Yume No Machi Souzou Iinkai / 2484

Yume no Machi Souzou Iinkai / 2484

COVERAGE INITIATED ON: 2017.12.25 LAST UPDATE: 2018.07.03

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 RCoverage LAST UPDATE: 2018.07.03 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 later Business section.

Executive summary ------3 Key financial data ------4 Recent updates ------5 Highlights ------5 Trends and outlook ------6 Monthly trends ------6 Quarterly trends and results ------7 Q3 FY08/18 results (out June 27, 2018) ------8 Full-year company forecasts ------16 Medium-term outlook ------17 Medium-term management plan (out October 12, 2017) ------18 Business ------28 Business description ------28 Strengths and weaknesses ------39 Historical performance ------40 Income statement ------40 Parent earnings ------41 Segment earnings ------42 Balance sheet ------43 Cash flow statement ------46 Other information ------47 ESG-related ------47 Shareholder returns------48 Top management ------49 Major shareholders ------49 Employees ------49 Historical performance, news and topics ------50 Historical performance ------50 1H FY08/18 results (out March 29, 2018) ------50 FY08/17 results (out October 12, 2017) ------57 News and topics ------61 Profile ------62

02/63 Yume no Machi Souzou Iinkai / 2484 RCoverage LAST UPDATE: 2018.07.03 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

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 71% of revenue and 77% of operating profit in FY08/17. Enabling food delivery in just 20 minutes, Demae-can has successfully attracted both restaurants and consumers. The company sees FY08/18–FY08/20 as a period to focus on Demae-can growth. In the first two years, the aim is to spend aggressively on advertising and promotion despite temporarily reducing profitability. In the third year, management looks to return OPM to normal levels and then increase margins through revenue growth.

Increasing market share by promoting online food orders Japan’s food delivery market is worth about JPY600bn. The company aims to help shift 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), 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 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

100% Revenue YoY (left axis) 9.4 10 3,500 Operating profit OPM (right axis) 35% 90% 9 3,000 2,861 30% 80% 8 7.1 70% 7 2,500 25% 60% 6 5.4 2,000 4.9 20% 50% 5 4.2 1,480 1,500 15% 40% 3.6 3.7 4

30% 3 819 2.1 1,000 801 10% 573 20% 1.4 2 547 1.2 1.3 362 500 278 5% 10% 1 234 244 211 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 Est. Est. (JPYbn) (JPYmn) Est. Est. Source: Shared Research based on company data

In October 2017, the company unveiled a management plan through FY08/20 (rolling plan subject to annual review). The plan calls for aggressive investment to accelerate growth in the core Demae-can business. Gross merchandise value of JPY120bn and 20% market share are key targets for the next stage. The plan’s focus: in FY08/18, increase orders via aggressive ad spending despite decreased operating profit; in FY08/19, improve OPM by effective spending; in FY08/20, return OPM to normal levels by reaching gross merchandise value of JPY120.0bn, paving the way for the next phase. We see the company’s three key strengths as large market share, accelerating the addition of small local stores through Sharing Delivery™, and strong cash flow generation through Demae-can. Weaknesses: lack of personnel for management and to sustain growth, delivered items commanding higher prices than items from physical stores, and limited room for growth in the domestic market alone.

03/63 Yume no Machi Souzou Iinkai / 2484 RCoverage LAST UPDATE: 2018.07.03 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

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 FY08/18 (JPYmn) Par.Par.Par.Par.Par.Par.Par.Par.Par.Par.Par.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 5,434 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 - Mail Order ------6601,836 1,693 1,633 1,445 - 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% 9.9% 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% - Mail Order ------178.3%-7.8% -3.5% -11.5% - Gross profit 20 39 52 92 291 519 605 785 909 894 957 960 1,328 2,040 2,286 2,6523,223 - 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% - 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 - 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% - 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% 55.1% 50.3% 47.2% 47.5% 50.0% 49.0% - Operating profit -66 -34 -36 -75 32 170 229 262 173 234 244 211 278 362 547 573 801 819 Demae-can ------401476528639676854- Mail Order ------39140204217259- Adjustments ------236 -307 -296 -321 -313 - 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% 2.3% 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% 15.1% Demae-can ------29.5%33.3%30.6%32.5%26.8%24.4%- Mail Order ------5.9%7.7%12.0%13.3%17.9%- Non-operating income (expenses) 4 -0 -0 -2 -2 -20 12 14 55 6 16 10 -4 4 -5 6 -3 - Financial income -0 -0 -0 003121595159-0 -5 -3 -1 -16 - Gains on foreign exchange ------1-2 - -6 -1 -- Equity in earning of affiliates ------2 -3 -0 411- Other non-operating income 5 -0 -0 -2 -2 -24 0 -1 46111111452 - Recurring profit -62 -34 -36 -77 30 150 241 276 228 239 260 221 275 366 541 579 798 824 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% 3.3% 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% 15.2% Extraordinary gains -- -0 ----16 ---59 -0 -2 -36 -8 -19 -91 -6 - Implied t ax rate -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% - Non-cont rolling int erest s ------0 -0 -6 -2 - Net income attributable to owners of parent -62 -34 -37 -77 28 152 145 156 128 123 146 115 97 167 97 348 433 478 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% 10.5% 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% 8.8% Capital expenditures ----606496105732183122399590235293329- Depreciation - - - 414202954628084139154166181195181- Amortization of goodwill ------36113114125133- EBITDA - - - -71 46 190 258 316 235 314 328 349 468 641 842 893 1,115 - 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% - 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% - 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 FY08/18 Shares issued (year end; mn) 0.00.00.00.00.00.00.00.10.10.10.10.1 5.5 11.1 11.1 11.1 44.4 - Treasury shares ------0.00.00.00.00.81.21.01.03.9- 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 - Shares outstanding (average; mn) ----0.00.0---0.10.10.15.19.810.010.140.4- 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 - 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 11.9 EPS (fully diluted, JPY) -----9,627.77,605.82,728.92,277.22,331.7 2,801.5 2,196.0 18.3 16.7 9.6 33.4 10.3 - DPS (JPY) ------2,500.0900.01,100.0900.01,150.0700.08.05.07.010.03.3- Payout ratio ------30.6%30.9%46.4%37.8%40.7%31.4%42.6%29.2%72.4%29.0% 30.8% - 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 FY08/18 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 - 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 - Accounts receivable 8 36 24 26 42 98 99 142 147 171 148 149 182 233 245 324 408 - Inventories ------5849576158- Accounts receivable–other 1 - 2 5 5 2 - 1 11 3 65 68 120 140 225 406 736 - Allowance for doubtful accounts - -1 -1 -1 -1 -3 -2 -4 -7 -9 -13 -11 -9 -9 -8 -11 -4 - Other current assets 01622442138873439234046487959- Tangible fixed assets 5 7 6 12 27 32 36 50 33 27 20 11 42 55 83 109 79 - Intangible fixed assets - 2 1 2 33 39 102 137 166 250 504 588 948 778 651 1,092 521 - Investments and other assets 23349426439895949741749880322516435288 320 - Investment securities -----55444669658672817255434248138196- Others 233494214344522808378636782187150123- 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 - Current liabilities 23 28 33 38 49 109 132 691 269 118 191 160 579 687 751 1,3321,698 - Accounts payable ------176136135139112- Short-term debt 117------10110710520775- Accounts payable-other 15 24 18 26 27 85 30 548 148 77 112 91 188 211 327 717 1,207 - Income taxes payable 0000668285433067406211185148152- Other current liabilities 6 2 7 11 16 18 20 58 77 10 12 30 53 122 100 121 152 - Noncurrent liabilities 272------39630021139228- Long-term debt 272------3762801883418- Others ------2120235121- 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 - 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 - Treasury stock ------240 -240 -240 -239 -581 -518 -439 -464 -469 - Valuation and translation adjustments ------36-83-89-81-66 34 -41 - -4 31 - Subscription rights to new shares ------41115141118178- Non-cont rolling int erest s ------0-86- 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 - 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 FY08/18 Cash flow s from operat ing act ivit ies --- -64 39 140 253 214 216 157 249 259 318 481 594 673 1,045 - Cash flow s from invest ing act ivit ies --- -7 -65 -443 -1,142 400 -576 -118 186 -354 207 -391 -313 -145 -298 - Cash flows from financing activities - - - 421 498 713 58 -1 -266 -55 -46 -46 72 -170 -106 -194 -205 - 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 FY08/18 Interest-bearing debt 2837------47638729354883- 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 - 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% 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% 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% - 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% - 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% - Source: Shared Research based on company data

04/63 Yume no Machi Souzou Iinkai / 2484 RCoverage LAST UPDATE: 2018.07.03 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Recent updates

Highlights

On July 3, 2018, Yume no Machi Souzou linkai Co., Ltd. announced management indicators for June 2018; see the monthly trends section for details.

On June 27, 2018, the company announced earnings results for Q3 FY08/18; see the results section for details.

On June 5, 2018, the company announced management indicators for May 2018.

On May 7, 2018, the company announced management indicators for 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 hubs 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.

On April 10, 2018, Shared Research updated the report following interviews with the company.

On April 4, 2018, the company announced management indicators for March 2018.

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

05/63 Yume no Machi Souzou Iinkai / 2484 RCoverage LAST UPDATE: 2018.07.03 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Trends and outlook Monthly trends

Key performance indicators (KPIs) No . o f o rd ers ('000) Sep Oct Nov Dec Jan Feb Mar AprMay Jun Jul Aug Q1 Q2 Q3 Q4FY FY08/13 599 572 603 739 678 604 702 641 622 640 662 709 1,774 2,020 1,964 2,011 7,770 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 - - 5,085 5,938 5,972 - - FY08/13 change46-13 31 51 16 14 40 33 37 52 25 74 64 80 109 151 405 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 - - 1,293 1,527 1,594 - - FY08/13 YoY 8.3% -2.2% 5.4% 7.4% 2.4% 2.4% 6.0% 5.4% 6.3% 8.8% 3.9% 11.7% 3.7% 4.1% 5.9% 8.1% 5.5% 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% - - 34.1% 34.6% 36.4% - - No. of affiliated stores Sep Oct Nov Dec Jan Feb Mar AprMay Jun Jul Aug Q1 Q2 Q3 Q4FY FY08/13 11,228 11,238 11,221 11,234 11,076 11,068 11,074 11,067 11,077 11,100 11,132 11,336 11,221 11,068 11,077 11,336 11,336 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 - - 15,712 16,081 16,439 - - FY08/13 change 516 450 382 412 269 170 167 46 3 -60 -54 113 382 170 3 113 113 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 change1,664 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 change1,491 1,500 1,506 1,501 1,544 1,522 1,506 1,479 1,486 1,586 - - 1,506 1,522 1,486 - - FY08/13 YoY 4.8% 4.2% 3.5% 3.8% 2.5% 1.6% 1.5% 0.4% 0.0% -0.5% -0.5% 1.0% 3.5% 1.6% 0.0% 1.0% 1.0% 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% - - 10.6% 10.5% 9.9% - - No. of active users (mn) Sep Oct Nov Dec Jan Feb Mar AprMay Jun Jul Aug Q1 Q2 Q3 Q4FY FY08/13 1.16---1.161.16 FY08/14 1.35---1.351.35 FY08/15 1.54---1.541.54 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 - - 2.45 2.55 2.62 - - FY08/13 YoY ------2.7%---2.7%2.7% 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% - - 23.7% 20.0% 17.0% - - Source: Shared Research based on company data Note: The company started disclosing data on active users in March 2017. Active user data through February 2017 reflect Shared Research estimates.

Number of orders divided by number of active users (approximate repeat order rate) Orders / Active users Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Q1 Q2 Q3 Q4FY FY08/16 ------0.670.640.640.600.660.68--1.901.907.05 FY08/17 0.62 0.65 0.66 0.75 0.73 0.65 0.69 0.65 0.64 0.60 0.70 0.71 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 0.75 - - 2.08 2.33 2.28 - - FY08/17 YoY ------4.1%2.5%-0.5% 1.5% 6.1% 4.9% - - 2.7% 5.3% 4.3% FY08/18 YoY 5.4% 13.8% 7.9% 7.4% 10.7% 15.5% 14.7% 12.2% 20.8% 24.6% - - 8.4% 12.2% 16.6% - - Source: Shared Research based on company data

KPI trends

('000) (mn) Orders YoY (left axis) Affiliated stores YoY (left axis) Active users YoY (left axis) 50% 2,500 18% 18,000 28% 3 45% 16% 16,000 27% 26% 40% 2,000 14% 14,000 25% 35% 12% 12,000 24% 2 30% 1,500 10% 10,000 23% 25% 22% 8% 8,000 20% 1,000 21% 6% 6,000 20% 1 15% 19% 10% 500 4% 4,000 18% 5% 2% 2,000 17% 0% 0 0% 0 16% 0 Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep FY08/15 FY08/16 FY08/17 FY08/18 FY08/15 FY08/16 FY08/17 FY08/18 FY08/15 FY08/16 FY08/17 FY08/18 Source: Shared Research based on company data

06/63 Yume no Machi Souzou Iinkai / 2484 RCoverage LAST UPDATE: 2018.07.03 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Quarterly trends and results

Income statement FY08/16 FY08/17 FY08/18 FY08/16 FY08/17 FY08/18 FY08/16 FY08/17 FY08/18 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1 Q2 Q3 Cml. Q3 Cml. Q3 Cml. Q3 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 3,046 3,811 4,005 4,155 4,944 5,434 73.7% Demae-can 528621617755841931930797859 1,019 1,100 1,766 2,702 2,978 2,522 3,499 3,922 Basic operating fees 72 75 75 75 79 83 88 90 91 103 106 222 250 301 297 340 Order processing fees 337408394407415502498524563 679 677 1,139 1,414 1,918 1,546 1,938 A dvert ising fees 14 19 16 11 9 14 4 6 533 482811 5933 System development fees 10 11 20 1 21 8 - 9 - -53 402953 4239 Other 95109113261318323341168200 234 260 317 982 694 578 1,150 Mail Order 421 438 420 354 369 384 355 336 348 343 336 1,279 1,108 1,027 1,633 1,445 1,512 YoY 12.1% 11.8% 10.2% 19.7% 27.5% 24.2% 23.9% 2.2% -0.3% 3.5% 11.8% 11.4% 25.1% 5.1% 13.5% 19.0% 9.9% Demae-can 25.3% 21.6% 20.2% 44.6% 59.3% 49.8% 50.8% 5.5% 2.1% 9.5% 18.3% 22.2% 53.0% 10.2% 28.1% 38.8% 12.1% 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% 7.4% 12.4% 20.5% 7.2% 14.3% 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% 29.7% 24.2% 35.6% 28.3% 25.4% Advertising fees 4.0% 4.5% -0.7% -38.7% -33.1% -23.8% -74.6% -48.4% -47.1% -77.6% -18.4% 2.6%-42.9% -58.9% -8.7% -43.9% System development fees 84.2% -63.0% -57.8% -93.8% 106.4% -21.9% -660.8% --- -50.2% -28.1% 83.7% -58.9% -7.5% Other 31.7% 36.6% 39.9% 197.2% 233.7% 196.9% 202.7% -35.6% -37.1% -27.5% -23.7% 36.2% 210.0% -29.3% 80.4% 99.0% Mail Order -0.9% 0.4% -1.8% -12.4% -12.4% -12.2% -15.6% -4.9% -5.6% -10.9% -5.2% -0.8% -13.4% -7.3% -3.5% -11.5% 4.7% Cost of revenue 340 384 382 397 434 448 434 404 437 487 554 1,106 1,316 1,478 1,503 1,720 Cost ratio 35.8% 36.3% 36.8% 35.8% 35.8% 34.1% 33.8% 35.7% 36.2% 35.7% 38.6% 36.3% 34.5% 36.9% 36.2% 34.8% Gross profit 609 675 656 713 777 867 851 729 769 875 882 1,940 2,494 2,526 2,652 3,223 GPM 64.2% 63.7% 63.2% 64.2% 64.2% 65.9% 66.2% 64.3% 63.8% 64.3% 61.4% 63.7% 65.5% 63.1% 63.8% 65.2% SG&A expenses 472598449561566706592560564 740 662 1,519 1,863 1,966 2,079 2,423 YoY 12.8% 38.3% 3.7% 23.0% 19.9% 17.9% 31.9% -0.2% -0.3% 4.9% 11.9% 18.3% 22.7% 5.5% 19.5% 16.5% SG&A ratio 49.7% 56.5% 43.3% 50.6% 46.7% 53.7% 46.1% 49.4% 46.7% 54.3% 46.1% 49.9% 48.9% 49.1% 50.0% 49.0% Operating profit 137 77 207 152 211 161 259 169 206 135 219 421 631 560 573 801 819 68.4% Demae-can 161102223190232171271180222 144 226 486 674 591 676 854 Mail Order 50 51 62 54 67 78 60 54 49 59 56 163 205 164 217 259 Adjustments -74-77-78-92-88-87-72-65-64 -67 -63 -228 -248 -195 -321 -313 YoY 58.2% -55.3% 33.2% 14.1% 53.8% 110.2% 25.1% 11.6% -2.5% -16.2% -15.2% 1.8% 50.0% -11.2% 4.8% 39.8% 2.4% Demae-can 27.0% -51.5% 85.0% 5.2% 43.9% 67.4% 21.7% -5.2% -4.5% -15.8% -16.6% 6.2% 38.6% -12.2% 5.9% 26.3% - Mail Order 50.6% 15.5% -38.6% 112.3% 34.7% 51.8% -3.0% -0.5% -27.4% -24.8% -6.4% -8.5% 25.8% -20.3% 6.6% 19.3% - OPM 14.5% 7.2% 20.0% 13.7% 17.4% 12.3% 20.1% 14.9% 17.1% 9.9% 15.3% 13.8% 16.6% 14.0% 13.8% 16.2% 15.1% Demae-can 30.5% 16.4% 36.1% 25.2% 27.6% 18.3% 29.1% 22.7% 25.8% 14.1% 20.6% 27.5% 24.9% 19.9% 26.8% 24.4% - Mail Order 11.8% 11.7% 14.7% 15.3% 18.2% 20.3% 16.9% 16.0% 14.0% 17.1% 16.7% 9.2% 7.6% 5.5% 13.3% 17.9% - Non-operating income (expenses) 5 -0 10-2 -2 -1 3 589 6-5 21 6 -3 5 Net financial income 0 -0 0 -1 -6 -4 -6 1 -0 1 -0 0-17 1 -1 -16 Equity in earnings of affiliates 21102343479 4919 411 Others 3 -1 021-0 1 -1 100 231 42 Recurring profit 142 77 208 152 209 160 258 172 210 143 228 427 626 582 579 798 824 70.6% YoY 65.9% -55.4% 39.0% 13.4% 46.7% 108.1% 23.9% 13.1% 0.9% -10.3% -11.4% 4.8% 46.6% -7.1% 7.0% 37.8% 3.3% RPM 15.0% 7.2% 20.1% 13.7% 17.2% 12.1% 20.1% 15.2% 17.4% 10.5% 15.9% 14.0% 16.4% 14.5% 13.9% 16.1% 15.2% Extraordinary gains (losses) - 92 0 -57 -10 -53 6 -49 -1 -14 6 92 -58 -8 35-107 Pre-tax profit 142 169 208 95 198 107 264 123 210 129 235 519 568 574 614 691 Income taxes 53 62 69 89 79 45 69 67 69 46 71 184 193 185 273 261 Implied tax rate 37.4% 37.0% 33.0% 93.4% 40.0% 42.3% 26.1% 55.1% 32.7% 35.6% 30.2% 35.5% 34.0% 32.3% 44.5% 37.7% Non-cont rolling int erest s -3 -2 -1 -0 -0 -1 -1 -1 -1 -0 0 -6 -2 -1 -6 -2 Net inco me attributable to owners of parent 92 109 141 6 119 62 195 56 142 83 164 341 377 389 348 433 478 81.3% YoY 187.2% 335.0% 38.7% - 30.1% -42.8% 38.7% 762.2% 18.7% 34.2% -16.2% 115.4% 10.5% 3.1% 258.4% 24.4% 10.7% Net margin 9.7% 10.3% 13.6% 0.6% 9.9% 4.7% 15.2% 4.9% 11.7% 6.1% 11.4% 11.2% 9.9% 9.7% 8.4% 8.8% 8.8% EBITDA 211 153 284 244 299 249 331 236 270 202 282 649 879 755 893 1,115 YoY 30.6% -37.3% 24.2% 17.9% 41.7% 62.1% 16.4% -3.5% -9.7% -18.6% -14.7% - 190.1% 44.1% 6.0% 24.8% EBITDA margin 22.3% 14.5% 27.4% 22.0% 24.7% 18.9% 25.8% 20.8% 22.4% 14.9% 19.7% 21.3% 23.1% 18.9% 21.5% 22.6% 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 13,018 14,953 16,439 13,656 15,318 17,071 YoY 7.1% 6.1% 8.4% 11.8% 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 9.9% 8.4% 14.9% 9.9% 11.8% 12.2% 11.4% 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 9.89 12.58 16.99 13.53 17.28 23.83 YoY 25.9% 27.8% 31.0% 27.6% 29.7% 26.0% 26.5% 28.9% 34.1% 34.6% 36.4% 28.3% 27.3% 35.1% 28.1% 27.7% 37.9% Order processing fees / No. of orders 115.2 116.5 113.9 111.7 109.4 113.8 113.6 111.5 110.7 114.3 113.4 115.2 112.4 112.9 114.3 112.2 - YoY 2.3% 1.3% -0.2% -2.3% -5.0% -2.3% -0.3% -0.2% 1.2% 0.4% -0.2% 1.1%-2.4% 0.4% 0.2% -1.8% - No. of orders / No. of affiliated stores 236.6 279.7 270.9 273.2 272.2 306.7 296.7 310.3 327.7 373.5 367.3 789.9 899.6 1,082.7 1,045.9 1,192.7 1,471.5 YoY 18.7% 20.0% 22.1% 15.9% 15.1% 9.6% 9.5% 13.6% 20.4% 21.8% 23.8% 20.4% 13.9% 20.4% 18.1% 14.0% 23.4% No. of active users (quarter end; mn) - -1.821.921.982.132.242.352.45 2.55 2.62 1.82 2.24 2.62 1.92 2.35 3.13 YoY - - - 24.7% - - 23.2% 22.4% 23.7% 20.0% 17.0% - 23.2% 17.0% 24.7% 22.4% 33.2% No. of orders / Average no. of users 1.9 1.9 2.1 2.0 2.0 2.1 2.4 2.3 7.8 8.1 8.7 YoY ------5.0%8.9% 10.5% 15.2% 7.0% 3.5% 7.5% Total users (quarter end; mn) 7.377.697.988.308.568.81- - --- 7.98- 8.30- YoY 14.3% 14.9% 15.8% 16.2% 16.1% 14.6% - - - - - 15.8% - 16.2% - Depreciation 45 48 49 53 51 50 39 41 39 41 46 142 141 126 195 181 Amortization of goodwill 29 29 29 40 37 37 33 26 26 26 17 86 107 69 125 133 Inventories 656461615956595870 71 60 61 59 60 61 58 YoY 2.4% 5.1% -13.6% 6.4% -9.8% -12.4% -3.4% -4.4% 19.1% 27.3% 2.0% 6.4% -4.4% 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 14.3 12.6 Source: Shared Research based on company data

07/63 Yume no Machi Souzou Iinkai / 2484 RCoverage LAST UPDATE: 2018.07.03 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Q3 FY08/18 results (out June 27, 2018)

▷ Cumulative Q3: Revenue up 5.1%, operating profit down 11.2%. Excluding the impact of selling subsidiaries, revenue rose 22.6%. Key performance indicators (KPIs) improving steadily; revenue appears to be on track with full-year plan  KPIs: 16,439 affiliated stores (+9.9%), 17.0mn orders (+35.1%), 2.6mn active users (+17.0%), each trending up  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™: 33 delivery hubs as of end Q3 FY08/18 (10 at end FY08/17; 17 at end Q1, and 23 at end 1H FY08/18), also expanding into the Tokai area. Signed partnership agreement with three companies including Asrapport Dining Co., Ltd. in April 2018; establishing delivery hubs 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 ▷ Response to challenges: Strengthened systems infrastructure in acknowledgement of tardy response to greater-than-expected traffic in February ▷ Topics: In March 2018, launched the Incubation Kitchen™ Project, a program supporting entrepreneurs who aspire to open new restaurants that focus on meal delivery

08/63 Yume no Machi Souzou Iinkai / 2484 RCoverage LAST UPDATE: 2018.07.03 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

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 25% 1,436

1,362 259 1,316

1,400 1,285 140% 1,210 1,207 250 219 20% 1,133 1,200 1,109 120% 211 206 1,059 1,037 949 949 947

941 200 926 902 1,000 892 100% 169 860 846 171 207 15% 815 155 133 135 800 80% 150 132 152 161 112 600 524 60% 98 100 137 10% 100

373 72 87

331 67 400 40% 77

679 677 5%

563 50 524 502 498

200 415 20% 45 408 407 394 14 337 326 315 302 266 262 261 257 235 230 229 228 0 201 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) No. of orders (mn) YoY (right axis) 5.9 6.0 17 16.4 18% 16.1 6 60% 15.7 16 15.3 16% 5.1 14.6 15.0 5 4.7 50% 15 14.2 14% 4.4 4.4 14 13.7 12% 3.8 13.0 4 3.5 3.6 40% 13 12.512.5 3.5 12.012.2 10% 11.6 11.611.711.8 2.9 2.9 12 11.311.5 11.5 2.7 2.6 11.211.111.1 3 30% 8% 2.3 2.3 2.3 11 2.0 2.0 2.0 2.0 6% 1.8 2.3 10 2 20% 9 4% 1 10% 8 2% 7 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% 867 875882 706 851 662 777 769 800 729 80% 598 592 713 561566 560564 675656 600 60% 62% 56% 604588589609 472 571 456 449 54% 600 539 70% 417439427 418433433 71% 497489 505 397 395 51% 54% 54% 441 400 48% 50% 66% 66% 66%66% 51% 347 64%64% 64%64% 64% 64% 49% 50% 400 63% 64%62%64% 64% 60% 49% 49% 49% 63% 61% 249 48% 47% 46% 266 60% 60% 60% 46% 46% 47% 46% 218 58% 204199 46% 200 43% 40% 200 50% 42%

46% 0 40% 0 30% 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

Summary Cumulative Q3 FY08/18 revenue was JPY4.0bn (+5.1% or JPY194mn YoY), operating profit JPY560mn (-11.2%), and net income attributable to owners of parent JPY389mn (+3.1%). In the mainstay Demae-can business, revenue was JPY3.0bn (+10.2%) and operating profit was JPY591mn (-12.2%). Growth in mainstay Demae-can business slowed mainly owing to the sale of former consolidated subsidiary Delis Corporation (leading to a JPY288mn decline in other revenue). 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 22.6% YoY overall and 38.0% in the Demae-can business.

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). The company said personnel and hiring costs increased also, in tandem with stepped-up efforts to develop affiliate stores. We think this trend continued in Q3, and will confirm details at the interview with the company.

In Q1, SG&A expenses decreased JPY2mn YoY, but excluding the impact of the sale of Delis, they rose JPY130mn (advertising expenses up JPY70mn and others up JPY60mn). In 1H, SG&A expenses increased JPY289mn YoY excluding the impact of the sale of Delis (advertising expenses up JPY177mn and others up JPY113mn). The company appeared to have invested aggressively, as planned.

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Impact of Delis (JPYmn)

Delis Mail Order Advertising Other SG&A expenses Delis Demae-can other Dem ae-can order processing fees Revenue (+43; +1.7%) SG&A (+32; +2.5%) 1,400 1,271 1,304 3,000 expenses 2,526 2,569 1,200 Delis (-361) Delis (-257) 2,500 257 361 691 Mail Order (-63; -8.3%) 1,000 2,000 849 753 Demae-can (142; +28.9%) 800 Other (+113; +15.3%) 1,500 637 Other 736 SG&A expenses 495 600 1,000 400 1,241 Demae-can (+325: +35.4%) 500 917 Order processing fees Advertising (+177; +63.6%) 200 454 expenses 0 277 FY08/17 FY08/18 (JPYmn)0 (JPYmn) 1H 1H FY08/17 FY08/18 1H 1H Source: Shared Research based on company data

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

▷ Number of orders: 17.0mn (+35.1%), consistently growing above 20% since FY08/16 and rising above 30% for the first time since Q3 FY08/16; ▷ Number of affiliated stores: 16,439 (+9.9% YoY), trending upward; ▷ Number of active users: 2.6mn (+17.0%), reflecting sustained high growth of about 20%. 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. These latter tie-ups look to have been particularly effective.

The company considers number of orders as the most important KPI and aims for its accelerated growth in the medium-term plan. Pace of order increase in Q1 (+34.0% YoY) exceeded those of FY08/17 (+27.7%) and FY08/16 (+28.1%), driving up order processing fees (+35.7%). In Q2 and Q3, pace of order continued along similar trends (+35.1% and +35.6%, respectively). In response to the system failure that occurred in February, the company took measures to prevent recurrence by strengthening its systems infrastructure and conducting load testing. The upgraded system has the capacity to accommodate extended order growth. Number of orders soared in May, up 41.3%. Shared Research will keep a close eye on developments in Q4.

As of 1H, the company had appeared to be making good progress toward its full-year targets for each KPI. Number of affiliated stores were 17,071 (+11.4% YoY), proceeding apace, and number of orders came to 23.8mn (+37.9%), aiming for 38–39% growth in 2H, via various initiatives. Number of active users was 3.1mn (+33.2%), still short of target, but repeat order rate among new users was higher than anticipated, and even if full-year target for active users was not met, the company expected to achieve its goal for number of orders. Q3 figures for each KPI fell slightly short of full-year targets, but as a point to note, the company has maintained a high growth rate in the number of orders.

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

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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.

Improved repeat order rate on efforts to promote third-time orders Growth in the numbers of orders in cumulative Q3 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 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).

Loyalty program

Source: Shared Research based on company data

Sharing Delivery™ to accelerate quality improvement and delivery hub 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; and Lotteria and Denny’s in Q3. Further, focusing on Asahi Shimbun’s delivery network, ASA stations, the company expanded its target areas,

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increasing the number of locations to 17 at end Q1 FY08/18, 23 at end 1H FY08/18, and 33 at end Q3 FY08/18, up 23 locations compared with end FY08/17.

The company added only one delivery hub (in Hirakata City in Osaka Prefecture) in December mainly because it was a peak month for restaurants. Five delivery hubs were opened over January and February, and the company’s first hub in the Tokai area was opened in Nagoya (Aichi Prefecture) in May. The number of hubs seems to be continuing to increase at a similar pace. 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 hubs, and we expect hub network expansion to accelerate with a view to meeting the target of 60 by end FY08/18. As of 1H, the company said it was capable of adding eight new hubs each month. Shared Research thinks new partners will contribute to the growth plan.

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. We believe these partnerships will further accelerate the expansion of Sharing Delivery™ network.

As of March 2018, 23 delivery hubs had acquired more than 600 affiliated restaurants in total, exceeding the company’s target of an average 25 restaurants per hub. 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 hub making money (more detail below). The company aims to diversify its service into different types of foods and beverages in each area, also by utilizing Sharing Delivery. We will confirm developments in Q3 at our interview with the company.

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.

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.

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. We will see how the service will pick up as a new format for Sharing Delivery (details will follow after interview with the company).

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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.

Demae-can business (JPYmn)

Demae-can FY08/15 FY08/16 FY08/17 FY08/18 FY08/15 FY08/16 FY08/17 FY08/18 FY08/16 FY08/17 FY08/18 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1 Q2 Q3 Cml. Q3Cml. Q3Cml. Q3Cml. Q3 Cons. Cons. Init. Est. Revenue 421 511 513 523 528 621 617 755 841 931 930 797 859 1,019 1,100 1,446 1,766 2,702 2,978 2,522 3,499 3,922 YoY 16.2% 24.5% 25.6% -3.4% 25.3% 21.6% 20.2% 44.6% 59.3% 49.8% 50.8% 5.5% 2.1% 9.5% 18.3% 22.4% 22.2% 53.0% 10.2% 28.1% 38.8% 12.1% Operating profit 127 210 120 181 161 102 223 190 232 171 271 180 222 144 226 458 486 674 591 676 854 - YoY -13.0% 26.1% -13.9% 140.3% 27.0% -51.5% 85.0% 5.2% 43.9% 67.4% 21.7% -5.2% -4.5% -15.8% -16.6% 1.1%6.2%38.6%-12.2% 5.9%26.3% - OPM 30.1% 41.2% 23.5% 34.6% 30.5% 16.4% 36.1% 25.2% 27.6% 18.3% 29.1% 22.7% 25.8% 14.1% 20.6% 31.7% 27.5% 24.9% 19.9% 26.8% 24.4% - Order processing fees 261 315 302 326 337 408 394 407 415 502 498 524 563679677 1,5461,938- YoY 14.9% 20.1% 17.4% 22.6% 28.8% 29.6% 30.7% 24.7% 23.2% 23.1% 26.2% 28.7% 35.7%35.1%36.1% 28.3%25.4%- No. of orders (mn) 2.32 2.74 2.64 2.85 2.92 3.50 3.46 3.64 3.79 4.41 4.38 4.70 5.08 5.94 5.97 7.70 9.89 12.58 16.99 13.53 17.28 23.83 YoY 14.4% 21.6% 17.2% 22.4% 25.9% 27.8% 31.0% 27.6% 29.7% 26.0% 26.5% 28.9% 34.1% 34.6% 36.4% 17.9% 28.3% 27.3% 35.1% 28.1% 27.7% 37.9% Order processing fees / No. of orders 112.6 114.9 114.2 114.4 115.2 116.5 113.9 111.7 109.4 113.8 113.6 111.5 110.7114.3113.4 114.3112.2- YoY 0.4% -1.3% 0.1% 0.2% 2.3% 1.3% -0.2% -2.3% -5.0% -2.3% -0.3% -0.2% 1.2% 0.4% -0.2% 0.2%-1.8% - No. of affiliated stores (quarter end) 11,680 11,812 12,011 12,213 12,505 12,529 13,018 13,656 14,206 14,559 14,953 15,318 15,712 16,081 16,439 12,011 13,018 14,953 16,439 13,656 15,318 17,071 YoY 1.5% 1.4% 4.6% 5.0% 7.1% 6.1% 8.4% 11.8% 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 9.9% 4.6% 8.4% 14.9% 9.9% 11.8% 12.2% 11.4% No. of orders / No. of affiliated stores 199.3 233.2 221.8 235.7 236.6 279.7 270.9 273.2 272.2 306.7 296.7 310.3 327.7373.5367.3 1,045.91,192.71,471.5 YoY 12.1% 19.9% 13.8% 16.8% 18.7% 20.0% 22.1% 15.9% 15.1% 9.6% 9.5% 13.6% 20.4%21.8%23.8% ---- 18.1%14.0%23.4% No. of active users (quarter end; mn) - - - 1.54 - - 1.82 1.92 1.98 2.13 2.24 2.35 2.45 2.55 2.62 - 1.82 2.24 2.62 1.92 2.35 3.13 YoY - - - 14.1% - - - 24.7% - - 23.2% 22.4% 23.7% 20.0% 17.0% - - 23.2% 17.0% 24.7% 22.4% 33.2% No. of orders / Average no. of users 1.91.92.12.02.02.12.42.3 7.88.1 YoY ------5.0%8.9%10.5%15.2% 7.0%3.5% Total users (quarter end; mn) 6.45 6.69 6.89 7.14 7.37 7.69 7.98 8.30 8.56 8.81 - - - - - 6.89 7.98 - - 8.30 - YoY 14.0% 13.6% 13.1% 13.7% 14.3% 14.9% 15.8% 16.2% 16.1% 14.6% - - - - - 13.1% 15.8% - - 16.2% - Depreciation 44 42 43 44 43 46 47 51 49 49 36 37 36 38 42 130 136 134 116 187 171 Amortization of goodwill 11123331411117---- 4930- 2330 EBITDA 173 254 165 226 207 151 273 255 293 230 315 217 257 182 268 592 631 838 707 886 1,055 YoY 18.4% 52.4% 18.0% -2.7% 19.9% -40.6% 65.2% 12.7% 41.2% 52.7% 15.5% -14.8% -12.1% -21.1% -14.9% 30.8% 6.5% 32.8% -15.6% 8.3%19.1% EBITDA margin 41.0% 49.7% 32.2% 43.3% 39.3% 24.3% 44.2% 33.8% 34.8% 24.7% 33.9% 27.3% 30.0% 17.8% 24.4% 41.0% 35.7% 31.0% 23.8% 35.1% 30.2% Source: Shared Research based on company data

Demae-can business (JPYmn)

(JPYmn) (JPYmn) Revenue YoY (right axis) Operating profit OPM (right axis) 1,200 100% 300 50% 1,100 271 1,019 1,000 931930 250 232 80% 223 222 226 40% 841 859 797 190 800 755 200 210 180 167 171 60% 181 30% 621617 146 143 140 144 600 541 528 150 129 161 511513523 124 127 120 411408 421 40% 20% 373 363 400 331 363361 100 80 102 75 20% 10% 200 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

700 679677 70% ('mn) No. of orders (mn) YoY (right axis) Order processing fees YoY (right axis) 5.9 6.0 6 60% 563 600 60% 5.1 502498524 5 4.7 50% 500 50% 4.4 4.4 408 407415 394 4 3.6 3.8 40% 400 40% 3.5 3.5 326337 315302 2.9 2.9 2.7 2.6 300 262257266261 30% 3 30% 235230229228 2.3 2.3 2.3 201 2.0 2.0 2.0 2.0 200 20% 2 1.8 2.3 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. We expect to see results from Q2. The company also began activities to form a large user population for the future growth, mainly aiming to increase new customers. In 1H, the company added roughly 1,200 new stores, up sharply from the 350 or so added the previous year. While repeat orders from new customers are showing a gradual increase, cumulative Q3 revenue fell by 7.3% YoY.

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Mail Order business (JPYmn)

Mail Order FY08/15 FY08/16 FY08/17 FY08/18 FY08/15 FY08/16 FY08/17 FY08/18 FY08/16 FY08/17 FY08/18 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1 Q2 Q3 Cml. Q3Cml. Q3Cml. Q3Cml. Q3 Cons. Cons. Init. Est. Revenue 425 436 428 404 421 438 420 354 369 384 355 336 348 343 336 1,289 1,279 1,108 1,027 1,633 1,445 1,512 YoY -6.0% -11.3% -11.5% -1.0% -0.9% 0.4% -1.8% -12.4% -12.4% -12.2% -15.6% -4.9% -5.6% -10.9% -5.2% -9.7% -0.8% -13.4% -7.3% -3.5% -11.5% 4.7% Internal transaction 12 18 17 18 23 26 27 25 35 40 38 40 45 52 51 47 76 113 147 101 153 Sales (incl. internal transaction) 437 454 446 422 444 464 447 379 403 425 393 376 393 394 387 1,336 1,355 1,221 1,174 1,734 1,597 Operating profit 334510125505162546778605449 59 56 178 163 205 164 217 259 - YoY 1,244.1% -1.4% 82.7% -32.7% 50.6% 15.5% -38.6% 112.3% 34.7% 51.8% -3.0% -0.5% -27.4% -24.8% -6.4% 73.6% -8.5% 25.8% -20.3% 6.6%19.3% - OPM 7.8% 10.2% 23.5% 6.3% 11.8% 11.7% 14.7% 15.3% 18.2% 20.3% 16.9% 16.0% 14.0% 17.1% 16.7% 13.8% 12.7% 18.5% 15.9% 13.3% 17.9% - Depreciation 122222222234334 66610 810 Amortization of goodwill 27 27 27 27 26 26 26 26 26 26 26 26 26 26 17 81 77 77 69 103 103 EBITDA 6274130547879898295106888377 88 77 266 246 289 242 328 372 YoY 2,405.9% 63.8% 135.6% -64.6% 26.0% 6.9% -31.1% 50.8% 21.8% 33.6% -1.4% 2.0% -18.2% -17.1% -12.6% 158.5% -7.2% 17.2% -16.1% 2.6%13.4% EBITDA margin 14.5% 17.0% 30.3% 13.4% 18.5% 18.1% 21.3% 23.1% 25.7% 27.5% 24.8% 24.8% 22.2% 25.6% 22.9% 20.6% 19.3% 26.0% 23.6% 20.1% 25.8% Source: Shared Research based on company data

(JPYmn) (JPYmn) Revenue (external transaction) Internal transaction YoY (left axis) 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 17 403 393 394 27 12 23 27 379 393 387 78 18 40 376 0% 35 400 80 20% 25 38 45 52 51 40 62 67 60 59 -5% 300 60 55 54 56 15% 50 51 49 45 54 499 492484 45 452 425436428 421438420 37 38 -10% 161 408 404 384 200 40 33 10% 369 355 0 336348343336 354 -15% 100 20 5% 161 25 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

Toward 2H (Reference: as of 1H) For 2H FY08/18, we intend to closely monitor progress of the company’s medium-term strategies, more specifically KPIs such as number of orders, Sharing Delivery™’s delivery hub expansion, advertising and promotion spending and effects. The company also has outlined measures to counteract issues that became evident in 1H, namely (1) strengthening system infrastructure and altering the order of priority in system development, after systems proved unable (too slow) in 1H to handle greater-than-projected traffic; and (2) enhancing the quality of Shared Delivery™ services, by precisely pinpointing potential areas for expansion and specifically cultivating popular restaurants, as well as making app improvements and bolstering training for delivery personnel. Below, we outline these measures in more detail.

Systems investment The decision to beef up systems investment comes in response to a situation where users had difficulty accessing the Demae-can website during certain hours, owing to greater-than-expected traffic triggered by a half-price sale held in February (a major marketing campaign held once every six months, on this occasion over a three-day period from Friday, February 16). The company estimates opportunity losses of approximately 20% across that Saturday and Sunday. On the other hand, the campaign proved highly successful in attracting business, as orders from the 3,060 participating restaurants reached record-high levels.

To address this, the company says it will (1) bring forward planned spending on strengthening systems infrastructure, and (2) alter the order of priority for software development. By March, it seems systems infrastructure already had been strengthened to the extent of being able to comfortably handle the kind of traffic experienced during the February campaign, and further upgrades are planned in April. In terms of software development, the company plans to give greater priority to development of apps affording a quicker response and increased user friendliness, in order to enhance customer satisfaction.

The above has resulted in additional costs not envisioned at the start of the term; the company is spending an additional JPY6–8mn monthly on strengthening systems infrastructure (amounting to tens of millions over 2H). The budget for software development was JPY100mn, and spending appears broadly in line with plan even with the change in order of priority.

Half-price campaign: advertising expenses borne by the company; drop in selling price borne by the restaurant

Enhancing the quality of Sharing Delivery™ services While still expanding the Sharing Delivery™ network (both delivery hubs and stores), the company seeks to address issues that arise in order to provide a better-quality service. To make Sharing Delivery™ a success, the company considers it important to: (1) precisely pinpoint potential areas for expansion (areas likely to offer synergies with existing client stores); (2) specifically cultivate popular restaurants; and (3) maintain delivery quality.

In 2H the company has made great strides with respect to (2). Originally, the company set as its sales target the number of affiliated stores, but since March that has changed to the following month’s sales at newly affiliated stores. Previously, the company tended to steer clear of popular restaurants, as it deemed these more difficult to sign up as affiliates. This created a vicious cycle whereby signing up less-popular stores led in turn to customer dissatisfaction, decreased sales for the restaurant, diminished delivery efficiency, and deteriorating earnings for the delivery hub. By cultivating popular restaurants, the company seeks instead to establish a virtuous cycle whereby signing up more-popular stores leads in turn to customer satisfaction, increased sales for the restaurant, enhanced delivery efficiency, and improved earnings for the delivery hub.

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The company in fact began deploying this strategy during 1H. In Urawa, where Sharing Delivery™ services became available from March, some delivery hubs turned a profit in their very first month, a feat that normally takes about three months. Progress also is being made in signing up big-name restaurant chains, and as these chains expand their own area of operations, it is not long before Sharing Delivery™ is supporting restaurants of numerous genres. In this manner, Sharing Delivery™ quality should improve progressively in 2H as the service is rolled out further.

The company also is engaged in developing apps contributing to the training of delivery personnel. Sharing Delivery™ already boasts a “geographical advantage,” and by further enhancing service quality in this way, the company seeks to build up customer satisfaction.

Further increasing repeat order rate According to the company, results are becoming evident from initiatives taken in 1H to raise the repeat order rate. It believes, though, that there is still plenty of scope for devising measures to further increase repeat orders; in April, for example, the company plans to start sending push notifications to app users, also launching a “recommendation” service.

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

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Full-year company forecasts

FY08/15 FY08/16 FY08/17 FY08/18 Initial Est. (JPYmn) 1H2HFY1H2HFY1H2HFY1H2HFY Revenue 1,794 1,868 3,661 2,008 2,146 4,155 2,526 2,418 4,944 2,552 2,882 5,434 YoY 4.5% 1.4% 2.9% 12.0% 14.9% 13.5% 25.8% 12.7% 19.0% 1.0% 19.2% 9.9% Operating profit 258 289 547 214 359 573 372 428 801 334 485 819 YoY 26.2% 83.4% 51.1% -17.1% 24.4% 4.8% 74.0% 19.4% 39.8% -10.3% 13.2% 2.3% OPM 14.4% 15.4% 14.9% 10.7% 16.7% 13.8% 14.7% 17.7% 16.2% 13.1% 16.8% 15.1% Recurring profit 258 284 541 219 360 579 368 430 798 336 488 824 YoY 27.7% 73.3% 48.1% -15.0% 26.9% 7.0% 68.2% 19.3% 37.8% -8.7% 13.6% 3.3% RPM 14.4% 15.2% 14.8% 10.9% 16.8% 13.9% 14.6% 17.8% 16.1% 13.2% 16.9% 15.2% Net in co me attributable to owners of parent 57 40 97 200 147 348 182 251 433 199 279 478 YoY -40.0% -44.6% -42.0% 252.0% 267.5% 258.4% -9.4% 70.5% 24.4% 9.6% 11.1% 10.5% Net margin 3.2% 2.1% 2.6% 10.0% 6.9% 8.4% 7.2% 10.4% 8.8% 7.8% 9.7% 8.8% Source: Shared Research based on company data

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

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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 first part of Yume no Machi’s vision is its Demae-can business (online food delivery platform). Offering delivery just 20 minutes after a customer places an order, Demae-can has successfully attracted affiliated restaurants and consumers. In FY08/18– FY08/20, the company will focus on developing Demae-can. In the first two years, the aim is to spend aggressively on advertising and promotion despite temporarily reducing profitability. In the third year, management aims to return OPM to what it considers normal levels and then increase margins through revenue growth.

Increasing market share through online food orders The food delivery market is worth about JPY600bn. The company believes its role is to help shift half of the food delivery market (about JPY300bn) online; it aims 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), 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 use the company’s services as affiliates. Increasing 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 boosting the number of affiliated restaurants) and increase the repeat order rate.

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

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

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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 FY08/20.

Medium-term management plan (out October 12, 2017)

FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 3-year (JPYmn) Act.Act.Act.Act.Act.Act.Act.Act.Act.Act.Init. Est.TargetsTargets CAGR Revenue 941 1,074 1,158 1,259 1,360 2,087 3,558 3,661 4,155 4,944 5,434 7,130 9,416 24.0% YoY 23.4% 14.2% 7.8% 8.8% 8.0% 53.5% 70.5% 2.9% 13.5% 19.0% 9.9% 31.2% 32.1% Operating profit 262 173 234 244 211 278 362 547 573 801 819 1,480 2,861 52.9% YoY 14.6% -34.2% 35.4% 4.5% -13.7% 32.2% 30.0% 51.1% 4.8% 39.8% 2.3% 80.7% 93.3% YoY 27.9% 16.1% 20.2% 19.4% 15.5% 13.3% 10.2% 14.9% 13.8% 16.2% 15.1% 20.8% 30.4% Earnings Net income 156 128 123 146 115 97 167 97 348 433 478 - YoY 7.6% -17.9% -4.1% 18.7% -21.2% -16.0% 73.1% -42.0% 258.4% 24.4% 10.5% - - Net margin 16.6% 11.9% 10.6% 11.6% 8.5% 4.6% 4.7% 2.6% 8.4% 8.8% 8.8% - - Revenue Demae-can 891 1,052 1,143 1,253 1,360 1,427 1,723 1,968 2,522 3,499 3,922 5,587 7,840 30.9% Mail Order - - - - - 660 1,836 1,693 1,633 1,445 1,512 1,543 1,576 2.9% YoY Demae-can 27.4% 18.0% 8.6% 9.6% 8.6% 5.0% 20.7% 14.3% 28.1% 38.8% 12.1% 42.5% 40.3%

Segments Mail Order------178.3%-7.8% -3.5% -11.5% 4.7% 2.1% 2.1% No. of orders (mn) 4.60 5.82 6.36 6.78 7.37 7.76 8.87 10.56 13.53 17.28 23.83 34.42 48.40 41.0% YoY 47.8% 26.7% 9.2% 6.6% 8.6% 5.4% 14.3% 19.1% 28.1% 27.7% 37.9% 44.4% 40.6% No. of users (mn) - - 0.70 0.89 1.13 1.16 1.35 1.54 1.92 2.35 3.13 4.25 5.72 34.5% YoY - - - 27.1% 27.0% 2.7% 16.4% 14.1% 24.7% 22.4% 33.2% 35.8% 34.6%

KPI No. of affiliated stores 8,391 9,034 9,837 10,678 11,223 11,336 11,636 12,213 13,656 15,318 17,071 20,000強約10% YoY 14.9% 7.7% 8.9% 8.5% 5.1% 1.0% 2.6% 5.0% 11.8% 12.2% 11.4% - - Sharing DeliveryTM locations 1160160300 201.0% YoY ------445.5% 166.7% 87.5% Revenue / Orders (JPY) 204.6 184.4 182.1 185.8 184.6 268.9 401.2 346.8 307.1 286.1 228.0 207.1 194.5 YoY -16.5% -9.9% -1.3% 2.1% -0.6% 45.7% 49.2% -13.6% -11.4% -6.8% -20.3% -9.2% -6.1% Orders / Users 9.17.66.56.76.66.97.07.47.68.18.5 4.8% YoY - - - -16.2% -14.4% 2.6% -1.8% 4.4% 2.8% 4.3% 3.6% 6.4% 4.5% Users / Affiliated stores (average) 74.2 86.8 103.2 102.8 117.5 129.1 148.4 162.2 193.3 - YoY - - - 17.0% 18.9% -0.3% 14.3% 9.9% 14.9% 9.3% 19.1% - - Indices Orders / Affiliated stores (average) 586 668 674 661 673 688 772 885 1,046 1,193 1,471 - YoY 29.0% 14.1% 0.8% -1.9% 1.8% 2.3% 12.2% 14.7% 18.1% 14.0% 23.4% - - Yume no Machi gross merchandise value (inc. consumption tax; JPYbn) 18.9 20.1 21.5 24.3 28.9 37.1 46.5 120.0 37.2% Market share (SR est.) 3.6% 3.9% 4.6% 5.8% 7.1% - 20.0% Source: Shared Research based on company data and comments at the company’s earnings briefing Note: Gross merchandise value data reflect Shared Research estimates based on FY08/17 results. Note: Number of users, affiliated stores, and related indices in FY08/19 and beyond are Shared Research estimates.

Key performance indicators 60% Number of orders YoY (left axis) 60 40% Active users YoY (left axis) 8 10% Orders / Active users YoY (left axis) 11

35% 7 50% Oct. 2016: Capital and 48.4 50 5% 10 business alliance with LINE 5.7 30% 6 9.1 40% 40 0% 9 Apr. 2014: Business 34.4 25% 5 8.5 alliance with NTT Docomo 4.3 8.1 30% 30 20% 4 -5% 7.6 7.6 8 23.8 3.1 7.4 7.0 15% 3 6.9 20% 17.3 20 2.4 -10% 6.7 7 1.9 6.5 6.6 13.5 10% 2 10.6 1.4 1.5 1.1 1.2 10% 6.4 6.8 7.4 7.8 8.9 10 0.9 -15% 6 5% 0.7 1

0% 0 0% 0 -20% 5 FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 FY08/20 FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 FY08/20 FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 FY08/20 Est. Est. Est. 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, JPYbn), operating profit (right, JPYmn)

100% Revenue YoY (left axis) 9.4 10 3,500 Operating profit OPM (right axis) 35% 90% 9 3,000 2,861 30% 80% 7.1 8 70% 7 2,500 25% 60% 5.4 6 4.9 2,000 20% 50% 4.2 5 1,480 40% 3.6 3.7 4 1,500 15% 30% 3 2.1 1,000 801 819 10% 547 573 20% 1.2 1.3 1.4 2 500 278 362 5% 10% 1 234 244 211 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 Est. Est. Est. Est. (JPYbn) (JPYmn) Source: Shared Research based on company data

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Core policy The company’s medium-term plan, ending FY08/20 (announced October 2017), is a rolling plan subject to annual review. The plan calls for aggressive investment to accelerate growth in the mainstay Demae-can business; it also looks to FY08/21 and beyond. Gross merchandise value of JPY120bn and a 20% market share are key targets for the company’s next growth stage.

Focus of medium-term plan: 1) FY08/18: Increase the number of orders through aggressive ad spending: operating profit may dip temporarily. 2) FY08/19: Improve OPM by continuing effective spending. 3) FY08/20: Bring OPM back to normal levels by attaining gross merchandise value of JPY120.0bn, smoothing the transit to the next phase.

During the plan’s first two years, the company aims to maintain strong revenue growth through aggressive spending on advertising and promotion—particularly with a loyalty program. However, this will reduce OPM. From the third year, the company will maximize profit growth.

Demae-can generates about 70% 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. The company will focus on 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

35% FY08/20: Gross merchandise sales reached JPY120bn; 60 25% Food delivery market Yume no Machi share (left axis) 700 moving to the next step; OPM back at normal levels 48.4 20.0% 30% FY08/19: Continued investments and improved 50 20% 660 cost-effectiveness; OPM improved

25% FY08/18: Active investments led to acceleration 40 34.4 in order increase; OPM down temporarily 15% 620 20% 30 23.8 10% 580 15% 17.3 20 7.1% 13.5 5.8% 10.6 4.6% 8.9 5% 3.6% 3.9% 540 10% 6.4 6.8 7.4 7.8 10

5% 0 0% 500 FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 FY08/20 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 Orders OPM (left axis) Est. Est. (JPYbn) Est. Est. Est. (JPYbn) Source: Shared Research based on company data and Yano Research Institute materials

Growth in number of orders through expansion in affiliated stores

Number of affiliated stores

Affiliated stores YoY (left axis) 17.1 Orders / Affiliated stores (average) YoY (left axis) 18% 18 35% 1,471 1,600 15.3 16% 16 30% 1,400 13.7 14% 14 29% 1,193 15% 12.2 14% 25% 1,200 11.2 11.3 11.6 1,046 12% 10.7 12 9.8 12% 20% 23% 1,000 10% 9.0 12% 11% 10 885 8.4 772 7.3 15% 18% 800 8% 8 668 674 673 688 6.4 9% 9% 661 8% 586 14% 15% 14% 6% 6 10% 12% 600 454 4% 4 5% 5% 5% 400 2% 2 3% 0% 2% 2% 200 0% 1% 0 1% FY08/06 FY08/08 FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 -5% -2% 0 Est. FY08/07 FY08/09 FY08/11 FY08/13 FY08/15 FY08/17 (thousand 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.

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Developing new markets through Sharing Delivery™ Demae-can had 15,318 affiliated stores in FY08/17, growing at about 12% for the second consecutive year. However, with its present sales approach, the company believes it will be difficult to sustain such growth over the medium term: 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 FY08/17 (net increase of 1,753 stores), growth will likely hit a ceiling within three years.

Under the medium-term plan, 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 in terms of securing affiliated stores and consumers and creating barriers to entry.

Medium-term plan: expansion to 300 areas and 25 new affiliated stores per area over three years As of end FY08/17, Sharing Delivery™ was deployed in 10 areas (end November 2017: 17); management aims to expand this to 300 areas by the plan’s final year, FY08/20 (goal of 60 areas at end FY08/18). This target, however, is not the end goal: the company aims to introduce the service in Kanto, Kansai (area around Osaka), and regional cities. Management’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.

The company aims to add 25 affiliated stores* per area; it already has an average of 28 stores per area in its 10 operating areas. If it can secure 25 affiliated stores per area for 300 areas, this will result in a net increase of 7,500 stores. Management believes an average annual increase of 2,500 stores would significantly contribute to a wider product selection and increase consumer satisfaction.

*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 hubs 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).

Toward meeting targets To effectively launch Sharing Delivery™, the company implemented the following initiatives in FY08/17 toward full-scale establishment of delivery hubs 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 hubs: 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 hub profitable; that is expected to promote the spread to other ASA stations.

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Shared Research calculation of increase in number of affiliated stores (with no cancelled contracts)

25,000 Affiliated stores Sharing Delivery affiliated stores 3,500

20,000 2,500 1,225 15,000 275

10,000

5,000

0 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 FY08/19 FY08/20 Est. Est. Est. Source: Shared Research based on company data

Initiatives from FY08/18 Toward its goal of establishing a foothold in 300 areas, the company looks to develop areas with high consumer demand. In FY08/18, it will pursue the following initiatives. a) Area expansion: expand services to the Kansai region (first office in Hirakata area [Osaka] was scheduled to open in December 2017), b) Add major chains: Tempura Tendon Tenya (October 2017) and Gyoza Ohsho (November 2017) have been added; c) Expand delivery network: collaborate with companies other than Asahi Shimbun’s ASA and build systems to increase quality and efficiency; d) Branding: use electric bicycles with the company logo through collaboration with a manufacturer; e) Store staff: conduct trial initiatives involving employing seniors and homemakers. a) Area expansion: Delivery hubs established in Kanto in FY08/17 have started moving into the black; the company intends to assemble a hub development team in FY08/18 and expand delivery hubs in Kansai. In FY08/19, it plans to pursue expansion in regional cities alongside developing delivery hubs in the Kanto and Kansai regions. b) Add major chains: The company believes this will support area development while strengthening product selection, thereby increasing customer satisfaction and delivery hub 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. c) Expand delivery networks: The company regards the rapid turn to profitability at the ASA Sharing Delivery™ hub as a good sign for expansion to other ASA stations. In areas where there are no ASAs or ASAs lack interest in joint delivery, Yume no Machi plans to pursue other partners. As of October 2017, two companies were considering joining Sharing Delivery™. In addition, management looks to reinforce systems to enhance quality and efficiency. When first establishing the service, delivery hubs struggled to handle peak times. The company addressed this 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). It believes this will continue to enhance the quality of deliveries made through Sharing Delivery™. Note: at this point, the company has no intention of owning the delivery network; it aims to utilize external resources to diversify risk.

*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.

d) 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™ hubs in the Tokyo districts of Akasaka, Ikebukuro, and Ueno.

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e) 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).

Population size (mn people) and service areas

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

Major chains

Yume no Yume no Yume no Yume no No . o f No . o f No . o f No . o f 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 1057sushi Sushiro 476 Torikizoku 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

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

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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.

Order management app (left: tablet functions for restaurants, right: smartphone functions for delivery-side)

Source: Shared Research based on company data

Growth in number of orders through increased repeat order rate

Number of active users and number of orders

40% Active users YoY (left axis) 8 10% Orders / Active users YoY (left axis) 11 6.4% 4.4% 4.3% 4.5% 35% 7 3.6% 5% 2.6% 2.8% 10 5.7 30% 6 9.1 -1.8% 25% 5 0% 9 4.3 8.5 8.1 20% 4 3.1 -5% 7.6 7.6 8 7.4 15% 2.4 3 7.0 6.9 1.9 6.7 -10% 6.5 6.6 7 10% 1.4 1.5 2 1.1 1.2 -14.4% 0.7 0.9 5% 1 -15% -16.2% 6 0% 0 FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 FY08/20 -20% 5 Est. Est. FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 FY08/20 (mn) 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.

Growth in the number of active users of Demae-can has increased over four consecutive years. The medium-term plan targets a 34.5% CAGR (vs. CAGR of 20.3% over the last three years). Initiatives to increase the number of active users: 1) Reduce user withdrawal rate: Lower the user withdrawal rate via measures to increase repeat orders; 2) Improve product selection: Increase user satisfaction by expanding store selection through Sharing Delivery™; 3) Win new users: While investing in advertising and promotion, attract overlooked user segments through referrals from large partners and initiatives that boost name recognition. The plan aims to expand the number of orders by focusing on raising the repeat order rate.

The key strategy to increase the repeat order rate is advertising and promotion spending. According to the company, its repeat order rate was roughly 7 in FY08/17; that leaves considerable room for growth relative to rates of 11–14 at comparable US companies. KPIs of the medium-term plan call for a 41.0% CAGR in the number of orders. As this exceeds the targeted growth in the number of users, it reflects the company’s intention to increase the repeat order rate. The following is an overview of initiatives to increase the repeat order rate and number of new users.

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Number of active users and number of orders at comparable US companies (Grubhub, Inc.) Daily Average Grubs (daily avg. orders) x 365 / Active Diners Active Diners (active users) Number of orders (active users) 12 3 35 5 Yume no Machi cumulative orders / Active users (right axis) Yume no Machi orders (right axis) Yume no Machi active users (right axis) 20 8 10 30 4 25 15 8 2 20 3 6 10 7 15 2 4 1 10 5 1 2 5

0 0 0 0 0 6 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 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)

To increase the repeat order rate, the company is

▷ 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; and ▷ improving product selection.

Management plans to direct the advertising and promotion budget at existing users rather than acquiring new users. It intends to manage the repeat order rate as an internal KPI.

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 aims to encourage repeat use and increase heavy user share. It also intends to make effective use of push notifications in its Demae-can app.

Focus shift from new users to ones placing at least three orders; raising repeat order rate via aggressive investment Yume no Machi was planning to air 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 slated to be aired intensively in areas where the company has developed full-scale networks.

In online advertising, the company will change its customer lifetime value* focus from new users to ones that annually place three or more orders. The company believes it will still be able to sufficiently recover its investment: it will direct the bulk of its advertising and promotion budget to increasing the repeat order rate.

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*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

Loyalty program

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 will continue to focus on developing new users. It will continue 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 medium-term plan is 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, management aims to use major partners. The company has actively cultivated new users through alliances with major IT 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). LINE Delima, the most recent collaboration, is steadily bringing in new users, and the company plans to redirect management resources to boost the repeat order rate.

To raise exposure and enhance name recognition, the company has increased 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™ hubs in Tokyo’s Akasaka, Ikebukuro, and Ueno). The company also expects a TV commercial aimed at increasing the repeat order rate and online advertising to boost name recognition. We intend to closely monitor how the company converts new users won through such initiatives into repeat customers and eventually heavy users.

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

Source: Company materials

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 FY08/15 FY08/16 FY08/17 FY08/18 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Cons.Cons.Cons.Cons.Cons.Init. Est. Revenue 846 947 941 926 949 1,059 1,037 1,109 1,210 1,316 1,285 1,133 2,087 3,558 3,661 4,155 4,944 5,434 YoY 3.9% 5.0% 5.5% -2.4% 12.1% 11.8% 10.2% 19.7% 27.5% 24.2% 23.9% 2.2% 53.5% 70.5% 2.9% 13.5% 19.0% 9.9% Total costs 778 853 785 1,026 807 891 829 1,014 1,012 1,209 1,021 1,011 1,891 3,194 3,442 3,540 4,253 - YoY 4.4% 10.8% -7.7% 23.9% 3.6% 4.4% 5.6% -1.1% 25.4% 35.7% 23.2% -0.3% 65.8% 68.9% 7.8% 2.8% 20.1% - % of sales 92.0% 90.1% 83.4% 110.7% 85.0% 84.1% 79.9% 91.4% 83.6% 91.9% 79.5% 89.2% 90.6% 89.7% 94.0% 85.2% 86.0% - Pre-tax profit 68 94 156 -99 142 169 208 95 198 107 264 123 196 365 219 614 691 - YoY -2.1% -28.6% 275.3% - 109.5% 78.8% 33.6% - 39.3% -36.8% 26.4% 28.8% -10.6% 86.0% -40.0% 180.6% 12.5% - Pre-tax margin 8.0% 9.9% 16.6% -10.7% 15.0% 15.9% 20.1% 8.6% 16.4% 8.1% 20.5% 10.8% 9.4% 10.3% 6.0% 14.8% 14.0% - Income taxes 36 69 55 -38 53 62 69 89 79 45 69 67 99 198 122 273 261 - Implied tax rate 53.2% 73.4% 35.0% 38.1% 37.4% 37.0% 33.0% 93.4% 40.0% 42.3% 26.1% 55.1% 50.7% 54.3% 55.8% 44.5% 37.7% - Non-controlling interests -0 0 -0 - -3 -2 -1 -0 -0 -1 -1 -1 - -0 -0 -6 -2 - Net income attributable to owners of parent 32 25 102 -61 92 109 141 6 119 62 195 56 97 167 97 348 433 478 YoY 8.1% -61.8% 607.5% - 187.2% 335.0% 38.7% - 30.1% -42.8% 38.7% 762.2% -16.0% 73.1% -42.0% 258.4% 24.4% 10.7% Net margin 3.8% 2.6% 10.8% -6.6% 9.7% 10.3% 13.6% 0.6% 9.9% 4.7% 15.2% 4.9% 4.6% 4.7% 2.6% 8.4% 8.8% 8.8% No. of active users (quarter end; mn) - - - 1.54 - - 1.82 1.92 1.98 - 2.24 2.35 1.16 1.35 1.54 1.92 2.35 3.13 YoY - - - 14.1% - - - 24.7% - - 23.2% 22.4% 2.7% 16.4% 14.1% 24.7% 22.4% 33.2% No. of orders / No. of active users------1.9---2.0 6.87.17.37.88.1 - YoY ------5.0% -7.1% 4.3% 3.4% 7.0% 3.5% - No. of orders (mn) 2.32 2.74 2.64 2.85 2.92 3.50 3.46 3.64 3.79 4.41 4.38 4.70 7.76 8.87 10.56 13.53 17.28 23.83 YoY 14.4% 21.6% 17.2% 22.4% 25.9% 27.8% 31.0% 27.6% 29.7% 26.0% 26.5% 28.9% 5.4% 14.3% 19.1% 28.1% 27.7% 37.9% No. of affiliated stores (quarter end) 11,680 11,812 12,011 12,213 12,505 12,529 13,018 13,656 14,206 14,559 14,953 15,318 11,336 11,636 12,213 13,656 15,318 17,071 YoY 1.5% 1.4% 4.6% 5.0% 7.1% 6.1% 8.4% 11.8% 13.6% 16.2% 14.9% 12.2% 1.0% 2.6% 5.0% 11.8% 12.2% 11.4%

Grubhub inc. FY12/15 FY12/16 FY12/17 FY12/18 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 (USDmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q3Q4Q1Cons.Cons.Cons.Cons.Cons. Revenue 73 88 88 86 100 112 120 123 137 156 159 163 170 254 362 493 - YoY 49.5% 50.6% 46.6% 38.3% 36.3% 27.2% 36.6% 44.1% 37.5% 39.1% 32.1% 32.1% 42.9% 49.3% 42.5% 36.3% - Total costs 57 70 72 74 84 95 98 103 114 131 137 146 160 209 300 409 - YoY 29.4% 38.5% 40.1% 47.3% 47.8% 35.9% 36.1% 38.8% 35.5% 38.2% 40.0% 41.8% 33.4% 30.2% 43.6% 36.5% - % of revenue 77.8% 79.1% 81.6% 86.4% 84.4% 84.6% 81.3% 83.2% 83.1% 84.0% 86.1% 89.3% 94.4% 82.3% 82.9% 83.0% - Pre-tax profit 16 18 16 12 16 17 23 21 23 25 22 17 10 45 62 84 - YoY 229.8% 124.6% 84.0% -0.3% -3.9% -5.9% 39.0% 78.0% 48.6% 44.2% -1.9% -16.1% - 368.9% 37.7% 35.4% - Pre-tax margin 22.2% 20.9% 18.4% 13.6% 15.6% 15.4% 18.7% 16.8% 16.9% 16.0% 13.9% 10.7% 5.6% 17.7% 17.1% 17.0% - Income taxes 68754710810774 5212434- Implied tax rate 33.8% 42.6% 42.3% 41.1% 27.8% 42.7% 43.1% 36.5% 41.3% 29.1% 33.2% 25.4% 54.7% 46.1% 38.5% 40.9% - Net income attributable to owners of parent 11 11 9 7 11 10 13 13 14 18 15 13 4 24 38 50 - Active Diners (mn) 5.03 5.60 5.93 6.43 6.75 6.97 7.35 7.69 8.17 8.75 9.18 9.81 3.42 5.03 6.75 8.17 - YoY 47.0% 45.5% 41.5% 40.7% 34.1% 24.4% 23.9% 19.5% 21.2% 25.6% 24.8% 27.6% 47.4% 47.0% 34.1% 21.2% - No. of orders / Average no. of users 3.9 4.0 3.5 3.1 3.4 3.6 3.4 3.3 3.4 3.5 3.2 3.0 17.2 15.8 14.1 13.5 - YoY -10.6% -11.4% -12.1% -13.2% -13.1% -10.5% -0.8% 4.0% 0.5% -2.9% -7.5% -9.8% -41.6% -8.3% -10.8% -4.2% - Daily Average Grubs ('000) 203 235 220 212 242 268 271 268 293 325 314 305 136 183 227 275 - DAG x No. of days (mn) 18.65 21.12 20.03 19.46 22.25 24.38 24.67 24.61 26.91 29.21 28.56 28.01 49.46 66.72 82.89 100.58 - YoY 32.6% 29.5% 26.1% 22.5% 19.3% 15.4% 23.2% 26.5% 21.0% 19.8% 15.8% 13.8% 44.4% 34.9% 24.2% 21.3% - Gross food sales 508 590 568 554 643 713 733 735 818 898 880 867 1,286 1,787 2,354 2,998 - YoY 37.3% 36.2% 34.3% 30.6% 26.5% 20.8% 29.1% 32.8% 27.3% 26.0% 20.1% 18.0% 47.6% 39.0% 31.7% 27.4% - 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.

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 180 160 146 Sales and marketing 137 160 20% 140 131 114 140 120 103 120 15% 95 98 100 84 100 74 80 70 72 80 10% 57 50 51 50 60 44 60 38 40 38 40 5% 40 20 20 0 0% 0 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 CY12/13 CY12/14 CY12/15 CY12/16 CY12/17 CY12/13 CY12/14 CY12/15 CY12/16 CY12/17 Source: Shared Research based on company data

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

OPM (Yume no Machi) OPM (Grubhub) Personnel Advertising Operations and support 25% 60% Depreciation Other 60% Sales and marketing 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 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 CY12/13 CY12/14 CY12/15 CY12/16 CY12/17 Daily Average Grubs (daily avg. orders) x 365 / Active Diners Active Diners (active users) Number of orders (active users) 12 3 35 5 Yume no Machi cumulative orders / Active users (right axis) Yume no Machi orders (right axis) Yume no Machi active users (right axis) 20 8 10 30 4 25 15 8 2 20 3 6 10 7 15 2 4 1 10 5 1 2 5

Active Diners (active users) YoY (left axis) Daily Average Grubs (orders per day) YoY (left axis) 60% 12 50% 400,000

50% 10 40% 320,000

40% 8 30% 240,000 30% 6 20% 160,000 20% 4

10% 80,000 10% 2

0% 0 0% 0 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 (USDmn) Gross food sales YoY (left axis) Daily Average Grubs (daily avg. orders) x 365 / Active Diners (active users) YoY (left axis) 50% 1,000 10% 20 18.3 17.1 17.2 16.3 15.5 15.2 15.3 40% 800 5% 14.7 16 14.0 13.8 13.5 13.5 13.1 13.5 13.1 12.7 12.5 12.0 30% 600 0% 11.3 12

20% 400 -5% 8

10% 200 -10% 4

0% 0 -15% 0 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 Source: Shared Research based on company data

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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. It commands a leading share by gross merchandise value (roughly 7% based on company estimates as of FY08/17) in the Japanese online food delivery market. 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 FY08/17, the revenue of food delivered through the company’s services was estimated at JPY47bn, roughly 7% 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) 60 Number of orders 10 Revenue 9.4 3,500 35% 9 Operating profit 2,861 50 48.4 3,000 30% 8 OPM (right axis) 7.1 7 2,500 25% 40 34.4 6 5.4 4.9 2,000 20% 30 5 1,480 23.8 4.2 4 3.6 3.7 1,500 15% 20 17.3 3 819 13.5 2.1 1,000 801 10% 10.6 573 8.9 2 1.4 547 10 6.4 6.8 7.4 7.8 1.2 1.3 500 278 362 5% 1 234 244 211 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 FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 FY08/20 Est. Est. Est. Est. Est. Est. 60% Number of orders YoY (left axis) 60 40% Active users YoY (left axis) 8 10% Orders / Active users YoY (left axis) 11

48.4 35% 7 50% Oct. 2016: Capital and 50 5% 10 business alliance with LINE 30% 5.7 6 9.1 40% 40 34.4 25% 5 0% 9 Apr. 2014: Business 4.3 8.5 alliance with NTT Docomo 8.1 30% 30 20% 4 23.8 3.1 -5% 7.6 7.6 8 7.4 15% 2.4 3 7.0 20% 17.3 20 6.9 1.9 -10% 6.7 7 13.5 6.5 6.6 10.6 10% 1.4 1.5 2 7.4 7.8 8.9 1.1 1.2 10% 6.4 6.8 10 0.7 0.9 5% 1 -15% 6 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 -20% 5 Est. Est. Est. Est. FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 FY08/20 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 146 Mail Order 18% 1,597 31%

Demae-can Demae-can 3,499 69% 653 82%

Source: Shared Research based on company data

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Demae-can business

(JPYmn) (JPYmn) Revenue YoY (right axis) Operating profit YoY (right axis) Operating profit (right axis) 10,000 50% 1,000 50%

8,000 40% 800 40%

6,000 30% 600 30%

4,000 20% 400 20%

2,000 10% 200 10%

0 0% FY08/06 FY08/08 FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 FY08/20 0 0% Est. Est. FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17

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 JPY25.4tn. 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.

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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

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 produces an estimate of about JPY47bn in restaurant sales—equivalent to only about 7% of Yume no Machi’s target market. 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 (JPYbn) 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

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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

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 . o f No . o f No . o f No . o f Brand Machi Brand Machi Brand Machi Brand Machi stores stores stores stores affiliate affiliate affiliate affiliat e Pizza Pizza-la 553 〇 Family Gusto 1365 〇 Conveyer belt Hamazushi 483 Pub Uotami 716 Domino's 500 〇 restaurant Saizeriya 1057sushi Sushiro 476 Torikizoku 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.

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Business structure

Source: Shared Research based on company data

Flow of operations in Demae-can business

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 hubs, 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

Source: Shared Research based on company data

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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 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 hub 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 considering collaborations with other companies (four partners, including Delis and ASA, as of November 2017). As of October 2017, several established delivery hubs had reached profitability for FY08/17. The company plans to increase profitable hubs in FY08/18 and encourage ASA stations and other partners to join the service.

Earnings structure Companies that use Sharing Delivery™ pay a percentage of the order amount to the delivery hub. The percentage is set at a rate that enables the delivery hubs to become profitable. Of the order value paid to delivery hubs, 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.

Sample menus at major chains (as of October 2017)

Delivery fee: JPY300 (for all stores below) Store price Demae-can Price for 2 Vs. Delivery fee Price for 3 Vs. Delivery fee Price for 4 Vs. Delivery fee (JPY) Minimum purchase: JPY1,500 ex. delivery fee (all st ores) Incl. tax Excl. taxprice ex-tax Inc. tax store price % of price Inc. tax store price % of price Inc. tax store price % of price Yoshinoya Beef bowl Regular 380 352 527 - - - 1,859 176% 43% 2,386 169% 41% Large 580 537 768 1,814 169% 41% 2,582 160% 38% 3,350 156% 36% Extra-large 680 630 944 2,166 172% 42% 3,110 165% 39% 4,054 161% 38% Eel bowl One piece 750 694 1,250 2,778 200% 50% 4,028 193% 48% 5,278 190% 47% Two pieces 1,150 1,065 1,916 4,110 193% 48% 6,026 189% 47% 7,942 186% 46% Three pieces 1,650 1,528 2,750 5,778 189% 47% 8,528 186% 46% 11,278 185% 46% Pork bowl Regular 330 306 462 - - - 1,664 181% 45% 2,126 174% 42% Large 500 463 694 1,666 180% 44% 2,360 170% 41% 3,054 165% 39% Extra-large 630 583 879 2,036 175% 43% 2,915 167% 40% 3,794 163% 39% Tenya Tempura Regular 500 463 648 1,574 170% 41% 2,222 160% 37% 2,870 155% 35% bowl Large 650 602 748 1,774 147% 32% 2,522 140% 28% 3,270 136% 26% Special Regular 690 639 824 1,926 151% 34% 2,750 143% 30% 3,574 140% 28% Large 790 731 924 2,126 145% 31% 3,050 139% 28% 3,974 136% 26% All Star Regular 750 694 879 2,036 147% 32% 2,915 140% 29% 3,794 137% 27% Large 850 787 979 2,236 142% 30% 3,215 136% 27% 4,194 133% 25% First BurgerBacon Egg 320296314------1,534130%23% Kitchen Cheese Bacon Egg 350324342------1,646127%21% Bacon Egg Double Double 490 454 472 - - - 1,694 124% 20% 2,166 119% 16% Pasta Carbonara spaghetti 580 537 555 - - - 1,943 121% 17% 2,498 116% 14% Tomato sauce spaghetti w/ eggplant and bacon 620 574 592 - - - 2,054 119% 16% 2,646 115% 13% Genovese w/ shrimp and avocado 690 639 657 1,592 125% 20% 2,249 117% 15% 2,906 114% 12% Source: Shared Research based on company data

Interpreting disclosed data Revenue breakdown The company’s revenue breaks down into the following major items:

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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 (JPYmn)

Basic operating fees Order processing fees 1,000 Basic operating fees Order processing fees Advertising fees 40% Advertising fees System development fees 4,000 3,499 900 System development fees Other Other YoY (left axis) 35% 3,500 800

30% 1,150 3,000 700 2,522 600 25% 2,500 1,968 578 500 20% 1,723 2,000 320 400 1,360 1,427 15% 1,253 253 1,500 197 1,938 300 137 172 10% 1,546 1,000 200 1,204 1,013 786 840 895 5% 500 100 254 268 267 272 277 297 340 0 0% 0 (JPYmn) (JPYmn) Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 Source: Shared Research based on company data

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; management sees the need to increase personnel to around 100 at the parent over the medium term (72 at end FY08/17). While aiming to boost the headcount, the company plans to increase marketing spending (advertising and promotion) by JPY300–400mn YoY in FY08/18.

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Cost of revenue (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 - - - - - Depreciation 0 1 1 2 4 6 6 91013121210116 912 Amort izat ion of goodwill 114 811234937454543424362828382102 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% - - - - - Depreciation - 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% - - - - - Depreciation 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.

Various KPIs

60% Number of orders YoY (left axis) 60 40% Active users YoY (left axis) 8 10% Orders / Active users YoY (left axis) 11

35% 7 50% Oct. 2016: Capital and 48.4 50 5% 10 business alliance with LINE 5.7 30% 6 9.1 40% 40 0% 9 Apr. 2014: Business 34.4 25% 5 8.5 alliance with NTT Docomo 4.3 8.1 30% 30 20% 4 -5% 7.6 7.6 8 23.8 3.1 7.4 7.0 15% 3 6.9 20% 17.3 20 2.4 -10% 6.7 7 6.5 6.6 13.5 1.9 10% 1.5 2 10.6 1.4 7.8 1.1 1.2 10% 6.4 6.8 7.4 8.9 10 0.9 -15% 6 5% 0.7 1

0% 0 0% 0 -20% 5 FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 FY08/20 FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 FY08/20 FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 FY08/20 Est. Est. Est. Est. Est. Est.

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18% Affiliated stores YoY (left axis) 17.1 18 35% Orders / Affiliated stores (average) YoY (left axis) 1,600 1,471 15.3 16% 16 30% 1,400 13.7 1,193 14% 15% 14 29% 12.2 25% 1,200 14% 11.6 1,046 12% 11.2 11.3 12 10.7 20% 23% 1,000 9.8 12% 12% 885 10% 9.0 11% 10 8.4 772 18% 15% 688 800 8% 7.3 8 668 674 661 673 6.4 9% 9% 586 14% 15% 14% 8% 10% 12% 600 6% 6 454 5% 400 4% 5% 5% 4

2% 2 0% 2% 2% 200 3% 1% 0% 1% 0 -5% -2% 0 FY08/06 FY08/08 FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 FY08/07 FY08/09 FY08/11 FY08/13 FY08/15 FY08/17 Est. (mn) 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.

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Mail Order business

Mail Order FY08/15 FY08/16 FY08/17 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Cons.Cons.Cons.Cons.Cons. Revenue 425 436 428 404 421 438 420 354 369 384 355 336 660 1,836 1,693 1,633 1,445 YoY -6.0% -11.3% -11.5% -1.0% -0.9% 0.4% -1.8% -12.4% -12.4% -12.2% -15.6% -4.9% - 178.3% -7.8% -3.5% -11.5% Internal transaction 12 18 17 18 23 26 27 25 35 40 38 40 - 50 65 101 153 Sales (incl. internal transaction) 437 454 446 422 444 464 447 379 403 425 393 376 660 1,885 1,759 1,734 1,597 Operating profit 33 45 101 25 50 51 62 54 67 78 60 54 39 140 204 217 259 YoY 1,244.1% -1.4% 82.7% -32.7% 50.6% 15.5% -38.6% 112.3% 34.7% 51.8% -3.0% -0.5% - 263.1% 45.0% 6.6% 19.3% OPM 7.8% 10.2% 23.5% 6.3% 11.8% 11.7% 14.7% 15.3% 18.2% 20.3% 16.9% 16.0% 5.9% 7.7% 12.0% 13.3% 17.9% Depreciation 122222222234 278810 Amortization of goodwill 27 27 27 27 26 26 26 26 26 26 26 26 36 109 109 103 103 EBITDA 62 74 130 54 78 79 89 82 95 106 88 83 77 256 320 328 372 YoY 2,405.9% 63.8% 135.6% -64.6% 26.0% 6.9% -31.1% 50.8% 21.8% 33.6% -1.4% 2.0% - 233.8% 24.8% 2.6% 13.4% EBITDA margin 14.5% 17.0% 30.3% 13.4% 18.5% 18.1% 21.3% 23.1% 25.7% 27.5% 24.8% 24.8% 11.6% 14.0% 18.9% 20.1% 25.8% Earnings trends (JPYmn)

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

499 500 493 101 0 464 5% 457 9 10 454 446 444 447 500 100 25% 435 437 425 5 422 26 18 17 27 403 393 27 12 23 379 78 18 40 376 0% 35 400 80 20% 25 38 40 62 67 60 55 54 -5% 300 60 50 51 15% 45 54 499 492 484 45 452 425 436 428 421 438 420 37 38 -10% 161 408 404 384 200 40 33 10% 369 355 0 336 354 -15% 100 20 5% 161 25 2 2 -20% 0 0 0% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 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 will be fully amortized in April 2018, and this should raise 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

Goodwill Amortization Main business Voting right % Acquired (JPYmn) period Consolidated subsidiaries Satsuma Ebisudo Mail order 100.0% May 2013543Five years PT Klik Eat Indonesia Demae-can 71.5% Set. 2014 Equity-method affiliate JFD Demae-can 29.1% Mar. 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.

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Equity-method profit/losses (JPYmn)

(JPYmn) (JPYmn) 12 5

10 4

8 3

6 2

4 1

2 0

0 -1

-2 -2

-4 -3 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17

Source: Shared Research based on company data

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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 15,000 affiliated stores (FY08/17). 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 operates only in Indonesia (stake of 71.5% in a local subsidiary). The company tried to enter South Korea, but it ended up exiting that market, 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.

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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 (JPYmn) Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. 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 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% Cost of revenue 6 49 49 52 70 131 157 156 165 264 302 399 759 1,518 1,375 1,503 1,720 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% Gross profit 20 39 52 92 291 519 605 785 909 894 957 960 1,328 2,040 2,286 2,652 3,223 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% 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 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 Depreciation 0 1 1 2 4 6 6 91013121248132129146164 Commission fee 114 811234937454543424581127125127144 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% 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% Advertising 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% Depreciation - 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% 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% Depreciation 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 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% 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% Non-operating income (expenses) 4 -0 -0 -2 -2 -20 12 14 55 6 16 10 -4 4 -5 6 -3 Net financial income -0 -0 -0 0 0 312159 5159 -0 -5 -3 -1 -16 Gains on forex and derivatives ------1 -2 - -6 -1 - Equity in earnings of affiliat es ------2 -3 -0 411 Other 5 -0 -0 -2 -2 -24 0 -1 46111111452 Recurring profit -62-34-36-77 30 150 241 276 228 239 260 221 275 366 541 579 798 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% 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% Extraordinary gains (losses) - - 0 - - -32 6 -8 -3 -22 -2 -1 -79 -1 -322 35 -107 Income taxes 00002-35 102 112 97 94 113 104 99 198 122 273 261 Implied tax rate -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% Non-controlling interests ------0 -0 -6 -2 Net income attributable to owners of parent -62-34-37-77 28 152 145 156 128 123 146 115 97 167 97 348 433 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% 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% Capit al expenditures - - - - 60 64 96 105 73 218 312 239 95 90 235 293 329 Depreciation - - - 414202954628084139154166181195181 Depreciation (SG&A expenses) 0 1 1 2 4 6 6 9 10 13 12 12 48 132 129 146 164 Goodwill amortization (excl. extraordinary losses) ------36 113 114 125 133 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 EPS (fully diluted) - - - - - 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 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 Payout ratio ------30.6% 30.9% 46.4% 37.8% 40.7% 31.4% 42.6% 29.2% 72.4% 29.0% 30.8% DOE ------2.2% 2.4% 2.9% 2.4% 2.9% 1.7% 1.9% 2.4% 3.4% 4.5% 5.3% 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 EBITDA - - - -71 46 190 258 316 235 314 328 349 432 528 728 768 982 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% 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% ROE #DIV/0! 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% 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% 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 Financial leverage - - 3.11 1.65 1.16 1.07 1.06 1.06 1.20 1.24 1.10 1.08 1.091.281.491.471.61 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% 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% NOPAT - -39 -20 -21 -44 19 101 136 156 102 139 145 125 173 224 352 383 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 Source: Shared Research based on company data

40/63 Yume no Machi Souzou Iinkai / 2484 RCoverage LAST UPDATE: 2018.07.03 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

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 - - -291342292081018347595 Agency commissions - - -101532402730343126181368187369 System development contract costs ------197612427 Various costs - - - 7 29 43 76 100 142 222 298 395 410 434 477 458 486 Communication - - - 5 20 29 41 44 56 126 161 176 175 173 185 185 211 Depreciation - - - 210142344526771127141147166174150 Other - - - 1 0 01212342966939411312799125 % 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% Communication - - - 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% Depreciation - - - 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 - - - - - Depreciation 0 1 1 2 4 6 6 91013121210116 912 Amort izat ion of goodwill 114 811234937454543424362828382102 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% - - - - - Depreciation - 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% - - - - - Depreciation 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 (JPYmn)

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 6601,885 1,759 1,734 1,597 YoY -6.7% -1.4% -7.9% Recurring profit 77269198214251 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 269333362399462 Total assets 583681627689842 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 51678110190 Source: Shared Research based on company data

Mail Order business earnings (JPYmn)

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 (JPYmn) Revenue 6601,836 1,693 1,633 1,445 YoY -7.8% -3.5% -11.5% Operating profit 39 140 204 217 259 YoY 45.0%6.6%19.3% OPM 5.9%7.7%12.0%13.3%17.9% Depreciation 278810 Goodwill amortization 36 109 109 103 103 EBITDA 77 256 320 328 372 YoY 24.8%2.6%13.4% EBITDA margin 11.6%14.0%18.9%20.1%25.8% Number of employees 2632333541 Temporary employees 51678110190 Source: Shared Research based on company data

41/63 Yume no Machi Souzou Iinkai / 2484 RCoverage LAST UPDATE: 2018.07.03 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Segment earnings

Demae-can FY08/15 FY08/16 FY08/17 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Cons.Cons.Cons.Cons.Cons. Revenue 421 511 513 523 528 621 617 755 841 931 930 797 1,427 1,723 1,968 2,5223,499 YoY 16.2% 24.5% 25.6% -3.4% 25.3% 21.6% 20.2% 44.6% 59.3% 49.8% 50.8% 5.5% 5.0% 20.7% 14.3% 28.1% 38.8% Operating profit 127 210 120 181 161 102 223 190 232 171 271 180 476 528 639 676 854 YoY -13.0% 26.1% -13.9% 140.3% 27.0% -51.5% 85.0% 5.2% 43.9% 67.4% 21.7% -5.2% 18.7% 10.9% 21.0% 5.9% 26.3% OPM 30.1% 41.2% 23.5% 34.6% 30.5% 16.4% 36.1% 25.2% 27.6% 18.3% 29.1% 22.7% 33.3% 30.6% 32.5% 26.8% 24.4% Order processing fees 261 315 302 326 337 408 394 407 415 502 498 524 895 1,013 1,204 1,546 1,938 YoY 14.9% 20.1% 17.4% 22.6% 28.8% 29.6% 30.7% 24.7% 23.2% 23.1% 26.2% 28.7% 6.6% 13.2% 18.9% 28.3% 25.4% No. of orders (mn) 2.32 2.74 2.64 2.85 2.92 3.50 3.46 3.64 3.79 4.41 4.38 4.70 7.76 8.87 10.56 13.53 17.28 YoY 14.4% 21.6% 17.2% 22.4% 25.9% 27.8% 31.0% 27.6% 29.7% 26.0% 26.5% 28.9% 5.4% 14.3% 19.1% 28.1% 27.7% Order processing fees / No. of orders 112.6 114.9 114.2 114.4 115.2 116.5 113.9 111.7 109.4 113.8 113.6 111.5 115.3 114.2 114.1 114.3 112.2 YoY 0.4% -1.3% 0.1% 0.2% 2.3% 1.3% -0.2% -2.3% -5.0% -2.3% -0.3% -0.2% 1.1%-1.0% -0.1% 0.2% -1.8% No. of affiliated stores (quarter end) 11,680 11,812 12,011 12,213 12,505 12,529 13,018 13,656 14,206 14,559 14,953 15,318 11,336 11,636 12,213 13,656 15,318 YoY 1.5% 1.4% 4.6% 5.0% 7.1% 6.1% 8.4% 11.8% 13.6% 16.2% 14.9% 12.2% 1.0% 2.6% 5.0% 11.8% 12.2% No. of orders / No. of affiliated stores 199.3 233.2 221.8 235.7 236.6 279.7 270.9 273.2 272.2 306.7 296.7 310.3 688.0 772.2 885.5 1,045.9 1,192.7 YoY 12.1% 19.9% 13.8% 16.8% 18.7% 20.0% 22.1% 15.9% 15.1% 9.6% 9.5% 13.6% 2.3% 12.2% 14.7% 18.1% 14.0% No. of active users (quarter end; mn) - - - 1.54 - - 1.82 1.92 1.98 - 2.24 2.35 1.161.351.541.922.35 YoY - - - 14.1% - - - 24.7% - - 23.2% 22.4% 2.7% 16.4% 14.1% 24.7% 22.4% No. of orders / Average no. of users 2.0 6.87.17.37.88.1 YoY -5.0% -7.1% 4.3% 3.4% 7.0% 3.5% Total users (quarter end; mn) 6.456.696.897.147.377.697.988.308.56 8.81 - - 5.48 6.28 7.14 8.30 - YoY 14.0% 13.6% 13.1% 13.7% 14.3% 14.9% 15.8% 16.2% 16.1% 14.6% - - 13.8% 14.6% 13.7% 16.2% - Depreciation 44 42 43 44 43 46 47 51 49 49 36 37 151 153 174 187 171 Amortization of goodwill 1 1 1 2 3 3 3 14 11 11 7 - - 4 6 23 30 EBITDA 173 254 165 226 207 151 273 255 293 230 315 217 627 685 818 886 1,055 YoY 18.4% 52.4% 18.0% -2.7% 19.9% -40.6% 65.2% 12.7% 41.2% 52.7% 15.5% -14.8% 16.4% 9.3% 19.4% 8.3% 19.1% EBITDA margin 41.0% 49.7% 32.2% 43.3% 39.3% 24.3% 44.2% 33.8% 34.8% 24.7% 33.9% 27.3% 43.9% 39.8% 41.6% 35.1% 30.2% Mail Order FY08/15 FY08/16 FY08/17 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Cons.Cons.Cons.Cons.Cons. Revenue 425 436 428 404 421 438 420 354 369 384 355 336 660 1,836 1,693 1,633 1,445 YoY -6.0% -11.3% -11.5% -1.0% -0.9% 0.4% -1.8% -12.4% -12.4% -12.2% -15.6% -4.9% - 178.3% -7.8% -3.5% -11.5% Internal transaction 12 18 17 18 23 26 27 25 35 40 38 40 - 50 65 101 153 Sales (incl. internal transaction) 437 454 446 422 444 464 447 379 403 425 393 376 660 1,885 1,759 1,734 1,597 Operating profit 33 45 101 25 50 51 62 54 67 78 60 54 39 140 204 217 259 YoY 1,244.1% -1.4% 82.7% -32.7% 50.6% 15.5% -38.6% 112.3% 34.7% 51.8% -3.0% -0.5% - 263.1% 45.0% 6.6% 19.3% OPM 7.8% 10.2% 23.5% 6.3% 11.8% 11.7% 14.7% 15.3% 18.2% 20.3% 16.9% 16.0% 5.9% 7.7% 12.0% 13.3% 17.9% Depreciation 122222222234 278810 Amortization of goodwill 27 27 27 27 26 26 26 26 26 26 26 26 36 109 109 103 103 EBITDA 62 74 130 54 78 79 89 82 95 106 88 83 77 256 320 328 372 YoY 2,405.9% 63.8% 135.6% -64.6% 26.0% 6.9% -31.1% 50.8% 21.8% 33.6% -1.4% 2.0% - 233.8% 24.8% 2.6% 13.4% EBITDA margin 14.5% 17.0% 30.3% 13.4% 18.5% 18.1% 21.3% 23.1% 25.7% 27.5% 24.8% 24.8% 11.6% 14.0% 18.9% 20.1% 25.8% Source: Shared Research based on company data

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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 (JPYmn) Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. 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 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 Accounts receivable 8 36 24 26 42 98 99 142 147 171 148 149 182 233 245 324 408 Inventories ------5849576158 Accounts receivable–other 1 - 2 5 5 2 - 1 11 3 65 68 120 140 225 406 736 Deferred tax assets - - - - -37112533282091318192123 Allowance for doubtful accounts - -1 -1 -1 -1 -3 -2 -4 -7 -9 -13 -11 -9 -9 -8 -11 -4 Others 01622791354620142729295736 Tangible fixed assets 5 7 6 12 27 32 36 50 33 27 20 11 42 55 83 109 79 Depreciable and lease assets 5 7 6 12 27 32 36 50 33 27 20 2 28 31 28 61 29 Land ------00000000000 Construction in progress ---0------Intangible assets - 2 1 2 33 39 102 137 166 250 504 588 948 778 651 1,092 521 Software - 2 1 1 33 39 90 125 163 214 341 570 412 330 276 394 446 Software in progress ---1-----3616318292585906 Goodwill ------50742329060769 Others ------1212300 -00000 Investments and other assets 2 3 3 4 9 426 439 895 949 741 749 880 322 516 435 288 320 Investment securities - - - - - 5 5 444 669 658 672 817 255 434 248 138 196 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 Deferred tax assets ------42858625738638754138 Allowance for doubtful accounts - -0 -0 -1 -1 -0 -1 -1 -2 -0 -0 -1 -2 -1 -1 -1 -1 Others 011221554222347273623 Fixe d a s s e t s 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 Total asset s 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 Current liabilities 23 28 33 38 49 109 132 691 269 118 191 160 579 687 751 1,332 1,698 Accounts payable ------176136135139112 Short-term debt and commercial papers --7------Current portion of long-term debt 111------10110710520775 Accounts payable–other 15 24 18 26 27 85 30 548 148 77 112 91 188 211 327 717 1,207 Income taxes payable 0 0 0 0 6 6 82 85 43 30 67 40 62 111 85 148 152 Provision for bonuses ------51219181226 Other current liabilities 6 2 7 11 16 18 20 58 77 10 12 24 41 103 82 109 127 Fixed liabilities 272------39630021139228 Long-term debt 27 2 ------376 280 188 341 8 Bonds ------Others ------2120235121 Total liabilities 50 30 33 38 49 109 132 691 269 118 191 160 976 986 962 1,724 1,726 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 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 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 Capital surplus 10 60 70 286 250 595 624 646 658 658 658 664 664 664 664 615 635 Retained earnings -179 -213 -250 -328 -15 152 298 409 488 555 654 710 755 792 799 1,057 1,388 Treasury stock ------240 -240 -240 -239 -581 -518 -439 -464 -469 Valuation and translation adjustments ------36 -83 -89 -81 -66 34 -41 - -4 31 Valuation differences on securities ------36 -83 -89 -81 -65 33 -43 - -7 27 Foreign currency translation adjustments ------1 12 -34 Subscription rights to new shares ------41115141118178 Non-controlling interests ------0-86 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 Capital expenditures - - - - 60 64 96 105 73 218 312 239 95 90 235 293 329 Depreciation ------84139154166181195181 Amortization of goodwill ------36113114125133 Working capital 8 36 24 26 42 98 99 142 147 171 148 149 65 145 167 245 354 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 Total interest-bearing debt 2837------47638729354883 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 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 Days in inventory ------14.012.814.014.312.6 Accounts payable days ------42.337.536.033.326.7 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 Current ratio 102% 267% 188% 1,090% 1,856% 1,293% 1,177% 249% 393% 933% 540% 548% 285% 242%258%194%207% 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% 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% 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.

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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.

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Debts (left) and net cash (right) (JPYmn)

(JPYmn) (JPYmn) 600 2,500 548 522 2,180 500 496 500 476 2,000 451 437 413 387 1,544 1,431 400 363 1,500 332 1,263 1,171 300 293 1,079 300 267 903 240 1,000 851 819 792 781 813 214 651 200 500 380 109 100 83 36 24 0 00 -14 0 Q1 Q1 Q1 Q1 Q1 -500 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/01 FY08/06 FY08/11 FY08/16 Cash flows (JPYmn)

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

800 72 713 1,045 400 207 400 186 498 58 594 673 421 481 259 318 140 253 214 216 157 249 39 -1 0 -64-7 -65 -118 -46 -145 -55 -313 -298 -443 -354 -391 -576 -194 -400 -46 -106 -205 -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

Capital expenditures and depreciation (JPYmn)

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

100 181 195 181 139 154 166 80 84 29 54 62 0 -94 14 -1120 -4 -9 -6 -2 -5 -2 -25 -16 -31 -41 -21 -52 -15 -20 -35 -69 -106 -53 -100 -104 -63 -209 -237 -162 -12 -306 -269 -264 -200 -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

Source: Shared Research based on company data

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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 (JPYmn) Par. Par. Par. Par. Par. Par. Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. Pre-tax profit -77 30 118 247 268 225 217 259 219 196 365 219 614 691 Depreciation 4 14 20 29 54 62 80 84 139 154 166 181 195 181 Amortization of goodwill - - - -12 - ----36113114125133 Impairment losses ------3841413037 Losses (gains) on disposal and valuation of fixed assets - - 32 0 1 - - - 0 10 1 4 10 73 Losses (gains) on disposal and valuation of securities------23 4 268 -91 4 Increase (decrease) in allowance for doubtful accounts 1 0 1 -1 3 404-1 -2 -1 -1 -2 -3 Interest and dividend income -0 -0 -3 -12 -15 -55 -5 -15 -9 -1 -1 -1 -3 -3 Interest expenses 0------254519 Losses (gains) on foreign exchange ------1 51 - 1 0 Equity in losses (earnings) of affiliates ------230-4 -11 Decrease (increase) in accounts receivable–trade -2 -16 -55 -2 -43 -5 -23 23 -1 40 -49 -11 -57 -110 Decrease (increase) in inventories ------713-6 -8 10 Increase (decrease) in accounts payable–trade 8 10 21 -16 18 98 -74 16 1 -77 -39 -2 -16 -7 Decrease (increase) in accounts receivable–other ------171 -334 Increase (decrease) in accounts payable-other ------307578 Others 3 2 8 15 33 19 12 -56 14 -53 49 -1 -80 85 Subtotal -64 39 143 248 319 349 208 315 363 381 632 810 855 1,342 Interest and dividends income received 0 0 0 10 15 12 52 2 15 8 1 1 3 5 Interest expenses paid -0 ------2 -5 -4 -5 -19 Income taxed paid (refunded) -0 -0 -2 -5 -120 -145 -103 -68 -120 -70 -146 -213 -180 -284 Proceeds from insurance income -0 - -0 0- --0 ------Cash flows from operating activities -64 39 140 253 214 216 157 249 259 318 481 594 673 1,045

Change in time deposits - - -400 -1,000 500 300 100 500 - - 10 - - - Change in investment securities - - -5 ---803 ---110 719 -336 -48 100 - Purchase of tangible fix assets -9 -25 -11 -31 -41 -4 -9 -6 -2 -5 -21 -52 -15 -20 Proceeds from sales of tangible fixed assets ------100- - - Purchase of intangible fixed assets -2 -35 -16 -104 -63 -69 -209 -306 -237 -106 -53 -162 -269 -264 Proceeds from cancellation of insurance funds ------5543- - - Payments and collection of loans receivable 5------351--9 0 Payments for guarantee deposits ------29 -47 24 - Purchase of inv estments in subsidiaries resulting in change in scope of consolidation ------501 -23 -26-11 Others -2 -5 -11 -7 50-0 -2 -5 117 -3 -2 -3 Cash flows from invest ing act ivit ies -7 -65 -443 -1,142 400 -576 -118 186 -354 207 -391 -313 -145 -298

Increase (decrease) in short-term debt -7 ------Increase (decrease) in long-term debt -1 ------476-104 -94 -105 -105 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 Proceeds from disposal of treasury shares ------11274382432 Cash dividends paid -----44 -49 -56 -46 -59 -36 -38 -49 -71 -101 Others ----0-0---10-1-1-2-2 Cash flows from financing activities 421 498 713 58 -1 -266 -55 -46 -46 72 -170 -106 -194 -205

Effect of exchange rate on cash and cash equivalents ------0 00-2 51 Increase (decrease) in cash and cash equivalents 349 471 411 -831 613 -625 -15 389 -141 597 -79 172 340 543 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 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 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).

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Other information

ESG-related

Organizational form Organization Company with Audit & Supervisory Board and capital structure Controlling 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 Outside directors 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 Stock opt ion implement ed Eligible for st ock opt ion Directors and employees Ot her Voting by electromagnetic method Online vot ing implement ed from 2015 Disclosure of individual director's compensation None Policy to determine amount and calculation method of remuneration Y Corporate takeover defenses None Environment al Environment al conservat ion act ivit ies conservation activities CSR CSR activities Activities 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) Cons. Cons. Cons. Cons. Cons. Cons. 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% 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% 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 Financial leverage 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 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% 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% NOPAT 19 101 136 156 102 139 145 125 173 224 352 383 536 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 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% 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% 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 ROE, etc.

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

11.2%

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

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 (right axis)

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

Source: Shared Research based on company data

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ROIC

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

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

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

0.8 3 0.1 0.5 0.6 0.3 0.0 0.0 0.0 0.5 0.4 2 0.0 0.0 0.0 0.5 0.0 0.4 0.3 0.2 0.3 2.7 0.2 0.2 0.2 0.2 2.1 0.2 2.1 2.2 2.1 2.3 1 0.0 1.8 2.0 1.9 2.0 2.0 2.0 0.0 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 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Total dividends a) - - - 44 48 56 46 59 36 38 49 70 100 133 Total treasury stock acquired b) -----241---370101-4129 Total returns to shareholders c) = a) + b) - - -444829746593640815070141162 Net income attributable to owners of parent d) -77 28 152 145 156 128 123 146 115 97 167 97 348 433

Dividend payout ratio a) / d) - - - 30.6% 30.7% 43.7% 37.4% 40.4% 31.3% 39.3% 29.3% 72.2% 28.8% 30.7% 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%

Shareholders' equity 3939211,791 1,995 2,113 1,934 2,002 2,114 2,197 1,987 2,021 2,146 2,342 2,713 Averagef) 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 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 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 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 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% Payout ratio, DOE (both based on published quarterly financial statements)

100% Payout ratio DOE (right axis) 6% 5.3% 90% 4.5% 5% 80% 72.4% 70% 4% 60% 3.4% 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% 30.6% 30.9% 31.4% 30.8% 20% 29.2% 29.0% 1% 10% 0% 0% FY08/05 FY08/10 FY08/15 Source: Shared Research based on company data

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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

Shareholders Shares % (as of end-August, 2017) ('000) LINE Corporation 8,880 20.0% Rie Nakamura 5,682 12.8% Japan Trustee Services Bank, Ltd. (Trust account) 4,094 9.2% The Master Trust Bank of Japan, Ltd. (Trust account) 2,421 5.5% The Asahi Shimbun Company 2,305 5.2% The Bank of New York 133524 (Standing proxy: Mizuho bank, Ltd. Settlement and Cleaning Services Division) 1,400 3.2% Tetsuya Ichimura 1,175 2.6% State Street Bank and Trust Company (Standing proxy: The Hongkong and Hongkong Shanghai Banking Corpo 1,054 2.4% The Bank of New York 133652 (Standing proxy: Mizuho bank, Ltd. Settlement and Cleaning Services Division) 1,021 2.3% The Nomura Trust and Banking Co., Ltd. (Trust account) 779 1.8% Treasury shares 3,904 8.8% Number of shares issued 44,390 100.0% Source: Shared Research based on company data 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 Cons.No. of employees 64708990160142 Demae-can -364545125101 Mail Order -2632333541 Company-wide -81212-- Osaka branch 211923273239482720262420 Tokyo head office ---202115111735314052 Satsuma Ebisudo ------2632333541 Other 91221--25-2-6129 Cons.No. of temporary employees 3982818727495 Demae-can -311461735 Mail Order -51678110190 Company-wide ------Osaka branch 232115173043393114662 Tokyo head office ------3 Satsuma Ebisudo ------51678110190 Other 111------167- Par. No. of employees 8 8 13 17 30 31 44 47 53 56 62 44 55 57 64 72 Temporary employees 242216173043393114665 Average age 31.431.731.7 31.6 31.8 32.1 32.3 31.9 31.8 32.2 31.8 32.2 Average years of service 1.31.51.71.82.42.93.13.02.72.82.83.2 Average annual salary (JPYmn) 3.723.944.24 4.55 4.36 4.47 4.36 4.97 4.78 4.89 5.23 0.01 Cons-Parent diff. (no. of employees) 22634339670 (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 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 Operating profit ... b -34 -36 -75 32 170 229 262 173 234 244 223 267 255 476 508 673 No. of employees (average)... c8 81115243138465055595350566168 Incl. temporary employees... d4 811153654576274911008872666774 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 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 OP per employee ... b/c -4.2 -4.5 -7.1 2.17.27.57.03.84.74.53.85.05.18.58.49.9 Incl. temporary employees ... b/d -8.4 -4.5 -7.1 2.14.84.34.62.83.22.72.23.03.57.27.69.2 (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 Cons.Revenue ... a 1,3602,0873,5583,6614,1554,944 Operating profit ... b 211278362547573801 No. of employees (average)... c 60678090125151 Incl. temporary employees... d 101128161174306336 Revenue per employee ... a/c 22.731.144.840.933.232.7 Incl. temporary employees ... a/d 13.516.422.121.113.614.7 OP per employee ... b/c 3.54.24.66.14.65.3 Incl. temporary employees ... b/d 2.12.22.23.21.92.4

Source: Shared Research based on company data

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Historical performance, news and topics

Historical performance

1H FY08/18 results (out March 29, 2018)

▷ 1H: Revenue up 1.7%, operating profit down 8.4%. Excluding the impact of selling subsidiaries, revenue rose 18.7%. Key performance indicators (KPIs) improving steadily; results reached 1H forecasts and are on track to reach full-year forecasts  KPIs: 16,081 affiliated stores (+10.5%), 11.0mn orders (+34.4%), 2.6mn active users (+20.0%), each trending up  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™: Expanding network by establishing delivery hubs through partnership with Asahi Shimbun; strengthening sales force, expanded to 23 delivery hubs as of end 1H FY08/18 (10 at end FY08/17; 17 at end Q1 FY08/18) ▷ Medium-term management plan: Unveiled plan that targets market share gains and accelerated growth. Began initiatives to achieve these goals, including plans for addressing issues that emerged in 1H  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 ▷ Response to challenges: Additional decision taken to strengthen systems infrastructure in acknowledgement of tardy response to greater-than-expected traffic; issues identified in Sharing Delivery™ also addressed

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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 25%

1,362 259 1,316

1,400 1,285 140% 1,210

1,207 250 20% 1,133 1,200 1,109 120% 211 206 1,059 1,037 949 949 947

941 200 926 902 1,000 892 100% 169 860 846 171 207 15% 815 155 800 80% 150 133 135 132 152 161 112 600 524 60% 98 100 137 10% 100

373 72 87

331 67 400 40% 77

679 5%

563 50 524 502 498

200 415 20%

408 407 45 394 14 337 326 315 302 266 262 261 257 235 230 229 228 0 201 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) No. of orders (mn) YoY (right axis) 5.9 17 18% 16.1 6 60% 15.7 16 15.3 16% 5.1 14.6 15.0 5 4.7 50% 15 14.2 14% 4.4 4.4 14 13.7 13.0 12% 4 3.6 3.8 40% 13 12.512.5 3.5 3.5 12.012.2 10% 11.6 11.611.711.8 2.9 2.9 12 11.311.5 11.5 3 2.7 2.6 30% 11.211.111.1 8% 2.3 2.3 2.3 11 2.0 2.0 2.0 2.0 6% 1.8 10 2 2.3 20% 9 4% 1 10% 8 2% 7 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% 706 867851 875 777 769 800 729 80% 598 592 713 561566 560564 675 600 62% 60% 656 56% 604 609 588589 472 54% 571 439 456 449 600 539 70% 417 427 418433433 71% 497 505 397 395 51% 489 54% 54% 441 400 48% 50% 66% 66% 66%66% 51% 50% 64% 64%64%64% 64%64% 64%64%64% 49% 49% 49% 400 347 63% 62% 60% 49%48% 63% 249 47% 46% 47% 266 60% 60% 60% 46% 46%46% 58% 204199 218 200 43% 40% 200 50% 42%

46% 0 40% 0 30% 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

Summary 1H FY08/18 revenue was JPY2.6bn (+1.7% or JPY43mn YoY), operating profit JPY341mn (-8.4%), and net income attributable to owners of parent JPY225mn (+24.0%). In the mainstay Demae-can business, revenue was JPY1.9bn (+6.0%) and operating profit was JPY365mn (-9.3%). Growth in mainstay Demae-can business slowed mainly owing to the sale of former consolidated subsidiary Delis Corporation (leading to a JPY361mn decline in other revenue). 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 18.7% YoY overall and 33.1% in the Demae-can business.

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). The company says personnel and hiring costs increased also, in tandem with stepped-up efforts to develop affiliate stores.

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Impact of Delis (JPYmn)

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

▷ Number of affiliated stores: 16,081 (+10.5% YoY), trending upward; ▷ Number of orders: 11.0mn (+34.4%), consistently growing above 20% since FY08/16 and rising above 30% for the first time since Q3 FY08/16; ▷ Number of active users: 2.6mn (+20.0%), reflecting sustained high growth of over 20%. 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. These latter tie-ups look to have been particularly effective.

The company considers number of orders as the most important KPI and aims for its accelerated growth in the medium-term plan. Pace of order increase in Q1 (+34.0% YoY) exceeded those of FY08/17 (+27.7%) and FY08/16 (+28.1%), driving up order processing fees (+35.7%). In Q2, pace of order continued along similar trends (+35.1%), In December, pace of order increased 31.3%, exceeding 30% for the 35th consecutive month despite lower rainfall compared to the previous year (weather conditions such as typhoons or heavy rain can impact order volume).

The company appears to be making good progress toward its full-year targets for each KPI, which are as follows. ▷ Number of affiliated stores: 17,071 (+11.4% YoY), proceeding apace; ▷ Number of orders: 23.8mn (+37.9%), aiming for 38–39% growth in 2H, via various initiatives; ▷ Number of active users: 3.1mn (+33.2%), still short of target, but repeat order rate among new users is higher than anticipated, and even if full-year target for active users is not met, the company expects to achieve its goal for number of orders.

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

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Initiatives undertaken in FY08/18 The company worked toward strong growth with Demae-can and undertook the following initiatives. In 1H, 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.

Improved repeat order rate on efforts to promote third-time orders Growth in the numbers of orders in 1H 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. As a result, the average number of orders per user jumped, leading to a 34% growth in total number of orders. From Q2 KPI trends, 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 Q2. In the exhibit below, which tracks evolution in user rankings, 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 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).

Loyalty program

Source: Shared Research based on company data

Sharing Delivery™ to accelerate quality improvement and delivery hub expansion in 2H As part of its store strategy to expand the market, the company promoted Sharing Delivery™. As a result, popular large chains (such as Tendon Tenya and Gyoza no Ohsho in Q1, and Ringer Hut, Marugameseimen, and Chibo in Q2) and popular local stores, which previously did not have delivery services, joined the company’s group of affiliated stores. 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 and 23 at end 1H FY08/18, up 13 locations compared with end FY08/17 (in March the company added another four locations, taking the total to 27 at end March).

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The company added only one delivery hub (in Hirakata City in Osaka Prefecture) in December mainly because it was a peak month for restaurants. Five delivery hubs opened over January and February, and the number of hubs seems to be continuing to increase at a similar pace. 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 hubs, and we expect hub network expansion to accelerate with a view to meeting the target of 60 by end FY08/18. The company believes it is capable of adding eight new hubs each month.

As of March 2018, 23 delivery hubs had acquired more than 600 affiliated restaurants in total, exceeding the company’s target of an average 25 restaurants per hub. In view of issues that have become evident, though, from 2H the company plans to eschew merely adding 25 new restaurants, in favor of an approach to restaurant cultivation that focuses on popular chains, thereby increasing the likelihood of both restaurant and delivery hub making money (more detail below). The company aims to diversify its service into different types of foods and beverages in each area, also by utilizing 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.

2H and beyond For 2H FY08/18, we intend to closely monitor progress of the company’s medium-term strategies, more specifically KPIs such as number of orders, Sharing Delivery™’s delivery hub expansion, advertising and promotion spending and effects. The company also has outlined measures to counteract issues that became evident in 1H, namely (1) strengthening system infrastructure and altering the order of priority in system development, after systems proved unable (too slow) in 1H to handle greater-than-projected traffic; and (2) enhancing the quality of Shared Delivery™ services, by precisely pinpointing potential areas for expansion and specifically cultivating popular restaurants, as well as making app improvements and bolstering training for delivery personnel. Below, we outline these measures in more detail.

The above has resulted in additional costs not envisioned at the start of the term; the company is spending an additional JPY6– 8mn monthly on strengthening systems infrastructure (amounting to tens of millions over 2H). The budget for software development was JPY100mn, and spending appears broadly in line with plan even with the change in order of priority.

Half-price campaign: advertising expenses borne by the company; drop in selling price borne by the restaurant

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Demae-can business (JPYmn)

Demae-can FY08/15 FY08/16 FY08/17 FY08/18 FY08/16 FY08/17 FY0/18 FY08/16 FY08/17 FY08/18 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1 Q4 1H 1H 1H Cons. Cons. Init. Est. Revenue 421 511 513 523 528 621 617 755 841 931 930 797 859 1,019 1,150 1,772 1,878 2,522 3,499 3,922 YoY 16.2% 24.5% 25.6% -3.4% 25.3% 21.6% 20.2% 44.6% 59.3% 49.8% 50.8% 5.5% 2.1% 9.5% 23.3% 54.2% 6.0% 28.1% 38.8% 12.1% Operating profit 127 210 120 181 161 102 223 190 232 171 271 180 222 144 263 403 365 676 854 - YoY -13.0% 26.1% -13.9% 140.3% 27.0% -51.5% 85.0% 5.2% 43.9% 67.4% 21.7% -5.2% -4.5% -15.8% -22.0% 53.0% -9.3% 5.9% 26.3% - OPM 30.1% 41.2% 23.5% 34.6% 30.5% 16.4% 36.1% 25.2% 27.6% 18.3% 29.1% 22.7% 25.8% 14.1% 22.9% 22.7% 19.4% 26.8% 24.4% - Order processing fees 261 315 302 326 337 408 394 407 415 502 498 524 563 679 745 917 1,241 1,546 1,938 - YoY 14.9% 20.1% 17.4% 22.6% 28.8% 29.6% 30.7% 24.7% 23.2% 23.1% 26.2% 28.7% 35.7% 35.1% 29.2% 23.2% 35.4% 28.3% 25.4% - No. of orders (mn) 2.32 2.74 2.64 2.85 2.92 3.50 3.46 3.64 3.79 4.41 4.38 4.70 5.08 5.94 6.43 8.20 11.02 13.53 17.28 23.83 YoY 14.4% 21.6% 17.2% 22.4% 25.9% 27.8% 31.0% 27.6% 29.7% 26.0% 26.5% 28.9% 34.0% 34.7% - 27.7% 34.4% 28.1% 27.7% 37.9% Order processing fees / No. of orders 112.6 114.9 114.2 114.4 115.2 116.5 113.9 111.7 109.4 113.8 113.6 111.5 110.8 114.2 115.9 111.8 112.6 114.3 112.2 - YoY 0.4% -1.3% 0.1% 0.2% 2.3% 1.3% -0.2% -2.3% -5.0% -2.3% -0.3% -0.2% 1.3% 0.4% - -3.5% 0.8% 0.2% -1.8% - No. of affiliated stores (quarter end) 11,680 11,812 12,011 12,213 12,505 12,529 13,018 13,656 14,206 14,559 14,953 15,318 15,712 16,081 12,529 14,559 16,081 13,656 15,318 17,071 YoY 1.5% 1.4% 4.6% 5.0% 7.1% 6.1% 8.4% 11.8% 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 6.1% 16.2% 10.5% 11.8% 12.2% 11.4% No. of orders / No. of affiliated stores 199.3 233.2 221.8 235.7 236.6 279.7 270.9 273.2 272.2 306.7 296.7 310.3 327.4 373.7 528.0 605.7 719.3 1,045.9 1,192.7 1,471.5 YoY 12.1% 19.9% 13.8% 16.8% 18.7% 20.0% 22.1% 15.9% 15.1% 9.6% 9.5% 13.6% 20.3% 21.8% - 14.7% 18.8% 18.1% 14.0% 23.4% No. of active users (quarter end; mn) - - - 1.54 - - 1.82 1.92 1.98 2.13 2.24 2.35 2.45 2.55 - 2.13 2.55 1.92 2.35 3.13 YoY - - - 14.1% - - - 24.7% - - 23.2% 22.4% 23.7% 20.0% - - 20.0% 24.7% 22.4% 33.2% No. of orders / Average no. of users 1.91.92.12.02.02.1 2.4 4.7 7.8 8.1 YoY ------5.0%8.8% 10.6% 7.0% 3.5% Total users (quarter end; mn) 6.45 6.69 6.89 7.14 7.37 7.69 7.98 8.30 8.56 8.81 - - - - 7.69 8.81 - 8.30 - YoY 14.0% 13.6% 13.1% 13.7% 14.3% 14.9% 15.8% 16.2% 16.1% 14.6% - - - - 14.9% 14.6% - 16.2% - Depreciation 44 42 43 44 43 46 47 51 49 49 36 37 36 38 89 98 74 187 171 Amortization of goodwill 11123331411117-- - 6 22 - 23 30 EBITDA 173 254 165 226 207 151 273 255 293 230 315 217 257 182 358 523 439 886 1,055 YoY 18.4% 52.4% 18.0% -2.7% 19.9% -40.6% 65.2% 12.7% 41.2% 52.7% 15.5% -14.8% -12.1% -21.1% -16.1% 46.0% -16.0% 8.3% 19.1% EBITDA margin 41.0% 49.7% 32.2% 43.3% 39.3% 24.3% 44.2% 33.8% 34.8% 24.7% 33.9% 27.3% 30.0% 17.8% 31.2% 29.5% 23.4% 35.1% 30.2% Source: Shared Research based on company data

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Demae-can business (JPYmn)

(JPYmn) (JPYmn) Revenue YoY (right axis) Operating profit OPM (right axis) 1,200 100% 300 50% 271 1,019 1,000 931930 250 232 80% 223 222 40% 841 859 797 755 190 800 200 210 180 60% 167 171 30% 621617 181 146 143 140 144 600 541 513523528 150 129 161 511 124 127 120 411408 421 40% 20% 373363361363 400 331 100 80 102 20% 75 10% 200 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

700 679 70% ('mn) No. of orders (mn) YoY (right axis) Order processing fees YoY (right axis) 5.9 6 60% 600 563 60% 5.1 502498524 5 4.7 50% 500 50% 4.4 4.4 415 408394407 4 3.6 3.8 40% 400 40% 3.5 3.5 326337 315302 2.9 2.9 3 2.7 2.6 30% 300 262257266261 30% 2.3 2.3 235230229 2.3 228 2.0 2.0 2.0 2.0 201 1.8 200 20% 2 2.3 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. We expect to see results from Q2. The company also began activities to form a large user population for the future growth, mainly aiming to increase new customers. In 1H, the company added roughly 1,200 new stores, up sharply from the 350 or so added the previous year. In 2H, these new additions should start contributing to revenue. The company fell short of its full-year plan in 1H but intends to make up for that in 2H.

Mail Order business (JPYmn)

Mail Order FY08/15 FY08/16 FY08/17 FY08/18 FY08/16 FY08/17 FY0/18 FY08/16 FY08/17 FY08/18 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1 Q4 1H 1H 1H Cons. Cons. Init. Est. Revenue 425 436 428 404 421 438 420 354 369 384 355 336 348 343 859 753 691 1,633 1,445 1,512 YoY -6.0% -11.3% -11.5% -1.0% -0.9% 0.4% -1.8% -12.4% -12.4% -12.2% -15.6% -4.9% -5.6% -10.9% -0.3% -12.3% -8.3% -3.5% -11.5% 4.7% Internal transaction 12 18 17 18 23 26 27 25 35 40 38 40 45 52 49 75 97 101 153 Sales (incl. internal transaction) 437 454 446 422 444 464 447 379 403 425 393 376 393 394 908 828 787 1,734 1,597 Operating profit 33 45 101 25 50 51 62 54 67 78 60 54 49 59 101 145 107 217 259 - YoY 1,244.1% -1.4% 82.7% -32.7% 50.6% 15.5% -38.6% 112.3% 34.7% 51.8% -3.0% -0.5% -27.4% -24.8% 30.5% 43.4% -26.0% 6.6% 19.3% - OPM 7.8% 10.2% 23.5% 6.3% 11.8% 11.7% 14.7% 15.3% 18.2% 20.3% 16.9% 16.0% 14.0% 17.1% 11.8% 19.3% 15.6% 13.3% 17.9% - Depreciation 12222222223433 446 810 Amortization of goodwill 27 27 27 27 26 26 26 26 26 26 26 26 26 26 51 51 51 103 103 EBITDA 62 74 130 54 78 79 89 82 95 106 88 83 77 88 157 200 165 328 372 YoY 2,405.9% 63.8% 135.6% -64.6% 26.0% 6.9% -31.1% 50.8% 21.8% 33.6% -1.4% 2.0% -18.2% -17.1% 15.6% 27.8% -17.6% 2.6% 13.4% EBITDA margin 14.5% 17.0% 30.3% 13.4% 18.5% 18.1% 21.3% 23.1% 25.7% 27.5% 24.8% 24.8% 22.2% 25.6% 18.3% 26.6% 23.9% 20.1% 25.8% Source: Shared Research based on company data

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

499 500493 101 0 464 5% 457 9 10 454446 444 447 500 100 25% 435437 425 5 422 26 18 17 27 403 393 393394 27 12 23 379 78 18 40 376 0% 35 400 80 20% 25 38 45 52 40 62 67 60 59 -5% 300 60 55 54 15% 50 51 49 45 54 499 492484 45 452 425436428 421438420 37 38 -10% 161 408 404 384 200 40 33 10% 369 355 0 336348343 354 -15% 100 20 5% 161 25 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

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FY08/17 results (out October 12, 2017)

▷ FY08/17: Revenue up 19%, operating profit up 40%. Key performance indicators (KPIs) improving steadily; building a base for Sharing Delivery™ (outsourced restaurant delivery service).  KPIs: 15,318 affiliated stores (+12.2% YoY), 17.3mn orders (+27.7%), 2.4mn active users (+22.4%), each trending up.  Sharing Delivery™: Expanding network by establishing delivery hubs through partnership with Asahi Shimbun; strengthening sales force, expanded to 10 areas by end FY08/17. ▷ Medium-term management plan: Unveiled plan that targets market share gains and accelerated growth, calling for 260% increase in operating profit over the three years.  To achieve gross merchandise value of JPY1.2bn by FY08/20; in the first two years, increase advertising and promotional spending even if it reduces OPM. To expand market, focus on Sharing Delivery™. ▷ FY08/18: Forecasts 2.4% operating profit growth. Plans on aggressive spending to increase market share and hit medium-term targets.

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

(JPYmn) (JPYmn) Demae-can Mail Order YoY (right axis) Operating profit OPM (right axis) 1,600 160% 300 25% 259 1,400 1,316 140% 1,285 250 1,210 20% 1,200 1,109 1,133 120% 211 1,0591,037 384 355 949 947 941 949 200 902 926 369 1,000 860 892 336 100% 207 169 815 846 354 171 155 15% 438 800 420 80% 150 132 133 408 421 152 436 428 404 161 524 492 484 425 112 137 10% 600 499 452 60% 98 100 100 373 931 930 72 87 331 161 841 67 400 755 797 40% 77 621 617 5% 541 511 513 523 528 50 411 408 421 200 331 373 363 361 363 20% 14 45 0 0% 0 0% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 ('000) ('mn) No. of affiliated stores ('000) YoY (right axis) No. of orders (mn) YoY (right axis) 16 15.3 18% 6 30% 15.0 15 14.6 16% 14.2 5 4.7 25% 14 13.7 14% 4.4 4.4 13.0 13 12.512.5 12% 4 3.6 3.8 20% 12.2 3.5 3.5 11.812.0 12 11.511.611.511.611.7 10% 11.2 11.3 2.9 2.9 11.111.1 3 2.7 2.6 15% 11 8% 2.3 2.3 2.3 2.0 2.0 2.0 2.0 10 6% 2 1.8 2.3 10% 9 4% 1 5% 8 2% 7 0% 0 0% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 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 70% 706 867 851 777 800 729 80% 598 592 713 561 566 560 675 600 62% 60% 656 56% 604 609 588 589 472 54% 571 439 456 449 600 539 70% 417 427 418 433 433 71% 497 505 397 395 51% 489 54% 441 400 48% 50% 66% 66% 66%66% 51% 50% 64% 64%64% 64% 64%64% 64% 49% 49% 49% 400 347 63% 62% 60% 49%48% 63% 249 47% 46% 266 60% 60% 60% 46% 46%46% 58% 204 199 218 200 43% 40% 200 50% 42%

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

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Summary FY08/17 revenue was JPY4.9bn (+19.0% YoY), operating profit JPY801mn (+39.8% YoY), and net income attributable to owners of parent JPY433mn (+24.4% YoY). Growth in mainstay Demae-can business slowed in Q4 mainly owing to the sale of former consolidated subsidiary Delis Corporation (leading to a decline in other revenue). 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 was JPY4.4bn (+10.0%) and operating profit JPY782mn (+36.5%).

Consolidated earnings (left: earnings, right: excluding impact of Delis) Demae-can business (left: earnings, right: excluding impact of Delis)

Revenue Operating profit Revenue Operating profit Revenue Operating profit Revenue Operating profit OPM (right axis) OPM (right axis) OPM (right axis) OPM (right axis)

6,000 20% 5,000 20% 4,000 32.5% 34% 4,000 32.5% 34% 4,434 3,499 4,944 17.6% 5,000 18% 4,031 18% 30.6% 30.6% 4,000 3,661 2,989 4,155 16.2% 3,558 3,000 30% 3,000 30% 28.3% 2,522 27.9% 4,000 3,558 3,661 16% 14.9% 16% 2,398 3,000 14.2% 13.8% 1,968 1,968 14.9% 3,000 14% 14% 2,000 1,723 26.8% 24.4% 26% 2,000 1,723 26% 2,000 2,000 12% 12% 10.2% 10.2% 1,000 854 22% 1,000 835 22% 782 639 676 639 677 801 1,000 528 528 1,000 547 573 10% 547 574 10% 362 362 0 8% 0 8% 0 18% 0 18% FY08/14 FY08/15 FY08/16 FY08/17 FY08/14 FY08/15 FY08/16 FY08/17 FY08/14 FY08/15 FY08/16 FY08/17 FY08/14 FY08/15 FY08/16 FY08/17 (JPYmn) (JPYmn) (JPYmn) (JPYmn) Source: Shared Research based on company data

Key performance indicators With Demae-can, the number of restaurants accepting online payments grew to over 9,000 by end August. Over 30% of the total value of Demae-can payments were online. KPIs were as follows.

▷ Number of affiliated stores: 15,318 (+12.2% YoY), trending upward; ▷ Number of orders: 17.3mn (+27.7%), consistently growing above 20% since August 2016; ▷ Number of active users: 2.4mn (+22.4%), reflecting sustained high growth of over 20%.

Initiatives The company worked toward sustainable growth with Demae-can and renewed growth in Mail Order. For Demae-can, it undertook the following initiatives. Q1: It released a new version of its smartphone app in October 2016. In November, it added support for Amazon Pay on the app and reinforced its capital and business alliance with LINE Corporation (TSE1: 3938), becoming an equity-method affiliate of LINE. Q2: It ran TV commercials across the Kanto region (around Tokyo) and formed an alliance with Asahi Shimbun Company (aiming to leverage the delivery network through Asahi Service Anchor [ASA] stations). In February 2017, it launched a renewed PC website and added support for Apple Pay for Mac. Q3: It opened its first joint store with an ASA station in March, followed by the second in May. In July, it launched LINE Delima, a food delivery service offered via LINE’s mobile platform.

Promoting Sharing Delivery™ model The company is advancing its Sharing Delivery™ model (outsourced restaurant delivery service). After opening its first Sharing Delivery™ hub in Makuhari, Chiba Prefecture in August 2016, in Q3 it opened a hub at an Asahi Shimbun delivery station in Sagamihara, Kanagawa Prefecture. In Q4, it became possible to order from Yoshinoya (beef bowl fast-food chain) on Demae-can using Sharing Delivery™. The participation of large restaurant chains helped expansion of Sharing Delivery™: there were 10 hubs by end August. The delivery hubs in Makuhari (Chiba) and Tachikawa (Tokyo) turned profitable within four to five months; hub revenue is trending upward. The rapid turn to profitability seems to have assisted the addition of more delivery hubs.

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Demae-can business (JPYmn)

Demae-can FY08/15 FY08/16 FY08/17 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Cons.Cons.Cons.Cons.Cons.Init. Est. Revenue 421 511 513 523 528 621 617 755 841 931 930 797 1,427 1,723 1,968 2,522 3,499 3,922 YoY 16.2% 24.5% 25.6% -3.4% 25.3% 21.6% 20.2% 44.6% 59.3% 49.8% 50.8% 5.5% 5.0% 20.7% 14.3% 28.1% 38.8% 12.1% Operating profit 127 210 120 181 161 102 223 190 232 171 271 180 476 528 639 676 854 - YoY -13.0% 26.1% -13.9% 140.3% 27.0% -51.5% 85.0% 5.2% 43.9% 67.4% 21.7% -5.2% 18.7% 10.9% 21.0% 5.9% 26.3% - OPM 30.1% 41.2% 23.5% 34.6% 30.5% 16.4% 36.1% 25.2% 27.6% 18.3% 29.1% 22.7% 33.3% 30.6% 32.5% 26.8% 24.4% - Order processing fees 261 315 302 326 337 408 394 407 415 502 498 524 895 1,013 1,204 1,546 1,938 - YoY 14.9% 20.1% 17.4% 22.6% 28.8% 29.6% 30.7% 24.7% 23.2% 23.1% 26.2% 28.7% 18.9% 28.3% 25.4% - No. of orders (mn) 2.32 2.74 2.64 2.85 2.92 3.50 3.46 3.64 3.79 4.41 4.38 4.70 7.76 8.87 10.56 13.53 17.28 23.83 YoY 14.4% 21.6% 17.2% 22.4% 25.9% 27.8% 31.0% 27.6% 29.7% 26.0% 26.5% 28.9% 5.4% 14.3% 19.1% 28.1% 27.7% 37.9% Order processing fees / No. of orders 112.6 114.9 114.2 114.4 115.2 116.5 113.9 111.7 109.4 113.8 113.6 111.5 115.3 114.2 114.1 114.3 112.2 - YoY 0.4% -1.3% 0.1% 0.2% 2.3% 1.3% -0.2% -2.3% -5.0% -2.3% -0.3% -0.2% -0.1% 0.2% -1.8% - No. of affiliated stores (quarter end) 11,680 11,812 12,011 12,213 12,505 12,529 13,018 13,656 14,206 14,559 14,953 15,318 11,336 11,636 12,213 13,656 15,318 17,071 YoY 1.5% 1.4% 4.6% 5.0% 7.1% 6.1% 8.4% 11.8% 13.6% 16.2% 14.9% 12.2% 1.0% 2.6% 5.0% 11.8% 12.2% 11.4% No. of orders / No. of affiliated stores 199.3 233.2 221.8 235.7 236.6 279.7 270.9 273.2 272.2 306.7 296.7 310.3 688.0 772.2 885.5 1,045.9 1,192.7 1,471.5 YoY 12.1% 19.9% 13.8% 16.8% 18.7% 20.0% 22.1% 15.9% 15.1% 9.6% 9.5% 13.6% 2.3% 12.2% 14.7% 18.1% 14.0% 23.4% No. of active users (quarter end; mn) - - - 1.54 - - 1.82 1.92 1.98 - 2.24 2.35 1.16 1.35 1.54 1.92 2.35 3.13 YoY - - - 14.1% - - - 24.7% - - 23.2% 22.4% 2.7% 16.4% 14.1% 24.7% 22.4% 33.2% No. of orders / Average no. of users 2.0 6.8 7.1 7.3 7.8 8.1 YoY -5.0% -7.1% 4.3% 3.4% 7.0% 3.5% Total users (quarter end; mn) 6.45 6.69 6.89 7.14 7.37 7.69 7.98 8.30 8.56 8.81 - - 5.48 6.28 7.14 8.30 - YoY 14.0% 13.6% 13.1% 13.7% 14.3% 14.9% 15.8% 16.2% 16.1% 14.6% - - 13.8% 14.6% 13.7% 16.2% - Depreciation 44 42 43 44 43 46 47 51 49 49 36 37 151 153 174 187 171 Amortization of goodwill 11123331411117- -462330 EBITDA 173 254 165 226 207 151 273 255 293 230 315 217 627 685 818 886 1,055 YoY 18.4% 52.4% 18.0% -2.7% 19.9% -40.6% 65.2% 12.7% 41.2% 52.7% 15.5% -14.8% 16.4% 9.3% 19.4% 8.3% 19.1% EBITDA margin 41.0% 49.7% 32.2% 43.3% 39.3% 24.3% 44.2% 33.8% 34.8% 24.7% 33.9% 27.3% 43.9% 39.8% 41.6% 35.1% 30.2% Source: Shared Research based on company data

Demae-can business (JPYmn)

(JPYmn) (JPYmn) Revenue YoY (right axis) Operating profit OPM (right axis) 1,000 931 930 100% 300 50% 271 841 797 250 232 800 755 80% 223 40%

190 621 617 200 210 180 171 600 541 60% 167 30% 513 523 528 181 511 146 143 140 150 129 161 411 408 421 124 127 120 373 363 361 363 400 331 40% 20% 100 80 102 200 20% 75 10% 50

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

('mn) Order processing fees YoY (right axis) No. of orders (mn) YoY (right axis) 600 30% 6 30%

502 498 524 500 25% 5 4.7 25% 4.4 4.4 415 408 394 407 400 20% 4 3.6 3.8 20% 337 3.5 3.5 315 326 302 2.9 2.7 2.9 300 262 257 266 261 15% 3 2.6 15% 235 230 229 228 2.3 2.3 2.3 201 2.0 2.0 2.0 2.0 200 10% 2 1.8 2.3 10%

100 5% 1 5%

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

Mail Order To achieve renewed growth in Mail Order, the company undertook the following initiatives. Q1: It strengthened one-to-one (personalized) marketing, such as supporting in-store sales promotion. It also developed and engaged in cross-selling of Yume no Machi exclusive products; it expanded sales channels by accepting orders on the LINE platform. Q2: It solidified its repeat-customer base through sales promotions, new products, and cross-selling. Q3: Efficiency gains in shipping and cost reductions began appearing after the adoption of original machines. Q4: The company improved delivery efficiency. It started accepting orders via mobile app LINE using services such as LINETalk (voice calls through the LINE app) and a chat bot. According to the company, OPM was stable following various improvements to operational efficiency.

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Mail Order business (JPYmn)

Mail Order FY08/15 FY08/16 FY08/17 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Cons.Cons.Cons.Cons.Cons.Init. Est. Revenue 425 436 428 404 421 438 420 354 369 384 355 336 660 1,836 1,693 1,633 1,445 1,512 YoY -6.0% -11.3% -11.5% -1.0% -0.9% 0.4% -1.8% -12.4% -12.4% -12.2% -15.6% -4.9% - 178.3% -7.8% -3.5% -11.5% 4.7% Internal transaction 12 18 17 18 23 26 27 25 35 40 38 40 - 50 65 101 153 Sales (incl. internal transaction) 437 454 446 422 444 464 447 379 403 425 393 376 660 1,885 1,759 1,734 1,597 Operating profit 33 45 101 25 50 51 62 54 67 78 60 54 39 140 204 217 259 - YoY 1,244.1% -1.4% 82.7% -32.7% 50.6% 15.5% -38.6% 112.3% 34.7% 51.8% -3.0% -0.5% - 263.1% 45.0% 6.6% 19.3% - OPM 7.8% 10.2% 23.5% 6.3% 11.8% 11.7% 14.7% 15.3% 18.2% 20.3% 16.9% 16.0% 5.9% 7.7% 12.0% 13.3% 17.9% - Depreciation 122222222234 278810 Amortization of goodwill 27 27 27 27 26 26 26 26 26 26 26 26 36 109 109 103 103 EBITDA 62 74 130 54 78 79 89 82 95 106 88 83 77 256 320 328 372 YoY 2,405.9% 63.8% 135.6% -64.6% 26.0% 6.9% -31.1% 50.8% 21.8% 33.6% -1.4% 2.0% - 233.8% 24.8% 2.6% 13.4% EBITDA margin 14.5% 17.0% 30.3% 13.4% 18.5% 18.1% 21.3% 23.1% 25.7% 27.5% 24.8% 24.8% 11.6% 14.0% 18.9% 20.1% 25.8% Source: Shared Research based on company data

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

Medium-term management plan The same day it announced full-year results, the company announced a rolling medium-term management plan, ending in FY08/20 (subject to annual review; targets appear in the following table). The plan calls for FY08/20 operating profit of JPY2.9bn (260% increase from FY08/17). The company aims to achieve dramatic growth that exceeds market growth through proactive investments in Demae-can to enhance market share.

Medium-term growth strategy (1) Proactive investment to increase the number of Demae-can users: Increase Demae-can visibility through greater exposure and promoting site usage. (2) Market expansion through more restaurants: Invigorate the delivery market by dramatically increasing the number of restaurants using Sharing Delivery™ (full-scale launch in FY08/17); increasing the number of affiliated restaurants with their own delivery services. (3) Measures to improve store operation: Help restaurants improve operational efficiency by introducing more efficient systems, supported by understanding the needs of store operations.

The company believes the food delivery market is growing moderately, with online orders driving the overall market amid sluggish growth in offline orders. With Demae-can, the company is already the leading delivery platform operator, but it recognizes the need to achieve higher growth rates to consolidate its position. By aggressively pursuing measures under its medium-term strategy, the company aims to expand market share over the three years of the plan and achieve annual order growth of about 40%—far exceeding market growth. The company anticipates sluggish operating profit growth in FY08/18, largely owing to aggressive upfront spending to support expansion (details in the Medium-term outlook section).

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Consolidated earnings targets

FY08/08 FY08/09 FY08/10 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. Act. Act. Act. Init. Est. Targets TargetsCAGR No. of orders (mn) 4.60 5.82 6.36 6.78 7.37 7.76 8.87 10.56 13.53 17.28 23.83 34.42 48.40 41.0% YoY 47.8% 26.7% 9.2% 6.6% 8.6% 5.4% 14.3% 19.1% 28.1% 27.7% 37.9% 44.4% 40.6% Revenue (JPYmn) 941 1,074 1,158 1,259 1,360 2,087 3,558 3,661 4,155 4,944 5,434 7,130 9,416 24.0% YoY 23.4% 14.2% 7.8% 8.8% 8.0% 53.5% 70.5% 2.9% 13.5% 19.0% 9.9% 31.2% 32.1% Operating profit (JPYmn) 262 173 234 244 211 278 362 547 573 801 819 1,480 2,861 52.9% YoY 14.6% -34.2% 35.4% 4.5% -13.7% 32.2% 30.0% 51.1% 4.8% 39.8% 2.3% 80.7% 93.3% OPM 27.9% 16.1% 20.2% 19.4% 15.5% 13.3% 10.2% 14.9% 13.8% 16.2% 15.1% 20.8% 30.4% (mn) (JPYbn) (JPYmn) 60 Number of orders 10 Revenue 9.4 3,500 35% 9 Operating profit 2,861 50 48.4 3,000 30% 8 OPM (right axis) 7.1 7 2,500 25% 40 34.4 6 5.4 4.9 2,000 20% 30 5 4.2 1,480 23.8 1,500 15% 4 3.6 3.7 20 17.3 3 819 13.5 2.1 1,000 801 10% 10.6 573 8.9 2 1.4 547 10 6.4 6.8 7.4 7.8 1.2 1.3 500 278 362 5% 1 234 244 211 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 FY08/10 FY08/12 FY08/14 FY08/16 FY08/18 FY08/20 Est. Est. Est. Est. Est. Est. Source: Shared Research based on company data

News and topics

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.

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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) August IR contact IR web http://www.yumenomachi.co.jp/ir_information/index.html

(Japanese only) IR mail IR phone +81-3-4500-9386 [email protected]

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