Digital Garage, Inc.

2Q of FYE March 31, 2018 Financial Report2017.11.10

Table of Contents
Mission and Business Model・・・・・・・・・・ 3
Investment Highlights・・・・・・・・・・・・・ 7Group Financial Performance Review・・・・・ 12
Segment Performance Review・・・・・・・・

16

Appendix・・・・・・・・・・・・・・・・・・・ 31

Copyright © 2017 Digital Garage, Inc. All Rights Reserved2Mission & Business Model

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

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

Copyright © 2017 Digital Garage, Inc. All Rights Reserved4

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

Information
Technology

MarketingTechnology

MarketingTechnology

Financial
Technology

Financial
Technology

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

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

Ⅰ

Ⅱ

Ⅲ

Portal/Search

e-commerce/
Destination Site

Social Media

1995-2000

2000 -

2008-2015

Advertising2016 -

Payment
環亞智富有限公司

Advertising / Promotion

Big Data Businesse-Commerce / Online Settlement Platform

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

6Investment Highlights

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

7Investment Highlights
FY18.3 2Q (cumulative):
Sales 28.7 B JPY, operating income 1.4 B JPY, and income before income taxes 3.4 B JPY〜 Strong MT/FT drove the performance.
Progress rate of FY18.3 forecast: Sales 49% and income before income taxes 44% 〜

Ⅰ
ⅡⅢ

Consolidated result: YoY* sales grew by 21%, operating income grew by 56%, income
before income taxes decreased by 26%
Achieved record-high sales in 2Q (cumulative). Both MT and FT achieved best results in sales and income before income taxes.

Income before income taxes decreased 26% to 3.4 B JPY, due to investment profit on equity method by change of fiscal term lastyear and decline of foreign exchange gain and extraordinary income.

MT/FT: Continued strength of Internet ad/ Payment business, showed substantial increase insales and profitMT marked substantial increase in sales and profits. Sales achieved 17.2 B JPY, YoY +29％, income before income taxes achieved
1.0 B JPY, YoY +40%. Mainline performance-based ads have been strong, smartphone/app business and social ad business havegrown rapidly.



FT sales achieved 10.1 B JPY, YoY +9%, and income before income taxes achieved 1.1 B JPY, YoY +24%. Transaction volume
surpassed 700 B JPY and continued growth exceeding EC market. Non-EC payment, a key business area, has increased especiallyface-to-face settlement, cryptocurrency exchange settlement, and person-to-person settlement

IT/LTI: Continuing active growth investment. Establish Mid-long term incubation structureof promising investment


IT invested All Turtles which nurtured startups of AI related. Strengthen incubation stream links with US, Japan, Europe and Asia,and establish the foundation of “Open Network Lab” global expansion.



LTI decreased income before income taxes due to the change of fiscal term last year. Acquired additional shares of DG Life
Design, Inc., which develops life style supporting business, and making the company a consolidated subsidiary. Started mid-longterm incubation on a full scale.



DG Lab developed “DG Lab DVEP”TM for unique cryptocurrency. Offering it for digital regional currency and its experiment has
already concluded.

Note:* Due to the change of fiscal term last year into nine moths, the YoY comparisons here are between FY17.3 2Q (cumulative) and FY18.3 2Q (cumulative) for convenience.
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

8Investment Highlights: DG Lab
Driven by R&D and fund investment focusing on five key fields, fully startdevelopment of key technologies that can be the center of next-gen business.
Accelerated commercialization such as implementing feasibility tests and businessalliances.
BLOCK
CHAIN

Developing all-purpose flamework utilizing blockchain

Technologically cooperated with Blockstream Corp, DG Lab
developed all-purpose framework “DG Lab DVEP （ Digital
Value Exchange Platform ） ” TM for unique cryptocurrency
through blockchain. Feasibility tests by using digital regional
currency have already concluded.

AI

Developing service collaborating with data science

Created a prototype ofrestaurant search service
using information from“Tabelog”, a restaurant
review site operated by
Kakaku.com. Planning tooffer as open platform.

VR/AR

Developing
remote participation system for live performance
新たな顧客体験をもたらすサービスを実現へ

Developed remote participation
system for live performance,cooperated with partner companies.
Data analysis solution within VR
contents are also planned to be
developed.
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

9Investment Highlights: DG Lab
Established Smart City Planning Office, designing regional revitalization collaborated with
DG Lab FundTokyo (Shibuya), Fukuoka, Sapporo Other areas are under consideration

Smart City Projectfor regional revitalization

SapporoProject area – in progress“Sapporo AI Lab” launched

http://www.city.sapporo.jp/somu/koho/hodo/201705/d
ocuments/sapporoailab.pdf(Japanese only)※Developed by the Hokkaido Shimbun Press group andconsortium (local bank, distribution, university, administration）

Fukuoka

FDC Launch Program

http://www.garage.co.jp/en/pr/2017/09/20170921.html※Agreed with the Fukuoka Directive Council in Fukuoka City, named
as a National Strategic Special Zone. Will develop with city, local
banks, developer, and railroad companies.

Tokyo(Shibuya)
DG LabAdvisorJun Murai

Keio University
Professor of Environment
and Information Studies

Other areas: under review
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

10Investment Highlights: DG Lab Fund
Investment in startups with next generation technologies in blockchain/ AI/ biotech area
～ DG Lab implements technological development cooperate with fund investors/ sponsored companies/
portfolio companies ～Core partners

Sponsored companies
and fund investors
LP Investment

Sponsored companies (incl. plan): Bank, Securities, system developments,
telecommunications etc
Fund investors (incl. plan): IT, Bank, Securities, newspaper companies,
construction, real estate firm etc

ReturnCollaboration
where
invested insponsored

Investment fields:
Collaborate with 5 focuses of DG Lab
Blockchain, AI, VR/AR, Security, Biotechnology

Business cooperation/R&D results

R&D and experiments in strategical
５ focuses(Blockchain, AI, VR/AR, Security,
Biotechnology)

Investments examples
Blockstream [U.S./Canada]
Develops sidechain
technologies, parallel
blockchains that areinteroperable

Entrupy [U.S.]
Provides image recognition
technology for
identification/authenticationof fraudulent products for
the C2C marketplace.

TupacBio [U.S.]

Develops software to
design DNA. Automateddesign for barcode
arrangement and creationof mutants is also possible

The Sync
Project [U.S.]

Constructs a music database formusical therapy suited to various
symptoms, and provides services
by combining machine learning.

Invested in Promising Global 14 Startups after fund establishment
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

11Group Financial Performance Review

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

12

FY18.3 2Q (Cumulative) Consolidated P/L Summary
YoY* sales grew by 21% record high of 28.7B JPY, operating income grew by 56% of 1.4B JPY,
income before income taxes decreased by 26% of 3.4B JPY～ Income before income taxes decreased due to investment profit on equity method by change of fiscal
term last year and decline of foreign exchange gain and extraordinary income. Progress rate 44% ～A

Bref. C (=B/A)

FY17.3

FY18.3

FY18.3

FY18.3

2Q Act (Cum.)

1Q Act2Q Act2Q Act (Cum.)(7-12)

(4-6)

(7-9)

(7-12)

23,817

13,103

15,61628,719+20.6

Operating income

906

464

952

1,416

+56.4

Non-operating income

2,619

748

750

1,499

-42.8

1,927

615

617

1,233

-36.0

Foreign exchange gain

274

-

9

9

-96.5

Non-operating expenses

210

101

135

237

+12.6

Foreign exchange loss

-

9

-

-

-

Ordinary income

3,315

1,111

1,567

2,678

-19.2

Extraordinary income

1,400

719

133

852

-39.1

1,368

717

-

717

-47.6

Income before income taxes

4,702

1,830

1,664

3,494

-25.7

Income taxes

1,004

568

426

995

-0.9

Net income attributable to owners of parent

3,693

1,267

1,223

2,490

-32.6

JPY in Millions

Net sales

Investment profit on equity method

Gain on sales of investments in securities

YoY%

Note:* YoY here means comparing FY17.3 2Q cumulative with FY18.3 2Q cumulative, due to the change of fiscal term last year.

FY18.3Full Year

2Q Cum.

Forecast

Progress

58,500

49%

8,000

44%

5,500

45%

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

13

FY18.3 2Q (Cumulative) Consolidated Segment P/L Summary
Both MT and FT showed substantial increase in sales and profit, and achieved record-high results～ IT and LTI decreased extraordinary income and income before income taxes due to the change of fiscal term last year ～A

Bref. C (=B/A)

FY18.3

YoY

FY17.3

FY18.3

FY18.3

2Q Act (Cum.)

1Q Act2Q Act(7-12)

(4-6)

(7-9)

23,817

13,103

15,61628,719+20.6

58,50049%

MT Marketing Technology

13,394

7,800

9,499

17,299+29.2

32,00054%

FT Financial Technology

9,329

4,951

5,208

10,159+8.920,50050%

IT Incubation Technology

1,070

337

901

1,239

+15.8

6,000

21%

LTI Long Term Incubation

23

14

6

20

-12.4

-

-

4,702

1,830

1,664

3,494

-25.7

8,000

44%

MT Marketing Technology

784

466

632

1,098

+40.0

1,750

63%

FT Financial Technology

931

578

579

1,157

+24.3

2,300

50%

IT Incubation Technology

1,507

-114

236

121

-91.9

3,800

3%

LTI Long Term Incubation

1,928

554

693

1,247

-35.3

2,500

50%

JPY in Millions

Net sales

Income before income taxes

2Q Act(Cum.)(4-9)%

FY18.3Full Year
Forecast

2Q(Cum.)
Progress

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

14

FY18.3 2Q Consolidated B/S Summary
JPY in Million

FY17.3

FY18.3 2Q

Difference

Current assets

59,62465,707+6,082

Cash and deposits

23,02924,732+1,702

Receivables

15,422

17,728+2,306

Money held in trust

2,264

3,342

+1,077

11,856

13,021+1,164

Fixed assets

32,06132,289+227

Investment securities

18,357

15,216-3,141

Goodwill

5,411

8,160

+2,749Total assets

91,68697,997+6,310Current liabilities

38,81542,158+3,343

Deposits

25,12726,004+876

Short-term borrowing

6,937

8,923

+1,986

Fixed liabilities

18,49919,633+1,133Long-term borrowing

17,207

18,614+1,406

Total liabilities

57,31561,792+4,476

Net assets

34,371

36,205+1,833

Shareholders' equity

31,63333,418+1,784

Common stock

7,437

7,440

+3

Capital surplus

2,946

3,153

+207

Retained earnings

21,30022,850+1,549

Accumulated other comprehensive income

1,956

1,797

-159

Unrealized gains on securities

644

489

-154

91,68697,997+6,310Operational investment securities

Liabilities / Net assets

Reason for change / Remarks

Income by the sales of investment securities, new borrowings etc
Expansion of FT business
Expansion of FT business
New investment, Mark-to-market, etc
Sales of investment securities, Transfer of investment securities of DG Life Designthat has become a consolidated subsidiary to goodwill, Increased investment profit onequity method

Consolidation of DG Life Design, Inc.

Demands for working capital by expansion of FT business
Short-term borrowings shifted to long-term as long-term interest
rates get lowered

Increased net profit

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

15

Segment Performance Review

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

16

MT Segment

Ⅰ

Marketing Technology Segment
Net Sales

Income Before
Income Taxes

FY17.32Q(7-12) Actual

13,394 M JPY

784 M JPY

FY18.32Q(4-9) Actual

17,299 M JPY

1,098 M JPY

FY18.3

Forecast

32,000 M JPY

1,750 M JPY➤ Marketing Technology Company

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

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

Offers website support tools including personalized recommendation engines

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

17

MT Segment Highlights
Substantial increase in net sales and profit: Net sales in 2Q marked 9.4 B JPY, +45%
compared to 1Q FY17, operating income marked 0.6 B JPY, +67%
～ Operating margin which shows profitability increased to 42% ～FY16.6

FY17.3

FY18.3(JPY in
100 Million)

94(+45%)

61

65

68

71

Operating Margin

Operating Income

Net Sales
FY16.6

FY17.3

FY18.3(JPY in
100 Million)

78

3.6

4.4

3.8

FY17.31Q(7-9)

FY18.3
2Q
(7-9)

YoY

Net sales

65.5

94.9

+ 45%

Gross profit (A)

10.6

14.5

+ 37%

Op. income (B)

3.6

6.1

+ 67%

6.1

(+67%)

4.4(JPY in
100 Million)

4.2

Operatingmargin
4Q

1Q

2Q

3Q

1Q

2Q

4Q

1Q

2Q

3Q

1Q

2Q

(4-6) (7-9) (10-12) (1-3) (4-6) (7-9)(4-6) (7-9) (10-12) (1-3) (4-6) (7-9)

Smartphone/app business was
major contribution

Net sales expansion made gross marginincreased, and increased employment
cost and fixed cost were absorbed

(B)
(A)

34.7%

42.4% +7.7

pointsCopyright © 2017 Digital Garage, Inc. All Rights Reserved18

MT Segment Highlights
Sales of performance-based ads increased in all industries, smartphone/app business has grown rapidly～ Sales of smartphone/ app business increased to 3.5B JPY, 2.4x compared to 1Q FY17 ～Net sales by industries (Performance-based ads)
FY16.6

FY17.3

FY18.3

79(JPY in
100 Million)

63
46
12

51

53

54

14

16

17

14

13

16

17

35

19

Smartphone/ Entertainment/
App

Game

22

20

Financial

20

21

21

20

21

4Q

1Q

2Q

3Q

1Q

2Q

(4-6)

(7-9)

(10-12)

(1-3)

(4-6)

(7-9)

+ 54 %

All

Cosmetics/
HR/Others

23

Compared to 1Q
FY17 with 2Q FY18

Main industry

Cosmetics/
Medicine/HR/
Foods etc
Banks/ Securities/
Credit cards/
Insurance etc

2.4 x+ 37 %+8%

Smartphone/App has grown rapidly
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

19

MT Segment Growth Strategies and Approaches
Creating new products based on technologies and generate the value of client/ media～ Supporting clients to expand overseas ～Value creation for 5 th generation of mobile
communication system utilizing the latest
technology
Product
Development

Expansionof mediavalue

Performancebased ads■ Main approaches
 Further cultivation ofInternet
performance-based ads
ads/ From consulting business toproviding solutions for the
Promotionclients

LatestTechnology
Data
ScienceApp×
Payment
CRM

 Implement “Media Consortium”
targeting to improve media
value and brand value

Web
Strategy

GlobalGlobal expansion

 Providing DMP to store theoriginal data, and promoting
advertising products
 Strengthen the collaboration
with Kakaku.com

 Joint development the official
contents for Chinese visitors toJapan of Tencent. Supporting
the inbound marketing.
 Consulting clients to support
their business to expand
overseas
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

20

FT Segment
Ⅱ

Financial Technology Segment
Net Sales

Income Before
Income Taxes

FY17.32Q(7-12) Actual

9,329 M JPY

931 M JPY

FY18.32Q(4-9) Actual

10,159 M JPY

1,157 M JPY

FY18.3

Forecast

20,500 M JPY

2,300 M JPY➤ econtext ASIA Ltd.

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

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

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

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

21

FT Segment Highlights
Net sales in 2Q marked 5.2 B JPY, +15% compared to 1Q FY17,
operating income marked 0.6 B JPY, +23%
～ Operating margin which shows profitability increased to 42%, +2.7points ～FY16.6

FY17.3(JPY in
100 Million)

42

FY18.3(+15%)

45

48

48

Operating Margin

Operating Income

Net Sales

49

52

FY16.6

FY17.3

FY18.3(JPY in
100 Million)(+23%)

4.6

4.8 4.5

5.3

5.8

5.9

(JPY in
100 Million)

FY17.31Q(7-9)

FY18.3
2Q
(7-9)

YoY

Net sales

45.1

52.0

+ 15%

Gross profit (A)

12.3

14.2

+ 15%

Op. income (B)

4.8

5.9

+ 23%

39.3%

42.0%

+2.7

Operatingmargin

(B)
(A)

4Q

1Q

2Q

3Q

1Q

2Q

4Q

1Q

2Q

3Q

1Q

points2Q(4-6) (7-9) (10-12) (1-3) (4-6) (7-9)(4-6) (7-9) (10-12) (1-3) (4-6) (7-9)

Growth of existing client andacquisition of major EC companies arecontributed

As transaction record increased, gross profit
expanded, and achieved record highoperating income

Operating margin improved by sales growth which
exceeded the expenses of strengthen the system
operation
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

22

FT Segment Highlights
Transaction marked approx. 360 B JPY, +17% compared to 1Q FY17, exceeded EC market growth～ Face-to-face payments, cryptocurrency exchange settlement, and person-to-person payments
have expanded rapidly in Non-EC payment, a focusing area ～Transaction volume in focusing area
(Non-EC payment)

Transaction Record
FY16.6

FY17.3(JPY in
100 Million)

FY18.3

2,980

3,091

3,441

Compared to 1Q
FY17 with 2Q FY18

FY18.3

1.9 x

All

3,640

(+17%)
3,423

FY17.3Specific Market(Real estate/
Funeral)3,405+ 48 %

Person-to-person
payments(Remittance payments)+ 22 %

4Q

1Q

2Q

(4-6)

(7-9) (10-12)

3Q

1Q

2Q

1Q

2Q

(1-3)

(4-6)

(7-9)

(7-9)

(7-9)

Face-to-facepayments(Mobile payments)

4.0 x

Charging/Exchange
settlement(Cryptocurrency)

4.2 x

Exceeded EC market growth 9.9％
CtoC field has been strong continuously
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

23

FT Segment – Progress of Strategic Area
Developing the new growth area as a payment platformer in FinTech～ Following Non-EC payment and face-to-face payment, launching public fundpayment and utility fees payment ～Market Environment

Growth Strategy
EC payment: Organic growth (10-15%)

Ⅰ

Non-EC payment/ Face-to-facepayment

 Specific market (Real estate/
Restaurants/ Funeral etc)
 Barcode payment
 New area (public fund payment/utility fees payment etc)Ⅱ

 Payment cooperation withbusiness partners having large
customer base

Theme in FT segment

 New business with alliance Cashless society
 Vitalizing the local economies
 Inbound Next generation payment（FinTech）

Alliance

Ⅲ

Next generation payment
 Solution utilizing blockchain
 Experiments cooperating with
DG LabMain approaches

 = New Approaches
 Payment for Real estate/
Restaurants/ Funeral etc Barcode payment
 Remittance service
 Cryptocurrency exchange
settlement
 Undertaking the collection
business by credit card of the
National Pension Insurance

 Develop face-to-facepayment of stores in
airport shops cooperatingwith ANA group.

 Charge payment atconvenience store Correspond to“CloudSign Payment”
based on smart contract
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

24

IT Segment
Ⅲ

Incubation Technology Segment
Net Sales

Income Before
Income Taxes

FY17.32Q(7-12) Actual

1,070 M JPY

1,507 M JPY

FY18.32Q(4-9) Actual

1,239 M JPY

121 M JPY

FY18.3

Forecast

6,000 M JPY

3,800 M JPY➤ DG Incubation, Inc.

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

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

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

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

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

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

Marketing in digital distribution in US and English-speaking countries, film adaptation, event planning, etc
Copyright © 2017 Digital Garage, Inc. All Rights Reserved25

IT Segment Highlights
A partial sale of shares hold, and income before income taxes turned positive for the first timein three quarters～ Active investment has continued. New CIO has been appointed for strengthen investment activity
in US/Asia ～Income before income taxes
FY16.613.7

FY17.3

FY18.3(JPY in
100 Million)

13.6

2.3

1.4
4Q

1Q

2Q

-7.4

-1.1

3Q

1Q

2Q

EquityBlockstream [U.S. /Canada]
Develops sidechain technologies,
parallel blockchains that areinteroperable

Droom [India]
A leading online marketplace for new andsecond-hand automobiles in India

Book Value# ofcompanies

Major Portfolio

Book Value

139

12.2 B JPY

Domestic

49

2.2 B JPY

Overseas9010.0 B JPY

Fund

11

0.8 B JPY

Total

150

13.1 B JPY

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

Welby [Japan]
Builds apps forwithchronic
diabetes, cancers

patients
malady,Goodpatch [Japan]
Web development and consulting
service firm

Wevr [U.S.]

Monstar Lab[Japan]

Virtual reality community and VR media
player for aspiring and professional
creatives

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

PureTech Health [U.S.]

Panair [Japan]

A US based company that focuses on
incubation in advanced biotechnology field.
Listed on LSE.

Provides “Odin”, an automated electricity
retail platform that uses cloudcomputing and artificial intelligence.

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

26Topics: Supporting Globalization of Startups
Starting the global networking of AI/FinTech related～ Developing cooperation globally of a seed accelerator “Open Network Lab” ～TOKYO

SAN FRANCISCO / NEW YORK / BOSTON

ASIA / HONG KONG

Invested in All Turtles which
nurtures startups of AI relatedA

Approaches : Closer cooperation of US, Japan, Europe and Asia, and supporting startups globally
 Investing in All Turtles, and launched AI project linking Silicon Valley, Tokyo and Paris Through the cooperation with DG Lab, technical alignment in AI, Fintech, AR/VR andstrengthen development structure
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

27

LTI Segment
Ⅳ

Long-term Incubation Segment
Net Sales

Income Before
Income Taxes

FY17.32Q(7-12) Actual

23 M JPY

1,928 M JPY

FY18.32Q(4-9) Actual

20 M JPY

1,247 M JPY

FY18.3

Forecast-

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

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

➤ DG Life Design, Inc.（70%）

With its mission of providing “Valuable Life,” expanding life care business,
sports marketing business and wine school business.

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

Internet media business utilizing fashion magazines by Kodansha

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

28

LTI Segment Highlights
Income before income taxes decreased compared to 1Q FY17 due to fiscal termchange, while +12% in real terms compared to 1Q (7-9) FY17
～ Investment profit on equity method of Kakaku remains robust ～Income before income taxes
FY17.3(JPY in
100 Million)

(4-6)

(7-9)

FY18.312.5
6.4

0.69 B JPY, decreased 45% compared to

9.7
6.7

5.5

6.9
(+12%)

6.1
1Q

 Income before income taxes in 2Q was

2Q

3Q

1Q

2Q

(7-9) (10-12) (1-3)

(4-6)

(7-9)

Note) FY17.3 1Q booked 6 months (Apr.-Sep.) of investment
profit on equity method of Kakaku.com, Inc.

1Q FY17
 Special factors in 1Q FY17 0.6 B JPYDue to change of fiscal term, investment
profit on equity method of Kakaku.com,Inc.
was booked for 6 months



1Q FY17 1.2 B JPY → 2Q FY18 0.6 B JPY
Decreased by 0.6 B JPY

 Excluded special factors, income before income
taxes in 2Q was +12% compared to 1Q (7-9)
FY17
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

29

LTI Segment Highlights
DG Life Design, Inc. has become a consolidated subsidiary, and establish mid-longincubation structure～ Next generation technological innovation cultivates the cross-functional business
which will be next mainstay ～LTI Strategy/ Business progress of otherthan kakaku.com, Inc.
 DG grouping of invested companies, JV establishment withalliance companies
 Incubation of new business, business expansion bycollaboration with DG group
 Creation of long and sustainable business profit

Business progress of Kakaku.com, Inc.
【Total Accumulated Traffic for Kakaku.com Group】
Monthly traffic for all sites of Kakaku.com has increased to220.00 million, up 29.1% yoy (September 2017)
YoY+29.1%(in million people)

 Lifestyle support business Acquired additional shares of
DG Life Design, Inc. and making
the company a consolidated
subsidiary Strengthen collaboration with DG group based on
existing profitability model Contents business (JV with Kodansha)
 Started compilation media “HOLICS”
combining good contents and AI technology

Mar

June

Sept

2015

Dec

Mar

June
Sept
2016

Dec

Mar

June

Sept

2017
Ref. Kakaku.com, Inc. Results Briefing for 2Q FY2018/3
Copyright © 2017 Digital Garage, Inc. All Rights Reserved30Appendix

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

31

Financial results by quarters: Consolidated sales
Consolidated sales
FY16.6

FY17.3103122115122126

are between 2Q (7-9) FY18.3 and 1Q (7-156(+35%)

116

As reference, comparisons showed here

FY18.39) FY17.3 in real terms which is the same
period of last year131 2Q sales marked 15.6 B JPY,
record-high results in quarterly,
up 35% compared to 1Q FY17.

95

 Achieved 4-quarters consecutive
increase in sales(JPY in 100
Million)

1Q

2Q

3Q

4Q

1Q

2Q

3Q

1Q

2Q

 Both MT and FT segments
sustained high growth and it drove
the consolidated sales growth(7-9)(10-12)(1-3) (4-6) (7-9)(10-12)(1-3) (4-6) (7-9)

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

32

Financial results by quarters: Consolidated operating income
Consolidated operating income
FY16.6

FY17.3

FY18.3

14.7

14.2

 2Q operating income marked
0.95 B JPY, 2.3 times bigger than
1Q FY17

10.9

9.5(2.3 X)

4.1 4.9

4.6

2.0
▲1.8
1Q

2Q

3Q

4Q

1Q

2Q

3Q

(JPY in 100
Million)

1Q

2Q(7-9)(10-12)(1-3) (4-6) (7-9)(10-12)(1-3) (4-6) (7-9)

 2Q operating income ratio marked
6.1%, up 2.5 points compared to 1Q
FY17 of 3.6%, then improved
profitability⇒ Achieve the good balance of highgrowth potential andimprovement of profitability
 Achieved 2-quarters consecutive
increase in operating income, after
hitting the lowest in 3Q FY17

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

33

Financial results by quarters: Consolidated income before income taxes
Consolidated income before income taxes
FY16.6

FY17.3

 Special factors in 1Q FY17 2.0 B JPY

31

Extraordinary
incomeIncome before
income taxes- Extraordinary
income

28
12

13

18

15
0.2

18
11

7

16 (-47%)
1

16

17

6

15

8

11

profit on equity
method

2
2Q

3Q

4Q

1Q

2Q

3Q

(JPY in 100 Million)

1Q



Booked extraordinary income 1.38 B JPY

 Excluded special factors, income before
income taxes in 2Q was up 37% comparedto 1Q FY17
17.3期 FY18.3
18.3期
FY17.3

Kakaku.com,Inc.

15 Investment

8
1Q

was booked for 6 months
1Q FY17 1.2 B JPY → 2Q FY18 0.6 B JPY
Decreased by 0.6 B JPY

618

Due to change of fiscal term, investment
profit on equity method of Kakaku.com,Inc.

6 (4-6)
6 (7-9) by fiscal term change

6
8
0.3



Kakaku.com,Inc.
Investment profit on equity
method 12

19
0.4

19
0.7

FY18.3

 2Q income before income taxes marked
1.6 B JPY, decreased 47% compared to 1Q
FY17

2Q

(7-9) (10-12) (1-3) (4-6) (7-9) (10-12) (1-3) (4-6) (7-9)

Kakaku Investment profit on
カカクコム持分法投資利益
equitymethod

1Q

2Q

(7-9)

(7-9)

12.6

6.4

(4-6)
内、(4-6)

6.2(7-9)
内、(7-9)

6.4
13.8
31.3

6.4
1.3
16.6

20.2

1.3

11.1

15.3

特別利益
Extraordinary income
Income before income taxes
税引前利益
Specialfactors (Extraordinary
income and内、特殊要因(特別利益及び
1Q FY17 Kakaku irregular settlements of
前期1Qカカクコム変則決算)
account
Income before income taxes –

税引前利益
special factors- 特殊要因

前年
Compared
to 1Q
1Q比
FY17

▲47%

+37%

Copyright © 2017 Digital Garage, Inc. All Rights Reserved

34

Financial results: Consolidated Profit and Loss
FY14.6

FY15.6

FY16.6

FY17.3

FY18.3(Full Year

(Full Year

(Full Year

(Full Year Act)

(Full Year

Act)

Act)

Act)

9 monthFCST)Net sales

33,751

38,08743,76336,451

Operating income

2,608

4,809

4,201

723

Non-operating income

2,307

3,736

3,031

3,246

1,741

2,080

2,406

2,528

Foreign exchange gain

143

1,090

-

171

Non-operating expenses

472

936

1,040

292

Foreign exchange loss

-

-

689

-

Ordinary income

4,442

7,610

6,193

3,678

Extraordinary income

630

2,463

1,392

2,265

Gain on sales of investments in securities

220

68

-

1,829

Gain on sales of shares of sub. and associates

-

-

521

386

Gain on change in equity

374

2,363

157

47

Gain on transfer of business

26

23

706

-

38

824

10

124

0

657

-

104

Income before income taxes

5,035

9,248

7,574

5,819

Income taxes

1,887

3,855

2,385

1,525

Net income attributable to owners of parent

2,847

5,081

5,165

4,289

JPY in Millions

Investment profit on equity method

Extraordinary loss
Impairment loss

58,500

8,000
5,500

Note: Kakaku,com.Inc. is affiliated company for using the equity method, and started to apply IFRS from FY18.3. The figures on FY17.3 has been applied retrospectively.
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

35

Financial results: Consolidated Profit and Loss by segments
FY14.6

FY15.6

FY16.6

FY17.3

FY18.3(Full Year

(Full Year

(Full Year

(Full Year Act)

(Full Year

Act)

Act)

Act)

9 monthFCST)Net sales

33,751

38,08743,76336,45158,500MT

Marketing Technology

14,822

16,06421,02820,49432,000

FT

Financial Technology

13,454

14,56816,392

14,14020,500IT

Incubation Technology

5,475

7,454

6,343

1,775

6,000

LTI* Long Term Incubation

-

-

-

41

-

5,035

9,248

7,574

5,819

8,000

JPY in Millions

Income before income taxes
MT

Marketing Technology

874

1,061

1,396

1,074

1,750

FT

Financial Technology

1,496

1,335

1,758

1,478

2,300

IT

Incubation Technology

1,595

2,804

3,105

766

3,800

LTI* Long Term Incubation

1,776

4,477

3,052

2,899

2,500

Note: Income before income taxes per segment is based on figures prior to elimination or group deduction, etc
MI segment has been changed to LTI segment from FY18.3, by aiming to generate sustainable business profit in mid-long term.
Some businesses in IT segment have transferred to LTI, therefore figures on FY17.3 updated with the current category.
Copyright © 2017 Digital Garage, Inc. All Rights Reserved

36Press Releases
Date

Title

2017.10.30

Digital Garage Appoints Brian Yeh as Chief Investment Officer of DG Incubation to Strengthen North
American and Asian Investment Businesses

2017.10.26

VeriTrans to Provide Ministry of Health, Labour and Welfare with Credit Card Payment Service to the
National Pension Fund2017.10.10

DG Lab Developed All-Purpose Framework "DG Lab DVEP" TM for Unique Cryptocurrency throughBlockchain's Bitcoin

2017.10.3

DG Lab Fund Invested in Skydisc, a Cloud Service Using AI/IoT as the Fukuoka City's Startup Support
Program's First Project2017.10.2

Digital Garage and Tencent to Co-develop "QQ Odekake Japan", Mobile QQ's Contents for Japan-bound
Chinese Tourists

2017.9.29

DG Lab to Host THE NEW CONTEXT CONFERENCE 2017 SAN FRANCISCO

2017.9.21

Digital Garage Begins Support for Startups in Fukuoka Region in Cooperation with the Fukuoka
Directive Council

2017.9.8

DG Lab Fund Invested in 12 Start-ups with Next-Generation Technology in Fields such as Blockchain,AI, and Biotech

2017.8.31

Collaboration Partners Selected for TOYOTA NEXT, the Open Innovation Program Supported by Digital
Garage2017.8.29

Digital Garage Hosted "Digital Garage First Penguin Award 2017", which Honors Leaders who
Creatively Challenge The World2017.6.20

DG Lab to Unveil Open Platform for Interactive Agent Technology that Uses Artificial Intelligence2017.6.1

Digital Garage to Invest in AI Technology Startup Studio All Turtles and Support their Business
Development in Japan.

2017.5.31

THE NEW CONTEXT CONFERENCE 2017 TOKYO on July 25-26 The Event will Focus on Biotechnology
and Blockchain

2017.5.12

Digital Garage officially launches lifestyle service for wealthy consumers Business integration with two
subsidiaries leads to development of DG Life Design business2017.4.5

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

Copyright © 2017 Digital Garage, Inc. All Rights Reserved37

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