andputting it to use for people, theintroduction of AI could have ruinous consequences for the naturalenvironment. That is my greatest
misgiving at present.
The problem can also be put
in terms of whether one prioritizes personal benefit or the
benefit of society overall. Even if
we decide to adopt self-driving
cars, the design concept will beradically different depending onwhether the emphasis is on theindividual or on society. According
to research conducted by Iyad
Rahwan of MIT Media Lab, whenpeople are asked whether they
approve of self-driving cars that
decide to save the lives of manyby sacrificing the driver, most
say that although it may be ethically correct, they would neverbuy such a car. In other words, if
we leave it up to the market, theworld will become full of carsthat prioritize the life of the driver
over other people. This would not
be good for society. We need to
guide technology development ina direction that contributes to the
beneﬁt of overall society.
Hayashi What kind of impact do you think 5G networks will have on self-driving cars when they start
introducing them around 2020? Will Japanese manufacturers be able to demonstrate their strengths?
Ito In the U.S., for example, Tesla is using sensor
technology to achieve self-driving cars entirely on its
own. But to prioritize the beneﬁt of society, I think it
might be better to adopt a collaborative framework,where all automobiles communicate with one another using a 5G network and harmonize like an orches-tra. Japanese manufacturers value harmony, and sotheir strengths will probably come into play. I hope to
see products that are rooted in Japanese culture likethis appearing around the world.

User-Oriented Service Development
Hayashi DG formed a settlement company as a joint
venture with the ANA group, and is looking at providing an experimental shopping method at airports. How
do you imagine shopping will be in the near future?

Annual Report 2017

something first and then thinking about business.
This has also inﬂuenced their current management
approach, while at Amazon, the CEO has a clear
strategy. I am sure that the Whole Foods Market acquisition is part of a detailed plan. Thatʼs why I thinkthat Amazon will probably continue to experience
gradual and steady growth.
Hayashi These days, smartphones are commonlyused for getting online. How do you see user interfaces changing in the future? In what ways will Amazon Alexa or Google Home evolve?

Ito It ʼ s important to consider
the relationship between privacy
and advertising. Amazon is also
very careful about that. From theuser ʼ s perspective, useful recommendations are convenientand desirable, but they don ʼ twant their own information to
be leaked externally. It may berealistic for trustworthy brands
to manage personal information
properly and provide individually
tailored shopping experiences.
It will also become important toachieve a seamless connection
between online and real-store
shopping. Itʼs human nature thatpeople want to know which storesstock the products that they like,but they don ʼ t want their preferences to be spread around allover the place. There needs to bea good balance between security
and recommendations.
DG is also operating an advertising agency business, so I
think it should work to develop
technologies that will skillfully
manage information of affiliatedstores, products, and users. Various approaches could be taken.
For example, the latest encryption technology might
be used to allow access user preference data for only
a moment, or to suppress detailed information anddisclose only data that has been reﬁned to the necessary information.
Hayashi What is your analysis of Amazonʼs acquisition of luxury supermarket operator Whole Foods
Market?

Ito In the U.S. so-called mixed reality, or augmented
reality (AR) is garnering a lot of attention right now.
This is a technology that displays real-world images
overlaid with virtual-world images. Voice interfaces
such as Alexa and Google Home will probably also
continue to spread. Going forward, we are likely to
see many startup companies emerge in fields connecting the virtual world and the real world visuallyand by voice.

Ito Out of Amazon, Google, and Facebook, Amazon is
the only one whose founder has created a businessplan. Google and Facebook have expanded by making

Hayashi Many people see devices with voice interface as eavesdroppers in the home. What do you
think about concerns over privacy?
DIGITAL GARAGE|

21

Special Conversation Technologies Supporting Digital Garageʼs Future

Ito Companies that provide services realize that losing trust will effectively wipe out all the value they
have built. Previously the FBI requested Amazon toprovide a suspectʼs Alexa user data to assist with acriminal investigation, but Amazon refused. Apple has
also battled with the FBI around personal information
stored inside iPhones. In other words, U.S. companies
consider increasing customer trust so important thatthey are prepared to ﬁght with the government over it.
I think Japanese manufacturers should take note.

Expectations forInteractive Agents

Tokyo Olympic and Paralympic Games. What is yourvision of an ideal town?
Ito I think itʼs important that the place feels goodto the people who live in it. To me, a town that feels
good is one where I can access everything on foot. In
Paris, for example, there are any number of cafes,
patisseries, drug stores, and so forth spread out everywhere. To get to the art galleries you may haveto use the public transport, but all of your everyday
needs can be procured within walking distance. Japanese towns are similar to this. Conversely, in big U.S.
cities, the towns are divided up by function, with residential areas, ﬁnancial districts, and so forth. It tends(a system for sending text and images to compatible display devices that saw wide use in Japan) andtelecommunications companies, but we still have todevelop everything from fiber optics to content byourselves. The Ethernet standard hasnʼt even been
decided on yet. Once the internet protocol was decided, companies that make routing equipment like
Cisco appeared, and the internet really took off. In
FinTech, too, we are seeing cutting-edge startups
emerge, such as DG ʼ s investee Blockstream. As
these startups work to standardize the industry withregard to blockchain and other technologies, FinTech
will become recognized as a major presence supporting social infrastructure.

Hayashi How do you think AR
and VR will spread?
Ito VR will probably penetrate in
the entertainment field. AR has
various applications. Even without
the eyeglasses format, it can be
fully enjoyed just with a smartphone. I think design is the key
to promoting the spread of theeyeglass-type AR devices. No one
wants to put something ugly on
their face. It will be difﬁcult to expand products in new ﬁelds without overcoming this hurdle ﬁrst.
Hayashi Do you think interactive
agents that can have a dialogue
with individual users might stakea claim in the market as a new
type of user interface over the
next few years?
Ito Rather than agents that respond to commands from theuser, I think we will see agentsthat can perceive the userʼs situation and take anticipative action become mainstream. Various processes
take place within our bodies other than those we areconsciously aware of. The ideal agent would probably
be able to integrate all this information to provide
optimal services for the user. For example, it might
detect that the userʼs body temperature has risen,causing them to sweat, and respond by lowering thetemperature in the room; or it may detect a drop inblood sugar level and produce a glass of juice. We
may see the emergence of an environment where an
entire town acts as a single agent.
Hayashi That would really be a “smart city.” In Japan, places like Shibuya are getting involved in movements to create new urban spaces ahead of the 2020

22|

DIGITAL GARAGE

Annual Report 2017ation is starting to become a bubble.
Hayashi The evolution of biotechnology is also accelerating.
Ito The AI AlphaGo, developed by DeepMind, has
beaten world class Go players. Two of the top executives at DeepMind were both formerly researchersin neuroscience. This shows how biotechnology andcomputer science are becoming progressively integrated. At MIT Media Lab, too, top-tier researcherswith backgrounds in computer science are beginningto enter the biotechnology field. As a result, digital
thinking has been introduced into the conventional
biotechnology field of drug discovery, while at the same time,lessons from biology are starting
to be applied in ﬁelds like materials, construction, and design. Just
as one cannot understand computer science without learning
programming, we are reaching an
era where it is necessary to understand biotechnology in order tounderstand AI and construction.
So children today should study
biology, and corporate managers
today should also acquire a certain level of understanding about
the direction of biotechnology, or
risk falling behind the times, justas companies that were too slow
to ride the internet wave were left
high and dry.
Hayashi It seems similar to
the thinking of architects at thetime when modern architecture
emerged.

to be harder to live just on foot. At MIT Media Lab weare currently involved in urban development projects
in China and other areas.

The Dawn of FinTech,and a Lively Biotech Sector
Hayashi Joi, youʼve been acting as an advisor to Japanʼs Financial Services Agency. What is your take on
the current state of FinTech?
Ito FinTech is still in its early stages, not only in Japan. To take the history of the internet as an analogy,
FinTech today is at the stage before the internet wasstandardized. Itʼs like there are the Captain system

Hayashi Looking at historic trends, even excellent technology is not guaranteed to be a big success, I think.
Ito In the early days of the internet there were also
various competing technologies vying to become theindustry standard; for example, there were X.25 andIBMʼs Token Ring, among others. What the internet
proved is that the best way to grow is to bring thebest people together in a community where they caninteract openly. Thatʼs why MIT Media Lab deliberately works to create open communities. The problem
with FinTech is that too much money has gatheredaround startup companies, and the best engineers
are moving to them. There is a shortage of personnel in open source communities at universities andnon-proﬁt organizations. Iʼm concerned that the situ-

Ito During the Metabolism architectural movement in Japan, ideas from biology wereincorporated, but at the time biology and architecture hadnʼt advanced to the point of mutually sharing
technology. Today, we are seeing initiatives being realized such as using biotechnology to mass produce
materials like spider silk from natural raw materials,
and using this as the basis for making automobile
parts. We are entering an era where we need to beable to imagine this kind of world as normal.
Hayashi Humans are now developing the power tomanipulate things that developed over billions ofyears on Earth. I want Digital Garage to be at theforefront of these tremendous changes in our times,
creating businesses that can contribute to society
from a global perspective.
DIGITAL GARAGE|

23

BUSINESS OVERVIEWAnnual Report 2017

BUSINESS OVER VIEW
Principal Companies

Promoted strategic investment in
the next-generation technology ﬁeld
Incubation
Technology
Segment

P.26

While missing our budget targets due to a review of ourdivestment portfolio, the year marked the ﬁrst step
toward a new business model that will allow us to enjoy
incubation results over the medium-to-long-term. We
established the DG Lab Fund in collaboration with DG
Lab, and pursued aggressive investment into DG Labʼsﬁve strategic ﬁelds.
In line with the new Mid-term Business Plan, we have
overhauled our investment business system, and will
aim for even further growth going forward.

Performance-based ads continue to drive performance.
Promoted more aggressive upfront investment in new
businesses and enhanced competitivenessMarketingTechnology
Segment

P.28

By focusing on the expansion of internet advertisingcentered on actively managed ads as well as our growthﬁelds, we continued our strong growth, with net sales
rising 38% YoY. To continue responding to needs thatchange with dizzying speed, the segment will utilize themost advanced technologies and pursue initiatives
aimed at diversifying advertising approaches anddeveloping new services.

As a leading FinTech company,
we intensiﬁed our initiatives in
new growth ﬁelds
Financial
Technology
Segment

P.30

In addition to payments in the traditional e-commercemarket, we expanded development in markets including
person-to-person payments, inbound payments byforeign tourists visiting Japan, and the face-to-facemarket, and realized growth exceeding the market. We
are also pursuing development of next-generation
payment services utilizing the blockchain technology inpartnership with Blockstream, Inc. as one of theactivities of our R&D platform DG Lab.

New segment launched to create
long-term, continuous cash inﬂow
Media Incubation
Segment /Long-term Incubation
Segment

P.32

24

|

DIGITAL GARAGEIn FY 2018, the segment name was changed to theLong-term Incubation Segment (LTI). In addition to
Kakaku.com, by creating group companies of DG, we
are promoting a style which will allow us to enjoy
medium-to-long-term incubation results. Goingforward, in making companies receiving DG investmentgroup companies, we will aim to create long-term andcontinuous cash inﬂow through the establishment ofjoint ventures with other alliance partners.

FY 2017 Highlights■Added the DG Lab Fund to the ONL and DGI
to build a new incubation model■Strategic shift to a more sustainable growthphase■Actively managed ads penetrated all ﬁelds,
starting with the core ﬁnancial industry andincluding smartphones and apps
■Focused on the data marketing business,and quickly launched initiatives in crossborder e-commerce■Even while the scale of the e-commercemarket steadily expanded, our growthcontinued to exceed the market■Pursued the development of the non-ecommerce market and started to provide
payment solutions through our joint ventures■While maintaining strong investment proﬁt
on equity method at Kakaku.com, achieved
3.0 billion JPY in income before income taxes■Reorganized the MI segment to the LTI
segment starring in FY 2018

DIGITAL GARAGE|

25

IT SEGMENT

Annual Report 2017

Moving forward with strategic investments
in next-generation technologies

INCUBATION TECHNOLOGYSEGMENT

Segment
Sales Ratio

Despite missing budget targets due to revisions to our divestment
portfolio, during the year we successfully laid the groundwork for our
new business model to continuously produce incubation results. We
established the DG Lab Fund in partnership with DG Lab and madeaggressive investments in DG Lab ʼs five strategic fields.
In line with the new Mid-term Business Plan, we have overhauled thestructure of our investment business, and are aiming for even greater
future growth.

KEY FIGURES FY2017

FY20175.0%

Segment net sales

Segment income
before income taxes

Investment balance

1.8 0.58 12.0
billion
JPY

Number of companies invested /Investment balance
Number ofcompanies

Investment
balance(B Yen)Equity130

11.3

Domestic

42

1.9

Overseas

88

9.3

Fund

6

0.7

Total

136

12.0

* The figures provided for investment balance andnumber of companies invested are those for DG
Incubation.

billionJPY

billionJPY

Market Environment and Business Overview

Strategic shift toward a more sustainable growth phase
For FY 2017, the Incubation Technology Segment achieved net sales of 1.8 billion
JPY (-58.9% YoY) and income before income taxes of 0.5 billion JPY (-66% YoY). The
investment balance, meanwhile, expanded to 12.0 billion JPY as of March 31, 2017,as we continued to make aggressive investments.
The sale of major Indian online payment company Citrus Payment Solutions
Pve. Ltd. resulted in an extraordinary gain of 1.3 billion JPY, representing anotherlarge-scale exit case. However, income before income taxes for the full year only
totaled 0.5 billion JPY. This was due to two main factors. The ﬁrst was the reconsideration of share divestments in multiple companies for which we had expected
gains on sales of around 1.2 billion JPY at the start of the ﬁscal year. We implemented policy to continuously capture cash inﬂow from incubation results by increasing our investment stakes and forming group companies. The second factor
was a conservative valuation of shares in our portfolio. This valuation resulted in
an impairment in those shares of around 0.7 billion JPY.
In terms of the market environment, annual investment (Japan and overseas)for Japanese VCs and CVCs in 2016 totaled 145.4 billion JPY (+18% YoY), as robust
funding demand from startups continued*. However, the number of IPOs in Japan
in 2016 fell for the ﬁrst time in seven years, dropping by 12 companies to 86 companies (–12% YoY). More time-consuming, stringent listing standards are believed
to be a factor in the decline, but overall levels are still high compared to the 80 IPOs
* Venture Enterprise Center “Quarterly Trend”
in 2014 and 58 in 2013.

FY 2017 Key Initiatives

DG Lab Fund newly established,investment with DG Lab accelerated
Incubation Program with Toyota Motor Corporation underway
As one of our main initiatives, DG and Daiwa Securities Group Inc. established the
DG Lab First Investment Limited Partnership (DG Lab Fund) to invest in promising
startups in DG Labʼs priority ﬁelds. Through collaboration with DG Lab, we have

26|

DIGITAL GARAGE

already begun to invest in strategic areas both in Japan and overseas. With the addition of the DG Lab Fund to our existing investment business, we aim to expand boththe investment scale and investment ﬁelds of DG Group investment business.
As an open innovation initiative, DG and Open Network Lab, one of Japanʼs premiere seed accelerators, partnered with Toyota Motor Corporation to begin supporting the operations of “Toyota Next” to create the future mobility society. By
providing the abundant knowhow it has built on the investment and cultivation ofJapanese and overseas startups, DG Group will support the entire Toyota Next
process from the selection of participating companies through service creation.

Growth Strategy

Through a positive cycle of high ROI andreinvestment, realize sustained incubation results
With the formulation of the new Mid-term Business Plan, we have established
new investment criteria for the investment business and further clariﬁed the investment standards to create a platform that produces more stable returns. We
have set a 2.5× target for ROI in the new DG Business Plan.
In line with this strategy, we have overhauled the structure of our investment
business. We have changed the structure to an Investment Steering Committeethat makes investment decisions. The committee is led by Group CEO Hayashi who
serves concurrently as Representative Director and President of DG Incubation,
which is a core investment subsidiary. The committee also includes the executives
in charge of the individual segments. Going forward, we will continue to utilize our
global network to pursue investment in next-generation internet sectors where
new growth is anticipated. We have expanded our investment balance to 12.0 billion JPY, and while maintaining our policy of aggressive new investments, we will
rotate our portfolio, maintain our investment balance, and establish an investment
cycle that realizes stable annual investment returns. Moreover, by utilizing the DG
Lab Fund, we will accelerate strategic investment in DG Labʼs ﬁve priority ﬁelds
and deepen collaboration with DG Lab to promote increases in the corporate valueof the companies in which we invest. Through these endeavors, the segment willseek to establish a cycle of high ROI and reinvestment and realize sustained incubation results.

Tomoya Sasaki (left), a Senior Corporate
Officer of Digital Garage, Inc., Shuichi
Murakami (center), a Managing Officer of
TOYOTA MOTOR CORPORATION, and Rei
Inamoto (right), a founding partner of
Inamoto & Co., attending the TOYOTA NEXTpress conference in December 2016.

Expanding both the scale ofcontribution and areas ofinvestment by adding DG Lab
Fund to DGI/ONL
Corporate value

Incubation
Ⅱ DG(Early / Middle ~ Later)
Ⅰ Open Network Lab

Ⅲ

Start up
Seed

Early

Middle ~ Later

DIGITAL GARAGE

Time

|

27

MT SEGMENT

Annual Report 2017

Performance-based ads continue to drive results.
More aggressive upfront investment in new
businesses, further enhancing competitiveness
MARKETING TECHNOLOGYSEGMENT

Segment
Sales Ratio
FY201756.2%

Sales by Clients
16.0
4.8 +78％

10.6
2.7

4.8 +71％

2.8
6.3 +24％

5.1

FY 16.6

FY 17.3

July - March July - March

34.2％

35.1％

KEY FIGURES FY2017
Segment net sales

Segment income
before income taxes

Performance-basedads sales

20.4 1.07 16.0
billionJPY

billionJPY

billionJPY

Market Environment and Business Overview(JPY in Billions)+51％

By focusing on the expanding internet advertising market centeredon actively managed ads and on growth ﬁelds, strong growth has
continued, and net sales rose 38% from the prior year. To continue
responding to needs that change with dizzying speed, the segment
will apply the most advanced technologies in initiatives aimed atdiversifying advertising approaches and developing new services.

OperatingMargin■Smartphone / app■Cosmetics / HR, etc.
■Financial

Actively managed ads drove a large increase in
net sales of 38% YoY.
Proﬁtability also increased
The Marketing Technology Segment posted FY 2017 net sales of 20.4 billion JPY(+37.7% YoY) and income before income taxes of 1.0 billion JPY (+13.5% YoY). Operating margin, an indicator of proﬁtability, rose 0.9 percentage points YoY, to 35.1%,
realizing growth balancing further growth potential and increased proﬁtability.
The Marketing Technology Company, which engages in internet adverting andpromotions, continued to enjoy strong growth in performance-based ads (actively
managed ads). The penetration of performance-based ads in all sectors, from thecore ﬁnancial industry to sectors including smartphones and apps, was a factor inrecording strong growth.
In terms of the market environment, internet advertising expenditures in Japangrew by 13.0% to 1.31 trillion JPY in calendar year 2016, and internet advertisingʼsshare of total advertising expenditures continued its strong expansion, rising 2
percentage points YoY, to 20.8% (Source: Dentsu Inc., 2016 Advertising Expenditures in Japan). Actively managed ads drove the market, and factors behind thisgrowth include the expansion of actively managed ads in social media and video
portals, starting with the mobile ﬁeld.

FY 2017 Key Initiatives

More aggressive upfront investment in data
marketing, a future growth ﬁeld.
Early response to the growing ﬁeld of crossborder e-commerce
As a new pillar supporting future growth in the segment, we are focusing on
the data marketing business utilizing big data. As one of our major initiatives, welaunched a collaboration between the “BIG MINING” provided by our subsidiary
BI.Garage, Inc. and Twitterʼs “Targeting API.” BIG MINING includes around 300 mil-

28|

DIGITAL GARAGE

lion pieces of audience data, including proprietary audience data being developed
by DG Group such as the viewing logs for products listed in the media. Through thecollaboration with Twitter, more precise targeted advertisements can be posted on
Twitter utilizing DG Group data.
Amid growth in both inbound consumption due to the sharp increase in foreign
tourists as well as cross-border EC, we are engaged in a range of marketing initiatives to attract more customers and promote sales both in Japan and in ouroverseas development. We have jointly developed and launched service for a bonus-point-type cross-border e-commerce mall that allots points for purchases at
Japanese e-commerce shops in partnership with DDIM, which operates Taiwanʼslargest universal reward points service, “HAPPY GO.”

Image of Sales (JPY in Billions)❶Performance-based ads (PC)
❷Smartphone/app ads❸Data Marketing Solution/
Business Design Solution
Further acceleratebusiness expansion
Greater expansion throughperformance-based ads

20.4

Growth Strategy

Collaborating with DG Lab to accelerate the data
marketing shift.
Maintaining our goal of sustainable growth
In performance-based ads, further expansion will be sought by developing
clients in not only the ﬁnancial, cosmetics, human resources, and smartphone/
app-related ads ﬁelds, but also others, as well, and moving forward with the diversiﬁcation of advertising approaches. In the data marketing business, we will utilize
the data owned by DG Group (including Kakaku.com, Inc.) and strategic partners(Dentsu Inc., Credit Saison Co., Ltd. and other companies) to further acceleratebusiness development by promoting the development of high-value-added advertisements. Another key strategy is business expansion that is not limited to Japan but includes a global response centered on Asia. Future growth opportunities
include our response to the expected growth in cross-border e-commerce andinbound tourist demand as well as support for our Japanese clientsʼ overseas
development.
In the medium-to-long-term, we will enhance the creation of synergies throughcollaboration with DG Lab. In addition to data owned by DG Group, with the combination of the data of partner companies participating in DG Lab, we will be able
to provide new marketing solutions. While constantly incorporating the evolutionof new technologies, by developing proprietary services, we will aim to provide
competitive solutions.

FY 17.3

FY 20.3

Strategy Going Forward❸Data Marketing Solution/
Business Design Solution• Accelerate growth with next gen
solution utilizing big data
• Enhance the creation of synergies
through collaboration with DG Lab❷Smartphone/app ads
Drive business globally by leveraging
expertise in Japan❶Performance-based ads (PC)• Vertical development beyond Finance,
Cosmetics, HR• Diversify advertising methods withsocial media ads as a core

DIGITAL GARAGE|

29

FT SEGMENT

Annual Report 2017

Intensifying initiatives in new growthﬁelds as a leading FinTech company

FINANCIAL TECHNOLOGYSEGMENT

Segment
Sales Ratio
FY201738.8%

Amount of transactions(JPY in Billions)

+16％

995.5

856.2

FY 16.6

FY 17.3

July - March

July - March

In addition to payments in the existing e-commerce market, development into the markets for person-to-person payments, inboundpayments to foreigners visiting Japan, and face-to-face payments
is expanding, and we are realizing growth exceeding the market. As
one of the initiatives of DG Lab, our R&D platform, we are developing next-generation payment services utilizing Blockchain technology in partnership with Blockstream, Inc.

KEY FIGURES FY2017
Segment net sales

Segment income
before income taxes

Amount of annual transactions(9 month period)

14.1 1.47 995.5
billionJPY

billionJPY

billionJPY

Market Environment and Business Overview

Growth continues to top the e-commerce market, payments
handled grew 16% YoY to nearly 1 trillion JPY (for nine months)
In FY 2017, the Financial Technology Segment reported net sales of 14.1 billion
JPY (+16.2% YoY) and income before income taxes of 1.4 billion JPY (+13.1% YoY)
(all ﬁgures for nine months).
In calendar year 2016, Japanʼs BtoC e-commerce market grew by a solid 9.9%,
to 15.1 trillion JPY, according to the “e-commerce market survey results” of the
Ministry of Economy, Trade and Industry (METI). By sector, product sales, services,and digital all grew, with the smartphone-based share of the total product sales
market growing 28.7% to reach 2.55 trillion JPY. The cross-border e-commercemarket also grew, with cross-border e-commerce to China growing 30% to 1.03
trillion JPY and breaking 1 trillion JPY for the ﬁrst time.
Riding these tides of growth, VeriTrans Inc. and econtext Inc., both of which provide payment services, recorded an overall total of 0.99 trillion JPY (for nine months)
in payments handled, a 16% increase YoY. Following the previous ﬁscal year, thisleap in business performance resulted from overall market growth and from market-beating growth rates in new customers and business with existing customers.

FY 2017 Key Initiatives

Accelerating service development in the
non-e-commerce market, a new growth driver.
Joint venture established with the ANA Group
Development in the non-e-commerce market, including face-to-face payments,
has been one of our basic strategies in recent years. As one of our major initiatives
in FY 2017, we focused on the development of face-to-face payments including
inbound payments and person-to-person payments.
Speciﬁcally, with the expansion in inbound consumption among foreigners visiting
Japan, we grew payments handled through “Alipay,” the payment platform provided by
our Chinese partner Alibaba Group. Rapid penetration is projected for the face-to-facepayment platforms using QR code technology represented by Alipay. We have also
partnered with overseas payment companies to expand convenience store payments
as a payment method for foreign e-commerce companies expanding in Japan. As a30|

DIGITAL GARAGE

new ﬁeld of development, we also began handling payments of public funds. VeriTrans
Inc., a DG subsidiary offering payment services, joined with ALL NIPPON AIRWAYS
TRADING CO., LTD. to establish ANA Digital Gate, Inc. to offer payment solutions tocorporations. Utilizing the strengths of both ﬁrms, we will work to attract customers and expand payments among inbound tourists through the development andoffering of new payment solutions utilizing FinTech and to promote local economic
invigoration.
With the amendment of Japanʼs Installment Sales Act, we immediately addressed our security response and began to provide comprehensive payment
solutions including measures to prevent both leaked credit card information andfraudulent use. We will continue to expand both safe and secure environment andsolutions required by both e-commerce businesses and consumers.

Growth Strategy

Develop new growth ﬁelds as the payment platformer
for the FinTech industry. Aim for expanded
transaction volume and increased proﬁtability
As a platformer providing payment services, DG sees providing a range of payment methods to customers in diverse sectors as a pillar of our growth strategy.
Economies of scale from increased transaction volume will also connect to increased proﬁtability. With this in mind, we are focusing on the following initiatives.
Firstly, while of course expanding payments in our core e-commerce sector, we
will also pursue further development in the non-e-commerce market, which has
ample room for medium growth amid the evolution of a cashless society. In addition
to initiatives targeting special markets such as restaurants, real estate, funeral services, and instructional services, we will enhance our efforts aimed at cross-border
e-commerce and inbound tourists, working to expand international payments. Our
alliance strategy with ﬁnancial institutions is another key point, and we will lookto create synergies through partnerships in new businesses in the FinTech sector
and to expand our business.
Through collaboration with DG Lab, we will work to build and provide next-generation payment platforms utilizing blockchain technology. We expect new payment services to develop in a range of ﬁelds, such as loyalty points, electronicmoney, exchange systems for virtual currencies, and regional currencies, withusing blockchain technology. By implementing these strategies, we will accelerate
growth in the FT Segment.

Growth Opportunities❶Non-EC payment (new market) /Face-to-face payments❷Alliance with major partners
including financial
institutions❸Next gen payment

EC payment 10 - 15% growth(Organic growthin existing business)

FY
FY
16.6 17.3

FY 20.3
Plan❸Next gen payment• Solution utilizing blockchain• Veriﬁcation testing in sync with DG Lab(local currencies, point exchanges,
and smart contracts)❷Alliance with major partners
including financial institutions• Business expansion through new businessand collaborations in the FinTech domain• Collaborate with business partners inpayment with large customer base❶Non-EC payment (new market) /Face-to-face payments• Current service lines and market size
(T Yen)Food (12)Real estate (9)Funeral (1.7)

Driving school (0.4)

DIGITAL GARAGE|

31

MI SEGMENT / LTI SEGMENT

MEDIA INCUBATION SEGMENT / LONG-TERM INCUBATION SEGMENT

New segment
launched tocreate long-term,
continuous cash
inflowIn FY 2018, the segment name was changed to the Long-term
Incubation (LTI) segment. In addition to Kakaku.com, by making
companies receiving DG investment group companies, we arepromoting a style which continuously realizes incubation results.
Going forward, in addition to the establishment of joint ventureswith other alliance partners, we will aim to create long-term,
continuous cash inflow.

Changes in income before
income taxes (JPY in Billions)
3.05

3.08

0.44

0.38
0.04

0.15

KEY FIGURES FY2017
Segment income
before income taxes

3.08

billionJPY

Market Environment and Business Overview

Kakaku.comʼs investment proﬁt on equity method
remains strong,income before income taxes of 3.0 billion JPY
For FY 2017, the Long-term Incubation Segment achieved income before income
taxes of 3.0 billion JPY (+64.4% YoY). This is the result of having changed the ﬁscal

2.44

2.65

year end this ﬁscal year (nine months) and including twelve months of results from
Kakaku.com, whose ﬁscal year ends in March, in investment proﬁt on equity method. When compared with the twelve-month ﬁgures from the previous ﬁscal year,
results were nearly ﬂat, rising 1% YoY. While Kakaku.com expanded its results
and maintained strong investment proﬁt on equity method, the reduction in gains

FY 16.6

FY 17.3(Full year)(9 month period)■Gain on sales of shares ofsubsidiaries and associates■Gain on change in equity■Investment profit on equity
methodAnnual Report 2017

on sales recorded as extraordinary gains in the previous ﬁscal year was the main
factor behind ﬂat results.

FY 2017 Key Initiatives

Launched content and life design businesses
In FY 2017, we launched initiatives to realize continuous incubation results by
newly establishing one company and making another a DG Group company.
To develop and run new womenʼs media content, we established DK Media, Inc.
as a joint venture with our capital and business alliance partner Kodansha Ltd.
in August 2016. Since forming our capital and business alliance with Kodansha
in 2015, we have globally promoted content from Japan and jointly pursued anCentered on HAMOLO Inc. (name changed to DG Life Design in June 2017), a
company receiving investment from DGʼs investment subsidiary, we reorganized
our life care, sports marketing, and wine school businesses. Based on this reorganization, we will be providing strategic investment to DG Life Design and have

すべての女性のための偏愛ミュージアム

made it an equity-method afﬁliate. Afﬂuent customers are the initial target market
of DG Life Design, and we will make broad “Valuable Life” proposals to customers
by offering new life designs through collaboration inside and outside the Group in
ﬁelds such as life care and sports marketing.

Growth Strategy

Newly launched LTI Segment for the creationof long-term, continuous cash inflow
In formulating our new Mid-term Business Plan, we changed the MI Segment,
mainly active Kakaku.comʼs investment proﬁt on equity method and media development businesses, to the LTI (Long-term Incubation) segment starting in FY 2018.
DG is known as an internet incubator, and to realize one of its missions of creat-

Life care business

Wine business・Support andmanagement service
・Location information
service (children /the elderly)

・#1 Wine School
in Japaning new businesses, in addition to short-term incubation results (gains on sales ofMedia-application
businessshares), we believe it is important to create long-term, continuous cash inﬂow as

Application
for smartphones

we did in the past with our investment and business development at Kakaku.com.
DG Life Design, a lifestyle support business, and DK Media, an internet media
business utilizing Kodanshaʼs womenʼs magazines, will be added to the LTI Segment.
Through these businesses, we will pursue continuous cash inﬂow including investing in and nurturing new businesses and business alliances.

Sports marketingbusiness

Collaboration withother companies

・Business support
for sports andentertainment

・Healthcare business・Asset managementadvisory businessand others

investment strategy in next-generation content ﬁelds. The establishment of thisjoint venture marks our third alliance. We focused on developing media content
combining superior magazine content and AI technology, and in June 2017, established “HOLICS,” a form of compilation media that distributes content based on
womenʼs magazine articles.

32|

DIGITAL GARAGE

働き方
改革

人生100年時代
DIGITAL GARAGE|

33

Feature

OPEN INNOVATIONSMART CITY PROJECT

Developing New Business Fields through Open Innovation with a View to the
Next Generation

DG Labʼs Vision:

DG, in collaboration with Kakaku.com and Credit Saison, has established DG Lab, an R&D platform that aims togive rise to new businesses. Designating five areas of research as top priorities, DG Lab will work with Japanand overseas investees, all of which have advanced technologies in these areas, to uncover the technologicalseeds of what promise to become new core businesses. DG will promote the organic combination of big data
and design concepts to shape the technologies of these companies into practical applications and bring them tosociety as quickly as possible.

development hubs that are test-beds for technology from DG Labʼs five priority research areas

To expand projects to boost local business by establishing various areas across Japan as strategic(Blockchain, AI, VR/AR, security, and biotechnology) and for technology from companies the DG Lab
Fund invested in.

Initiatives involving DG Lab
Investment Funds

Established DG Daiwa Ventures in July 2016
Together with Daiwa Securities Group Inc., DG formed investment funds to invest in startup companies that havenext-generation technologies relevant to DG Labʼs ﬁve priority research areas, and to work with DG Lab to promoteincreases in the corporate value of investee companies.

Core Partners

Technology

Established DG Technologies in September 2016
Together with TIS Inc., DG established an independent
R&D platform to engage in rapid development in eachof DG Labʼs priority research areas.

Local currencies that utilize
Blockchain technology

Incubation centers that are equippedwith cutting-edge technology

DG will make convenient and beneﬁcial local currencies for daily life a reality in various municipalities by utilizing blockchain technology. “Smart” payments with bar codes, NFC, facial recognition, etc.
will be introduced.
Points collected can be used at stores and can immediately be exchanged into various other forms ofpoints for shopping and dining. A portion of member store fees or points can be donated to various
municipal environmental preservation activities,
allowing more people to participate in resolving environmental issues.

Using the DG Groupʼs know-how regarding establishing incubation centers, DG developed incubation
centers and coworking spaces across Japan that are
specially designed for DG Labʼs ﬁve research areas.
Create next-generation coworking spaces thatshowcase Creative×Data×Tech.
*Implementation of 5G, a next-generation communication
technology, implementation of biometric authentication
security, VR/AR bar, and AI agents, establishment of
bio-incubation centers, etc.

Restaurant search with simultaneous multi-lingual translation

New forms of marketing that utilize nextgeneration communication technologies

AR walking directions for people who are looking fora restaurant in a city are made possible by using AR
technologies.
This system for searching for restaurants utilizes AI
and is able to propose restaurants that match each individualʼs preferences.
The directions to the restaurant utilize AR and provide
multi-lingual translations for foreign visitors to Japan.

Taking advantage of the implementation of 5G, thenext generation of communication infrastructure,
DG aims to create a “transparent network city” inwhich all networks are operated in combination.
DG is engaged in the development of new O2O marketing policies that use AI and sensor technology,
and in new shopping experiences that mainly use AR.

Media

Launched the HAUS website in September 2016
The HAUS website provides information regarding innovation happening around the world through introductions
to various events related to DG Labʼs ﬁve priority researchareas, interviews with famous individuals, and more.
http://media.dglab.com

Overview of some of DG Labʼs projects● Development of a point/value exchange platform

With various services through which people collect points, it is essential that
there is a structure that makes it easier to use these points. DG is developing
a platform using Blockchain technology that will make it possible to instantly
exchange these points for other forms of value, etc., and allow for mutual use.

● Development of a platform for local currencies

Demand is increasing for original electronic money, pre-paid money, and local currencies for speciﬁc stores and in speciﬁc regions.
DG is developing a secure and original money system using Blockchain technology to make exchanges with virtual currency a reality,
while reducing installation costs, etc.

● Trial operations of “smart contracts” that automate ﬁnancial and real-estate contracts
DG is aiming to make “smart contracts” a reality. These “smart contracts”

will bring cloud computing and Blockchain technology to processes including bank loan contracts and real estate transactions. Research anddevelopment is underway for coupling digital signatures with payments.

34|

DIGITAL GARAGE● Development of a commerce platform that uses an agent

AI, and of interactive EC
DG is aiming to create a chat tool, similar to a concierge, thatconverses with the customer to provide personally customized
information and lifestyle support. DG will create a tool that makes
various recommendations after learning a userʼs tendencies
from big data that includes their behavior and purchase history.

● Customer support that uses a combination of identiﬁcation

technology and agent AI, and its application in call centers
DG will pursue improved working efﬁciency and customer satisfaction with operational support for call centers using AI. Development is progressing with complete automation expectedin the future. With natural language analysis technology andvoice recognition technology as core technologies, DG is aiming
to develop next-generation elemental technologies in collaboration with various technology companies and universities.

DIGITAL GARAGE|

35

Management System

Annual Report 2017

Directors

Kaoru
HayashiJoi
Ito

YasuyukiRokuyata

MakotoSoda

Representative Director

Member, Board of Directors and Co-Founder

Member, Board of Directors

Member, Board of Directors

Apr 1983

Aug 1995

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

Dec 1995

Director, Digital Garage,Inc.

Jun 1994

Mar 2011

Sep 2006

Director, Digital Garage,
Inc. (current)

Representative Director
and President,
DG Incubation, Inc.

Apr 2011

Director, MIT Media Lab(current)

Jun 2012

Director, The New YorkTimes Company (current)

KAORU HAYASHI
Aug 1995
Jun 2003
Nov 2004
Jun 2009
Jun 2016
Jul 2016
Sep 2016

May 2017

Representative Director,
From Garage, Inc.
Founded Digital Garage, Inc.
Representative Director,
Digital Garage, Inc.
Representative Director
and Chairman, Kakaku.
com, Inc. (current)
Representative Director,
President and Group
CEO, Digital Garage, Inc.
Representative Director andChairman,
DG Incubation, Inc. (current)
Director, Credit Saison
Co.,Ltd. (current)
Director Chairman and CEO,
Digital Garage US, Inc. (current）
Representative Director,
President Executive Officer
and Group CEO,
Digital Garage, Inc. (current)
Representative Director,
Chairman and President,
DG Incubation, Inc. (current)

JOICHI ITO

Jun 2017

YASUYUKI ROKUYATA MAKOTO SODA

Jul 2011

Director and COO, Digital
Garage, Inc.

Sep 2012

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

Strategic Adviser, Sony
Corporation (current)

Keizo
Odori

MasashiTanakaMember, Board of Directors

Member, Board of Directors

Jul 2013

Director, Digital Garage
US, Inc. (current)

Sep 2016

Member, Board of Directors, Vice President Executive Officer,
in charge of the Incubation Technology Segment

Apr 2017

Member, Board of Directors,
Vice President Executive Officer (current)

Jun 1997
Apr 2000
Mar 2007

Sep 2009
Jan 2012
Sep 2016

Apr 2017

Joined Dresdner Kleinwort
Benson Securities, Ltd.
Joined Daiwa Institute of
Research Ltd.
Joined Monex Securities Inc.
Joined Digital Garage,
Inc. Executive Officer incharge of the Corporate
Strategy Division
Director, Head of theGroup CEO Office, Digital
Garage, Inc.
Director, in charge of the
Corporate Strategy Division,
Digital Garage, Inc.
Member, Board of Directors,
Senior Executive Officer,
in charge of the Corporate
Strategy Division and theMedia Incubation Technology Segment
Member, Board of Directors,
Senior Executive Officer,
in charge of the Corporate
Strategy Division (current)

Hideo
Edasawa

Member, Board of Directors

Emi
Omura

Outside Director

Director, Audit and Supervisory Committee Member

Director, former Econtext,Inc.

Aug 2000

Sep 2007

Director, Head of theGroup CEO Office, Digital
Garage, Inc.

Established the Sakai
Makoto Law Office

Mar 2005

Established the Sirius
Law Office (current)

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

Sep 2014

Director, Digital Garage,
Inc. (current)

Aug 2008

Representative Director,
former Econtext, Inc.

Sep 2010

Auditor, Digital Garage,Inc.

Sep 2010

Standing Corporate Auditor,
Digital Garage, Inc.

Sep 2016

Sep 2016

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

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

Koji
MakinoOutside Director, Audit and Supervisory Committee Member

Outside Director, Audit and Supervisory Committee Member

Apr 1969

Oct 1988

Established Labor Consultants Ohno OfficeDirector, Digital Garage,
Inc.

Joined KPMG Minato
Audit Firm (now KPMG
AZSA LLC) Tokyo Office

Jan 1977

Sep 2010

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

Oct 1999

Joined Digital Garage, Inc.

Jun 1994

Sep 2002

Director, Digital Garage,
Inc.

Became a Certified
Public Accountant

Representative Member,Labor Consultants Ohno
Office (current)

Jan 2006

Vice President, DG
Communications Co., Ltd.

Auditor, Digital Garage,Inc.

Jun 2003

President, DG
Communications Co., Ltd.
(current)

President, Representative
Director, FANCLCORPORATION

Jun 2015

Jun 2009

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

Sep 2003

Nov 2008

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

Aug 1992

Apr 2003

Jan 2011

Feb 2009

Sep 2008

Director, Digital Garage,
Inc. (current)

Director, BE1 Accounting Office (current)

Advisor, Japan Federation of Labor and Social
Security Attorney's Associations (current)

Sep 2012

Director, Kakaku.com,
Inc. (current)

Auditor, Digital Garage,Inc.

Jun 2017

Jun 2009

Sep 2016

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

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

Sep 2016

Jun 2017

36|

Member, Board of Directors,
Senior Executive Officer,
in charge of the Financial Technology Segment(current)
Representative Director
and President,
DK Gate, Inc. (current)

DIGITAL GARAGE

Sep 2016
May 2017
Jun 2017

JUNJI INOUE

MinoruOhno

Joined Recruit Co., Ltd.
(now Recruit Holdings
Co., Ltd.)Jul 2016

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

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

Apr 1984

Director, Senior Executive
Officer,in charge of the MarketingTechnology Segment(current)

Sep 2016

Sep 2010

Aug 2000

Registered to the Tokyo
Bar Association

Aug 2001
Jul 2006

Joined Digital Garage, Inc.

Auditor, Digital Garage,Inc.

Apr 1988

Director, Faith, Inc.

Jun 2017

Director, e-Access Ltd.

Sep 2012

Joined Mitsubishi Corporation

Joined Faith, Inc.

May 2017

Jun 2007Partner, Athena Law Office(current)

Jun 2005

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

Director, Executive Officer& President,
IT Frontier Corp.

Jul 2008

Dec 1990

Admitted to practice law
in Japan (Nagoya Bar
Association)

Apr 2000

Aug 2016

Jun 2003

Apr 1986

MINORU OHNO

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

Executive Officer, Mitsubishi Corporation

Joined Suntory Holdings
Limited

KOJI MAKINO

Oct 2013

Apr 2003

Apr 1980

KENJI FUJIWARA

Sep 2012

Joined Mitsubishi Corporation

Admitted to practicelaw in Japan (Tokyo Bar
Association)

HIDEO EDASAWA

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

Apr 1974

Oct 2002

MASASHI TANAKA

Sep 2012

Outside Director, Audit and Supervisory Committee Member

MAKOTO SAKAIJan 2014

Junji
Inoue

Outside Director, Audit and Supervisory Committee Member

HITOSHI USHIKUKEIZO ODORI

Joined Digital Garage, Inc.
Director, DG&Ibex
Company (now MarketingTechnology Company)
Senior Operating Officer,
Digital Garage, Inc.
Executive Vice President,
DG&Ibex Company (nowMarketing Technology
Company)
Director, Digital Garage, Inc.
Head of Corporate Strategy
Division
Executive Vice Presidentof DG&Ibex Company (nowMarketing Technology
Company)
Director and President,
Digital Garage US, Inc.
(current)
Representative Director,
DG Technologies, Inc.
(current)
Director, Vice President
and COO, DG Incubation,
Inc. (current)
Member, Board of Directors,
Senior Executive Officer,
in charge of DG Lab andIncubation Technology
Segment (current)

MakotoSakai

EMI OMURA

Kenji
Fujiwara

Outside Director

Hitoshi
UshikuDIGITAL GARAGE|

37

Corporate Governance

Annual Report 2017

Corporate Governance
Basic Concepts
Consistent with our philosophy and credo, as described below, Digital Garage, Inc. (DG) is committed to living up to the faith of our shareholders andall other stakeholders, and to achieving ongoing＜Philosophy＞

growth and medium- to long-term increases in corporate value, by enhancing and strengthening corporate governance that emphasizes transparency,
fairness, and speedy, resolute decision-making.
＜Credo＞

We contribute new value to society by using theinternet and other resources to link developments

TENACITYOPENNESSINTEGRITY

across different ﬁelds and create contexts that are

AGILITY

useful for the world.

COURAGE

Corporate Governance
DG has always viewed corporate governance as a
critical management concern and striven to take thesteps necessary to ensure strong governance. However, given the adoption of Japanʼs Corporate Governance Code, we decided that the “growth-oriented governance” called for by the code would be best
achieved by switching to the “company with audit andsupervisory committee” form of organization. This organizational change was formalized following the approval of a resolution to that effect at the 21st Shareholdersʼ General Meeting, convened on September 29,
2016. Under the “company with audit and supervisorycommittee” form of organization, directors who are
Audit and Supervisory Committee members perform

oversight for management decision making and theperformance of duties by directors in meetings of theBoard of Directors. The Audit and Supervisory Committee, meanwhile, oversees the performance of duties by directors more broadly. 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 executiveofﬁcer system to clearly separate the business execution function from the decision making and supervisory
functions with the aim of bringing greater speed andefﬁciency to the execution of business.
Board of Directors
The Board of Directors of Digital Garage, Inc. consistsof 14 members. Five of the 14 members are also Audit and Supervisory Committee members, and four ofthese ﬁve members are outside directors. Of the nine
members who are not Audit and Supervisory Committee members, two are outside directors. In addition to
its regular monthly meetings, the Board of Directors
meets at other times, as necessary. In FY 2017, meetings of the Board of Directors were held a total of 12
times. The Board of Directors makes decisions on important matters set forth in laws and regulations, theArticles of Incorporation, and Board of Directors Provisions. It also oversees the activities of board members
as they perform their duties. Outside directors performgovernance functions by drawing on their individual expertise, management experience and insight, tooversee board activities and contribute advice, from an
independent perspective.
To further enhance the corporate governance sys-tem, DG increased the number of outside directors(Audit and Supervisory Committee members) by
one at the ordinary shareholdersʼ general meeting
held in June 2017, and reported 6 directors of a total of 14 directors, (outside director ratio of 42.9%)
to the Tokyo Stock Exchange as being independent
directors as deﬁned by the exchange.
Audit and Supervisory Committee
DGʼs Audit and Supervisory Committee consists ofﬁve members - one director and four outside directors. Audit and Supervisory Committee members
attend Audit and Supervisory Committee meetings
held after regular monthly meetings of the Boardof Directors. They attend other important meetings,
including those of the Board of Directors, as well,and are free to express their opinions and contribute in other ways to enhance the effectiveness ofcorporate governance.
Internal Control System
To provide an environment that supports appropriate risk taking by directors and others, the Boardof Directors has acted to build and maintain proper internal control and risk management systems.
The Board of Directors supervises these systems
to ensure 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,
Ordinance for Enforcement of the Companies Act,and Financial Instruments and Exchange Act.

Stronger Governance from Compliance with the Corporate Governance CodeCorporate Governance Organization Chart(as of March 31, 2017)

Shareholdersʼ General Meeting
Elect/Dismiss

Audit/
ReportAudit and Supervisory
Committee

Cooperate

DirectReportReportSelect/Oversee
Delegate decision-making
for important operational
matters

Elect/Dismiss

Internal Audit Ofﬁce

Submit forconsideration/
Report

Audit

Audit

Independently
Audit

Cooperate

Independent Auditor

Board of Directors

Report/Express opinions

Elect/Dismiss

Propose/Report

Following the June 2015 implementation of the Tokyo Stock Exchangeʼs Corporate Governance Code,DG, in respect for the intent and spirit of the code,
established a project team and embarked on discussions of how to strengthen our governance.
Corporate Governance Code Fundamental Principle

Details of Actions

Early distribution of
Exercise Shareholder
convening notices
Rights at General(Supplementary principle
Shareholder Meetings
1-2(2))

To provide shareholders enough time to consider the general meeting agenda, the following decisions
were made.
・Convening notices will be sent by postal mail two and a half weeks prior to the general meeting date.
・Convening notices will be posted on the web three weeks prior to the general meeting date.

Anti-Takeover
Measures(Principle 1-5)

After considering such factors as the business environment encompassing DG and changes to the environment relating to anti-takeover measures, DG judged the importance ofcontinuing anti-takeover measures had relatively diminished and resolved to discontinue
the anti-takeover measures at the Board of Directors meeting held on May 23, 2017.

Director
Remuneration

Establishment of
optional advisorycommittees(Supplementary
principle 4-10(1))

To enhance the transparency of the remuneration determination process, the following actions were taken.
・Adoption of a director grading system for evaluating directors on the performance of their duties andcontributions to the company.
・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).

Evaluation, Analysis,(Supplementaryand Disclosure ofprinciple 4-11(3))
Board EffectivenessImplemented 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 theboard, matters concerning board deliberations, and the role and duties of the board. The evaluation and analysis
conﬁrmed that the effectiveness of the board is functioning and that it is improving compared with FY 2016. In
particular, the evaluation and analysis recognized that DG had secured diversity of directors and that the numberof outside directors had improved. Improvement was also recognized regarding enhancement of the provision of
information to outside directors including measures to shorten the time taken to distribute information materials to the board, which had been raised as an issue during the evaluation and analysis of FY 2016.

President, Executive Ofﬁcer
Delegate certain
management authority
and responsibility

ReportReportExecutive Ofﬁcers

38|

DIGITAL GARAGE

Deliberate

Management
Committee

Individual DG segments, departments, ofﬁces,
and group companies

Consult Cooperate

Compliance Committee
Information Security Committee, etc.

During the ﬁscal year ended March 2017, we addressed the following points by taking steps tostrengthen our governance in accordance with thefundamental principles of the Corporate Governance Code.

DIGITAL GARAGE|

39

Corporate Governance

Annual Report 2017

Compliance and Risk Management
Compliance Statement
The corporate philosophy of Digital Garage is tocreate new business opportunities and contributeto the betterment of society through providing digital contexts that connect multiple elements fromvarious domains via internet business.
In order to achieve this and ensure our sustainable growth, each and every employee is called
upon to understand changes in society and ensurethat our actions resonate with our environment, inthe spirit of the “ﬁrst penguin.” We recognize theirreplaceable roles that our employees play in ourefforts and the importance of providing them witha rewarding working environment that they areproud to be a part of. In addition, individuals mustalso commit to regulatory compliance.
DG has established a compliance program outlining standards for individual business conduct withintegrity and efﬁciency based on our shared ethical values.
In order to exercise the aforementioned corporate
philosophy, every staff member at DG is committed to adhering to the compliance program guidelines as detailed in the following seven articles inour 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 from discrimination 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

DGʼs Compliance Statement can be viewed on the following webpage.
http://www.garage.co.jp/en/compliance/

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.
http://www.garage.co.jp/en/policy/

Basic Information Security Policy
DG believes that achieving sustained growth of DG
requires that each employee contributes to thebetterment of society by creating new business
opportunities. We recognize the role our informa-

40|

DIGITAL GARAGE

tion systems (e.g., data, computers and networks)
play toward that end and strive to make the mostof them as information assets. DG recognizes thevalue and importance of its information assets

and believes maintaining the completeness, conﬁdentiality and availability of information by establishing effective security measures is critical forclients, business partners and ourselves. To offer
better services and foster trust, every employee
must fully recognize and understand the importance of information security in protecting ourassets, brand image and the trust that our clientsand business partners have in us. Against thisbackdrop, we established the Basic Information
Security Policy to properly secure our information

assets against various threats. We have also established an information security system and will
work to further enhance its management and operation as necessary going forward.
DG employees strictly adhere to all information
security provisions and practice stringent compliance management in accordance with the protocols of applicable regulations, industry businessnorms and our code of conduct, as well as contractual security obligations.

For information on the Basic Information Security Policy, please refer to the webpage below.
http://www.garage.co.jp/en/compliance/security/

Disclosure Policy
Emphasizing transparency, fairness, and continuity, 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 with the regulations on timely disclosure

established under the Financial Instruments andExchange 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 usefulin promoting understanding of DG.

For information on the Disclosure Policy, please refer to the webpage below.
http://www.garage.co.jp/en/ir/disclosurepolicy/

General Policy on Addressing Antisocial Forces
DG stipulates how its employees and other personnel shall address antisocial forces, or racketeers,deﬁned in Article 8 of the “Compliance Program.”
Article 8 (Prohibition on the Provision of Financial Beneﬁt to Antisocial Forces)
All employees shall reject all ties with antisocial forces and organizations that pose a threat
to the order or safety of civil society and shallnot facilitate their activities.

To fulﬁll the above imperative, DG has established
its General Policy on Addressing Antisocial Forces
as follows:
1. Undue claims from antisocial forces shall be responded to by the entire organization, led by the
President and Group CEO.

2. The safety of any employee responding to undue
claims from antisocial forces shall be ensured.
3. In preparation for the receipt of any undue
claims from antisocial forces, close ties shall be
developed with external expert institutions in thecourse of pursuing regular business activities.
4. No business or other relationships shall bemaintained with antisocial forces and any undue
claims by antisocial forces shall be refused.
5. Undue claims by antisocial forces shall be responded to with both civil and criminal legal action.
6. No secret deals shall be arranged in any way
for the purpose of concealment, even if undue
claims by antisocial forces are based on improprieties involving our business or employees.
7. No ﬁnancial support shall be given to antisocial
forces in any manner.

DGʼs General Policy on Addressing Antisocial Forces can be viewed on the following webpage.
http://www.garage.co.jp/en/compliance/antisocialforces/

DIGITAL GARAGE|

41

Financial Information

2017

15-Year Summary of Consolidated Business Performance Indicators
Key Performance Indicators
FY 03

FY 04

FY 05

FY 06

FY 07

FY 08

FY 09

FY 10

FY 11

FY 12

FY 13

FY 14

FY 15

FY 16

FY 17 (9 months)

Net sales

3,520

6,217

7,846

12,476

17,33839,582

34,4998,346

11,067

14,90327,96433,751

38,08743,76336,451

Operating income

-285

-319

442

1,703

1,613

-172

981

-960

135

1,621

1,322

2,608

4,810

4,201

723

Income before income taxes

-125

929

1,426

1,451

2,606

-336

12,259-2,183

958

2,535

4,215

5,035

9,248

7,574

5,829

Net income attributable to owners of parent

-217

380

633

338

588

-2,4305,450-2,207

901

2,106

2,715

2,847

5,081

5,165

4,299

Total assets

6,747

14,742

24,25927,77442,40740,05730,275

19,706

20,42149,33856,01071,00986,504

77,33591,695

Net assets

2,667

3,576

9,330

10,668

11,743

9,716

11,989

8,829

9,895

20,47627,25836,48929,07430,66434,379Cash flows from operating activities

558-1,647

2,295

1,898

779

-1,0491,963-5,163

131

2,542

3,211

-34

5,040

-2,6184,148

Cash flows from investing activities-776-3,795-165-3,305

3,355

486

7,346

1,233

-165

-9,411

1,514-5,155508-1,071-1,452

Cash flows from financial activities

1,065

6,850

573

2,806

-203

1

-5,152-3,294-568

15,273-1,816

11,2601,390-11,637

4,176

Cash and cash equivalents at end of year

1,963

3,369

6,072

7,471

11,50910,951

15,100

7,875

7,271

15,75819,09025,18334,07718,321

25,335(JPY in Millions)

Changedlisting to the TSEFirst Section on

May 9,
2016

Trends in Share Price

Listed on

Dec. 14,
2000

42

|

DIGITAL GARAGE

DIGITAL GARAGE|

43

Financial Information

2017

Consolidated Balance Sheet(JPY in Thousands)

FY 03

FY 04

FY 05

FY 06

FY 07

FY 08

FY 09

FY 10

FY 11

FY 12

FY 13

FY 14

FY 15

FY 16

FY 17 (9 months)

Current assets

4,311,466

8,114,867

13,600,776

17,523,376

31,918,644

29,855,003

24,000,824

14,208,493

14,345,384

28,005,334

33,837,184

45,455,259

57,752,254

48,324,086

59,624,676

Cash and deposits

2,065,860

4,622,335

6,815,665

7,575,614

13,499,476

9,898,492

13,133,095

4,799,958

4,784,822

12,308,492

15,329,272

24,294,997

30,956,199

15,703,552

23,029,953

Notes and accounts receivable

1,202,784

1,298,787

2,069,288

2,662,547

9,546,686

9,379,461

2,850,681

2,238,506

1,466,303

2,479,801

2,688,570

3,658,527

3,824,046

5,441,873

7,056,441

Money held in trust

-

-

-

-

-

4,431,418

2,048,488

3,155,340

2,501,270

3,404,967

3,768,127

889,164

3,120,279

2,592,659

2,264,634

Operational investment securities

-

-

-

4,528,656

3,769,005

1,730,527

89,601

323,526

912,055

1,904,227

2,641,416

8,063,977

8,208,111

11,164,418

11,856,680

Receivables

719,381

1,623,103

4,021,563

2,542,621

3,100,575

3,591,293

5,449,164

3,413,224

4,351,131

7,577,965

9,037,107

8,596,697

11,646,489

13,946,329

15,422,645

Other

323,439

570,640694,257

213,937

2,002,898

823,809429,791

277,935

329,801

329,881372,689-48,106-2,873-524,749-5,680

Fixed assets

2,436,073

6,356,952

10,631,226

10,250,995

10,489,024

10,202,495

6,274,550

5,497,837

6,075,875

21,333,298

22,173,453

25,554,459

28,752,062

29,011,602

32,070,533

Tangible fixed assets

122,822

140,385

233,346

300,362360,233

408,865

56,175429,995

377,434

912,588

2,038,649

2,158,533

2,250,655

2,279,367

2,245,088

Intangible assets

759,556

612,916

6,146,134

6,119,636

7,543,793

6,910,388

3,899,061

2,248,964

2,102,677

13,080,115

11,093,751

8,587,910

7,574,332

7,455,592

7,224,111

Software258,317

215,770

242,008790,217880,047

936,407

293,368

283,763316,695

959,106

1,106,943

1,210,198

1,314,926

1,664,580

1,784,339

Goodwill

491,263

388,098

5,715,201

5,186,799

6,645,839

5,956,003

3,590,203

1,945,975

1,768,577

12,104,667

9,968,182

7,354,590

6,237,218

5,765,576

5,411,845

Other

9,975

9,048

188,924

142,619

17,906

17,977

15,48919,225

17,404

16,341

18,624

23,121

22,18725,43527,926

1,553,694

5,873,830

4,279,536

3,830,996

2,584,997

2,883,241

2,319,312

2,818,877

3,595,763

7,340,594

9,041,052

14,808,016

18,927,074

19,276,642

22,601,333

1,337,814

4,716,975

3,843,897

3,168,387

536,250

1,192,646

2,081,976

2,504,345

3,305,577

4,299,840

5,521,160

10,644,406

14,220,454

14,844,428

18,366,346

Other

215,879

1,156,855

435,638

662,6072,048,746

1,690,593

237,336

314,531

290,184

3,040,753

3,519,890

4,163,609

4,706,619

4,432,212

4,234,987

Total assets

6,747,540

14,742,000

24,259,792

27,774,372

42,407,669

40,057,499

30,275,374

19,706,331

20,421,259

49,338,633

56,010,638

71,009,719

86,504,317

77,335,689

91,695,210

Current liabilities

3,613,003

6,469,452

14,379,868

13,784,419

26,384,002

27,635,747

17,360,950

9,941,255

9,933,415

28,505,805

21,801,952

25,461,162

50,623,812

30,187,014

38,815,485

454,018

118,454

1,123,359

1,238,963

10,640,033

7,249,152

1,237,925

1,021,255

540,603

1,154,325

1,232,135

1,629,586

2,039,224

2,728,973

3,713,743

1,037,750

272,000

1,365,560

1,541,770

5,870,032

8,210,000

4,947,360

2,809,368

2,519,054

10,740,008

305,159

3,690,686

23,533,860

3,200,480

6,937,490

Investments and other assets
Investment securities

Notes and accounts payable
Short-term borrowing
Income taxes payable

74,970430,126

248,409819,125

893,610

1,045,775

3,775,553

4,772

46,371

740,945

810,592

1,241,682

2,147,718

720,498

435,344

1,911,330

4,907,484

10,237,863

9,542,633

6,399,144

9,143,489

6,691,237

5,743,393

6,168,961

14,956,391

18,229,792

16,434,414

20,998,870

21,876,323

25,127,443

134,933

741,386

1,404,675

641,925

2,581,180

1,987,328

708,873362,465

658,424

914,134

1,224,272

2,464,791

1,904,138

1,660,739

2,601,463

Fixed liabilities

467,293

4,696,416

549,548

3,321,915

4,279,982

2,704,897

925,294

935,502592,338

355,896

6,950,157

9,058,799

6,805,977

16,484,399

18,499,746

Bonds payable

300,000

3,956,000

220,000

420,000

816,000

440,000

-

-

-

-

-

-

-

-

-

Long-term borrowing

82,000300,000

281,770

2,870,000

2,630,000

1,630,000

845,740

670,370

351,316

183,308

6,799,916

8,841,160

5,546,550

15,370,630

17,207,449

Deposits
Other

Deferred tax liabilities

35,610-748-

146,169

69,73941,1395,980

30,991-

20,95643,066938,197596,334

488,329

Other

49,682

440,415

47,02831,915

687,812565,156

38,413

259,151

210,030

172,587

129,284

174,572

321,229

517,434

803,967

Total liabilities

4,080,297

11,165,868

14,929,417

17,106,335

30,663,984

30,340,644

18,286,244

10,876,757

10,525,753

28,861,701

28,752,110

34,519,961

57,429,790

46,671,414

57,315,232

Shareholders’ equity

2,235,020

2,801,037

6,646,665

7,041,383

7,452,752

5,066,929

11,924,984

8,785,078

9,759,174

20,155,922

25,279,508

27,762,568

24,650,134

28,610,585

31,642,017

Common stock

1,297,663

1,390,465

1,769,763

1,798,006

1,809,412

1,831,833

1,835,604

1,835,604

1,872,120

6,017,283

7,330,041

7,399,002

7,426,431

7,435,347

7,437,369

Capital surplus

1,389,331

1,483,213

4,303,537

4,331,780

4,152,370

4,174,790

5,521,655

5,521,655

5,558,171

9,703,334

11,016,091

10,817,448

2,854,445

2,825,465

2,946,042

Retained earnings-451,974-71,337

575,027

913,529

1,492,890-937,772

4,637,565

1,497,658

2,398,722

4,505,145

7,003,215

9,615,957

14,439,097

18,419,613

21,309,282--1,304-1,662-1,932-1,921-1,921-69,840-69,840-69,840-69,840-69,840-69,840-69,840-69,840-50,677

Accumulated other comprehensive income

115,209-168,010

37,121

206,801-157,856-275,894

64,145-17,072

64,866

115,195

426,196

2,679,609

4,002,546

1,502,053

1,956,872

Valuation difference on available-for-sale securities

115,209-168,010

37,121

206,801-157,856-275,894

64,145-17,072

64,866-76,380

31,5342,193,931

2,585,843

138,163

641,155

-

-

-

-

-

-

-

-

-

191,575

394,662

485,678

1,416,702

1,363,890

1,315,717

317,012943,105

2,646,587

3,419,852

4,445,589

4,921,748

061,567

71,464

174,223

1,468,302

5,906,458

126,215

119,786

132,560

-

-

-

-

3,198

4,071

-

-

-

31,58984,520141,121295,632

431,849

648,528

Total net assets

2,667,243

3,576,132

9,330,375

10,668,036

11,743,684

9,716,854

11,989,130

8,829,573

9,895,505

20,476,931

27,258,528

36,489,758

29,074,527

30,664,275

34,379,978

Total liabilities/net assets

6,747,540

14,742,000

24,259,792

27,774,372

42,407,669

40,057,499

30,275,374

19,706,331

20,421,259

49,338,633

56,010,638

71,009,719

86,504,317

77,335,689

91,695,210

Treasury stock

Foreign currency translation adjustment
Minority interests
Subscription rights to shares

44|

DIGITAL GARAGE

DIGITAL GARAGE|

45

Financial Information

2017

Consolidated statement of Proﬁt or Loss
(JPY in Thousands)

FY 03

FY 04

FY 05

FY 06

FY 07

FY 08

FY 09

FY 10

FY 11

FY 12

FY 13

FY 14

FY 15

FY 16

FY 17 (9 months)

Net sales
Cost of sales

3,520,266
2,100,179

6,217,588
4,476,502

7,846,467
4,664,452

12,476,240
6,627,105

17,338,744
10,046,843

39,582,609
28,733,316

34,499,015
22,058,007

8,346,753
6,630,196

11,067,388
8,282,406

14,903,810
10,644,889

27,964,798
21,533,032

33,751,615
25,534,895

38,087,485
27,301,795

43,763,410
32,273,214

36,451,862
29,838,591

Gross profit

1,420,087

1,741,086

3,182,014

5,849,135

7,291,900

10,849,293

12,441,007

1,716,557

2,784,982

4,258,921

6,431,765

8,216,720

10,785,690

11,490,195

6,613,271

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
Other1,705,519
216,214495,323
55,22883,772
8,014
3,492
72,28940,1738,545
51,621
54,46822,07287,03534,882
129,589
342,794

2,060,608
249,337
565,152
42,251
82,5998,378
3,786
191,462
46,315
10,24097,56051,801
132,500
145,958
23,270134,691
275,300

2,739,111
281,144734,969
42,683
110,146
9,343
6,276
236,615
63,253
34,610141,353
42,94543,452
184,047
19,634279,918
508,713

4,145,136
452,639
1,000,819
44,499146,136
13,9803,253
501,487
80,17459,437200,568
132,927
41,477245,160
27,659526,570668,340

5,665,776
609,457
1,298,472
75,679189,080
21,5803,324
898,629
111,591
84,062
255,679
189,152
49,479302,976
37,883624,056
914,668

11,014,003
768,825
3,345,803
507,689
430,766
117,298
175,023
1,288,417
275,400
106,307413,359
401,61238,783
743,148
52,715
635,492
1,713,357

11,459,640
632,664
3,422,077
626,525
475,456
91,433
169,790
1,105,237
253,853
196,192
763,375
224,547
20,798724,364
66,610627,9322,214,356

2,676,850
247,055
911,033
11,697
113,608
23,2497,345
20,59655,79230,008132,059
95,07939,832
219,368
59,142
249,395
461,5852,649,506
286,244851,643
40,209128,886
21,255
6,539
31,07952,88034,964
137,761
75,49029,643
269,146
66,540177,398
439,816

2,637,322
287,570825,566
77,809128,657
25,691
9,769
39,20884,70358,625
124,298
76,49552,801
274,877
39,475
188,753
343,016

5,109,539
403,233
1,319,714
65,742
162,296
48,76633,141
95,492
157,222
111,028
203,334
291,828
38,337404,458
99,137940,412731,4615,608,698
458,810
1,428,888
85,365
199,662
82,13634,931
190,241
200,714
91,849277,636
241,683
59,256
430,443
107,703756,336
962,9445,975,676
523,807
1,509,062
90,456211,336
101,80752,754
100,650
188,659
128,083
285,901
288,092
79,058433,613
122,926
754,098
1,105,366

7,288,563
466,792
2,599,840
171,032
381,353
99,63066,150
194,124
167,027
143,480
317,094306,941
56,645644,125
140,576
471,641
1,062,103

5,889,366
330,535
1,998,751
181,931306,993
74,79749,199127,495
125,867
131,794
228,282258,654
114,721447,117
120,159
353,7311,039,329

Operating income
Operating margin-285,432-8.1%-319,522-5.1%

442,902
5.6%

1,703,998
13.7%

1,613,152
9.3%-172,108-0.4%

981,3672.8%-960,292-11.5%

135,475
1.2%

1,621,598
10.9%

1,322,226
4.7%

2,608,022
7.7%

4,810,014
12.6%

4,201,631
9.6%

723,904
2.0%

216,946
2,656
260
214,029
134,090
13,55082,71637,821

474,0868,227
436
465,422364,939
49,348
124,567
191,022

272,449
26,493
11,229234,726
606,820
108,695
320,189
177,934

133,157
8,110
128
124,917332,121
131,409
144,579
56,132

1,032,797
15,835
6
1,016,955
170,141
139,396
30,744

142,616
59,407
18,78164,428345,509
201,783
72,14571,579110,191
57,29320,99831,899553,978
222,315
41,571
290,090

616,562
24,464
11,115547,61433,367
113,480
84,303
6,588
22,587925,584
17,647
11,116866,346
30,47488,39043,5606,167
30,27401,215,506
8,647
42,337
1,004,205
112,852
32,32815,136
128,138
49,914
1,989
13,34262,892

2,179,576
14,45843,655
1,361,142
499,344
222,372
38,602
423,160
102,386
50,000127,296
94,68948,7882,307,218
7,557
30,306
1,741,139
143,730
278,675
105,809472,748
88,196
195
189,431
191,602
3,323

3,736,778
18,1436
2,080,806
1,090,982
337,782
209,056
936,466
97,871554,852
275,071
8,041

3,031,911
18,260206
2,406,206
371,212
236,025
1,040,473
85,953689,160
248,510
16,8493,257,206
5,034
29,3422,539,110
331,681352,038
292,224
56,904
223,429
11,889-202,576-5.8%-210,374-3.4%

108,532
1.4%

1,505,034
12.1%

2,475,808
14.3%-375,001-0.9%

537,580
1.6%-457,210-5.5%

972,6698.8%

2,708,966
18.2%

3,078,642
11.0%

4,442,492
13.2%

7,610,325
20.0%

6,193,069
14.2%

3,688,887
10.1%

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

236,891
25,651
156,240
55,000159,582
70,021
89,5601,355,148
323,237
1,027,572
4,338
215,426
73,471
141,952

1,437,442
848,226
484,540
104,676
119,180
86
9,305
109,789

7,941
5,012
2,928
61,112
2,045
59,064

236,152
113,747
122,37133
105,623
10,97937,32557,317473,817
15,039417,60241,174435,1035,444
62,500170,135
197,021

16,147,076
106,674
16,031,415
8,986
4,424,801
144,832
1,759,936
787,046
1,732,985

49,12530,337
15,2403,547
1,775,443
4,892
1,435,962
332,607
1,981

58,08946,167206
071,942
9,398
22,157
063,423
20,32342,920180
236,922
3,114
222,529
8,366
2,912

1,304,628
18,603
153,417
1,131,288
1,319
168,213
22,38288,43033,84323,557

630,922374,492
220,955
35,47438,3987,073
376
30,9482,463,041
2,363,553
99,487824,373
27,637
77,109657,61162,014

1,392,393
157,419
521,202713,772
10,7078,750
1,956

2,265,108
47,013
1,829,684
386,333
2,077
124,392
16,266
104,620
3,504

Income before income taxes
Income before income taxes and net profit rate

-125,267-3.6%

929,347
15.0%

1,426,794
18.2%

1,451,863
11.6%

2,606,337
15.0%-336,287-0.8%

12,259,855
35.5%-2,183,528-26.2%

958,816
8.7%

2,535,467
17.0%

4,215,057
15.1%

5,035,016
14.9%

9,248,993
24.3%

7,574,755
17.3%

5,829,604
16.0%

101,226-20,507
11,437481,101-19,485
87,094

327,172
152,432
313,952

875,376-290,586
528,572

1,202,403
256,359
558,940

1,560,934-114,718
648,160

5,506,725
575
1,301,660

3,620
3,677

47,856
9,896

409,909
19,134

1,520,208-9,850-11,170

1,919,646-32,641
300,956

3,699,401
155,721
312,270

2,241,857
143,580
24,008

1,647,119-121,526
4,765-217,423-6.1%

380,6366.1%

633,235
8.1%

338,501
2.7%

588,633
3.4%-2,430,663-6.1%

5,450,893
15.8%-2,207,784-26.5%

901,063
8.1%

2,106,422
14.1%

2,715,870
9.7%

2,847,054
8.4%

5,081,600
13.3%

5,165,308
11.8%

4,299,246
11.8%

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
Ordinary income
Ordinary income rate

Income taxes–current
Income taxes–deferred
Minority interests in net income
Net income attributable to owners of parent
Net income margin

46|

DIGITAL GARAGE

DIGITAL GARAGE|

47

Financial Information

2017

Consolidated Statement of Cash Flows
FY 03

FY 04

FY 05

FY 06

FY 07

FY 08

FY 09

FY 10

FY 11

FY 12

FY 13

FY 14

FY 15

FY 16

FY 17 (9 months)

558,196-125,267
47,064
219,642
129,589
18,453-2,916
13,55088
82,716-156,240-208,516-764,715-69,794555,540
1,164,254
116,222
1,019,672-1,647,427
929,347
46,09833,356
134,691-8,66349,34875
194,416-323,237-1,027,572-455,554-117,037-491,945-738,838-215,755
385,531-1,605,738

2,295,197
1,426,794
54,952
77,765279,918-37,722108,695-710
320,189-848,226-484,540-126,225-57,533-2,300,834
774,578
3,701,402
7,979
2,896,484

1,898,215
1,451,863
83,579125,773526,570-22,686
131,409-272
144,579
14,317-5,012-632,092
136,667
979,715
135,264-598,324-142,878
2,328,475

779,065
2,606,337
107,371
269,081624,056-32,972
139,396-1,279-63,207-122,371-1,983,860
177,908-282,587-551,137
1,112,837
1,574,759-1,434,696
2,139,635-1,049,211-336,287
136,235
361,952
635,492-89,714201,783
2,550-7,967-417,602
170,135
180,460
1,360,015
265,083-492,965-3,390,662
423,245
1,406,722
408,479

1,963,899
12,259,855
223,148
401,521
1,759,936
627,932-78,984
222,315
20,043-95,145-15,936,735
157,433
787,046
1,690,803
1,445,585-491,441
309,670-1,180,367
607,201
826,356
3,556,175-5,163,019-2,183,528
75,792
97,717
1,435,962
249,395-35,579
84,3031,243-547,614-30,337-15,240
332,607
639,795-250,415
0-113,066-257,805-947,844-56,095-1,520,707

131,805
958,816
90,782102,018
22,157
177,398-28,764
43,5602,513-866,346-46,167
15,443
19,682
0732,430-529,304
9,200-992,830-505,930
430,259
296,618-68,4592,542,198
2,535,467
86,934
119,838
222,529
188,753-50,984
49,914-36,609-1,004,205-20,323
0-42,9208,366-275,828-1,018,823
84,138-2,377,507
130,2623,542,213
187,6422,328,861

3,211,628
4,215,057
209,787
407,237
88,430940,412-58,114102,386-468,880-1,361,142-18,603-1,131,288-153,417
33,843-34,914-582,498
156,576-1,456,746
15,5493,269,418
156,394
4,329,485-34,900
5,035,016
229,091
401,531376
756,336-37,863
88,196-153,280-1,741,139-374,492
0-220,955
707-960,614-1,971,738
267,974444,332
459,748-1,751,818
417,039
888,180

5,040,076
9,248,993
291,543
419,858
657,611754,098-18,150
97,871-1,102,679-2,080,806-2,363,553
0-68,480
55,629-148,139-1,437,205-49,538-3,016,113
489,763
4,612,033
403,629
6,746,366-2,618,597
7,574,755
307,631453,315
471,641-18,466
85,953699,384-2,406,206-157,419-521,202-1,526,848-4,239,786
531,721-2,338,612
710,324
975,382-495,779
105,789

4,148,728
5,829,604
264,114392,504
104,620
353,731-34,377
56,904-222,444-2,539,110-47,013-386,333-1,829,684-808,474-66,989
45,255-1,025,164
950,861
3,247,034
1,122,711
5,407,751

765-13,941-448,301-

9,749-42,051-131,377
121,990

34,547-103,763-532,070-

11,354-128,844-314,808
2,038-144,595-1,223,468
7,494

19,419-205,658-1,422,841
151,390

219,363-235,890-1,624,535
48,787

168,882-77,366-3,733,862
34

234,130-41,944-2,498
10,577313,717-61,382-55,511
16,513420,293-82,088-1,456,065
4

517,646-102,084-1,396,074
57,431

629,567-102,025-2,241,394
7,561

824,979-83,835-3,465,533
1

528,438-49,001-1,789,808
51,348-776,990
Cash flows from investing activities
Payments into time deposits
Proceeds from withdrawal of time deposits-53,192
Payments for acquisition of tangible fixed assets-197,949
Payments for acquisition of intangible assets
Proceeds from purchase of shares of subsidiaries
120,489
resulting in change in scope of consolidation
Purchase of investments in subsidiaries
resulting in change in scope of consolidation
Proceeds from sales of investments in subsidiaries
228,739
resulting in change in scope of consolidation
Payments for sales of investments in subsidiaries
resulting in change in scope of consolidation-1,106,365
Purchase of investment securities
Purchase of stocks of subsidiaries and affiliates
213,684
Proceeds from sales of investment securities
Proceeds from sales of stocks of subsidiaries and affiliates
Proceeds from withdrawal of investments in silent partnership
Payments for investments in real estates
17,602
Other-3,795,977-1,150,000-84,297-96,915-165,735-640,101
1,243,333-82,476-354,863-3,305,766-16,032
656,981-171,704-692,335

3,355,538-300,019
360,057-165,424-379,273

486,273-60,000
855,185-191,841-472,407

7,346,657
169,000-193,743-378,366

1,233,513-362,605-116,387-165,238-32,256-134,036-9,411,154-559,335-269,452

1,514,636-1,247,500-688,104-5,155,218-303,155-512,701

508,610-164,722-581,319-1,071,606-315,928-721,955-1,452,855-223,849-630,145-

678,778-

1,307,465

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-5,678,052-447,950

-

-

-

-

-

-

-

-

14,31911,402,523

2,090,000

-

-

-

-

-

-

-

-1,224-765,418----2,754,385--3,249

-

-

-

-

-

-

-1,945,578-1,717,532
460,376
1,165,200-426,005-268,479-871,954
352,222
234,000
309,221-3,115,024-500,000
22,897
489,029
20,423-468,985-560,589
3,911
181,125
3,000,000
377,269-88,481-73,500
252
610,930
4,492-112,676-84,177-178,350
141,764-777,609-662,330-142,999
8,842
32,000386,991-75,873
6,942
73,234-370,598
66,913-2,549,232-51,296-418,903-51,000
211,882
4,303,720-48,610-98,894-4,189,218-214,329
893,354-249,150-580,017-951,521-332,291
346
2,613,908-43,055-32,734-1,195,346-204,329
549,791-19,804
835,964-223,951-2,334,901
2,427,153-19,249-447,912

1,065,638
Cash flows from financing activities
598,240
Net increase (decrease) in short-term borrowing-87,663
Net increase (decrease) in long-term borrowing
294,600
Proceeds from issuance of bonds
Redemption of bonds
Payments for retirement by purchase of bonds
84,081
Proceeds from issuance of common shares
Cash dividends paid
176,380
Proceeds from stock issuance to minority shareholders
Cash dividends paid to minority shareholders
Proceeds from deposits received
Repayments of deposits received
Payments from changes in ownership interests in subsidiaries
that do not result in change in scope of consolidation
Other

6,850,448-903,750
356,000
3,394,115-48,000
175,998
897,093-20,960
3,001,255-

573,881
77,500-611,665
194,809-96,000-2,576,420
33,8951,750,255-28,125
2,137,241-302,463

2,806,777
270,000
2,494,440
300,000-436,000
54,327269,360-25,455
2,840,157-2,937,062-203,196-331,916-411,770-100,000
18,734
672,604-50,863-

1,592
262,788
1,077,180-988,000
43,777
94,169-113,532--5,152,847-1,168,000-2,678,900-376,000
7,530-908,511
221,369-44,501--3,294,577-2,122,000-191,362-40,000-923,440--568,188-110,000-499,368
72,884-6,693-

15,273,408
7,440,000-387,054
8,244,784-711--1,816,526-10,640,000
6,586,654
2,611,188-216,607-

11,260,971
3,300,000
1,952,051
136,932-233,735
6,371,344-

1,390,209
12,245,000
3,986,225
54,240-233,941
3,400-404,163--11,637,551-14,545,000
4,163,051
17,403-1,174,830-

4,176,052
2,800,000
2,786,010
370-1,407,579
7,717
-

-

-

-

-

-

-

-

-

-

-

-

-14,087,596-85,171--1,304-5,146-22,98813-374,788-205,835-17,774-25,011-23,609-157,762-265,621-172,954-13,002-10,465

129
Effect of exchange rate changes on cash and cash equivalents
846,973
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year 1,116,886
Increase in cash and cash equivalents fromnewly consolidated subsidiary
Decrease in cash and cash equivalents resulting
from exclusion of subsidiaries from consolidation
1,963,860
Cash and cash equivalents at end of year

-1,276
1,405,766
1,963,860-881
2,702,462
3,369,626

573
1,399,799
6,072,088

853
3,932,260
7,471,888

2,882-558,462
11,509,880-2,471
4,155,237
10,951,418-429-7,224,513
15,100,424-2,513-604,135
7,875,910

82,7188,487,171
7,271,775

422,300
3,332,039
15,758,947

21,707
6,092,559
19,090,986

1,954,918
8,893,814
25,183,545-427,841-15,755,597
34,077,359

141,714
7,013,640
18,321,762

-

-

-

105,731

-

-

-

-

-

-

-

-

-

-

(JPY in Thousands)
Cash flows from operating activities
Income before income taxes and minority interests
Depreciation
Amortization of software
Impairment loss
Amortization of goodwill (2003–)
Amortization of goodwill (–2003)
Interest or dividends income
Interest expenses
Foreign exchange gains (losses)
Investment profit (loss) on equity method
Loss (gain) on change in equity
Loss (gain) on sales of shares of subsidiaries and associates
Loss (gain) on ales of investment securities
Loss (gain) on valuation of investment securities
Increase (decrease) in accounts receivable-trade
Increase (decrease) in investment securities for sale
Increase (decrease) in allowance for investment loss
Increase (decrease) in receivables–other
Increase (decrease) in notes and accounts payable-trade
Increase (decrease) in deposits
Other
SubtotalInterest and dividends income received
Interest expenses paid
Income taxes paid
Income taxes refund

48|

DIGITAL GARAGE

-

-

-

-

-

-6,232

-

-

-

-

-

-

-

-

3,369,626

6,072,088

7,471,888

11,509,880

10,951,418

15,100,424

7,875,910

7,271,775

15,758,947

19,090,986

25,183,545

34,077,359

18,321,762

25,335,403

DIGITAL GARAGE|

49

COMPANY INFORMATIONSTOCK INFORMATION

Basic Information(as of March 31, 2017)

Stock Information(as of March 31, 2017)

Company Name

Digital Garage, Inc.

Authorized shares

120,000,000

Head Ofﬁce

DG Bldg., 3-5-7 Ebisu Minami, Shibuya-ku, Tokyo 150-0022, Japan

Issued shares

47,291,800

Established

August 17th, 1995

Voting rights

471,022

Shareholders

8,595

Phone

03-6367-1111 (Main)

Fax

03-6367-1119

Major Shareholders

Stock listings

Tokyo Stock Exchange 1st section (4819)

Name

Fiscal year end

March 31

Stock Capitalization

7,437 million yen

Total number of shares issued

47,291,800

Number of employees

577 [consolidated] / 354 [non-consolidated]

DIGITAL GARAGE GROUP CHART(as of March 31, 2017)

Shareholder's investment in DG
Shares Owned

Ownership
Percentage

Kaoru Hayashi

6,794,300

14.42%

Dentsu Inc.

3,300,000

7.01%

TIS Inc.

2,364,500

5.02%Japan Trustee Services Bank, Ltd. (Trust accounts)

2,073,400

4.40%

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

1,820,300

3.86%

The Bank of New York 133524

1,749,500

3.71%

JPMorgan Chase Bank 380621

1,736,000

3.69%

JPMorgan Chase Bank Luxembourg SA 380578

1,378,100

2.93%

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

1,317,600

2.80%

JPMorgan Chase Bank 385166

1,177,600

2.50%* Share ownership percentages were calculated based on issued shares net of treasury shares (185,882 shares).

Organization Chart(as of March 31, 2017)

Number of Shareholders
Shareholdersʼ General Meeting

19,00017,821

17,000Board of Directors

Internal Audit Ofﬁce

Audit and Supervisory Committee

15,917

15,06915,00014,836
13,066

13,000President

11,0009,000

11,085
9,621

10,127

7,892

7,000

Management Committee

12,235

10,879

9,408

8,595

7,680

5,000

GCEOʼs Ofﬁce

3,000

2010.122011.62011.122012.62012.122013.62013.122014.62014.122015.62015.122016.62016.122017.3

DG Lab
Corporate Strategy Dept.
Accounting Dept.
Corporate Strategy Div.

Legal Dept.
Information Systems Strategy Dept.
General Affair Dept.
Human Resources Dept.

50|

DIGITAL GARAGE

Marketing Technology Company

Web Business Div.

Business Design Company

Business Design Div.

Share Ownership Distribution(as of March 31, 2017)

Investment
securities ﬁrms
0.41%
（35）

Treasuryshares0.39%（185,882）

Non-Japaneseindividuals
2.21%
（190）
Other Japaneseinstitutions
1.02%
（88）
Financial
institutions
0.30%
（ 26）

Individuals/
other96.05%（8,255）

Shareholders
8,595
Treasuryshares0.01%（1）

Investment
securities ﬁrms
1.90%
（900,577）
Non-Japaneseindividuals
34.78%（16,446,491）
Other Japaneseinstitutions
14.57%（6,888,400）

Individuals/other30.38%（14,366,450）

Shares47,291,800

Financial institutions
17.98%（8,504,000）

DIGITAL GARAGE|

51

GROUP BUSINESS ACTIVITIESINCUBATION TECHNOLOGY SEGMENT
DG Incubation, Inc.
Consolidated subsidiary

Open Network Lab, Inc.
Consolidated subsidiary

Digital Garage US, Inc.
Consolidated subsidiary

DK Gate, Inc.
Consolidated subsidiary

New Context Services, Inc.
Consolidated subsidiary

DG Technologies, Inc.
Consolidated subsidiary

DG Daiwa Ventures
Afﬁliate

As the investment arm of the Digital Garage Group, DG Incubation supports Internet entrepreneurs throughout the world. Targeting startup companies thatcan be expected to give rise to synergies with the DG Groupʼs various businesses,
DG Incubation, going beyond simple investment, focuses on being an incubatorthat engages in collaborative business creation.
Open 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
in 2013, supporting entrepreneurs and engineers from around the world.

Consolidated subsidiary

econtext Inc.
Consolidated subsidiary

VeriTrans Inc.
Consolidated subsidiary

ANA Digital Gate, Inc.
Afﬁliate

Digital Garage MarketingTechnology Company
Company

Digital Garage Business Design
Company
Company

A joint venture of Digital Garage and Kodansha Ltd., the purpose of DK Gate
is to make strategic investments in content businesses. DK Gate focuses on
identifying and nurturing companies pursuing next-generation content businesses throughout the world.

BI.Garage, Inc.

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

NaviPlus Co., Ltd.

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.
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
investment in promising Japanese and overseas startups with advanced
technologies in the research areas DG Lab has designated as high priorities.

FINANCIAL TECHNOLOGY SEGMENT
econtext Asia Limited

MARKETING TECHNOLOGY SEGMENT

Consolidated subsidiary

Consolidated subsidiary

Digital Science Lab. Inc.
Afﬁliate

Inamoto & Co.
Capital allianceKakaku.com, Inc.

As a pioneer of convenience-store-based cash payment, econtext provides
online payment services for e-commerce businesses, of which it now counts
over 50,000 as clients.

Dentsu ScienceJam Inc.

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

The Business Design Company establishes one-stop services with optimal
personnel and methods from planning overall promotion to execution andprovides support for issue resolution as a long-term partner to the client.
The Business Design Company provides communication design and promotion using creative designs, data science and digital technology.

BI.Garage―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.
NaviPlus aims to enhance website profitability by collecting and analyzing
data ― user behavior data, product content data, user segmentation data,etc. ― and using the results to offer marketing solution tools that optimize
website content and navigation.

Applying Digital Garageʼ s digital marketing know-how and the global marketing and data analysis capabilities of Metaps Inc., Digital Science Lab engages in business based on smartphone app ads.

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

LONG-TERM INCUBATION SEGMENT

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

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

The Marketing Technology Company supports client businesses with Online-to-Ofﬂine strategies and Web marketing recommendations. Going beyond
the expansion of existing businesses, the Marketing Technology Company, as theclientʼs ultimate business partner, applies the Digital Garage Groupʼs accumulated know-how and audience data to deliver optimal solutions.

Afﬁliate

Afﬁliate

DK Media, Inc.
Afﬁliate

DG Life Design, Inc.
Afﬁliate

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

Dentsu ScienceJam commercializes scientific research results.

DK Media operates an internet media business using women ʼ s fashion
magazine content by Kodansha.

With its mission of providing “ Valuable Life, ” DG Life Design creates new
businesses that go beyond business integration synergies while expanding
the existing life care business, sports marketing business and wine school
business.

(as of June 30, 2017)52|

DIGITAL GARAGE