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CEO Comment Volume 60,

FYE June 2015 Financial Report Summary and New Midterm Business Plan Overview

~Updated record high op income for the four consecutive years and promoting new global incubation~

Today we announced our FY15.6 financial results (PDF in Japanese only) after the board’s approval. At the same time, we officially announced our New 3-Year Midterm Business Plan. Below are the highlights of FYE June 2015 financial results.

Ⅰ. FYE June 2015 financial report summary/ final year of the Midtem Business Plan “Lean Global”

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FY2015.6 results marked the record-high income for four consecutive years with 38.087 billion JPY (+12.8% YoY)net sales, 4.810 billion JPY (+84.4% YoY) operating income, and 7.610 billion JPY(+ 71.3% YoY) ordinary income. We achieved our EBITDA of 10 billion JPY goal of the 2012.8 Mid-term plan “Lean Global” . This was led by all three business units, Incubation, Marketing, and Payment that recorded positive growth in both sales and income. Especially the Incubation business which had a huge success in expanding incubation to venture businesses in Japan and overseas, with up to 3.5 billion JPY(×2.2YoY). Year-end dividend will be 25 JPY per share, adding 20 JPY as a special dividend for celebrating the company’s 20th year anniversary. Please advise below “Investment Highlights” and “Track Record for DG Group’s Growth”.

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iRidge Inc.(TSEM:3917), a portfolio company of DG Incubation, Inc. (DGI) which is a wholly-owned investment and incubation subsidiary of DG, was approved for listing on the Tokyo Stock Exchange's Mothers market in July 2015 as the first company in Japan to offer O2O (Online to Offline) solutions, receiving positive feedbacks from the market.  For our Marketing Segment, collaborating with BI Garage (Dentsu group, a joint venture with ADK), we launched our first client, JACCS, with our private DMP business. Digital Science Lab. Inc. (Digital Science Lab) which was jointly established with Metaps Inc. (Metaps) and DG to deal in performance advertising for smartphone apps, is growing well, showing positive figures from the first month since it launched. (link to News Release) For our Payment Segment, collaborating with major platformers that hold huge member IDs such as Seven and i Holdings, Rakuten, Line, Recruit, enabled seamless payment solutions through their member IDs. From these, we continue growing as a payment platform for an even wider range of users.

We are also in the process of establishing new projects related to both contents and global community fields, to make it our new business pillar. We have finally launched business development with Kodansha, which we have already announced of our tie-up in February 2015. As an opening, we hosted a kick-off event of Kodansha Advanced Media (KAM), a joint venture with Kodansha to accelerate content business in North America, at “DG 717”, our US office/ Incubation Center located in San Francisco on August 5th 2015. Following this event, we made press release to announce that both Kodansha and DG are going to expand our content business at North America through KAM.

Kodansha will expand their services of popular comic books’ distributions simultaneously in the US and Japan; raising the number of objects from current 20 comics to 30 comics by the end of 2015. In addition they will increase the numbers of English digital comic books from current 400 volumes up to 2000 volumes by the end of 2017, and KAM will be in charge of the promotion and sales within English speaking countries. There are so many popular contents that Kodansha has, including long time seller “AKIRA”, “Sailor Moon”, and recently “Attack on Titan”, which hit a massive record exceeding already 50 million in global sales. This is not only a matter of digital distributions but also becoming a large movement spreading to movies and advertisements.

We are also promoting media business that connects contents and communities. Making good use of Wikia, known as “ commercialized Wikipedia” managed by Wikia Inc. which DG Incubation invested in June 2014, we are supporting Japanese contents developing global business, and also spreading Japanse version of Wikia that makes agency contracts with Wikia Japan and advertisement fileds.

Below we made a short video that contains highlights of “J-POP SUMMIT 2015”, an event focused on Japanese contents and was held during August 8th-9th 2015 in San Fransisco. In the video, you will also see the exhibition we held at DG717 during the same time as J-POP SUMMIT.
short video URL : https://youtu.be/-UtaQgpZoVo

Ⅱ. The New Midterm Business Plan Overview(FY2016.6~FY2018.6)

Repeating some time of upward revisions, our last mid-term plan ended up with successful figures exceeding the goals, and now we have started another 3-year Midterm Business Plan to bring DG forward to the next stage. The slogan for the New Mid-term Plan is “IT/MT/FT x Open Innovation”. With the idea of Open Innovation, we aim to create added-value that exceed the scopes of IT, MT, FT that supported DG businesses.

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In the New Mid-term Plan numerical targets, we listed 15 billion JPY (9.2 billion yen in FY2015.6, 17 % growth of annual rate) for pre-tax profit, above 20% for consolidated ROE and also for consolidated dividend payout ratio.

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There are two reasons we use numerical pre-tax targets for profit; ① the final achievement of each business segment is pre-tax profit, and ② we aim to implement IFRS by FY 2017. To realize these goals, we established “Media Incubation Segment” as a new source of income. At the same time, we changed the existing segments names as “ Incubation Technology Segment”, “Marketing Technology Segment”, and “Financial Technology Segment”. By adding the word “technology”, we re-defined that we build new businesses by taking advantage of the cutting edge of technology.

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Compared to 3 years before, the environment of Internet business changed dramatically. The speed of these changes will accelerate exponentially toward Tokyo Olympics 2020. As a result, we expect that gradually there will be less border for our 3 business pillars: “IT/Incubation technology”, “MT/marketing technology”, and “FT/financial technology”. The mission of Media Incubation Segment is to build new business for a better society by taking advantage of technology evolution, and creating new business such as another “kakaku.com” and “tabelog”. To do that, we have to establish a context that foresee the times that all the people wear high-level computers, and various things that are connected through networks by IoT.

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With such hope for 3 years in mind, and re-understanding the concept of “Creating New Contexts for a Better Society” which we have cherished since our company establishment, we act globally toward the next 3 years.
We look forward to your continued kind support and encouragement.

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