Demae-Can / 2484

R Demae-can / 2484

COVERAGE INITIATED ON: 2017.12.25 LAST UPDATE: 2020.02.07

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. Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://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 ------5 Recent updates ------6 Highlights ------6 Trends and outlook ------7 Monthly trends ------7 Quarterly trends and results ------8 Q1 FY08/20 results ------9 Initial forecasts for FY08/20 ------12 Historical forecast accuracy ------13 Medium-term management plan ------14 Business ------17 Business description ------17 Demae-can business ------17 Mail Order business ------26 Group companies ------26 Market overview ------27 Information on competitors ------29 Strengths and weaknesses ------30 Historical performance ------32 Income statement ------32 Parent earnings ------33 Segment earnings ------35 Balance sheet ------36 Cash flow statement ------38 Other information ------39 ESG-related ------39 Shareholder returns------39 Top management ------40 Major shareholders ------40 Employees ------41 Historical performance, news and topics ------42 Historical performance ------42 News and topics ------55 Profile ------56

02/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

Executive summary

Business overview

Main businesses: The company’s main businesses are its Demae-can business and its mail order business for restaurants. The ◤ Demae-can business reported total revenue of JPY5.4bn and an operating loss of JPY18mn in FY08/19, while the mail order business reported revenue of JPY1.3bn and an operating profit of JP224mn. Under its Demae-can business, the company operates a dedicated online platform through which consumers looking for speedy home delivery service (in as little as 20 minutes) can order food from affiliated restaurants. Most of the revenues from the Demae-can business are obtained through the company’s function as an intermediary in the restaurant food home delivery process and the various fee income that it collects from the restaurants for its services in this capacity.

Competitors and market share: In the US, Grubhub, Inc. (NYSE: GRUB) has the same business model; in Japan, direct ◤ competitors include Uber Eats and Rakuten Delivery (Rakuten, TSE1: 4755). Following the sale of its overseas subsidiary, the company has operated solely in the domestic market since September 2018. The company estimates that it had roughly an 11% share, as well as a gross merchandise volume of approximately JPY77.0bn in the home food delivery market in Japan (company estimate for FY08/19).

Outsourced delivery service (Sharing Delivery): Sharing Delivery is the company’s online platform that provides home ◤ delivery services to restaurants that do not operate their own delivery service. Some of the delivery bases used for Sharing Delivery are operated directly while others are operated through partnerships with other companies, allowing the company to operate a high-quality delivery service that is also efficient. Sharing Delivery depended heavily on partner companies early on, but the company has steadily increased the proportion of delivery bases it operates directly and, as of the end of FY08/19, was directly operating 115 bases versus 100 operated by partner companies. The company says it is looking to create more than a simple food delivery service; it wants to create “life infrastructure.”

Key Performance Indicators: The company discloses three key performance indicators that it watches closely: the number ◤ of orders, the number of affiliated restaurants, and the number of active users. For FY08/19, the company reported a total of 28.45mn orders, 19,911 affiliated restaurants, and some 3.0mn users. Growth in the number of orders flows leads directly to growth in top-line revenue, while the number of affiliated restaurants and active users together create the base for continued order growth. In addition, the number of delivery bases established for the company’s Sharing Delivery service also serves as a good indicator of the speed of the company’s expansion on this front. Key indicators that the company watches closely but does not disclose include its order conversion rate (the percent of website viewers that place orders) and its repeat order ratio. We can get a very rough estimate of the repeat order ratio by dividing the total number of orders by the number of active users; with this calculation, we find the average active user places about 9.5 orders per year (as of FY08/19).

Investment spending plans: Because the restaurant food delivery market is still in the growth stage, the company’s investment ◤ spending is also trending higher, especially spending on advertising and promotion, spending on the establishment of delivery bases for the Sharing Delivery service, and spending on systems development.

Trends and outlook

FY08/19 results: The company reported full-year consolidated revenue of JPY6.7bn (+22.7% YoY), an operating loss ◤ ofJPY39mn (versus loss of JPY837mn in FY08/18), and a net loss attributable to owners of the parent of JPY103mn (versus net income of JPY599mn in FY08/18). Its mainstay Demae-can business reported revenue of JPY5.4bn (+32.3% YoY) and an operating loss of JPY18mn (versus profit of JPY836mn in FY08/18). Successful efforts to boost repeat orders drove growth in order numbers and order processing fees. Key performance indicators: the number of orders at 28.45mn was up 22.0% YoY; the number of affiliated restaurants at 19,911 was up 15.7% YoY; and the number of active users at 3.0mn was up 11.5% YoY. Delivery bases for Sharing Delivery numbered 215 at fiscal year-end versus 155 at the end of FY08/18.

FY08/20 forecasts: The company is forecasting consolidated revenue of JPY9.3bn (+39.5% YoY), an operating loss of JPY1.5bn ◤ (versus loss of JPY39mn in FY08/19), a recurring loss of JPY1.5bn (versus loss of JPY7mn in FY08/19), and a net loss attributable to owners of the parent of JPY1.6bn (versus loss of JPY103mn in FY08/19). The projected operating loss reflects the company’s

03/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

plans for large investments in advertising and promotion, more delivery bases for its Sharing Delivery business, and systems development. FY08/21 forecast: The company is forecasting consolidated revenue of JPY13.0bn (+39.8% versus projected revenue of JPY9.3bn in FY08/20) and sees earnings moving back into the black with operating profit of JPY1.0bn (versus projected loss of JPY1.5bn in FY08/20), recurring profit of JPY1.0bn (versus projected loss of JPY1.5bn in FY08/20), and net income attributable to owners of the parent of JPY650mn (versus projected loss of JPY1.6bn in FY08/20).

Strengths and weaknesses

Shared Research sees the company as having three key strengths, 1) its alliance with partner companies that allows it to operate a high-quality delivery service that is also efficient, 2) the broad area already covered by its delivery service and its continued rapid expansion, and 3) the speed of management’s decision-making. In terms of significant weaknesses, we see 1) limited funds available for advertising/promotional spending as recognition of its Demae-can brand remains stuck around 40%, 2) heavy upfront investment needed to create a large number of directly managed delivery bases, and 3) the heavy dependence of the company’s overall results on the performance of its restaurant food delivery service, relative to domestic competitors.

04/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

Key financial data

Income statement FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 (JPYmn) Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Revenue 1,259 1,360 2,087 3,558 3,661 4,155 4,944 5,431 6,666 9,300 Demae-can 1,253 1,360 1,427 1,723 1,968 2,522 3,499 4,078 5,395 - Mail Order - - 660 1,836 1,693 1,633 1,445 1,353 1,271 - YoY 8.8% 8.0% 53.5% 70.5% 2.9% 13.5% 19.0% 9.8% 22.7% 39.5% Demae-can 9.6% 8.6% 5.0% 20.7% 14.3% 28.1% 38.8% 16.5% 32.3% - Mail Order - - - 178.3% -7.8% -3.5% -11.5% -6.4% -6.1% - Gross profit 957 960 1,328 2,040 2,286 2,652 3,223 3,410 4,196 - GPM 76.0% 70.6% 63.6% 57.3% 62.4% 63.8% 65.2% 62.8% 63.0% - SG&A expenses 713 750 1,050 1,678 1,740 2,079 2,423 2,573 4,236 - YoY 8.0% 5.1% 40.0% 59.9% 3.6% 19.5% 16.5% 6.2% 64.6% - SG&A rat io 56.6% 55.1% 50.3% 47.2% 47.5% 50.0% 49.0% 47.4% 63.5% - Operating profit 244 211 278 362 547 573 801 837 -39 -1,500 Demae-can - 401 476 528 639 676 854 863 -18 - Mail Order - - 39 140 204 217 259 218 224 - Adjustments - - -236 -307 -296 -321 -313 -244 -246 - YoY 4.5% -13.7% 32.2% 30.0% 51.1% 4.8% 39.8% 4.6% - - OPM 19.4% 15.5% 13.3% 10.2% 14.9% 13.8% 16.2% 15.4% -0.6% -16.1% Demae-can - 29.5% 33.3% 30.6% 32.5% 26.8% 24.4% 21.2% -0.3% - Mail Order - - 5.9% 7.7% 12.0% 13.3% 17.9% 16.1% 17.6% - Non-operating income (expenses) 16 10 -4 4 -5 6 -3 12 32 - Financial income 15 9 -0 -5 -3 -1 -16 2 1 - Gains on foreign exchange - 1 -2 - -6 -1 - -3 -0 - Equit y in earning of affiliat es - - -2 -3 -0 4 11 19 26 - Other non-operating income 1 1 1 11 4 5 2 -6 5 - Recurring profit 260 221 275 366 541 579 798 849 -7 -1,500 YoY 8.7% -15.2% 24.5% 33.1% 48.1% 7.0% 37.8% 6.4% - - RPM 20.6% 16.2% 13.2% 10.3% 14.8% 13.9% 16.1% 15.6% -0.1% -16.1% Extraordinary gains -0 -2 -36 -8 -19 -91 -6 -0 - - Implied t ax rat e 43.6% 47.6% 50.7% 54.3% 55.8% 44.5% 37.7% 33.6% -317.7% - Net income attributable to non-controlling interests - - - -0 -0 -6 -2 -1 - - Net income attributable to owners of parent 146 115 97 167 97 348 433 559 -103 -1,600 YoY 18.7% -21.2% -16.0% 73.1% -42.0% 258.4% 24.4% 29.1% - - Net margin 11.6% 8.5% 4.6% 4.7% 2.6% 8.4% 8.8% 10.3% -1.5% -17.2% Capit al expendit ures 312 239 95 90 235 293 329 362 511 - Depreciat ion 84 139 154 166 181 195 181 176 246 - Amortization of goodwill - - 36 113 114 125 133 69 - - EBITDA 328 349 468 641 842 893 1,115 1,082 207 - YoY 4.5% 6.6% 34.0% 37.0% 31.4% 6.0% 24.8% -3.0% -80.9% - EBITDA margin 26.0% 25.7% 22.4% 18.0% 23.0% 21.5% 22.6% 19.9% 3.1% - Per share data (JPY) FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 Shares issued (year-end; mn) 0.1 0.1 5.5 11.1 11.1 11.1 44.4 44.4 44.4 - Treasury shares 0.0 0.0 0.8 1.2 1.0 1.0 3.9 3.9 3.5 - Shares outstanding (ex. treasury shares) 0.1 0.1 4.8 9.9 10.1 10.1 40.5 40.5 40.9 - Shares outstanding (average; mn) 0.1 0.1 5.1 9.8 10.0 10.1 40.4 40.5 40.8 - Book value per share 407 420 414 203 212 230 67 80 69 - EPS 28.3 22.3 18.8 17.1 9.7 34.5 10.7 13.8 -2.5 -39.2 EPS (fully dilut ed) 28.0 22.0 18.3 16.7 9.6 33.4 10.3 13.5 - - Dividend per share 11.5 7.0 8.0 5.0 7.0 10.0 3.3 3.6 3.6 TBD Payout ratio 40.7% 31.4% 42.6% 29.2% 72.4% 29.0% 30.8% 26.1% - - Balance sheet (JPYmn) FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 Current assets 1,032 879 1,650 1,659 1,938 2,578 3,520 5,293 5,556 - Cash and deposits 792 651 1,258 1,200 1,372 1,720 2,263 2,928 2,186 - Accounts receivable 148 149 182 233 245 324 408 350 221 - Inventories - - 58 49 57 61 58 61 62 - Accounts receivable–other 65 68 120 140 225 406 736 1,865 2,995 - Allowance for doubtful accounts -13 -11 -9 -9 -8 -11 -4 -4 -58 - Other current assets 39 23 40 46 48 79 59 92 150 - T angible fixed asset s 20 11 42 55 83 109 79 123 162 - Int angible fixed asset s 504 588 948 778 651 1,092 521 604 822 - Investments and other assets 749 880 322 516 435 288 320 499 545 - Investment securities 672 817 255 434 248 138 196 348 374 - Other 78 63 67 82 187 150 123 150 171 - Total assets 2,305 2,357 2,962 3,007 3,107 4,066 4,439 6,519 7,084 - Current liabilit ies 191 160 579 687 751 1,332 1,698 3,165 4,203 - Accounts payable - - 176 136 135 139 112 99 88 - Short-term debt - - 101 107 105 207 75 804 804 - Accounts payable-other 112 91 188 211 327 717 1,207 1,986 3,070 - Income taxes payable 67 40 62 111 85 148 152 100 49 - Ot her current liabilit ies 12 30 53 122 100 121 152 176 193 - Noncurrent liabilit ies - - 396 300 211 392 28 69 41 - Long-term debt - - 376 280 188 341 8 4 - - Other - - 21 20 23 51 21 65 41 - Net assets 2,114 2,197 1,987 2,021 2,146 2,342 2,713 3,269 2,840 - Shareholders' equity 2,180 2,249 1,951 2,052 2,137 2,321 2,667 3,097 2,657 - Treasury stock -240 -239 -581 -518 -439 -464 -469 -467 -670 - Valuation and translation adjustments -81 -66 34 -41 - -4 31 159 162 - Subscription rights to new shares 15 14 1 11 8 17 8 7 21 - Non-cont rolling int erest s - - - 0 - 8 6 6 - - T ot al capit al and liabilit ies 2,305 2,357 2,962 3,007 3,107 4,066 4,439 6,519 7,054 - Cash flow statement (JPYmn) FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 Cash flow s from operat ing act ivit ies 249 259 318 481 594 673 1,045 433 98 - Cash flow s from invest ing act ivit ies 186 -354 207 -391 -313 -145 -298 -353 -501 - Cash flow s from financing act ivit ies -46 -46 72 -170 -106 -194 -205 591 -339 - Financial rat ios FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 Interest-bearing debt - - 476 387 293 548 83 808 804 - Net cash 792 651 781 813 1,079 1,171 2,180 2,121 1,382 - ROE 7.1% 5.4% 4.6% 8.4% 4.7% 15.6% 17.3% 18.8% -3.4% - ROA (RP-based) 11.8% 9.5% 10.3% 12.2% 17.7% 16.1% 18.8% 15.5% -0.1% - Current ratio 539.6% 548.3% 284.7% 241.6% 258.1% 193.5% 207.3% 167.2% - - Fixed rat io 60.7% 67.7% 66.1% 67.1% 54.7% 64.2% 34.1% 37.7% - - Equit y rat io 91.0% 92.6% 67.0% 66.8% 68.8% 57.0% 60.8% 49.9% - - Source: Shared Research based on company data

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Recent updates

Highlights

On February 7, 2020, Demae-can Co., Ltd. announced management indicators for January 2020.

On January 20, 2020, Shared Research updated the report following interviews with . the company

On January 10, 2019, the company announced management indicators for December 2019.

On December 26, 2019, the company announced earnings results for Q1 FY08/20; see the results section for details.

On December 12, 2019, the company announced the dissolution of its business partnership with Asahi Shimbun.

The company plans to dissolve its business partnership with Asahi Shimbun effective June 14, 2020.

collaboration with Asahi Shimbun’s newspaper delivery office ASA, and nearly all ASA locations interested in participating in the business are already involved. Aside from ASA, the company is currently expanding its service area through several partnered regional transport companies as well as directly managed delivery. Upon reevaluating the business partnership with the speedy expansion of Sharing Delivery® bases as well as restaurant and user growth in mind, the company decided to dissolve the partnership. After the partnership is dissolved, there will no longer be prioritized proposals through Asahi Shimbun for new ASA locations as ▷ a delivery partner. As for the outsourcing contracts with ASA, the contracts are formed between each ASA-participating store and the company, and the company will consult with each ASA location going forward. Additionally, the company plans to continue focusing on expansion through directly managed delivery. The impact of the partnership dissolution on the company’s business performance is minimal, and there are no changes to the ▷ company’s full-year FY08/20 forecast (announced October 10, 2019).

On December 6, 2019, the company announced management indicators for November 2019.

On November 28, 2019, Yume no Machi Souzou linkai Co., Ltd. announced that it changed its company name to Demae-can Co., Ltd.

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

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Trends and outlook Monthly trends Key performance indicators (KPIs)

No. of orders ('000) Sep Oct No v Dec Jan Feb Mar Apr May Jun Jul Aug Q1 Q2 Q3 Q4 FY FY08/14 655 673 700 818 775 660 792 729 733 732 773 828 2,028 2,252 2,254 2,333 8,868 FY08/15 723 763 837 960 954 825 908 858 876 872 966 1,017 2,323 2,739 2,642 2,855 10,559 FY08/16 929 962 1,034 1,194 1,178 1,129 1,162 1,134 1,165 1,097 1,241 1,306 2,924 3,502 3,460 3,643 13,529 FY08/17 1,215 1,280 1,298 1,521 1,513 1,377 1,507 1,444 1,427 1,384 1,636 1,676 3,792 4,411 4,378 4,696 17,278 FY08/18 1,565 1,787 1,733 1,997 2,032 1,909 2,056 1,899 2,017 1,996 2,153 2,180 5,085 5,938 5,972 6,330 23,325 FY08/19 2,110 2,049 2,125 2,621 2,535 2,322 2,515 2,290 2,329 2,429 2,449 2,674 6,284 7,478 7,134 7,552 28,448 FY08/20 2,352 2,324 2,471 2,776 2,712 ------7,147 - - - - FY08/14 change 56 101 97 79 97 56 90 88 111 92 111 119 254 232 290 322 1,098 FY08/15 change 68 90 138 142 179 166 116 129 143 140 193 189 295 487 388 522 1,691 FY08/16 change 206 199 196 235 224 304 254 276 289 225 275 288 601 763 818 788 2,970 FY08/17 change 286 318 264 327 335 248 346 310 263 287 395 371 869 909 918 1,053 3,749 FY08/18 change 350 508 435 476 519 532 549 455 590 612 517 504 1,293 1,527 1,594 1,633 6,047 FY08/19 change 545 262 393 624 502 414 459 391 312 432 296 494 1,199 1,540 1,162 1,222 5,123 FY08/20 change 242 275 346 155 177 ------863 - - - - FY08/14 YoY 9.3% 17.7% 16.1% 10.6% 14.3% 9.2% 12.7% 13.8% 17.9% 14.3% 16.7% 16.8% 14.3% 11.5% 14.8% 16.0% 14.1% FY08/15 YoY 10.3% 13.4% 19.7% 17.4% 23.1% 25.1% 14.7% 17.7% 19.4% 19.2% 25.0% 22.8% 14.6% 21.6% 17.2% 22.4% 19.1% FY08/16 YoY 28.5% 26.1% 23.4% 24.5% 23.5% 36.8% 27.9% 32.2% 32.9% 25.8% 28.5% 28.3% 25.9% 27.8% 31.0% 27.6% 28.1% FY08/17 YoY 30.8% 33.1% 25.5% 27.3% 28.4% 21.9% 29.8% 27.3% 22.6% 26.2% 31.8% 28.4% 29.7% 26.0% 26.5% 28.9% 27.7% FY08/18 YoY 28.8% 39.7% 33.5% 31.3% 34.3% 38.6% 36.4% 31.5% 41.3% 44.2% 31.6% 30.0% 34.1% 34.6% 36.4% 34.8% 35.0% FY08/19 YoY 34.8% 14.6% 22.7% 31.2% 24.7% 21.7% 22.3% 20.6% 15.5% 21.7% 13.7% 22.7% 23.6% 25.9% 19.5% 19.3% 22.0% FY08/20 YoY 11.5% 13.4% 16.3% 5.9% 7.0% ------13.7% - - - - No. of affiliat ed st ores Sep Oct No v Dec Jan Feb Mar Apr May Jun Jul Aug Q1 Q2 Q3 Q4 FY FY08/14 11,323 11,383 11,510 11,545 11,563 11,644 11,350 11,414 11,482 11,493 11,551 11,636 11,510 11,644 11,482 11,636 11,636 FY08/15 11,600 11,628 11,680 11,737 11,752 11,812 11,854 11,947 12,011 12,084 12,167 12,213 11,680 11,812 12,011 12,213 12,213 FY08/16 12,256 12,412 12,505 12,588 12,548 12,529 12,700 12,936 13,018 13,226 13,418 13,656 12,505 12,529 13,018 13,656 13,656 FY08/17 13,920 14,033 14,206 14,366 14,456 14,559 14,669 14,839 14,953 15,099 15,208 15,318 14,206 14,559 14,953 15,318 15,318 FY08/18 15,411 15,533 15,712 15,867 16,000 16,081 16,175 16,318 16,439 16,685 16,874 17,207 15,712 16,081 16,439 17,207 17,207 FY08/19 17,372 17,577 17,834 18,081 18,343 18,572 18,760 19,122 19,452 19,395 19,680 19,911 17,834 18,572 19,452 19,911 19,911 FY08/20 - 20,099 20,327 20,720 20,941 21,269 ------20,720 - - - - FY08/14 change 95 145 289 311 487 576 276 347 405 393 419 300 289 576 405 300 300 FY08/15 change 277 245 170 192 189 168 504 533 529 591 616 577 170 168 529 577 577 FY08/16 change 656 784 825 851 796 717 846 989 1,007 1,142 1,251 1,443 825 717 1,007 1,443 1,443 FY08/17 change 1,664 1,621 1,701 1,778 1,908 2,030 1,969 1,903 1,935 1,873 1,790 1,662 1,701 2,030 1,935 1,662 1,662 FY08/18 change 1,491 1,500 1,506 1,501 1,544 1,522 1,506 1,479 1,486 1,586 1,666 1,889 1,506 1,522 1,486 1,889 1,889 FY08/19 change 1,961 2,044 2,122 2,214 2,343 2,491 2,585 2,804 3,013 2,710 2,806 2,704 2,122 2,491 3,013 2,704 2,704 FY08/20 change 2,727 2,750 2,886 2,860 2,926 ------2,886 - - - - FY08/14 YoY 0.8% 1.3% 2.6% 2.8% 4.4% 5.2% 2.5% 3.1% 3.7% 3.5% 3.8% 2.6% 2.6% 5.2% 3.7% 2.6% 2.6% FY08/15 YoY 2.4% 2.2% 1.5% 1.7% 1.6% 1.4% 4.4% 4.7% 4.6% 5.1% 5.3% 5.0% 1.5% 1.4% 4.6% 5.0% 5.0% FY08/16 YoY 5.7% 6.7% 7.1% 7.3% 6.8% 6.1% 7.1% 8.3% 8.4% 9.5% 10.3% 11.8% 7.1% 6.1% 8.4% 11.8% 11.8% FY08/17 YoY 13.6% 13.1% 13.6% 14.1% 15.2% 16.2% 15.5% 14.7% 14.9% 14.2% 13.3% 12.2% 13.6% 16.2% 14.9% 12.2% 12.2% FY08/18 YoY 10.7% 10.7% 10.6% 10.4% 10.7% 10.5% 10.3% 10.0% 9.9% 10.5% 11.0% 12.3% 10.6% 10.5% 9.9% 12.3% 12.3% FY08/19 YoY 12.7% 13.2% 13.5% 14.0% 14.6% 15.5% 16.0% 17.2% 18.3% 16.2% 16.6% 15.7% 13.5% 15.5% 18.3% 15.7% 15.7% FY08/20 YoY 15.7% 15.6% 16.2% 15.8% 16.0% ------16.2% - - - - No. of active users (mn) Sep Oct No v Dec Jan Feb Mar Apr May Jun Jul Aug Q1 Q2 Q3 Q4 FY FY08/14 1.35 - - - 1.35 1.35 FY08/15 1.54 - - - 1.54 1.54 FY08/16 1.74 1.78 1.82 1.84 1.88 1.92 - - 1.82 1.92 1.92 FY08/17 1.95 1.98 1.98 2.03 2.08 2.13 2.17 2.21 2.24 2.29 2.33 2.35 1.98 2.13 2.24 2.35 2.35 FY08/18 2.38 2.43 2.45 2.48 2.52 2.55 2.58 2.59 2.62 2.65 2.66 2.69 2.45 2.55 2.62 2.69 2.69 FY08/19 2.71 2.72 2.74 2.78 2.81 2.82 2.84 2.88 2.90 2.94 2.95 3.00 2.74 2.82 2.90 3.00 3.00 FY08/20 3.02 3.05 3.10 3.14 3.17 ------3.10 - - - - FY08/14 YoY ------16.4% - - - 16.4% 16.4% FY08/15 YoY ------14.1% - - - 14.1% 14.1% FY08/16 YoY ------24.7% - - - 24.7% 24.7% FY08/17 YoY ------24.7% 24.2% 23.2% 24.3% 24.2% 22.4% - - 23.2% 22.4% 22.4% FY08/18 YoY 22.2% 22.7% 23.7% 22.3% 21.3% 20.0% 18.9% 17.2% 17.0% 15.7% 14.2% 14.5% 23.7% 20.0% 17.0% 14.5% 14.5% FY08/19 YoY 13.9% 11.9% 11.8% 12.1% 11.5% 10.6% 10.1% 11.2% 10.7% 10.9% 10.9% 11.5% 11.8% 10.6% 10.7% 11.5% 11.5% FY08/20 YoY 11.4% 12.1% 13.1% 12.9% 12.8% ------13.1% - - - - No. of Sharing Delivery bases Sep Oct No v Dec Jan Feb Mar Apr May Jun Jul Aug Q1 Q2 Q3 Q4 FY FY08/17 1 2 10 2 10 10 FY08/18 - - 17 - - 23 27 - 33 39 44 60 17 23 33 60 60 FY08/19 63 67 78 83 92 104 124 147 161 172 198 215 78 104 161 215 215 FY08/20 221 228 239 247 259 ------239 - - - - FY08/17 MoM change - - +8 FY08/18 MoM change ------+4 - - +6 +5 +16 +7 +6 +10 +27 +50 FY08/19 MoM change +3 +4 +11 +5 +9 +12 +20 +23 +14 +11 +26 +17 +18 +26 +57 +54 +155 FY08/20 MoM change +6 +7 +11 +8 +12 ------

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

Orders / Active users Sep Oct No v Dec Jan Feb Mar Apr May Jun Jul Aug Q1 Q2 Q3 Q4 FY FY08/16 ------0.67 0.64 0.64 0.60 0.67 0.69 - - 1.90 1.90 7.05 FY08/17 0.63 0.65 0.66 0.76 0.74 0.66 0.70 0.66 0.64 0.61 0.71 0.72 1.91 2.08 1.95 2.00 7.35 FY08/18 0.66 0.74 0.71 0.81 0.81 0.75 0.80 0.73 0.77 0.76 0.81 0.81 2.08 2.33 2.28 2.35 8.67 FY08/19 0.78 0.75 0.78 0.95 0.91 0.83 0.89 0.80 0.81 0.83 0.83 0.90 2.29 2.65 2.46 2.52 9.48 FY08/20 0.78 0.77 0.80 0.89 0.86 ------2.31 - - - - FY08/17 YoY ------5.1% 3.4% 0.2% 2.0% 6.1% 4.2% - - 2.7% 5.3% 4.3% FY08/18 YoY 5.3% 14.1% 8.4% 6.8% 10.3% 14.9% 14.2% 11.4% 20.7% 24.0% 14.5% 13.8% 8.4% 12.2% 16.6% 17.7% 17.9% FY08/19 YoY 18.1% 1.5% 9.6% 17.2% 11.6% 9.6% 10.9% 9.0% 4.1% 9.8% 2.5% 10.3% 10.5% 13.9% 7.9% 7.0% 9.4% FY08/20 YoY -0.01% 1.5% 3.2% -6.3% -5.2% ------0.5% - - - - Note: The company started disclosing data on active users in March 2017. Active user data through February 2017 reflect Shared Research estimates.

07/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

Quarterly trends and results

Income statement FY08/17 FY08/18 FY08/19 FY08/20 FY08/20 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Est. % of FY Revenue 1,210 1,316 1,285 1,133 1,207 1,362 1,436 1,426 1,434 1,686 1,728 1,819 1,817 9,300 19.5% Demae-can 841 931 930 797 859 1,019 1,100 1,100 1,117 1,346 1,405 1,528 1,510 - Basic operating fees 79 83 88 90 91 103 106 109 114 118 121 127 133 Order processing fees 415 502 498 524 563 679 677 716 703 855 819 879 822 Delivery outsourcing fees 17 - - - 217 Advertising fees 9 14 4 6 5 3 3 7 4 7 9 4 - System development fees 21 8 - 9 - - 53 - - - 43 - - Other 318 323 341 168 200 234 260 269 282 379 412 518 337 Mail Order 369 384 355 336 348 343 336 326 317 340 323 291 307 - YoY 27.5% 24.2% 23.9% 2.2% -0.3% 3.5% 11.8% 25.8% 18.8% 23.8% 20.3% 27.6% 26.8% 39.5% Demae-can 59.3% 49.8% 50.8% 5.5% 2.1% 9.5% 18.3% 38.1% 30.0% 32.0% 27.7% 38.9% 35.2% - Basic operating fees 9.4% 10.2% 17.5% 19.8% 15.4% 25.0% 20.8% 21.1% 25.1% 13.9% 14.3% 16.9% 16.7% Order processing fees 23.2% 23.1% 26.2% 28.7% 35.7% 35.1% 36.1% 36.7% 24.9% 26.0% 21.0% 22.7% 17.0% Delivery outsourcing fees - - - - 1,146.9% Advertising fees -33.1% -23.8% -74.6% -48.4% -47.1% -77.6% -18.4% 17.0% -12.1% 131.1% 192.0% -40.1% - System development fees 106.4% -21.9% - 660.8% ------19.9% - - Other 233.7% 196.9% 202.7% -35.6% -37.1% -27.5% -23.7% 59.9% 41.0% 61.8% 58.5% 93.0% 19.6% Mail Order -12.4% -12.2% -15.6% -4.9% -5.6% -10.9% -5.2% -3.1% -8.9% -0.7% -3.9% -10.8% -3.1% - Cost of revenue 434 448 434 404 437 487 554 542 545 649 684 592 689 Cost ratio 35.8% 34.1% 33.8% 35.7% 36.2% 35.7% 38.6% 38.0% 38.0% 38.5% 39.6% 32.5% 37.9% Gross profit 777 867 851 729 769 875 882 884 888 1,037 1,043 1,227 1,128 Gross profit margin 64.2% 65.9% 66.2% 64.3% 63.8% 64.3% 61.4% 62.0% 62.0% 61.5% 60.4% 67.5% 62.1% SG&A expenses 566 706 592 560 564 740 662 607 786 1,140 1,019 1,290 1,338 YoY 19.9% 17.9% 31.9% -0.2% -0.3% 4.9% 11.9% 8.5% 39.4% 54.1% 53.9% 112.5% 70.4% SG&A rat io 46.7% 53.7% 46.1% 49.4% 46.7% 54.3% 46.1% 42.6% 54.8% 67.6% 59.0% 70.9% 73.6% Operating profit 211 161 259 169 206 135 219 277 103 -143 64 -63 -210 -1,500 - Demae-can 232 171 271 180 222 144 226 272 114 -147 64 -48 -183 Mail Order 67 78 60 54 49 59 56 55 42 64 64 54 45 Adjustments -88 -87 -72 -65 -64 -67 -63 -50 -53 -60 -64 -69 -73 YoY 53.8% 110.2% 25.1% 11.6% -2.5% -16.2% -15.2% 63.4% -50.1% - -70.8% - - - Demae-can 43.9% 67.4% 21.7% -5.2% -4.5% -15.8% -16.6% 50.7% -48.6% - -71.9% - - Mail Order 34.7% 51.8% -3.0% -0.5% -27.4% -24.8% -6.4% 1.8% -13.7% 8.5% 14.7% -1.0% 7.8% Operating profit margin 17.4% 12.3% 20.1% 14.9% 17.1% 9.9% 15.3% 19.4% 7.2% -8.5% 3.7% -3.5% -11.6% -16.1% Demae-can 27.6% 18.3% 29.1% 22.7% 25.8% 14.1% 20.6% 24.7% 10.2% -10.9% 4.5% -3.2% -12.1% Mail Order 18.2% 20.3% 16.9% 16.0% 14.0% 17.1% 16.7% 16.8% 13.3% 18.7% 19.9% 18.6% 14.8% Non-operating income (expenses) -2 -2 -1 3 5 8 9 -10 9 12 10 1 8 - Net financial income -6 -4 -6 1 -0 1 -0 1 -1 1 -0 1 -0 Equit y in earnings of affiliat es 2 3 4 3 4 7 9 -0 5 9 11 1 10 Other 1 -0 1 -1 1 0 0 -10 5 1 0 -1 -1 Recurring profit 209 160 258 172 210 143 228 267 112 -131 74 -62 -202 -1,500 - YoY 46.7% 108.1% 23.9% 13.1% 0.9% -10.3% -11.4% 55.4% -46.8% - -67.4% - - - Recurring profit margin 17.2% 12.1% 20.1% 15.2% 17.4% 10.5% 15.9% 18.7% 7.8% -7.8% 4.3% -3.4% -11.1% -16.1% Extraordinary gains (losses) -10 -53 6 -49 -1 -14 6 -1 16 -33 0 - - Pre-tax profit 198 107 264 123 210 129 235 266 128 -164 74 -62 -202 Income taxes 79 45 69 67 69 46 71 97 36 -40 48 34 19 Implied t ax rat e 40.0% 42.3% 26.1% 55.1% 32.7% 35.6% 30.2% 36.3% 28.3% 24.1% 64.1% -55.1% -9.2% Net income attributable to non-controlling interests -0 -1 -1 -1 -1 -0 0 -0 - - - - - Net income attributable to owners of parent 119 62 195 56 142 83 164 170 92 -125 27 -97 -221 -1,600 - YoY 30.1% -42.8% 38.7% 762.2% 18.7% 34.2% -16.2% 204.6% -35.4% - -83.7% - - - Net margin 9.9% 4.7% 15.2% 4.9% 11.7% 6.1% 11.4% 11.9% 6.4% -7.4% 1.5% -5.3% -12.1% -17.2% EBITDA 299 249 331 236 270 202 282 327 156 -83 -49 183 - YoY 41.7% 62.1% 16.4% -3.5% -9.7% -18.6% -14.7% 38.4% -42.3% - - -44.1% - EBITDA margin 24.7% 18.9% 25.8% 20.8% 22.4% 14.9% 19.7% 22.9% 10.9% -4.9% -2.8% 10.0% - No. of affiliated stores (quarter-end) 14,206 14,559 14,953 15,318 15,712 16,081 16,439 17,207 17,834 18,572 19,452 19,911 20,720 23,528 YoY 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 9.9% 12.3% 13.5% 15.5% 18.3% 15.7% 16.2% 36.7% No. of orders (mn) 3.79 4.41 4.38 4.70 5.08 5.94 5.97 6.33 6.28 7.48 7.13 7.55 7.15 35.66 YoY 29.7% 26.0% 26.5% 28.9% 34.1% 34.6% 36.4% 34.8% 23.6% 25.9% 19.5% 19.3% 13.8% 52.9% Order processing fees / No. of orders 109.4 113.8 113.6 111.5 110.7 114.3 113.4 113.1 111.9 114.3 114.8 116.3 115.0 - YoY -5.0% -2.3% -0.3% -0.2% 1.2% 0.4% -0.2% 1.4% 1.1% 0.0% 1.3% 2.9% 2.8% - No. of orders / No. of affiliated stores 272.2 306.7 296.7 310.3 327.7 373.5 367.3 376.3 358.7 410.8 375.2 383.7 351.9 1,750.8 YoY 15.1% 9.6% 9.5% 13.6% 20.4% 21.8% 23.8% 21.3% 9.4% 10.0% 2.2% 2.0% -1.9% 22.1% No. of active users (quarter-end; mn) 1.98 2.13 2.24 2.35 2.45 2.55 2.62 2.69 2.74 2.82 2.90 3.00 3.10 3.46 YoY - - 23.2% 22.4% 23.7% 20.0% 17.0% 14.5% 11.8% 10.6% 10.7% 11.5% 13.1% 28.6% No. of orders / Average no. of users 1.9 2.1 2.0 2.0 2.1 2.4 2.3 2.4 2.3 2.7 2.5 2.6 2.3 11.7 YoY - - - 5.0% 8.9% 10.5% 15.2% 16.5% 9.2% 13.3% 8.0% 7.4% 1.3% 26.3% No. of Sharing Delivery bases 2 10 17 23 33 60 78 104 161 215 239 300 YoY ------1,550.0% 500.0% 358.8% 352.2% 387.9% 258.3% 206.4% 284.6% Source: Shared Research based on company data

08/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

Q1 FY08/20 results Overview In Q1 FY08/20, the company reported consolidated revenue of JPY1.8bn (+26.8% YoY), an operating loss of JPY210mn (versus ▷ operating profit of JPY103mn in Q1 FY08/19), and net loss attributable to owners of the parent of JPY221mn (versus net income of JPY92mn).

Demae-can business

Demae-can FY08/17 FY08/18 FY08/19 FY08/20 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Revenue 841 931 930 797 859 1,019 1,100 1,100 1,117 1,346 1,405 1,528 1,510 YoY 59.3% 49.8% 50.8% 5.5% 2.1% 9.5% 18.3% 38.1% 30.0% 32.0% 27.7% 38.9% 35.2% Operating profit 232 171 271 180 222 144 226 272 114 -147 64 -48 -183 YoY 43.9% 67.4% 21.7% -5.2% -4.5% -15.8% -16.6% 50.7% -48.6% - -71.9% - - Operating profit margin 27.6% 18.3% 29.1% 22.7% 25.8% 14.1% 20.6% 24.7% 10.2% -10.9% 4.5% -3.2% -12.1% Order processing fees 415 502 498 524 563 679 677 716 703 855 819 879 822 YoY 23.2% 23.1% 26.2% 28.7% 35.7% 35.1% 36.1% 36.7% 24.9% 26.0% 21.0% 22.7% 17.0% No. of orders (mn) 3.79 4.41 4.38 4.70 5.08 5.94 5.97 6.33 6.28 7.48 7.13 7.55 7.15 YoY 29.7% 26.0% 26.5% 28.9% 34.1% 34.6% 36.4% 34.8% 23.6% 25.9% 19.5% 19.3% 13.8% Order processing fees / No. of orders 109.4 113.8 113.6 111.5 110.7 114.3 113.4 113.1 111.9 114.3 114.8 116.3 115.0 YoY -5.0% -2.3% -0.3% -0.2% 1.2% 0.4% -0.2% 1.4% 1.1% 0.0% 1.3% 2.9% 2.8% No. of affiliated stores (quarter-end) 14,206 14,559 14,953 15,318 15,712 16,081 16,439 17,207 17,834 18,572 19,452 19,911 20,720 YoY 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 9.9% 12.3% 13.5% 15.5% 18.3% 15.7% 16.2% No. of orders / No. of affiliated stores 272.2 306.7 296.7 310.3 327.7 373.5 367.3 376.3 358.7 410.8 375.2 383.7 351.9 YoY 15.1% 9.6% 9.5% 13.6% 20.4% 21.8% 23.8% 21.3% 9.4% 10.0% 2.2% 2.0% -1.9% No. of active users (quarter-end; mn) 1.98 2.13 2.24 2.35 2.45 2.55 2.62 2.69 2.74 2.82 2.90 3.00 3.10 YoY - - 23.2% 22.4% 23.7% 20.0% 17.0% 14.5% 11.8% 10.6% 10.7% 11.5% 13.1% No. of orders / Average no. of users 1.9 2.1 2.0 2.0 2.1 2.4 2.3 2.4 2.3 2.7 2.5 2.6 2.3 YoY - - - 5.0% 8.9% 10.5% 15.2% 16.5% 9.2% 13.3% 8.0% 7.4% 1.3% No. of Sharing Delivery bases - - 2 10 17 23 33 60 78 104 161 215 239 YoY ------1,550.0% 500.0% 358.8% 352.2% 387.9% 258.3% 206.4% Depreciat ion 49 49 36 37 36 38 42 46 49 56 60 65 69 EBITDA 293 230 315 217 257 182 268 317 163 -91 123 16 -114 YoY 41.2% 52.7% 15.5% -14.8% -12.1% -21.1% -14.9% 46.1% -36.7% - -54.0% -94.8% - EBITDA margin 34.8% 24.7% 33.9% 27.3% 30.0% 17.8% 24.4% 28.9% 14.6% -6.8% 8.8% 1.1% -7.5% Source: Shared Research based on company data

In Q1, the mainstay Demae-can business logged revenue of JPY1.5bn (+35.2% YoY) and an operating loss of JPY183mn (versus operating profit of JPY114mn in Q1 FY08/19).

Key performance indicators In Q1, KPIs for the Demae-can business were as follows:

Orders: 7.2mn (+13.7% YoY) ▷ Affiliated stores: 20,720 (+16.2% YoY) ▷ Active users: 3.1mn (+13.1% YoY) ▷ Sharing Delivery® bases: 239, up by 24 from end-August 2019. ▷ The company states that affiliated store, active user, and Sharing Delivery® base numbers are all in line with the company forecast. However, it also indicated that orders were slightly below forecast. The company claims that this was mostly due to a repeat order rate that did not improve as much as the company had expected and orders from partner sites that were below projections.

Sharing Delivery® The company plans to dissolve its business partnership with Asahi Shimbun effective June 14, 2020.

With the objective of establishing and expanding Sharing Delivery® as a new business model, Demae-can and Asahi Shimbun ▷ entered into a business partnership on December 15, 2016. Since then, the company expanded Sharing Delivery® in collaboration with Asahi Shimbun’s newspaper delivery office ASA, and nearly all ASA locations interested in participating in the

09/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

speedy expansion of Sharing Delivery® bases as well as restaurant and user growth in mind, the company decided to dissolve the partnership. After the partnership is dissolved, there will no longer be prioritized proposals through Asahi Shimbun for new ASA locations as ▷ a delivery partner. As for the outsourcing contracts with ASA, the contracts are formed between each ASA-participating store and the company, and the company will consult with each ASA location going forward. Additionally, the company plans to continue focusing on expansion through directly managed delivery. The impact of the partnership dissolution on the company’s business performance is minimal, and there are no changes to the ▷ company’s full-year FY08/20 forecast (announced October 10, 2019).

Other

In October 2019, consumption tax rates in Japan were changed, with the rate for food delivery remaining at eight percent and ▷ the rate for dine-in food increasing to 10%. This is a relatively favorable environment for the company, but no major changes to KPIs have been noted since the consumption tax rates were adjusted. The company claims that the Japanese government’s Cashless Point Return Program (returns 2–5% of the value of cashless purchases made at SMEs and other businesses), which will continue until June 2020, is behind the lack of change. Demae-can believes that food delivery utilization will see more growth after this program ends. On November 1, 2019, the company updated the Demae-can Amazon Alexa skill, making it easier than before for users to order ▷ food deliveries using just their voices. Coinciding with this move, the company conducted a joint promotional campaign with Amazon for orders using Alexa. Orders through Alexa were higher than expected, resulting in a temporary system failure. However, the company mentions that the promotion was more effective than expected in terms of raising recognition of the Demae-can Amazon Alexa skill.

Mail Order business In Q1 FY08/20, revenue was JPY307mn (-3.1% YoY) and operating profit JPY45mn (+7.8% YoY).

Mail Order FY08/17 FY08/18 FY08/19 FY08/20 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Sales 369 384 355 336 348 343 336 326 317 340 323 291 307 YoY -12.4% -12.2% -15.6% -4.9% -5.6% -10.9% -5.2% -3.1% -8.9% -0.7% -3.9% -10.8% -3.1% Internal transaction 35 40 38 40 45 52 51 53 54 66 70 76 64 Sales (incl. int ernal t ransact ion) 403 425 393 376 393 394 387 379 371 407 393 366 372 Operating profit 67 78 60 54 49 59 56 55 42 64 64 54 45 YoY 34.7% 51.8% -3.0% -0.5% -27.4% -24.8% -6.4% 1.8% -13.7% 8.5% 14.7% -1.0% 7.8% Operating profit margin 18.2% 20.3% 16.9% 16.0% 14.0% 17.1% 16.7% 16.8% 13.3% 18.7% 19.9% 18.6% 14.8% Depreciat ion 2 2 3 4 3 3 4 4 4 4 4 4 4 Amortization of goodwill 26 26 26 26 26 26 17 ------EBITDA 95 106 88 83 77 88 77 59 46 68 68 58 49 YoY 21.8% 33.6% -1.4% 2.0% -18.2% -17.1% -12.6% -29.5% -40.5% -22.6% -11.3% -0.7% 7.0% EBITDA margin 25.7% 27.5% 24.8% 24.8% 22.2% 25.6% 22.9% 18.1% 14.5% 19.9% 21.2% 20.1% 16.1% Source: Shared Research based on company data

10/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

Comparable US companies In Japan, direct competitor Uber Eats (Japanese operations) is not listed and Rakuten Delivery is part of Rakuten (TSE1: 4755), so data are difficult to obtain. A growing US company operating the same business model as Yume no Machi is Grubhub, Inc. (NYSE: GRUB). We compared Yume no Machi and Grubhub.

Demae-can FY08/17 FY08/18 FY08/19 FY08/20 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Revenue 1,210 1,316 1,285 1,133 1,207 1,362 1,436 1,426 1,434 1,686 1,728 1,819 1,817 YoY 27.5% 24.2% 23.9% 2.2% -0.3% 3.5% 11.8% 25.8% 18.8% 23.8% 20.3% 27.6% 26.8% Total costs 1,012 1,209 1,021 1,011 997 1,233 1,201 1,160 1,306 1,851 1,653 1,881 2,019 YoY 25.4% 35.7% 23.2% -0.3% -1.5% 2.0% 17.6% 14.7% 31.0% 50.1% 37.6% 62.2% 54.6% % of sales 83.6% 91.9% 79.5% 89.2% 82.6% 90.5% 83.7% 81.3% 91.1% 109.8% 95.7% 103.4% 111.1% Pre-tax profit 198 107 264 123 210 129 235 266 128 -164 74 -62 -202 YoY 39.3% -36.8% 26.4% 28.8% 5.9% 21.1% -10.9% 117.4% -39.2% - -68.3% - - Pre-tax profit margin 16.4% 8.1% 20.5% 10.8% 17.4% 9.5% 16.3% 18.7% 8.9% -9.8% 4.3% -3.4% -11.1% Income taxes 79 45 69 67 69 46 71 97 36 -40 48 34 19 Implied t ax rat e 40.0% 42.3% 26.1% 55.1% 32.7% 35.6% 30.2% 36.3% 28.3% 24.1% 64.1% -55.1% -9.2% Non-cont rolling int erest s -0 -1 -1 -1 -1 -0 0 -0 - - - - - Net income attributable to owners of parent 119 62 195 56 142 83 164 170 92 -125 27 -97 -221 YoY 30.1% -42.8% 38.7% 762.2% 18.7% 34.2% -16.2% 204.6% -35.4% - -83.7% - - Net margin 9.9% 4.7% 15.2% 4.9% 11.7% 6.1% 11.4% 11.9% 6.4% -7.4% 1.5% -5.3% -12.1% No. of active users (quarter end; mn) 1.98 2.13 2.24 2.35 2.45 2.55 2.62 2.69 2.74 2.82 2.90 3.00 3.10 YoY - - 23.2% 22.4% 23.7% 20.0% 17.0% 14.5% 11.8% 10.6% 10.7% 11.5% 13.1% No. of orders / No. of active users 1.9 2.1 2.0 2.0 2.1 2.4 2.3 2.4 2.3 2.7 2.5 2.6 2.3 YoY - - - 5.0% 8.9% 10.5% 15.2% 16.5% 9.2% 13.3% 8.0% 7.4% 1.3% No. of orders (mn) 3.79 4.41 4.38 4.70 5.08 5.94 5.97 6.33 6.28 7.48 7.13 7.55 7.15 YoY 29.7% 26.0% 26.5% 28.9% 34.1% 34.6% 36.4% 34.8% 23.6% 25.9% 19.5% 19.3% 13.8% No. of affiliated stores (quarter end) 14,206 14,559 14,953 15,318 15,712 16,081 16,439 17,207 17,834 18,572 19,452 19,911 20,720 YoY 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 9.9% 12.3% 13.5% 15.5% 18.3% 15.7% 16.2%

Grubhub inc. FY12/16 FY12/17 FY12/18 FY12/19 (USDmn) Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Revenue 137 156 159 163 205 233 240 247 288 324 325 322 - YoY 37.5% 39.1% 32.1% 32.1% 49.2% 49.0% 51.0% 51.6% 40.3% 39.2% 35.6% 30.3% - Total costs 114 131 137 146 179 201 205 225 290 315 319 318 - YoY 35.5% 38.2% 40.0% 41.8% 56.7% 53.3% 50.3% 54.8% 62.3% 56.7% 55.3% 41.3% - % of revenue 83.1% 84.0% 86.1% 89.3% 87.2% 86.4% 85.7% 91.2% 101.0% 97.3% 98.1% 98.9% - Pre-tax profit 23 25 22 17 25 32 34 22 -5 9 1 4 - YoY 48.6% 44.2% -1.9% -16.1% 8.2% 26.3% 55.3% 25.4% - -72.0% -98.1% -83.6% - Pre-tax profit margin 16.9% 16.0% 13.9% 10.7% 12.3% 13.6% 14.3% 8.8% -1.7% 2.7% 0.2% 1.1% - Income taxes 10 7 7 4 -28 -0 4 -1 0 -1 -1 -3 - Implied t ax rat e 41.3% 29.1% 33.2% 25.4% -112.8% -0.7% 12.2% -5.6% -4.7% -9.8% -92.6% -96.1% - Net income attributable to owners of parent 14 18 15 13 54 31 30 23 -5 7 1 1 - Act ive Diners (mn) 8.17 8.75 9.18 9.81 14.46 15.08 15.58 16.38 17.69 19.29 20.29 21.20 - YoY 21.2% 25.6% 24.8% 27.6% 76.9% 72.3% 69.8% 67.0% 22.3% 27.9% 30.2% 29.4% - No. of orders / Average no. of users 3.4 3.5 3.2 3.0 3.0 2.7 2.5 2.4 2.5 2.5 2.2 2.0 - YoY 0.5% -2.9% -7.5% -9.8% -12.3% -22.9% -21.2% -18.9% -15.2% -4.7% -10.5% -15.3% - Daily Average Grubs ('000) 293 325 314 305 393 437 423 416 468 521 489 457 - DAG x No. of days (mn) 26.91 29.21 28.56 28.01 36.11 39.32 38.51 38.27 43.01 46.89 44.49 42.07 - YoY 21.0% 19.8% 15.8% 13.8% 34.2% 34.6% 34.8% 36.6% 19.1% 19.2% 15.5% 9.9% - Gross food sales 818 898 880 867 1,139 1,245 1,220 1,215 1,377 1,502 1,459 1,400 - YoY 27.3% 26.0% 20.1% 18.0% 39.2% 38.6% 38.7% 40.0% 20.9% 20.7% 19.6% 15.3% - Source: Shared Research based on company data

Because Uber was listed in 2019 (NYSE: UBER), Uber Eats figures (on a global basis) are shown for reference.

Uber Eat s (Worldwide) FY12/17 FY12/18 FY12/19 (USDmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Revenue 83 121 163 220 283 346 394 437 536 595 645 - YoY 241.0% 186.0% 141.7% 98.6% 89.4% 72.0% 63.7% - Excess driver incentives 47 42 52 69 97 124 200 266 291 253 247 - YoY 106.4% 195.2% 284.6% 285.5% 200.0% 104.0% 23.5% - % of revenue 34.3% 35.8% 50.8% 60.9% 54.3% 42.5% 38.3% - Driver referrals 3 4 4 43 3 2 3 6 6 5 6 - YoY - -50.0% -25.0% -86.0% 100.0% 150.0% 100.0% - % of revenue 3.1% 1.6% 1.5% 2.3% 2.1% 2.0% 2.4% - Adjusted net revenue 33 75 107 148 183 220 191 165 239 337 392 - YoY 454.5% 193.3% 78.5% 11.5% 30.6% 53.2% 105.2% - % of revenue 64.7% 63.6% 48.5% 37.8% 44.6% 56.6% 60.8% - Source: Shared Research based on company data

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

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Initial forecasts for FY08/20

FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 FY08/21 2-year (JPYmn) Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Init. Est. MTP CA GR Revenue 1,259 1,360 2,087 3,558 3,661 4,155 4,944 5,431 6,666 9,300 13,000 39.6% YoY 8.8% 8.0% 53.5% 70.5% 2.9% 13.5% 19.0% 9.8% 22.7% 71.2% 39.8% Operating profit 244 211 278 362 547 573 801 837 -39 -1,500 1,000 YoY 4.5% -13.7% 32.2% 30.0% 51.1% 4.8% 39.8% 4.6% - - - OPM 19.4% 15.5% 13.3% 10.2% 14.9% 13.8% 16.2% 15.4% -0.6% -16.1% 7.7% Earnings Net income 146 115 97 167 97 348 433 559 -103 -1,600 650 YoY 18.7% -21.2% -16.0% 73.1% -42.0% 258.4% 24.4% 29.1% - - - Net margin 11.6% 8.5% 4.6% 4.7% 2.6% 8.4% 8.8% 10.3% -1.5% -17.2% 5.0% Revenue Demae-can 1,253 1,360 1,427 1,723 1,968 2,522 3,499 4,078 5,395 - - Mail Order - - 660 1,836 1,693 1,633 1,445 1,353 1,271 - - YoY Demae-can 9.6% 8.6% 5.0% 20.7% 14.3% 28.1% 38.8% 16.5% 32.3% - -

Segments Mail Order - - - 178.3% -7.8% -3.5% -11.5% -6.4% -6.1% - - No. of orders (mn) 6.78 7.37 7.76 8.87 10.56 13.53 17.28 23.32 28.45 35.66 44.43 25.0% YoY 6.6% 8.6% 5.4% 14.3% 19.1% 28.1% 27.7% 35.0% 22.0% 25.3% 24.6% No. of users (mn) 0.89 1.13 1.16 1.35 1.54 1.92 2.35 2.69 3.00 3.46 4.13 17.3% YoY 27.1% 27.0% 2.7% 16.4% 14.1% 24.7% 22.4% 14.5% 11.5% 15.3% 19.4% KPI No. of affiliat ed st ores 10,678 11,223 11,336 11,636 12,213 13,656 15,318 17,207 19,911 23,528 27,925 18.4% YoY 8.5% 5.1% 1.0% 2.6% 5.0% 11.8% 12.2% 12.3% 15.7% 18.2% 18.7% No. of Sharing Delivery bases 10 60 215 300 400 36.4% YoY ------500.0% 258.3% 39.5% 33.3% Revenue / No. of orders (JPY) 185.8 184.6 268.9 401.2 346.8 307.1 286.1 232.8 234.3 260.8 292.6 11.7% YoY 2.1% -0.6% 45.7% 49.2% -13.6% -11.4% -6.8% -18.6% 0.6% 11.3% 12.2% No. of orders / No. of active users 7.6 6.5 6.7 6.6 6.9 7.0 7.4 8.7 9.5 10.3 10.8 6.5% YoY -16.2% -14.4% 2.6% -1.8% 4.4% 2.8% 4.3% 17.9% 9.4% 8.7% 4.4% Active users / Affiliated stores (average) 86.8 103.2 102.8 117.5 129.1 148.4 162.2 165.4 161.6 169.9 172.7 3.4%

For FY08/20, the company is forecasting full-year consolidated revenue of JPY9.3bn (+39.5% YoY), an operating profit of JPY1.5bn (versus loss of JPY39mn in FY09/19), a recurring loss of 1.5bn (versus loss of JPY7mn), and a net loss attributable to owners of the parent of JPY1.6bn (versus loss of JPY103mn in FY08/19).

For FY08/21, the company is forecasting full-year consolidated revenue of JPY13.0bn (versus projected revenue of JPY9.3bn in FY08/20), operating profit of JPY1.0bn (versus projected loss of JPY1.5bn in FY08/20), recurring profit of JPY1.0bn (versus projected loss of JPY1.5bn in FY08/20), and net income attributable to owners of the parent of JPY650mn (versus projected loss of JPY1.6bn in FY08/20).

The company continues working to expand its mainstay Demae-can business. The company plans to outgrow its simple food delivery business and become essential to daily life in Japan by expanding its Sharing Delivery service. The company intends to prioritize investment in its business foundation in FY08/20, so plans large upfront spending for the year.

With regard to the impact of the Tokyo Olympics in the summer of 2020, the company says that it expects a boost to demand in its Demae-can business because more people are likely to order meal deliveries so they can stay home and watch the games on TV.

The company did not disclose a dividend forecast for FY08/20, citing the need for flexible decision-making to reflect the company’s earnings and financial status, the dividend payout ratio, and increases in retained earnings for business development. The company aims to maintain a stable dividend payout ratio of 30%.

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Historical forecast accuracy

Initial Est. versus Results FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 (JPYmn) Cons. vs. Est. Cons. vs. Est. Cons. vs. Est. Cons. vs. Est. Cons. vs. Est. Cons. vs. Est. Revenue Initial Est. 3,400 +4.7% 3,750 -2.4% 4,000 +3.9% 4,600 +7.5% 5,434 -0.1% 7,681 -13.2% Est. as of Q1 3,400 +4.7% 3,750 -2.4% 4,000 +3.9% 4,600 +7.5% 5,434 -0.1% 7,681 -13.2% Est. as of Q2 3,600 -1.2% 3,750 -2.4% 4,000 +3.9% 5,000 -1.1% 5,434 -0.1% 7,000 -4.8% Est. as of Q3 3,600 -1.2% 3,750 -2.4% 4,150 +0.1% 5,000 -1.1% 5,434 -0.1% 7,000 -4.8% Results 3,558 3,661 4,155 4,944 5,431 6,666 Operating profit Initial Est. 363 -0.3% 550 -0.6% 650 -11.9% 800 +0.1% 819 +2.2% 100 -139.2% Est. as of Q1 363 -0.3% 550 -0.6% 650 -11.9% 800 +0.1% 819 +2.2% 100 -139.2% Est. as of Q2 430 -15.8% 550 -0.6% 650 -11.9% 800 +0.1% 819 +2.2% -300 -86.9% Est. as of Q3 430 -15.8% 550 -0.6% 570 +0.5% 800 +0.1% 819 +2.2% -300 -86.9% Results 362 547 573 801 837 -39 Recurring profit Initial Est. 357 +2.4% 510 +6.2% 656 -11.7% 800 -0.3% 824 +3.0% 117 -106.1% Est. as of Q1 357 +2.4% 510 +6.2% 656 -11.7% 800 -0.3% 824 +3.0% 117 -106.1% Est. as of Q2 417 -12.3% 510 +6.2% 656 -11.7% 800 -0.3% 824 +3.0% -290 -97.5% Est. as of Q3 417 -12.3% 510 +6.2% 576 +0.5% 800 -0.3% 824 +3.0% -290 -97.5% Results 366 541 579 798 849 -7 Net income Initial Est. 196 -14.6% 232 -58.2% 343 +1.4% 450 -3.9% 478 +16.9% 79 -230.7% attributable to Est. as of Q1 196 -14.6% 232 -58.2% 343 +1.4% 450 -3.9% 478 +16.9% 79 -230.7% owners of parent Est. as of Q2 198 -15.5% 232 -58.2% 343 +1.4% 450 -3.9% 478 +16.9% -300 -65.6% Est. as of Q3 198 -15.5% 232 -58.2% 350 -0.7% 450 -3.9% 478 +16.9% -300 -65.6% Results 167 97 348 433 559 -103 Source: Shared Research based on company data

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Medium-term management plan

Indices YoY 17.0% 18.9% -0.3% 14.3% 9.9% 14.9% 9.3% 2.0% -2.3% 5.1% 1.6% Orders / Affiliated stores (average) 661 673 688 772 885 1,046 1,193 1,434 1,533 1,764 1,868 10.4% YoY -1.9% 1.8% 2.3% 12.2% 14.7% 18.1% 14.0% 20.3% 6.9% 15.1% 5.9% Demae-can GMV (incl. consumption tax, SR est.; JPYbn) 18.9 20.1 21.5 24.3 28.9 37.1 46.5 63.2 78.1 - - - 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.

The company does not provide a breakdown of its revenue and operating profit targets for individual businesses, but we know that it focusing its efforts on growing its Demae-can business. This, together with the fact that revenue and earnings at its mail order business have been generally flat over the past several years, make it reasonable to assume that most of the changes in revenue and earnings in FY08/20 and FY08/21 will be the result of developments in the Demae-can business.

Compared with the market overseas, the restaurant food delivery market in Japan is still relatively small, and this together with the general lack of competition makes it likely that the restaurant food delivery market in Japan will grow in the years ahead. In the US, for example, we find Grubhub (GRIB) reporting gross merchandise volume (GMV) of approximately JPY599.1bn in the most recent fiscal year (July 2018–June 2019). In contrast, Yume no Machi recorded a gross merchandise volume of only JPY76.4bn.

Supplemental information regarding earnings forecasts Revenue target: The company’s FY08/21 revenue target of JPY13.0bn assumes an average annual growth rate of 39.6% over the next two years. The forecast also assumes that revenue generated per order (total revenue/number of orders) will rise by 11.3% YoY in FY08/20 and then by another 12.2% in FY08/21. This reflects the company’s plans to establish more delivery bases for its Sharing Delivery service, which will in turn increase the proportion of revenue generated by orders that the company delivers in exchange for fees. Excluding delivery fee income, the company is assuming that the average revenue generated per order will remain at the same level recorded in FY08/19.

Order count and active user targets: For active users, the company sees growth accelerating with the number of active users rising by 15.3% YoY in FY08/20 followed by a 19.4% increase in FY08/21. In contrast, for the order count, the company is targeting a 25.3% YoY increase in FY08/20 followed by a slightly smaller rise of 24.6% in FY08/21. The forecast for slower order growth in FY08/21 reflects 1) the tendency of most new users to start out as light users, gradually increasing their repeat order frequency over time, and 2) the company’s expectation that growth in its active user base will accelerate from FY08/20 into FY08/21, which together means there is likely to be a temporary slowdown in order growth in F08/21.

Profit/loss outlook: With plans calling for heavy investment spending in FY08/20, the company is forecasting a consolidated operating loss of JPY1.5bn (versus loss of JPY39mn in FY08/19), a recurring loss of 1.5bn (versus loss of JPY7mn in FY08/19), and a net loss of JPY1.6bn (versus net loss of JPY103mn in FY08/19). Investment spending plans, which include spending on advertising and promotion, delivery bases for the Sharing Delivery service, and software development, will be detailed later in this report.

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The company sees earnings moving back into the black in FY08/21, forecasting operating profit of JPY1.0bn, recurring profit of JPY1.0bn, and net income of JPY650mn.

*KPI: Key Performance Indicators 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: 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.

Medium-term vision for Demae-can business Under its medium-term vision, the company is looking to create more than a simple food delivery service, it wants to create essential “life infrastructure” for the future of Japan. Towards this end, the company wants its Demae-can business to embody the message that Yume no Machi Souzou Iinkai is more than a delivery service operator that connects consumers with restaurants; it is a company that seeks to elevate the lives of local consumers and enhance local businesses.

Strategy for achieving medium-term vision: FY08/20 action plan In an effort to get consumers to use food delivery services on a more regular basis, the company is working to change its business model to better incorporate the views of users. Towards this end, it has three specific action plans that it is looking to implement during FY08/20:

The company is looking to expand the number of delivery bases under its Sharing Delivery service as a means of improving the efficiency of delivery operations and significantly reducing the average cost of deliveries. Expanding the area covered by its delivery service can also be expected to lead to an increase in the number of active users, which in turn should lead to an increase in the total number of orders. By end-FY08/20, the company is looking to have a total of 300 delivery bases in place under its Sharing Delivery service (an increase of 85 over end-FY08/19) and by end-FY08/21 aims to get this number up to 400 (an increase of 100 over end-FY08/20). These targets reflect the company’s plans for reducing the number of delivery bases currently operated by partner companies (as of October 2019). The company has not disclosed any target figures for the number of delivery bases it is looking to operate directly versus those operated by partner companies, but because its goal is to reduce its delivery charges, it is reasonable to assume that most newly established delivery bases will be operated directly.

Along with the expansion of its delivery network, the company is also looking to increase delivery efficiency and significantly reduce the average cost of deliveries. At its recent results presentation meeting, the company said that it is looking to increase active user and order numbers by lowering its delivery charge (included under “other revenue” of the Demae-can business), which in past years was equal to 36% of the total order ticket. While lowering delivery charges under its Sharing Delivery service would probably lead to an increase in the number of deliveries made by partner companies that are operating delivery bases, the reduced compensation per delivery would undoubtedly prompt some to terminate their partnership agreement, in which case the company would move in and establish its own directly managed base to serve that area rather than going through a partner company. The reduction in delivery charges would of course impact the company’s directly managed delivery bases as well, but management believes it will be able to offset the reduction in revenue by improving the efficiency of delivery operations enough to keep the time needed for individual bases to become profitable roughly the same as in the past. The company measures delivery efficiency by calculating the average number of deliveries per delivery person per hour. The company says it needs roughly two deliveries (per delivery person) an hour to break even, and added that delivery bases can expect to get their delivery rate up to three deliveries per hour (per delivery person) after being in operation several years.

Switch to fee schedule that varies depending on the value of the order As discussed previously, one the key indicators the company watches closely (but does not disclose) is its order conversion rate, or the percentage of website viewers that end up placing orders. In the past, the company’s restaurant browser listed all affiliated restaurants in a uniform fashion ranked by delivery time, with the restaurants with the shortest delivery times displayed at the top of the list. This ranking scheme naturally led to higher conversion rates for individual restaurants showing short delivery times compared to restaurants with longer delivery times, though we doubt that small differences between displayed delivery times

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make much difference in determining the order conversion rate of one restaurant over another. We would also note that the delivery times displayed are only estimates made at the time orders are placed, and actual delivery times may differ. Going forward, the company will be experimenting with different ways of displaying information about affiliated restaurants in an effort to increase the average conversion rate for all restaurants. Towards this end, the company will run A/B tests in individual geographic areas to see which display ranking scheme leads to higher conversion rates. Meanwhile, the company is also planning to start charging restaurants that come out near the top of its ranking scheme commission rates that are more commensurate with the value provided by their high rankings.

Undertake marketing initiatives aimed at increasing repeat orders Another key indicator that the company watches closely but does not disclose is its repeat order ratio. While the company does not disclose precise figures for its repeat order ratio, we can get a very rough estimate of the repeat order ratio by dividing the total number of orders by the number of active users. We have no way of adjusting this figure to eliminate the impact of guest users (i.e., users who do not register), however, and would also note that the active user figure the company reports does not include those ordering through partner restaurants. Keeping these limitations in mind, our calculations show a full-year repeat order ratio of 9.5x for FY08/19. Using the company’s target figures for orders and the number of active users in FY08/20 and FY08/21, we get a comparable estimate for the company’s target for the repeat order ratio of roughly 10.3x in FY08/20 and 10.8x in FY08/21. These figures are achievable if active users order at an average rate of once per month (bringing our estimated repeat order ratio to 12.0x).

Investment spending plans Advertising and promotion With its Demae-can brand recognized by only a little over 40% of the general public in FY08/19, the company plans to continue spending heavily on advertising and promotion going forward. After spending some JPY1.6bn on advertising and promotion in FY08/19, the company plans spending more than this amount in both FY08/20 and FY08/21.

Establishing more delivery bases for its Sharing Delivery service The company is looking to have 300 delivery bases in operation by the end of FY08/20, an increase of 85 over end-FY08/19, and then aims to further raise this number by 100 during the following year, to 400 by end-FY08/21. These targets reflect the company’s plans for reducing the number of delivery bases currently operated by partner companies (as of October 2019). The company has not disclosed any target figures for the number of new delivery bases it is looking to operate directly, but because its goal is to lower its delivery charges, it is safe to assume that most newly established delivery bases will be operated directly. The company’s directly managed delivery bases consist of a building, one or two motorbikes and five to six electric bicycles specially equipped for making deliveries (all of which are leased or rented). Because each delivery base requires these upfront investments, the company expects each base to incur cumulative losses of some JPY20mn to JPY30mn during their first 10–15 months in operation. Not included in these losses are additional mandatory security deposits for rental property.

Spending on systems development At the time of its April 2019 issue of share warrants with an exercise price amendment, the company indicated that roughly JPY3.0bn of the proceeds would be used to fund investments in systems development during the period spanning from July 2019 to August 2021. With spending on systems development going up, related depreciation charges will also rise. As of FY08/19, the company depreciates self-developed software over five years.

Fund raising Although the company did not touch on the subject of fund raising at the results presentation meeting held to discuss FY08/19 results, it did issue a separate press release at the time of its FY08/19 results announcement indicating its intention to seek a change in its articles of incorporation at its next general shareholders meeting (scheduled for November 28, 2019). The company’s proposal calls for increasing the number of authorized shares to 150.0mn in order to streamline and accelerate fund raising business development. As of August 31, 2019, the company had outstanding shares of 44.4mn, or only 29.6% of the number of shares authorized under the company’s proposal.

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Business Business description On November 28, 2019, the company changed its company name to Demae-can Co., Ltd. By making the company name the same as its brand name, the company wished to convey its intention to develop business focused on the Demae-can business.

The company’s former name “Yume no Machi Souzou Iinkai” (“Committee to Create a Dream Town”) incorporated the concept of the 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’s main businesses are its Demae-can business and its mail order business for restaurants. The Demae-can business reported total revenue of JPY5.4bn and operating loss of JPY18mn in FY08/19, while the mail order business reported revenue of JPY1.3bn and operating profit of JP224mn. Under its Demae-can business, the company operates an online platform through which consumers looking for speedy home delivery service (in as little as 20 minutes) can order food from affiliated restaurants. The company estimates that it had roughly an 11% share and approximately JPY77bn in gross merchandise volume in the home food delivery market in Japan in FY08/19.

Demae-can business

Demae-can FY08/17 FY08/18 FY08/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Revenue 841 931 930 797 859 1,019 1,100 1,100 1,117 1,346 1,405 1,528 YoY 59.3% 49.8% 50.8% 5.5% 2.1% 9.5% 18.3% 38.1% 30.0% 32.0% 27.7% 38.9% Operating profit 232 171 271 180 222 144 226 272 114 -147 64 -48 YoY 43.9% 67.4% 21.7% -5.2% -4.5% -15.8% -16.6% 50.7% -48.6% - -71.9% - OPM 27.6% 18.3% 29.1% 22.7% 25.8% 14.1% 20.6% 24.7% 10.2% -10.9% 4.5% -3.2% Order processing fees 415 502 498 524 563 679 677 716 703 855 819 879 YoY 23.2% 23.1% 26.2% 28.7% 35.7% 35.1% 36.1% 36.7% 24.9% 26.0% 21.0% 22.7% No. of orders (mn) 3.79 4.41 4.38 4.70 5.08 5.94 5.97 6.33 6.28 7.48 7.13 7.55 YoY 29.7% 26.0% 26.5% 28.9% 34.1% 34.6% 36.4% 34.8% 23.6% 25.9% 19.5% 19.3% Order processing fees / No. of orders 109.4 113.8 113.6 111.5 110.7 114.3 113.4 113.1 111.9 114.3 114.8 116.3 YoY -5.0% -2.3% -0.3% -0.2% 1.2% 0.4% -0.2% 1.4% 1.1% 0.0% 1.3% 2.9% No. of affiliated stores (quarter-end) 14,206 14,559 14,953 15,318 15,712 16,081 16,439 17,207 17,834 18,572 19,452 19,911 YoY 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 9.9% 12.3% 13.5% 15.5% 18.3% 15.7% No. of orders / No. of affiliated stores 272.2 306.7 296.7 310.3 327.7 373.5 367.3 376.3 358.7 410.8 375.2 383.7 YoY 15.1% 9.6% 9.5% 13.6% 20.4% 21.8% 23.8% 21.3% 9.4% 10.0% 2.2% 2.0% No. of active users (quarter-end; mn) 1.98 2.13 2.24 2.35 2.45 2.55 2.62 2.69 2.74 2.82 2.90 3.00 YoY - - 23.2% 22.4% 23.7% 20.0% 17.0% 14.5% 11.8% 10.6% 10.7% 11.5% No. of orders / Average no. of users 1.9 2.1 2.0 2.0 2.1 2.4 2.3 2.4 2.3 2.7 2.5 2.6 YoY - - - 5.0% 8.9% 10.5% 15.2% 16.5% 9.2% 13.3% 8.0% 7.4% No. of Sharing Delivery bases - - 2 10 17 23 33 60 78 104 161 215 YoY ------1,550.0% 500.0% 358.8% 352.2% 387.9% 258.3% Depreciat ion 49 49 36 37 36 38 42 46 49 56 60 65 EBITDA 293 230 315 217 257 182 268 317 163 -91 123 16 YoY 41.2% 52.7% 15.5% -14.8% -12.1% -21.1% -14.9% 46.1% -36.7% - -54.0% -94.8% EBITDA margin 34.8% 24.7% 33.9% 27.3% 30.0% 17.8% 24.4% 28.9% 14.6% -6.8% 8.8% 1.1% Source: Shared Research based on company data

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 restaurants 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 the company’s Sharing Delivery service for restaurants 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. Using Sharing Delivery allows affiliated restaurants without their own food delivery infrastructure to access a new source of revenue.

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Business structure

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

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

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.

Flow of operations in Demae-can business

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

Sends order confirmation email Simple operation on the phone to users

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

Restaurants usually take orders via fax and/or telephone, but orders taken this way need to be entered into cash registers. To eliminate this extra step, the company is urging affiliated restaurants to make a shift to using Demae-can’s order management app synced with a point-of-sale (POS) system. Note that even if affiliated restaurants make the transition to using the app, this change merely cuts communication costs at the company and has no significant impact on the company’s expenses.

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

Source: Shared Research based on company data

Affiliated restaurants The company puts a lot of thought into expanding its affiliated restaurant network, carefully studying each region and directing most of its efforts toward adding affiliated restaurants in food genres that are underrepresented.

Major chains

Demae- Demae- Demae- Demae- No. of No. of No. of No. of Brand can Brand can Brand can Brand can stores stores stores stores affiliat e affiliat e affiliat e affiliat e Pizza Pizza-la 553 〇 Family Gusto 1346 〇 Conveyer belt Sushiro 531 Pub T orikizoku 659 Domino's 555 〇 restaurant Saizeriya 1093 sushi Hamazushi 500 Uotami 588 Pizza Hut 407 〇 Joyfull 791 〇 Kurasushi 424 Kushikatsu Tanaka 255 〇 Coco's 586 〇 Kappa Sushi 329 〇 Hamburger McDonald's 2900 〇 Café Starbucks 1458 MOS Burger 1307 〇 Beef bowl Sukiya 1931 Lunch box Hottomotto 2726 〇 Doutor 1105 KFC 1132 〇 Yoshinoya 1211 〇 Hokka Hokka Tei 982 〇 Mister Donut 1007 Lotteria 354 〇 Matsuya 1178 Freshness Burger 182 〇 Nakau 461 Chinese Gyoza Ohsho 729 〇 Sweets Baskin Robbins 1165 Tempura Tendon Tenya 208 〇 Ringer Hut 679 〇 Fujiya 834 Curry and rice CoCoICHI 1267 〇 Korakuen 504 〇 Cozy Corner 711 Udon noodle Marugame Udon 825 〇 Hidakaya 436 〇 Takoyaki Gindako 491 〇 Hanamaru 512 〇 Source: Shared Research based on each company’s data (October 2019 research) Note: Chains marked with a ○ sign refer to Demae-can affiliated chains

Spending per order Spending per order is stable at a little shy of JPY3,000, showing little short-term change with monthly fluctuations of at most a few percent. The small change is a result of the proportion of customers in each customer segment remaining unchanged.

External factors such as the day of the week and weather Accurate analysis of the effects of external factors is difficult because there are multiple variables, many of which change based on region and time, but in general the following effects can be seen.

A trend toward more orders on weekends and holidays compared to weekdays ▷ A trend toward more orders on cold days, hot days, and rainy days when going out is troublesome ▷ A trend toward more orders in July and August when school is out of session ▷ Since demand for home delivery goes up at night, a trend toward more orders at night than during the day ▷

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Promotions The company’s promotional efforts are for the purpose of obtaining orders rather than for general branding. Promotion of the food delivery service has the following characteristics in comparison to other products and services. Food delivery is a localized business. As such, it is necessary to consider approaches tailored to local conditions when trying to ▷ raise the effectiveness of promotions. Food delivery is strongly subject to the influence of time. Therefore, it is necessary to promote the service at times when ▷ potential customers want to eat.

Moves in nonfood areas

The company admits that it might expand into nonfood businesses, despite less frequent contact with customers, if they fit ▷ under the category of instant, convenient services. It would first enter any such businesses on a trial basis. The company started providing a lifestyle problem resolution service in collaboration with Japan Best Rescue System Co., Ltd. ▷ in November 2018. In addition to an increase in the number of Sharing Delivery bases, the company began test operations of a service to resolve minor problems such as changing light bulbs and simple cleaning on a regional basis.

Overseas development

Not a high priority currently. The company’s focus is on growing the Demae-can business in Japan. ▷ Even if it did decide to move overseas, the company would probably do so through a joint venture in collaboration with a local ▷ company. Because food delivery is a localized business, the company’s participation would involve providing expertise it has

gleaned through operating the Demae-can business.

Sharing Delivery

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

Some of the delivery bases used for its Sharing Delivery service are operated directly while others are operated through ▷ partnerships with other companies, such as newspaper delivery service operators. Sharing Delivery depended heavily on partner companies early on, but its proportion of directly operated delivery bases has steadily increased, and, as of end-FY08/19, the company directly operated 115 of this service’s delivery bases, versus 100 operated by partner companies. With Sharing Delivery, the company intends to increase the convenience of the service as a whole rather than earning profit ▷ from delivery fees. Hence, it expects to reach the breakeven point after incurring total losses of some JPY20–30mn per delivery base during the first 10–15 months of operation. Looking further ahead, the company is also thinking about using the delivery network it is putting together for its Sharing ▷ Delivery service to deliver products other than restaurant food.

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Overview Order details

Pick up Success food fee

Delivery

Source: Shared Research based on company data

Benefits for consumers and restaurants Sharing Delivery offers benefits to both consumers and restaurants. Advantages for restaurants include the following:

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. 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. High average spending per customer: Stores enjoy growth in orders from Demae-can users, whose average spending is high ▷ (just under JPY3,000). 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 are as follows:

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

Sharing Delivery’s network of bases 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 (It plans to cancel this alliance in June 2020) and cooperation with Asahi Shimbun’s delivery network of ASA stations. This was followed by the establishment of its first delivery base in Sagamihara (Kanagawa Prefecture) in March 2017. The company aims to use ASA’s nationwide network of over 2,000 delivery bases to expand Sharing Delivery across Japan. In areas where ASA lacks a presence or ASA station operators are not interested in joint delivery, Yume no Machi is collaborating with other companies.

From August 2018, the company actively established directly managed delivery bases in an effort to rapidly establish a dominant position in key areas. In 2019, it plans to maintain and enhance quality of its delivery network by placing partner-run facilities that do not meet its quality standards, such as in terms of time to delivery, under direct management.

The company plans to dissolve its business partnership with Asahi Shimbun effective June 14, 2020.

collaboration with Asahi Shimbun’s newspaper delivery office ASA, and nearly all ASA locations interested in participating in the

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business are already involved. Aside from ASA, the company is currently expanding its service area through several partnered regional transport companies as well as directly managed delivery. Upon reevaluating the business partnership with the speedy expansion of Sharing Delivery® bases as well as restaurant and user growth in mind, the company decided to dissolve the partnership. After the partnership is dissolved, there will no longer be prioritized proposals through Asahi Shimbun for new ASA locations as ▷ a delivery partner. As for the outsourcing contracts with ASA, the contracts are formed between each ASA-participating store and the company, and the company will consult with each ASA location going forward. Additionally, the company plans to continue focusing on expansion through directly managed delivery.

Service areas and delivery efficiency Since the large pizza chains each have a number of service areas of nearly 600, the company thinks it should be possible to achieve around the same level. If the number of orders increases significantly for any given service area, it can be split in two.

In the short-term, the company thinks it is important to reduce waiting time thereby improving convenience for its customers, which will lead to more orders. As the number of orders increases, the company will be better able to improve delivery efficiency, ultimately resulting in greater profitability.

Impact of time to delivery on close ratio Time to delivery plays a crucial role in increasing the close ratio. According to company data, if time to delivery goes over 60 minutes, the close ratio drops to below 10% of what it would have been for time to delivery of 30 minutes or less.

Impact of time to delivery on close ratio (close ratio=number of orders/ restaurant page views)

100% 100%

80% ⇒ Time to delivery over 60 minutes lowers close ratio below 10% of "30 60% minutes or less"

40% 45%

20% 24% 15% 10% 8% 0% 30 or less 31–40 41–50 51–60 61–70 71–80 (minutes) Source: Shared Research based on company data

Delivery quality Because delivery quality is an important determinant of whether or not users place repeat orders, the company has established its own training center for delivery drivers and otherwise puts a lot of effort into improving delivery quality metrics through a range of other measures, including creating manuals and specialized training materials, standardizing procedures at delivery bases, employing trained specialists to conduct periodic inspections of delivery bases, and conducting sanitation checks of delivery bags. These delivery quality assurance measures are in place at not only the Sharing Delivery bases the company manages directly, but also at the delivery bases managed by partner companies.

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Investments in directly managed delivery bases for Sharing Delivery service For each directly managed delivery base, the company rents the building where the base is located in as well as one or two motorbikes and five to six electric bicycles for use in making deliveries. Thus, for each directly managed base it expects to incur cumulative loss of JPY20–30mn during the first 10–15 months in operation and make a security deposit for the building.

Earnings structure Companies that use Sharing Delivery pay a percentage of the order amount to the delivery base. Of the order value paid to delivery base, the menu price and delivery costs (in the past, a delivery fee of 36% [included under “other revenue” in the Demae-can business]. The company plans to reduce this fee in the future.) are shouldered by the user. However, the extent to which fees are added to menu prices is left to the discretion of the stores and therefore varies. Yume no Machi does not factor delivery fees into its revenue or gross merchandise value.

Interpreting disclosed data Revenue breakdown The company’s revenue breaks down into the following major items: a) Basic operating fees: Fixed fees charged on a monthly basis to each restaurant (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).

Also, at directly managed delivery bases under the company’s Sharing Delivery service, delivery fees and fees collected from affiliated restaurants are recorded as revenue. Delivery fees and payment processing fees are both recorded under “other revenues” in the Demae-can business.

Revenue

Basic operating fees Order processing fees 5,395 (JPYmn) (JPYmn) Basic operating fees Order processing fees Advertising fees Advertising fees System development fees 40% 1,800 System development fees Other Other YoY (left axis) 5,000 1,591 1,600 35% 4,078 1,400 30% 4,000 3,499 963 1,200 25% 1,150 3,000 1,000 20% 1,723 2,522 1,968 800 578 3,256 15% 2,000 1,427 320 2,634 600 1,253 1,360 253 197 10% 137 172 1,938 400 1,546 1,000 1,013 1,204 5% 786 840 895 200

254 268 267 272 277 297 340 410 481 0 0% 0 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY08/11FY08/12FY08/13FY08/14FY08/15FY08/16FY08/17FY08/18FY08/19 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 Source: Shared Research based on company data

Cost structure The company’s main costs can be divided into two groups.

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a) Cost of revenue: Mainly fixed costs (depreciation, including depreciation of its software assets), 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).

For the most part, costs at the Demae-can business break down into pure variable costs (payment processing fees), sales force costs (to develop affiliated restaurants), marketing costs to attract new users and increase usage rates, and call center-related costs.

The company also incurs costs through its Sharing Delivery service, including real estate leasing and personnel costs.

Cost of revenue (parent level)

SG&A expenses (parent level)

FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 (JPYmn) Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. SG&A expenses 660 713 740 753 827 906 1,171 1,418 1,956 3,749 Personnel (excl. salaries for temp. employees) 243 236 260 250 262 340 351 400 481 663 Advertising expenses 113 111 118 140 139 166 361 448 742 1,555 Rents 25 29 32 ------Depreciat ion 13 12 12 10 11 6 9 12 13 18 Amortization of goodwill 43 42 43 62 82 83 82 102 122 164 Other 223 283 276 290 334 311 368 457 597 1,351 YoY -10.3% 8.0% 3.8% 1.7% 9.9% 9.5% 29.3% 21.1% 37.9% 91.7% Personnel (excl. salaries for temp. employees) 0.3% -3.1% 10.0% -3.5% 4.8% 29.7% 3.1% 14.1% 20.2% 37.7% Advertising expenses -39.9% -1.9% 6.3% 18.6% -1.1% 19.8% 117.2% 24.1% 65.7% 109.4% Rents 1.0% 17.3% 7.9% ------Depreciat ion 28.4% -5.7% -3.5% -10.7% 3.5% -42.5% 54.7% 25.3% 9.0% 40.9% Commission fees -4.7% -3.4% 2.9% 44.0% 32.0% 1.9% -1.2% 24.2% 19.9% 33.7% Other -1.1% 27.1% -2.3% 5.0% 15.1% -7.0% 18.5% 24.0% 30.8% 126.2% % of revenue (SG&A ratio) 57.0% 56.6% 54.4% 52.8% 48.2% 46.1% 49.2% 47.7% 48.2% 69.5% Personnel (excl. salaries for temp. employees) 21.0% 18.7% 19.1% 17.5% 15.3% 17.3% 14.7% 13.4% 11.9% 12.3% Advertising expenses 9.8% 8.8% 8.7% 9.8% 8.1% 8.5% 15.2% 15.0% 18.3% 28.8% Rents 2.2% 2.3% 2.3% ------Depreciat ion 1.1% 0.9% 0.8% 0.7% 0.6% 0.3% 0.4% 0.4% 0.3% 0.3% Commission fees 3.7% 3.3% 3.2% 4.3% 4.7% 4.2% 3.4% 3.4% 3.0% 3.0% Other 19.2% 22.5% 20.3% 20.3% 19.5% 15.8% 15.5% 15.3% 14.7% 25.0% Operating profit 234 244 223 267 255 476 508 673 704 -247 YoY 35.4% 4.5% -8.7% 19.7% -4.4% 86.8% 6.7% 32.5% 4.5% - OPM 20.2% 19.4% 16.4% 18.7% 14.8% 24.2% 21.3% 22.6% 17.3% -4.6% Source: Shared Research based on company data

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Key performance indicators The company discloses three key performance indicators that it watches closely: the number of orders, the number of affiliated restaurants, and the number of active users. For FY08/19, the company reported a total of 28.45mn orders, 19,911 affiliated restaurants, and some 3.0mn users. Growth in the number of orders flows leads directly to growth in top-line revenue, while the number of affiliated restaurants and active users together create the base for continued order growth. In addition, the number of delivery bases established for the company’s Sharing Delivery service also serves as a good indicator of the speed of the company’s expansion on this front. Key indicators that the company watches closely but does not disclose include its order conversion rate (the percent of website viewers that place orders) and its repeat order ratio. We can get a very rough estimate of the repeat order ratio by dividing the total number of orders by the number of active users; with this calculation, we find the average active users placing about 9.5 orders a year (as of FY08/19).

Revenue from order processing fees (50% of total revenue) is calculated as the product of the number of orders, average order ▷ value, and order processing fee rate. According to the company, the average order value is largely fixed and the order processing fee rate also does not change. However, the number of orders is calculated as the active number of users times the repeat order ratio.

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Mail Order business

Mail Order FY08/17 FY08/18 FY08/19 FY08/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Cons. Sales 369 384 355 336 348 343 336 326 317 340 323 291 1,271 YoY -12.4% -12.2% -15.6% -4.9% -5.6% -10.9% -5.2% -3.1% -8.9% -0.7% -3.9% -10.8% -6.1% Internal transaction 35 40 38 40 45 52 51 53 54 66 70 76 265 Sales (incl. int ernal t ransact ion) 403 425 393 376 393 394 387 379 371 407 393 366 1,536 Operating profit 67 78 60 54 49 59 56 55 42 64 64 54 224 YoY 34.7% 51.8% -3.0% -0.5% -27.4% -24.8% -6.4% 1.8% -13.7% 8.5% 14.7% -1.0% 2.8% OPM 18.2% 20.3% 16.9% 16.0% 14.0% 17.1% 16.7% 16.8% 13.3% 18.7% 19.9% 18.6% 17.6% Depreciat ion 2 2 3 4 3 3 4 4 4 4 4 4 17 Amortization of goodwill 26 26 26 26 26 26 17 ------EBITDA 95 106 88 83 77 88 77 59 46 68 68 58 241 YoY 21.8% 33.6% -1.4% 2.0% -18.2% -17.1% -12.6% -29.5% -40.5% -22.6% -11.3% -0.7% -20.0% EBITDA margin 25.7% 27.5% 24.8% 24.8% 22.2% 25.6% 22.9% 18.1% 14.5% 19.9% 21.2% 20.1% 18.9% 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 custom labeled with a customer’s restaurant logo and name. Yume no Machi acquired all shares in Satsuma Ebisudo in May 2013: the move was mainly aimed at gaining access to Satsuma Ebisudo’s call center infrastructure. The goodwill on the acquisition was fully amortized in April 2018, and this has raised operating profit since the third quarter of FY08/18.

At call centers for Demae-can, revenue is determined by marking up costs.

Group companies

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

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

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Market overview Market size Food delivery market According the research from the Yano Research Institute, the food delivery market (broadly defined) in FY2018 was worth JPY2.1tn (+2.8% YoY). This includes not only home deliveries of freshly prepared food by restaurants (demae), but also deliveries of groceries ordered through online stores such as Ito-Yokado’s “Net Super” and other online grocery delivery services. Yano Research sees the food delivery market in Japan continuing to grow at a steady rate going forward and projects that by FY2023, the market size will reach JPY2.4tn (an increase of 13.0% compared to FY2018).

Restaurant food delivery (demae) market Research by NPD Japan shows continued growth in the restaurant food delivery market, and more than one-third of this market has the potential to use a third-party delivery service like Sharing Delivery. NPD Japan figures for 2018 put the value of the restaurant food delivery market at JPY408.4bn (+5.9% YoY), with home deliveries direct from restaurants or other shops accounting for 36% of the market and the seven largest delivery service providers (including Yume no Machi) accounting for 44% (with the largest of the “big seven” providers accounting for 10%, the second-largest for 9%, and the third largest for 8%).

Affiliated restaurants Statistics from the 2018 Economic Census for Business Frame report (from the Ministry of Internal Affairs and Communications) put the total number of restaurants in Japan at 499,542. Of these, 93,787 are pubs/beer halls and 65,635 are bars/cabarets/nightclubs, i.e., drinking establishments that are unlikely to have any need for home delivery services such as Sharing Delivery. This leaves a viable potential market of some 340,120 restaurants, versus the company’s affiliated restaurant count of 19,911 (as of August 31, 2019). This means the company is currently serving only about 5% of its potential market in terms of restaurants. In terms of the value of the restaurant food delivered, the company’s market share estimate of 11% for its Demae-can business is well above its market share in terms of the number of restaurants for which it provides delivery services, but this is to be expected since many of its affiliated restaurants are part of large restaurant chains and have higher sales than the average restaurant.

Yume no Machi does not disclose restaurant count or revenue by food category for Demae-can. But it has said that pizza accounts for a large portion of its business; other significant 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 repeat orders. 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. Outside of restaurants, other affiliated stores include stores selling alcohol or rice, supermarkets, dry cleaners, and locksmith stores, but these non-restaurants account for only a small portion of the company’s total revenue).

User demographics According to an NPD Japan survey, one of the biggest user groups of direct home delivery services from restaurants is men who are middle-aged or older (ages 30–49 accounted for 18% of users; ages 50–70 accounted for 21%). Young men formed the largest group of users for the seven largest restaurant food delivery service companies (including Yume no Machi; ages 15–29 accounted for 32% of users).

A survey of Tokyo area women ages 20areaconducted by Macromill in 2018 found that only 5.5% women used home delivery services from restaurants on a regular basis (two to three times a month or more). The Macromill survey also showed that during the past year, 41.8% of the women surveyed did not use meal delivery services from restaurants, 9.0% used meal delivery services from restaurants about once a month, 14.8% once every two to three months, and 14.9% one time or less every six months.

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Average spending on food Average monthly household spending on food in Japan has been flat around the JPY60,000 level since about 2004. Average household expenditure

(JPY'000) 0 20 40 60 80

Food

Home-related

Utilities 1999 Household appliances 2004 Clothing and shoes 2009 Healthcare 2014 Transportation and communication

Education

Entertainment

Other consumption spending

Source: Shared Research based on the National Survey of Family Income and Expenditure, Ministry of Internal Affairs and Communications (MIC)

Externalization ratio

The ratio of spending on restaurant meals to total household spending on food peaked in the second half of the 1990s and has been trending down thereafter, whereas the ratio of spending on food prepared outside the home, including restaurant meals, take-out lunch boxes (bento), and ready-to-eat supermarket take-home meals to total household spending on food (externalization ratio), has been constant. We can thus surmise that spending on take-out meals such as bento and supermarket take-outs is on the rose. In the sense that delivered food from restaurants can be ordered for consumption at home, the workplace, or other venues, delivered food from restaurants is more similar to ready-to-eat meals sold in stores than to dine-in food served in restaurants, which suggests that demand for restaurant food delivery has been trending higher over the years.

Ratio of spending on restaurant meals to total household spending on food, and meal outsourcing ratio (includes take-out meals)

50%

45%

40%

35%

30% Food externalization ratio (incl. bento) 25% Eating out ratio 20%

15%

10%

Source: Shared Research based on “Food Service Market Size Estimate 2018” released by the Japan Food Service Association (JF)

Preferential consumption tax rate for take-out and delivered restaurant food

When the consumption tax rate went up to 10.0% on October 1, 2019, the tax rate on restaurant food also went up to 10.0% in the case of dine-in service. However, the consumption tax rate on take-out and delivered meals remained at the old consumption tax rate of 8.0%, giving take-out and delivered meals a slight advantage over dine-in meals in terms of taxes.

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Information on competitors Information on competitors in Japan Competitors in Japan

In the US, Grubhub, Inc. (NYSE: GRUB) has the same business model as the company, while in Japan direct competitors include ▷ Uber Eats and Rakuten Delivery (Rakuten, TSE1: 4755). Because there is a big first-mover advantage, the company is working to establish a foothold ahead of others. ▷ Although the company is striving to increase everyday demand, the food delivery industry in Japan is still based on “special ▷ occasions” demand. Cultural differences such as the prevalence of double-income households and whether people make a habit of cooking on weekdays seem to have a large influence on demand. Since the Japanese market is currently small, there are fewer competitors compared to the overseas markets. Convenience stores can be considered competitors in a broad sense. There are over 57,000 convenience stores in Japan (Japan ▷ Franchise Association, FY2017 Franchise Chain Statistical Survey). Convenience stores are generally located in very convenient places and are typically open twenty-four hours a day, meaning consumers can buy food items such as bento boxes (prepared meals to be eaten on-the-go) at any time they please. However, since convenience stores are retailers and do not generally

offer delivery services, their core value proposition differs from that of food delivery services.

Comparable US companies In Japan, direct competitor Uber Eats (Japanese business) is not listed and Rakuten Delivery is part of Rakuten (TSE1: 4755), so data are difficult to obtain. A US company operating the same business model as Yume no Machi and growing is Grubhub, Inc. (NYSE: GRUB). Grubhub is distinguished from other companies in the US that are using the same business model by the profitability it has already secured. Uber also operates on the same model and was listed in 2019 (NYSE: UBER). Quarterly information for both companies is shown under Comparable US companies.

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Strengths and weaknesses Strengths Alliances with partner companies that allow it to operate a high-quality delivery service that is also efficient In addition to the delivery bases the company manages directly, the company’s delivery network includes delivery bases that are run by partner companies and companies with which it has business alliances. By maintaining delivery bases that it manages directly, the company is able to experiment with different ways of improving service efficiency and quality, expanding functional systems throughout the rest of its delivery network. These ongoing efforts to improve delivery efficiency and quality will, in the long term, give the company a distinct advantage over competitors who simply subcontract delivery to small delivery services run by individuals that are looking to fill up spare capacity. In this relation, we would note that the domestic regulatory environment is not conducive to combination ride-sharing/food delivery services because, as a general rule, all for-profit ride service providers (i.e., taxi services) must be licensed.

Broad area already covered by its delivery service and continued rapid expansion The rapid expansion of the delivery network for the company’s Sharing Delivery service has allowed it to establish a broader delivery service network than competitors in just a short period of time. While the service networks of competitors are largely confined to Japan’s largest cities and surrounding areas (as of October 2019), Yume no Machi has already extended its delivery service network into medium-sized cities located in more rural districts.

Rapid decision-making on the part of management When the company first started building out the delivery network for its Sharing Delivery service, it depended heavily on partner companies and alliances. However, once it found that these partnerships and alliances were not going to give it sufficient geographical coverage or allow it to meet delivery quality targets, management was quick to make the decision to shift the focus of its expansion efforts to directly managed delivery bases. The management deserves recognition for quick and flexible response once it determines that past management decisions were insufficient based on business results.

Weaknesses

Limited funds available for advertising/ promotion, even as name recognition of the Demae-can service remains stuck around 40% General recognition of the company’s Demae-can brand has increased over the years, rising from just under 20% in FY08/15, to 25% in FY08/16, to 30% in FY08/17, and then up to 37% in FY08/18. In FY08/19, however, the Demae-can name recognition rate remained stuck at just a little over 40%. Put another way, nearly 60% of consumers have never heard of the company or its service. This naturally presents an obstacle when it comes to increasing the number of active users. As things stand now, however, there is not a lot the company can do in terms of additional advertising and promotional spending with its balance sheet showing only a little over JPY2.2bn in cash on hand as of end-FY08/19.

Heavy upfront investment needed in early stages to establish a large number of directly managed delivery bases As of end-FY08/19, the company had a total of 215 delivery bases in operation, of which 115 were managed directly. By end-FY08/20, the company is looking to have a total of 300 delivery bases in place and by end-FY08/21 aims to get this number up to 400, with directly managed facilities accounting for most of the increase. In the case of each directly managed delivery base, the company rents the building, as well as one or two motorbikes and five to six electric bicycles for use in making deliveries. With this very substantial upfront investment, the company expects each directly managed base to incur a cumulative loss of some JPY20–30mn during its first 10–15 months in operation. Because most of the new additions to the company’s delivery service network will be directly managed facilities, all the upfront investments needed during the early stages of its delivery network expansion will impose a heavy burden.

Heavier dependence on the performance of its food delivery service (Demae-can) than other domestic competitors Unlike competitors, the company obtains the vast majority (more than 80%) of its revenues from its restaurant food delivery service, so the performance of this business has a much greater impact on the financial results of Yume no Machi than it does on those of competitors. The situation is further aggravated by the fact that the restaurant food delivery market is still in the

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expansion stage and requires extensive upfront investment; the lack of revenue diversity means Yume no Machi cannot use cash generated from other businesses to fund this investment.

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Historical performance

Income statement

Income statement FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 (JPYmn) Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Revenue 1,158 1,259 1,360 2,087 3,558 3,661 4,155 4,944 5,431 6,666 YoY 7.8% 8.8% 8.0% 53.5% 70.5% 2.9% 13.5% 19.0% 9.8% 22.7% Cost of revenue 264 302 399 759 1,518 1,375 1,503 1,720 2,020 2,470 Cost ratio 22.8% 24.0% 29.4% 36.4% 42.7% 37.6% 36.2% 34.8% 37.2% 37.0% Gross profit 894 957 960 1,328 2,040 2,286 2,652 3,223 3,410 4,196 GPM 77.2% 76.0% 70.6% 63.6% 57.3% 62.4% 63.8% 65.2% 62.8% 63.0% SG&A expenses 660 713 750 1,050 1,678 1,740 2,079 2,423 2,573 4,236 Personnel expenses - 325 353 416 622 688 796 962 887 1,437 Personnel (excl. salaries for temp. employees) 243 236 264 313 447 502 555 781 676 859 Advertising expenses 113 111 118 166 280 313 464 537 834 1,633 Rents 25 29 33 45 52 49 70 94 96 140 Depreciat ion 13 12 12 48 132 129 146 164 96 35 Commission fees 43 42 45 81 127 125 127 144 157 195 Other 223 283 278 397 640 622 718 703 714 1,374 YoY -10.3% 8.0% 5.1% 40.0% 59.9% 3.6% 19.5% 16.5% 6.2% 64.6% Personnel expenses - - 8.7% 17.9% 49.3% 10.7% 15.6% 20.9% -7.8% 62.0% Personnel (excl. salaries for temp. employees) 0.3% -3.1% 11.8% 18.6% 42.9% 12.3% 10.5% 40.8% -13.4% 27.0% Advertising expenses -39.9% -1.9% 6.5% 40.2% 68.6% 11.6% 48.3% 15.9% 55.3% 95.7% Rents 1.0% 17.3% 12.5% 35.0% 16.5% -5.7% 41.9% 35.4% 2.0% 45.1% Depreciat ion 28.4% -5.7% -3.5% 319.5% 172.1% -2.0% 13.6% 11.9% -41.3% -63.2% Commission fees -4.7% -3.4% 7.9% 79.9% 57.4% -1.5% 1.3% 13.4% 8.9% 24.4% Other -1.1% 27.1% -1.8% 42.8% 61.3% -2.9% 15.5% -2.2% 1.5% 92.5% SG&A ratio (% of revenue) 57.0% 56.6% 55.1% 50.3% 47.2% 47.5% 50.0% 49.0% 47.4% 63.5% Personnel expenses - 25.8% 26.0% 20.0% 17.5% 18.8% 19.1% 19.5% 16.3% 21.6% Personnel (excl. salaries for temp. employees) 21.0% 18.7% 19.4% 15.0% 12.6% 13.7% 13.3% 15.8% 12.5% 12.9% Advertising expenses 9.8% 8.8% 8.7% 8.0% 7.9% 8.5% 11.2% 10.9% 15.4% 24.5% Rents 2.2% 2.3% 2.4% 2.1% 1.5% 1.3% 1.7% 1.9% 1.8% 2.1% Depreciat ion 1.1% 0.9% 0.8% 2.3% 3.7% 3.5% 3.5% 3.3% 1.8% 0.5% Commission fees 3.7% 3.3% 3.3% 3.9% 3.6% 3.4% 3.1% 2.9% 2.9% 2.9% Other 19.2% 22.5% 20.4% 19.0% 18.0% 17.0% 17.3% 14.2% 13.1% 20.6% Operating profit 234 244 211 278 362 547 573 801 837 -39 YoY 35.4% 4.5% -13.7% 32.2% 30.0% 51.1% 4.8% 39.8% 4.6% - OPM 20.2% 19.4% 15.5% 13.3% 10.2% 14.9% 13.8% 16.2% 15.4% -0.6% Non-operating income (expenses) 6 16 10 -4 4 -5 6 -3 12 32 Net financial income 5 15 9 -0 -5 -3 -1 -16 2 1 Gains on forex and derivat ives - - 1 -2 - -6 -1 - -3 -0 Equit y in earnings of affiliat es - - - -2 -3 -0 4 11 19 26 Other 1 1 1 1 11 4 5 2 -6 5 Recurring profit 239 260 221 275 366 541 579 798 849 -7 YoY 5.0% 8.7% -15.2% 24.5% 33.1% 48.1% 7.0% 37.8% 6.4% - RPM 20.7% 20.6% 16.2% 13.2% 10.3% 14.8% 13.9% 16.1% 15.6% -0.1% Extraordinary gains (losses) -22 -2 -1 -79 -1 -322 35 -107 -9 -18 Income taxes 94 113 104 99 198 122 273 261 282 79 Implied t ax rat e 43.4% 43.6% 47.6% 50.7% 54.3% 55.8% 44.5% 37.7% 33.6% -317.7% Net income attributable to non-controlling interests - - - - -0 -0 -6 -2 -1 - Net income attributable to owners of parent 123 146 115 97 167 97 348 433 559 -103 YoY -4.1% 18.7% -21.2% -16.0% 73.1% -42.0% 258.4% 24.4% 29.1% - Net margin 10.6% 11.6% 8.5% 4.6% 4.7% 2.6% 8.4% 8.8% 10.3% -1.5% Capit al expendit ures 218 312 239 95 90 235 293 329 362 431 Depreciat ion 80 84 139 154 166 181 195 181 176 246 Depreciation (SG&A expenses) 13 12 12 48 132 129 146 164 96 35 Goodw ill amort izat ion (excl. ext raordinary losses) - - - 36 113 114 125 133 69 - EPS 23.8 28.3 22.3 18.8 17.1 9.7 34.5 10.7 13.8 -2.5 EPS (fully dilut ed) 23.3 28.0 22.0 18.3 16.7 9.6 33.4 10.3 13.5 - Dividend per share 9.0 11.5 7.0 8.0 5.0 7.0 10.0 3.3 3.6 3.6 Payout ratio 37.8% 40.7% 31.4% 42.6% 29.2% 72.4% 29.0% 30.8% 26.1% - DOE 2.4% 2.9% 1.7% 1.9% 2.4% 3.4% 4.5% 5.3% 4.9% 4.8% Book value per share 386.0 406.8 419.9 414.3 203.3 212.3 229.7 66.7 80.4 68.9 EBITDA 314 328 349 432 528 728 768 982 1,013 207 YoY 33.7% 4.5% 6.6% 23.6% 22.3% 37.8% 5.5% 27.9% 3.1% -79.6% EBITDA margin 27.1% 26.0% 25.7% 20.7% 14.8% 19.9% 18.5% 19.9% 18.7% 3.1% ROE 6.3% 7.1% 5.4% 4.6% 8.4% 4.7% 15.6% 17.3% 18.8% -3.4% Net margin 10.6% 11.6% 8.5% 4.6% 4.7% 2.6% 8.4% 8.8% 10.3% -1.5% Total asset turnover 0.54 0.57 0.58 0.78 1.19 1.20 1.16 1.16 0.99 0.98 Financial leverage 1.10 1.08 1.09 1.28 1.49 1.47 1.61 1.70 1.84 2.23 ROA (RP-based) 11.1% 11.8% 9.5% 10.3% 12.2% 17.7% 16.1% 18.8% 15.5% -0.1% ROIC 7.0% 7.0% 5.8% 7.4% 9.2% 14.5% 14.4% 18.9% 16.3% 0.3% NOPAT 139 145 125 173 224 352 383 536 560 13 Net assets + Interest-bearing debt 1,968 2,058 2,155 2,330 2,436 2,423 2,664 2,843 3,436 3,860 Source: Shared Research based on company data

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Parent earnings

Parent FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 (JPYmn) Par. Par. Par. Par. Par. Par. Par. Par. Par. Par. Revenue 1,158 1,259 1,360 1,427 1,717 1,965 2,381 2,976 4,057 5,395 YoY 7.8% 8.8% 8.0% 4.9% 20.3% 14.5% 21.1% 25.0% 36.3% 33.0% Cost of revenue 264 302 397 407 635 583 701 884 1,397 1,893 Labor costs 69 62 60 39 33 41 46 62 68 481 Outsourcing costs 10 18 3 4 7 5 9 5 12 52 Agency commissions 34 31 26 18 13 68 187 369 762 1,060 System development contract costs - - - - 197 61 24 27 37 34 Various costs 222 298 395 410 434 477 458 486 578 314 Communicat ion 126 161 176 175 173 185 185 211 261 343 Depreciat ion 67 71 127 141 147 166 174 150 148 210 Other 29 66 93 94 113 127 99 125 169 -239 % of revenue (cost ratio) 22.8% 24.0% 29.2% 28.6% 37.0% 29.7% 29.5% 29.7% 34.4% 35.1% Labor costs 6.0% 4.9% 4.4% 2.7% 1.9% 2.1% 1.9% 2.1% 1.7% 8.9% Outsourcing costs 0.8% 1.4% 0.2% 0.3% 0.4% 0.3% 0.4% 0.2% 0.3% 1.0% Agency commissions 3.0% 2.5% 1.9% 1.2% 0.7% 3.5% 7.9% 12.4% 18.8% 19.6% System development contract costs - - - - 11.5% 3.1% 1.0% 0.9% 0.9% 0.6% Various costs 19.1% 23.7% 29.0% 28.7% 25.3% 24.3% 19.2% 16.3% 14.2% 5.8% Communicat ion 10.9% 12.8% 12.9% 12.3% 10.1% 9.4% 7.8% 7.1% 6.4% 6.4% Depreciat ion 5.8% 5.6% 9.3% 9.9% 8.6% 8.4% 7.3% 5.1% 3.7% 3.9% Other 2.5% 5.3% 6.8% 6.6% 6.6% 6.4% 4.2% 4.2% 4.2% -4.4% Gross profit 894 957 963 1,019 1,082 1,382 1,679 2,091 2,659 3,502 GPM 77.2% 76.0% 70.8% 71.4% 63.0% 70.3% 70.5% 70.3% 65.6% 64.9% SG&A expenses 660 713 740 753 827 906 1,171 1,418 1,956 3,749 Personnel (excl. salaries for temp. employees) 243 236 260 250 262 340 351 400 481 663 Advertising expenses 113 111 118 140 139 166 361 448 742 1,555 Rents 25 29 32 ------Depreciat ion 13 12 12 10 11 6 9 12 13 18 Amortization of goodwill 43 42 43 62 82 83 82 102 122 164 Other 223 283 276 290 334 311 368 457 597 1,351 YoY -10.3% 8.0% 3.8% 1.7% 9.9% 9.5% 29.3% 21.1% 37.9% 91.7% Personnel (excl. salaries for temp. employees) 0.3% -3.1% 10.0% -3.5% 4.8% 29.7% 3.1% 14.1% 20.2% 37.7% Advertising expenses -39.9% -1.9% 6.3% 18.6% -1.1% 19.8% 117.2% 24.1% 65.7% 109.4% Rents 1.0% 17.3% 7.9% ------Depreciat ion 28.4% -5.7% -3.5% -10.7% 3.5% -42.5% 54.7% 25.3% 9.0% 40.9% Commission fees -4.7% -3.4% 2.9% 44.0% 32.0% 1.9% -1.2% 24.2% 19.9% 33.7% Other -1.1% 27.1% -2.3% 5.0% 15.1% -7.0% 18.5% 24.0% 30.8% 126.2% % of revenue (SG&A ratio) 57.0% 56.6% 54.4% 52.8% 48.2% 46.1% 49.2% 47.7% 48.2% 69.5% Personnel (excl. salaries for temp. employees) 21.0% 18.7% 19.1% 17.5% 15.3% 17.3% 14.7% 13.4% 11.9% 12.3% Advertising expenses 9.8% 8.8% 8.7% 9.8% 8.1% 8.5% 15.2% 15.0% 18.3% 28.8% Rents 2.2% 2.3% 2.3% ------Depreciat ion 1.1% 0.9% 0.8% 0.7% 0.6% 0.3% 0.4% 0.4% 0.3% 0.3% Commission fees 3.7% 3.3% 3.2% 4.3% 4.7% 4.2% 3.4% 3.4% 3.0% 3.0% Other 19.2% 22.5% 20.3% 20.3% 19.5% 15.8% 15.5% 15.3% 14.7% 25.0% Operating profit 234 244 223 267 255 476 508 673 704 -247 YoY 35.4% 4.5% -8.7% 19.7% -4.4% 86.8% 6.7% 32.5% 4.5% - OPM 20.2% 19.4% 16.4% 18.7% 14.8% 24.2% 21.3% 22.6% 17.3% -4.6% Source: Shared Research based on company data

Satsuma Ebisudo earnings

Satsuma Ebisudo FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 (JPYmn) Revenue 660 1,885 1,759 1,734 1,597 - - YoY -6.7% -1.4% -7.9% - - Recurring profit 77 269 198 214 251 - - YoY -26.2% 7.9% 17.3% - - RPM 11.7% 14.2% 11.3% 12.3% 15.7% - - Net income 39 159 129 138 163 - - YoY -18.8% 6.6% 18.1% - - Net margin 5.9% 8.4% 7.3% 7.9% 10.2% - - Net assets 269 333 362 399 462 - - Total assets 583 681 627 689 842 - - ROE 52.9% 37.2% 36.2% 37.7% - - ROA (RP-based) 42.5% 30.3% 32.5% 32.8% - - Number of employees 26 32 33 35 41 44 44 Temporary employees 51 67 81 101 90 91 89 Source: Shared Research based on company data

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Mail Order business earnings

Mail Order business FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 (JPYmn) Revenue 660 1,836 1,693 1,633 1,445 1,353 1,271 YoY -7.8% -3.5% -11.5% -6.4% -6.1% Operating profit 39 140 204 217 259 218 224 YoY 45.0% 6.6% 19.3% -15.7% 2.8% OPM 5.9% 7.7% 12.0% 13.3% 17.9% 16.1% 17.6% Depreciat ion 2 7 8 8 10 14 17 Goodw ill amort izat ion 36 109 109 103 103 69 - EBITDA 77 256 320 328 372 301 241 YoY 24.8% 2.6% 13.4% -19.1% -20.0% EBITDA margin 11.6% 14.0% 18.9% 20.1% 25.8% 22.3% 18.9% Number of employees 26 32 33 35 41 44 44 Temporary employees 51 67 81 101 90 91 89 Source: Shared Research based on company data

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Segment earnings

Demae-can FY08/17 FY08/18 FY08/19 FY08/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Cons. Revenue 841 931 930 797 859 1,019 1,100 1,100 1,117 1,346 1,405 1,528 5,395 YoY 59.3% 49.8% 50.8% 5.5% 2.1% 9.5% 18.3% 38.1% 30.0% 32.0% 27.7% 38.9% 32.3% Operating profit 232 171 271 180 222 144 226 272 114 -147 64 -48 -18 YoY 43.9% 67.4% 21.7% -5.2% -4.5% -15.8% -16.6% 50.7% -48.6% - -71.9% - - OPM 27.6% 18.3% 29.1% 22.7% 25.8% 14.1% 20.6% 24.7% 10.2% -10.9% 4.5% -3.2% -0.3% Order processing fees 415 502 498 524 563 679 677 716 703 855 819 879 3,256 YoY 23.2% 23.1% 26.2% 28.7% 35.7% 35.1% 36.1% 36.7% 24.9% 26.0% 21.0% 22.7% 23.6% No. of orders (mn) 3.79 4.41 4.38 4.70 5.08 5.94 5.97 6.33 6.28 7.48 7.13 7.55 28.45 YoY 29.7% 26.0% 26.5% 28.9% 34.1% 34.6% 36.4% 34.8% 23.6% 25.9% 19.5% 19.3% 22.0% Order processing fees / No. of orders 109.4 113.8 113.6 111.5 110.7 114.3 113.4 113.1 111.9 114.3 114.8 116.3 114.4 YoY -5.0% -2.3% -0.3% -0.2% 1.2% 0.4% -0.2% 1.4% 1.1% 0.0% 1.3% 2.9% 0.3% No. of affiliated stores (quarter-end) 14,206 14,559 14,953 15,318 15,712 16,081 16,439 17,207 17,834 18,572 19,452 19,911 19,911 YoY 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 9.9% 12.3% 13.5% 15.5% 18.3% 15.7% 15.7% No. of orders / No. of affiliated stores 272.2 306.7 296.7 310.3 327.7 373.5 367.3 376.3 358.7 410.8 375.2 383.7 1,532.9 YoY 15.1% 9.6% 9.5% 13.6% 20.4% 21.8% 23.8% 21.3% 9.4% 10.0% 2.2% 2.0% 6.9% No. of active users (quarter-end; mn) 1.98 2.13 2.24 2.35 2.45 2.55 2.62 2.69 2.74 2.82 2.90 3.00 3.00 YoY - - 23.2% 22.4% 23.7% 20.0% 17.0% 14.5% 11.8% 10.6% 10.7% 11.5% 11.5% No. of orders / Average no. of users 1.9 2.1 2.0 2.0 2.1 2.4 2.3 2.4 2.3 2.7 2.5 2.6 10.0 YoY - - - 5.0% 8.9% 10.5% 15.2% 16.5% 9.2% 13.3% 8.0% 7.4% 8.0% No. of Sharing Delivery bases - - 2 10 17 23 33 60 78 104 161 215 215 YoY ------1,550.0% 500.0% 358.8% 352.2% 387.9% 258.3% 175.6% Depreciat ion 49 49 36 37 36 38 42 46 49 56 60 65 229 EBITDA 293 230 315 217 257 182 268 317 163 -91 123 16 211 YoY 41.2% 52.7% 15.5% -14.8% -12.1% -21.1% -14.9% 46.1% -36.7% - -54.0% -94.8% -79.4% EBITDA margin 34.8% 24.7% 33.9% 27.3% 30.0% 17.8% 24.4% 28.9% 14.6% -6.8% 8.8% 1.1% 3.9%

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Balance sheet

Balance sheet FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 (JPYmn) Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Current assets 1,102 1,032 879 1,650 1,659 1,938 2,578 3,520 5,293 5,556 Cash and cash equivalents 903 792 651 1,258 1,200 1,372 1,720 2,263 2,928 2,186 Accounts receivable 171 148 149 182 233 245 324 408 350 221 Inventories - - - 58 49 57 61 58 61 62 Accounts receivable–other 3 65 68 120 140 225 406 736 1,865 2,995 Deferred tax assets 28 20 9 13 18 19 21 23 23 - Allowance for doubtful accounts -9 -13 -11 -9 -9 -8 -11 -4 -4 -58 Other 6 20 14 27 29 29 57 36 69 150 Tangible fixed assets 27 20 11 42 55 83 109 79 123 162 Depreciable and lease assets 27 20 2 28 31 28 61 29 50 45 Land 0 0 0 0 0 0 0 0 0 0 Construction in progress ------Intangible assets 250 504 588 948 778 651 1,092 521 604 822 Software 214 341 570 412 330 276 394 446 588 742 Software in progress 36 163 18 29 25 85 90 6 16 80 Goodwill - - - 507 423 290 607 69 - - Other 0 0 - 0 0 0 0 0 0 0 Investments and other assets 741 749 880 322 516 435 288 320 499 545 Investment securities 658 672 817 255 434 248 138 196 348 374 Long-term time deposits Lease and guarantee deposits 20 19 24 29 39 86 75 63 115 120 Deferred tax assets 62 57 38 6 38 75 41 38 14 16 Allowance for doubtful accounts -0 -0 -1 -2 -1 -1 -1 -1 -0 -2 Other 2 2 2 34 7 27 36 23 22 36 Fixed assets 1,018 1,273 1,478 1,313 1,348 1,169 1,488 919 1,226 1,529 Total assets 2,120 2,305 2,357 2,962 3,007 3,107 4,066 4,439 6,519 7,084 Current liabilities 118 191 160 579 687 751 1,332 1,698 3,165 4,203 Accounts payable - - - 176 136 135 139 112 99 88 Short-term debt and commercial papers ------800 800 Current portion of long-term debt - - - 101 107 105 207 75 4 4 Accounts payable–other 77 112 91 188 211 327 717 1,207 1,986 3,070 Income taxes payable 30 67 40 62 111 85 148 152 100 49 Provision for bonuses - - 5 12 19 18 12 26 33 50 Other current liabilities 10 12 24 41 103 82 109 127 143 143 Fixed liabilities - - - 396 300 211 392 28 69 41 Long-term debt - - - 376 280 188 341 8 4 - Bonds ------Other - - - 21 20 23 51 21 65 41 Total liabilities 118 191 160 976 986 962 1,724 1,726 3,233 4,244 Net assets 2,002 2,114 2,197 1,987 2,021 2,146 2,342 2,713 3,269 2,840 Shareholders' equity 2,080 2,180 2,249 1,951 2,052 2,137 2,321 2,667 3,097 2,657 Capital stock 1,107 1,107 1,113 1,113 1,113 1,113 1,113 1,113 1,113 1,113 Capital surplus 658 658 664 664 664 664 615 635 637 651 Retained earnings 555 654 710 755 792 799 1,057 1,388 1,813 1,562 Treasury stock -240 -240 -239 -581 -518 -439 -464 -469 -467 -670 Valuation and translation adjustments -89 -81 -66 34 -41 - -4 31 159 162 Valuation differences on securities -89 -81 -65 33 -43 - -7 27 158 162 Foreign currency translation adjustments - - -1 1 2 - 3 4 1 - Subscription rights to new shares 11 15 14 1 11 8 17 8 7 21 Non-controlling interests - - - - 0 - 8 6 6 - Total equity and liabilities 2,120 2,305 2,357 2,962 3,007 3,107 4,066 4,439 6,519 7,054 Capital expenditures 218 312 239 95 90 235 293 329 362 - Depreciation - 84 139 154 166 181 195 181 176 246 Amortization of goodwill - - - 36 113 114 125 133 69 - Working capital 171 148 149 65 145 167 245 354 312 195 Adjusted shareholders' equity 1,991 2,099 2,183 1,986 2,010 2,137 2,317 2,698 3,256 2,819 Total interest-bearing debt - - - 476 387 293 548 83 808 804 Net cash 903 792 651 781 813 1,079 1,171 2,180 2,121 1,382 Days in accounts receivable 50.1 46.2 39.9 29.0 21.3 23.8 25.0 27.0 25.5 - Days in inventory - - - 14.0 12.8 14.0 14.3 12.6 10.8 - Days in accounts payable - - - 42.3 37.5 36.0 33.3 26.7 19.0 - Working capital cycle 50.1 46.2 39.9 0.7 -3.4 1.9 6.0 13.0 17.2 - Current ratio 933% 540% 548% 285% 242% 258% 194% 207% 167% 132% Fixed ratio 51.1% 60.7% 67.7% 66.1% 67.1% 54.7% 64.2% 34.1% 37.7% 54.2% Equity ratio 93.9% 91.0% 92.6% 67.0% 66.8% 68.8% 57.0% 60.8% 49.9% 40.0% Source: Shared Research based on company data

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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.

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Cash flow statement

Cash flow statement FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 (JPYmn) Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Pre-tax profit 217 259 219 196 365 219 614 691 840 -25 Depreciation 80 84 139 154 166 181 195 181 176 246 Amortization of goodwill - - - 36 113 114 125 133 69 - Impairment losses - - 3 84 1 41 30 37 12 - Gains (losses) on disposal and valuation of fixed assets - - 0 10 1 4 10 73 -4 9 Gains (losses) on disposal and valuation of securities - - - -23 4 268 -91 4 -0 - Increase (decrease) in allowance for doubtful accounts 0 4 -1 -2 -1 -1 -2 -3 -0 - Interest and dividend income -5 -15 -9 -1 -1 -1 -3 -3 -3 -3 Interest expenses - - - 2 5 4 5 19 1 2 Gains (losses) on foreign exchange - - -1 5 1 - 1 0 3 0 Equity in earnings (losses) of affiliates - - - 2 3 0 -4 -11 -19 -26 Decrease (increase) in accounts receivable–trade -23 23 -1 40 -49 -11 -57 -110 58 95 Decrease (increase) in inventories - - - 7 13 -6 -8 10 -3 -0 Increase (decrease) in accounts payable–trade -74 16 1 -77 -39 -2 -16 -7 -13 -11 Decrease (increase) in accounts receivable–other ------171 -334 -1,127 -1,130 Increase (decrease) in accounts payable-other ------307 578 745 1,076 Other 12 -56 14 -53 49 -1 -80 85 -24 89 Subtotal 208 315 363 381 632 810 855 1,342 710 322 Interest and dividends income received 52 2 15 8 1 1 3 5 5 9 Interest expenses paid - - - -2 -5 -4 -5 -19 -1 2 Income taxed paid (refunded) -103 -68 -120 -70 -146 -213 -180 -284 -282 -230 Proceeds from insurance income -0 ------5 Cash flows from operat ing act ivit ies 157 249 259 318 481 594 673 1,045 433 98

Change in time deposits 100 500 - - 10 - - - - - Change in investment securities - - -110 719 -336 -48 100 - 52 - Purchase of tangible fix assets -9 -6 -2 -5 -21 -52 -15 -20 -76 -80 Proceeds from sales of tangible fixed assets - - - 10 0 - - - - - Purchase of intangible fixed assets -209 -306 -237 -106 -53 -162 -269 -264 -267 -397 Proceeds from cancellation of insurance funds - - - 55 43 - - - - - Payments and collection of loans receivable - - - 35 1 - -9 0 - - Payments for guarantee deposits - - - - -29 -47 24 - -51 -7 Purchase of inv estments in subsidiaries resulting in change in scope of consolidation - - - -501 -23 - 26 -11 - - Other -0 -2 -5 1 17 -3 -2 -3 -10 -17 Cash flows from invest ing act ivit ies -118 186 -354 207 -391 -313 -145 -298 -353 -501

Increase (decrease) in short-term debt ------Increase (decrease) in long-term debt - - - 476 -104 -94 -105 -105 -75 -4 Increase (decrease) in bonds ------Proceeds from share issuance 1 - 12 ------0 Purchase of treasury shares - - - -370 -101 - -41 -29 -0 -300 Proceeds from disposal of treasury shares - - 1 12 74 38 24 32 3 98 Cash dividends paid -56 -46 -59 -36 -38 -49 -71 -101 -134 -146 Other 0 - - -10 -1 -1 -2 -2 797 13 Cash flows from financing act ivit ies -55 -46 -46 72 -170 -106 -194 -205 591 -339

Effect of exchange rate on cash and cash equivalents - - -0 0 0 -2 5 1 -6 -0 Increase (decrease) in cash and cash equivalents -15 389 -141 597 -79 172 340 543 665 -742 Cash and cash equivalents (beginning of year) 419 403 792 651 1,248 1,200 1,372 1,720 2,263 2,928 C hange in cash and cash equiv alents resulting from changes to the scope of consolidation - - - - 30 - 8 - - - Cash and cash equivalents (year-end) 403 792 651 1,248 1,200 1,372 1,720 2,263 2,928 2,186 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). Cash flow from operating activities has been on decline since FY08/18, as the company is pushing ahead with plans to establish more directly managed delivery bases for its Sharing Delivery service.

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

Cash flows from financing activities On April 19, 2019, the company announced that it would conduct a third-party allocation of warrants (with an exercise price amendment). The exercise of these warrants has the potential to produce funds for the company until FY08/21. At the time the warrants were issued, the company expected to receive a total of roughly JPY3.6bn from the issue of new shares upon exercise of the warrants; this amount could go up or down depending on subsequent adjustments to the exercise price (if any).

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Other information

ESG-related

Corporate governance (as of November 28, 2018)

Organizat ional form Organizat ion form Company with Audit & Supervisory Board and capital structure Cont rolling shareholders None Directors Number of directors per Articles of Incorporation 10 Directors' term of office per Articles of Incorporation 1 years Number of directors 9 Out side direct ors 4 Independent outside officers 2 Audit & Supervisory Existence of Audit & Supervisory Board Y Board Number of members of Audit & Supervisory Board per Articles of Incorporation 4 Number of members of Audit & Supervisory Board 4 Outside members of Audit & Supervisory Board 4 Independent outside officers 3 Other Foreign shareholding ratio (as of August 31, 2017) 20–30 % (Foreign corporations) Independent officers 5 Implementation of measures regarding director incentives St ock opt ion implement ed Eligible for st ock opt ion Directors and employees Other Voting by electromagnetic method Online vot ing implement ed from 2015 Disclosure of individual direct or's compensat ion None Policy to determine amount and calculation method of remuneration Y Corporate takeover defenses None Source: Shared Research based on company data

ROE, etc.

FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 (JPYmn) Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. ROE 6.3% 7.1% 5.4% 4.6% 8.4% 4.7% 15.6% 17.3% 18.8% -3.4% Net margin 10.6% 11.6% 8.5% 4.6% 4.7% 2.6% 8.4% 8.8% 10.3% -1.5% Total asset turnover 0.54 0.57 0.58 0.78 1.19 1.20 1.16 1.16 0.99 0.98 Financial leverage (equit y mult iplier) 1.10 1.08 1.09 1.28 1.49 1.47 1.61 1.70 1.84 2.23 ROA (RP-based) 11.1% 11.8% 9.5% 10.3% 12.2% 17.7% 16.1% 18.8% 15.5% -0.1% ROIC 7.0% 7.0% 5.8% 7.4% 9.2% 14.5% 14.4% 18.9% 16.3% 0.3% NOPAT 139 145 125 173 224 352 383 536 560 13 Interest-bearing debt＋Net assets 1,968 2,058 2,155 2,330 2,436 2,423 2,664 2,843 3,436 3,860 ROIC (before tax) 11.9% 11.9% 9.8% 11.9% 14.9% 22.6% 21.5% 28.2% 24.4% -1.0% OPM 20.2% 19.4% 15.5% 13.3% 10.2% 14.9% 13.8% 16.2% 15.4% -0.6% Revenue / Invested capital 0.59 0.61 0.63 0.90 1.46 1.51 1.56 1.74 1.58 1.73 Source: Shared Research based on company data

Shareholder returns

At present, the company is looking to rapidly expand operations, strengthen its management infrastructure, and improve management efficiency as part of an overall effort to increase its enterprise value. Meanwhile, its basic stance towards shareholder return calls for maintaining consistent and stable dividends. Towards this end, the company is looking to sustain stable dividends while keeping its dividend payout ratio around 30%, even as it pushes forward with aggressive investment plans.

Dividend-related indicators

Shareholder returns FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 (JPYmn) Par. Par. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. T ot al dividends a) 46 59 36 38 49 70 100 133 145 147 Total treasury stock acquired b) - - - 370 101 - 41 29 0 300 Total returns to shareholders c) = a) + b) 46 59 36 408 150 70 141 162 145 447 Net income attributable to owners of parent d) 123 146 115 97 167 97 348 433 559 -103

Dividend payout rat io a) / d) 37.4% 40.4% 31.3% 39.3% 29.3% 72.2% 28.8% 30.7% 26.0% -142.4% Total shareholder payout ratio c) / d) 37.4% 40.4% 31.3% 422.0% 89.8% 72.2% 40.5% 37.4% 26.0% -432.9%

Shareholders' equity (year-end) 2,002 2,114 2,197 1,987 2,021 2,146 2,342 2,713 3,269 2,840 FY average f) 1,968 2,058 2,155 2,092 2,004 2,083 2,244 2,527 2,991 3,054 EPS (JPY) 23.8 28.3 22.3 18.8 17.1 9.7 34.5 10.7 13.8 -2.5 EPS (fully dilut ed) (JPY) 23.3 28.0 22.0 18.3 16.7 9.6 33.4 10.3 13.5 - DPS (JPY) 9.0 11.5 7.0 8.0 5.0 7.0 10.0 3.3 3.6 3.6 DOE a) / f) 2.3% 2.9% 1.7% 1.8% 2.4% 3.4% 4.5% 5.3% 4.8% 4.8% Source: Shared Research based on company data

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Top management President and Representative Director: Rie Nakamura (born December 16, 1964) 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).

History

Date September 1999 Yume no Machi Souzou Iinkai Co., Ltd. established in Suminoe, Osaka October 2000 Launched Demae-can delivery website July 2004 Launched Mobile Demae-can delivery website June 2006 Listed on the Hercules market of the Osaka Securities Exchange (ticker: 2484) October 2010 Changed listing to the JASDAQ market of the Tokyo Stock Exchange (due to market integration) November Number of Demae-can affiliated restaurants exceeded 10,000 May 2013 Made Satsuma Ebisudo Co., Ltd. a subsidiary December Reorganized Tokyo office to Tokyo branch (now Tokyo headquarters) March 2014 Relocated Osaka headquarters to Chuo, Osaka May Made PT Klik Eat Indonesia a subsidiary January 2016 Relocated Tokyo branch (now Tokyo headquarters) to Chiyoda, Tokyo February Reorganized Tokyo branch, converting it into the Tokyo headquarters starting a dual headquarters structure November Selected as a component of the J-Stock Index by the Tokyo Stock Exchange June 2017 Number of Demae-can affiliated restaurants exceeded 15,000 November 2019 Renamed the company to Demae-can Co., Ltd. from Yume no Machi Souzou Iinkai Co., Ltd.

Major shareholders

Shareholding Top shareholders Shares held rat io LINE Corporation 8,880,000 21.69% Rie Nakamura 5,702,300 13.93% Japan Trustee Services Bank, Ltd. (Trust account) 2,412,200 5.89% The Asahi Shimbun Company 2,304,800 5.63% The Bank of New York 140051 1,957,600 4.78% The Master Trust Bank of Japan, Ltd. (Trust account) 1,785,500 4.36% MLI FOR CLIENT GENERAL OMNI NON CLLATERAL NON TREATY–PB 1,237,900 3.02% The Bank of New York 133652 1,190,000 2.91% BBH LUX FIDELITY FUNDS JAPAN AGGRESSIVE 931,500 2.28% State Street Bank and Trust Company 912,895 2.23% SUM 27,314,695 66.73% Source: Shared Research based on company data (as of end-August 2019)

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Employees

FY08/02 FY08/03 FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 Cons. No. of employees 64 70 89 90 160 142 159 183 Demae-can - 36 45 45 125 101 115 139 Mail Order - 26 32 33 35 41 44 44 Company-wide - 8 12 12 - - - - Osaka branch 21 19 23 27 32 39 48 27 20 26 24 20 25 28 Tokyo head office - - - 20 21 15 11 17 35 31 40 52 61 85 Satsuma Ebisudo ------26 32 33 35 41 44 44 Other 9 12 21 - - 2 5 - 2 - 61 29 29 26 Cons. No. of temporary employees 39 82 81 87 274 95 124 423 Demae-can - 31 14 6 173 5 33 334 Mail Order - 51 67 81 101 90 91 89 Company-wide ------Osaka branch 23 21 15 17 30 43 39 31 14 6 6 2 3 10 Tokyo head office ------3 30 13 Satsuma Ebisudo ------51 67 81 101 90 91 89 Other 1 1 1 ------167 - - 311 Par. No. of employees 8 8 13 17 30 31 44 47 53 56 62 44 55 57 64 72 86 139 Temporary employees 24 22 16 17 30 43 39 31 14 6 6 5 33 334 Average age 31.4 31.7 31.7 31.6 31.8 32.1 32.3 31.9 31.8 32.2 31.8 32.2 33.0 35.5 Average years of service 1.3 1.5 1.7 1.8 2.4 2.9 3.1 3.0 2.7 2.8 2.8 3.2 3.1 2.5 Average annual salary (JPYmn) 3.72 3.94 4.24 4.55 4.36 4.47 4.36 4.97 4.78 4.89 5.23 0.01 0.01 0.01 Cons-Parent diff. (no. of employees) 2 26 34 33 96 70 73 44

(JPYmn) FY08/02 FY08/03 FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 Parent Revenue ... a 88 101 145 361 649 762 941 1,074 1,158 1,259 1,360 1,427 1,717 1,965 2,381 2,976 4,057 5,395 Operating profit ... b -34 -36 -75 32 170 229 262 173 234 244 223 267 255 476 508 673 704 -247 No. of employees (average) ... c 8 8 11 15 24 31 38 46 50 55 59 53 50 56 61 68 79 113 Incl. temporary employees ... d 4 8 11 15 36 54 57 62 74 91 100 88 72 66 67 74 98 296 Revenue per employee ... a/c 11.0 12.7 13.8 24.1 27.6 25.0 25.1 23.6 23.2 23.1 23.0 26.9 34.7 35.1 39.3 43.8 51.3 48.0 Incl. temporary employees ... a/d 22.0 12.7 13.8 24.1 18.3 14.2 16.6 17.3 15.8 13.8 13.6 16.2 23.8 29.8 35.8 40.5 41.4 18.2 OP per employee ... b/c -4.2 -4.5 -7.1 2.1 7.2 7.5 7.0 3.8 4.7 4.5 3.8 5.0 5.1 8.5 8.4 9.9 8.9 -2.2 Incl. temporary employees ... b/d -8.4 -4.5 -7.1 2.1 4.8 4.3 4.6 2.8 3.2 2.7 2.2 3.0 3.5 7.2 7.6 9.2 7.2 -0.8

(JPYmn) FY08/02 FY08/03 FY08/04 FY08/05 FY08/06 FY08/07 FY08/08 FY08/09 FY08/10 FY08/11 FY08/12 FY08/13 FY08/14 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 Cons. Revenue ... a 1,360 2,087 3,558 3,661 4,155 4,944 5,431 6,666 Operating profit ... b 211 278 362 547 573 801 837 -39 No. of employees (average) ... c 60 67 80 90 125 151 151 171 Incl. temporary employees ... d 101 128 161 174 306 336 260 445 Revenue per employee ... a/c 22.7 31.1 44.8 40.9 33.2 32.7 36.1 39.0 Incl. temporary employees ... a/d 13.5 16.4 22.1 21.1 13.6 14.7 20.9 15.0 OP per employee ... b/c 3.5 4.2 4.6 6.1 4.6 5.3 5.6 -0.2 Incl. temporary employees ... b/d 2.1 2.2 2.2 3.2 1.9 2.4 3.2 -0.1 Source: Shared Research based on company data

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Historical performance, news and topics Historical performance Full-year FY08/19 results Overview

For Q4 FY08/19, the company reported consolidated revenue of JPY1.8bn (+27.6% YoY), an operating loss of JPY63mn (versus ▷ profit of JPY277mn in Q4 FY08/18), and net loss attributable to owners of the parent of JPY97mn (versus profit of JPY267mn in Q4 FY08/18). For the full year, the company reported consolidated revenue of JPY6.7bn (+22.7% YoY), an operating loss of JPY39 (versus loss ▷ of JPY837mn in FY08/18), and a net loss attributable to owners of the parent of JPY103mn (versus profit of JPY558mn in FY08/18). Key performance indicators: For the full year, the order count of 28.45mn was up 22.0% YoY but short of the company’s ▷ revised target of 31.49mn; the affiliated restaurant count of 19,911 was up 15.7% YoY but short of the company’s revised target of 20,258, and the active user count of 3.00mn was up 11.5% YoY but short of the company’s revised target of 3.02mn.

The number of delivery bases for its Sharing Delivery service rose to 215, an increase of 155 over the end of FY08/18. The company does not disclose its repeat order ratio, but we know that it did not rise by as much as expected. By dividing the total number of orders by the number of active users, we get a rough estimate for the full-year repeat order ratio of 9.5x; this is short of the target figure of 10.4x calculated using the company’s targets for the number of orders and number of active users. The company changed the timing of its investment spending plan in order to bring SG&A expenses below plan and limit the ▷ operating loss to JPY39 million versus the previously projected loss of more than JPY300mn. However, as the investment spending plans were simply pushed forward into the following fiscal year, the burden of this heavy spending is now reflected in the company’s forecast for FY08/20.

Demae-can business

Demae-can FY08/17 FY08/18 FY08/19 FY08/19 FY08/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Cons. Init. Est. Revenue 841 931 930 797 859 1,019 1,100 1,100 1,117 1,346 1,405 1,528 5,395 6,301 YoY 59.3% 49.8% 50.8% 5.5% 2.1% 9.5% 18.3% 38.1% 30.0% 32.0% 27.7% 38.9% 32.3% 54.5% Operating profit 232 171 271 180 222 144 226 272 114 -147 64 -48 -18 - YoY 43.9% 67.4% 21.7% -5.2% -4.5% -15.8% -16.6% 50.7% -48.6% - -71.9% - - - OPM 27.6% 18.3% 29.1% 22.7% 25.8% 14.1% 20.6% 24.7% 10.2% -10.9% 4.5% -3.2% -0.3% - Order processing fees 415 502 498 524 563 679 677 716 703 855 819 879 3,256 - YoY 23.2% 23.1% 26.2% 28.7% 35.7% 35.1% 36.1% 36.7% 24.9% 26.0% 21.0% 22.7% 23.6% - No. of orders (mn) 3.79 4.41 4.38 4.70 5.08 5.94 5.97 6.33 6.28 7.48 7.13 7.55 28.45 - YoY 29.7% 26.0% 26.5% 28.9% 34.1% 34.6% 36.4% 34.8% 23.6% 25.9% 19.5% 19.3% 22.0% - Order processing fees / No. of orders 109.4 113.8 113.6 111.5 110.7 114.3 113.4 113.1 111.9 114.3 114.8 116.3 114.4 - YoY -5.0% -2.3% -0.3% -0.2% 1.2% 0.4% -0.2% 1.4% 1.1% 0.0% 1.3% 2.9% 0.3% - No. of affiliated stores (quarter-end) 14,206 14,559 14,953 15,318 15,712 16,081 16,439 17,207 17,834 18,572 19,452 19,911 19,911 - YoY 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 9.9% 12.3% 13.5% 15.5% 18.3% 15.7% 15.7% - No. of orders / No. of affiliated stores 272.2 306.7 296.7 310.3 327.7 373.5 367.3 376.3 358.7 410.8 375.2 383.7 1,532.9 - YoY 15.1% 9.6% 9.5% 13.6% 20.4% 21.8% 23.8% 21.3% 9.4% 10.0% 2.2% 2.0% 6.9% - No. of active users (quarter-end; mn) 1.98 2.13 2.24 2.35 2.45 2.55 2.62 2.69 2.74 2.82 2.90 3.00 3.00 - YoY - - 23.2% 22.4% 23.7% 20.0% 17.0% 14.5% 11.8% 10.6% 10.7% 11.5% 11.5% - No. of orders / Average no. of users 1.9 2.1 2.0 2.0 2.1 2.4 2.3 2.4 2.3 2.7 2.5 2.6 10.0 - YoY - - - 5.0% 8.9% 10.5% 15.2% 16.5% 9.2% 13.3% 8.0% 7.4% 8.0% - Total users (quarter-end; mn) 8.56 8.81 ------YoY 16.1% 14.6% ------No. of Sharing Delivery bases - - 2 10 17 23 33 60 78 104 161 215 215 - YoY ------1,550.0% 500.0% 358.8% 352.2% 387.9% 258.3% 175.6% - Depreciat ion 49 49 36 37 36 38 42 46 49 56 60 65 229 - Amortization of goodwill 11 11 7 ------EBITDA 293 230 315 217 257 182 268 317 163 -91 123 16 211 - YoY 41.2% 52.7% 15.5% -14.8% -12.1% -21.1% -14.9% 46.1% -36.7% - -54.0% -94.8% -79.4% - EBITDA margin 34.8% 24.7% 33.9% 27.3% 30.0% 17.8% 24.4% 28.9% 14.6% -6.8% 8.8% 1.1% 3.9% - Source: Shared Research based on company data

42/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

In Q4 alone, the mainstay Demae-can business reported revenue of JPY1.5bn (+27.6% YoY) and an operating loss of JPY48mn (versus loss of JPY272mn in Q4 FY08/18).

Key performance indicators In Q4 alone, key performance indicators for the Demae-can business were as follows:

Orders: 7.6mn (+19.3% YoY) ▷ Affiliated restaurants: 19,911 (+15.7% YoY) ▷ Active users: 3.0mn (+11.5% YoY) ▷ Sharing Delivery bases numbered 215, up 54 versus the end of Q3. ▷

In conjunction with its plan to boost its order conversion rate (the percentage of website viewers that place orders), in June 2019, the company encouraged affiliated restaurants that had not generated much order activity to leave its network, resulting in a net decline in the number of affiliated restaurants in the same month.

Sharing Delivery With regard to the main strategy of accelerating development of the Sharing Delivery business, restaurant chains, such as Kourakuen and Coco’s were newly affiliated, and the number of popular regional local restaurants also increased steadily. As for expanding Sharing Delivery’s service areas, the group advanced into Hokkaido.

Impact of consumption tax hike When the consumption tax rate went into effect in October 2019, the consumption tax rate for food consumed inside of restaurants rose to 10.0% while the consumption tax for takeout and delivered restaurant food stayed at the old rate of 8.0%. As this gave delivered food a tax advantage over the same food eaten inside of restaurants, the company’s Demae-can service started receiving more inquiries. According to a report appearing in the Nihon Keizai Shimbun, the number of orders at restaurants for home delivery in the first half of October was up roughly 20% YoY.

Browser upgrade Following the upgrade of its app, the company upgraded its browser in August 2019 to improve user experience. Since the browser upgrade was completed, the company reports that it has seen an increase in the conversion rate for orders received through its browser compared to before the upgrade.

Mail Order business In Q4 alone, the mail order business reported revenue of JPY291mn (-6.1% YoY) and operating profit JPY54mn (-1.0% YoY).

Mail Order FY08/17 FY08/18 FY08/19 FY08/19 FY08/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Cons. Init. Est. Sales 369 384 355 336 348 343 336 326 317 340 323 291 1,271 1,380 YoY -12.4% -12.2% -15.6% -4.9% -5.6% -10.9% -5.2% -3.1% -8.9% -0.7% -3.9% -10.8% -6.1% - Internal transaction 35 40 38 40 45 52 51 53 54 66 70 76 265 Sales (incl. int ernal t ransact ion) 403 425 393 376 393 394 387 379 371 407 393 366 1,536 Operating profit 67 78 60 54 49 59 56 55 42 64 64 54 224 - YoY 34.7% 51.8% -3.0% -0.5% -27.4% -24.8% -6.4% 1.8% -13.7% 8.5% 14.7% -1.0% 2.8% - OPM 18.2% 20.3% 16.9% 16.0% 14.0% 17.1% 16.7% 16.8% 13.3% 18.7% 19.9% 18.6% 17.6% - Depreciat ion 2 2 3 4 3 3 4 4 4 4 4 4 17 Amortization of goodwill 26 26 26 26 26 26 17 ------EBITDA 95 106 88 83 77 88 77 59 46 68 68 58 241 YoY 21.8% 33.6% -1.4% 2.0% -18.2% -17.1% -12.6% -29.5% -40.5% -22.6% -11.3% -0.7% -20.0% EBITDA margin 25.7% 27.5% 24.8% 24.8% 22.2% 25.6% 22.9% 18.1% 14.5% 19.9% 21.2% 20.1% 18.9% Source: Shared Research based on company data

43/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

Demae-can FY08/17 FY08/18 FY08/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Revenue 1,210 1,316 1,285 1,133 1,207 1,362 1,436 1,426 1,434 1,686 1,728 1,819 YoY 27.5% 24.2% 23.9% 2.2% -0.3% 3.5% 11.8% 25.8% 18.8% 23.8% 20.3% 27.6% Total costs 1,012 1,209 1,021 1,011 997 1,233 1,201 1,160 1,306 1,851 1,653 1,881 YoY 25.4% 35.7% 23.2% -0.3% -1.5% 2.0% 17.6% 14.7% 31.0% 50.1% 37.6% 62.2% % of sales 83.6% 91.9% 79.5% 89.2% 82.6% 90.5% 83.7% 81.3% 91.1% 109.8% 95.7% 103.4% Pre-tax profit 198 107 264 123 210 129 235 266 128 -164 74 -62 YoY 39.3% -36.8% 26.4% 28.8% 5.9% 21.1% -10.9% 117.4% -39.2% - -68.3% - Pre-tax margin 16.4% 8.1% 20.5% 10.8% 17.4% 9.5% 16.3% 18.7% 8.9% -9.8% 4.3% -3.4% Income taxes 79 45 69 67 69 46 71 97 36 -40 48 34 Implied t ax rat e 40.0% 42.3% 26.1% 55.1% 32.7% 35.6% 30.2% 36.3% 28.3% 24.1% 64.1% -55.1% Non-cont rolling int erest s -0 -1 -1 -1 -1 -0 0 -0 - - - - Net income attributable to owners of parent 119 62 195 56 142 83 164 170 92 -125 27 -97 YoY 30.1% -42.8% 38.7% 762.2% 18.7% 34.2% -16.2% 204.6% -35.4% - -83.7% - Net margin 9.9% 4.7% 15.2% 4.9% 11.7% 6.1% 11.4% 11.9% 6.4% -7.4% 1.5% -5.3% No. of active users (quarter end; mn) 1.98 2.13 2.24 2.35 2.45 2.55 2.62 2.69 2.74 2.82 2.90 3.00 YoY - - 23.2% 22.4% 23.7% 20.0% 17.0% 14.5% 11.8% 10.6% 10.7% 11.5% No. of orders / No. of active users 1.9 2.1 2.0 2.0 2.1 2.4 2.3 2.4 2.3 2.7 2.5 2.6 YoY - - - 5.0% 8.9% 10.5% 15.2% 16.5% 9.2% 13.3% 8.0% 7.4% No. of orders (mn) 3.79 4.41 4.38 4.70 5.08 5.94 5.97 6.33 6.28 7.48 7.13 7.55 YoY 29.7% 26.0% 26.5% 28.9% 34.1% 34.6% 36.4% 34.8% 23.6% 25.9% 19.5% 19.3% No. of affiliated stores (quarter end) 14,206 14,559 14,953 15,318 15,712 16,081 16,439 17,207 17,834 18,572 19,452 19,911 YoY 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 9.9% 12.3% 13.5% 15.5% 18.3% 15.7%

Grubhub inc. FY12/16 FY12/17 FY12/18 FY12/19 (USDmn) Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Revenue 137 156 159 163 205 233 240 247 288 324 325 YoY 37.5% 39.1% 32.1% 32.1% 49.2% 49.0% 51.0% 51.6% 40.3% 39.2% 35.6% Total costs 114 131 137 146 179 201 205 225 290 315 319 YoY 35.5% 38.2% 40.0% 41.8% 56.7% 53.3% 50.3% 54.8% 62.3% 56.7% 55.3% % of revenue 83.1% 84.0% 86.1% 89.3% 87.2% 86.4% 85.7% 91.2% 101.0% 97.3% 98.1% Pre-tax profit 23 25 22 17 25 32 34 22 -5 9 1 YoY 48.6% 44.2% -1.9% -16.1% 8.2% 26.3% 55.3% 25.4% - -72.0% -98.1% Pre-tax margin 16.9% 16.0% 13.9% 10.7% 12.3% 13.6% 14.3% 8.8% -1.7% 2.7% 0.2% Income taxes 10 7 7 4 -28 -0 4 -1 0 -1 -1 Implied t ax rat e 41.3% 29.1% 33.2% 25.4% -112.8% -0.7% 12.2% -5.6% -4.7% -9.8% -92.6% Net income attributable to owners of parent 14 18 15 13 54 31 30 23 -5 7 1 Act ive Diners (mn) 8.17 8.75 9.18 9.81 14.46 15.08 15.58 16.38 17.69 19.29 20.29 YoY 21.2% 25.6% 24.8% 27.6% 76.9% 72.3% 69.8% 67.0% 22.3% 27.9% 30.2% No. of orders / Average no. of users 3.4 3.5 3.2 3.0 3.0 2.7 2.5 2.4 2.5 2.5 2.2 YoY 0.5% -2.9% -7.5% -9.8% -12.3% -22.9% -21.2% -18.9% -15.2% -4.7% -10.5% Daily Average Grubs ('000) 293 325 314 305 393 437 423 416 468 521 489 DAG x No. of days (mn) 26.91 29.21 28.56 28.01 36.11 39.32 38.51 38.27 43.01 46.89 44.49 YoY 21.0% 19.8% 15.8% 13.8% 34.2% 34.6% 34.8% 36.6% 19.1% 19.2% 15.5% Gross food sales 818 898 880 867 1,139 1,245 1,220 1,215 1,377 1,502 1,459 YoY 27.3% 26.0% 20.1% 18.0% 39.2% 38.6% 38.7% 40.0% 20.9% 20.7% 19.6% Source: Shared Research based on company data

Because Uber was listed in 2019 (NYSE: UBER), Uber Eats figures (on a global basis) are shown for reference.

Uber Eat s (Worldwide) FY12/17 FY12/18 FY12/19 (USDmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Revenue 83 121 163 220 283 346 394 437 536 595 YoY 241.0% 186.0% 141.7% 98.6% 89.4% 72.0% Excess driver incentives 47 42 52 69 97 124 200 266 291 253 YoY 106.4% 195.2% 284.6% 285.5% 200.0% 104.0% % of revenue 34.3% 35.8% 50.8% 60.9% 54.3% 42.5% Driver referrals 3 4 4 43 3 2 3 6 6 5 YoY - -50.0% -25.0% -86.0% 100.0% 150.0% % of revenue 3.1% 1.6% 1.5% 2.3% 2.1% 2.0% Adjusted net revenue 33 75 107 148 183 220 191 165 239 337 YoY 454.5% 193.3% 78.5% 11.5% 30.6% 53.2% % of revenue 64.7% 63.6% 48.5% 37.8% 44.6% 56.6% Source: Shared Research based on company data

44/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

Q3 FY08/19 results (out June 28, 2019) Overview For Q3 FY08/19, the company reported consolidated revenue of JPY1.7bn (+20.3% YoY), an operating profit of JPY64mn ▷ (-70.8% YoY), and a net income attributable to owners of the parent of JPY27mn (-83.7% YoY).

Demae-can business

Demae-can FY08/16 FY08/17 FY08/18 FY08/19 FY08/18 FY08/19 FY08/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Cons. Init. Est. Est. Q2 Revenue 528 621 617 755 841 931 930 797 859 1,019 1,100 1,100 1,117 1,346 1,405 4,078 6,301 - YoY 25.3% 21.6% 20.2% 44.6% 59.3% 49.8% 50.8% 5.5% 2.1% 9.5% 18.3% 38.1% 30.0% 32.0% 27.7% 16.5% 54.5% - Operating profit 161 102 223 190 232 171 271 180 222 144 226 272 114 -147 64 863 - - YoY 27.0% -51.5% 85.0% 5.2% 43.9% 67.4% 21.7% -5.2% -4.5% -15.8% -16.6% 50.7% -48.6% - -71.9% 1.1% - - OPM 30.5% 16.4% 36.1% 25.2% 27.6% 18.3% 29.1% 22.7% 25.8% 14.1% 20.6% 24.7% 10.2% -10.9% 4.5% 21.2% - - Order processing fees 337 408 394 407 415 502 498 524 563 679 677 716 703 855 819 2,634 - - YoY 28.8% 29.6% 30.7% 24.7% 23.2% 23.1% 26.2% 28.7% 35.7% 35.1% 36.1% 36.7% 24.9% 26.0% 21.0% 35.9% - - No. of orders (mn) 2.92 3.50 3.46 3.64 3.79 4.41 4.38 4.70 5.08 5.94 5.97 6.33 6.28 7.48 7.13 23.32 33.82 31.49 YoY 25.9% 27.8% 31.0% 27.6% 29.7% 26.0% 26.5% 28.9% 34.1% 34.6% 36.4% 34.8% 23.6% 25.9% 19.5% 35.0% 45.0% 32.1% Order processing fees / No. of orders 115.2 116.5 113.9 111.7 109.4 113.8 113.6 111.5 110.7 114.3 113.4 113.1 111.9 114.3 114.8 112.9 - - YoY 2.3% 1.3% -0.2% -2.3% -5.0% -2.3% -0.3% -0.2% 1.2% 0.4% -0.2% 1.4% 1.1% 0.0% 1.3% 0.7% - - No. of affiliated stores (quarter-end) 12,505 12,529 13,018 13,656 14,206 14,559 14,953 15,318 15,712 16,081 16,439 17,207 17,834 18,572 19,452 17,207 21,125 20,258 YoY 7.1% 6.1% 8.4% 11.8% 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 9.9% 12.3% 13.5% 15.5% 18.3% 12.3% 22.8% 18.7% No. of orders / No. of affiliated stores 236.6 279.7 270.9 273.2 272.2 306.7 296.7 310.3 327.7 373.5 367.3 376.3 358.7 410.8 375.2 1,434.3 1,764.6 1,687.2 YoY 18.7% 20.0% 22.1% 15.9% 15.1% 9.6% 9.5% 13.6% 20.4% 21.8% 23.8% 21.3% 9.4% 10.0% 2.2% 20.3% 23.0% 14.7% No. of active users (quarter-end; mn) - - 1.82 1.92 1.98 2.13 2.24 2.35 2.45 2.55 2.62 2.69 2.74 2.82 2.90 2.69 4.41 3.02 YoY - - - 24.7% - - 23.2% 22.4% 23.7% 20.0% 17.0% 14.5% 11.8% 10.6% 10.7% 14.5% 63.9% -3.5% No. of orders / Average no. of users 1.9 1.9 2.1 2.0 2.0 2.1 2.4 2.3 2.4 2.3 2.7 2.5 9.3 9.5 10.2 YoY ------5.0% 8.9% 10.5% 15.2% 16.5% 9.2% 13.3% 8.0% 14.4% 2.9% #DIV/0! Total users (quarter-end; mn) 7.37 7.69 7.98 8.30 8.56 8.81 ------YoY 14.3% 14.9% 15.8% 16.2% 16.1% 14.6% ------No. of Sharing Delivery bases ------2 10 17 23 33 60 78 104 161 78 210 210 YoY ------1,550.0% 500.0% 358.8% 352.2% 387.9% 680.0% 169.2% - Depreciat ion 43 46 47 51 49 49 36 37 36 38 42 46 49 56 60 162 - - Amortization of goodwill 3 3 3 14 11 11 7 ------EBITDA 207 151 273 255 293 230 315 217 257 182 268 317 163 -91 123 1,025 - - YoY 19.9% -40.6% 65.2% 12.7% 41.2% 52.7% 15.5% -14.8% -12.1% -21.1% -14.9% 46.1% -36.7% - -54.0% -2.9% - - EBITDA margin 39.3% 24.3% 44.2% 33.8% 34.8% 24.7% 33.9% 27.3% 30.0% 17.8% 24.4% 28.9% 14.6% -6.8% 8.8% 25.1% - - Source: Shared Research based on company data

The mainstay Demae-can business logged revenue of JPY1.4bn (+27.7% YoY) and an operating profit of JPY64mn (-71.9% YoY).

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

Number of orders: 7.1mn (+19.5% YoY) ▷ Number of affiliated stores: 19,452 (+18.3% YoY) ▷ Number of active users: 2.9mn (+10.7% YoY) ▷ The number of Sharing Delivery bases was 161, an increase of 57 from end-February 2019.

The company had expected improved conversion in number of orders after making the below-mentioned updates to the app. However, after complete overhaul many defects were found in the app and the company prioritized repairing the app and held back on promotions, which resulted in lower conversion than originally expected. According to the company, necessary repairs were completed by the end of May and it has seen improved conversion since then. Holding back on promotions resulted in operating profit exceeding company forecasts.

In order to meet revised company forecasts for number of orders, it will be necessary to achieve over 80% growth in number of orders YoY for the months of July and August, which should prove difficult. Since the number of active users came very close to revised company forecasts, the difference between the actual number of orders and company forecasts seems to be due in large part to the fact that number of orders per user did not grow as much as the company had expected.

In June, the number of affiliated restaurants fell 10% on a monthly basis as a result of the company urging restaurants that do not receive any orders for a certain period of time to withdraw their affiliation. The company’s policy of focusing on restaurants that are doing well while increasing the number of affiliated restaurants in cuisine varieties that are scarce within a given area remains unchanged.

45/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

Sharing Delivery With regard to the main strategy of accelerating development of the Sharing Delivery business, restaurant chains, such as Sushiro were newly affiliated, and the number of popular regional local restaurants also increased steadily. As for expanding Sharing Delivery areas, the group advanced into Hokkaido.

App upgrade The company announced the complete overhaul of its app on March 28, 2019. The outline is as follows:

The app has become more intuitive, with improved visualization of waiting times and order categories. ▷ It is now possible to search by name of restaurant and type of food. This saves time on searching for food, and consequently ▷ time spent placing an order. Now, orders can be placed before the restaurant opens, where previously orders could not be placed outside of the ▷ restaurant’s operating hours. The pre-order service—previously only available through the website (both smartphone and PC versions)—is now also available ▷ through the app.

The main reason defects occurred in the app after the overhaul was that development had been aimed at the acquisition of new users, which resulted in insufficient consideration for existing users. The company is engaged in analyzing the changes in usage patterns for especially heavy users and making improvements where needed.

Mail Order business In Q3 FY08/19, revenue was JPY323mn (-3.9% YoY) and operating profit JPY64mn (+14.7% YoY).

Mail Order FY08/16 FY08/17 FY08/18 FY08/19 FY08/18 FY08/19 FY08/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Cons. Init. Est. Est. Q2 Sales 421 438 420 354 369 384 355 336 348 343 336 326 317 340 323 1,353 1,380 - YoY -0.9% 0.4% -1.8% -12.4% -12.4% -12.2% -15.6% -4.9% -5.6% -10.9% -5.2% -3.1% -8.9% -0.7% -3.9% -6.4% - - Internal transaction 23 26 27 25 35 40 38 40 45 52 51 53 54 66 70 200 Sales (incl. int ernal t ransact ion) 444 464 447 379 403 425 393 376 393 394 387 379 371 407 393 1,553 Operating profit 50 51 62 54 67 78 60 54 49 59 56 55 42 64 64 218 - - YoY 50.6% 15.5% -38.6% 112.3% 34.7% 51.8% -3.0% -0.5% -27.4% -24.8% -6.4% 1.8% -13.7% 8.5% 14.7% -15.7% - - OPM 11.8% 11.7% 14.7% 15.3% 18.2% 20.3% 16.9% 16.0% 14.0% 17.1% 16.7% 16.8% 13.3% 18.7% 19.9% 16.1% - - Depreciat ion 2 2 2 2 2 2 3 4 3 3 4 4 4 4 4 14 Amortization of goodwill 26 26 26 26 26 26 26 26 26 26 17 - - - - 69 EBITDA 78 79 89 82 95 106 88 83 77 88 77 59 46 68 68 301 YoY 26.0% 6.9% -31.1% 50.8% 21.8% 33.6% -1.4% 2.0% -18.2% -17.1% -12.6% -29.5% -40.5% -22.6% -11.3% -19.1% EBITDA margin 18.5% 18.1% 21.3% 23.1% 25.7% 27.5% 24.8% 24.8% 22.2% 25.6% 22.9% 18.1% 14.5% 19.9% 21.2% 22.3% Source: Shared Research based on company data

Other topics Issue of stock acquisition rights by third party allotment with a variable exercise price On April 19, 2019, the company announced an issue of stock acquisition rights by third party allotment with a variable exercise price. This forms a part of fundraising for system development costs that had been part of the company’s plan.

Date of allotment: May 9, 2019 ▷ Exercise period of stock acquisition rights: Two years (May 10, 2019 to May 7, 2021) ▷ Amount to be raised: JPY3,606mn (estimated proceeds after deductions: JPY3,586mn). ▷ The total amount to be raised may increase or decrease depending on adjustments or revisions to the exercise price. Number of issuable shares: 2.2mn shares (100 shares per stock acquisition right). ▷ If all the stock acquisition rights are exercised, the total number of shares delivered will be 2.2mn with an anticipated dilution of 4.96%. Specific purpose of funds to be raised: ▷  System development expenses for the Demae-can business: JPY3.0bn (expected to be spent from July 2019 to August 2021)

46/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

 Future funds for M&A and capital and business alliances: JPY585mn (expected to be spent from July 2019 to August 2021) Minimum exercise price: JPY1,631 ▷ Exercise price and terms of adjustment of the exercise price (initial exercise price: JPY1,631) ▷ The initial exercise price for the stock acquisition rights is the closing price of the ordinary shares of the company on the Tokyo Stock Exchange on April 18, 2019, the day before the planned issue date. The company's consent is required for exercise of stock acquisition rights at a price below JPY2,000. However, the exercise price may be adjusted to a value equivalent to 92% of the closing price of the company’s ordinary shares on the Tokyo Stock Exchange on the day prior to the notified date of exercise. If the adjusted exercise price falls below the minimum exercise price, the exercise price shall be the minimum exercise price.

Method of allocation: Third-party allocation to Macquarie Bank Ltd. ▷ Number of stock acquisition rights to be issued: 22,000 units ▷ Total issue value: JPY17.6mn (JPY800 per stock acquisition right) ▷

Business alliance with Recruit The company entered into a business alliance with Recruit Co., Ltd., an intermediate holding company under Recruit Holdings Co., Ltd. This follows the start of cooperation between Recruit Lifestyle Co., Ltd.’s POS cash register application AirREGI and Demae-can order information. The company has concluded this alliance as an increasing number of affiliated restaurants need to change their POS systems with the October consumption tax hike in view. It provides the following advantages to affiliated restaurants.

Restaurant operations can be more efficient as a result of being able to handle everything from receiving delivery order ▷ information to the issuing of receipts Able to respond to a reduced consumption tax rate after the consumption tax hike ▷ Can be introduced for less than the cost of purchasing a new cash register ▷

Comparable US companies In Japan, direct competitor Uber Eats (Japanese operations) is not listed and Rakuten Delivery is part of Rakuten (TSE1: 4755), so data are difficult to obtain. 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.

Yume no Machi Souzou Iinkai FY08/16 FY08/17 FY08/18 FY08/19 FY08/13 FY08/19 FY08/20 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Cons. Init. Est. Init. Est. Revenue 949 1,059 1,037 1,109 1,210 1,316 1,285 1,133 1,207 1,362 1,436 1,426 1,434 1,686 1,728 5,431 7,681 7,000 YoY 12.1% 11.8% 10.2% 19.7% 27.5% 24.2% 23.9% 2.2% -0.3% 3.5% 11.8% 25.8% 18.8% 23.8% 20.3% 9.8% 41.4% 28.8% Total costs 807 891 829 1,014 1,012 1,209 1,021 1,011 997 1,233 1,201 1,160 1,306 1,851 1,653 4,591 YoY 3.6% 4.4% 5.6% -1.1% 25.4% 35.7% 23.2% -0.3% -1.5% 2.0% 17.6% 14.7% 31.0% 50.1% 37.6% 7.9% - - % of sales 85.0% 84.1% 79.9% 91.4% 83.6% 91.9% 79.5% 89.2% 82.6% 90.5% 83.7% 81.3% 91.1% 109.8% 95.7% 84.5% - - Pre-tax profit 142 169 208 95 198 107 264 123 210 129 235 266 128 -164 74 840 - - YoY 109.5% 78.8% 33.6% - 39.3% -36.8% 26.4% 28.8% 5.9% 21.1% -10.9% 117.4% -39.2% - -68.3% 21.6% - - Pre-tax margin 15.0% 15.9% 20.1% 8.6% 16.4% 8.1% 20.5% 10.8% 17.4% 9.5% 16.3% 18.7% 8.9% -9.8% 4.3% 15.5% - - Income taxes 53 62 69 89 79 45 69 67 69 46 71 97 36 -40 48 282 - - Implied t ax rat e 37.4% 37.0% 33.0% 93.4% 40.0% 42.3% 26.1% 55.1% 32.7% 35.6% 30.2% 36.3% 28.3% 24.1% 64.1% 33.6% - - Non-cont rolling int erest s -3 -2 -1 -0 -0 -1 -1 -1 -1 -0 0 -0 - - - -1 - - Net income attributable to owners of parent 92 109 141 6 119 62 195 56 142 83 164 170 92 -125 27 559 79 -300 YoY 187.2% 335.0% 38.7% - 30.1% -42.8% 38.7% 762.2% 18.7% 34.2% -16.2% 204.6% -35.4% - -83.7% 29.1% -85.9% - Net margin 9.7% 10.3% 13.6% 0.6% 9.9% 4.7% 15.2% 4.9% 11.7% 6.1% 11.4% 11.9% 6.4% -7.4% 1.5% 10.3% 1.0% -4.3% No. of active users (quarter end; mn) - - 1.82 1.92 1.98 2.13 2.24 2.35 2.45 2.55 2.62 2.69 2.74 2.82 2.90 2.69 4.41 3.02 YoY - - - 24.7% - - 23.2% 22.4% 23.7% 20.0% 17.0% 14.5% 11.8% 10.6% 10.7% 14.5% 63.9% -3.5% No. of orders / No. of active users - - - 1.9 1.9 2.1 2.0 2.0 2.1 2.4 2.3 2.4 2.3 2.7 2.5 9.3 9.5 8.5 YoY ------5.0% 8.9% 10.5% 15.2% 16.5% 9.2% 13.3% 8.0% 14.4% 2.9% -2.5% No. of orders (mn) 2.92 3.50 3.46 3.64 3.79 4.41 4.38 4.70 5.08 5.94 5.97 6.33 6.28 7.48 7.13 23.32 33.82 31.49 YoY 25.9% 27.8% 31.0% 27.6% 29.7% 26.0% 26.5% 28.9% 34.1% 34.6% 36.4% 34.8% 23.6% 25.9% 19.5% 35.0% 45.0% 32.1% No. of affiliated stores (quarter end) 12,505 12,529 13,018 13,656 14,206 14,559 14,953 15,318 15,712 16,081 16,439 17,207 17,834 18,572 19,452 17,207 21,125 20,258 YoY 7.1% 6.1% 8.4% 11.8% 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 9.9% 12.3% 13.5% 15.5% 18.3% 12.3% 22.8% 18.7%

47/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

Grubhub inc. FY12/16 FY12/17 FY12/18 FY12/19 (USDmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Revenue 112 120 123 137 156 159 163 205 233 240 247 288 324 YoY 27.2% 36.6% 44.1% 37.5% 39.1% 32.1% 32.1% 49.2% 49.0% 51.0% 51.6% 40.3% 39.2% Total costs 95 98 103 114 131 137 146 179 201 205 225 290 315 YoY 35.9% 36.1% 38.8% 35.5% 38.2% 40.0% 41.8% 56.7% 53.3% 50.3% 54.8% 62.3% 56.7% % of revenue 84.6% 81.3% 83.2% 83.1% 84.0% 86.1% 89.3% 87.2% 86.4% 85.7% 91.2% 101.0% 97.3% Pre-tax profit 17 23 21 23 25 22 17 25 32 34 22 -5 9 YoY -5.9% 39.0% 78.0% 48.6% 44.2% -1.9% -16.1% 8.2% 26.3% 55.3% 25.4% - -72.0% Pre-tax margin 15.4% 18.7% 16.8% 16.9% 16.0% 13.9% 10.7% 12.3% 13.6% 14.3% 8.8% -1.7% 2.7% Income taxes 7 10 8 10 7 7 4 -28 -0 4 -1 0 -1 Implied t ax rat e 42.7% 43.1% 36.5% 41.3% 29.1% 33.2% 25.4% -112.8% -0.7% 12.2% -5.6% -4.7% -9.8% Net income attributable to owners of parent 10 13 13 14 18 15 13 54 31 30 23 -5 7 Act ive Diners (mn) 6.97 7.35 7.69 8.17 8.75 9.18 9.81 14.46 15.08 15.58 16.38 17.69 19.29 YoY 24.4% 23.9% 19.5% 21.2% 25.6% 24.8% 27.6% 76.9% 72.3% 69.8% 67.0% 22.3% 27.9% No. of orders / Average no. of users 3.6 3.4 3.3 3.4 3.5 3.2 3.0 3.0 2.7 2.5 2.4 2.5 2.5 YoY -10.5% -0.8% 4.0% 0.5% -2.9% -7.5% -9.8% -12.3% -22.9% -21.2% -18.9% -15.2% -4.7% Daily Average Grubs ('000) 268 271 268 293 325 314 305 393 437 423 416 468 521 DAG x No. of days (mn) 24.38 24.67 24.61 26.91 29.21 28.56 28.01 36.11 39.32 38.51 38.27 43.01 46.89 YoY 15.4% 23.2% 26.5% 21.0% 19.8% 15.8% 13.8% 34.2% 34.6% 34.8% 36.6% 19.1% 19.2% Gross food sales 713 733 735 818 898 880 867 1,139 1,245 1,220 1,215 1,377 1,502 YoY 20.8% 29.1% 32.8% 27.3% 26.0% 20.1% 18.0% 39.2% 38.6% 38.7% 40.0% 20.9% 20.7% Source: Shared Research based on company data

However, because Uber was listed in 2019 (NYSE: UBER), Uber Eats figures (on a global basis) are shown for reference.

Uber Eat s (Worldwide) FY12/17 FY12/18 FY12/19 (USDmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Revenue 83 121 163 220 283 346 394 437 536 YoY 241.0% 186.0% 141.7% 98.6% 89.4% Excess driver incentives 47 42 52 69 97 124 200 266 291 YoY 106.4% 195.2% 284.6% 285.5% 200.0% % of revenue 34.3% 35.8% 50.8% 60.9% 54.3% Driver referrals 3 4 4 43 3 2 3 6 6 YoY - -50.0% -25.0% -86.0% 100.0% % of revenue 3.1% 1.6% 1.5% 2.3% 2.1% Adjusted net revenue 33 75 107 148 183 220 191 165 239 YoY 454.5% 193.3% 78.5% 11.5% 30.6% % of revenue 64.7% 63.6% 48.5% 37.8% 44.6% Source: Shared Research based on Supplemental Data

Q2 FY08/19 results (out March 28, 2019) Overview

For Q2 FY08/19, the company reported consolidated revenue of JPY1.7bn (+23.8% YoY), an operating loss of JPY143mn (from ▷ an operating profit of Y135mn in Q2 FY08/18) and a net loss attributable to owners of the parent of JPY125mn (from net income of JPY83mn in Q2 FY08/18). The company said that the operating loss was in line with plan. At the time of Q2 earnings results announcement, the company announced a revision to its full-year FY08/19 forecast and the ▷ year-end dividend forecast which had not been determined before. Revised full-year FY08/19 forecasts are for consolidated revenue of JPY7.0bn (-JPY681mn from the previous forecast), an ▷ operating loss of JPY300mn (-JPY400mn from the previous forecast for profit of JPY100mn), a recurring loss of JPY290mn (-JPY407mn from the previous forecast for profit of JPY117mn), and a net loss attributable to owners of the parent of JPY300mn (-JPY379mn from the previous forecast for profit of JPY79mn). This translates into a net loss of JPY7.34 per share as compared to previous forecast of net income of JPY1.96 per share. The number of Sharing Delivery bases is steadily increasing, as originally planned. However, with regard to growth of active ▷ users, the conversion rate (CVR) of new active users has fallen short of company expectations. As the number of active users

has fallen behind plan, consolidated revenue is now projected to be less than initial forecasts. Profit is also now projected to be less than the initial forecast owing to aggressive investments into increasing the number of ▷ Sharing Delivery bases, improving UX, and increasing operating efficiency at restaurants and delivery locations.

48/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

The company also revised FY08/19 targets for key performance indicators, to the number of orders of 31.5mn (initial forecast of ▷ 33.8mn), number of affiliated stores of 20,258 (21,125), and number of active users of 3.0mn (4.4mn). The impact of these revisions on the medium-term management plan is currently under review. The company stated that ▷ based on 2H performance, it will announce a rolling plan for new medium-term management targets. The company forecasts its year-end dividend of JPY3.60 per share, unchanged from the previous year’s dividend. The forecast ▷ is level with the previous year’s dividend, despite the expected decline in profits from aggressive investments to expand market share in the Demae-can business, because the company aims to keep dividends steady.

Demae-can business

Demae-can FY08/16 FY08/17 FY08/18 FY08/19 FY08/16 FY08/17 FY08/18 FY08/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Cons. Cons. Cons. Init. Est. Revenue 528 621 617 755 841 931 930 797 859 1,019 1,100 1,100 1,117 1,346 2,522 3,499 4,078 6,301 YoY 25.3% 21.6% 20.2% 44.6% 59.3% 49.8% 50.8% 5.5% 2.1% 9.5% 18.3% 38.1% 30.0% 32.0% 28.1% 38.8% 16.5% 54.5% Operating profit 161 102 223 190 232 171 271 180 222 144 226 272 114 -147 676 854 863 - YoY 27.0% -51.5% 85.0% 5.2% 43.9% 67.4% 21.7% -5.2% -4.5% -15.8% -16.6% 50.7% -48.6% - 5.9% 26.3% 1.1% - OPM 30.5% 16.4% 36.1% 25.2% 27.6% 18.3% 29.1% 22.7% 25.8% 14.1% 20.6% 24.7% 10.2% -10.9% 26.8% 24.4% 21.2% - Order processing fees 337 408 394 407 415 502 498 524 563 679 677 716 703 855 1,546 1,938 2,634 - YoY 28.8% 29.6% 30.7% 24.7% 23.2% 23.1% 26.2% 28.7% 35.7% 35.1% 36.1% 36.7% 24.9% 26.0% 28.3% 25.4% 35.9% - No. of orders (mn) 2.92 3.50 3.46 3.64 3.79 4.41 4.38 4.70 5.08 5.94 5.97 6.33 6.28 7.48 13.53 17.28 23.32 33.82 YoY 25.9% 27.8% 31.0% 27.6% 29.7% 26.0% 26.5% 28.9% 34.1% 34.6% 36.4% 34.8% 23.6% 25.9% 28.1% 27.7% 35.0% 45.0% Order processing fees / No. of orders 115.2 116.5 113.9 111.7 109.4 113.8 113.6 111.5 110.7 114.3 113.4 113.1 111.9 114.3 114.3 112.2 112.9 - YoY 2.3% 1.3% -0.2% -2.3% -5.0% -2.3% -0.3% -0.2% 1.2% 0.4% -0.2% 1.4% 1.1% 0.0% 0.2% -1.8% 0.7% - No. of affiliated stores (quarter end) 12,505 12,529 13,018 13,656 14,206 14,559 14,953 15,318 15,712 16,081 16,439 17,207 17,834 18,572 13,656 15,318 17,207 21,125 YoY 7.1% 6.1% 8.4% 11.8% 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 9.9% 12.3% 13.5% 15.5% 11.8% 12.2% 12.3% 22.8% No. of orders / No. of affiliated stores 236.6 279.7 270.9 273.2 272.2 306.7 296.7 310.3 327.7 373.5 367.3 376.3 358.7 410.8 1,045.9 1,192.7 1,434.3 1,764.6 YoY 18.7% 20.0% 22.1% 15.9% 15.1% 9.6% 9.5% 13.6% 20.4% 21.8% 23.8% 21.3% 9.4% 10.0% 18.1% 14.0% 20.3% 23.0% No. of active users (quarter end; mn) - - 1.82 1.92 1.98 2.13 2.24 2.35 2.45 2.55 2.62 2.69 2.74 2.82 1.92 2.35 2.69 4.41 YoY - - - 24.7% - - 23.2% 22.4% 23.7% 20.0% 17.0% 14.5% 11.8% 10.6% 24.7% 22.4% 14.5% 63.9% No. of orders / Average no. of users 1.9 1.9 2.1 2.0 2.0 2.1 2.4 2.3 2.4 2.3 2.7 7.8 8.1 9.3 9.5 YoY ------5.0% 8.9% 10.5% 15.2% 16.5% 9.2% 13.3% 7.0% 3.5% 14.4% 2.9% Total users (quarter end; mn) 7.37 7.69 7.98 8.30 8.56 8.81 ------8.30 - - - YoY 14.3% 14.9% 15.8% 16.2% 16.1% 14.6% ------16.2% - - - No. of Sharing Delivery bases ------2 10 17 23 33 60 78 104 - 10 78 210 YoY ------1,550.0% 500.0% 358.8% 352.2% - - 680.0% 169.2% Depreciat ion 43 46 47 51 49 49 36 37 36 38 42 46 49 56 187 171 162 - Amortization of goodwill 3 3 3 14 11 11 7 ------23 30 - - EBITDA 207 151 273 255 293 230 315 217 257 182 268 317 163 -91 886 1,055 1,025 - YoY 19.9% -40.6% 65.2% 12.7% 41.2% 52.7% 15.5% -14.8% -12.1% -21.1% -14.9% 46.1% -36.7% - 8.3% 19.1% -2.9% - EBITDA margin 39.3% 24.3% 44.2% 33.8% 34.8% 24.7% 33.9% 27.3% 30.0% 17.8% 24.4% 28.9% 14.6% -6.8% 35.1% 30.2% 25.1% - Source: Shared Research based on company data

The mainstay Demae-can business logged revenue of JPY1.3bn (+32.0% YoY) and an operating loss of JPY147mn (from a profit of JPY144mn in Q2 FY08/18).

The company is promoting online payments, which currently comprise 43% of all payments. Revenue includes payment ▷ processing fees.

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

Number of orders: 7.5mn (+25.9% YoY) ▷ Number of affiliated stores: 18,572 (+15.5% YoY) ▷ Number of active users: 2.8mn (+10.6% YoY) ▷ The number of Sharing Delivery bases was 104, an increase of 26 from end-November 2018.

Number of affiliated stores

The number of affiliated stores fell short of plan because the company adopted a strategy that prioritized quality (whether a store is necessary for increasing the number of orders) over the number. Instead of blindly increasing the number of affiliated stores, the company analyzes each target area and focuses its sales activity ▷ to the type of stores the company lacks in that area. Hence, the company maintains that the below-target number of affiliated stores has essentially no negative impact on the number of orders.

49/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

Number of orders, number of active users

The number of orders undershot plan because the number of active users came in below plan. The number of active users did not meet company expectations because the conversion rate (CVR) among newly acquired ▷ users was low. The company believes that to improve the CVR, it is important to improve its product (app) and shorten time to delivery. ▷ The company has fully updated its product (app) on March 28, 2019 (explained in detail later). ▷ In regards to time to delivery, the company plans to launch an automatic management system to enable efficient delivery at ▷ Sharing Delivery bases in FY08/19. This system will enhance the efficiency of deliveries through such measures as conducting multiple deliveries at once, and hence will allow delivery managers to focus on improving the quality of deliveries.

Impact of time to delivery on close ratio (close ratio=number of orders/ restaurant page views)

100% 100%

80% ⇒ Time to delivery over 60 minutes lowers close ratio below 10% of "30 60% minutes or less"

40% 45%

20% 24% 15% 10% 8% 0% 30 or less 31–40 41–50 51–60 61–70 71–80 (minutes) Source: Shared Research based on company data

Progress with initiatives Expansion of Sharing Delivery bases With regard to the main strategy to accelerate development of the Sharing Delivery business, chains, such as Hidakaya, Uobei, and Miyamoto Musashi, were newly affiliated, and the number of popular local restaurants in each region also increased steadily. As for expanding Sharing Delivery areas, the group advanced into Kyoto, Nara, and Hiroshima, and a local transport company based in Fukuyama, Hiroshima was signed on as a new delivery partner.

The company is on track to reaching the target of 210 bases by end-FY08/19. ▷ However, the company made revisions to its plan regarding directly managed and partnering bases. It plans to convert ▷ partnering bases that do not meet its quality standards, such as in terms of time to delivery, to directly managed bases to maintain and improve the quality of the Sharing Delivery business. As of April 2019, the company plans to have 105 directly managed bases and 105 partnering bases at end-FY08/19. The company expects the total amount of investment in directly managed bases in FY08/20 to not exceed that of FY08/19. ▷

App upgrade The company announced the complete overhaul of its app on March 28, 2019. The outline is as follows:

The app has become more intuitive, with improved visualization of time to delivery and order categories. ▷ It is now possible to search by name of restaurant and type of food. This saves time on searching for food, and consequently ▷ time spent placing an order.

50/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

Now, orders can be placed before the restaurant opens, where previously orders could not be placed outside of the ▷ restaurant’s operating hours. While less than 1% of all orders account for pre-orders with designated delivery time, customer spend for these orders is 10x that of regular orders. The pre-order service—previously only available through the website (both smartphone and PC versions)—is now also available ▷ through the app. Users are able to place orders from their order history. ▷ The company commented that it is easier to run updates on the upgraded app compared to the previous app, and hence it ▷ expects to see speedier responses to issues on the app. The company also plans to update the website during FY08/19. ▷

Enhancement of advertising function

The company plans to start posting ads to keyword search result pages (similar to Google AdWords) in a couple of months. The company expects to collect extra fees for the service from affiliated stores. ▷

Establishment of a department dedicated to maximizing customer lifetime value (LTV) The company established the Product Planning Department to design optimal UI/UX and the Data Strategy Department to create algorithms for maximizing customer LTV.

The company budgeted about JPY850mn (useful life of five years) for systems investment for FY08/19, and plans to allocate a ▷ similar amount to data analysis and data analysis-related systems investment in FY08/20.

Mail Order business In Q2 FY08/19, revenue was JPY340mn (-0.7% YoY) and operating profit JPY64mn (+8.5% YoY).

Demae-can call centers performed favorably. ▷

Mail Order FY08/16 FY08/17 FY08/18 FY08/19 FY08/16 FY08/17 FY08/18 FY08/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Cons. Cons. Cons. Init. Est. Sales 421 438 420 354 369 384 355 336 348 343 336 326 317 340 1,633 1,445 1,353 1,380 YoY -0.9% 0.4% -1.8% -12.4% -12.4% -12.2% -15.6% -4.9% -5.6% -10.9% -5.2% -3.1% -8.9% -0.7% -3.5% -11.5% -6.4% - Internal transaction 23 26 27 25 35 40 38 40 45 52 51 53 54 66 101 153 200 - Sales (incl. int ernal t ransact ion) 444 464 447 379 403 425 393 376 393 394 387 379 371 407 1,734 1,597 1,553 - Operating profit 50 51 62 54 67 78 60 54 49 59 56 55 42 64 217 259 218 - YoY 50.6% 15.5% -38.6% 112.3% 34.7% 51.8% -3.0% -0.5% -27.4% -24.8% -6.4% 1.8% -13.7% 8.5% 6.6% 19.3% -15.7% - OPM 11.8% 11.7% 14.7% 15.3% 18.2% 20.3% 16.9% 16.0% 14.0% 17.1% 16.7% 16.8% 13.3% 18.7% 13.3% 17.9% 16.1% - Depreciat ion 2 2 2 2 2 2 3 4 3 3 4 4 4 4 8 10 14 - Amortization of goodwill 26 26 26 26 26 26 26 26 26 26 17 - - - 103 103 69 - EBITDA 78 79 89 82 95 106 88 83 77 88 77 59 46 68 328 372 301 - YoY 26.0% 6.9% -31.1% 50.8% 21.8% 33.6% -1.4% 2.0% -18.2% -17.1% -12.6% -29.5% -40.5% -22.6% 2.6% 13.4% -19.1% - EBITDA margin 18.5% 18.1% 21.3% 23.1% 25.7% 27.5% 24.8% 24.8% 22.2% 25.6% 22.9% 18.1% 14.5% 19.9% 20.1% 25.8% 22.3% - Source: Shared Research based on company data

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

51/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

Yume no Machi Souzou Iinkai FY08/16 FY08/17 FY08/18 FY08/19 FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Cons. Cons. Cons. Cons. Init. Est. Init. Est. Revenue 949 1,059 1,037 1,109 1,210 1,316 1,285 1,133 1,207 1,362 1,436 1,426 1,434 1,686 3,661 4,155 4,944 5,431 7,681 7,000 YoY 12.1% 11.8% 10.2% 19.7% 27.5% 24.2% 23.9% 2.2% -0.3% 3.5% 11.8% 25.8% 18.8% 23.8% 2.9% 13.5% 19.0% 9.8% 41.4% 28.8% Total costs 807 891 829 1,014 1,012 1,209 1,021 1,011 997 1,233 1,201 1,160 1,306 1,851 3,442 3,540 4,253 4,591 YoY 3.6% 4.4% 5.6% -1.1% 25.4% 35.7% 23.2% -0.3% -1.5% 2.0% 17.6% 14.7% 31.0% 50.1% 7.8% 2.8% 20.1% 7.9% - - % of sales 85.0% 84.1% 79.9% 91.4% 83.6% 91.9% 79.5% 89.2% 82.6% 90.5% 83.7% 81.3% 91.1% 109.8% 94.0% 85.2% 86.0% 84.5% - - Pre-tax profit 142 169 208 95 198 107 264 123 210 129 235 266 128 -164 219 614 691 840 - - YoY 109.5% 78.8% 33.6% - 39.3% -36.8% 26.4% 28.8% 5.9% 21.1% -10.9% 117.4% -39.2% - -40.0% 180.6% 12.5% 21.6% - - Pre-tax margin 15.0% 15.9% 20.1% 8.6% 16.4% 8.1% 20.5% 10.8% 17.4% 9.5% 16.3% 18.7% 8.9% -9.8% 6.0% 14.8% 14.0% 15.5% - - Income taxes 53 62 69 89 79 45 69 67 69 46 71 97 36 -40 122 273 261 282 - - Implied t ax rat e 37.4% 37.0% 33.0% 93.4% 40.0% 42.3% 26.1% 55.1% 32.7% 35.6% 30.2% 36.3% 28.3% 24.1% 55.8% 44.5% 37.7% 33.6% - - Non-cont rolling int erest s -3 -2 -1 -0 -0 -1 -1 -1 -1 -0 0 -0 - - -0 -6 -2 -1 - - Net income attributable to owners of parent 92 109 141 6 119 62 195 56 142 83 164 170 92 -125 97 348 433 559 79 -300 YoY 187.2% 335.0% 38.7% - 30.1% -42.8% 38.7% 762.2% 18.7% 34.2% -16.2% 204.6% -35.4% - -42.0% 258.4% 24.4% 29.1% -85.9% - Net margin 9.7% 10.3% 13.6% 0.6% 9.9% 4.7% 15.2% 4.9% 11.7% 6.1% 11.4% 11.9% 6.4% -7.4% 2.6% 8.4% 8.8% 10.3% 1.0% -4.3% No. of active users (quarter end; mn) - - 1.82 1.92 1.98 2.13 2.24 2.35 2.45 2.55 2.62 2.69 2.74 2.82 1.54 1.92 2.35 2.69 4.41 - YoY - - - 24.7% - - 23.2% 22.4% 23.7% 20.0% 17.0% 14.5% 11.8% 10.6% 14.1% 24.7% 22.4% 14.5% 63.9% - No. of orders / No. of active users - - - 1.9 1.9 2.1 2.0 2.0 2.1 2.4 2.3 2.4 2.3 2.7 7.3 7.8 8.1 9.3 9.5 - YoY ------5.0% 8.9% 10.5% 15.2% 16.5% 9.2% 13.3% 3.4% 7.0% 3.5% 14.4% 2.9% - No. of orders (mn) 2.92 3.50 3.46 3.64 3.79 4.41 4.38 4.70 5.08 5.94 5.97 6.33 6.28 7.48 10.56 13.53 17.28 23.32 33.82 - YoY 25.9% 27.8% 31.0% 27.6% 29.7% 26.0% 26.5% 28.9% 34.1% 34.6% 36.4% 34.8% 23.6% 25.9% 19.1% 28.1% 27.7% 35.0% 45.0% - No. of affiliated stores (quarter end) 12,505 12,529 13,018 13,656 14,206 14,559 14,953 15,318 15,712 16,081 16,439 17,207 17,834 18,572 12,213 13,656 15,318 17,207 21,125 - YoY 7.1% 6.1% 8.4% 11.8% 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 9.9% 12.3% 13.5% 15.5% 5.0% 11.8% 12.2% 12.3% 22.8% - Grubhub inc. FY12/16 FY12/17 FY12/18 FY12/15 FY12/16 FY12/17 FY12/18 (USDmn) Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Cons. Cons. Cons. Cons. Revenue 100 112 120 123 137 156 159 163 205 233 240 247 288 362 493 683 1,007 YoY 36.3% 27.2% 36.6% 44.1% 37.5% 39.1% 32.1% 32.1% 49.2% 49.0% 51.0% 51.6% 40.3% 42.5% 36.3% 38.5% 47.5% Total costs 84 95 98 103 114 131 137 146 179 201 205 225 290 300 409 593 922 YoY 47.8% 35.9% 36.1% 38.8% 35.5% 38.2% 40.0% 41.8% 56.7% 53.3% 50.3% 54.8% 62.3% 43.6% 36.5% 44.9% 55.4% % of revenue 84.4% 84.6% 81.3% 83.2% 83.1% 84.0% 86.1% 89.3% 87.2% 86.4% 85.7% 91.2% 101.0% 82.9% 83.0% 86.9% 91.6% Pre-tax profit 16 17 23 21 23 25 22 17 25 32 34 22 -5 62 84 90 81 YoY -3.9% -5.9% 39.0% 78.0% 48.6% 44.2% -1.9% -16.1% 8.2% 26.3% 55.3% 25.4% - 37.7% 35.4% 6.9% -9.2% Pre-tax margin 15.6% 15.4% 18.7% 16.8% 16.9% 16.0% 13.9% 10.7% 12.3% 13.6% 14.3% 8.8% -1.7% 17.1% 17.0% 13.1% 8.1% Income taxes 4 7 10 8 10 7 7 4 -28 -0 4 -1 0 24 34 -9 3 Implied t ax rat e 27.8% 42.7% 43.1% 36.5% 41.3% 29.1% 33.2% 25.4% -112.8% -0.7% 12.2% -5.6% -4.7% 38.5% 40.9% -10.4% 3.6% Net income attributable to owners of parent 11 10 13 13 14 18 15 13 54 31 30 23 -5 38 50 99 78 Act ive Diners (mn) 6.75 6.97 7.35 7.69 8.17 8.75 9.18 9.81 14.46 15.08 15.58 16.38 17.69 6.75 8.17 14.46 17.69 YoY 34.1% 24.4% 23.9% 19.5% 21.2% 25.6% 24.8% 27.6% 76.9% 72.3% 69.8% 67.0% 22.3% 34.1% 21.2% 76.9% 22.3% No. of orders / Average no. of users 3.4 3.6 3.4 3.3 3.4 3.5 3.2 3.0 3.0 2.7 2.5 2.4 2.5 14.1 13.5 10.8 9.9 YoY -13.1% -10.5% -0.8% 4.0% 0.5% -2.9% -7.5% -9.8% -12.3% -22.9% -21.2% -18.9% -15.2% -10.8% -4.2% -20.1% -8.1% Daily Average Grubs ('000) 242 268 271 268 293 325 314 305 393 437 423 416 468 227 275 334 436 DAG x No. of days (mn) 22.25 24.38 24.67 24.61 26.91 29.21 28.56 28.01 36.11 39.32 38.51 38.27 43.01 82.89 100.58 121.91 159.10 YoY 19.3% 15.4% 23.2% 26.5% 21.0% 19.8% 15.8% 13.8% 34.2% 34.6% 34.8% 36.6% 19.1% 24.2% 21.3% 21.2% 30.5% Gross food sales 643 713 733 735 818 898 880 867 1,139 1,245 1,220 1,215 1,377 2,354 2,998 3,794 5,057 YoY 26.5% 20.8% 29.1% 32.8% 27.3% 26.0% 20.1% 18.0% 39.2% 38.6% 38.7% 40.0% 20.9% 31.7% 27.4% 26.5% 33.3% Source: Shared Research based on company data

Q1 FY08/19 results (out December 27, 2018) Summary For Q1 FY08/19, the company reported consolidated revenue of JPY1.4bn (+18.8% YoY), operating profit of JPY103mn (-50.1% YoY) and net income attributable to owners of the parent of JPY92mn (-35.4% YoY). For its mainstay Demae-can business, the company reported revenue of JPY1.1bn (+30.0% YoY) and an operating profit of JPY114mn (-48.6% YoY). The company has resolved to conduct proactive investment in order to accelerate the growth of the mainstay Demae-can business. No changes have been made to initial forecasts.

Demae-can business

Earnings

Demae-can FY08/16 FY08/17 FY08/18 FY08/19 FY08/13 FY08/16 FY08/13 FY08/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Cons. Cons. Cons. Init. Est. Revenue 528 621 617 755 841 931 930 797 859 1,019 1,100 1,100 1,117 2,522 3,499 4,078 6,301 YoY 25.3% 21.6% 20.2% 44.6% 59.3% 49.8% 50.8% 5.5% 2.1% 9.5% 18.3% 38.1% 30.0% 28.1% 38.8% 16.5% 54.5% Operating profit 161 102 223 190 232 171 271 180 222 144 226 272 114 676 854 863 - YoY 27.0% -51.5% 85.0% 5.2% 43.9% 67.4% 21.7% -5.2% -4.5% -15.8% -16.6% 50.7% -48.6% 5.9% 26.3% 1.1% - OPM 30.5% 16.4% 36.1% 25.2% 27.6% 18.3% 29.1% 22.7% 25.8% 14.1% 20.6% 24.7% 10.2% 26.8% 24.4% 21.2% - Order processing fees 337 408 394 407 415 502 498 524 563 679 677 716 703 1,546 1,938 2,634 - YoY 28.8% 29.6% 30.7% 24.7% 23.2% 23.1% 26.2% 28.7% 35.7% 35.1% 36.1% 36.7% 24.9% 28.3% 25.4% 35.9% - No. of orders (mn) 2.92 3.50 3.46 3.64 3.79 4.41 4.38 4.70 5.08 5.94 5.97 6.33 6.28 13.53 17.28 23.32 33.82 YoY 25.9% 27.8% 31.0% 27.6% 29.7% 26.0% 26.5% 28.9% 34.1% 34.6% 36.4% 34.8% 23.6% 28.1% 27.7% 35.0% 45.0% Order processing fees / No. of orders 115.2 116.5 113.9 111.7 109.4 113.8 113.6 111.5 110.7 114.3 113.4 113.1 111.9 114.3 112.2 112.9 - YoY 2.3% 1.3% -0.2% -2.3% -5.0% -2.3% -0.3% -0.2% 1.2% 0.4% -0.2% 1.4% 1.1% 0.2% -1.8% 0.7% - No. of affiliated stores (quarter end) 12,505 12,529 13,018 13,656 14,206 14,559 14,953 15,318 15,712 16,081 16,439 17,207 17,834 13,656 15,318 17,207 21,125 YoY 7.1% 6.1% 8.4% 11.8% 13.6% 16.2% 14.9% 12.2% 10.6% 10.5% 9.9% 12.3% 13.5% 11.8% 12.2% 12.3% 22.8% No. of orders / No. of affiliated stores 236.6 279.7 270.9 273.2 272.2 306.7 296.7 310.3 327.7 373.5 367.3 376.3 358.7 1,045.9 1,192.7 1,434.3 1,764.6 YoY 18.7% 20.0% 22.1% 15.9% 15.1% 9.6% 9.5% 13.6% 20.4% 21.8% 23.8% 21.3% 9.4% 18.1% 14.0% 20.3% 23.0% No. of active users (quarter end; mn) - - 1.82 1.92 1.98 2.13 2.24 2.35 2.45 2.55 2.62 2.69 2.74 1.92 2.35 2.69 4.41 YoY - - - 24.7% - - 23.2% 22.4% 23.7% 20.0% 17.0% 14.5% 11.8% 24.7% 22.4% 14.5% 63.9% No. of orders / Average no. of users 1.9 1.9 2.1 2.0 2.0 2.1 2.4 2.3 2.4 2.3 7.8 8.1 9.3 9.5 YoY ------5.0% 8.9% 10.5% 15.2% 16.5% 9.2% 7.0% 3.5% 14.4% 2.9% Total users (quarter end; mn) 7.37 7.69 7.98 8.30 8.56 8.81 ------8.30 - - - YoY 14.3% 14.9% 15.8% 16.2% 16.1% 14.6% ------16.2% - - - No. of Sharing Delivery bases ------2 10 17 23 33 60 78 - 10 78 210 YoY ------1,550.0% 500.0% 358.8% - - 680.0% 169.2% Depreciat ion 43 46 47 51 49 49 36 37 36 38 42 46 - 187 171 162 - Amortization of goodwill 3 3 3 14 11 11 7 ------23 30 - - EBITDA 207 151 273 255 293 230 315 217 257 182 268 317 114 886 1,055 1,025 - YoY 19.9% -40.6% 65.2% 12.7% 41.2% 52.7% 15.5% -14.8% -12.1% -21.1% -14.9% 46.1% -55.8% 8.3% 19.1% -2.9% - EBITDA margin 39.3% 24.3% 44.2% 33.8% 34.8% 24.7% 33.9% 27.3% 30.0% 17.8% 24.4% 28.9% 10.2% 35.1% 30.2% 25.1% - Source: Shared Research based on company data

52/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

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

Number of orders: 6.3mn (+23.6% YoY), consistently growing above 20% since FY08/16; ▷ Number of affiliated stores: 17,834 (+13.5% YoY), trending upward; ▷ Number of active users: 2.7mn (+11.6% YoY), reflecting sustained double-digit growth. ▷ The company had 78 Sharing Delivery bases (+18 since end August 2018).

 Progress on FY08/19 KPIs  Per the company, affiliate numbers in line, and order numbers and active users slightly under, but recovery eminently possible from Q2 onward. The company also plans to upgrade app, and plan biased toward 2H.

 The company said it budgeted more on marketing in 2H than in 1H.  Reasons for slowing growth in active users since Q3 FY08/18  The company thinks that it overly narrowed marketing focus to housewives, and is broadening its focus to other user groups.

 It plans to change its name to Demae-can Co., Ltd. in December, 2019, aligning the company name with its key brand. The name change is part of its efforts to boost recognition of Demae-can and underpin growth.

 Sharing Delivery bases  Current development is focused on Tokyo and its surrounds, with some in Osaka, Nagoya, and Fukuoka. The company has tested expansions into northern Kanto recently, and launched services in Ibaraki in November 2018.

 The company said it aims to have 210 bases by end-August 2018, and expects growth especially in 2H.  It does not face a labor shortage at its Sharing Delivery bases. Indeed, the company thinks that if the labor shortage intensifies, having delivery infrastructure will give it a competitive edge.

 It is operating some bases directly. These accounted for roughly 20% of the total as of end-August 2018. The company thinks that having directly operated locations is important not just from the viewpoint of development speed, but building up expertise in delivering efficiency.

 Investment budget  The company said it would be happy to roughly double its FY08/18 advertising budget of JPY834mn in its FY08/19 plans.

 It expects operating losses of nearly JPY500mn from its directly operated Sharing Delivery bases in FY08/19 and over JPY700mn in FY08/20. It said that it aimed at breakeven in FY08/21, while spreading the learnings gained from directly operating bases to further improve delivery quality.

 Anticipated impact of consumption tax changes  The planned October 2019 consumption tax changes should lower rates that apply to the company’s core food delivery business.

 The company thinks that the lower tax rates will be positive for it. It said that inquiries from individuals wanting to open stores were increasing, and that there should be a positive impact on future affiliated restaurant numbers.

Initiatives undertaken In order to accelerate the development of the Sharing Delivery business, a key strategy, the company added popular local shops and major chains that do not deliver their own products, such as Kappa Sushi, as Demae-can affiliate stores. In November, the company began a collaboration with Japan Best Rescue System Co., Ltd. (TSE: 2453). Additionally, the company began expanding test operations of new services including a service that provides solutions for minor regional troubles and another

53/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

through which delivery personnel collect regional information such as information on vacant houses and damage to external walls using special devices.

App upgrade

 The company plans to upgrade its app in April 2019.  It aims to increase the repeat order rate by having a simpler, easier to use user interface.  It also said it plans to add keyword search functionality.

Mail Order business Q1 FY08/19 revenue of JPY317mn (-8.9% YoY) and operating profit of JPY42mn (-13.7% YoY).

Earnings

Mail Order FY08/16 FY08/17 FY08/18 FY08/19 FY08/13 FY08/16 FY08/17 FY08/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Cons. Cons. Cons. Sales 421 438 420 354 369 384 355 336 348 343 336 326 317 1,633 1,445 1,353 1,380 YoY -0.9% 0.4% -1.8% -12.4% -12.4% -12.2% -15.6% -4.9% -5.6% -10.9% -5.2% -3.1% -8.9% -3.5% -11.5% -6.4% - Internal transaction 23 26 27 25 35 40 38 40 45 52 51 53 54 101 153 200 Sales (incl. int ernal t ransact ion) 444 464 447 379 403 425 393 376 393 394 387 379 371 1,734 1,597 1,553 Operating profit 50 51 62 54 67 78 60 54 49 59 56 55 42 217 259 218 - YoY 50.6% 15.5% -38.6% 112.3% 34.7% 51.8% -3.0% -0.5% -27.4% -24.8% -6.4% 1.8% -13.7% 6.6% 19.3% -15.7% - OPM 11.8% 11.7% 14.7% 15.3% 18.2% 20.3% 16.9% 16.0% 14.0% 17.1% 16.7% 16.8% 13.3% 13.3% 17.9% 16.1% - Depreciat ion 2 2 2 2 2 2 3 4 3 3 4 4 - 8 10 14 Amortization of goodwill 26 26 26 26 26 26 26 26 26 26 17 - - 103 103 69 EBITDA 78 79 89 82 95 106 88 83 77 88 77 59 42 328 372 301 YoY 26.0% 6.9% -31.1% 50.8% 21.8% 33.6% -1.4% 2.0% -18.2% -17.1% -12.6% -29.5% -45.6% 2.6% 13.4% -19.1% EBITDA margin 18.5% 18.1% 21.3% 23.1% 25.7% 27.5% 24.8% 24.8% 22.2% 25.6% 22.9% 18.1% 13.3% 20.1% 25.8% 22.3% Source: Shared Research based on company data

Comparable US companies In Japan, direct competitor Uber Eats is not listed and Rakuten Delivery is part of Rakuten (TSE1: 4755), so data are difficult to obtain. A US company operating the same business model as Yume no Machi and growing is Grubhub, Inc. (NYSE: GRUB). We compared Yume no Machi and Grubhub.

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

Grubhub inc. FY12/16 FY12/17 FY12/18 FY12/15 FY12/16 FY12/17 (USDmn) Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Cons. Cons. Cons. Revenue 100 112 120 123 137 156 159 163 205 233 240 247 288 362 493 683 1,007 YoY 36.3% 27.2% 36.6% 44.1% 37.5% 39.1% 32.1% 32.1% 49.2% 49.0% 51.0% 51.6% 40.3% 42.5% 36.3% 38.5% 47.5% Total costs 84 95 98 103 114 131 137 146 179 201 205 225 290 300 409 593 922 YoY 47.8% 35.9% 36.1% 38.8% 35.5% 38.2% 40.0% 41.8% 56.7% 53.3% 50.3% 54.8% 62.3% 43.6% 36.5% 44.9% 55.4% % of revenue 84.4% 84.6% 81.3% 83.2% 83.1% 84.0% 86.1% 89.3% 87.2% 86.4% 85.7% 91.2% 101.0% 82.9% 83.0% 86.9% 91.6% Pre-tax profit 16 17 23 21 23 25 22 17 25 32 34 22 -5 62 84 90 81 YoY -3.9% -5.9% 39.0% 78.0% 48.6% 44.2% -1.9% -16.1% 8.2% 26.3% 55.3% 25.4% - 37.7% 35.4% 6.9% -9.2% Pre-tax margin 15.6% 15.4% 18.7% 16.8% 16.9% 16.0% 13.9% 10.7% 12.3% 13.6% 14.3% 8.8% -1.7% 17.1% 17.0% 13.1% 8.1% Income taxes 4 7 10 8 10 7 7 4 -28 -0 4 -1 0 24 34 -9 3 Implied t ax rat e 27.8% 42.7% 43.1% 36.5% 41.3% 29.1% 33.2% 25.4% -112.8% -0.7% 12.2% -5.6% -4.7% 38.5% 40.9% -10.4% 3.6% Net income attributable to owners of parent 11 10 13 13 14 18 15 13 54 31 30 23 -5 38 50 99 78 Act ive Diners (mn) 6.75 6.97 7.35 7.69 8.17 8.75 9.18 9.81 14.46 15.08 15.58 16.38 17.69 6.75 8.17 14.46 17.69 YoY 34.1% 24.4% 23.9% 19.5% 21.2% 25.6% 24.8% 27.6% 76.9% 72.3% 69.8% 67.0% 22.3% 34.1% 21.2% 76.9% 22.3% No. of orders / Average no. of users 3.4 3.6 3.4 3.3 3.4 3.5 3.2 3.0 3.0 2.7 2.5 2.4 2.5 14.1 13.5 10.8 9.9 YoY -13.1% -10.5% -0.8% 4.0% 0.5% -2.9% -7.5% -9.8% -12.3% -22.9% -21.2% -18.9% -15.2% -10.8% -4.2% -20.1% -8.1% Daily Average Grubs ('000) 242 268 271 268 293 325 314 305 393 437 423 416 468 227 275 334 436 DAG x No. of days (mn) 22.25 24.38 24.67 24.61 26.91 29.21 28.56 28.01 36.11 39.32 38.51 38.27 43.01 82.89 100.58 121.91 159.10 YoY 19.3% 15.4% 23.2% 26.5% 21.0% 19.8% 15.8% 13.8% 34.2% 34.6% 34.8% 36.6% 19.1% 24.2% 21.3% 21.2% 30.5% Gross food sales 643 713 733 735 818 898 880 867 1,139 1,245 1,220 1,215 1,377 2,354 2,998 3,794 5,057 YoY 26.5% 20.8% 29.1% 32.8% 27.3% 26.0% 20.1% 18.0% 39.2% 38.6% 38.7% 40.0% 20.9% 31.7% 27.4% 26.5% 33.3% Source: Shared Research based on company data

54/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

News and topics April 2019 On April 19, 2019, the company announced an issue of stock acquisition rights by third party allotment with a variable exercise price.

March 2019 On March 28, 2019, the company announced a revision to its full-year FY08/19 forecast and the year-end dividend forecast which had not been determined before.

Revised full-year FY08/19 forecasts are for revenue of JPY7.0bn (down JPY681mn from the previous forecast), an operating loss of JPY300mn (down JPY400mn from the previous forecast for profit of JPY100mn), a recurring loss of JPY290mn (down JPY407mn from the previous forecast for profit of JPY117mn), and a net loss attributable to owners of the parent of JPY300mn (down JPY379mn from the previous forecast for profit of JPY79mn). This translates into a net loss of JPY7.34 per share (as to the previous forecast for net income of JPY1.96).

The year-end cash dividend forecast is in-line with the previous year’s cash dividend of JPY3.60 per share.

55/57 Demae-can / 2484 RCoverage LAST UPDATE: 2020.02.07 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

Profile

Company name Head office Osaka: Midosuji Daiwa Building3-6-8 Kyutaromachi Chuo-ku Osaka, Japan 541-0056 Demae-can Co., Ltd. Tokyo: Marunouchi Trust Tower North Building11F 1-8-1 Marunouchi Chiyoda-ku, Tokyo, Japan 100-0005 Phone Listed on +81-3-4500-9380 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://corporate.demae-can.com/index.html (Japanese only) — IR contact IR web

https://corporate.demae-can.com/en/contact.html https://corporate.demae-can.com/en/index.html

IR mail IR phone — +81-3-4500-9386

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