Dream Incubator / 4310

Dream Incubator / 4310 COVERAGE INITIATED ON: 2013.10.29 LAST UPDATE: 2021.07.20 Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our 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. Dream Incubator / 4310 RCoverage LAST UPDATE: 2021.07.20 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp 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 business section later in the report. Executive summary ----------------------------------------------------------------------------------------------------------------------------------- 3 Key financial data ------------------------------------------------------------------------------------------------------------------------------------- 5 Recent updates ---------------------------------------------------------------------------------------------------------------------------------------- 7 Highlights ------------------------------------------------------------------------------------------------------------------------------------------------------------ 7 Trends and outlook ----------------------------------------------------------------------------------------------------------------------------------- 9 Quarterly trends and results ----------------------------------------------------------------------------------------------------------------------------------- 9 Company outlook for FY03/22 ------------------------------------------------------------------------------------------------------------------------------ 16 Medium-term management strategy --------------------------------------------------------------------------------------------------------------------- 17 Company’s thinking on its own enterprise value ----------------------------------------------------------------------------------------------------- 20 Business ------------------------------------------------------------------------------------------------------------------------------------------------ 22 Business description -------------------------------------------------------------------------------------------------------------------------------------------- 22 Segment breakdown ------------------------------------------------------------------------------------------------------------------------------------------- 26 Business Production (formerly Professional Services; 8.3% of total sales in FY03/21) ---------------------------------------------------- 27 Incubation (91.7% of total sales in FY03/21) ----------------------------------------------------------------------------------------------------------- 30 Profitability snapshot and financial ratios ---------------------------------------------------------------------------------------------------------------- 39 Market and value chain ---------------------------------------------------------------------------------------------------------------------------------------- 41 Strengths and weaknesses ------------------------------------------------------------------------------------------------------------------------------------ 43 Historical performance and income statement -------------------------------------------------------------------------------------------- 44 Historical performance ---------------------------------------------------------------------------------------------------------------------------------------- 44 Balance sheet ----------------------------------------------------------------------------------------------------------------------------------------------------- 59 Income statement ----------------------------------------------------------------------------------------------------------------------------------------------- 60 Cash flow statement -------------------------------------------------------------------------------------------------------------------------------------------- 60 News and topics ------------------------------------------------------------------------------------------------------------------------------------- 61 Other information ---------------------------------------------------------------------------------------------------------------------------------- 64 History -------------------------------------------------------------------------------------------------------------------------------------------------------------- 64 Major shareholders --------------------------------------------------------------------------------------------------------------------------------------------- 65 Top management ----------------------------------------------------------------------------------------------------------------------------------------------- 65 IR activities --------------------------------------------------------------------------------------------------------------------------------------------------------- 65 Company profile ------------------------------------------------------------------------------------------------------------------------------------------------- 66 02/67 Dream Incubator / 4310 RCoverage LAST UPDATE: 2021.07.20 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Executive summary Consulting firm differentiating itself with “business producing” ◤ Dream Incubator (DI) is a consulting firm founded in April 2000 by former Boston Consulting Group (BCG) president Koichi Hori. The company says its core values lie in “business producing,” referring to tackling social challenges, planning businesses with visions and ideas beyond industry barriers, formulating strategies, gathering reliable partners, and creating added value. It has produced new businesses crossing various sectors, major companies, venture businesses, and borders since its founding. ◤ Mainstay businesses are the Business Production and Incubation businesses. In Business Production, the company provides strategic consulting, business producing support, M&A advisory, and core management development assistance to major corporations (in Japan and overseas) and national and regional government agencies. In Incubation, the company engages in venture investment and buy-and-hold business investment, and leverages its principal investments to develop venture companies deemed integral to new industries. Overseas, the company aims to support innovation around the world by forming partnerships with promising venture capital companies in the US, China, and India for joint investment and consultation. The company also invests using funds it manages. In terms of accounting, the company books venture investment profits when shares in the invested company are sold, whereas for buy-and-hold business investments, it books consolidated profits or losses in proportion to the ownership ratio in the invested company. ◤ Dream Incubator has two main businesses, Business Production (formerly Professional Services) and Incubation. The Incubation business is further divided into the Venture Capital segment (name changed in Japanese only), the Pet Lifestyle segment (formerly Insurance), the HR Innovation segment (formerly Other), and the newly constituted Other segment, which engages in fan marketing. As of FY03/21, the company had five consolidated reporting segments: Business Production, Venture Capital, Pet Lifestyle, HR Innovation, and Other. ◤ Top management of the company changed in June 2020. The founding members passed the leadership baton to a new management team to carry on the company’s founding spirit. The new team is pursuing four structural reform initiatives: realigning the investment and procurement profile of the Venture Capital business, strengthening its core competency of business production, utilizing financial functions to expand the Business Production business, and strengthening corporate governance. Through these initiatives the company aims to fulfill its motto of “helping people,” “generating profits,” “growing,” and “sharing,” thereby maximizing shareholder value. ◤ In May 2021, the company announced a capital and business alliance with Dentsu Group Inc. (TSE1: 4324). On July 2, Dentsu Group bought additional shares of the company, acquiring more than 20% of voting rights, making DI an equity-method affiliate of Dentsu Group. Trends and outlook ◤ FY03/21 results: For FY03/21, the company reported full-year consolidated sales of JPY27.8bn (22.1% YoY), operating loss of JPY957mn (versus profit of JPY124mn in FY03/20), recurring loss of JPY971mn (versus loss of JPY25mn in FY03/20), and a net loss attributable to owners of the parent of JPY2.1bn (versus loss of JPY198mn in FY03/20). By segment, sales in the Business Production segment were down 13.4% YoY, due to the loss of sales from its market research business that it exited in Q2 FY03/20 as well as the lull of corporate interest in new business in the wake of the pandemic. In the Venture Capital segment, the company completed a number of trade sales

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