Yume No Machi Souzou Iinkai / 2484

R Yume no Machi Souzou Iinkai / 2484

COVERAGE INITIATED ON: 2017.12.25 LAST UPDATE: 2019.01.08

Shared Research Inc. has produced this report by request from the company discussed herein. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, neutral analysis. To highlight any biases, we clearly attribute our data and findings. We always present opinions from company management as such. The views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg.

Research Coverage Report by Shared Research Inc. Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

INDEX

How to read a Shared Research report: This report begins with the Trends and outlook section, which discusses the company’s most recent earnings. First-time readers should start at the later Business section.

Executive summary ------3 Key financial data ------5 Recent updates ------6 Highlights ------6 Trends and outlook ------7 Monthly trends ------7 Quarterly trends and results ------8 Q1 FY08/19 results (out December 27, 2018)------9 Full-year company forecasts ------14 Medium-term outlook ------15 Medium-term management plan (out October 11, 2018) ------16 Business ------27 Business description ------27 Strengths and weaknesses ------36 Historical performance ------37 Income statement ------37 Parent earnings ------38 Segment earnings ------39 Balance sheet ------40 Cash flow statement ------42 Other information ------43 ESG-related ------43 Shareholder returns------44 Top management ------45 Major shareholders ------45 Employees ------45 Historical performance, news and topics ------46 Historical performance ------46 Full-year FY08/18 results (out October 11, 2018) ------46 News and topics ------57 Profile ------59

02/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Executive summary

The name “Yume no Machi Souzou Iinkai” (“Committee to Create a Dream Town”) reflects management’s desire to offer innovative services. President Nakamura explains the company’s mission of expanding earnings while creating new socially beneficial systems: “We want our employees to experience the struggles and joys of starting up a business and grow while providing satisfaction to many people.” The company core is food delivery platform Demae-can, contributing 75% of revenue and 80% of operating profit in FY08/18. Enabling food delivery in just 20 minutes, Demae-can has successfully attracted both restaurants and consumers. The company sees FY08/19–FY08/21 as a period of intense focus on Demae-can growth. In FY08/19, the company plans to step up upfront spending to accelerate future growth and rapidly gain market share, even at the cost of a temporary drop in operating profit. In FY08/20 and beyond, it looks to return OPM to normal levels and then increase margins through revenue growth.

Strategy 1: Promoting online orders in existing market: Increasing market share by promoting online food orders Japan’s food delivery market is currently valued at about JPY650bn and expanding at rate of roughly 3% per year. The company aims to help shift about half of that market (about JPY300bn) online and to capture roughly half of that online delivery market (about JPY150bn). As of FY08/17, about 15% (JPY90bn) of orders were placed online; telephone orders made up the remaining 85%. From Demae-can’s gross merchandise value (roughly JPY47bn; about JPY60bn in FY08/18), we infer that it already has roughly half of the market. The other half comprises restaurants with proprietary delivery methods, such as pizza delivery operators; some restaurants in this category also use the company’s services. Expanding online orders is expected to drive market expansion. The company is trying to win new users (through partnerships with NTT Docomo, Inc. [TSE1:9437] and LINE Corporation [TSE1: 3938], and increasing the number of affiliated restaurants) and increase the repeat order rate of existing users.

Strategy 2: Cultivating market: Expanding food delivery market To expand the food delivery market in FY08/17, Yume no Machi launched Sharing Delivery®, which provides outsourced delivery services to restaurants. Of Japan’s roughly 600,000 restaurants, only 30,000 have their own delivery services. Through Sharing Delivery®, the company aims to create new opportunities for restaurant operators. Sharing Delivery® is based on the company’s twofold management philosophy: contribute to revitalization of local restaurants and give consumers access to a more attractive product selection.

Medium-term management targets

(JPYbn) (JPYmn) Revenue YoY (left axis) Operating profit OPM (right axis) 100% 18.8 20 6,000 30% 90% 18 5,000 80% 16 5,000 25% 70% 12.9 14 4,000 20% 60% 12 50% 10 3,000 15% 7.7 40% 8 1,700 30% 4.9 5.4 6 2,000 10% 4.2 3.6 3.7 20% 4 801 837 2.1 1,000 547 573 5% 1.3 1.4 10% 1.2 2 234 244 211 278 362 100 0% 0 0 0% FY08/10 FY08/13 FY08/16 FY08/19 FY08/10 FY08/13 FY08/16 FY08/19 Est. (JPYbn) (JPYmn) Est. Source: Shared Research based on company data

In October 2018, the company unveiled a management plan through FY08/21 (rolling plan subject to annual review), calling for aggressive investment to accelerate growth in the core Demae-can business. The plan also looks toward FY08/22 and beyond. It aims to actively channel the effects of key measures implemented in FY08/18 (such as increasing the repeat order rate and promoting Sharing Delivery®) into investment in FY08/19 with the aim of rapidly establishing a dominant presence vis-à-vis restaurants, and expanding the number of active users, which is an area the company has yet to address. The plan also seeks to pave the way for the next phase of growth. In FY08/19, the company will actively invest in directly managed Sharing Delivery® bases, and expand its active user base by launching updates for its app and website while also implementing measures to increase its brand recognition (at the expense of a temporary drop in operating profit). In FY08/20 and beyond, it anticipates

03/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

cost reductions from improved delivery efficiency at directly managed delivery bases and effects from growth in the active user base (in the form of higher OPM).

We see the company’s three key strengths as large market share (in terms of the number of orders) and platform that enabled it, accelerating the addition of small local stores through Sharing Delivery®, and strong cash flow and revenue base generation through Demae-can.

04/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Key financial data

Income statement FY08/01 FY08/02 FY08/03 FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY0818 FY08/19 (JPYmn) Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Init. Est. Revenue 26 88 101 145 361 649 762 941 1,074 1,158 1,259 1,360 2,087 3,558 3,661 4,155 4,944 5,431 7,681 Demae-can - - - 132 297 578 700 891 1,052 1,143 1,253 1,360 1,427 1,723 1,968 2,522 3,499 4,078 - Mail Order ------660 1,836 1,693 1,633 1,445 1,353 - YoY - 243.4% 14.9% 43.0% 149.4% 79.9% 17.3% 23.4% 14.2% 7.8% 8.8% 8.0% 53.5% 70.5% 2.9% 13.5% 19.0% 9.8% 41.4% Demae-can - - - - 125.2% 94.8% 21.1% 27.4% 18.0% 8.6% 9.6% 8.6% 5.0% 20.7% 14.3% 28.1% 38.8% 16.5% - Mail Order ------178.3% -7.8% -3.5% -11.5% -6.4% - Gross profit 20 39 52 92 291 519 605 785 909 894 957 960 1,328 2,040 2,286 2,652 3,223 3,410 - GPM 76.1% 43.9% 51.5% 63.7% 80.7% 79.8% 79.4% 83.5% 84.6% 77.2% 76.0% 70.6% 63.6% 57.3% 62.4% 63.8% 65.2% 62.8% - SG&A expenses 86 72 88 167 259 348 376 523 736 660 713 750 1,050 1,678 1,740 2,079 2,423 2,573 - YoY - -15.8% 22.2% 89.3% 55.2% 34.3% 7.9% 39.0% 40.9% -10.3% 8.0% 5.1% 40.0% 59.9% 3.6% 19.5% 16.5% 6.2% - SG&A rat io 334.4% 82.0% 87.2% 115.5% 71.9% 53.6% 49.3% 55.6% 68.6% 57.0% 56.6% 55.1% 50.3% 47.2% 47.5% 50.0% 49.0% 47.4% - Operating profit -66 -34 -36 -75 32 170 229 262 173 234 244 211 278 362 547 573 801 837 100 Demae-can ------401 476 528 639 676 854 863 - Mail Order ------39 140 204 217 259 218 - Adjustments ------236 -307 -296 -321 -313 -244 - YoY - - - - - 432.5% 34.6% 14.6% -34.2% 35.4% 4.5% -13.7% 32.2% 30.0% 51.1% 4.8% 39.8% 4.6% -88.1% OPM -258.3% -38.1% -35.7% -51.8% 8.9% 26.2% 30.1% 27.9% 16.1% 20.2% 19.4% 15.5% 13.3% 10.2% 14.9% 13.8% 16.2% 15.4% 1.3% Demae-can ------29.5% 33.3% 30.6% 32.5% 26.8% 24.4% 21.2% Mail Order ------5.9% 7.7% 12.0% 13.3% 17.9% 16.1% Non-operating income (expenses) 4 -0 -0 -2 -2 -20 12 14 55 6 16 10 -4 4 -5 6 -3 12 Financial income -0 -0 -0 0 0 3 12 15 9 5 15 9 -0 -5 -3 -1 -16 2 Gains on foreign exchange ------1 -2 - -6 -1 - -3 Equit y in earning of affiliat es ------2 -3 -0 4 11 19 Other non-operating income 5 -0 -0 -2 -2 -24 0 -1 46 1 1 1 1 11 4 5 2 -6 Recurring profit -62 -34 -36 -77 30 150 241 276 228 239 260 221 275 366 541 579 798 849 117 YoY - - - - - 401.3% 60.6% 14.8% -17.6% 5.0% 8.7% -15.2% 24.5% 33.1% 48.1% 7.0% 37.8% 6.4% -86.2% RPM -241.1% -38.5% -36.0% -53.2% 8.3% 23.1% 31.6% 29.4% 21.2% 20.7% 20.6% 16.2% 13.2% 10.3% 14.8% 13.9% 16.1% 15.6% 1.5% Extraordinary gains - - -0 - - - -16 - - -59 -0 -2 -36 -8 -19 -91 -6 -0 Implied t ax rat e -0.4% -1.2% -1.2% -0.5% 7.9% -29.4% 41.2% 41.8% 43.1% 43.4% 43.6% 47.6% 50.7% 54.3% 55.8% 44.5% 37.7% 33.6% Non-cont rolling int erest s ------0 -0 -6 -2 -1 Net income attributable to owners of parent -62 -34 -37 -77 28 152 145 156 128 123 146 115 97 167 97 348 433 559 79 YoY - - - - - 453.3% -4.8% 7.6% -17.9% -4.1% 18.7% -21.2% -16.0% 73.1% -42.0% 258.4% 24.4% 29.1% -85.9% Net margin -242.1% -39.0% -36.3% -53.5% 7.6% 23.5% 19.0% 16.6% 11.9% 10.6% 11.6% 8.5% 4.6% 4.7% 2.6% 8.4% 8.8% 10.3% 1.0% Capit al expendit ures - - - - 60 64 96 105 73 218 312 239 95 90 235 293 329 378 Depreciat ion - - - 4 14 20 29 54 62 80 84 139 154 166 181 195 181 176 Amortization of goodwill ------36 113 114 125 133 69 EBITDA - - - -71 46 190 258 316 235 314 328 349 468 641 842 893 1,115 1,082 YoY - - - - - 316.5% 35.9% 22.3% -25.7% 33.7% 4.5% 6.6% 34.0% 37.0% 31.4% 6.0% 24.8% -3.0% EBITDA margin - - - -49.2% 12.6% 29.3% 33.9% 33.6% 21.9% 27.1% 26.0% 25.7% 22.4% 18.0% 23.0% 21.5% 22.6% 19.9% Per share data FY08/01 FY08/02 FY08/03 FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY0818 FY08/19 Shares issued (year end; mn) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 5.5 11.1 11.1 11.1 44.4 44.4 - Treasury shares ------0.0 0.0 0.0 0.0 0.8 1.2 1.0 1.0 3.9 3.9 - Shares outstanding (ex. treasury shares) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 4.8 9.9 10.1 10.1 40.5 40.5 - Shares outstanding (average; mn) - - - - 0.0 0.0 - - - 0.1 0.1 0.1 5.1 9.8 10.0 10.1 40.4 40.5 - BPS (JPY) -26,936 -9,949 -8,608 -12,332 2,152 104,072 113,397 38,816 37,428 38,597 40,678 41,995 414 203 212 230 67 80 - EPS (JPY) -26,936.5 -9,949.2 -8,608.3 -12,332.1 2,151.9 9,951.4 8,304.1 2,909.2 2,373.1 2,383.2 2,828.8 2,228.0 18.8 17.1 9.7 34.5 10.7 13.8 2.0 EPS (fully dilut ed, JPY ) - - - - - 9,627.7 7,605.8 2,728.9 2,277.2 2,331.7 2,801.5 2,196.0 18.3 16.7 9.6 33.4 10.3 13.5 - DPS (JPY) ------2,500.0 900.0 1,100.0 900.0 1,150.0 700.0 8.0 5.0 7.0 10.0 3.3 3.6 未定 Payout ratio ------30.6% 30.9% 46.4% 37.8% 40.7% 31.4% 42.6% 29.2% 72.4% 29.0% 30.8% 26.1% - Balance sheet (JPYmn) FY08/01 FY08/02 FY08/03 FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY0818 Current assets 23 74 63 413 900 1,403 1,550 1,722 1,056 1,102 1,032 879 1,650 1,659 1,938 2,578 3,520 5,293 Cash and cash equivalents 14 39 32 380 851 1,263 1,431 1,544 819 903 792 651 1,258 1,200 1,372 1,720 2,263 2,928 Accounts receivable 8 36 24 26 42 98 99 142 147 171 148 149 182 233 245 324 408 350 Inventories ------58 49 57 61 58 61 Accounts receivable–other 1 - 2 5 5 2 - 1 11 3 65 68 120 140 225 406 736 1,865 Allowance for doubtful accounts - -1 -1 -1 -1 -3 -2 -4 -7 -9 -13 -11 -9 -9 -8 -11 -4 -4 Other current assets 0 1 6 2 2 44 21 38 87 34 39 23 40 46 48 79 59 92 T angible fixed asset s 5 7 6 12 27 32 36 50 33 27 20 11 42 55 83 109 79 123 Int angible fixed asset s - 2 1 2 33 39 102 137 166 250 504 588 948 778 651 1,092 521 604 Investments and other assets 2 3 3 4 9 426 439 895 949 741 749 880 322 516 435 288 320 499 Investment securities - - - - - 5 5 444 669 658 672 817 255 434 248 138 196 348 Others 2 3 3 4 9 421 434 452 280 83 78 63 67 82 187 150 123 150 Total assets 31 86 73 431 969 1,900 2,127 2,805 2,203 2,120 2,305 2,357 2,962 3,007 3,107 4,066 4,439 6,519 Current liabilit ies 23 28 33 38 49 109 132 691 269 118 191 160 579 687 751 1,332 1,698 3,165 Accounts payable ------176 136 135 139 112 99 Short-term debt 1 1 7 ------101 107 105 207 75 804 Accounts payable-other 15 24 18 26 27 85 30 548 148 77 112 91 188 211 327 717 1,207 1,986 Income taxes payable 0 0 0 0 6 6 82 85 43 30 67 40 62 111 85 148 152 100 Ot her current liabilit ies 6 2 7 11 16 18 20 58 77 10 12 30 53 122 100 121 152 176 Noncurrent liabilit ies 27 2 ------396 300 211 392 28 85 Long-term debt 27 2 ------376 280 188 341 8 4 Others ------21 20 23 51 21 82 Net assets -19 57 40 393 921 1,791 1,995 2,113 1,934 2,002 2,114 2,197 1,987 2,021 2,146 2,342 2,713 3,269 Shareholders' equity -19 57 40 393 921 1,791 1,995 2,150 2,013 2,080 2,180 2,249 1,951 2,052 2,137 2,321 2,667 3,097 Treasury stock ------240 -240 -240 -239 -581 -518 -439 -464 -469 -467 Valuation and translation adjustments ------36 -83 -89 -81 -66 34 -41 - -4 31 159 Subscription rights to new shares ------4 11 15 14 1 11 8 17 8 7 Non-cont rolling int erest s ------0 - 8 6 6 T ot al capit al and liabilit ies 31 86 73 431 969 1,900 2,127 2,805 2,203 2,120 2,305 2,357 2,962 3,007 3,107 4,066 4,439 6,519 Cash flow statement (JPYmn) FY08/01 FY08/02 FY08/03 FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY0818 Cash flow s from operat ing act ivit ies - - - -64 39 140 253 214 216 157 249 259 318 481 594 673 1,045 433 Cash flow s from invest ing act ivit ies - - - -7 -65 -443 -1,142 400 -576 -118 186 -354 207 -391 -313 -145 -298 -353 Cash flow s from financing act ivit ies - - - 421 498 713 58 -1 -266 -55 -46 -46 72 -170 -106 -194 -205 591 Financial rat ios FY08/01 FY08/02 FY08/03 FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY0818 Interest-bearing debt 28 3 7 ------476 387 293 548 83 808 Net cash -14 36 24 380 851 1,263 1,431 1,544 819 903 792 651 781 813 1,079 1,171 2,180 2,121 ROE -182.6% -76.2% -35.7% 4.2% 11.2% 7.7% 7.6% 6.3% 6.3% 7.1% 5.4% 4.6% 8.4% 4.7% 15.6% 17.3% 18.8% ROA (RP-based) -58.0% -45.6% -30.5% 4.3% 10.4% 12.0% 11.2% 9.1% 11.1% 11.8% 9.5% 10.3% 12.2% 17.7% 16.1% 18.8% 15.5% Current ratio 101.6% 266.6% 187.8% 1,090.5% 1,855.9% 1,292.8% 1,176.6% 249.0% 392.7% 932.7% 539.6% 548.3% 284.7% 241.6% 258.1% 193.5% 207.3% 167.2% Fixed rat io -39.1% 21.2% 26.4% 4.7% 7.5% 27.7% 28.9% 51.3% 59.4% 51.1% 60.7% 67.7% 66.1% 67.1% 54.7% 64.2% 34.1% 37.7% Equit y rat io -61.8% 65.6% 54.4% 91.2% 95.0% 94.3% 93.8% 75.4% 87.6% 93.9% 91.0% 92.6% 67.0% 66.8% 68.8% 57.0% 60.8% 49.9% Source: Shared Research based on company data

05/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Recent updates

Highlights

On January 8, 2019, Yume no Machi Souzou linkai Co. announced management indicators for December 2018; see the monthly trends section for details.

On December 27, 2018, the company, Ltd announced earnings results for Q1 FY08/19; see the results section for details.

On the same day, the company announced that it had concluded a business alliance agreement with Tsunagu Solutions Inc. and its subsidiary Indival Inc.

The companies will work together on initiatives aimed at securing restaurant and delivery staff for Demae-kan in order to support affiliate stores as part of the FY08/19 key strategies of responding to “increased delivery bases for Sharing Delivery®” and “improving store-side operational efficiency.”

1) Construction and implementation of “shortworks Delivery with Demae-kan” Indival Inc. will establish “shotworks Delivery” by making use of the expertise it gained through operating “shotworks,” a job site which focuses on short-term jobs. Through the establishment of “shotworks Delivery,” Indival will construct a new job site that will meet the needs of people who want to do delivery work during their free time. 2) Construction and implementation of “Demae-kan Hiring Center” (tentative name) The companies will construct a one-stop system that allows users of the Demae-kan order management application to easily apply for services ranging from restaurant and Demae-kan delivery staff recruiting to application reception.

On December 5, 2018, the company announced management indicators for November 2018.

On November 5, 2018, the company announced management indicators for October 2018.

For previous releases and developments, please refer to the News and topics section

06/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Trends and outlook Monthly trends Key performance indicators (KPIs)

No. of orders ('000) Sep Oct No v Dec Jan Feb Mar Apr May Jun Jul Aug Q1 Q2 Q3 Q4 FY FY08/14 655 673 700 818 775 660 792 729 733 732 773 828 2,028 2,252 2,254 2,333 8,868 FY08/15 723 763 837 960 954 825 908 858 876 872 966 1,017 2,323 2,739 2,642 2,855 10,559 FY08/16 929 962 1,034 1,194 1,178 1,129 1,162 1,134 1,165 1,097 1,241 1,306 2,924 3,502 3,460 3,643 13,529 FY08/17 1,215 1,280 1,298 1,521 1,513 1,377 1,507 1,444 1,427 1,384 1,636 1,676 3,792 4,411 4,378 4,696 17,278 FY08/18 1,565 1,787 1,733 1,997 2,032 1,909 2,056 1,899 2,017 1,996 2,153 2,180 5,085 5,938 5,972 6,330 23,325 FY08/19 2,110 2,049 2,125 2,621 ------6,284 - - - - FY08/14 change 56 101 97 79 97 56 90 88 111 92 111 119 254 232 290 322 1,098 FY08/15 change 68 90 138 142 179 166 116 129 143 140 193 189 295 487 388 522 1,691 FY08/16 change 206 199 196 235 224 304 254 276 289 225 275 288 601 763 818 788 2,970 FY08/17 change 286 318 264 327 335 248 346 310 263 287 395 371 869 909 918 1,053 3,749 FY08/18 change 350 508 435 476 519 532 549 455 590 612 517 504 1,293 1,527 1,594 1,633 6,047 FY08/19 change 545 262 393 624 ------1,199 - - - - FY08/14 YoY 9.3% 17.7% 16.1% 10.6% 14.3% 9.2% 12.7% 13.8% 17.9% 14.3% 16.7% 16.8% 14.3% 11.5% 14.8% 16.0% 14.1% FY08/15 YoY 10.3% 13.4% 19.7% 17.4% 23.1% 25.1% 14.7% 17.7% 19.4% 19.2% 25.0% 22.8% 14.6% 21.6% 17.2% 22.4% 19.1% FY08/16 YoY 28.5% 26.1% 23.4% 24.5% 23.5% 36.8% 27.9% 32.2% 32.9% 25.8% 28.5% 28.3% 25.9% 27.8% 31.0% 27.6% 28.1% FY08/17 YoY 30.8% 33.1% 25.5% 27.3% 28.4% 21.9% 29.8% 27.3% 22.6% 26.2% 31.8% 28.4% 29.7% 26.0% 26.5% 28.9% 27.7% FY08/18 YoY 28.8% 39.7% 33.5% 31.3% 34.3% 38.6% 36.4% 31.5% 41.3% 44.2% 31.6% 30.0% 34.1% 34.6% 36.4% 34.8% 35.0% FY08/19 YoY 34.8% 14.6% 22.7% 31.2% ------23.6% - - - - No. of affiliat ed st ores Sep Oct No v Dec Jan Feb Mar Apr May Jun Jul Aug Q1 Q2 Q3 Q4 FY FY08/14 11,323 11,383 11,510 11,545 11,563 11,644 11,350 11,414 11,482 11,493 11,551 11,636 11,510 11,644 11,482 11,636 11,636 FY08/15 11,600 11,628 11,680 11,737 11,752 11,812 11,854 11,947 12,011 12,084 12,167 12,213 11,680 11,812 12,011 12,213 12,213 FY08/16 12,256 12,412 12,505 12,588 12,548 12,529 12,700 12,936 13,018 13,226 13,418 13,656 12,505 12,529 13,018 13,656 13,656 FY08/17 13,920 14,033 14,206 14,366 14,456 14,559 14,669 14,839 14,953 15,099 15,208 15,318 14,206 14,559 14,953 15,318 15,318 FY08/18 15,411 15,533 15,712 15,867 16,000 16,081 16,175 16,318 16,439 16,685 16,874 17,207 15,712 16,081 16,439 17,207 17,207 FY08/19 17,372 17,577 17,834 18,081 ------17,834 - - - - FY08/14 change 95 145 289 311 487 576 276 347 405 393 419 300 289 576 405 300 300 FY08/15 change 277 245 170 192 189 168 504 533 529 591 616 577 170 168 529 577 577 FY08/16 change 656 784 825 851 796 717 846 989 1,007 1,142 1,251 1,443 825 717 1,007 1,443 1,443 FY08/17 change 1,664 1,621 1,701 1,778 1,908 2,030 1,969 1,903 1,935 1,873 1,790 1,662 1,701 2,030 1,935 1,662 1,662 FY08/18 change 1,491 1,500 1,506 1,501 1,544 1,522 1,506 1,479 1,486 1,586 1,666 1,889 1,506 1,522 1,486 1,889 1,889 FY08/19 change 1,961 2,044 2,122 2,214 ------2,122 - - - - FY08/14 YoY 0.8% 1.3% 2.6% 2.8% 4.4% 5.2% 2.5% 3.1% 3.7% 3.5% 3.8% 2.6% 2.6% 5.2% 3.7% 2.6% 2.6% FY08/15 YoY 2.4% 2.2% 1.5% 1.7% 1.6% 1.4% 4.4% 4.7% 4.6% 5.1% 5.3% 5.0% 1.5% 1.4% 4.6% 5.0% 5.0% FY08/16 YoY 5.7% 6.7% 7.1% 7.3% 6.8% 6.1% 7.1% 8.3% 8.4% 9.5% 10.3% 11.8% 7.1% 6.1% 8.4% 11.8% 11.8% FY08/17 YoY 13.6% 13.1% 13.6% 14.1% 15.2% 16.2% 15.5% 14.7% 14.9% 14.2% 13.3% 12.2% 13.6% 16.2% 14.9% 12.2% 12.2% FY08/18 YoY 10.7% 10.7% 10.6% 10.4% 10.7% 10.5% 10.3% 10.0% 9.9% 10.5% 11.0% 12.3% 10.6% 10.5% 9.9% 12.3% 12.3% FY08/19 YoY 12.7% 13.2% 13.5% 14.0% ------13.5% - - - - No. of active users (mn) Sep Oct No v Dec Jan Feb Mar Apr May Jun Jul Aug Q1 Q2 Q3 Q4 FY FY08/14 1.35 - - - 1.35 1.35 FY08/15 1.54 - - - 1.54 1.54 FY08/16 1.74 1.78 1.82 1.84 1.88 1.92 - - 1.82 1.92 1.92 FY08/17 1.95 1.98 1.98 2.03 2.08 2.13 2.17 2.21 2.24 2.29 2.33 2.35 1.98 2.13 2.24 2.35 2.35 FY08/18 2.38 2.43 2.45 2.48 2.52 2.55 2.58 2.59 2.62 2.65 2.66 2.69 2.45 2.55 2.62 2.69 2.69 FY08/19 2.71 2.72 2.74 2.78 ------2.74 - - - - FY08/14 YoY ------16.4% - - - 16.4% 16.4% FY08/15 YoY ------14.1% - - - 14.1% 14.1% FY08/16 YoY ------24.7% - - - 24.7% 24.7% FY08/17 YoY ------24.7% 24.2% 23.2% 24.3% 24.2% 22.4% - - 23.2% 22.4% 22.4% FY08/18 YoY 22.2% 22.7% 23.7% 22.3% 21.3% 20.0% 18.9% 17.2% 17.0% 15.7% 14.2% 14.5% 23.7% 20.0% 17.0% 14.5% 14.5% FY08/19 YoY 13.9% 11.9% 11.8% 12.1% ------11.8% - - - - Sharing Delivery bases Sep Oct No v Dec Jan Feb Mar Apr May Jun Jul Aug Q1 Q2 Q3 Q4 FY FY08/17 1 2 10 2 10 10 FY08/18 - - 17 - - 23 27 - 33 39 44 60 17 23 33 60 60 FY08/19 63 67 78 83 ------78 - - - - FY08/17 MoM change - - +8 FY08/18 MoM change ------+4 - - +6 +5 +16 +7 +6 +10 +27 +50 FY08/19 MoM change +3 +4 +11 +5 ------+18 - - - -

Number of orders divided by number of active users (approximate repeat order rate)

Orders / Active users Sep Oct No v Dec Jan Feb Mar Apr May Jun Jul Aug Q1 Q2 Q3 Q4 FY FY08/16 ------0.67 0.64 0.64 0.60 0.67 0.69 - - 1.90 1.90 7.05 FY08/17 0.63 0.65 0.66 0.76 0.74 0.66 0.70 0.66 0.64 0.61 0.71 0.72 1.91 2.08 1.95 2.00 7.35 FY08/18 0.66 0.74 0.71 0.81 0.81 0.75 0.80 0.73 0.77 0.76 0.81 0.81 2.08 2.33 2.28 2.35 8.67 FY08/19 0.78 0.75 0.78 0.95 ------2.29 - - - - FY08/17 YoY ------5.1% 3.4% 0.2% 2.0% 6.1% 4.2% - - 2.7% 5.3% 4.3% FY08/18 YoY 5.3% 14.1% 8.4% 6.8% 10.3% 14.9% 14.2% 11.4% 20.7% 24.0% 14.5% 13.8% 8.4% 12.2% 16.6% 17.7% 17.9% FY08/19 YoY 18.1% 1.5% 9.6% 17.2% ------10.5% - - - - Note: The company started disclosing data on active users in March 2017. Active user data through February 2017 reflect Shared Research estimates.

Source: Shared Research based on company data

07/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Quarterly trends and results

Income statement FY08/16 FY08/17 FY08/18 FY08/19 FY08/16 FY08/17 FY08/18 FY08/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 4 Cons. Cons. Cons. Init. Est. % of FY Revenue 949 1,059 1,037 1,109 1,210 1,316 1,285 1,133 1,207 1,362 1,436 1,426 1,434 - 4,155 4,944 5,431 7,681 18.7% Demae-can 528 621 617 755 841 931 930 797 859 1,019 1,100 1,100 1,117 - 2,522 3,499 4,078 6,301 17.7% Basic operating fees 72 75 75 75 79 83 88 90 91 103 106 109 114 - 297 340 410 Order processing fees 337 408 394 407 415 502 498 524 563 679 677 716 703 - 1,546 1,938 2,634 Advertising fees 14 19 16 11 9 14 4 6 5 3 3 7 4 - 59 33 18 System development fees 10 11 20 1 21 8 - 9 - - 53 - - - 42 39 53 Other 95 109 113 261 318 323 341 168 200 234 260 269 295 - 578 1,150 963 Mail Order 421 438 420 354 369 384 355 336 348 343 336 326 317 - 1,633 1,445 1,353 1,380 23.0% YoY 12.1% 11.8% 10.2% 19.7% 27.5% 24.2% 23.9% 2.2% -0.3% 3.5% 11.8% 25.8% 18.8% - 13.5% 19.0% 9.8% 41.4% Demae-can 25.3% 21.6% 20.2% 44.6% 59.3% 49.8% 50.8% 5.5% 2.1% 9.5% 18.3% 38.1% 30.0% - 28.1% 38.8% 16.5% 54.5% Basic operating fees 4.9% 8.3% 9.0% 6.8% 9.4% 10.2% 17.5% 19.8% 15.4% 25.0% 20.8% 21.1% 25.1% - 7.2% 14.3% 20.6% Order processing fees 28.8% 29.6% 30.7% 24.7% 23.2% 23.1% 26.2% 28.7% 35.7% 35.1% 36.1% 36.7% 24.9% - 28.3% 25.4% 35.9% Advertising fees 4.0% 4.5% -0.7% -38.7% -33.1% -23.8% -74.6% -48.4% -47.1% -77.6% -18.4% 17.0% -12.1% - -8.7% -43.9% -46.0% System development fees 84.2% -63.0% -57.8% -93.8% 106.4% -21.9% - 660.8% ------58.9% -7.5% 38.6% Other 31.7% 36.6% 39.9% 197.2% 233.7% 196.9% 202.7% -35.6% -37.1% -27.5% -23.7% 59.9% 47.6% - 80.4% 99.0% -16.3% Mail Order -0.9% 0.4% -1.8% -12.4% -12.4% -12.2% -15.6% -4.9% -5.6% -10.9% -5.2% -3.1% -8.9% - -3.5% -11.5% -6.4% 2.0% Cost of revenue 340 384 382 397 434 448 434 404 437 487 554 542 545 - 1,503 1,720 2,020 Cost ratio 35.8% 36.3% 36.8% 35.8% 35.8% 34.1% 33.8% 35.7% 36.2% 35.7% 38.6% 38.0% 38.0% - 36.2% 34.8% 37.2% Gross profit 609 675 656 713 777 867 851 729 769 875 882 884 888 - 2,652 3,223 3,410 GPM 64.2% 63.7% 63.2% 64.2% 64.2% 65.9% 66.2% 64.3% 63.8% 64.3% 61.4% 62.0% 62.0% - 63.8% 65.2% 62.8% SG&A expenses 472 598 449 561 566 706 592 560 564 740 662 607 786 - 2,079 2,423 2,573 YoY 12.8% 38.3% 3.7% 23.0% 19.9% 17.9% 31.9% -0.2% -0.3% 4.9% 11.9% 8.5% 39.4% - 19.5% 16.5% 6.2% SG&A rat io 49.7% 56.5% 43.3% 50.6% 46.7% 53.7% 46.1% 49.4% 46.7% 54.3% 46.1% 42.6% 54.8% - 50.0% 49.0% 47.4% Operating profit 137 77 207 152 211 161 259 169 206 135 219 277 103 - 573 801 837 100 102.8% Demae-can 161 102 223 190 232 171 271 180 222 144 226 272 114 - 676 854 863 Mail Order 50 51 62 54 67 78 60 54 49 59 56 55 42 - 217 259 218 Adjustments -74 -77 -78 -92 -88 -87 -72 -65 -64 -67 -63 -50 -53 - -321 -313 -244 YoY 58.2% -55.3% 33.2% 14.1% 53.8% 110.2% 25.1% 11.6% -2.5% -16.2% -15.2% 63.4% -50.1% - 4.8% 39.8% 4.6% -88.1% Demae-can 27.0% -51.5% 85.0% 5.2% 43.9% 67.4% 21.7% -5.2% -4.5% -15.8% -16.6% 50.7% -48.6% - 5.9% 26.3% 1.1% Mail Order 50.6% 15.5% -38.6% 112.3% 34.7% 51.8% -3.0% -0.5% -27.4% -24.8% -6.4% 1.8% -13.7% - 6.6% 19.3% -15.7% OPM 14.5% 7.2% 20.0% 13.7% 17.4% 12.3% 20.1% 14.9% 17.1% 9.9% 15.3% 19.4% 7.2% - 13.8% 16.2% 15.4% 1.3% Demae-can 30.5% 16.4% 36.1% 25.2% 27.6% 18.3% 29.1% 22.7% 25.8% 14.1% 20.6% 24.7% 10.2% - 26.8% 24.4% 21.2% Mail Order 11.8% 11.7% 14.7% 15.3% 18.2% 20.3% 16.9% 16.0% 14.0% 17.1% 16.7% 16.8% 13.3% - 13.3% 17.9% 16.1% Non-operating income (expenses) 5 -0 1 0 -2 -2 -1 3 5 8 9 -10 9 - 6 -3 12 17 Net financial income 0 -0 0 -1 -6 -4 -6 1 -0 1 -0 1 -1 - -1 -16 2 Equit y in earnings of affiliat es 2 1 1 0 2 3 4 3 4 7 9 -0 5 - 4 11 19 Others 3 -1 0 2 1 -0 1 -1 1 0 0 -10 5 - 4 2 -9 Recurring profit 142 77 208 152 209 160 258 172 210 143 228 267 112 - 579 798 849 117 95.7% YoY 65.9% -55.4% 39.0% 13.4% 46.7% 108.1% 23.9% 13.1% 0.9% -10.3% -11.4% 55.4% -46.8% - 7.0% 37.8% 6.4% -86.2% RPM 15.0% 7.2% 20.1% 13.7% 17.2% 12.1% 20.1% 15.2% 17.4% 10.5% 15.9% 18.7% 7.8% - 13.9% 16.1% 15.6% 1.5% Extraordinary gains (losses) - 92 0 -57 -10 -53 6 -49 -1 -14 6 -1 16 - 35 -107 -9 Pre-tax profit 142 169 208 95 198 107 264 123 210 129 235 266 128 - 614 691 840 Income taxes 53 62 69 89 79 45 69 67 69 46 71 97 36 - 273 261 282 Implied t ax rat e 37.4% 37.0% 33.0% 93.4% 40.0% 42.3% 26.1% 55.1% 32.7% 35.6% 30.2% 36.3% 28.3% - 44.5% 37.7% 33.6% Non-cont rolling int erest s -3 -2 -1 -0 -0 -1 -1 -1 -1 -0 0 -0 - - -6 -2 -1 Net income attributable to owners of parent 92 109 141 6 119 62 195 56 142 83 164 170 92 - 348 433 559 79 115.9% YoY 187.2% 335.0% 38.7% - 30.1% -42.8% 38.7% 762.2% 18.7% 34.2% -16.2% 204.6% -35.4% - 258.4% 24.4% 29.1% -85.9% Net margin 9.7% 10.3% 13.6% 0.6% 9.9% 4.7% 15.2% 4.9% 11.7% 6.1% 11.4% 11.9% 6.4% - 8.4% 8.8% 10.3% 1.0% EBITDA 211 153 284 244 299 249 331 236 270 202 282 327 - - 893 1,115 1,082 YoY 30.6% -37.3% 24.2% 17.9% 41.7% 62.1% 16.4% -3.5% -9.7% -18.6% -14.7% 38.4% - - 6.0% 24.8% -3.0% EBITDA margin 22.3% 14.5% 27.4% 22.0% 24.7% 18.9% 25.8% 20.8% 22.4% 14.9% 19.7% 22.9% - - 21.5% 22.6% 19.9% No. of affiliated stores (quarter end) 12,505 12,529 13,018 13,656 14,206 14,559 14,953 15,318 15,712 16,081 16,439 17,207 17,834 - 13,656 15,318 17,207 21,125 YoY 7.1% 6.1% 8.4% 11.8% 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 9.9% 12.3% 13.5% - 11.8% 12.2% 12.3% 22.8% No. of orders (mn) 2.92 3.50 3.46 3.64 3.79 4.41 4.38 4.70 5.08 5.94 5.97 6.33 6.28 - 13.53 17.28 23.32 33.82 YoY 25.9% 27.8% 31.0% 27.6% 29.7% 26.0% 26.5% 28.9% 34.1% 34.6% 36.4% 34.8% 23.6% - 28.1% 27.7% 35.0% 45.0% Order processing fees / No. of orders 115.2 116.5 113.9 111.7 109.4 113.8 113.6 111.5 110.7 114.3 113.4 113.1 111.9 114.3 112.2 112.9 YoY 2.3% 1.3% -0.2% -2.3% -5.0% -2.3% -0.3% -0.2% 1.2% 0.4% -0.2% 1.4% 1.1% 0.2% -1.8% 0.7% No. of orders / No. of affiliated stores 236.6 279.7 270.9 273.2 272.2 306.7 296.7 310.3 327.7 373.5 367.3 376.3 358.7 1,045.9 1,192.7 1,434.3 1,764.6 YoY 18.7% 20.0% 22.1% 15.9% 15.1% 9.6% 9.5% 13.6% 20.4% 21.8% 23.8% 21.3% 9.4% 18.1% 14.0% 20.3% 23.0% No. of active users (quarter end; mn) - - 1.82 1.92 1.98 2.13 2.24 2.35 2.45 2.55 2.62 2.69 2.74 - 1.92 2.35 2.69 4.41 YoY - - - 24.7% - - 23.2% 22.4% 23.7% 20.0% 17.0% 14.5% 11.8% - 24.7% 22.4% 14.5% 63.9% No. of orders / Average no. of users 1.9 1.9 2.1 2.0 2.0 2.1 2.4 2.3 2.4 2.3 7.8 8.1 9.3 9.5 YoY ------5.0% 8.9% 10.5% 15.2% 16.5% 9.2% 7.0% 3.5% 14.4% 2.9% Total users (quarter end; mn) 7.37 7.69 7.98 8.30 8.56 8.81 ------8.30 - - YoY 14.3% 14.9% 15.8% 16.2% 16.1% 14.6% ------16.2% - - 60 78 YoY ------1,550.0% 500.0% 358.8% - - - - Depreciat ion 45 48 49 53 51 50 39 41 39 41 46 50 - - 195 181 176 Amortization of goodwill 29 29 29 40 37 37 33 26 26 26 17 - - - 125 133 69 Inventories 65 64 61 61 59 56 59 58 70 71 60 61 69 - 61 58 61 YoY 2.4% 5.1% -13.6% 6.4% -9.8% -12.4% -3.4% -4.4% 19.1% 27.3% 2.0% 5.4% -1.0% - 6.4% -4.4% 5.4% Days in inventory 16.4 15.3 14.9 14.0 12.6 11.7 12.1 13.2 13.3 13.2 10.8 10.2 10.9 - 14.3 12.6 10.8 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 FY08/21 3-year (JPYmn) Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Init. Est. MTP MTP CA GR Revenue 1,259 1,360 2,087 3,558 3,661 4,155 4,944 5,431 7,681 12,900 18,800 51.3% YoY 8.8% 8.0% 53.5% 70.5% 2.9% 13.5% 19.0% 9.8% 41.4% 67.9% 45.7% Operating profit 244 211 278 362 547 573 801 837 100 1,700 5,000 81.4% YoY 4.5% -13.7% 32.2% 30.0% 51.1% 4.8% 39.8% 4.6% -88.1% 1,600.0% 194.1% YoY 19.4% 15.5% 13.3% 10.2% 14.9% 13.8% 16.2% 15.4% 1.3% 13.2% 26.6% Earnings Net income 146 115 97 167 97 348 433 559 79 - - - YoY 18.7% -21.2% -16.0% 73.1% -42.0% 258.4% 24.4% 29.1% -85.9% - - Net margin 11.6% 8.5% 4.6% 4.7% 2.6% 8.4% 8.8% 10.3% 1.0% - - Revenue Demae-can 1,253 1,360 1,427 1,723 1,968 2,522 3,499 4,078 6,301 Mail Order - - 660 1,836 1,693 1,633 1,445 1,353 1,380 YoY Demae-can 9.6% 8.6% 5.0% 20.7% 14.3% 28.1% 38.8% 16.5% 54.5%

Segments Mail Order - - - 178.3% -7.8% -3.5% -11.5% -6.4% 2.0% No. of orders (mn) 6.78 7.37 7.76 8.87 10.56 13.53 17.28 23.32 33.82 48.03 67.24 42.3% YoY 6.6% 8.6% 5.4% 14.3% 19.1% 28.1% 27.7% 35.0% 45.0% 42.0% 40.0% No. of users (mn) 0.89 1.13 1.16 1.35 1.54 1.92 2.35 2.69 4.41 6.18 8.65 47.6% YoY 27.1% 27.0% 2.7% 16.4% 14.1% 24.7% 22.4% 14.5% 63.9% 40.1% 40.0% KPI No. of affiliat ed st ores 10,678 11,223 11,336 11,636 12,213 13,656 15,318 17,207 21,125 24,903 28,293 18.0% YoY 8.5% 5.1% 1.0% 2.6% 5.0% 11.8% 12.2% 12.3% 22.8% 17.9% 13.6% Sharing Delivery locat ions 10 60 210 370 530 106.7% YoY ------500.0% 250.0% 76.2% 43.2% Revenue / Orders (JPY) 185.8 184.6 268.9 401.2 346.8 307.1 286.1 232.8 227.1 268.6 279.6 6.3% YoY 2.1% -0.6% 45.7% 49.2% -13.6% -11.4% -6.8% -18.6% -2.5% 18.3% 4.1% Orders / Users 7.6 6.5 6.7 6.6 6.9 7.0 7.4 8.7 7.7 7.8 7.8 -3.6% YoY -16.2% -14.4% 2.6% -1.8% 4.4% 2.8% 4.3% 17.9% -11.6% 1.3% 0.0% Users / Affiliated stores (average) 86.8 103.2 102.8 117.5 129.1 148.4 162.2 165.4 230.1 268.5 325.2 25.3% YoY 17.0% 18.9% -0.3% 14.3% 9.9% 14.9% 9.3% 2.0% 39.1% 16.7% 21.1% Indices Orders / Affiliated stores (average) 661 673 688 772 885 1,046 1,193 1,434 1,765 2,087 2,528 20.8% YoY -1.9% 1.8% 2.3% 12.2% 14.7% 18.1% 14.0% 20.3% 23.0% 18.3% 21.1% Yume no Machi gross merchandise value (incl. consumption tax; JPYbn) 18.9 20.1 21.5 24.3 28.9 37.1 46.5 63.2 97.6 178.4 269.9 62.3% Market share (SR est.) 3.6% 3.9% 4.6% 5.8% 7.1% Source: Shared Research based on company data

08/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Q1 FY08/19 results (out December 27, 2018)

Q1 FY08/19: Revenue up 18.8% YoY and operating profit down 50.1% YoY. No changes made to initial forecasts ▷  KPIs: 17,834 affiliated stores (+13.5% YoY), 6.3mn orders (+23.6% YoY), 2.7mn active users (+11.6% YoY), each continuing to trend upward

 Sharing Delivery®: Expanded to 78 delivery bases as of end-November; expanded into Kansai and Tokai regions, launched directly managed delivery bases under urban center business model in August

 Began collaboration with Japan Best Rescue System Co., Ltd. (TSE: 2453) and test operations of new services in November New medium-term plan: New plan prioritizes investments aimed at expanding active user base and accelerating rollout of ▷ Sharing Delivery® business. Plans for aggressive investment in FY08/19 and targets operating profit of JPY5.0bn in FY08/21

 Active user base: Looks to first improve app and website, and subsequently strengthen promotion, including measures to increase brand recognition; targets substantial growth in active users

 Sharing Delivery®: Strategy of establishing dominant position that overwhelms competitors at an early stage by rolling out directly managed delivery bases in top 50 areas

Quarterly earnings trends (left: revenue; right: operating profit; below: KPIs)

(JPYmn) Demae-can (Order processing fees) Demae-can (Other) Mail Order YoY (right axis) (JPYmn) Operating profit OPM (right axis) 1,600 160% 300 277 25% 1,436 1,434 1,426

1,362 259 1,316 1,400 1,285 140% 1,210 1,207 250 20% 1,133 219 1,109 211

1,200 1,059 120% 206 1,037 949 949 947 941

926 200 902 892 169 860 1,000 846 100% 171 207 815 155 15% 133 135 800 80% 150 132 152 161

524 112 137 600 60% 98100 103 10% 100 373 72 87 331 67 400 40% 77 716 703 679 677 5% 563

524 50 502 498 415 408 407 200 394 20% 45 337

326 14 315 302 266 262 261 257 235 230 229 228 201 0 0% 0 0% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19

('000) No. of affiliated stores ('000) YoY (right axis) (mn) 6.36.3 17.8 No. of orders (mn) YoY (right axis) 5.96.0 18 17.2 18% 6 60% 17 16.4 5.1 16.1 16% 15.7 5 4.7 50% 16 15.3 14% 4.44.4 14.6 15.0 15 14.2 3.8 12% 4 3.5 3.6 40% 14 13.7 3.5 13.0 10% 2.92.9 13 12.512.5 3 2.72.6 30% 12.012.2 11.6 11.611.711.8 8% 2.32.32.3 12 11.311.5 11.5 11.211.111.1 2.02.02.0 2.0 6% 1.8 2.3 11 2 20% 10 4% 1 10% 9 2% 8 0% 0 0% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19

Gross profit (left) SG&A expenses (right)

(JPYmn) (JPYmn) Gross profit GPM (right axis) SG&A expenses SG&A ratio (right axis) 1,000 882 888 90% 1,000 70% 884 867851 875 777 769 786 800 713 729 80% 800 740 675 706 656 62% 662 60% 604 609 56% 571 588589 598 592 607 600 539 70% 56156654% 560564 71% 497489 505 600 441 51% 54% 55% 54% 456472 449 66% 66% 66%66% 48% 417439427 418433433 50% 400 347 63% 64% 64%64%64% 64%64% 64%64%64% 60% 39751% 395 50% 62% 63% 61%62%62% 49% 49% 49% 266 60% 60% 400 49%48% 60% 47% 46% 47% 218 58% 46% 46%46% 46% 249 43% 200 50% 204199 43% 40% 200 42% 46% 0 40% Q1 Q1 Q1 Q1 Q1 Q1 Q1 0 30% FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 Source: Shared Research based on company data

09/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Summary For Q1 FY08/19, the company reported consolidated revenue of JPY1.4bn (+18.8% YoY), operating profit of JPY103mn (-50.1% YoY) and net income attributable to owners of parent of JPY92mn (-35.4% YoY). For its mainstay Demae-can business, the ® company reported revenue of JPY1.1bn (+30.0% YoY) and an operating profit of JPY114mn (-48.6% YoY). Sharing Delivery also steadily grew to 78 delivery bases. In November, the company began a collaboration with Japan Best Rescue System Co., Ltd. (TSE: 2453). Additionally, the company began expanding test operations of new services including a service that provides solutions for minor regional troubles and another through which delivery personnel collect regional information using special devices. The company has also resolved to conduct proactive investment in order to accelerate the growth of the mainstay Demae-kan business. No changes have been made to initial forecasts.

Key performance indicators In the Demae-can business, KPIs were as follows.

Number of orders: 6.3mn (+23.6% YoY), consistently growing above 20% since FY08/16; ▷ Number of affiliated stores: 17,834 (+13.5% YoY), trending upward; ▷ Number of active users: 2.7mn (+11.6% YoY), reflecting sustained double-digit growth. ▷ KPIs (monthly)

('000) Affiliated stores YoY (left axis) (mn) Orders YoY (left axis) Active users YoY (left axis) Sharing Delivery bases 50% 2,500 18% 20,000 90 45% 16% 18,000 80 40% 2,000 14% 16,000 70 35% 14,000 20% 2 12% 60 30% 1,500 12,000 10% 50 25% 10,000 8% 40 20% 1,000 8,000 6% 10% 1 30 15% 6,000 20 10% 500 4% 4,000 5% 2% 2,000 10 0% 0 0% 0 0% 0 0 Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Mar Sep Mar Sep Mar FY08/17 FY08/18 FY08/18 FY08/19 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/15FY08/16FY08/17FY08/18FY08/19 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 Source: Shared Research based on company data

Monthly rainfall (comparison with average year)

350 Q1, Q3 Q2, Q4 Eastern Japan Western Japan

300

250

200

150

100

0 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct (%) 2015 2016 2017 2018 Source: Shared Research based on Japan Meteorological Agency

Initiatives undertaken The company continued to work toward construction of a firm business foundation with Demae-can and undertook the following initiatives. In order to accelerate the development of the Sharing Delivery® business, a key strategy, the company added popular local shops and major chains that do not deliver their own products, such as Kappa Sushi, as Demae-kan affiliate stores. The company also began launching delivery bases for Sharing Delivery® in the northern Kanto region in November 2018. Japan Best Rescue System joined as a new business partner and the number of delivery bases expanded to 78 by the end of November. Starting in October 2018, the service gained Amazon Alexa support, allowing customers to order delivery through voice commands using an Amazon Echo, etc.

10/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Demae-can business

Demae-can FY08/16 FY08/17 FY08/18 FY08/19 FY08/13 FY08/16 FY08/13 FY08/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Cons. Cons. Cons. Init. Est. Revenue 528 621 617 755 841 931 930 797 859 1,019 1,100 1,100 1,117 2,522 3,499 4,078 6,301 YoY 25.3% 21.6% 20.2% 44.6% 59.3% 49.8% 50.8% 5.5% 2.1% 9.5% 18.3% 38.1% 30.0% 28.1% 38.8% 16.5% 54.5% Operating profit 161 102 223 190 232 171 271 180 222 144 226 272 114 676 854 863 - YoY 27.0% -51.5% 85.0% 5.2% 43.9% 67.4% 21.7% -5.2% -4.5% -15.8% -16.6% 50.7% -48.6% 5.9% 26.3% 1.1% - OPM 30.5% 16.4% 36.1% 25.2% 27.6% 18.3% 29.1% 22.7% 25.8% 14.1% 20.6% 24.7% 10.2% 26.8% 24.4% 21.2% - Order processing fees 337 408 394 407 415 502 498 524 563 679 677 716 703 1,546 1,938 2,634 - YoY 28.8% 29.6% 30.7% 24.7% 23.2% 23.1% 26.2% 28.7% 35.7% 35.1% 36.1% 36.7% 24.9% 28.3% 25.4% 35.9% - No. of orders (mn) 2.92 3.50 3.46 3.64 3.79 4.41 4.38 4.70 5.08 5.94 5.97 6.33 6.28 13.53 17.28 23.32 33.82 YoY 25.9% 27.8% 31.0% 27.6% 29.7% 26.0% 26.5% 28.9% 34.1% 34.6% 36.4% 34.8% 23.6% 28.1% 27.7% 35.0% 45.0% Order processing fees / No. of orders 115.2 116.5 113.9 111.7 109.4 113.8 113.6 111.5 110.7 114.3 113.4 113.1 111.9 114.3 112.2 112.9 - YoY 2.3% 1.3% -0.2% -2.3% -5.0% -2.3% -0.3% -0.2% 1.2% 0.4% -0.2% 1.4% 1.1% 0.2% -1.8% 0.7% - No. of affiliated stores (quarter end) 12,505 12,529 13,018 13,656 14,206 14,559 14,953 15,318 15,712 16,081 16,439 17,207 17,834 13,656 15,318 17,207 21,125 YoY 7.1% 6.1% 8.4% 11.8% 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 9.9% 12.3% 13.5% 11.8% 12.2% 12.3% 22.8% No. of orders / No. of affiliated stores 236.6 279.7 270.9 273.2 272.2 306.7 296.7 310.3 327.7 373.5 367.3 376.3 358.7 1,045.9 1,192.7 1,434.3 1,764.6 YoY 18.7% 20.0% 22.1% 15.9% 15.1% 9.6% 9.5% 13.6% 20.4% 21.8% 23.8% 21.3% 9.4% 18.1% 14.0% 20.3% 23.0% No. of active users (quarter end; mn) - - 1.82 1.92 1.98 2.13 2.24 2.35 2.45 2.55 2.62 2.69 2.74 1.92 2.35 2.69 4.41 YoY - - - 24.7% - - 23.2% 22.4% 23.7% 20.0% 17.0% 14.5% 11.8% 24.7% 22.4% 14.5% 63.9% No. of orders / Average no. of users 1.9 1.9 2.1 2.0 2.0 2.1 2.4 2.3 2.4 2.3 7.8 8.1 9.3 9.5 YoY ------5.0% 8.9% 10.5% 15.2% 16.5% 9.2% 7.0% 3.5% 14.4% 2.9% Total users (quarter end; mn) 7.37 7.69 7.98 8.30 8.56 8.81 ------8.30 - - - YoY 14.3% 14.9% 15.8% 16.2% 16.1% 14.6% ------16.2% ------2 10 17 23 33 60 78 - - - - YoY ------1,550.0% 500.0% 358.8% - - - - Depreciat ion 43 46 47 51 49 49 36 37 36 38 42 46 - 187 171 162 - Amortization of goodwill 3 3 3 14 11 11 7 ------23 30 - - EBITDA 207 151 273 255 293 230 315 217 257 182 268 317 114 886 1,055 1,025 - YoY 19.9% -40.6% 65.2% 12.7% 41.2% 52.7% 15.5% -14.8% -12.1% -21.1% -14.9% 46.1% -55.8% 8.3% 19.1% -2.9% - EBITDA margin 39.3% 24.3% 44.2% 33.8% 34.8% 24.7% 33.9% 27.3% 30.0% 17.8% 24.4% 28.9% 10.2% 35.1% 30.2% 25.1% - Source: Shared Research based on company data

(JPYmn) (JPYmn) Revenue YoY (right axis) Operating profit OPM (right axis) 1,200 100% 300 50% 1,1001,1001,117 271 272 1,019 1,000 931930 250 232 80% 223 222 226 40% 841 859 797 190 800 755 200 210 180 167 171 30% 621617 60% 181 143 146 144 541 140 600 511513523528 150 124 129 127 161 120 114 411408 421 40% 20% 373363361363 400 331 100 80 102 75 20% 10% 200 50

0 0% 0 0% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 Source: Shared Research based on company data

Order processing fees YoY (right axis) ('mn) No. of orders (mn) YoY (right axis) 6.36.3 800 80% 5.96.0 716703 6 60% 700 679677 70% 5.1 563 5 4.7 50% 600 60% 4.44.4 502498524 500 50% 4 3.63.8 40% 415 3.53.5 408394407 2.9 400 337 40% 2.7 2.9 315 326 3 2.6 30% 302 2.32.3 262 266 2.3 300 257 261 30% 2.02.02.0 2.0 235230229228 1.8 201 2 2.3 20% 200 20%

100 10% 1 10%

Mail Order business

Mail Order FY08/16 FY08/17 FY08/18 - FY08/13 FY08/16 FY08/17 FY08/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Cons. Cons. Cons. Sales 421 438 420 354 369 384 355 336 348 343 336 326 317 1,633 1,445 1,353 1,380 YoY -0.9% 0.4% -1.8% -12.4% -12.4% -12.2% -15.6% -4.9% -5.6% -10.9% -5.2% -3.1% -8.9% -3.5% -11.5% -6.4% - Internal transaction 23 26 27 25 35 40 38 40 45 52 51 53 54 101 153 200 Sales (incl. int ernal t ransact ion) 444 464 447 379 403 425 393 376 393 394 387 379 371 1,734 1,597 1,553 Operating profit 50 51 62 54 67 78 60 54 49 59 56 55 42 217 259 218 - YoY 50.6% 15.5% -38.6% 112.3% 34.7% 51.8% -3.0% -0.5% -27.4% -24.8% -6.4% 1.8% -13.7% 6.6% 19.3% -15.7% - OPM 11.8% 11.7% 14.7% 15.3% 18.2% 20.3% 16.9% 16.0% 14.0% 17.1% 16.7% 16.8% 13.3% 13.3% 17.9% 16.1% - Depreciat ion 2 2 2 2 2 2 3 4 3 3 4 4 - 8 10 14 Amortization of goodwill 26 26 26 26 26 26 26 26 26 26 17 - - 103 103 69 EBITDA 78 79 89 82 95 106 88 83 77 88 77 59 42 328 372 301 YoY 26.0% 6.9% -31.1% 50.8% 21.8% 33.6% -1.4% 2.0% -18.2% -17.1% -12.6% -29.5% -45.6% 2.6% 13.4% -19.1% EBITDA margin 18.5% 18.1% 21.3% 23.1% 25.7% 27.5% 24.8% 24.8% 22.2% 25.6% 22.9% 18.1% 13.3% 20.1% 25.8% 22.3% Source: Shared Research based on company data

11/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

(JPYmn) Revenue (external transaction) Internal transaction YoY (left axis) (JPYmn) Operating profit OPM (right axis) 10% 600 120 30%

499 500493 101 464 5% 0 457 9 10 454446 444 447 500 100 25% 435437 425 5 422 26 18 17 403 394 27 12 23 27379 393 393 387379 78 18 40 376 371 0% 35 400 80 20% 25 38 45 52 51 40 53 62 54 67 60 59 55 54 56 55 -5% 300 60 50 51 49 15% 45 45 54 499 492484 42 452 37 38 425436428 421438420 33 -10% 161 408 404 384 200 40 10% 369 355 348 0 336 343336326317 354 -15% 100 20 25 5% 161 2 2 -20% 0 0 0% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 Source: Shared Research based on company data

Comparable US companies A US company operating the same business model as Yume no Machi and growing is Grubhub, Inc. (NYSE: GRUB). We compared Yume no Machi and Grubhub.

Income statement FY08/16 FY08/17 FY08/18 FY08/19 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Cons. Cons. Cons. Cons. Init. Est. Revenue 949 1,059 1,037 1,109 1,210 1,316 1,285 1,133 1,207 1,362 1,436 1,426 1,434 3,661 4,155 4,944 5,431 7,681 YoY 12.1% 11.8% 10.2% 19.7% 27.5% 24.2% 23.9% 2.2% -0.3% 3.5% 11.8% 25.8% 18.8% 2.9% 13.5% 19.0% 9.8% 41.4% Total costs 807 891 829 1,014 1,012 1,209 1,021 1,011 997 1,233 1,201 1,160 1,306 3,442 3,540 4,253 4,591 YoY 3.6% 4.4% 5.6% -1.1% 25.4% 35.7% 23.2% -0.3% -1.5% 2.0% 17.6% 14.7% 31.0% 7.8% 2.8% 20.1% 7.9% - % of sales 85.0% 84.1% 79.9% 91.4% 83.6% 91.9% 79.5% 89.2% 82.6% 90.5% 83.7% 81.3% 91.1% 94.0% 85.2% 86.0% 84.5% - Pre-tax profit 142 169 208 95 198 107 264 123 210 129 235 266 128 219 614 691 840 - YoY 109.5% 78.8% 33.6% - 39.3% -36.8% 26.4% 28.8% 5.9% 21.1% -10.9% 117.4% -39.2% -40.0% 180.6% 12.5% 21.6% - Pre-tax margin 15.0% 15.9% 20.1% 8.6% 16.4% 8.1% 20.5% 10.8% 17.4% 9.5% 16.3% 18.7% 8.9% 6.0% 14.8% 14.0% 15.5% - Income taxes 53 62 69 89 79 45 69 67 69 46 71 97 36 122 273 261 282 - Implied t ax rat e 37.4% 37.0% 33.0% 93.4% 40.0% 42.3% 26.1% 55.1% 32.7% 35.6% 30.2% 36.3% 28.3% 55.8% 44.5% 37.7% 33.6% - Non-cont rolling int erest s -3 -2 -1 -0 -0 -1 -1 -1 -1 -0 0 -0 - -0 -6 -2 -1 - Net income attributable to owners of parent 92 109 141 6 119 62 195 56 142 83 164 170 92 97 348 433 559 79 YoY 187.2% 335.0% 38.7% - 30.1% -42.8% 38.7% 762.2% 18.7% 34.2% -16.2% 204.6% -35.4% -42.0% 258.4% 24.4% 29.1% -85.9% Net margin 9.7% 10.3% 13.6% 0.6% 9.9% 4.7% 15.2% 4.9% 11.7% 6.1% 11.4% 11.9% 6.4% 2.6% 8.4% 8.8% 10.3% 1.0% No. of active users (quarter end; mn) - - 1.82 1.92 1.98 2.13 2.24 2.35 2.45 2.55 2.62 2.69 2.74 1.54 1.92 2.35 2.69 4.41 YoY - - - 24.7% - - 23.2% 22.4% 23.7% 20.0% 17.0% 14.5% 11.8% 14.1% 24.7% 22.4% 14.5% 63.9% No. of orders / No. of active users - - - 1.9 1.9 2.1 2.0 2.0 2.1 2.4 2.3 2.4 2.3 7.3 7.8 8.1 9.3 9.5 YoY ------5.0% 8.9% 10.5% 15.2% 16.5% 9.2% 3.4% 7.0% 3.5% 14.4% 2.9% No. of orders (mn) 2.92 3.50 3.46 3.64 3.79 4.41 4.38 4.70 5.08 5.94 5.97 6.33 6.28 10.56 13.53 17.28 23.32 33.82 YoY 25.9% 27.8% 31.0% 27.6% 29.7% 26.0% 26.5% 28.9% 34.1% 34.6% 36.4% 34.8% 23.6% 19.1% 28.1% 27.7% 35.0% 45.0% No. of affiliated stores (quarter end) 12,505 12,529 13,018 13,656 14,206 14,559 14,953 15,318 15,712 16,081 16,439 17,207 17,834 12,213 13,656 15,318 17,207 21,125 YoY 7.1% 6.1% 8.4% 11.8% 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 9.9% 12.3% 13.5% 5.0% 11.8% 12.2% 12.3% 22.8%

Grubhub inc. FY12/16 FY12/17 FY12/18 FY12/15 FY12/16 FY12/17 (USDmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q3 Q4 Q2 Q3 Q3 Q4 Cons. Cons. Cons. Revenue 100 112 120 123 137 156 159 163 205 233 240 247 - 362 493 683 YoY 36.3% 27.2% 36.6% 44.1% 37.5% 39.1% 32.1% 32.1% 49.2% 49.0% 51.0% 51.6% - 42.5% 36.3% 38.5% Total costs 84 95 98 103 114 131 137 146 179 201 205 225 - 300 409 593 YoY 47.8% 35.9% 36.1% 38.8% 35.5% 38.2% 40.0% 41.8% 56.7% 53.3% 50.3% 54.8% - 43.6% 36.5% 44.9% % of revenue 84.4% 84.6% 81.3% 83.2% 83.1% 84.0% 86.1% 89.3% 87.2% 86.4% 85.7% 91.2% - 82.9% 83.0% 86.9% Pre-tax profit 16 17 23 21 23 25 22 17 25 32 34 22 - 62 84 90 YoY -3.9% -5.9% 39.0% 78.0% 48.6% 44.2% -1.9% -16.1% 8.2% 26.3% 55.3% 25.4% - 37.7% 35.4% 6.9% Pre-tax margin 15.6% 15.4% 18.7% 16.8% 16.9% 16.0% 13.9% 10.7% 12.3% 13.6% 14.3% 8.8% - 17.1% 17.0% 13.1% Income taxes 4 7 10 8 10 7 7 4 -28 -0 4 -1 - 24 34 -9 Implied t ax rat e 27.8% 42.7% 43.1% 36.5% 41.3% 29.1% 33.2% 25.4% -112.8% -0.7% 12.2% -5.6% - 38.5% 40.9% -10.4% Net income attributable to owners of parent 11 10 13 13 14 18 15 13 54 31 30 23 - 38 50 99 Act ive Diners (mn) 6.75 6.97 7.35 7.69 8.17 8.75 9.18 9.81 14.46 15.08 15.58 16.38 - 6.75 8.17 14.46 YoY 34.1% 24.4% 23.9% 19.5% 21.2% 25.6% 24.8% 27.6% 76.9% 72.3% 69.8% 67.0% - 34.1% 21.2% 76.9% No. of orders / Average no. of users 3.4 3.6 3.4 3.3 3.4 3.5 3.2 3.0 3.0 2.7 2.5 2.4 - 14.1 13.5 10.8 YoY -13.1% -10.5% -0.8% 4.0% 0.5% -2.9% -7.5% -9.8% -12.3% -22.9% -21.2% -18.9% - -10.8% -4.2% -20.1% Daily Average Grubs ('000) 242 268 271 268 293 325 314 305 393 437 423 416 - 227 275 334 DAG x No. of days (mn) 22.25 24.38 24.67 24.61 26.91 29.21 28.56 28.01 36.11 39.32 38.51 38.27 - 82.89 100.58 121.91 YoY 19.3% 15.4% 23.2% 26.5% 21.0% 19.8% 15.8% 13.8% 34.2% 34.6% 34.8% 36.6% - 24.2% 21.3% 21.2% Gross food sales 643 713 733 735 818 898 880 867 1,139 1,245 1,220 1,215 - 2,354 2,998 3,794 YoY 26.5% 20.8% 29.1% 32.8% 27.3% 26.0% 20.1% 18.0% 39.2% 38.6% 38.7% 40.0% - 31.7% 27.4% 26.5% Source: Shared Research based on company data.

Earnings for Grubhub (left: revenue and profit, right: costs)

(USDmn) Income before provision for income taxes Revenues Margin (right axis) Technology (exclusive of amortization) General and administrative 300 30% Depreciation and amortization Operations and support 250 225 Sales and marketing 250 25% 201 205 200 179 200 20% 146 150 131 137 150 15% 114 103 95 98 100 84 100 10% 70 72 74 57 50 51 50 38 40 38 44 50 5% 50

0 0% 0 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 CY12/13 CY12/14 CY12/15 CY12/16 CY12/17 CY12/18 CY12/13 CY12/14 CY12/15 CY12/16 CY12/17 CY12/18 Source: Shared Research based on company data

12/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Business structure comparison (left: margin comparison; middle: % of revenue [Yume no Machi]; right: % of revenue [Grubhub])

OPM (Yume no Machi) OPM (Grubhub) Personnel expenses Advertising expenses Operations and support 25% 60% Depreciation Other expenses 60% Sales and marketing Depreciation and amortization Other expenses 50% 50% 20% 40% 40% 15% 30% 30% 10% 20% 20%

5% 10% 10%

0% 0% 0% Q1 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 CY12/13 CY12/14 CY12/15 CY12/16 CY12/17 CY12/18 Daily Average Grubs (daily avg. orders) x 365 / Active Diners (mn) Active Diners (active users) (mn) (mn) (mn) Number of orders (active users) 18 Yume no Machi active users (right axis) 3 45 Yume no Machi orders (right axis) 7 Yume no Machi cumulative orders / Active users (right axis) 20 10 16 40 6 14 35 5 15 12 2 30 10 25 4 10 5 8 20 3 6 1 15 2 5 4 10 1 2 5 0 0 0 0 0 0 Q1 Q1 Q1 Q1 FY08/13 FY08/15 FY08/17 FY08/19

Key performance indicators

(mn) Active Diners (active users) YoY (left axis) Daily Average Grubs (orders per day) YoY (left axis) 90% 18 50% 480,000 80% 16 400,000 70% 14 40% 60% 12 320,000 30% 50% 10 240,000 40% 8 20% 30% 6 160,000

20% 4 10% 80,000 10% 2 0% 0 0% 0 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 (USDmn) Gross food sales YoY (left axis) Daily Average Grubs (daily avg. orders) x 365 / Active Diners (active users) YoY (left axis) 50% 1,400 10% 18.3 20 17.1 17.2 1,200 5% 16.3 15.5 15.2 15.3 40% 14.7 16 14.0 0% 13.8 13.5 13.5 1,000 13.1 13.5 13.1 12.7 12.5 12.0 -5% 11.3 30% 10.6 12 800 9.9 9.9 -10% 9.3 600 20% -15% 8 400 -20% 10% 4 200 -25% 0% 0 -30% 0 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 Source: Shared Research based on company data Note: The sharp increase for Active Diners from Q4 FY12/17 is attributable to the acquisition of Eat24. Note that the approximate number of repeat orders appears to have declined as a result.

For details on previous quarterly and annual results, please refer to the Historical performance section.

13/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Full-year company forecasts

FY08/16 FY08/17 FY08/18 FY08/19 Initial Est. (JPYmn) 1H 2H FY 1H 2H FY 1H 2H FY 1H 2H FY Revenue 2,008 2,146 4,155 2,526 2,418 4,944 2,569 2,862 5,431 7,681 YoY 12.0% 14.9% 13.5% 25.8% 12.7% 19.0% 1.7% 18.4% 9.8% 41.4% Operating profit 214 359 573 372 428 801 341 496 837 100 YoY -17.1% 24.4% 4.8% 74.0% 19.4% 39.8% -8.4% 15.9% 4.6% -88.1% OPM 10.7% 16.7% 13.8% 14.7% 17.7% 16.2% 13.3% 17.3% 15.4% 1.3% Recurring profit 219 360 579 368 430 798 354 495 849 117 YoY -15.0% 26.9% 7.0% 68.2% 19.3% 37.8% -4.0% 15.3% 6.4% -86.2% RPM 10.9% 16.8% 13.9% 14.6% 17.8% 16.1% 13.8% 17.3% 15.6% 1.5% Net income attributable to owners of parent 200 147 348 182 251 433 225 333 559 79 YoY 252.0% 267.5% 258.4% -9.4% 70.5% 24.4% 24.0% 32.8% 29.1% -85.9% Net margin 10.0% 6.9% 8.4% 7.2% 10.4% 8.8% 8.8% 11.6% 10.3% 1.0% Source: Shared Research based on company data

For details on the company’s views and strategies related to KPIs and earnings forecasts, please refer to the Medium-term management plan section.

Difference between forecasts and results

Initial Est. versus Results FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 (JPYmn) Cons. vs. Est. Cons. vs. Est. Cons. vs. Est. Cons. vs. Est. Cons. vs. Est. Cons. vs. Est. Revenue Initial Est. 1,560 +33.8% 3,400 +4.7% 3,750 -2.4% 4,000 +3.9% 4,600 +7.5% 5,434 -0.1% Q1 1,455 +43.4% 3,400 +4.7% 3,750 -2.4% 4,000 +3.9% 4,600 +7.5% 5,434 -0.1% Q2 1,455 +43.4% 3,600 -1.2% 3,750 -2.4% 4,000 +3.9% 5,000 -1.1% 5,434 -0.1% Q3 2,000 +4.3% 3,600 -1.2% 3,750 -2.4% 4,150 +0.1% 5,000 -1.1% 5,434 -0.1% Results 2,087 3,558 3,661 4,155 4,944 5,431 Operating profit Initial Est. 211 +32.0% 363 -0.3% 550 -0.6% 650 -11.9% 800 +0.1% 819 +2.2% Q1 177 +57.3% 363 -0.3% 550 -0.6% 650 -11.9% 800 +0.1% 819 +2.2% Q2 177 +57.3% 430 -15.8% 550 -0.6% 650 -11.9% 800 +0.1% 819 +2.2% Q3 240 +16.0% 430 -15.8% 550 -0.6% 570 +0.5% 800 +0.1% 819 +2.2% Results 278 362 547 573 801 837 Recurring profit Initial Est. 212 +29.6% 357 +2.4% 510 +6.2% 656 -11.7% 800 -0.3% 824 +3.0% Q1 178 +54.3% 357 +2.4% 510 +6.2% 656 -11.7% 800 -0.3% 824 +3.0% Q2 178 +54.3% 417 -12.3% 510 +6.2% 656 -11.7% 800 -0.3% 824 +3.0% Q3 240 +14.5% 417 -12.3% 510 +6.2% 576 +0.5% 800 -0.3% 824 +3.0% Results 275 366 541 579 798 849 Net income Initial Est. 88 +9.8% 196 -14.6% 232 -58.2% 343 +1.4% 450 -3.9% 478 +16.9% attributable to Q1 47 +105.7% 196 -14.6% 232 -58.2% 343 +1.4% 450 -3.9% 478 +16.9% owners of parent Q2 47 +105.7% 198 -15.5% 232 -58.2% 343 +1.4% 450 -3.9% 478 +16.9% Q3 70 +38.1% 198 -15.5% 232 -58.2% 350 -0.7% 450 -3.9% 478 +16.9% Results 97 167 97 348 433 559 Source: Shared Research based on company data

14/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Medium-term outlook Company name Management philosophy reflected in company name The name “Yume no Machi Souzou Iinkai” (“Committee to Create a Dream Town”) reflects management’s desire to create innovative services. President Nakamura explains the company’s philosophy: “We want our employees to experience the struggles and joys of starting up a business and grow while providing satisfaction to as many people as possible.” Yume no Machi aims to expand earnings while creating new socially beneficial systems.

Phase 1: Demae-can The company core is food delivery platform Demae-can, contributing 75% of revenue and 80% of operating profit in FY08/18. Enabling food delivery in just 20 minutes, Demae-can has successfully attracted both restaurants and consumers. The company sees FY08/19–FY08/21 as a period of intense focus on Demae-can growth. In FY08/19, the company plans to step up upfront spending to accelerate future growth and rapidly gain market share, even at the cost of a temporary drop in operating profit. In FY08/20 and beyond, it looks to return OPM to normal levels and then increase margins through revenue growth.

Increasing market share through online food orders Japan’s food delivery market is currently valued at about JPY650bn and expanding at rate of roughly 3% per year. The company aims to help shift about half of that market (about JPY300bn) online and to capture roughly half of that online delivery market (about JPY150bn). As of FY08/17, about 15% (JPY90bn) of orders were placed online; telephone orders made up the remaining 85%. From Demae-can’s gross merchandise value (roughly JPY47bn; about JPY60bn in FY08/18), we infer that it already has roughly half of the market. The other half comprises restaurants with proprietary delivery methods, such as pizza delivery operators; some restaurants in this category also use the company’s services. Expanding online orders is expected to drive market expansion. The company is trying to win new users (through partnerships with NTT Docomo, Inc. [TSE1:9437] and LINE Corporation [TSE1: 3938], and increasing the number of affiliated restaurants) and increase the repeat order rate of existing users.

Expanding food delivery market To expand the food delivery market, Yume no Machi in FY08/17 launched Sharing Delivery®, which provides outsourced delivery services to restaurants. Of Japan’s roughly 600,000 restaurants, only 30,000 have their own delivery services. Through Sharing Delivery® the company aims to create new opportunities for restaurant operators. Sharing Delivery® is based on the company’s twofold management philosophy: contribute to revitalization of local restaurants; give consumers access to a more attractive product selection.

Shared Research estimates of food delivery market and Yume no Machi’s share (top: market size, JPYbn; bottom: number of stores)

FY08/17 Future Online (other Online (Yume companies) Online 44 no Machi) (Yume no 47 Machi) 150 Offline Offline Online 300 510 (other companies) 150

Independent food delivery 30,000

Stores not targeted 10,000 Yume no Machi target stores 15,000 Eating and drinking places Other nationwide 5,000 Approx. 600,000

Source: Shared Research based on data from Yano Research Institute, the Ministry of Economy, Trade, and Industry, and interviews with the company

15/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Phase 2 and beyond Yume no Machi believes OPM could rise to 40% once gross merchandise value reaches JPY150bn. At that level, the company would achieve about JPY7bn in revenue from order processing fees alone; after adding operating and payment-processing fees, revenue would exceed JPY10bn. Note: the company’s cash flow is structured so that revenue growth does not require additional working capital. The company’s goal is to use earned cash flow to fuel growth for Demae-can and generate new services to benefit society. The following is the medium-term management plan, ending FY08/21.

Medium-term management plan (out October 11, 2018)

FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 FY08/21 3-year (JPYmn) Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Init. Est. MTP MTP CA GR Revenue 1,259 1,360 2,087 3,558 3,661 4,155 4,944 5,431 7,681 12,900 18,800 51.3% YoY 8.8% 8.0% 53.5% 70.5% 2.9% 13.5% 19.0% 9.8% 41.4% 67.9% 45.7% Operating profit 244 211 278 362 547 573 801 837 100 1,700 5,000 81.4% YoY 4.5% -13.7% 32.2% 30.0% 51.1% 4.8% 39.8% 4.6% -88.1% 1,600.0% 194.1% YoY 19.4% 15.5% 13.3% 10.2% 14.9% 13.8% 16.2% 15.4% 1.3% 13.2% 26.6% Earnings Net income 146 115 97 167 97 348 433 559 79 - - - YoY 18.7% -21.2% -16.0% 73.1% -42.0% 258.4% 24.4% 29.1% -85.9% - - Net margin 11.6% 8.5% 4.6% 4.7% 2.6% 8.4% 8.8% 10.3% 1.0% - - Revenue Demae-can 1,253 1,360 1,427 1,723 1,968 2,522 3,499 4,078 6,301 Mail Order - - 660 1,836 1,693 1,633 1,445 1,353 1,380 YoY Demae-can 9.6% 8.6% 5.0% 20.7% 14.3% 28.1% 38.8% 16.5% 54.5%

Key performance indicators Number of orders YoY (left axis) (mn) Active users YoY (left axis) (mn) 20% Orders / Active users YoY (left axis) 11 60% 80 70% 8.7 9 15% 67.2 8 Oct. 2016: Capital and 70 60% 10 50% business alliance with LINE 7 10% 9.1 60 6.2 50% 8.7 9 40% 48.0 6 Apr. 2014: Business 50 5% alliance with NTT Docomo 40% 4.4 5 7.8 7.8 0% 7.6 7.7 8 30% 33.8 40 4 7.4 30% 7.0 30 -5% 6.9 23.3 2.7 6.7 7 20% 2.4 3 6.5 6.6 20% 17.3 20 1.9 -10% 13.5 1.4 1.5 2 10% 10.6 1.1 1.2 6 6.8 7.4 7.8 8.9 10% 0.9 6.4 10 0.7 1 -15% 0% 0 0% 0 -20% 5 FY08/10 FY08/13 FY08/16 FY08/19 FY08/10 FY08/13 FY08/16 FY08/19 FY08/10 FY08/13 FY08/16 FY08/19 Est. Est. Est. Source: Shared Research based on company data. Note: Number of users, affiliated stores, and related indices in FY08/19 and beyond are Shared Research estimates.

Revenue (left), operating profit (right)

16/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Core policy In October 2018, the company unveiled a management plan through FY08/21 (rolling plan subject to annual review), calling for aggressive investment to accelerate growth in the core Demae-can business. The plan also looks toward FY08/22 and beyond. In FY08/18, the company developed confidence in its Sharing Delivery® model through success with key measures such as increasing the repeat order rate and expanding highly loyal users. Based on these achievements, the company aims to make aggressive investments to rapidly build a dominant presence vis-à-vis restaurants, and expand its active user base, which is an area the company has yet to address. It has positioned the next three years as a period to rapidly build a dominant position that overwhelms competitors, while foregoing the pursuit of short-term profit. With the fruits of its efforts in Sharing Delivery® starting to emerge, the company believes now is the right time for a new strategy that relinquishes small gains at present to cultivate a more profitable future.

After the company has established its dominant position, it will look toward the next phase of growth. In FY08/19 (operating profit target of JPY100mn, down JPY700mn YoY), it will step up investment in directly managed Sharing Delivery® bases in key areas, and expand its active user base by updating its app and website and implementing measures to increase brand recognition (at the expense of a temporary drop in OP). In FY08/20 and beyond (FY08/20: JPY1.7bn, up JPY1.6bn, FY08/21: JPY5.0bn, up JPY3.3bn), it expects cost reductions on improved delivery efficiency of directly managed delivery bases, and effects from expansion in the active user base (in the form of higher OPM).

Demae-can generates about 75% of the company’s total revenue and about 80% of operating profit. Two-thirds of Demae-can revenue (excluding the impact of selling Delis) derives from order processing fees. The number of orders—the company’s most important KPI—is calculated by multiplying the number of affiliated restaurants by the number of users (repeat order rate and number of active users*). The medium-term plan aims to expand the number of affiliated stores and repeat order rate. In FY08/19, the company will focus on expanding its active user base while also increasing the number of affiliates and developing new markets by leveraging Sharing Delivery®. Related initiatives are as follows.

*Number of active users: Used by the company to refer to the number of users who have placed at least one order through Demae-can in the past year. Active users do not include users that go through partner companies, although these users are included in the number of orders.

Growth in number of orders and market share

40% FY08/21: Streamlined delivery at directly managed locations; 80 Yume no Machi gross merchandise value (SR est.) (JPYbn) order increase led to strong increase in OP 67.2 45% Yume no Machi share in the food delivery market (left axis) 300 35% FY08/19: Sharing Delivery bases helped wiht area marketing; 70 40% active investments to bolster user acquisition 30% 60 FY08/18: Active investments led to higher repeat order 35% 48.0 25% rates and boosted Sharing Delivery; OPM 50 30% 200 down temporarily 25% 20% 33.8 40 20% 15% 30 23.3 15% 100 10% 17.3 20 13.5 7.1% 10.6 10% 5.8% 8.9 4.6% 6.4 6.8 7.4 7.8 3.6% 3.9% 5% 10 5% 0% 0 0% 0 FY08/10 FY08/13 FY08/16 FY08/19 (mn) FY08/13 FY08/15 FY08/17 FY08/19 FY08/21 Number of orders OPM (left axis) Est. Est. Est. Source: Shared Research based on company data and Yano Research Institute materials

17/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Growth in number of orders through expansion in affiliated stores

Number of affiliated stores

Number of affiliated stores YoY (left axis) ('000) Orders / Affiliated stores (average) YoY (left axis) 24% 28.3 30 35% 3,000 2,528 23% 24.9 30% 20% 25 2,500 21.1 25% 29% 23% 2,087 20% 16% 18% 20 1,765 2,000 17.2 20% 18% 21% 15% 15.3 14% 13.7 15% 1,434 12% 14% 14% 15 15% 12% 18% 1,500 11.6 12.2 1,193 10.7 11.2 11.3 12% 12% 9.0 9.8 12% 14% 1,046 10% 885 8% 8.4 10 772 1,000 7.3 9% 9% 668 674 661 673 688 8% 5% 586 454 4% 5% 5 500 1% 5% 0% 2% 1% 2% 3% 0% 0 -5% -2% 0 FY08/07 FY08/10 FY08/13 FY08/16 FY08/19 FY08/07 FY08/10 FY08/13 FY08/16 FY08/19 Est. Est. Source: Shared Research based on company data Note: “Affiliated stores (average)” refers to the average number of stores between the beginning and end of the fiscal year.

Developing new markets through Sharing Delivery®: Aim for dominant position in FY08/19 by opening directly managed stores Demae-can had 17,207 affiliated stores as of end-FY08/18, growing at about 12% for a third consecutive year. However, the company believes it will be difficult to sustain such growth over the medium term with an approach that simply relies on securing more affiliated restaurants that deliver food: only about 30,000 of the 600,000-plus restaurants in Japan deliver; of those that deliver, only 20,000 exhibit strong appetite for growth. If the company continues to increase the number of affiliates at a pace similar to that of FY08/18 (net increase of 1,889 stores), growth will likely hit a ceiling in FY08/19.

From FY08/18, the company has stepped up initiatives to approach stores looking to expand into delivery. Accordingly, it plans to leverage Sharing Delivery® to provide a network for restaurants without delivery services, increasing the number of affiliated stores while offering a more extensive selection to consumers. The company provides affiliated stores with opportunities to improve earnings and grow by streamlining store operations (including consulting services for menu development); it offers consumers an extensive product selection. We will monitor how it differentiates itself in terms of securing affiliated stores and consumers and creating barriers to entry. By end-FY08/18, we understand the company had received favorable feedback from major restaurant chains. Comparable store sales in areas where Sharing Delivery® was available outpaced growth in other areas, and the company has thus been able to prove that Sharing Delivery® contributes to sales growth.

Medium-term target: 530 stores (of which 62 directly managed) by end-FY08/21 (achieving level comparable to pizza delivery operators) As of end-FY08/17, Sharing Delivery® was deployed in 10 areas. By end-FY08/18, that number had been expanded to 60 in line with initial forecasts. The company plans to open 51 directly managed delivery bases in key areas as it sets out to rapidly establish a dominant presence to overwhelm competitors instead of focusing on short term profit growth while taking into account internal factors (confidence in Sharing Delivery® business model), external factors (rivals such as UberEats expanding areas of operation and risk of overseas companies entering the field), and business environment factors (rising need for improved restaurant efficiency amid expansion in food delivery market and worker shortages). As a result, the company sees operating losses for directly managed delivery bases widening by JPY400–500mn YoY in FY08/19, but believes such losses will peak in FY08/20 and sharply decrease in FY08/21 on increased delivery efficiency.

Turning to directly managed delivery bases, the company already established 11 bases under its urban center business model since August 1, 2018. Whereas outsourced delivery bases cover areas that allow for meal deliveries 40 to 50 minutes after a customer places an order, the directly managed delivery bases under the urban central model cater to smaller areas that facilitate deliveries in 20 to 30 minutes, targeting customer satisfaction and higher delivery efficiency. Gains in delivery efficiency not only reduce delivery costs and sales prices, but may also contribute to an expansion in the number of orders. Although the directly managed delivery bases operate in smaller service areas, we understand they are distributed in such a way as to avoid competition with physical stores. Another difference with outsourced delivery bases is that directly managed delivery bases charge a reduced order processing fee rate to stores. In other words, the main objective is not to increase profit, but rather to establish a dominant presence, encourage user purchases, and raise customer satisfaction.

18/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

The company plans to add 150–160 bases per year, targeting 530 bases by end-FY08/21 (of which 62 directly managed). This level would put it on par with pizza delivery operators such as Domino Pizza (530 outlets as of October 2018) and Pizza-La (533 outlets as of June 2016). Service areas are currently restricted to the Greater Tokyo area (capital and three prefectures), the Kansai and Chukyo areas, and Fukuoka. However, the company intends to expand into regional areas from FY08/19. The company’s objective is for Sharing Delivery® to become the dominant regional delivery network; eventually, it may also use the network to deliver non-food items.

In 1H FY08/18, the company targeted 25 new stores per delivery base. In 2H, it corrected problems it had identified, and instead of simply adding 25 stores, it attracted stores by expanding food categories centered on popular stores in each region, and thus switched to an approach that contributes profit to stores and delivery bases.

*Breakeven point for delivery networks is 25 stores: The company aims to make delivery networks profitable. Once one delivery network becomes viable, the company moves on to other areas. The company estimates the breakeven point at 25 stores (five delivery vehicles during peak times, one vehicle during off-peak times; 10 staff in total, including shifts).

*Delivery fees: Fees received by delivery bases constitute a certain percentage of the order value; they do not include the order processing fees charged by Yume no Machi (i.e., delivery fees do not contribute to company revenue).

Number of delivery bases (left), forecasted operating losses for directly managed delivery bases (right)

(JPYmn) Outsourced Directly operated OP (excluding directly operated) OP (directly operated) 5,000 600 530 5,000

500 4,000 370 400 3,000

300 2,000 1,700 210 801 837 200 1,000 100 100 60 0 10 0 -1,000 FY08/17 FY08/18 FY08/19 FY08/20 FY08/21 FY08/17 FY08/18 FY08/19 FY08/20 FY08/21 Est. Est. Est. Est. Est. Est. Source: Shared Research based on company data Expanding delivery network In FY08/18, the company also pursued collaborations with companies other than ASA to expand its Sharing Delivery® bases. In April 2018, it announced business alliances with Asrapport Dining Co., Ltd. (TSE 3069), Kozosushi Co., Ltd. (TSE 9973), and Delis Corp. In November 2018, it welcomed Japan Best Rescue System Co., Ltd. (JBR; TSE 2453) as a new partner. JBR will operate delivery bases in Nagoya as a delivery agent and start trial operation of new services that leverage Yume no Machi delivery staff. JBR provides a year-round lifestyle emergency support service (Handyman Van) across Japan, and Yume no Machi would like to leverage its expertise in resolving lifestyle problems as well as the network it has developed. The company is particularly interested in services that resolve minor needs and problems in confined geographical areas, and gathering real-time location data from delivery staff based on specialized tracking devices. We intend to closely follow related developments.

Toward meeting targets: FY08/17 To effectively launch Sharing Delivery®, the company implemented the following initiatives in FY08/17 toward full-scale establishment of delivery bases from FY08/18.  Bigger sales force: Increased the sales force from 2H FY08/17 (employees at the parent up from 64 at end FY08/16 to 72 at end FY08/17). As such, it was able to build a structure to handle two or three new areas per month (previously, one or two areas).  Targeting large restaurant chains: From June 2017, it began offering its services to large chains, starting with Yoshinoya. In October 2017, it introduced a mechanism to automatically add these chains’ stores in new areas.  New delivery bases: The company announced a business alliance with Asahi Shimbun in December 2016 and a collaboration with Asahi Shimbun’s delivery network of ASA stations. It made the first joint delivery base profitable; that is expected to promote the spread to other ASA stations.

Toward meeting targets: FY08/18 Toward its original goal of establishing a foothold in 300 areas by end-FY08/20, the company looked to advance into areas with high consumer demand. In FY08/18, it pursued the following initiatives:  Area expansion: expanded services to the Kansai region  Add major chains: continued to add popular restaurant chains such as Tempura Tendon Tenya (October 2017) and Gyoza Ohsho (November 2017)

19/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

 Expanded delivery network: collaborated with companies other than Asahi Shimbun’s ASA and built systems to increase quality and efficiency  Branding: used electric bicycles with the company logo through collaboration with a manufacturer  Store staff: conducted trial initiatives involving employing seniors and homemakers

Results in FY08/18: Area expansion: After delivery bases established in Kanto in FY08/17 started moving into the black, the company assembled a base development team in FY08/18 and expanded delivery bases in Kansai. It steadily expanded into the Kansai area starting with a first base in the Hirakata area (Osaka, collaboration with ASA) in December 2017, and moved into the Tokai area with a first base in Nagoya (collaboration with ASA) in May 2018. In March 2018, the company launched the Incubation Kitchen™ Project, which provides support to those seeking to open restaurants that focus on delivery services, as a new initiative.

Add major chains: The company believes this will support area development while strengthening product selection, thereby increasing customer satisfaction and delivery base profitability. Further, the addition of certain chains supports the acquisition of new customer segments. For example, at one chain, the store environment was not very attractive to women or families; after starting to offer delivery services, about 80% of orders came from women. In FY08/18, the company steadily added new food categories, including Tendon Tenya and Gyoza no Ohsho in Q1; Ringer Hut, Marugameseimen, and Chibo in Q2; Lotteria and Denny’s in Q3; and Botejyu in Q4.

Expand delivery networks: The company regards the rapid turn to profitability at the ASA Sharing Delivery® base as a good sign for expansion to other ASA stations. However, expectations regarding the pace at which the network should be expanded seem to be different for both companies, with Yume no Machi eager to rapidly move forward, and ASA desiring more time for review. In areas where there are no ASAs or ASAs lack interest in joint delivery, Yume no Machi pursued other partners. In April 2018, it announced business alliances with Asrapport Dining Co., Ltd. (TSE: 3069), Kozosushi Co., Ltd. (TSE: 9973), and Delis Corp. In addition, the company reinforced systems to enhance quality and efficiency. When first establishing the service, delivery bases struggled to handle peak times. The company addressed this in FY08/17 by creating a system where delivery staff can extend delivery times* (notifying the customer about the delay and the restaurant about the optimal time to begin meal preparation). In FY08/18, it continued to enhance the quality of deliveries made through Sharing Delivery®. Note: As of FY08/18, the company had no intention of owning the delivery network, and aimed to utilize external resources to distribute risk. However, it started operating directly managed delivery bases from August 2018 to establish a dominant position in key areas.

*Extending delivery time: Assuming total time from order to delivery of 30 minutes, delivery staff generally arrive at the restaurant 15 minutes after an order has been received and deliver the meal 10 minutes after pickup from the restaurant. However, during peak demand times or when dealing with traffic delays, delivery staff may arrive at the restaurant later than 15 minutes after the order has been received. In such cases, adjusting the total delivery time to 40 minutes means delivery staff arrive at the restaurant 25 minutes after the order has been placed and deliver 10 minutes after pickup. This ensures the delivered meal remains fresh. Directly managed delivery bases operating under the company’s urban central model target deliveries in 20 to 30 minutes from receipt of an order. This compares with overseas delivery times of 15 minutes in countries such as the UK.

Branding: The company is deploying electric bicycles bearing the company logo through collaboration with manufacturers. The idea is to increase its name recognition by associating food delivery with Demae-can. Using electric bicycles highlights that the company is environment friendly. In November 2017, the company received free electric bicycles from Yamaha Motor Co., Ltd. (TSE1: 7272) and launched trial initiatives using the bikes at Sharing Delivery® bases in the Tokyo districts of Akasaka, Ikebukuro, and Ueno.

Store staff: Given growing labor shortages in the restaurant sector, the company is conducting initiatives such as hiring seniors and homemakers.

Major chains using Sharing Delivery® (as of November 2017; increasing through test stores): Densetsu no Sutadonya, KFC, Gyoza no Ohsho, Tempura Tendon Tenya, First Kitchen, Yoshinoya, Kushikatsu Tanaka

Areas in which Sharing Delivery® has been launched (18 as of December 2017): Makuhari (Chiba Prefecture), Tachikawa (Tokyo), Sagami-Ono (Kanagawa Prefecture), Rokkakubashi (Kanagawa Prefecture), Machida (Tokyo), Meguro (Tokyo), Tenjin (Fukuoka), Omiya (Saitama Prefecture), Kawasaki (Kanagawa Prefecture), Nishi-Shinjuku (Tokyo), Fujisawa (Kanagawa Prefecture), Koenji (Tokyo), Nerima (Tokyo), Kashiwa (Tokyo), Akasaka (Tokyo), Ikebukuro (Tokyo), Ueno (Tokyo), Asakusa (Tokyo), Hirakata (Osaka). Sagami-Ono was where the company first collaborated with ASA (March 2017).

Store support Yume no Machi’s strategy to increase the number of affiliated stores is not limited to Sharing Delivery®. The company also promotes implementing systems to increase store efficiency. It has provided consultative sales for revitalizing stores through menu development and cost cuts; it intends to increase support services. Previously, with the company’s food delivery platform, it received orders online, automatically faxed the order to the restaurant, and waited for restaurant confirmation (via an automated voice message). Now, most operations are online following the November 2017 launch of Order Management App for iOS and Android devices, which includes delivery navigation functions.

The company’s platform does not require that restaurants possess specialized knowledge or invest in additional IT equipment; the company can provide access to new customer segments (online orders) without affecting on-site operations. According to the company, smartphones and tablets are already widely adopted by restaurants, so it has developed an app that helps streamline store efficiency—not just for orders. The app eliminates the need for faxes (reducing costs and space, promoting paperless operations); it reduces the burden in managing deliveries. App functions include order management and real-time display of delivery conditions (location data, deployed/standby status for vehicles) for restaurants; delivery-side devices can

20/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

receive information on orders (e.g., delivery time) and navigation instructions (reducing late deliveries). The app is already being used with Sharing Delivery®; the company believes the app has contributed to improved delivery quality.

New initiatives As a new initiative, in March 2018 the company launched the Incubation Kitchen Project, which provides support to those seeking to open ™ restaurants that focus on delivery services.

The company will provide support to restaurant operator candidates (individuals or corporations) who wish to enter the food delivery market. Under this project, the company will utilize its core business Demae-can to provide restaurant space (kitchen), share its sales channels (Demae-can), and offer expertise in food delivery business based on the big data accumulated by Demae-can. The project will allow candidates to start their businesses on a trial basis at low risk. Some of the main support areas offered are marketing and operations, restaurant opening and financing, provision of operational expertise and management systems upon opening, and d) periodic seminars designed to help management after the start of business.

Candidates are selected via open application and the duration of the program (the incubation period) is in principle six months (first program to run from March 1, 2018 through September 30, 2018); the company plans to charge a monthly facility usage fee of about JPY100,000. Those enrolled in the program can immediately try out their businesses at low risk and without the burden of initial expenses. The program also allows the company to offer a wider selection of restaurants and foods in areas where it is running the Demae-can business. In June, as the first stage of the project, the company supported opening of a kuroge wagyu beef yakiniku restaurant, Ushikuro. The company anticipates the possibility of expanding restaurant space for Incubation Kitchen and growing the number of bases in each region. ™

Population size (mn people) and service areas

Sapporo 1.9

Nagoya 2.3

Kobe 1.5 Niigata 0.8 Okayama 0.7 Hiroshima 1.2 Kyoto 1.5 Kitakyushu 1.0 Sendai 1.1 Fukuoka 1.6 Saitama 1.2 Tokyo 9.3 Chiba 1.0 Kawasaki 1.5 Yokohama 3.7 Kumamoto 0.7 Hamamatsu 0.8 Sakai 0.8 Osaka 2.7 Shizuoka 0.7 Sagamihara 0.7 Source: Shared Research based on Ministry of Internal Affairs and Communications materials

Major chains

Yume no Yume no Yume no Yume no No. of No. of No. of No. of Brand Machi Brand Machi Brand Machi Brand Machi stores stores stores stores affiliat e affiliat e affiliat e affiliat e Pizza Pizza-la 553 〇 Family Gusto 1365 〇 Conveyer belt Hamazushi 483 Pub Uotami 716 Domino's 500 〇 restaurant Saizeriya 1057 sushi Sushiro 476 T orikizoku 587 Pizza Hut 370 〇 Joyfull 804 〇 Kurasushi 407 Daikichi 608 Coco's 586 〇 Hamburger McDonald's 2897 Lunch box Hottomotto 2688 〇 Café Starbucks 1304 MOS Burger 1353 〇 Beef bowl Sukiya 1951 Hokka Hokka Tei 1016 〇 Doutor 1124 KFC 1153 〇 Yoshinoya 1197 〇 Honke Kamadoya 513 〇 Mister Donut 1160 Matsuya 951 Nakau 465 Chinese Gyoza Ohsho 732 〇 Sweets Baskin Robbins 1171 Curry and rice CoCoICHI 1249 〇 Ringer Hut 650 Fujiya 915 Udon noodle Marugame Udon 785 Korakuen 545 Cozy Corner 636 Takoyaki Gindako 469 〇 Hanamaru 415 Hidakaya 393 Source: Shared Research based on each company’s data (November 2017 research) Note: Chains marked with a ○ sign refer to Demae-can affiliated chains

21/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Order management app (left: tablet functions for restaurants, right: smartphone functions for delivery-side, as of October 2017) Top: User name, order number, delivery time, List of orders User name, delivery time, address, phone number delivery time, address, order details, map, Middle: order details restaurant/store, other delivery location, other Bottom: Payment details, delivery details

Source: Shared Research based on company data

Growth in number of orders through increased active users

Number of active users and number of orders

70% Active users YoY (left axis) 8.7 9 20% Orders / Active users YoY (left 17.9%axis) 11 8 15% 60% 10 7 6.2 10% 50% 9.1 6 4.4% 4.3% 8.7 9 2.6% 2.8% 5% 1.3% 40% 4.4 5 0.0% -1.8% 7.8 7.8 0% 7.6 7.7 8 30% 4 7.4 2.7 7.0 3 -5% 6.9 2.4 6.7 20% 1.9 6.5 6.6 7 1.5 2 -11.6% 1.1 1.2 1.4 -10% 10% 0.7 0.9 -14.4% 1 -16.2% 6 -15% 0% 0 FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 FY08/20 -20% 5 Est. FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 FY08/20 (mn) Est. Source: Shared Research based on company data. Note: Number of users, affiliated stores, and related indices in FY08/19 and beyond are Shared Research estimates.

To increase the number of orders, which the company considers its most important KPI, the company needs to reinforce business foundations (large number of appealing affiliated stores), increase its brand recognition (get people to know Demae-can), and increase the number of heavy users (strengthen campaigns that promote repeat orders, in addition to increasing the number of appealing stores and expanding food categories). In FY08/18, the company made progress with development of its business foundations and expansion of heavy users. In FY08/19, it plans to accelerate the rollout of Sharing Delivery® bases, and further increase the repeat order rate.

However, the company still faces a number of challenges. Although it has achieved some success in raising its brand recognition through TV commercials, brand recognition by the general public only stood at a low 37% as of August 2018 (up from nearly 20% in August 2015, 25% in August 2016, 30% in August 2017, and 35% in February 2018). Active users reached 2.7mn in FY08/18 (+14.1% YoY), coming in below the target of 3.1mn (+33%) and thus reflecting slower-than-expected growth. In FY08/19, the company will step up investment to increase its brand recognition and expand its active user base. The company has set an ambitious target for active user growth, forecasting a 64% YoY increase to 4.4mn active users.

Expansion in number of active users The number of active users for Demae-can has grown at a pace of over 20% in the two years from FY08/16, and the company targeted a CAGR of 34.5% in the period covered by its previous medium-term plan. However, growth fell short in FY08/18, at 14.1%, and the 340,000 active users added for the year marked a decline from the 430,000 recorded in FY08/17. Under the

22/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

present version of its rolling medium-term plan, the company looks for even sharper CAGR of 47.6% over the next three years driven by various initiatives and investments.

To expand the active user base and the number of orders, the company intends to strengthen sales activities, including for Sharing Delivery® to sign appealing affiliated stores as its members. The pace at which it develops Sharing Delivery® bases will also be a critical factor. In addition, the company intends to revamp the UI/UX* of its app and website (significantly improve usability by strengthening search functions on the order top page, and introduce advertising functions and strengthen matching for stores and customers), and increase brand recognition (continue airing television commercials in light of the effects obtained from those aired in December 2017). After ensuring users can select food deliveries in a comfortable and stress-free manner via its app and website (infrastructure), the company intends to step up promotion. On the promotion front, the company excessively narrowed its target to increasing repeat orders in FY08/18. Learning from this experience, it now plans to expand active users on a broader scale. The medium-term plan focuses to a great extent on expansion of the active user base, but the company also intends to continue measures to increase the repeat order rate.

*UI: User interface, UX: User experience

The key strategy to increase the repeat order rate is advertising and promotion spending. The company has indicated its repeat order rate was roughly seven times in FY08/17. It rose further in FY08/18, but the company has not disclosed specific data. This leaves ample room for growth relative to rates of 11–14 at comparable US companies. KPIs of the medium-term plan call for a 42.3% CAGR in the number of orders, slightly below the projected growth for the number of active users (+47.6%). In FY08/19 (the first year of the plan), the increase in the number of orders (+45.0%) lagged the growth in the number of active users (+63.9%), but the plan calls for order growth to outpace increases in the active user base in FY08/20 and beyond. In FY08/19, the company forecasts an increase in new casual users thanks to aggressive promotion, and this should have some impact on the average repeat order rate. However, the targets for FY08/20 and beyond reflect an ambition to increase the repeat order rate for existing users. An overview of initiatives to increase the repeat order rate and number of new users is shown in the following box.

Number of active users and number of orders at comparable US companies (Grubhub, Inc.)

Daily Average Grubs (daily avg. orders) x 365 / Active Diners (mn) (mn) (mn) (mn) Active Diners (active users) Number of orders (active users) 18 3 45 7 Yume no Machi cumulative orders / Active users (right axis) Yume no Machi orders (right axis) Yume no Machi active users (right axis) 20 10 16 40 6 14 35 5 15 12 2 30 10 25 4 10 5 8 20 3 6 1 15 2 4 10 5 1 2 5 0 0 0 0 0 0 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/13 FY08/15 FY08/17 Source: Shared Research based on company data

Increase in repeat order rate Yume no Machi does not disclose data on the Demae-can repeat order rate. However, trends in the repeat order rate can be estimated by dividing the number of orders* by the number of active users** (this calculation does not exclude the impact from guest users or users who do not register; active users do not include those ordering through partner restaurants). The trend in the right-hand chart above suggests that the medium-term plan looks to accelerate growth in the repeat order rate.

*Number of orders: Number of orders in the Demae-can business (includes orders at partner companies, such as NTT Docomo and LINE) **Number of active users: Number of active users of Demae-can (does not include partner companies)

In FY08/18, the company aimed to increase the repeat order rate with the following measures:  Developing heavy users by actively encouraging users to place a third order; thereafter, the user withdrawal rate drops substantially  Introducing a loyalty program with incentives tied to the number of orders (November 2017)  Creating a brand image that is more attractive to homemakers  Improving product selection

The company planned to direct the advertising and promotion budget at existing users rather than acquiring new users.

23/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

From the company’s analysis, the user withdrawal rate after the first order (i.e., users who do not place a second order) is over half. However, the rate drops sharply after users have placed a third order: they are more likely to become heavy users. Accordingly, the company has introduced a loyalty program. By ranking users according to the number of orders placed each year and raising awareness of awarded points and user rankings, the company aimed to encourage repeat use and increase heavy user share.

Yume no Machi aired a TV commercial at the end of 2017 (as it did at the end of 2016) under the theme “supporting mothers.” According to the company, many Japanese women feel a sense of guilt toward their families when they order in. The company developed a commercial encouraging a change in perspective, presenting delivered meals more positively. In the 2016 commercial, the company highlighted its services, which helped increase its name recognition. In 2017, the company shifted toward branding. To maximize the commercial’s effect, it was aired intensively in areas where the company has developed full-scale networks. The results have been apparent in the form of higher brand recognition and an increase in the number of orders.

In online advertising, the company changed its customer lifetime value* focus from new users to ones that annually place three or more orders. It believed it would still be able to sufficiently recover its investment, and directed the bulk of its advertising and promotion budget to increasing the repeat order rate. The results have been apparent in the form of steady progress with the conversion of existing users into heavy users, but the company regrets the fact that it excessively narrowed the target segment.

*LTV (lifetime value): Refers to the total value obtained from all products or services bought by new users. It is most often used as an indicator of investment recovery for advertising and promotion costs.

Order promotion

Use points and Feeling hungry... Feeling nervous Use the coupon try a different Let's see what at the first order and place another order restaurant Demae-can has

First Second Third Becomes a heavy time time time user

Loyalty program

No. of orders Birt hday Advance notice Privat e Secret Rank per year gift point s of compaigns coupons benefits

God 60 or more 1,000 〇〇〇

Gold 30–59 500 〇〇 -

Silver 10–29 300 〇 - -

Bronze 3–9 200 - - -

Regular 0–2 - - - -

Source: Shared Research based on company data

Development of new users Greater collaboration with major partners In addition to increasing the repeat order rate, the company focused further on developing new users. It continued spending on advertising and promotion (especially online ads), pursuing such initiatives as promotions geared toward increasing name recognition, and expanding user segments by collaborating with major partners.

A major theme of the previous medium-term plan (FY08/18–FY08/20) was expanding the number of Demae-can users. This involves converting existing users into heavy users; the company also aims to continue acquiring new users. As before, it will invest in advertising and promotion; it will implement various initiatives aimed at increasing exposure for Demae-can toward improving name recognition. For user segments that are difficult for the company to access, the company aims to use major partners. The company has actively cultivated new users through alliances with major IT

24/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

companies, such as Yahoo!De-mae (2007) and, more recently, NTT Docomo (2014; D Delivery) and LINE (2016; full-scale launch of LINE Delima in July 2017).

To raise exposure and enhance name recognition, the company is increasing the number of electric bicycles with the Demae-can brand. Numbers are based on the area and growth in order numbers (as part of branding, the company received free electric bicycles from Yamaha Motor in November 2017; it started trial use of the electric bikes at Sharing Delivery® bases in Tokyo’s Akasaka, Ikebukuro, and Ueno).

Yamaha PAS Natura XL customized for Demae-can TV Commercials (broadcast December 2017)

Source: Company materials Initial forecasts for FY08/19

As outlined in the medium-term plan, the company has positioned FY08/19 as a year of investment in building an overwhelming presence in the food delivery market, which is projected to grow at an accelerating pace in the future. Although operating profit is expected to decline sharply, KPIs should increase more than before and contribute to growth from FY08/20. Also, the company has factored in virtually no sales growth at its Mail Order business in FY08/19 and the period covered by the medium-term plan.

KPIs The company expects the number of orders to increase 45% YoY to 33.8mn. The projected growth pace is below the estimated 64% increase in the number of active users (to 4.4mn), but this is because the company expects various measures to drive up the number of casual users. It looks for initiatives related to increasing the repeat order rate to convert existing users into heavy users. It also expects the number of affiliated stores to increase more than originally anticipated due to expansion in Sharing Delivery® bases.

25/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

GPM and SG&A expenses The company also generates sales from sources other than order processing fees, which have an effect on GPM, but we understand no major changes are expected in FY08/19. In SG&A expenses, the company looks for increases in advertising and personnel expenses. The former should rise mainly in connection with the goal to expand the active user base, and the latter as a result of an expansion in Sharing Delivery® bases. The company expects advertising expenses to be slightly skewed toward 2H as it plans to start promotion after it has established the foundations to attract more active users (improvement of app and website UX/UI).

26/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Business Business description Yume no Machi operates the specialized food delivery portal Demae-can (76% of operating profit in FY08/16) and is also involved in mail order operations (Mail Order business: 24% of operating profit). Demae-can provides a platform that connects affiliated restaurants and consumers; it enables meal deliveries in just 20 minutes. The company has achieved this position by offering convenience to consumers and various benefits to stores, such as tools to increase customer attraction and operation systems to prevent order problems. It is also differentiated by a call center to improve customer service.

The food delivery market in Japan is worth roughly JPY600bn; in FY08/18, the revenue of food delivered through the company’s services was estimated at nearly JPY60bn, roughly 9% of the total market. This suggests ample scope for growth driven by expansion in the food delivery market, an increase in the ratio of online orders (the company estimates online orders accounted for 10–20% of the total food delivery market in FY08/17), and providing delivery infrastructure to restaurants to expand the delivery market (lack of delivery infrastructure is generally a major obstacle for restaurants).

Earnings trends

(mn) (JPYbn) (JPYmn) 80 Number of orders 20 Revenue 18.8 6,000 30% Operating profit 70 67.2 18 5,000 5,000 25% 16 OPM (right axis) 60 14 12.9 48.0 4,000 20% 50 12

40 33.8 10 3,000 15% 7.7 30 8 23.3 5.4 2,000 1,700 10% 6 4.9 17.3 4.2 20 13.5 3.6 3.7 10.6 4 801 837 8.9 2.1 1,000 5% 6.4 6.8 7.4 7.8 547 573 10 2 1.2 1.3 1.4 278 362 234 244 211 100 0 0 0 0% FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 FY08/20 FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 FY08/20 FY08/10FY08/12FY08/14FY08/16FY08/18FY08/20 Est. Est. Est.

Number of orders YoY (left axis) (mn) Active users YoY (left axis) (mn) 20% Orders / Active users YoY (left axis) 11 60% 80 70% 8.7 9 15% 67.2 8 Oct. 2016: Capital and 70 60% 10 50% business alliance with LINE 7 10% 9.1 60 6.2 50% 8.7 9 40% 48.0 6 Apr. 2014: Business 50 5% alliance with NTT Docomo 40% 4.4 5 7.8 7.8 0% 7.6 7.7 8 30% 33.8 40 4 7.4 30% 7.0 30 -5% 6.9 23.3 2.7 6.7 7 20% 2.4 3 6.5 6.6 20% 17.3 20 1.9 -10% 13.5 1.4 1.5 2 10% 10.6 1.1 1.2 6 6.8 7.4 7.8 8.9 10% 0.9 6.4 10 0.7 1 -15% 0% 0 0% 0 -20% 5 FY08/10 FY08/13 FY08/16 FY08/19 FY08/10 FY08/13 FY08/16 FY08/19 FY08/10 FY08/13 FY08/16 FY08/19 Est. Est. Est. Source: Shared Research based on company data. Note: Number of users, affiliated stores, and related indices in FY08/19 and beyond are Shared Research estimates.

Segment earnings (JPYmn) and breakdown (%)

Revenue Operating profit

Mail Order Mail Order 136 1,553 16% 28%

Demae-can Demae-can 702 4,078 84% 72%

Source: Shared Research based on company data

27/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Demae-can business

Demae-can FY08/16 FY08/17 FY08/18 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 YoY change (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Cons. Cons. Cons. Cons. Cons. Cons. Init. Est. FY08/18 FY08/19 Revenue 528 621 617 755 841 931 930 797 859 1,019 1,100 1,100 1,427 1,723 1,968 2,522 3,499 4,078 6,301 +579 +2,223 YoY 25.3% 21.6% 20.2% 44.6% 59.3% 49.8% 50.8% 5.5% 2.1% 9.5% 18.3% 38.1% 5.0% 20.7% 14.3% 28.1% 38.8% 16.5% 54.5% Operating profit 161 102 223 190 232 171 271 180 222 144 226 272 476 528 639 676 854 863 - +9 YoY 27.0% -51.5% 85.0% 5.2% 43.9% 67.4% 21.7% -5.2% -4.5% -15.8% -16.6% 50.7% 18.7% 10.9% 21.0% 5.9% 26.3% 1.1% - OPM 30.5% 16.4% 36.1% 25.2% 27.6% 18.3% 29.1% 22.7% 25.8% 14.1% 20.6% 24.7% 33.3% 30.6% 32.5% 26.8% 24.4% 21.2% - -3.2pp Order processing fees 337 408 394 407 415 502 498 524 563 679 677 716 895 1,013 1,204 1,546 1,938 2,634 - +696 YoY 28.8% 29.6% 30.7% 24.7% 23.2% 23.1% 26.2% 28.7% 35.7% 35.1% 36.1% 36.7% 6.6% 13.2% 18.9% 28.3% 25.4% 35.9% - No. of orders (mn) 2.92 3.50 3.46 3.64 3.79 4.41 4.38 4.70 5.08 5.94 5.97 6.33 7.76 8.87 10.56 13.53 17.28 23.32 33.82 +6.05 +10.50 YoY 25.9% 27.8% 31.0% 27.6% 29.7% 26.0% 26.5% 28.9% 34.1% 34.6% 36.4% 34.8% 5.4% 14.3% 19.1% 28.1% 27.7% 35.0% 45.0% Order processing fees / No. of orders 115.2 116.5 113.9 111.7 109.4 113.8 113.6 111.5 110.7 114.3 113.4 113.1 115.3 114.2 114.1 114.3 112.2 112.9 - +0.8 YoY 2.3% 1.3% -0.2% -2.3% -5.0% -2.3% -0.3% -0.2% 1.2% 0.4% -0.2% 1.4% 1.1% -1.0% -0.1% 0.2% -1.8% 0.7% - No. of affiliated stores (quarter end) 12,505 12,529 13,018 13,656 14,206 14,559 14,953 15,318 15,712 16,081 16,439 17,207 11,336 11,636 12,213 13,656 15,318 17,207 21,125 +1,889 +3,918 YoY 7.1% 6.1% 8.4% 11.8% 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 9.9% 12.3% 1.0% 2.6% 5.0% 11.8% 12.2% 12.3% 22.8% No. of orders / No. of affiliated stores 236.6 279.7 270.9 273.2 272.2 306.7 296.7 310.3 327.7 373.5 367.3 376.3 688.0 772.2 885.5 1,045.9 1,192.7 1,434.3 1,764.6 +241.6 +330.3 YoY 18.7% 20.0% 22.1% 15.9% 15.1% 9.6% 9.5% 13.6% 20.4% 21.8% 23.8% 21.3% 2.3% 12.2% 14.7% 18.1% 14.0% 20.3% 23.0% No. of active users (quarter end; mn) - - 1.82 1.92 1.98 2.13 2.24 2.35 2.45 2.55 2.62 2.69 1.16 1.35 1.54 1.92 2.35 2.69 4.41 +0.34 +1.72 YoY - - - 24.7% - - 23.2% 22.4% 23.7% 20.0% 17.0% 14.5% 2.7% 16.4% 14.1% 24.7% 22.4% 14.5% 63.9% No. of orders / Average no. of users 1.9 1.9 2.1 2.0 2.0 2.1 2.4 2.3 2.4 6.8 7.1 7.3 7.8 8.1 9.3 9.5 +1.2 +0.3 YoY ------5.0% 8.9% 10.5% 15.2% 16.5% -7.1% 4.3% 3.4% 7.0% 3.5% 14.4% 2.9% Total users (quarter end; mn) 7.37 7.69 7.98 8.30 8.56 8.81 ------5.48 6.28 7.14 8.30 - - - - YoY 14.3% 14.9% 15.8% 16.2% 16.1% 14.6% ------13.8% 14.6% 13.7% 16.2% - - - Depreciat ion 43 46 47 51 49 49 36 37 36 38 42 46 151 153 174 187 171 162 - -10 Amortization of goodwill 3 3 3 14 11 11 7 ------4 6 23 30 - - -30 EBITDA 207 151 273 255 293 230 315 217 257 182 268 317 627 685 818 886 1,055 1,025 - -31 YoY 19.9% -40.6% 65.2% 12.7% 41.2% 52.7% 15.5% -14.8% -12.1% -21.1% -14.9% 46.1% 16.4% 9.3% 19.4% 8.3% 19.1% -2.9% - EBITDA margin 39.3% 24.3% 44.2% 33.8% 34.8% 24.7% 33.9% 27.3% 30.0% 17.8% 24.4% 28.9% 43.9% 39.8% 41.6% 35.1% 30.2% 25.1% - -5.0pp

Earnings trends

(JPYmn) (JPYmn) Revenue YoY (right axis) Operating profit YoY (right axis) Operating profit (right axis) 7,000 70% 1,000 50% 6,301 854 863 6,000 60% 800 40% 33.3% 676 5,000 50% 30.6% 639 4,078 29.5% 600 26.8% 30% 4,000 3,499 40% 528 32.5% 24.4% 476 21.2% 3,000 30% 401 2,522 400 20% 1,968 1,723 2,000 1,360 1,427 20% 1,143 1,253 891 1,052 200 10% 1,000 578 700 10% 297 0 0% 0 0% FY08/05 FY08/07 FY08/09 FY08/11 FY08/13 FY08/15 FY08/17 FY08/19 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 Est. Source: Shared Research based on company data

Demae-can mainly operates the specialized delivery website Demae-can.com in Japan; it also generates earnings through a subsidiary in Indonesia. This section provides an outline of the Demae-can business in terms of market scale, business structure, and disclosed items.

Market overview According to the Japan Foodservice Association, Japan’s restaurant market is currently worth JPY25.7tn. It entered a decline after peaking at JPY29.1tn in 1997. In recent years, it has begun gradual recovery, rebounding from the turmoil of the 2008 global financial crisis and slump after the 2011 Great East Japan Earthquake. Contraction in the sector has centered on the beverage segment (particularly bars and pubs serving alcohol). Data suggest that the restaurant segment is expanding at a modest pace, and sales of boxed lunches and other prepared food are growing. These uptrends are powered by greater demand for prepared meals and readily available food, which benefits the Demae-can business.

Restaurant market

8% Eating out market YoY (left axis) 30,000 16,000 Restaurants Prepared meal market 14,000 6% 28,000 12,000 4% 26,000 10,000 2% 24,000 8,000 0% 22,000 6,000 -2% 20,000 4,000

-4% 18,000 2,000

-6% 16,000 0 1991 1996 2001 2006 2011 2016 (JPYbn) 1991 1996 2001 2006 2011 2016 (JPYbn) Source: Shared Research based on Japan Foodservice Association data

28/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Market size Food delivery market According to the Yano Research Institute, the food delivery market was worth JPY2.8tn in FY2016 (market survey conducted May–July 2017). Within this market, the categories that involve Yume no Machi (delivery of ingredients, pizza, meals, fast food, and sushi) were collectively valued at JPY652.6bn—just over 30% of the total. Yume no Machi books a certain percentage of the sales value for products sold by restaurants through Demae-can as revenue under “order processing fees” or “other.” A backward calculation for FY08/18 produces an estimate of about JPY63bn in restaurant sales—equivalent to only about 10% of Yume no Machi’s target market. By order types for FY08/17, telephone orders still account for 80–90% and online orders just 10– 20%. The company believes expansion in online orders will continue to propel market growth.

Affiliated stores The Ministry of Internal Affairs and Communications’ 2014 Economic Census for Business Frame, released in 2015, gave the following figures: number of restaurants, 619,711 (396,932 independently operated); number of take-out and delivery locations, 55,929 (9,427 independent); total, 675,460 (406,359 independent). As of end August 2017, Yume no Machi had 15,318 affiliated stores—about 2% of the total. Of the company’s roughly 15,000 affiliated stores, about 40% are chains.

Yume no Machi does not disclose store count and revenue by category for Demae-can. But it has stated that pizza accounts for a large portion of its business; other key categories include sushi, boxed lunches, Chinese food, Western food, curry, and hamburgers. The company believes that focusing on foods that can be eaten daily, such as boxed lunches, will help boost the repeat order rate. For example, family restaurant chain Gusto offers a wide selection of low-price boxed lunches (starting at about JPY500; minimum order amount, JPY1,500; free delivery); customers can easily recognize the convenience of ordering online. Other affiliated stores include stores selling alcohol or rice, supermarkets, dry cleaners, and locksmith stores (non- restaurants account for only a fraction of the company’s revenue).

Food delivery market

Pizza delivery Eating out and fast food delivery Sushi delivery Prepared food delivery Convenience store delivery Pizza delivery Eating out and 3,000 Home meal delivery services Consumers' co-op. (individual delivery) fast food delivery Online supermarket Milk delivery Natural food delivery Natural food delivery Convenience store delivery 2,399 Sushi delivery 2,500 2,281 2,344 Milk delivery 2,141 2,212 2,012 2,078 Online 1,880 1,935 2,000 1,810 supermarket JPY600.0bn Prepared 1,500 food delivery

1,000 Home meal Consumers' co-op. delivery services 500 (individual delivery)

0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 (JPYbn) Est. Est. Est. Est. Est. Source: Shared Research based on data released by Yano Institute on September 12, 2017

Number of food and beverage establishments (2014)

Take-out and delivery services Eating places 55,929 52,461 Misc. eating and Misc. specialty Japanese drinking places restaurants restaurants 29,801 53,336 49,792 Coffee shops Specialty 69,983 restaurants 177,056

Bars, cabarets, and night clubs 103,439 Yakiniku (grilled Chinese Sushi bars meat) restaurants restaurants Drinking houses 24,069 18,833 55,095 and beer halls 129,662 Source: Shared Research based on the 2014 Economic Census for Business Frame released by Ministry of Internal Affairs and Communications

29/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Yume no Machi affiliated stores

Restaurant offices Yume no Yume no Machi affiliated stores Individual stores Yume no Machi affiliated Machi stores affiliated 15,318 stores 2% 1%

Independent Chain stores stores

Non-affiliated stores Approx. 60% Approx. 40% 99% 660,322 98% Approx. 630,000

Source: Shared Research based on company data and materials of the Ministry of Internal Affairs and Communications

Major chains

Yume no Yume no Yume no Yume no No. of No. of No. of No. of Brand Machi Brand Machi Brand Machi Brand Machi stores stores stores stores affiliat e affiliat e affiliat e affiliat e Pizza Pizza-la 553 〇 Family Gusto 1365 〇 Conveyer belt Hamazushi 483 Pub Uotami 716 Domino's 500 〇 restaurant Saizeriya 1057 sushi Sushiro 476 T orikizoku 587 Pizza Hut 370 〇 Joyfull 804 〇 Kurasushi 407 Daikichi 608 Coco's 586 〇 Hamburger McDonald's 2897 Lunch box Hottomotto 2688 〇 Café Starbucks 1304 MOS Burger 1353 〇 Beef bowl Sukiya 1951 Hokka Hokka Tei 1016 〇 Doutor 1124 KFC 1153 〇 Yoshinoya 1197 〇 Honke Kamadoya 513 〇 Mister Donut 1160 Matsuya 951 Nakau 465 Chinese Gyoza Ohsho 732 〇 Sweets Baskin Robbins 1171 Curry and rice CoCoICHI 1249 〇 Ringer Hut 650 Fujiya 915 Udon noodle Marugame Udon 785 Korakuen 545 Cozy Corner 636 Takoyaki Gindako 469 〇 Hanamaru 415 Hidakaya 393 Source: Shared Research based on each company’s data (November 2017) Brands with a mark refer to Demae-can-affiliated chains ○

Business structure The company’s business structure consists of providing a platform that connects consumers, who wish to place food delivery orders, with restaurants providing such services and charging processing fees. Both consumers and restaurants benefit by using the company’s platform. Consumers enjoy convenience (ordering via an app; requires only initial registration and offers various payment methods), product selection (proportional to the number of affiliated stores), and discounts (reward points, coupons). Affiliated stores benefit from reduced promotion costs (attracting consumers who do not receive newspaper promotions), lighter burden for food delivery and sharp drop in human errors, call center support, and Sharing Delivery® for stores without proprietary delivery services (limited to certain areas). Affiliated stores can measure cost-effectiveness as they pay order processing fees in line with sales. It also facilitates reaching younger customer segments.

The company has its own call center (run by wholly operated subsidiary Satsuma Ebisudo), which offers order management services from order through delivery. The ability to rapidly improve operations through direct communication with consumers and stores is also a differentiating factor.

Business structure

Business model User benefits Store benefits

Order details Check out latest menu in pictures (options are easy Find out nearby to choose) restaurants by Success fee selecting location (GPS supported)

- Less costly than flyer-based promotions Orders Delivery - Orders are printed automatically Find out lead time - Order-taking load at stores reduced for delivery - No risk of mishearing orders T points and (address, delivery location, food and coupons offered option, time to deliver) - Order errors and issues are handled at Demae-can call center (24 hours, 365 days) Source: Shared Research based on company data

30/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Flow of operations in Demae-can business

User orders from PC, TV, and Demae-can server processes data Automatically sends orders via smartphones immediately fax and confirms with voice call

Sends order confirmation email Simple operation on the phone to users

Delivers and collects, Delivers, as usual Prepares meal as usual (no risk of mishearing orders) Source: Shared Research based on company data

Sharing Delivery® Sharing Delivery® enables restaurants without proprietary delivery services to outsource delivery. The company fully launched the service in FY08/17.

Structure According to the company, Sharing Delivery® adopts a business model that aims to benefit users, delivery bases, and stores. It contributes to increased satisfaction for users, new earnings streams for delivery service operators, and increased efficiency and new customer acquisition for stores. Yume no Machi can expand affiliated stores, enhance user satisfaction, and create barriers to entry without changing its business structure (charging order processing fees equivalent to a certain percentage of the order value, excluding the delivery fee).

Overview

Order details

Pick up Success food fee

Delivery

Source: Shared Research based on company data

Benefits for consumers and restaurants Sharing Delivery® offers benefits to both consumers and restaurants. Advantages for restaurants: a) Low-risk acquisition of delivery networks: Stores can gain access to a delivery network by paying a delivery fee (passed on to the consumer in product pricing) and do not need to take on investment risk, e.g., delivery vehicles, personnel. b) Acquisition of new customer segments: In addition to securing food delivery demand, stores can access new customer segments that are reluctant to enter physical stores. The company has observed this effect at certain major chain restaurants. c) High average spending per customer: Stores enjoy growth in orders from Demae-can users, whose average spending is high (JPY2,500). d) Improved operational efficiency and lower costs: Utilizing the company’s platform leads to reduced promotional and operational costs, such as order-related costs.

Advantages for consumers

31/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

a) Expanded product selection: Users can order from major chains or local restaurants that previously did not offer delivery services. b) Enhanced convenience: Users can order from stores they previously found difficult to enter.

Delivery network Yume no Machi does not have a proprietary delivery network; it builds the network through partnerships. Sharing Delivery® was launched in Makuhari (Chiba Prefecture) in August 2016; delivery was initially handled by former subsidiary Delis (sold April 2017). The company announced a business alliance with Asahi Shimbun in December 2016 and cooperation with Asahi Shimbun’s delivery network of ASA stations. This was followed by the launch of the first delivery base in Sagamihara (Kanagawa Prefecture) in March 2017. The company aims to use ASA’s nationwide network of over 2,000 bases to expand Sharing Delivery® across Japan. In areas where ASA lacks a presence or ASA station operators are not interested in joint delivery, Yume no Machi is collaborating with other companies (four partners as of October 2018: ASA, Asrapport Dining, Kozosushi, and JBR). From August 2018, the company actively established directly managed delivery bases in an effort to rapidly establish a dominant position in key areas (FY08/18: 11 bases, FY08/19 initial forecasts: +51 bases).

Earnings structure Companies that use Sharing Delivery® pay a percentage of the order amount to the delivery base. The percentage is set at a rate that enables the delivery bases to become profitable. Of the order value paid to delivery bases, the menu price and delivery cost (typically around JPY300) are shouldered by the user; the range of the menu price increase is left to the discretion of the stores and therefore varies (see table below). Yume no Machi does not factor delivery fees into its revenue or gross merchandise value.

Interpreting disclosed data Revenue breakdown The company’s revenue breaks down into the following major items: a) Basic operating fees: Fixed fees charged on a monthly basis to each store (initial fees calculated based on number of registered menu items when first signing up); b) Order processing fees: A base fee that is a predetermined percentage of the order value; c) Payment processing fees: A predetermined percentage of the order value (when users settle payments via credit card or online payment methods); and d) Point system usage fees: A predetermined percentage of the order value.

The basic operating fees are fixed, but the other fees are proportional to order value and fuel revenue growth accordingly. However, payment processing fees (c) are accounted as “cost of revenue”; point system usage fees (d) are reported under “agent compensation” and “communication costs.” Since the amount for points (generally 1% of order value) is received from affiliated stores and paid to point companies, it is not reported on the income statement and no corresponding record is left on the balance sheet. Revenue data from Q4 FY08/16 to Q3 FY08/17 included revenue from Delis (annual contribution of roughly JPY600mn).

Revenue

4,078 (JPYmn) (JPYmn) Basic operating fees Order processing fees Basic operating fees Order processing fees Advertising fees 40% Advertising fees System development fees 4,000 1,200 System development fees Other Other YoY (left axis) 1,100 35% 3,499 963 3,500 1,000 30% 1,150 3,000 900 800 25% 2,522 2,500 1,723 700 1,968 578 20% 2,000 600 320 1,427 2,634 500 1,360 253 15% 1,253 1,500 400 172 197 1,938 137 300 10% 1,546 1,000 1,204 1,013 200 786 840 895 5% 500 100 254 268 267 272 277 297 340 410 0 0% 0 Q1 Q1 Q1 Q1 Q1 Q1 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 Source: Shared Research based on company data

32/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Cost structure The principal costs can be divided into two groups. a) Cost of revenue: Mainly fixed costs (depreciation), but also variable costs, such as agent compensation (agent fees, payment processing fees) and communication costs (point system usage fees and data center costs). b) SG&A expenses: Mainly personnel costs (including costs associated with call center functions provided by a consolidated subsidiary), but the company also plans to aggressively invest in marketing (advertising costs).

Costs with Demae-can mainly break down as pure variable costs (payment processing fees), sales force costs (to develop affiliated stores), marketing costs to attract new users and increase usage rates, and call center costs. The medium-term plan looks to strengthen the company’s sales force and marketing costs; the company sees the need to increase personnel to around 100 at the parent over the medium term (72 at end-FY08/17, 85 at end-FY08/18), after excluding staff allocated to directly managed Sharing Delivery® bases (estimated 62 bases by end-FY08/19).

Cost of revenue (parent level)

SG&A expenses (parent level)

FY08/01 FY08/02 FY08/03 FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 (JPYmn) Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. SG&A expenses 86 72 88 167 259 348 376 523 736 660 713 740 753 827 906 1,171 1,418 Personnel (excl. salaries for temp. employees) 42 33 38 45 89 131 129 174 243 243 236 260 250 262 340 351 400 Advertising expenses - 5 4 59 67 59 87 84 189 113 111 118 140 139 166 361 448 Rent 5 5 - - - - 23 25 25 25 29 32 - - - - - Depreciat ion 0 1 1 2 4 6 6 9 10 13 12 12 10 11 6 9 12 Amortization of goodwill 11 4 8 11 23 49 37 45 45 43 42 43 62 82 83 82 102 Other 27 24 37 51 76 103 94 187 225 223 283 276 290 334 311 368 457 YoY - -15.8% 22.2% 89.3% 55.2% 34.3% 7.9% 39.0% 40.9% -10.3% 8.0% 3.8% 1.7% 9.9% 9.5% 29.3% 21.1% Personnel (excl. salaries for temp. employees) - -20.3% 13.8% 19.7% 96.5% 47.0% -1.6% 34.6% 39.9% 0.3% -3.1% 10.0% -3.5% 4.8% 29.7% 3.1% 14.1% Advertising expenses - - -6.1% 1,218.5% 13.5% -11.8% 48.7% -3.5% 123.6% -39.9% -1.9% 6.3% 18.6% -1.1% 19.8% 117.2% 24.1% Rent - -15.6% - - - - - 9.2% -0.6% 1.0% 17.3% 7.9% - - - - - Depreciat ion - 212.7% -8.0% 29.9% 161.0% 46.1% -4.4% 46.9% 15.7% 28.4% -5.7% -3.5% -10.7% 3.5% -42.5% 54.7% 25.3% Commission fee - -61.7% 82.3% 40.5% 120.3% 110.6% -25.4% 21.5% 1.5% -4.7% -3.4% 2.9% 44.0% 32.0% 1.9% -1.2% 24.2% Other - -11.9% 53.8% 36.8% 49.5% 35.6% -8.9% 98.3% 20.6% -1.1% 27.1% -2.3% 5.0% 15.1% -7.0% 18.5% 24.0% % of revenue (SG&A ratio) 334.4% 82.0% 87.2% 115.5% 71.9% 53.6% 49.3% 55.6% 68.6% 57.0% 56.6% 54.4% 52.8% 48.2% 46.1% 49.2% 47.7% Personnel (excl. salaries for temp. employees) 162.7% 37.8% 37.4% 31.3% 24.7% 20.2% 16.9% 18.5% 22.6% 21.0% 18.7% 19.1% 17.5% 15.3% 17.3% 14.7% 13.4% Advertising expenses - 5.4% 4.4% 40.6% 18.5% 9.1% 11.5% 9.0% 17.6% 9.8% 8.8% 8.7% 9.8% 8.1% 8.5% 15.2% 15.0% Rent 21.1% 5.2% - - - - 3.0% 2.7% 2.3% 2.2% 2.3% 2.3% - - - - - Depreciat ion 1.7% 1.5% 1.2% 1.1% 1.1% 0.9% 0.8% 0.9% 0.9% 1.1% 0.9% 0.8% 0.7% 0.6% 0.3% 0.4% 0.4% Commission fee 42.2% 4.7% 7.5% 7.3% 6.5% 7.6% 4.8% 4.7% 4.2% 3.7% 3.3% 3.2% 4.3% 4.7% 4.2% 3.4% 3.4% Other 106.9% 27.4% 36.7% 35.1% 21.1% 15.9% 12.3% 19.8% 21.0% 19.2% 22.5% 20.3% 20.3% 19.5% 15.8% 15.5% 15.3% Operating profit -66 -34 -36 -75 32 170 229 262 173 234 244 223 267 255 476 508 673 YoY - - - - - 432.5% 34.6% 14.6% -34.2% 35.4% 4.5% -8.7% 19.7% -4.4% 86.8% 6.7% 32.5% OPM -258.3% -38.1% -35.7% -51.8% 8.9% 26.2% 30.1% 27.9% 16.1% 20.2% 19.4% 16.4% 18.7% 14.8% 24.2% 21.3% 22.6% Source: Shared Research based on company data

Key performance indicators Once the core platform is in place, only a minor portion of costs will increase in proportion to revenue growth. In this sense, the business strongly resembles the equipment industry. Accordingly, the key question is how to raise revenue. Prime KPIs are the number of orders and number of affiliated stores. Revenue from order processing fees (40% of total revenue) is calculated as the product of the number of orders, average order value, and order processing fee rate. The average order value is largely fixed and the order processing fee rate also does not change; so, the company expects these variables to remain flat throughout the period of the medium-term plan. However, the number of orders is the product of the active number of users and average usage frequency. The medium-term plan calls for concentrated investment in marketing to solidify the active user base and increase the repeat order rate toward boosting average order frequency.

33/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Various KPIs

(mn) (JPYbn) (JPYmn) 80 Number of orders 20 Revenue 18.8 6,000 30% Operating profit 70 67.2 18 5,000 5,000 25% 16 OPM (right axis) 60 14 12.9 48.0 4,000 20% 50 12

40 33.8 10 3,000 15% 7.7 30 8 23.3 5.4 2,000 1,700 10% 6 4.9 17.3 4.2 20 13.5 3.6 3.7 10.6 4 801 837 8.9 2.1 1,000 5% 6.4 6.8 7.4 7.8 547 573 10 2 1.2 1.3 1.4 278 362 234 244 211 100 0 0 0 0% FY08/10 FY08/13 FY08/16 FY08/19 FY08/10 FY08/13 FY08/16 FY08/19 FY08/10 FY08/13 FY08/16 FY08/19 Est. Est. Est. Number of orders YoY (left axis) (mn) Active users YoY (left axis) (mn) 20% Orders / Active users YoY (left axis) 11 60% 80 70% 8.7 9 15% 67.2 8 Oct. 2016: Capital and 70 60% 10 50% business alliance with LINE 7 10% 9.1 60 6.2 50% 8.7 9 40% 48.0 6 Apr. 2014: Business 50 5% alliance with NTT Docomo 40% 4.4 5 7.8 7.8 0% 7.6 7.7 8 30% 33.8 40 4 7.4 30% 7.0 30 -5% 6.9 23.3 2.7 6.7 7 20% 2.4 3 6.5 6.6 20% 17.3 20 1.9 -10% 13.5 1.4 1.5 2 10% 10.6 1.1 1.2 6 6.8 7.4 7.8 8.9 10% 0.9 6.4 10 0.7 1 -15% 0% 0 0% 0 -20% 5 FY08/10 FY08/13 FY08/16 FY08/19 FY08/10 FY08/13 FY08/16 FY08/19 FY08/10 FY08/13 FY08/16 FY08/19 Est. Est. Est. Source: Shared Research based on company data.

34/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Mail Order business

Mail Order FY08/16 FY08/17 FY08/18 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 YoY change (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Cons. Cons. Cons. Cons. Cons. Cons. Init. Est. FY08/18 FY08/19 Revenue 421 438 420 354 369 384 355 336 348 343 336 326 660 1,836 1,693 1,633 1,445 1,353 1,380 -92 +27 YoY -0.9% 0.4% -1.8% -12.4% -12.4% -12.2% -15.6% -4.9% -5.6% -10.9% -5.2% -3.1% - 178.3% -7.8% -3.5% -11.5% -6.4% - Internal transaction 23 26 27 25 35 40 38 40 45 52 51 53 - 50 65 101 153 200 +47 Sales (incl. int ernal t ransact ion) 444 464 447 379 403 425 393 376 393 394 387 379 660 1,885 1,759 1,734 1,597 1,553 -45 Operating profit 50 51 62 54 67 78 60 54 49 59 56 55 39 140 204 217 259 218 - -41 YoY 50.6% 15.5% -38.6% 112.3% 34.7% 51.8% -3.0% -0.5% -27.4% -24.8% -6.4% 1.8% - 263.1% 45.0% 6.6% 19.3% -15.7% - OPM 11.8% 11.7% 14.7% 15.3% 18.2% 20.3% 16.9% 16.0% 14.0% 17.1% 16.7% 16.8% 5.9% 7.7% 12.0% 13.3% 17.9% 16.1% - -1.8pp Depreciat ion 2 2 2 2 2 2 3 4 3 3 4 4 2 7 8 8 10 14 +4 Amortization of goodwill 26 26 26 26 26 26 26 26 26 26 17 - 36 109 109 103 103 69 -34 EBITDA 78 79 89 82 95 106 88 83 77 88 77 59 77 256 320 328 372 301 -71 YoY 26.0% 6.9% -31.1% 50.8% 21.8% 33.6% -1.4% 2.0% -18.2% -17.1% -12.6% -29.5% - 233.8% 24.8% 2.6% 13.4% -19.1% EBITDA margin 18.5% 18.1% 21.3% 23.1% 25.7% 27.5% 24.8% 24.8% 22.2% 25.6% 22.9% 18.1% 11.6% 14.0% 18.9% 20.1% 25.8% 22.3% -3.5pp

Earnings trends

(JPYmn) Revenue (external transaction) Internal transaction YoY (left axis) (JPYmn) Operating profit OPM (right axis) 10% 600 120 30%

499 500493 101 464 5% 0 457 9 10 454446 444 447 500 100 25% 435437 425 5 422 26 18 17 403 394 27 12 23 27 379 393 393 387379 78 18 40 376 0% 35 400 80 20% 25 38 45 52 40 51 53 62 67 60 59 55 54 56 55 -5% 300 60 50 51 49 15% 45 45 54 499 492484 452 37 38 425436428 421438420 33 -10% 161 408 404 384 200 40 10% 369 355 0 336348343336326 354 -15% 100 20 25 5% 161 2 2 -20% 0 0 0% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 Source: Shared Research based on company data

Satsuma Ebisudo, a consolidated subsidiary of Yume no Machi, operates a Mail Order business for restaurants. The main feature of the business is procuring limited-edition shochu (Japanese liquor) from manufacturers (nine as of August 2017), which can be branded with a customer store’s logo and delivered with a label bearing the store name. Yume no Machi acquired all shares in Satsuma Ebisudo in May 2013: the move was mainly aimed at gaining access to Satsuma Ebisudo’s call center infrastructure. The goodwill on the acquisition was fully amortized in April 2018, and this has raised operating profit from Q3 FY08/18.

Satsuma Ebisudo revamped the management structure of this business in FY08/18. It aims to maintain a stable revenue base while working to create a structure for growth. As such, the medium-term plan calls for only modest revenue growth (three-year CAGR of 2.9%).

Group companies

Vot ing right s Goodwill Amort izat ion Main business Acquired rat io (JPYmn) period Consolidat ed subsidiaries Satsuma Ebisudo Mail Order 100.0% May 2013 543 Five years Equit y-met hod affiliat e JFD Demae-can 29.1% March 2013 Source: Shared Research based on company data

Equity-method affiliate JFD Inc. delivers boxed lunches to corporate or group locations, events, meetings, and seminars. In contrast, Yume no Machi focuses on services oriented toward individual consumers. So the companies operate in different spaces.

Equity-method profit/losses

(J PYmn) (J PYmn) 20 10

8 15 6

10 4

5 2 0 0 -2

-5 -4 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 Q1 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 Source: Shared Research based on company data

35/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Strengths and weaknesses Strengths Industry leader in order numbers through online delivery platform and major collaborations Yume no Machi boasts the higher number of orders in the industry. In terms of gross merchandise value estimated from meal payments, it has roughly 50% of the online food delivery market. The company’s high market share and ability to attract users increases opportunities to boost the number of affiliated stores, thereby expanding product selection. Its high market share is underpinned by the Demae-can e-commerce platform. Through its own call center, the company can ensure a high level of customer service for both users and stores; collecting feedback from both sides leads to quick improvement. We intend to monitor how partnerships with large companies will provide opportunities to tap new user segments and create barriers to entry.

Addition of small local stores through Sharing Delivery® If affiliated stores consisted solely of chain stores, users would quickly lose interest; the company would struggle to increase its repeat order rate, enhance user satisfaction, and capture demand for daily meals. Yume no Machi is able to attract many small local stores, which constitute about 60% of its roughly 17,000 affiliated stores (FY08/18). We think it can reach small stores owing to its easy-to-use e-commerce platform and accumulated sales experience; in a sense, that can also be regarded as a barrier to entry.

Strong cash flow generation with Demae-can The company’s e-commerce platform (including its call center) and sales force involve mainly fixed costs; revenue growth does not require additional working capital. Accordingly, the company can freely use the cash flow generated by any expansion in the Demae-can business. This earnings structure, enabling it to generate cash flow, is a financial strength. We expect to see further investments in business development.

Weaknesses

Lack of personnel for management and sustained growth President Nakamura became chairman in 2009, entrusting management to two succeeding presidents. However, earnings suffered for the next three years; so in November 2012, she returned as president. The company’s business is structured such that profits should grow for a certain period even with little effort. To sustain its profit growth, the company needs to boost user- oriented services; but as of 2017, it had yet to train personnel who could assume management. For Yume no Machi to grow successfully, it quickly needs to develop management resources.

Higher prices of delivered items than those from physical stores Except with pizza chains, where delivery is usual, orders placed through the company’s platform are priced higher than if bought in physical stores. However, the company hopes stores and users will recognize the added value of delivery. Stores can set their own prices; they will likely be reluctant to lower prices if they see the sales generated through Sharing Delivery® as additional to the core sales derived from physical stores. On the user side, the growth in the number of orders proves that users recognize the added value provided by delivery. However, we suspect that certain users will not see this added value; so this is a potential weakness in the business structure.

Limited room for growth in domestic market alone Outside Japan, Demae-can tried to enter South Korea and Indonesia, but it ended up exiting these markets, partly because it was a latecomer. The European and US markets already have major competitors, such as Grubhub. The company lacks personnel that could contribute to overseas development. It believes there is still scope for growth in Japan, so it aims to focus on the domestic market. However, it is becoming increasingly difficult to enter overseas markets. Accordingly, the limited scope for overseas growth presents a weakness that may eventually hamper the company’s ambition to significantly expand its market size.

36/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Historical performance

Income statement

Income statement FY08/01 FY08/02 FY08/03 FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 (JPYmn) Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Revenue 26 88 101 145 361 649 762 941 1,074 1,158 1,259 1,360 2,087 3,558 3,661 4,155 4,944 5,431 YoY - 243.4% 14.9% 43.0% 149.4% 79.9% 17.3% 23.4% 14.2% 7.8% 8.8% 8.0% 53.5% 70.5% 2.9% 13.5% 19.0% 9.8% Cost of revenue 6 49 49 52 70 131 157 156 165 264 302 399 759 1,518 1,375 1,503 1,720 2,020 Cost ratio 23.9% 56.1% 48.5% 36.3% 19.3% 20.2% 20.6% 16.5% 15.4% 22.8% 24.0% 29.4% 36.4% 42.7% 37.6% 36.2% 34.8% 37.2% Gross profit 20 39 52 92 291 519 605 785 909 894 957 960 1,328 2,040 2,286 2,652 3,223 3,410 GPM 76.1% 43.9% 51.5% 63.7% 80.7% 79.8% 79.4% 83.5% 84.6% 77.2% 76.0% 70.6% 63.6% 57.3% 62.4% 63.8% 65.2% 62.8% SG&A expenses 86 72 88 167 259 348 376 523 736 660 713 750 1,050 1,678 1,740 2,079 2,423 2,573 Personnel expenses 48 41 47 53 94 143 - - - - 325 353 416 622 688 796 962 Personnel (excl. salaries for temp. employees) 42 33 38 45 89 131 129 174 243 243 236 264 313 447 502 555 781 Advertising expenses - 5 4 59 67 59 87 84 189 113 111 118 166 280 313 464 537 Rent 5 5 - - - - 23 25 25 25 29 33 45 52 49 70 94 Depreciat ion 0 1 1 2 4 6 6 9 10 13 12 12 48 132 129 146 164 Commission fee 11 4 8 11 23 49 37 45 45 43 42 45 81 127 125 127 144 Other 27 24 37 51 76 103 94 187 225 223 283 278 397 640 622 718 703 YoY - -15.8% 22.2% 89.3% 55.2% 34.3% 7.9% 39.0% 40.9% -10.3% 8.0% 5.1% 40.0% 59.9% 3.6% 19.5% 16.5% 6.2% Personnel expenses - -14.9% 16.1% 13.3% 76.9% 51.7% - - - - - 8.7% 17.9% 49.3% 10.7% 15.6% 20.9% - Personnel (excl. salaries for temp. employees) - -20.3% 13.8% 19.7% 96.5% 47.0% -1.6% 34.6% 39.9% 0.3% -3.1% 11.8% 18.6% 42.9% 12.3% 10.5% 40.8% - A dv ertising expenses - - -6.1% 1,218.5% 13.5% -11.8% 48.7% -3.5% 123.6% -39.9% -1.9% 6.5% 40.2% 68.6% 11.6% 48.3% 15.9% - Rent - -15.6% - - - - - 9.2% -0.6% 1.0% 17.3% 12.5% 35.0% 16.5% -5.7% 41.9% 35.4% - Depreciat ion - 212.7% -8.0% 29.9% 161.0% 46.1% -4.4% 46.9% 15.7% 28.4% -5.7% -3.5% 319.5% 172.1% -2.0% 13.6% 11.9% - Commission fee - -61.7% 82.3% 40.5% 120.3% 110.6% -25.4% 21.5% 1.5% -4.7% -3.4% 7.9% 79.9% 57.4% -1.5% 1.3% 13.4% - Other - -11.9% 53.8% 36.8% 49.5% 35.6% -8.9% 98.3% 20.6% -1.1% 27.1% -1.8% 42.8% 61.3% -2.9% 15.5% -2.2% - SG&A ratio (% of revenue) 334.4% 82.0% 87.2% 115.5% 71.9% 53.6% 49.3% 55.6% 68.6% 57.0% 56.6% 55.1% 50.3% 47.2% 47.5% 50.0% 49.0% 47.4% Personnel expenses 185.6% 46.0% 46.5% 36.8% 26.1% 22.0% - - - - 25.8% 26.0% 20.0% 17.5% 18.8% 19.1% 19.5% - Personnel (excl. salaries for temp. employees) 162.7% 37.8% 37.4% 31.3% 24.7% 20.2% 16.9% 18.5% 22.6% 21.0% 18.7% 19.4% 15.0% 12.6% 13.7% 13.3% 15.8% - Advertising expenses - 5.4% 4.4% 40.6% 18.5% 9.1% 11.5% 9.0% 17.6% 9.8% 8.8% 8.7% 8.0% 7.9% 8.5% 11.2% 10.9% - Rent 21.1% 5.2% - - - - 3.0% 2.7% 2.3% 2.2% 2.3% 2.4% 2.1% 1.5% 1.3% 1.7% 1.9% - Depreciat ion 1.7% 1.5% 1.2% 1.1% 1.1% 0.9% 0.8% 0.9% 0.9% 1.1% 0.9% 0.8% 2.3% 3.7% 3.5% 3.5% 3.3% - Commission fee 42.2% 4.7% 7.5% 7.3% 6.5% 7.6% 4.8% 4.7% 4.2% 3.7% 3.3% 3.3% 3.9% 3.6% 3.4% 3.1% 2.9% - Other 106.9% 27.4% 36.7% 35.1% 21.1% 15.9% 12.3% 19.8% 21.0% 19.2% 22.5% 20.4% 19.0% 18.0% 17.0% 17.3% 14.2% - Operating profit -66 -34 -36 -75 32 170 229 262 173 234 244 211 278 362 547 573 801 837 YoY - - - - - 432.5% 34.6% 14.6% -34.2% 35.4% 4.5% -13.7% 32.2% 30.0% 51.1% 4.8% 39.8% 4.6% OPM -258.3% -38.1% -35.7% -51.8% 8.9% 26.2% 30.1% 27.9% 16.1% 20.2% 19.4% 15.5% 13.3% 10.2% 14.9% 13.8% 16.2% 15.4% Non-operating income (expenses) 4 -0 -0 -2 -2 -20 12 14 55 6 16 10 -4 4 -5 6 -3 12 Net financial income -0 -0 -0 0 0 3 12 15 9 5 15 9 -0 -5 -3 -1 -16 2 Gains on forex and derivat ives ------1 -2 - -6 -1 - -3 Equit y in earnings of affiliat es ------2 -3 -0 4 11 19 Other 5 -0 -0 -2 -2 -24 0 -1 46 1 1 1 1 11 4 5 2 -6 Recurring profit -62 -34 -36 -77 30 150 241 276 228 239 260 221 275 366 541 579 798 849 YoY - - - - - 401.3% 60.6% 14.8% -17.6% 5.0% 8.7% -15.2% 24.5% 33.1% 48.1% 7.0% 37.8% 6.4% RPM -241.1% -38.5% -36.0% -53.2% 8.3% 23.1% 31.6% 29.4% 21.2% 20.7% 20.6% 16.2% 13.2% 10.3% 14.8% 13.9% 16.1% 15.6% Extraordinary gains (losses) - - 0 - - -32 6 -8 -3 -22 -2 -1 -79 -1 -322 35 -107 -9 Income taxes 0 0 0 0 2 -35 102 112 97 94 113 104 99 198 122 273 261 282 Implied t ax rat e -0.4% -1.2% -1.2% -0.5% 7.9% -29.4% 41.2% 41.8% 43.1% 43.4% 43.6% 47.6% 50.7% 54.3% 55.8% 44.5% 37.7% 33.6% Non-cont rolling int erest s ------0 -0 -6 -2 -1 Net income attributable to owners of parent -62 -34 -37 -77 28 152 145 156 128 123 146 115 97 167 97 348 433 559 YoY - - - - - 453.3% -4.8% 7.6% -17.9% -4.1% 18.7% -21.2% -16.0% 73.1% -42.0% 258.4% 24.4% 29.1% Net margin -242.1% -39.0% -36.3% -53.5% 7.6% 23.5% 19.0% 16.6% 11.9% 10.6% 11.6% 8.5% 4.6% 4.7% 2.6% 8.4% 8.8% 10.3% Capit al expendit ures - - - - 60 64 96 105 73 218 312 239 95 90 235 293 329 378 Depreciat ion - - - 4 14 20 29 54 62 80 84 139 154 166 181 195 181 176 Depreciation (SG&A expenses) 0 1 1 2 4 6 6 9 10 13 12 12 48 132 129 146 164 - Goodw ill amort izat ion (excl. ext raordinary losses) ------36 113 114 125 133 69 EPS -26,936.5 -9,949.2 -8,608.3 -12,332.1 2,151.9 9,951.4 8,304.1 2,909.2 2,373.1 2,383.2 2,828.8 2,228.0 18.8 17.1 9.7 34.5 10.7 13.8 EPS (fully dilut ed) - - - - - 9,627.7 7,605.8 2,728.9 2,277.2 2,331.7 2,801.5 2,196.0 18.3 16.7 9.6 33.4 10.3 13.5 Dividend per share ------2,500.0 900.0 1,100.0 900.0 1,150.0 700.0 8.0 5.0 7.0 10.0 3.3 3.6 Payout ratio ------30.6% 30.9% 46.4% 37.8% 40.7% 31.4% 42.6% 29.2% 72.4% 29.0% 30.8% 26.1% DOE ------2.2% 2.4% 2.9% 2.4% 2.9% 1.7% 1.9% 2.4% 3.4% 4.5% 5.3% 4.9% Book value per share -26,936.5 -9,949.2 -8,608.3 -12,332.1 2,151.9 104,072.2 113,397.5 38,816.0 37,428.2 38,597.2 40,678.3 41,994.6 414.3 203.3 212.3 229.7 66.7 80.4 EBITDA - - -71 46 190 258 316 235 314 328 349 432 528 728 768 982 1,013 YoY - - - - 316.5% 35.9% 22.3% -25.7% 33.7% 4.5% 6.6% 23.6% 22.3% 37.8% 5.5% 27.9% 3.1% EBITDA margin - - -49.2% 12.6% 29.3% 33.9% 33.6% 21.9% 27.1% 26.0% 25.7% 20.7% 14.8% 19.9% 18.5% 19.9% 18.7% ROE 654.0% -182.6% -76.2% -35.7% 4.2% 11.2% 7.7% 7.6% 6.3% 6.3% 7.1% 5.4% 4.6% 8.4% 4.7% 15.6% 17.3% 18.8% Net margin -242.1% -39.0% -36.3% -53.5% 7.6% 23.5% 19.0% 16.6% 11.9% 10.6% 11.6% 8.5% 4.6% 4.7% 2.6% 8.4% 8.8% 10.3% Total asset turnover - 1.51 1.27 0.57 0.52 0.45 0.38 0.38 0.43 0.54 0.57 0.58 0.78 1.19 1.20 1.16 1.16 0.99 Financial leverage - 3.11 1.65 1.16 1.07 1.06 1.06 1.20 1.24 1.10 1.08 1.09 1.28 1.49 1.47 1.61 1.70 1.84 ROA (RP-based) - -58.0% -45.6% -30.5% 4.3% 10.4% 12.0% 11.2% 9.1% 11.1% 11.8% 9.5% 10.3% 12.2% 17.7% 16.1% 18.8% 15.5% ROIC - - -39.4% -19.8% 2.9% 7.4% 7.2% 7.6% 5.1% 7.0% 7.0% 5.8% 7.4% 9.2% 14.5% 14.4% 18.9% 16.3% NOPAT -39 -20 -21 -44 19 101 136 156 102 139 145 125 173 224 352 383 536 560 Net assets + Interest-bearing debt - - 53 220 657 1,356 1,893 2,054 2,024 1,968 2,058 2,155 2,330 2,436 2,423 2,664 2,843 3,436 Source: Shared Research based on company data

37/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Parent earnings

Parent FY08/01 FY08/02 FY08/03 FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 (JPYmn) Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Revenue 26 88 101 145 361 649 762 941 1,074 1,158 1,259 1,360 1,427 1,717 1,965 2,381 2,976 YoY - 243.4% 14.9% 43.0% 149.4% 79.9% 17.3% 23.4% 14.2% 7.8% 8.8% 8.0% 4.9% 20.3% 14.5% 21.1% 25.0% Cost of revenue 6 49 49 52 70 131 157 156 165 264 302 397 407 635 583 701 884 Labor costs - - - 7 12 14 60 72 32 69 62 60 39 33 41 46 62 Outsourcing costs - - - 29 13 42 29 20 8 10 18 3 4 7 5 9 5 Agency commissions - - - 10 15 32 40 27 30 34 31 26 18 13 68 187 369 System development contract costs ------197 61 24 27 Various costs - - - 7 29 43 76 100 142 222 298 395 410 434 477 458 486 Communicat ion - - - 5 20 29 41 44 56 126 161 176 175 173 185 185 211 Depreciat ion - - - 2 10 14 23 44 52 67 71 127 141 147 166 174 150 Other - - - 1 0 0 12 12 34 29 66 93 94 113 127 99 125 % of revenue (cost ratio) 23.9% 56.1% 48.5% 36.3% 19.3% 20.2% 20.6% 16.5% 15.4% 22.8% 24.0% 29.2% 28.6% 37.0% 29.7% 29.5% 29.7% Labor costs - - - 4.9% 3.4% 2.2% 7.8% 7.6% 3.0% 6.0% 4.9% 4.4% 2.7% 1.9% 2.1% 1.9% 2.1% Outsourcing costs - - - 20.1% 3.6% 6.4% 3.8% 2.2% 0.7% 0.8% 1.4% 0.2% 0.3% 0.4% 0.3% 0.4% 0.2% Agency commissions - - - 6.6% 4.2% 5.0% 5.3% 2.9% 2.8% 3.0% 2.5% 1.9% 1.2% 0.7% 3.5% 7.9% 12.4% System development contract costs ------11.5% 3.1% 1.0% 0.9% Various costs - - - 4.7% 8.1% 6.5% 9.9% 10.6% 13.3% 19.1% 23.7% 29.0% 28.7% 25.3% 24.3% 19.2% 16.3% Communicat ion - - - 3.1% 5.4% 4.4% 5.3% 4.7% 5.2% 10.9% 12.8% 12.9% 12.3% 10.1% 9.4% 7.8% 7.1% Depreciat ion - - - 1.1% 2.6% 2.1% 3.0% 4.7% 4.8% 5.8% 5.6% 9.3% 9.9% 8.6% 8.4% 7.3% 5.1% Other - - - 0.5% 0.0% 0.0% 1.6% 1.2% 3.2% 2.5% 5.3% 6.8% 6.6% 6.6% 6.4% 4.2% 4.2% Gross profit 20 39 52 92 291 519 605 785 909 894 957 963 1,019 1,082 1,382 1,679 2,091 GPM 76.1% 43.9% 51.5% 63.7% 80.7% 79.8% 79.4% 83.5% 84.6% 77.2% 76.0% 70.8% 71.4% 63.0% 70.3% 70.5% 70.3% SG&A expenses 86 72 88 167 259 348 376 523 736 660 713 740 753 827 906 1,171 1,418 Personnel (excl. salaries for temp. employees) 42 33 38 45 89 131 129 174 243 243 236 260 250 262 340 351 400 Advertising expenses - 5 4 59 67 59 87 84 189 113 111 118 140 139 166 361 448 Rent 5 5 - - - - 23 25 25 25 29 32 - - - - - Depreciat ion 0 1 1 2 4 6 6 9 10 13 12 12 10 11 6 9 12 Amortization of goodwill 11 4 8 11 23 49 37 45 45 43 42 43 62 82 83 82 102 Other 27 24 37 51 76 103 94 187 225 223 283 276 290 334 311 368 457 YoY - -15.8% 22.2% 89.3% 55.2% 34.3% 7.9% 39.0% 40.9% -10.3% 8.0% 3.8% 1.7% 9.9% 9.5% 29.3% 21.1% Personnel (excl. salaries for temp. employees) - -20.3% 13.8% 19.7% 96.5% 47.0% -1.6% 34.6% 39.9% 0.3% -3.1% 10.0% -3.5% 4.8% 29.7% 3.1% 14.1% Advertising expenses - - -6.1% 1,218.5% 13.5% -11.8% 48.7% -3.5% 123.6% -39.9% -1.9% 6.3% 18.6% -1.1% 19.8% 117.2% 24.1% Rent - -15.6% - - - - - 9.2% -0.6% 1.0% 17.3% 7.9% - - - - - Depreciat ion - 212.7% -8.0% 29.9% 161.0% 46.1% -4.4% 46.9% 15.7% 28.4% -5.7% -3.5% -10.7% 3.5% -42.5% 54.7% 25.3% Commission fee - -61.7% 82.3% 40.5% 120.3% 110.6% -25.4% 21.5% 1.5% -4.7% -3.4% 2.9% 44.0% 32.0% 1.9% -1.2% 24.2% Other - -11.9% 53.8% 36.8% 49.5% 35.6% -8.9% 98.3% 20.6% -1.1% 27.1% -2.3% 5.0% 15.1% -7.0% 18.5% 24.0% % of revenue (SG&A ratio) 334.4% 82.0% 87.2% 115.5% 71.9% 53.6% 49.3% 55.6% 68.6% 57.0% 56.6% 54.4% 52.8% 48.2% 46.1% 49.2% 47.7% Personnel (excl. salaries for temp. employees) 162.7% 37.8% 37.4% 31.3% 24.7% 20.2% 16.9% 18.5% 22.6% 21.0% 18.7% 19.1% 17.5% 15.3% 17.3% 14.7% 13.4% Advertising expenses - 5.4% 4.4% 40.6% 18.5% 9.1% 11.5% 9.0% 17.6% 9.8% 8.8% 8.7% 9.8% 8.1% 8.5% 15.2% 15.0% Rent 21.1% 5.2% - - - - 3.0% 2.7% 2.3% 2.2% 2.3% 2.3% - - - - - Depreciat ion 1.7% 1.5% 1.2% 1.1% 1.1% 0.9% 0.8% 0.9% 0.9% 1.1% 0.9% 0.8% 0.7% 0.6% 0.3% 0.4% 0.4% Commission fee 42.2% 4.7% 7.5% 7.3% 6.5% 7.6% 4.8% 4.7% 4.2% 3.7% 3.3% 3.2% 4.3% 4.7% 4.2% 3.4% 3.4% Other 106.9% 27.4% 36.7% 35.1% 21.1% 15.9% 12.3% 19.8% 21.0% 19.2% 22.5% 20.3% 20.3% 19.5% 15.8% 15.5% 15.3% Operating profit -66 -34 -36 -75 32 170 229 262 173 234 244 223 267 255 476 508 673 YoY - - - - - 432.5% 34.6% 14.6% -34.2% 35.4% 4.5% -8.7% 19.7% -4.4% 86.8% 6.7% 32.5% OPM -258.3% -38.1% -35.7% -51.8% 8.9% 26.2% 30.1% 27.9% 16.1% 20.2% 19.4% 16.4% 18.7% 14.8% 24.2% 21.3% 22.6% Source: Shared Research based on company data

Satsuma Ebisudo earnings

Satsuma Ebisudo FY08/01 FY08/02 FY08/03 FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 (JPYmn) Revenue 660 1,885 1,759 1,734 1,597 YoY -6.7% -1.4% -7.9% Recurring profit 77 269 198 214 251 YoY -26.2% 7.9% 17.3% RPM 11.7% 14.2% 11.3% 12.3% 15.7% Net income 39 159 129 138 163 YoY -18.8% 6.6% 18.1% Net margin 5.9% 8.4% 7.3% 7.9% 10.2% Net assets 269 333 362 399 462 Total assets 583 681 627 689 842 ROE 52.9% 37.2% 36.2% 37.7% ROA (RP-based) 42.5% 30.3% 32.5% 32.8% Number of employees 26 32 33 35 41 Temporary employees 51 67 81 101 90 Source: Shared Research based on company data

Mail Order business earnings

Mail Order business FY08/01 FY08/02 FY08/03 FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 (JPYmn) Revenue 660 1,836 1,693 1,633 1,445 1,353 YoY -7.8% -3.5% -11.5% -6.4% Operating profit 39 140 204 217 259 218 YoY 45.0% 6.6% 19.3% -15.7% OPM 5.9% 7.7% 12.0% 13.3% 17.9% 16.1% Depreciat ion 2 7 8 8 10 14 Goodw ill amort izat ion 36 109 109 103 103 69 EBITDA 77 256 320 328 372 301 YoY 24.8% 2.6% 13.4% -19.1% EBITDA margin 11.6% 14.0% 18.9% 20.1% 25.8% 22.3% Number of employees 26 32 33 35 41 - Temporary employees 51 67 81 101 90 - Source: Shared Research based on company data

38/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Segment earnings

39/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Balance sheet

Balance sheet FY08/01 FY08/02 FY08/03 FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 (JPYmn) Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Current assets 23 74 63 413 900 1,403 1,550 1,722 1,056 1,102 1,032 879 1,650 1,659 1,938 2,578 3,520 5,293 Cash and cash equivalents 14 39 32 380 851 1,263 1,431 1,544 819 903 792 651 1,258 1,200 1,372 1,720 2,263 2,928 Accounts receivable 8 36 24 26 42 98 99 142 147 171 148 149 182 233 245 324 408 350 Inventories ------58 49 57 61 58 61 Accounts receivable–other 1 - 2 5 5 2 - 1 11 3 65 68 120 140 225 406 736 1,865 Deferred tax assets - - - - - 37 11 25 33 28 20 9 13 18 19 21 23 23 Allowance for doubtful accounts - -1 -1 -1 -1 -3 -2 -4 -7 -9 -13 -11 -9 -9 -8 -11 -4 -4 Others 0 1 6 2 2 7 9 13 54 6 20 14 27 29 29 57 36 69 Tangible fixed assets 5 7 6 12 27 32 36 50 33 27 20 11 42 55 83 109 79 123 Depreciable and lease assets 5 7 6 12 27 32 36 50 33 27 20 2 28 31 28 61 29 50 Land ------0 0 0 0 0 0 0 0 0 0 0 0 Construction in progress - - - 0 ------Intangible assets - 2 1 2 33 39 102 137 166 250 504 588 948 778 651 1,092 521 604 Software - 2 1 1 33 39 90 125 163 214 341 570 412 330 276 394 446 588 Software in progress - - - 1 - - - - - 36 163 18 29 25 85 90 6 16 Goodwill ------507 423 290 607 69 - Others ------12 12 3 0 0 - 0 0 0 0 0 0 Investments and other assets 2 3 3 4 9 426 439 895 949 741 749 880 322 516 435 288 320 499 Investment securities - - - - - 5 5 444 669 658 672 817 255 434 248 138 196 348 Long-term time deposits Lease and guarantee deposits 2 2 2 3 9 19 25 20 20 20 19 24 29 39 86 75 63 115 Deferred tax assets ------4 28 58 62 57 38 6 38 75 41 38 8 Allowance for doubtful accounts - -0 -0 -1 -1 -0 -1 -1 -2 -0 -0 -1 -2 -1 -1 -1 -1 -0 Others 0 1 1 2 2 1 5 5 4 2 2 2 34 7 27 36 23 28 Fixed assets 7 12 11 19 69 497 577 1,083 1,147 1,018 1,273 1,478 1,313 1,348 1,169 1,488 919 1,226 Total assets 31 86 73 431 969 1,900 2,127 2,805 2,203 2,120 2,305 2,357 2,962 3,007 3,107 4,066 4,439 6,519 Current liabilities 23 28 33 38 49 109 132 691 269 118 191 160 579 687 751 1,332 1,698 3,165 Accounts payable ------176 136 135 139 112 99 Short-term debt and commercial papers - - 7 ------800 Current portion of long-term debt 1 1 1 ------101 107 105 207 75 4 Accounts payable–other 15 24 18 26 27 85 30 548 148 77 112 91 188 211 327 717 1,207 1,986 Income taxes payable 0 0 0 0 6 6 82 85 43 30 67 40 62 111 85 148 152 100 Provision for bonuses ------5 12 19 18 12 26 33 Other current liabilities 6 2 7 11 16 18 20 58 77 10 12 24 41 103 82 109 127 143 Fixed liabilities 27 2 ------396 300 211 392 28 85 Long-term debt 27 2 ------376 280 188 341 8 4 Bonds ------Others ------21 20 23 51 21 82 Total liabilities 50 30 33 38 49 109 132 691 269 118 191 160 976 986 962 1,724 1,726 3,250 Net assets -19 57 40 393 921 1,791 1,995 2,113 1,934 2,002 2,114 2,197 1,987 2,021 2,146 2,342 2,713 3,269 Shareholders' equity -19 57 40 393 921 1,791 1,995 2,150 2,013 2,080 2,180 2,249 1,951 2,052 2,137 2,321 2,667 3,097 Capital stock 150 210 220 435 685 1,044 1,073 1,095 1,107 1,107 1,107 1,113 1,113 1,113 1,113 1,113 1,113 1,113 Capital surplus 10 60 70 286 250 595 624 646 658 658 658 664 664 664 664 615 635 637 Retained earnings -179 -213 -250 -328 -15 152 298 409 488 555 654 710 755 792 799 1,057 1,388 1,813 Treasury stock ------240 -240 -240 -239 -581 -518 -439 -464 -469 -467 Valuation and translation adjustments ------36 -83 -89 -81 -66 34 -41 - -4 31 159 Valuation differences on securities ------36 -83 -89 -81 -65 33 -43 - -7 27 158 Foreign currency translation adjustments ------1 1 2 - 3 4 1 Subscription rights to new shares ------4 11 15 14 1 11 8 17 8 7 Non-controlling interests ------0 - 8 6 6 Total capital and liabilities 31 86 73 431 969 1,900 2,127 2,805 2,203 2,120 2,305 2,357 2,962 3,007 3,107 4,066 4,439 6,519 Capital expenditures - - - - 60 64 96 105 73 218 312 239 95 90 235 293 329 - Depreciation ------84 139 154 166 181 195 181 176 Amortization of goodwill ------36 113 114 125 133 69 Working capital 8 36 24 26 42 98 99 142 147 171 148 149 65 145 167 245 354 312 Adjusted shareholders' equity -19 57 40 393 921 1,791 1,995 2,113 1,930 1,991 2,099 2,183 1,986 2,010 2,137 2,317 2,698 3,256 Total interest-bearing debt 28 3 7 ------476 387 293 548 83 808 Net cash -14 36 24 380 851 1,263 1,431 1,544 819 903 792 651 781 813 1,079 1,171 2,180 2,121 Accounts receivable days 53.6 89.6 107.5 63.1 34.5 39.3 47.2 46.9 49.1 50.1 46.2 39.9 29.0 21.3 23.8 25.0 27.0 25.5 Days in inventory ------14.0 12.8 14.0 14.3 12.6 10.8 Accounts payable days ------42.3 37.5 36.0 33.3 26.7 19.0 Working capital efficiency 53.6 89.6 107.5 63.1 34.5 39.3 47.2 46.9 49.1 50.1 46.2 39.9 0.7 -3.4 1.9 6.0 13.0 17.2 Current ratio 102% 267% 188% 1,090% 1,856% 1,293% 1,177% 249% 393% 933% 540% 548% 285% 242% 258% 194% 207% 167% Fixed ratio -39.1% 21.2% 26.4% 4.7% 7.5% 27.7% 28.9% 51.3% 59.4% 51.1% 60.7% 67.7% 66.1% 67.1% 54.7% 64.2% 34.1% 37.7% Equity ratio -61.8% 65.6% 54.4% 91.2% 95.0% 94.3% 93.8% 75.4% 87.6% 93.9% 91.0% 92.6% 67.0% 66.8% 68.8% 57.0% 60.8% 49.9% Source: Shared Research based on company data

Accounts receivable trade (current assets), accounts payable–trade (current liabilities) – Accounts receivable–trade and accounts payable–trade are mostly centered on the Mail Order business. Demae-can does not keep inventory and does not have a structure under which working capital increases in tandem with revenue growth. In addition, the company collects order processing and other fees from affiliated stores at the end of the month following the month when orders were placed.

Accounts receivable–other (current assets) and accounts payable–other (current liabilities) As revenue expands, reward points, point system usage fees, and payment processing fees also grow; this in turn drives increases in accounts payable–other (payments to point companies, settlement companies) and accounts receivable–other (receipt of related fees from stores). Expansion in gross merchandise value coupled with a higher share of online payments leads to an increase in accounts payable–other, which results in favorable cash flow.

40/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Share of online payments

35.0% 30.0% 25.0%

20.0%

15.0%

10.0%

5.0%

- Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul 2015 2016 2017 Source: Shared Research based on company data

Debts, cash, and deposits Debts increased with the conversion of Satsuma Ebisudo and Delis into subsidiaries in May 2013 and June 2016, respectively; they declined with the subsequent sale of Delis (April 2017). Debts are expected to decline with progress in scheduled payments. In addition, the company has maintained a net cash position at the end of its financial years since FY08/02. As of FY08/17, the company’s business structure requires cash and deposits of roughly JPY1.5bn. Free cash flow is expanding every year; the company apparently believes that instead of increasing cash and deposits it should focus on investment.

Debts (left) and net cash (right)

(J PYmn) (J PYmn) 900 2,500 808 2,1802,121 800 2,000 700 1,544 600 548 1,431 500 522 1,500 1,263 476 496 1,171 500 451 1,079 437413 387 903 363 1,000 851 819 400 332 792 781 813 300293 651 267 300 240 214 500 380 200 109 83 36 24 100 57 31 9 0 0 0 -14 0 Q1 Q1 Q1 Q1 Q1 Q1 -500 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/01 FY08/06 FY08/11 FY08/16

Cash flows

(JPYmn) Cash flows from operating activities Cash flows from investing activities Cash flows from financial activities 1,200

800 591 72 713 1,045 400 207 400 186 673 498 58 481 594 421 318 433 140 253 214 216 157 249 259 39 -1 0 --647 -65 -118 -46 -145 -55 -313 -298 -443 -354 -391 -353 -576 -194 -46 -106 -205 -400 -170 -1,142 -266 -800

-1,200 FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18

Capital expenditures and depreciation

(JPYmn) Purchase of tangible fixed assets Purchase of intangible fixed assets Depreciation Goodwill amortization 400 300 114 125 133 113 69 200 36

100 166 181 195 181 176 -2 139 154 54 62 80 84 -9 14 -2011 29 -4 -9 -6 -2 -5 0 -25 -16 -31 -41 -21 -52 -15 -20 -35 -69 -53 -76 4 -63 -106 -100 -104 -209 -237 -162 -12 -306 -269 -264 -200 -267 -300 -400 FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 Source: Shared Research based on company data

41/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Cash flow statement

Cash flow statement FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 (JPYmn) Par. Par. Par. Par. Par. Par. Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Pre-tax profit -77 30 118 247 268 225 217 259 219 196 365 219 614 691 840 Depreciation 4 14 20 29 54 62 80 84 139 154 166 181 195 181 176 Amortization of goodwill - - - -12 - - - - - 36 113 114 125 133 69 Impairment losses ------3 84 1 41 30 37 12 Losses (gains) on disposal and valuation of fixed assets - - 32 0 1 - - - 0 10 1 4 10 73 -4 Losses (gains) on disposal and valuation of securities ------23 4 268 -91 4 -0 Increase (decrease) in allowance for doubtful accounts 1 0 1 -1 3 4 0 4 -1 -2 -1 -1 -2 -3 -0 Interest and dividend income -0 -0 -3 -12 -15 -55 -5 -15 -9 -1 -1 -1 -3 -3 -3 Interest expenses 0 ------2 5 4 5 19 1 Losses (gains) on foreign exchange ------1 5 1 - 1 0 3 Equity in losses (earnings) of affiliates ------2 3 0 -4 -11 -19 Decrease (increase) in accounts receivable–trade -2 -16 -55 -2 -43 -5 -23 23 -1 40 -49 -11 -57 -110 58 Decrease (increase) in inventories ------7 13 -6 -8 10 -3 Increase (decrease) in accounts payable–trade 8 10 21 -16 18 98 -74 16 1 -77 -39 -2 -16 -7 -13 Decrease (increase) in accounts receivable–other ------171 -334 -1,127 Increase (decrease) in accounts payable-other ------307 578 745 Others 3 2 8 15 33 19 12 -56 14 -53 49 -1 -80 85 -24 Subtotal -64 39 143 248 319 349 208 315 363 381 632 810 855 1,342 710 Interest and dividends income received 0 0 0 10 15 12 52 2 15 8 1 1 3 5 5 Interest expenses paid -0 ------2 -5 -4 -5 -19 -1 Income taxed paid (refunded) -0 -0 -2 -5 -120 -145 -103 -68 -120 -70 -146 -213 -180 -284 -282 Proceeds from insurance income -0 - -0 0 - - -0 ------Cash flows from operat ing act ivit ies -64 39 140 253 214 216 157 249 259 318 481 594 673 1,045 433

Change in time deposits - - -400 -1,000 500 300 100 500 - - 10 - - - - Change in investment securities - - -5 - - -803 - - -110 719 -336 -48 100 - 52 Purchase of tangible fix assets -9 -25 -11 -31 -41 -4 -9 -6 -2 -5 -21 -52 -15 -20 -76 Proceeds from sales of tangible fixed assets ------10 0 - - - - Purchase of intangible fixed assets -2 -35 -16 -104 -63 -69 -209 -306 -237 -106 -53 -162 -269 -264 -267 Proceeds from cancellation of insurance funds ------55 43 - - - - Payments and collection of loans receivable 5 ------35 1 - -9 0 - Payments for guarantee deposits ------29 -47 24 - -51 Purchase of inv estments in subsidiaries resulting in change in scope of consolidation ------501 -23 - 26 -11 - Others -2 -5 -11 -7 5 0 -0 -2 -5 1 17 -3 -2 -3 -10 Cash flows from invest ing act ivit ies -7 -65 -443 -1,142 400 -576 -118 186 -354 207 -391 -313 -145 -298 -353

Increase (decrease) in short-term debt -7 ------Increase (decrease) in long-term debt -1 ------476 -104 -94 -105 -105 -75 Increase (decrease) in bonds ------Proceeds from share issuance 428 498 713 58 43 24 1 - 12 ------Purchase of treasury shares ------241 - - - -370 -101 - -41 -29 -0 Proceeds from disposal of treasury shares ------1 12 74 38 24 32 3 Cash dividends paid - - - - -44 -49 -56 -46 -59 -36 -38 -49 -71 -101 -134 Others - - - - 0 - 0 - - -10 -1 -1 -2 -2 797 Cash flows from financing act ivit ies 421 498 713 58 -1 -266 -55 -46 -46 72 -170 -106 -194 -205 591

Effect of exchange rate on cash and cash equivalents ------0 0 0 -2 5 1 -6 Increase (decrease) in cash and cash equivalents 349 471 411 -831 613 -625 -15 389 -141 597 -79 172 340 543 665 Cash and cash equivalents (beginning of year) 32 380 851 1,263 431 1,044 419 403 792 651 1,248 1,200 1,372 1,720 2,263 C hange in cash and cash equiv alents resulting from changes to the scope of consolidation ------30 - 8 - - Cash and cash equivalents (year end) 380 851 1,263 431 1,044 419 403 792 651 1,248 1,200 1,372 1,720 2,263 2,928 Source: Shared Research based on company data

Cash flows from operating activities Demae-can receives order processing fees (per individual orders) and collects basic operation fees (monthly amount plus initial fees). Still, accounts payable–other tends to outpace accounts receivable–other. Accordingly, cash flows from operating activities typically improve in tandem with business expansion.

Cash flows from investing activities Capital investment is mainly geared toward software for system development.

Cash flows from financing activities Considering the cash flows from operating activities and net cash position, there is no need to issue shares or take out loans to support normal business activities (with the exception of M&A activity).

42/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Other information

ESG-related

Corporate governance (as of May 15, 2018)

Organizat ional form Organizat ion Company with Audit & Supervisory Board and capital structure Cont rolling shareholders None Directors Number of directors per Articles of Incorporation 10 Directors' term of office per Articles of Incorporation 1 years Number of directors 9 Out side direct ors 4 Independent outside officers 2 Audit & Supervisory Existence of Audit & Supervisory Board Y Board Number of members of Audit & Supervisory Board per Articles of Incorporation 4 Number of members of Audit & Supervisory Board 4 Outside members of Audit & Supervisory Board 4 Independent outside officers 3 Other Foreign shareholding ratio (as of August 31, 2017) 20-30 % Foreign corporations Independent officers 5 Implementation of measures regarding director incentives St ock opt ion implement ed Eligible for st ock opt ion Directors and employees Other Voting by electromagnetic method Online vot ing implement ed from 2015 Disclosure of individual direct or's compensat ion None Policy to determine amount and calculation method of remuneration Y Corporate takeover defenses None Environmental Environment al conservat ion act ivit ies conservat ion act ivit ies CSR CSR act ivit ies Act ivit ies FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 (JPYmn) Par. Par. Par. Par. Par. Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. ROE 4.2% 11.2% 7.7% 7.6% 6.3% 6.3% 7.1% 5.4% 4.6% 8.4% 4.7% 15.6% 17.3% 18.8% Net margin 7.6% 23.5% 19.0% 16.6% 11.9% 10.6% 11.6% 8.5% 4.6% 4.7% 2.6% 8.4% 8.8% 10.3% Total asset turnover 0.52 0.45 0.38 0.38 0.43 0.54 0.57 0.58 0.78 1.19 1.20 1.16 1.16 0.99 Financial leverage (equit y mult iplier) 1.07 1.06 1.06 1.20 1.24 1.10 1.08 1.09 1.28 1.49 1.47 1.61 1.70 1.84 ROA (RP-based) 4.3% 10.4% 12.0% 11.2% 9.1% 11.1% 11.8% 9.5% 10.3% 12.2% 17.7% 16.1% 18.8% 15.5% ROIC 2.9% 7.4% 7.2% 7.6% 5.1% 7.0% 7.0% 5.8% 7.4% 9.2% 14.5% 14.4% 18.9% 16.3% NOPAT 19 101 136 156 102 139 145 125 173 224 352 383 536 560 Interest-bearing debt＋Net assets 657 1,356 1,893 2,054 2,024 1,968 2,058 2,155 2,330 2,436 2,423 2,664 2,843 3,436 ROIC (before tax) 4.9% 12.6% 12.1% 12.8% 8.5% 11.9% 11.9% 9.8% 11.9% 14.9% 22.6% 21.5% 28.2% 24.4% OPM 8.9% 26.2% 30.1% 27.9% 16.1% 20.2% 19.4% 15.5% 13.3% 10.2% 14.9% 13.8% 16.2% 15.4% Revenue / Invested capital 0.55 0.48 0.40 0.46 0.53 0.59 0.61 0.63 0.90 1.46 1.51 1.56 1.74 1.58

ROE, etc.

20% ROE ROA (RP-based) ROIC 18.8% 17.3% 15% 15.6% 11.2%

10% 7.7% 7.6% 7.1% 6.3% 6.3% 5.4% 4.6% 8.4% 5% 4.2% 4.7%

0% FY08/05 FY08/10 FY08/15 Source: Shared Research based on company data

ROE

25% ROE Net margin Total asset turnover (right axis) Financial leverage (equity multiplier; right axis)

23.5% 20% 1.84 2 1.70 19.0% 1.61 1.49 1.47 15% 16.6% 1.28 1.20 1.24 1.10 1.08 1.09 1.07 1.06 1.06 10.3% 10% 11.9% 11.6% 1.19 1.20 1.16 1.16 1 10.6% 0.99 8.5% 8.4% 8.8% 7.6% 0.78 5% 0.54 0.57 0.58 0.52 0.45 4.6% 4.7% 0.38 0.38 0.43 2.6% 0% 0 FY08/05 FY08/10 FY08/15

Source: Shared Research based on company data

43/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

ROIC

35% ROIC (before tax) OPM Revenue / Invested capital (right axis) 30% 3 30.1% 27.9% 25% 26.2% 20% 1.74 2 1.56 1.58 20.2% 19.4% 1.46 1.51 15% 16.1% 16.2% 15.5% 0.90 14.9% 15.4% 13.8% 10% 8.9% 13.3% 1 0.59 0.61 0.63 0.48 0.53 10.2% 0.55 0.40 0.46 5%

0% 0 FY08/05 FY08/10 FY08/15

(JPYbn) (JPYbn) Net assets Interest-bearing debt Operating profit (right axis) 5 1 0.8 0.8 4 0.8

3 0.5 0.6 0.5 0.1 0.3 0.0 0.0 0.0 0.5 0.4 2 0.0 0.0 0.0 0.0 0.3 0.2 0.3 0.2 0.2 0.2 3.3 0.2 0.2 2.7 2.3 2.0 2.1 2.0 2.1 2.2 2.0 2.0 2.1 1 0.0 1.8 1.9 0.9 0 0 FY08/05 FY08/10 FY08/15 Source: Shared Research based on company data

Shareholder returns

In terms of a dividend policy, the company considers returns to shareholders a key priority. Its core policy is to distribute surplus funds based on a comprehensive consideration of group-wide performance, financial health, payout ratio, and maintaining sufficient retained earnings for future business expansion.

Dividend-related indicators

Shareholder returns FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 (JPYmn) Par. Par. Par. Par. Par. Par. Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. T ot al dividends a) - - - 44 48 56 46 59 36 38 49 70 100 133 145 Total treasury stock acquired b) - - - - - 241 - - - 370 101 - 41 29 0 Total returns to shareholders c) = a) + b) - - - 44 48 297 46 59 36 408 150 70 141 162 145 Net income attributable to owners of parent d) -77 28 152 145 156 128 123 146 115 97 167 97 348 433 559

Dividend payout rat io a) / d) - - - 30.6% 30.7% 43.7% 37.4% 40.4% 31.3% 39.3% 29.3% 72.2% 28.8% 30.7% 26.0% Total shareholder payout ratio c) / d) - - - 30.6% 30.7% 231.7% 37.4% 40.4% 31.3% 422.0% 89.8% 72.2% 40.5% 37.4% 26.0%

Shareholders' equity 393 921 1,791 1,995 2,113 1,934 2,002 2,114 2,197 1,987 2,021 2,146 2,342 2,713 3,269 Average f) 217 657 1,356 1,893 2,054 2,024 1,968 2,058 2,155 2,092 2,004 2,083 2,244 2,527 2,991 EPS (JPY) -12,332.1 2,151.9 9,951.4 8,304.1 2,909.2 2,373.1 2,383.2 2,828.8 2,228.0 18.8 17.1 9.7 34.5 10.7 13.8 EPS (fully dilut ed) (JPY) - - 9,627.7 7,605.8 2,728.9 2,277.2 2,331.7 2,801.5 2,196.0 18.3 16.7 9.6 33.4 10.3 13.5 DPS (JPY) - - - 2,500.0 900.0 1,100.0 900.0 1,150.0 700.0 8.0 5.0 7.0 10.0 3.3 3.6 DOE a) / f) - - - 2.3% 2.3% 2.8% 2.3% 2.9% 1.7% 1.8% 2.4% 3.4% 4.5% 5.3% 4.8%

Payout ratio, DOE (both based on published quarterly financial statements)

100% Payout ratio DOE (right axis) 6% 5.3% 90% 4.9% 4.5% 5% 80% 72.4% 70% 4% 3.4% 60% 2.9% 2.9% 50% 42.6% 3% 2.4% 2.4% 2.4% 2.2% 40% 46.4% 1.9% 40.7% 1.7% 2% 30% 37.8% 31.4% 30.6% 30.9% 29.2% 29.0% 30.8% 20% 26.1% 1% 10% 0% 0% FY08/05 FY08/10 FY08/15 Source: Shared Research based on company data

44/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Top management

President and Representative Director: Rie Nakamura (born December 16, 1964); holds 5,682,000 shares In April 1988, she joined Recruit Holdings Co., Ltd. Joined Hurxley Corporation in 1998. Was appointed director at Yume no Machi in 2001, president and representative director in 2002, and chair and representative director in 2009. Assumed position of chief human resources officer at Culture Convenience Club Co., Ltd. in 2009, and director and internet business general manager in 2010. Became director at Opt Inc. in 2011. Was appointed chair and representative director at Yume no Machi in 2011. Became director at Culture Convenience Club Co., Ltd. in 2012. In September 2012, became chair and representative director at Yume no Machi, subsequently president and representative director in November (current role). Became director at Satsuma Ebisudo in 2013 (current role).

Major shareholders

Shareholding Top shareholders Shares held rat io LINE Corporation 8,880,000 21.92% Rie Nakamura 5,682,000 14.03% Japan Trustee Services Bank, Ltd. (Trust account) 5,030,200 12.42% The Master Trust Bank of Japan, Ltd. (Trust account) 2,439,500 6.02% The Asahi Shimbun Company 2,304,800 5.69% Tetsuya Ichimura 1,175,200 2.90% The Bank of New York 133524 (Standing proxy: Mizuho bank, Ltd. Settlement and Cleaning 1,066,500 2.63% Services Division) SSBTC Client Omnibus Account (Standing proxy: The Hongkong and Shanghai Banking 874,763 2.16% Corporation, Limited, Tokyo Branch) The Nomura Trust and Banking Co., Ltd. (Trust account) 850,500 2.10% The Bank of New York 133652 (Standing proxy: Mizuho bank, Ltd. Settlement and Cleaning 835,700 2.06% Services Division) SUM 29,139,163 71.94% Source: Shared Research based on company data (As of end-August 2018)

Employees

FY08/02 FY08/03 FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 Cons. No. of employees 64 70 89 90 160 142 159 Demae-can - 36 45 45 125 101 115 Mail Order - 26 32 33 35 41 44 Company-wide - 8 12 12 - - - Osaka branch 21 19 23 27 32 39 48 27 20 26 24 20 25 Tokyo head office - - - 20 21 15 11 17 35 31 40 52 61 Satsuma Ebisudo ------26 32 33 35 41 44 Other 9 12 21 - - 2 5 - 2 - 61 29 29 Cons. No. of temporary employees 39 82 81 87 274 95 124 Demae-can - 31 14 6 173 5 33 Mail Order - 51 67 81 101 90 91 Company-wide ------Osaka branch 23 21 15 17 30 43 39 31 14 6 6 2 3 Tokyo head office ------3 30 Satsuma Ebisudo ------51 67 81 101 90 91 Other 1 1 1 ------167 - - Par. No. of employees 8 8 13 17 30 31 44 47 53 56 62 44 55 57 64 72 86 Temporary employees 24 22 16 17 30 43 39 31 14 6 6 5 33 Average age 31.4 31.7 31.7 31.6 31.8 32.1 32.3 31.9 31.8 32.2 31.8 32.2 33.0 Average years of service 1.3 1.5 1.7 1.8 2.4 2.9 3.1 3.0 2.7 2.8 2.8 3.2 3.1 Average annual salary (JPYmn) 3.72 3.94 4.24 4.55 4.36 4.47 4.36 4.97 4.78 4.89 5.23 0.01 0.01 Cons-Parent diff. (no. of employees) 2 26 34 33 96 70 73 (JPYmn) FY08/02 FY08/03 FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 Parent Revenue ... a 88 101 145 361 649 762 941 1,074 1,158 1,259 1,360 1,427 1,717 1,965 2,381 2,976 4,057 Operating profit ... b -34 -36 -75 32 170 229 262 173 234 244 223 267 255 476 508 673 704 No. of employees (average) ... c 8 8 11 15 24 31 38 46 50 55 59 53 50 56 61 68 79 Incl. temporary employees ... d 4 8 11 15 36 54 57 62 74 91 100 88 72 66 67 74 98 Revenue per employee ... a/c 11.0 12.7 13.8 24.1 27.6 25.0 25.1 23.6 23.2 23.1 23.0 26.9 34.7 35.1 39.3 43.8 51.3 Incl. temporary employees ... a/d 22.0 12.7 13.8 24.1 18.3 14.2 16.6 17.3 15.8 13.8 13.6 16.2 23.8 29.8 35.8 40.5 41.4 OP per employee ... b/c -4.2 -4.5 -7.1 2.1 7.2 7.5 7.0 3.8 4.7 4.5 3.8 5.0 5.1 8.5 8.4 9.9 8.9 Incl. temporary employees ... b/d -8.4 -4.5 -7.1 2.1 4.8 4.3 4.6 2.8 3.2 2.7 2.2 3.0 3.5 7.2 7.6 9.2 7.2 (JPYmn) FY08/02 FY08/03 FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 Cons. Revenue ... a 1,360 2,087 3,558 3,661 4,155 4,944 5,431 Operating profit ... b 211 278 362 547 573 801 837 No. of employees (average) ... c 60 67 80 90 125 151 151 Incl. temporary employees ... d 101 128 161 174 306 336 260 Revenue per employee ... a/c 22.7 31.1 44.8 40.9 33.2 32.7 36.1 Incl. temporary employees ... a/d 13.5 16.4 22.1 21.1 13.6 14.7 20.9 OP per employee ... b/c 3.5 4.2 4.6 6.1 4.6 5.3 5.6 Incl. temporary employees ... b/d 2.1 2.2 2.2 3.2 1.9 2.4 3.2 Source: Shared Research based on company data

45/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Historical performance, news and topics

Historical performance Full-year FY08/18 results (out October 11, 2018)

FY08/18: Revenue up 9.8% YoY and operating profit up 4.6% YoY, but revenue would have been up 23.5% if not for sale of ▷ subsidiary. Full-year revenue in line with plan as key performance indicators (KPIs) show steady gains.

 KPIs: 17,207 affiliated stores (+12.3% YoY), 23.3mn orders (+35.0% YoY), 2.7mn active users (+14.1% YoY), each trending up  Versus forecasts: Number of stores and orders in line with plan; an increase in repeat order rate compensated for the number of active users falling short of plan. Sales and operating profit finished in line with plan

 Measures to increase repeat order rate successful, with results evident from initiatives encouraging users to place a third order and the launch of Demae-can’s unique loyalty program

 Sharing Delivery®: Reached target of 60 delivery bases as of end-FY08/18; expanded into Kansai and Tokai regions, launched directly managed delivery bases under urban center business model in August

 Signed partnership agreement with three companies including Asrapport Dining Co., Ltd. in April 2018; plans to establish delivery bases, including directly managed bases, at a faster pace Progress versus medium-term management plan: Pushing forward medium-term plan initiatives targeting market share gains and ▷ accelerated growth; looking to address issues one by one

 Retain new users and raise repeat customer rate: Began loyalty program in November 2017 and ramped up marketing campaigns

 Cultivate stores to expand market: By promoting Sharing Delivery®, the company added popular large chains and local stores to its affiliated stores New medium-term plan: New plan prioritizes investments aimed at expanding active user base and accelerating rollout of ▷ Sharing Delivery® business. Plans for aggressive investment in FY08/19 and targets operating profit of JPY5.0bn in FY08/21

 Active user base: Looks to first improve app and website, and subsequently strengthen promotion, including measures to increase brand recognition; targets substantial growth in active users

 Sharing Delivery®: Strategy of establishing dominant position that overwhelms competitors at an early stage by rolling out directly managed delivery bases in top 50 areas

46/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Quarterly earnings trends (left: revenue; right: operating profit; below: KPIs)

(JPYmn) Demae-can (Order processing fees) Demae-can (Other) Mail Order YoY (right axis) (JPYmn) Operating profit OPM (right axis) 1,600 160% 300 277 25% 1,436 1,426

1,362 259 1,316 1,400 1,285 140% 1,210 1,207 250 20%

1,133 219 1,109 211 1,200 1,059 120% 206 1,037 949 949 947 941

926 200 902 892 169 860 1,000 846 100% 171 207 815 155 15% 133 135 800 80% 150 132 152 161

524 112 137 600 60% 98 100 10% 100 373 72 87 331 67 400 40% 77 716 679 677 5% 563

524 50 502 498 415 408 407 200 394 20% 45 337

326 14 315 302 266 262 261 257 235 230 229 228 201 0 0% 0 0% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18

('000) No. of affiliated stores ('000) YoY (right axis) (mn) 6.3 No. of orders (mn) YoY (right axis) 5.9 6.0 18 17.2 18% 6 60% 16.4 5.1 17 16.1 16% 15.7 5 4.7 50% 16 15.3 14% 4.4 4.4 14.6 15.0 15 14.2 3.8 12% 4 3.5 3.6 40% 14 13.7 3.5 13.0 10% 2.9 2.9 13 12.512.5 2.7 2.6 12.012.2 3 30% 11.6 11.611.711.8 8% 2.3 2.3 2.3 11.311.5 11.5 12 11.211.111.1 2.0 2.0 2.0 2.0 1.8 2.3 11 6% 2 20% 10 4% 1 10% 9 2% 8 0% 0 0% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18

Gross profit (left) SG&A expenses (right)

(JPYmn) (JPYmn) Gross profit GPM (right axis) SG&A expenses SG&A ratio (right axis) 1,000 90% 800 740 70% 882 884 867 851 875 706 662 777 769 607 800 713 729 80% 598 592 675 561566 560564 656 600 62% 60% 604 609 56% 571 588 589 472 600 539 70% 439 456 449 54% 71% 497 489 505 417 427 418433433 397 395 51% 441 54% 54% 66% 66% 66%66% 400 48% 50% 400 347 63% 64% 64%64%64% 64%64% 64%64%64% 60% 51% 50% 62% 63% 61%62% 49% 49% 49% 266 60% 60% 49%48% 60% 249 47% 46% 47% 218 58% 204199 46% 46%46% 46% 200 50% 43% 200 42% 43% 40%

46% 0 40% Q1 Q1 Q1 Q1 Q1 Q1 0 30% FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 Q1 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 Source: Shared Research based on company data

Summary For FY08/18, the company reported full-year consolidated revenue of JPY5.4bn (+9.8% or +JPY487mn YoY), operating profit of JPY837mn (+4.6% YoY) and net income attributable to owners of parent of JPY558mn (+29.1% YoY). For its mainstay Demae-can business, the company reported revenue of JPY4.1bn (+16.5% YoY) and an operating profit of JPY863mn (+1.1% YoY). Success with measures to increase the repeat order rate led to growth in the number of orders and order processing fees. We note the company also set up 60 Sharing Delivery® bases in line with plan, and opened 11 stores under the urban center business model.

Growth in the Demae-can business slowed mainly owing to the sale of former consolidated subsidiary Delis Corporation (leading to a JPY510mn decline in other revenue) and changes in the scope of consolidation (JPY36mn). But KPIs, such as the number of affiliated stores, basic operating fees, number of orders, and order processing fees, grew steadily across the board. Excluding the impact from the sale of Delis, revenue rose 23.5% YoY overall and 38.0% YoY in the Demae-can business.

The GPM fell 2.4pp YoY to 62.8% mainly due to consigned systems development, which sparked a 4.8pp decline in the GPM in Q3. Although this was a one-time factor, the company said it may crop up again from time to time. However, because the consigned systems development does not involve SG&A expenses, operating profit is not affected. The 2.3pp decline in the GPM in Q4 was mainly due to sales mix. There have been no major changes in profitability in the Demae-can business, according to the company.

47/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

On the expense side, the company appeared to have invested aggressively to win larger market share as targeted in its medium- term plan; in 1H, the company spent JPY454mn (+1.6x or JPY177mn) on boosting brand recognition and converting users into heavy users. Advertising expenses increased owing to TV commercials aired mostly in December and January, and measures to bolster repeat usage, a focus for this fiscal year (these included discount coupons and marketing campaigns). Personnel and hiring costs also increased in tandem with stepped-up efforts to develop affiliate stores.

Key performance indicators In the Demae-can business, KPIs were as follows.

Number of orders: 23.3mn (+35.0% YoY), consistently growing above 20% since FY08/16 and rising above 30% for the first time ▷ since Q3 FY08/16; Number of affiliated stores: 17,207 (+12.3% YoY), trending upward; ▷ Number of active users: 2.7mn (+14.1% YoY), reflecting sustained double-digit growth. In terms of attracting new users, the ▷ company seemingly has been developing new customer segments thanks to synergies from collaboration with LINE Corporation (as it officially launched “LINE Delima” in July 2017), and cross-sector tie-ups with the likes of ZOZOTOWN and Mandom.

KPIs (monthly)

('000) (mn) Orders YoY (left axis) Affiliated stores YoY (left axis) Active users YoY (left axis) Sharing Delivery bases 50% 2,500 18% 20,000 70

45% 16% 18,000 60 40% 2,000 14% 16,000 50 35% 14,000 20% 2 12% 30% 1,500 12,000 40 10% 25% 10,000 8% 30 20% 1,000 8,000 6% 10% 1 15% 6,000 20 10% 500 4% 4,000 10 5% 2% 2,000 0 0% 0 0% 0 0% 0 Sep Mar Sep Mar Sep Mar Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep FY08/17 FY08/18 FY08/18 FY08/19 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/15FY08/16FY08/17FY08/18FY08/19 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 Source: Shared Research based on company data

The company considers number of orders as the most important KPI and aims for its accelerated growth in the medium-term plan. Order growth in Q1 FY08/18 (+34.0% YoY) outpaced increases in FY08/17 (+27.7%) and FY08/16 (+28.1%), driving up order processing fees (+35.7%). This was mainly the result of a higher repeat order rate, increased brand recognition, and measures to sign up popular restaurants as affiliated stores in Sharing Delivery® areas. The strong momentum continued the rest of the year with orders rising 35.1% YoY in Q2, 35.6% in Q3, and 34.8% in Q4. While order volume finished some 510,000 orders short of the initial target of 23.8mn orders, this was mainly attributable to the number of active users coming in below plan. However, the shortfall was offset by a higher repeat order rate, and sales and operating profit finished in line with initial forecasts.

We note that since the company reinforced its systems infrastructure and completed load testing in response to the system failure that occurred in February, the upgraded system has been able to handle the continual growth in orders. The company is projecting continued strong growth in orders in the years ahead, forecasting a 45% YoY increase in orders in FY08/19, a 42% increase in FY08/20, and a 40% increase in FY08/21.

Outlook as of Q3 (for reference): As of Q3, the company had appeared to be making good progress toward its full-year targets for each KPI. Number of orders was in line with plan as repeat order rate steadily increased. Number of affiliated stores grew thanks to accelerated expansion of bases under Share Delivery®. Number of active users undershot the target, but the company believes it can still attain the target for number of orders with contributions from higher repeat order rate than initially expected. Although figures for each KPI seem to have fallen slightly short of plan, the company stated that the KPIs are progressing as forecast as it has planned for gradual growth.

48/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Monthly number of orders and other KPIs

('000) (mn) Orders YoY (left axis) Active users YoY (left axis) Orders / Active users YoY (left axis) 50% 2,500 30% 0.90 45% 40% 2,000 35% 20% 2 0.60 30% 1,500 20% 25% 20% 1,000 10% 1 15% 10% 0.30 10% 500 5% 0% 0 0% 0 0% 0.00 Sep Sep Sep Sep Sep Sep Sep Sep Sep FY08/17 FY08/18 FY08/19 FY08/17 FY08/18 FY08/19 FY08/17 FY08/18 FY08/19 Source: Shared Research based on company data

Monthly rainfall (comparison with average year)

350 Q1, Q3 Q2, Q4 Eastern Japan Western Japan

300

250

200

150

100

0 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct (%) 2015 2016 2017 2018 Source: Shared Research based on Japan Meteorological Agency

Company updates rolling three-year business plan

Along with its FY08/18 results announcement, the company also updated its rolling three-year business plan, extending the plan out to FY08/21. Under the previous three-year plan, the company saw operating profit remaining basically flat YoY in FY08/18 (the first year of the plan) then rising to JPY2.9bn by FY08/20 as the operating profit margin improved rapidly over the next two years, reaching 30.4% in FY08/20. Under the new plan, the company looks to step up investment spending as it once again places medium/long-term growth ahead of short-term profit and continues initiatives from FY08/18 aimed at increasing its active user base and accelerating the rollout of its rapidly growing Sharing Delivery® service. Under the new three-year plan the company is projecting operating profit of only JPY100mn (-JPY700mn YoY) in FY08/19. However, the following years it sees profitability improving rapidly, with operating profit jumping to JPY1.7bn in FY08/20 as the

49/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

operating profit margin rises to 13.2%, followed by continued strong gains in FY08/21 with operating profit hitting JPY5.0bn as the operating profit margin rises to 27.8% in the final year of the plan. The company aims to maintain over a 40% increase in the number of orders stemming from an increase in the number of active users (see the Medium-term management plan section for details).

Performance targets under new three-year business plan

Out October 2017 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 3-year Act. Act. Act. Act. Act. Act. Act. Init. Est. MTP MTP CA GR No. of orders (mn) 6.78 7.37 7.76 8.87 10.56 13.53 17.28 23.83 34.42 48.40 41.0% YoY 6.6% 8.6% 5.4% 14.3% 19.1% 28.1% 27.7% 37.9% 44.4% 40.6% Revenue (JPYmn) 1,259 1,360 2,087 3,558 3,661 4,155 4,944 5,434 7,130 9,416 24.0% YoY 8.8% 8.0% 53.5% 70.5% 2.9% 13.5% 19.0% 9.9% 31.2% 32.1% Operating profit (JPYmn) 244 211 278 362 547 573 801 819 1,480 2,861 52.9% YoY 4.5% -13.7% 32.2% 30.0% 51.1% 4.8% 39.8% 2.3% 80.7% 93.3% OPM 19.4% 15.5% 13.3% 10.2% 14.9% 13.8% 16.2% 15.1% 20.8% 30.4% Out October 2018 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 FY08/21 3-year Act. Act. Act. Act. Act. Act. Act. Act. Init. Est. MTP MTP CA GR No. of orders (mn) 6.78 7.37 7.76 8.87 10.56 13.53 17.28 23.32 33.82 48.03 67.24 42.3% YoY 6.6% 8.6% 5.4% 14.3% 19.1% 28.1% 27.7% 35.0% 45.0% 42.0% 40.0% Revenue (JPYmn) 1,259 1,360 2,087 3,558 3,661 4,155 4,944 5,431 7,681 12,900 18,800 51.3% YoY 8.8% 8.0% 53.5% 70.5% 2.9% 13.5% 19.0% 9.8% 41.4% 67.9% 45.7% Operating profit (JPYmn) 244 211 278 362 547 573 801 837 100 1,700 5,000 81.4% YoY 4.5% -13.7% 32.2% 30.0% 51.1% 4.8% 39.8% 4.6% -88.1% 1,600.0% 194.1% OPM 19.4% 15.5% 13.3% 10.2% 14.9% 13.8% 16.2% 15.4% 1.3% 13.2% 26.6% Versus previous forecast FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 FY08/21 3-year No. of orders (mn) -0.51 -0.60 -0.37 Revenue (JPYmn) -3 551 3,484 Operating profit (JPYmn) 18 -1,380 -1,161 OPM 0.3% -19.5% -17.2% Source: Shared Research based on company data

Initiatives undertaken in FY08/18 The company continued to work toward strong growth with Demae-can and undertook the following initiatives. It apparently made good progress with initiatives to increase brand recognition and convert customers into heavy users, as well as measures to cultivate new markets and build up the sales force.

The company aimed to proactively invest to quickly grow in the number of Demae-can fans. In order to retain new users, the company encouraged customers to order for the third time (when a customer orders three times, the user withdrawal rate falls dramatically). On November 21 2017, the company introduced a unique loyalty program, which sets the member status of a user based on the number of orders. From November 29, the company began a child-raising support campaign using comic books. From early December 2017 to the start of January 2018, the company launched television commercials in the Kanto and Kansai areas as well as corresponding marketing campaigns in order to raise brand awareness and promote use. The company also strengthened its system infrastructure to prevent recurrence of a system failure that occurred in February 2018. Beginning August 24, 2018, the company began accepting payment via LINE Pay and various mobile carrier payment services with the aim of increasing user convenience.

Improved repeat order rate on efforts to promote third-time orders Growth in the numbers of orders can be attributed to the company’s initiative to encourage customers to order for the third time. Promotions (such as discount coupons and email reminders) aimed at winning an order for the second time or more have been successful. Looking at the number of orders placed by new active users in 1H, the share of those who ordered more than three times rose to 30% from just over 20% a year earlier. The average number of orders per user jumped, leading to a 35% growth in total number of orders for cumulative Q3. User withdrawal rate presumably continued to drop and boosted number of orders.

The loyalty program (member status changes every three months and the next change is scheduled in February) and child- raising support campaign also contributed to the order increase. In the exhibit below, which tracks evolution in user rankings in 1H, it is clear that there has been brisk growth in the higher rankings most prized by the company (that is, heavy users). Growth in the proportion of God-ranked members (those contributing the most to revenue) has been particularly strong. From this, we conclude that introducing the loyalty program has been very effective. Also, Shared Research will focus on how Demae-can’s name recognition is rising thanks to television commercials and other media exposure. In January, TV broadcaster TBS showed a special segment on gourmet food delivery services in its weekly primetime show, featuring the company’s sales team for two

50/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

consecutive weeks. Inquiries by restaurant operators also increased following a Sunday morning program on TBS introducing the Demae-can business (program broadcasted on November 12). As of July 2018, number of orders is growing steadily and so is the repeat order rate.

Loyalty program

No. of orders End-Feb. End-Aug. End-Feb. End-Aug. Rank (c)-(a) (d)-(b) Silver Bronze Reg ular God (right axis) Gold (right axis) per year 2017 (a) 2017 (b) 2018 (c) 2018 (d) 60% 6% God 60 or more 2.0% 2.5% 2.9% 2.9% +0.9pp +0.4pp 50% 5.6% 5.7% 5% 5.1% Gold 30–59 4.5% 5.1% 5.6% 5.7% +1.1pp +0.6pp 40% 4.5% 4% 31.0% 31.4% 28.4% 29.7% 30% 3% Silver 10–29 14.8% 16.2% 17.5% 17.9% +2.7pp +1.7pp 2.9% 2.9% 20% 2.5% 2% 2.0% Bronze 3–9 28.4% 29.7% 31.0% 31.4% +2.6pp +1.7pp 17.5% 17.9% 10% 14.8% 16.2% 1%

Regular 1–2 50.1% 46.5% 42.9% 42.1% -7.2pp -4.4pp 0% 0% Feb-17 Aug-17 Feb-18 Aug-18 Source: Shared Research based on company data

Sharing Delivery® to accelerate quality improvement and delivery base expansion in 2H As part of its store strategy to expand the market, the company promoted Sharing Delivery®. As a result, popular large chains and popular local stores, which previously did not have delivery services, joined the company’s group of affiliated stores. Such additions included Tendon Tenya and Gyoza no Ohsho in Q1; Ringer Hut, Marugameseimen, and Chibo in Q2; Lotteria and Denny’s in Q3; and Botejyu in Q4. Further, focusing on Asahi Shimbun’s delivery network, ASA stations, the company expanded its target areas, increasing the number of locations to 17 at end-Q1 FY08/18, 23 at end-1H FY08/18, 33 at end Q3-FY08/18, and finally reaching its target of 60 locations at end-Q4 FY08/18.

The company has addressed small issues one by one and accumulated expertise. By increasing new graduate and mid-career hires, it has enhanced the effectiveness of new delivery bases, and accelerated base network expansion with a view to meeting the target by end-Q4. In August, the company began its urban center business model and immediately reached its target of 16 delivery bases.

Urban center business model: The company's "urban center business model" refers to its scheme to secure revenue while increasing efficiency by creating smaller delivery areas in central urban districts where there are many stores and users.

Expansion of Sharing Delivery® network in sight with new partnerships In April 2018, the company announced business alliances with Asrapport Dining Co., Ltd., Kozosushi Co., Ltd., and Delis Corp. Asrapport Dining (TSE1: 3069) operates 813 restaurant chains nationwide of various types and brands including Gyukaku. Kozosushi (TSE JASDAQ Standard: 9973) operates 261 restaurant chains nationwide, mainly focusing on take-out sushi chains Kozosushi and Chagetsu. Kozosushi has decided to make Delis, an outsourced delivery service provider, its wholly owned subsidiary with an aim to significantly strengthen its delivery capabilities. With these new alliances, the company has been able to accelerate the number of restaurants for which it provides delivery service. As horizontal expansion of its Sharing Delivery® business is one of the main growth strategies in the company's new three-year plan, investors will want to keep an especially close eye on developments on this front during FY08/19.

Sharing Delivery®: Developing urban central model, rapidly establishing position in key areas As of March 2018, 23 delivery bases had acquired more than 600 affiliated restaurants in total, exceeding the company’s target of an average 25 restaurants per base. In view of issues that have become evident, though, as of Q2 the company planned to eschew merely adding 25 new restaurants in 2H, in favor of an approach to restaurant cultivation that focused on popular chains, thereby increasing the likelihood of both restaurant and delivery base making money. The company aims to diversify its service into different types of foods and beverages in each area, also by utilizing Sharing Delivery®. It expects this will increase the number of orders by virtue of higher user satisfaction, and thus confer benefits to users, affiliated stores, and the company.

In Q3, the company intended to not strictly adhere to its target of an average 25 restaurants per base if it could generate monthly revenue of JPY4mn at delivery bases by focusing on improving delivery efficiency. It adopted such an approach because

51/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

it was able to expect newly established delivery bases to generate a certain level of revenue stably owing to an increase in the number of major popular restaurant chains in its affiliate restaurant base. A base newly opened in Nagoya in May 2018 as the first in the Tokai region performed extremely well from the initial month.

In Q4, the company introduced its urban central model aimed at rapidly establishing a dominant position in key areas, and opened its first 11 stores under direct management in August. Although focused on speed, the moves were also motivated by internal factors (confidence in Sharing Delivery® business model), external factors (rivals expanding areas of operation and risk of overseas companies entering the field), and business environment factors (rising need for efficiency amid expansion in food delivery market and worker shortages at restaurants). The company plans to rapidly establish a dominant presence to overwhelm its competitors. Starting August 29, 2018, Sharing Delivery® will be handling deliveries of contact lenses for MeganeSuper. By accumulating experience in same-day delivery services for everyday goods, the company plans to build up its delivery system for Sharing Delivery®.

Launch of new initiatives As a new initiative, in March 2018 the company launched the Incubation Kitchen Project, which provides support to those ™ seeking to open restaurants that focus on delivery services.

The company will provide support to restaurant operator candidates (individuals or corporations) who wish to enter the food delivery market. Under this project, the company will utilize its core business Demae-can to provide restaurant space (kitchen), share its sales channels (Demae-can), and offer expertise in food delivery business based on the big data accumulated by Demae- can. The project will allow candidates to start their businesses on a trial basis at low risk. Some of the main support areas offered are: a) marketing and operations, b) restaurant opening and financing, c) provision of operational expertise and accounting systems upon opening, and d) periodic seminars designed to help management after the start of business.

Further, in May 2018 the company began a pilot launch of a one-stop delivery service Matomete Delivery for Yoshinoya and Hanamaru Udon, offering customers the ability to order beef bowls from Yoshinoya and noodles from Hanamaru Udon in just one order. This service was designed to meet the needs of families. Restaurants can expect to build a new customer base and strengthen their lineup of menu items, and the company can expect growth in repeat order rate and number of orders accompanying improved usability. We will see how the service will pick up as a new format for Sharing Delivery®.

As part of its initiative to improve store operations, the company released a Demae-can order management app as a new way to receive orders. This app not only allows stores to receive orders for Demae-can easily through a tablet or smartphone, but also lightens the burden on affiliated stores by providing navigation to the delivery destination and other order management tools. The company evaluates this app highly as it has lessened the burden on stores.

52/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Demae-can business

Demae-can FY08/16 FY08/17 FY08/18 FY08/16 FY08/17 FY08/18 FY08/19 Yo Y change (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Cons. Cons. Cons. Init. Est. Init. Est. FY08/18 FY08/19 Revenue 528 621 617 755 841 931 930 797 859 1,019 1,100 1,100 2,522 3,499 4,078 3,922 6,301 +579 +2,223 YoY 25.3% 21.6% 20.2% 44.6% 59.3% 49.8% 50.8% 5.5% 2.1% 9.5% 18.3% 38.1% 28.1% 38.8% 16.5% 12.1% 54.5% - Operating profit 161 102 223 190 232 171 271 180 222 144 226 272 676 854 863 - - +9 - YoY 27.0% -51.5% 85.0% 5.2% 43.9% 67.4% 21.7% -5.2% -4.5% -15.8% -16.6% 50.7% 5.9% 26.3% 1.1% - - - OPM 30.5% 16.4% 36.1% 25.2% 27.6% 18.3% 29.1% 22.7% 25.8% 14.1% 20.6% 24.7% 26.8% 24.4% 21.2% - - -3.2pp - Order processing fees 337 408 394 407 415 502 498 524 563 679 677 716 1,546 1,938 2,634 - - +696 - YoY 28.8% 29.6% 30.7% 24.7% 23.2% 23.1% 26.2% 28.7% 35.7% 35.1% 36.1% 36.7% 28.3% 25.4% 35.9% - - - No. of orders (mn) 2.92 3.50 3.46 3.64 3.79 4.41 4.38 4.70 5.08 5.94 5.97 6.33 13.53 17.28 23.32 23.83 33.82 6.05 10.50 YoY 25.9% 27.8% 31.0% 27.6% 29.7% 26.0% 26.5% 28.9% 34.1% 34.6% 36.4% 34.8% 28.1% 27.7% 35.0% 37.9% 45.0% - Order processing fees / No. of orders 115.2 116.5 113.9 111.7 109.4 113.8 113.6 111.5 110.7 114.3 113.4 113.1 114.3 112.2 112.9 - - +0.8 - YoY 2.3% 1.3% -0.2% -2.3% -5.0% -2.3% -0.3% -0.2% 1.2% 0.4% -0.2% 1.4% 0.2% -1.8% 0.7% - - - No. of affiliated stores (quarter end) 12,505 12,529 13,018 13,656 14,206 14,559 14,953 15,318 15,712 16,081 16,439 17,207 13,656 15,318 17,207 17,071 21,125 +1,889 +3,918 YoY 7.1% 6.1% 8.4% 11.8% 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 9.9% 12.3% 11.8% 12.2% 12.3% 11.4% 22.8% - No. of orders / No. of affiliated stores 236.6 279.7 270.9 273.2 272.2 306.7 296.7 310.3 327.7 373.5 367.3 376.3 1,045.9 1,192.7 1,434.3 1,471.5 1,764.6 +241.6 +330.3 YoY 18.7% 20.0% 22.1% 15.9% 15.1% 9.6% 9.5% 13.6% 20.4% 21.8% 23.8% 21.3% 18.1% 14.0% 20.3% 23.4% 23.0% - No. of active users (quarter end; mn) - - 1.82 1.92 1.98 2.13 2.24 2.35 2.45 2.55 2.62 2.69 1.92 2.35 2.69 3.13 4.41 +0.34 +1.72 YoY - - - 24.7% - - 23.2% 22.4% 23.7% 20.0% 17.0% 14.5% 24.7% 22.4% 14.5% 33.2% 63.9% - No. of orders / Average no. of users 1.9 1.9 2.1 2.0 2.0 2.1 2.4 2.3 2.4 7.8 8.1 9.3 9.5 +1.2 +0.3 YoY ------5.0% 8.9% 10.5% 15.2% 16.5% 7.0% 3.5% 14.4% 2.9% - Total users (quarter end; mn) 7.37 7.69 7.98 8.30 8.56 8.81 ------8.30 - - - - - YoY 14.3% 14.9% 15.8% 16.2% 16.1% 14.6% ------16.2% - - - - Depreciat ion 43 46 47 51 49 49 36 37 36 38 42 46 187 171 162 - -10 - Amortization of goodwill 3 3 3 14 11 11 7 - - - - - 23 30 - - -30 - EBITDA 207 151 273 255 293 230 315 217 257 182 268 317 886 1,055 1,025 - -31 - YoY 19.9% -40.6% 65.2% 12.7% 41.2% 52.7% 15.5% -14.8% -12.1% -21.1% -14.9% 46.1% 8.3% 19.1% -2.9% - - EBITDA margin 39.3% 24.3% 44.2% 33.8% 34.8% 24.7% 33.9% 27.3% 30.0% 17.8% 24.4% 28.9% 35.1% 30.2% 25.1% - -5.0pp - Source: Shared Research based on company data

(JPYmn) (JPYmn) Revenue YoY (right axis) Operating profit OPM (right axis) 1,200 1,1001,100 100% 300 271 272 50% 1,019 931 930 250 232 1,000 80% 223 222 226 40% 841 859 797 190 800 755 200 210 180 167 171 621 617 60% 181 30% 143 146 140 144 541 528 150 161 600 511 513 523 124 129 127 120 411 408 421 40% 20% 373 363 363 400 331 361 100 80 102 75 10% 200 20% 50

0 0% 0 0% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 Source: Shared Research based on company data

('mn) 6.3 800 Order processing fees YoY (right axis) 80% No. of orders (mn) YoY (right axis) 5.9 6.0 716 6 60% 700 679 677 70% 5.1 563 5 4.7 50% 600 60% 4.4 4.4 502 498 524 500 50% 4 3.6 3.8 40% 415 3.5 3.5 408 394 407 2.9 400 337 40% 2.7 2.9 315 326 3 2.6 30% 302 2.3 2.3 262 266 2.3 300 257 261 30% 2.0 2.0 2.0 2.0 235 230 229 228 1.8 201 2 2.3 20% 200 20% 100 10% 1 10% 0 0% 0 0% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 Source: Shared Research based on company data

Mail Order In the Mail Order business, the company strove to strengthen its products. In addition to its mainstay shochu (Japanese liquor) and wine (began selling in 2015), the company began to sell whisky from October 2017. The company also began activities to form a large user population for the future growth, mainly aiming to increase new customers. While repeat orders from new customers are showing a gradual increase, cumulative Q3 revenue fell by 6.4% YoY as it is taking longer than expected for new customers to place repeat orders.

53/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Mail Order business

Mail Order FY08/16 FY08/17 FY08/18 FY08/16 FY08/17 FY08/18 FY08/19 Yo Y change (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Cons. Cons. Cons. Init. Est. Init. Est. FY08/18 Vs. Est. Revenue 421 438 420 354 369 384 355 336 348 343 336 326 1,633 1,445 1,353 1,512 1,380 -92 +27 YoY -0.9% 0.4% -1.8% -12.4% -12.4% -12.2% -15.6% -4.9% -5.6% -10.9% -5.2% -3.1% -3.5% -11.5% -6.4% 4.7% - - Internal transaction 23 26 27 25 35 40 38 40 45 52 51 53 101 153 200 +47 - Sales (incl. int ernal t ransact ion) 444 464 447 379 403 425 393 376 393 394 387 379 1,734 1,597 1,553 -45 - Operating profit 50 51 62 54 67 78 60 54 49 59 56 55 217 259 218 - - -41 - YoY 50.6% 15.5% -38.6% 112.3% 34.7% 51.8% -3.0% -0.5% -27.4% -24.8% -6.4% 1.8% 6.6% 19.3% -15.7% - - - OPM 11.8% 11.7% 14.7% 15.3% 18.2% 20.3% 16.9% 16.0% 14.0% 17.1% 16.7% 16.8% 13.3% 17.9% 16.1% - - -1.8pp - Depreciat ion 2 2 2 2 2 2 3 4 3 3 4 4 8 10 14 +4 - Amortization of goodwill 26 26 26 26 26 26 26 26 26 26 17 - 103 103 69 -34 - EBITDA 78 79 89 82 95 106 88 83 77 88 77 59 328 372 301 -71 - YoY 26.0% 6.9% -31.1% 50.8% 21.8% 33.6% -1.4% 2.0% -18.2% -17.1% -12.6% -29.5% 2.6% 13.4% -19.1% - EBITDA margin 18.5% 18.1% 21.3% 23.1% 25.7% 27.5% 24.8% 24.8% 22.2% 25.6% 22.9% 18.1% 20.1% 25.8% 22.3% -3.5pp - Source: Shared Research based on company data

(JPYmn) Revenue (external transaction) Internal transaction YoY (left axis) (JPYmn) Operating profit OPM (right axis) 10% 600 120 30% 499 500493 101 0 457 9 454 464 100 25% 5% 10 435437 446 444 447 500 5 422 425 18 17 26 403 393 393394 27 12 23 27 379 376 387379 78 18 40 0% 35 400 80 20% 25 38 45 52 40 51 53 62 67 60 59 55 54 56 55 -5% 300 60 50 51 49 15% 45 45 54 499 492484 452 436 438 37 38 -10% 161 408425 428404421 420 200 40 33 10% 369384355 0 336348343336326 354 -15% 100 20 25 5% 161 2 2 -20% 0 0 0% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 Source: Shared Research based on company data

Outlook for Q4 FY08/18 and FY08/19 (as of Q3: for reference) The company is making steady progress toward its full-year targets for FY08/18. To achieve the target number of orders, the company would need a 45.5% increase in Q4, but it already saw a significant 44.2% increase in June with contributions from higher repeat order rate. Target number of affiliated stores (17,071 stores) is within reach thanks to the growth in the number of delivery bases. Number of active users, however, seems to fall short of the initial target of 3.13mn users.

FY08/19 marks the second year of the medium-term plan announced in October 2017. In FY08/19, with basic strategies left unchanged, the company will set numerical targets in accordance with the medium-term plan. In resolving the issue of delivery efficiency improvement for Shared Delivery identified in FY08/18, the company will give greater priority to finding potential areas for expansion and attracting popular restaurants in regions where it can expect to generate revenue. Further, it anticipates accelerated expansion of bases following addition of new partners. The company is considering the possibility of increasing number of partners to further accelerate the pace of expansion. Among measures implemented in FY08/18, it intends to reinforce the ones that have proven effective.

Although not an urgent issue, the company plans to continually enhance its systems infrastructure. Further, the company believes it can further improve effectiveness of advertising activities by making continued investments into advertising and promotion spending. Various initiatives implemented in FY08/18 have shown both strengths and weaknesses, and upon reviewing each initiative, the company intends to focus on strengthening those that have proven to be effective. As the proportion of advertising expenses to revenue has improved despite an increase in the actual amount spent, Shared Research understands that the company will aim for higher OPM YoY as projected in the medium-term plan.

54/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Comparable US companies

A US company operating the same business model as Yume no Machi and growing is Grubhub, Inc. (NYSE: GRUB). We compared Yume no Machi and Grubhub.

Income statement FY08/16 FY08/17 FY08/18 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Cons. Cons. Cons. Cons. Init. Est. Revenue 949 1,059 1,037 1,109 1,210 1,316 1,285 1,133 1,207 1,362 1,436 1,426 3,661 4,155 4,944 5,431 7,681 YoY 12.1% 11.8% 10.2% 19.7% 27.5% 24.2% 23.9% 2.2% -0.3% 3.5% 11.8% 25.8% 2.9% 13.5% 19.0% 9.8% 41.4% Total costs 807 891 829 1,014 1,012 1,209 1,021 1,011 997 1,233 1,201 1,160 3,442 3,540 4,253 4,591 YoY 3.6% 4.4% 5.6% -1.1% 25.4% 35.7% 23.2% -0.3% -1.5% 2.0% 17.6% 14.7% 7.8% 2.8% 20.1% 7.9% - % of sales 85.0% 84.1% 79.9% 91.4% 83.6% 91.9% 79.5% 89.2% 82.6% 90.5% 83.7% 81.3% 94.0% 85.2% 86.0% 84.5% - Pre-tax profit 142 169 208 95 198 107 264 123 210 129 235 266 219 614 691 840 - YoY 109.5% 78.8% 33.6% - 39.3% -36.8% 26.4% 28.8% 5.9% 21.1% -10.9% 117.4% -40.0% 180.6% 12.5% 21.6% - Pre-tax margin 15.0% 15.9% 20.1% 8.6% 16.4% 8.1% 20.5% 10.8% 17.4% 9.5% 16.3% 18.7% 6.0% 14.8% 14.0% 15.5% - Income taxes 53 62 69 89 79 45 69 67 69 46 71 97 122 273 261 282 - Implied t ax rat e 37.4% 37.0% 33.0% 93.4% 40.0% 42.3% 26.1% 55.1% 32.7% 35.6% 30.2% 36.3% 55.8% 44.5% 37.7% 33.6% - Non-cont rolling int erest s -3 -2 -1 -0 -0 -1 -1 -1 -1 -0 0 -0 -0 -6 -2 -1 - Net income attributable to owners of parent 92 109 141 6 119 62 195 56 142 83 164 170 97 348 433 559 79 YoY 187.2% 335.0% 38.7% - 30.1% -42.8% 38.7% 762.2% 18.7% 34.2% -16.2% 204.6% -42.0% 258.4% 24.4% 29.1% - Net margin 9.7% 10.3% 13.6% 0.6% 9.9% 4.7% 15.2% 4.9% 11.7% 6.1% 11.4% 11.9% 2.6% 8.4% 8.8% 10.3% - No. of active users (quarter end; mn) - - 1.82 1.92 1.98 2.13 2.24 2.35 2.45 2.55 2.62 2.69 1.54 1.92 2.35 2.69 4.41 YoY - - - 24.7% - - 23.2% 22.4% 23.7% 20.0% 17.0% 14.5% 14.1% 24.7% 22.4% 14.5% 63.9% No. of orders / No. of active users - - - 1.9 1.9 2.1 2.0 2.0 2.1 2.4 2.3 2.4 7.3 7.8 8.1 9.3 9.9 YoY ------5.0% 8.9% 10.5% 15.2% 16.5% 3.4% 7.0% 3.5% 14.4% 7.2% No. of orders (mn) 2.92 3.50 3.46 3.64 3.79 4.41 4.38 4.70 5.08 5.94 5.97 6.33 10.56 13.53 17.28 23.32 33.82 YoY 25.9% 27.8% 31.0% 27.6% 29.7% 26.0% 26.5% 28.9% 34.1% 34.6% 36.4% 34.8% 19.1% 28.1% 27.7% 35.0% 45.0% No. of affiliated stores (quarter end) 12,505 12,529 13,018 13,656 14,206 14,559 14,953 15,318 15,712 16,081 16,439 17,207 12,213 13,656 15,318 17,207 21,125 YoY 7.1% 6.1% 8.4% 11.8% 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 9.9% 12.3% 5.0% 11.8% 12.2% 12.3% 22.8%

Grubhub inc. FY12/16 FY12/17 FY12/18 FY12/15 FY12/16 FY12/17 (USDmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q3 Q4 Q2 Q3 Q3 Cons. Cons. Cons. Revenue 100 112 120 123 137 156 159 163 205 233 240 362 493 683 YoY 36.3% 27.2% 36.6% 44.1% 37.5% 39.1% 32.1% 32.1% 49.2% 49.0% 51.0% 42.5% 36.3% 38.5% Total costs 84 95 98 103 114 131 137 146 179 201 205 300 409 593 YoY 47.8% 35.9% 36.1% 38.8% 35.5% 38.2% 40.0% 41.8% 56.7% 53.3% 50.3% 43.6% 36.5% 44.9% % of revenue 84.4% 84.6% 81.3% 83.2% 83.1% 84.0% 86.1% 89.3% 87.2% 86.4% 85.7% 82.9% 83.0% 86.9% Pre-tax profit 16 17 23 21 23 25 22 17 25 32 34 62 84 90 YoY -3.9% -5.9% 39.0% 78.0% 48.6% 44.2% -1.9% -16.1% 8.2% 26.3% 55.3% 37.7% 35.4% 6.9% Pre-tax margin 15.6% 15.4% 18.7% 16.8% 16.9% 16.0% 13.9% 10.7% 12.3% 13.6% 14.3% 17.1% 17.0% 13.1% Income taxes 4 7 10 8 10 7 7 4 -28 -0 4 24 34 -9 Implied t ax rat e 27.8% 42.7% 43.1% 36.5% 41.3% 29.1% 33.2% 25.4% -112.8% -0.7% 12.2% 38.5% 40.9% -10.4% Net income attributable to owners of parent 11 10 13 13 14 18 15 13 54 31 30 38 50 99 Act ive Diners (mn) 6.75 6.97 7.35 7.69 8.17 8.75 9.18 9.81 14.46 15.08 15.58 6.75 8.17 14.46 YoY 34.1% 24.4% 23.9% 19.5% 21.2% 25.6% 24.8% 27.6% 76.9% 72.3% 69.8% 34.1% 21.2% 76.9% No. of orders / Average no. of users 3.4 3.6 3.4 3.3 3.4 3.5 3.2 3.0 3.0 2.7 2.5 14.1 13.5 10.8 YoY -13.1% -10.5% -0.8% 4.0% 0.5% -2.9% -7.5% -9.8% -12.3% -22.9% -21.2% -10.8% -4.2% -20.1% Daily Average Grubs ('000) 242 268 271 268 293 325 314 305 393 437 423 227 275 334 DAG x No. of days (mn) 22.25 24.38 24.67 24.61 26.91 29.21 28.56 28.01 36.11 39.32 38.51 82.89 100.58 121.91 YoY 19.3% 15.4% 23.2% 26.5% 21.0% 19.8% 15.8% 13.8% 34.2% 34.6% 34.8% 24.2% 21.3% 21.2% Gross food sales 643 713 733 735 818 898 880 867 1,139 1,245 1,220 2,354 2,998 3,794 YoY 26.5% 20.8% 29.1% 32.8% 27.3% 26.0% 20.1% 18.0% 39.2% 38.6% 38.7% 31.7% 27.4% 26.5% Source: Shared Research based on company data.

Earnings for Grubhub (left: revenue and profit, right: costs)

(USDmn) Income before provision for income taxes Revenues Margin (right axis) Technology (exclusive of amortization) General and administrative 200 25% Depreciation and amortization Operations and support 180 250 Sales and marketing 160 20% 201 205 200 140 179 120 15% 146 150 131 137 100 114 103 80 10% 95 98 100 84 70 72 74 60 57 50 51 50 40 44 40 5% 50 38 38 20 0 0% 0 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 CY12/13 CY12/14 CY12/15 CY12/16 CY12/17 CY12/18 CY12/13 CY12/14 CY12/15 CY12/16 CY12/17 CY12/18 Source: Shared Research based on company data

55/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Business structure comparison (left: margin comparison; middle: % of revenue [Yume no Machi]; right: % of revenue [Grubhub])

OPM（同社） OPM（Grubhub）人件費広告宣伝費減価償却費他 Operations and support Sales and marketing 25% 60% 60% Depreciation and amortization Other

50% 50% 20% 40% 40% 15% 30% 30% 10% 20% 20%

5% 10% 10%

0% 0% 0% Q1 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 CY12/13 CY12/14 CY12/15 CY12/16 CY12/17 CY12/18 Daily Average Grubs (daily avg. orders) x 365 / Active Diners (mn) (mn) (mn) (mn) Active Diners (active users) Number of orders (active users) 18 3 45 7 Yume no Machi cumulative orders / Active users (right axis) Yume no Machi orders (right axis) Yume no Machi active users (right axis) 20 10 16 40 6 14 35 5 15 12 2 30 10 25 4 10 5 8 20 3 6 1 15 2 4 10 5 1 2 5 0 0 0 0 0 0 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/13 FY08/15 FY08/17

Key performance indicators

20% 4 10% 80,000 10% 2 0% 0 0% 0 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 (USDmn) Gross food sales YoY (left axis) Daily Average Grubs (daily avg. orders) x 365 / Active Diners (active users) YoY (left axis) 50% 1,400 10% 18.3 20 17.1 17.2 1,200 5% 16.3 15.5 15.2 15.3 40% 14.7 16 14.0 0% 13.8 13.5 13.5 1,000 13.1 13.5 13.1 12.7 12.5 12.0 -5% 11.3 30% 10.6 12 800 9.9 9.9 -10% 600 20% -15% 8 400 -20% 10% 4 200 -25% 0% 0 -30% 0 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 Source: Shared Research based on company data Note: The sharp increase for Active Diners from Q4 FY12/17 is attributable to the acquisition of Eat24. Note that the approximate number of repeat orders appears to have declined as a result.

56/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

News and topics

September 2018 On September 13, 2018, the company announced the transfer (sale) of common shares in its Indonesian consolidated subsidiary, PT Klik Eat Indonesia.

Details of the transfer

Agreement signing date (planned): September 14, 2018 ▷ Share transfer date (planned): September 30, 2018 ▷ Number of shares to be transferred: 25,867 (ratio of voting rights held: 67.5% before the transfer, 8.0% after the transfer) ▷ Transfer price: undisclosed ▷

The company is expected to book an extraordinary loss of approximately JPY34mn as a result of the sale of these shares. It thinks the impact of the extraordinary loss on its consolidated earnings for FY08/18 is insignificant. However, disclosure will be made promptly if the company determines an earnings forecasts revision is necessary.

Performance (JPY'000) FY12/15 FY12/16 FY12/17 FY12/15 FY12/16 FY12/17 Net assets 35,488 25,140 16,629 Revenue 22,470 13,460 16,735 Total assets 37,206 30,766 24,506 Recurring profit -25,884 -9,944 -7,397 BPS (JPY) 926.10 656.07 433.96 Net income -25,884 -9,944 -7,644 EPS (JPY) - - - DPS (JPY) - - - Source: Shared Research based on company data

August 2018 On August 10, 2018, the company announced its year-end dividend forecast. At the Board of Directors meeting held on the same day, the company resolved a plan to pay a year-end dividend of JPY3.6 for FY08/18 (+JPY0.3 from a year earlier). The company had previously left its year-end dividend forecast undecided.

The company considers consistent and stable returns to shareholders a management priority, and aims for a payout ratio of 30%. Based on an EPS of JPY11.9 projected for full-year FY08/18, a JPY3.6 dividend would indicate a payout ratio of 30.4%.

April 2018 On April 23, 2018, the company announced business alliance with Asrapport Dining Co., Ltd., Kozosushi Co., Ltd., and Delis Corp. The purpose of this alliance is to accelerate expansion of operation bases for Sharing Delivery®.

Asrapport Dining (TSE1: 3069) operates 813 restaurant chains nationwide of various types and brands including Gyukaku. Kozosushi (TSE JASDAQ Standard: 9973) operates 261 restaurant chains nationwide, mainly focusing on take-out sushi chains Kozosushi and Chagetsu. Kozosushi has decided to make Delis, an outsourced delivery service provider, its wholly owned subsidiary with an aim to significantly strengthen its delivery capabilities.

January 2018 On January 22, 2018, the company announced a launch of Incubation Kitchen Project, which provides support to those ™ seeking to open restaurants that focus on delivery services.

57/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

are: a) marketing and operations, b) restaurant opening and financing, c) provision of operational expertise and accounting systems upon opening, and d) periodic seminars designed to help management after the start of business.

58/60 Yume no Machi Souzou Iinkai / 2484 R LAST UPDATE: 2019.01.08 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Profile Company name Head office Osaka: Midosuji Daiwa Building 3-6-8 Kyutaromachi Chuo-ku Osaka, Japan 541-0056 Yume no Machi Souzou Iinkai Co., Ltd. Tokyo: Marunouchi Trust Tower North Building11F 1-8-1 Marunouchi Chiyoda-ku, Tokyo, Japan 100-0005 Phone Listed on

Tokyo Stock Exchange JASDAQ Market Established Exchange listing July 16, 2013 (TSE JASDAQ) September 9, 1999 June 5, 2006 (OSE Nippon New Market Hercules) Website Fiscal year end http://www.yumenomachi.co.jp/index.html (Japanese only) IR contact IR web

http://www.yumenomachi.co.jp/en/index.html

IR mail IR phone +81-3-4500-9386

[email protected]

59/60 About Shared Research Inc. R Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

We offer corporate clients comprehensive report coverage, a service that allows them to better inform investors and other stakeholders by presenting a continuously updated third-party view of business fundamentals, independent of investment biases. Shared Research can be found on the web at http://www.sharedresearch.jp.

Current Client Coverage of Shared Research Inc.

Accordia Golf Trust Financial Products Group Co., Ltd. ONO SOKKI Co., Ltd. Adastria Co., Ltd. FreeBit Co., Ltd. ONWARD HOLDINGS CO.,LTD. ADJUVANT COSME JAPAN CO., LTD. FRONTEO, Inc. PARIS MIKI HOLDINGS Inc. Aeon Delight Co., Ltd. Fujita Kanko Inc. PIGEON CORPORATION Aeon Fantasy Co., Ltd. Gamecard-Joyco Holdings, Inc. RACCOON HOLDINGS, Inc. Ai Holdings Corporation GCA Corporation RESORTTRUST, INC. ANEST IWATA Corporation Grandy House Corporation ROUND ONE Corporation AnGes Inc. Hakuto Co., Ltd. RVH Inc. Anicom Holdings, Inc. Happinet Corporation RYOHIN KEIKAKU CO., LTD. Anritsu Corporation Harmonic Drive Systems Inc. SanBio Company Limited Apaman Co., Ltd. HOUSEDO Co., Ltd. SANIX INCORPORATED Arealink Co.,Ltd. IDOM Inc. Sanrio Company, Ltd. Artspark Holdings Inc. IGNIS LTD. SATO HOLDINGS CORPORATION AS ONE CORPORATION Inabata & Co., Ltd. SBS Holdings, Inc. Ateam Inc. Infocom Corporation Seikagaku Corporation Aucfan Co., Ltd. Infomart Corporation Seria Co.,Ltd. AVANT CORPORATION Intelligent Wave, Inc. SHIP HEALTHCARE HOLDINGS, INC. Axell Corporation istyle Inc. SIGMAXYZ Inc. Azbil Corporation Itochu Enex Co., Ltd. SMS Co., Ltd. AZIA CO., LTD. JSB Co., Ltd. Snow Peak, Inc. BEENOS Inc. JTEC Corporation Solasia Pharma K.K. Bell-Park Co., Ltd. J Trust Co., Ltd SOURCENEXT Corporation Benefit One Inc. Japan Best Rescue System Co., Ltd. Star Mica Co., Ltd. B-lot Co.,Ltd. JINS Inc. Strike Co., Ltd. Canon Marketing Japan Inc. JP-HOLDINGS, INC. SymBio Pharmaceuticals Limited Carna Biosciences, Inc. KAMEDA SEIKA CO., LTD. Synchro Food Co., Ltd. CARTA HOLDINGS, INC Kenedix, Inc. TAIYO HOLDINGS CO., LTD. CERES INC. KFC Holdings Japan, Ltd. Takashimaya Company, Limited Chiyoda Co., Ltd. KI-Star Real Estate Co., Ltd. Take and Give Needs Co., Ltd. Chugoku Marine Paints, Ltd. Kumiai Chemical Industry Co., Ltd. Takihyo Co., Ltd. cocokara fine Inc. Lasertec Corporation TEAR Corporation COMSYS Holdings Corporation LUCKLAND CO., LTD. Tenpo Innovation Inc. CRE, Inc. MATSUI SECURITIES CO., LTD. 3-D Matrix, Ltd. CREEK & RIVER Co., Ltd. Medical System Network Co., Ltd. TKC Corporation Daiseki Co., Ltd. MEDINET Co., Ltd. TOKAI Holdings Corporation DIC Corporation Milbon Co., Ltd. Tri-Stage Inc. Digital Arts Inc. MIRAIT Holdings Corporation VISION INC. Digital Garage Inc. Monex Goup Inc. VISIONARY HOLDINGS CO., LTD. DIGITAL HEARTS HOLDINGS Co., Ltd NAGASE & CO., LTD WirelessGate, Inc. Don Quijote Holdings Co., Ltd. NAIGAI TRANS LINE LTD. YELLOW HAT LTD. Dream Incubator Inc. NanoCarrier Co., Ltd. YOSHINOYA HOLDINGS CO., LTD. EARTH CHEMICAL CO., LTD. Net One Systems Co.,Ltd. YUMESHIN HOLDINGS CO., LTD. Elecom Co., Ltd. Nichi-Iko Pharmaceutical Co., Ltd. Yume no Machi Souzou Iinkai Co., Ltd. Emergency Assistance Japan Co., Ltd. Nihon Denkei Co., Ltd. Yushiro Chemical Industry Co., Ltd. en-Japan Inc. NIPPON PARKING DEVELOPMENT Co., Ltd. ZAPPALLAS, INC. euglena Co., Ltd. Nisshinbo Holdings Inc. Evolable Asia Corp. NS TOOL CO., LTD. Ferrotec Holdings Corporation NTT URBAN DEVELOPMENT CORPORATION FIELDS CORPORATION Oki Electric Industry Co., Ltd

Attention: If you would like to see companies you invest in on this list, ask them to become our client, or sponsor a report yourself.

Disclaimer: This document is provided for informational purposes only. No investment opinion or advice is provided, intended, or solicited. Shared Research Inc. offers no warranty, either expressed or implied, regarding the veracity of data or interpretations of data included in this report. We shall not be held responsible for any damage caused by the use of this report. The copyright of this report and the rights regarding the creation and exploitation of the derivative work of this and other Shared Research Reports belong to Shared Research. This report may be reproduced or modified for personal use; distribution, transfer, or other uses of this report are strictly prohibited and a violation of the copyright of this report. Our officers and employees may currently, or in the future, have a position in securities of the companies mentioned in this report, which may affect this report’s objectivity.

Japanese Financial Instruments and Exchange Law (FIEL) Disclaimer: The report has been prepared by Shared Research under a contract with the company described in this report (“the company”). Opinions and views presented are ours where so stated. Such opinions and views attributed to the company are interpretations made by Shared Research. We represent that if this report is deemed to include an opinion by us that could influence investment decisions in the company, such opinion may be in exchange for consideration or promise of consideration from the company to Shared Research.

Contact Details Shared Research Inc. 3-31-12 Sendagi Bunkyo-ku Tokyo, Japan URL: https://sharedresearch.jp Phone: +81 (0)3 5834-8787 Email: [email protected]

60/60