Integrated Report2017

DyDo Group Holdings

Chall

enge

the

Next S

tage

2-2-7 Nakanoshima, Kita-ku, Osaka, Japan 530-0005https://www.dydo-ghd.co.jp/

DyDo Group Holdings, Inc.

Offering delicious productsfor the sound mind and body

Offering delicious productsfor the sound mind and body

For inquiries regarding this report, please contact:Corporate Communication Departmentir_info@dydo.co.jp

Editorial PolicyWe began issuing an Integrated Report in FY2017. We prepare this report to help shareholders, investors, and all our other stakeholders understand the DyDo Group’s management policy, business strategy, and efforts toward medium- and long-term creation of corporate value, and to communicate that we are a corporate group which continues to dynamically take up challenges while valuing a spirit of striving to achieve happiness and prosperity together.

Applicable Period/ScopeThe applicable period of this report is the fiscal year ended in January 2017 (Jan. 21, 2016 to Jan. 20, 2017). However, events before and after that period are also mentioned when necessary. Unless specifically indicated otherwise, the range for tabulating data is always the range of the consolidated financial statement.

Precautions Regarding Forward-Looking StatementsAmong the group plans, future outlooks, strategies and other information described in this report, those not relating to past or current facts are forecasts of future results based on the judgments and assumptions of our management staff in accordance with information available at our company at the current time. Therefore, actual business results may differ greatly due to uncertainties, economic conditions, and other risk factors.

DyDo Group Slogan

DyDo Group Philosophy

DyDo Group Vision

Contents

Message from the President ................................. 19

Strategy for Creating Corporate Value

DyDo Group’s ESG ............................................... 34

Corporate Governance.......................................... 35

Interview with an Independent Outside Director ... 42

Internal Control and Compliance .......................... 43

Risk Management and Crisis Management .......... 44

Fostering a Corporate Culture of Taking Up Challenges................................. 45

Responsible Engagement with Stakeholders........ 47

Efforts to Revitalize Communities ......................... 49

Realizing Reductions in Both Environmental Impact and Costs ... 50

Management ......................................................... 51

Foundation for Corporate Value Creation

To Our Stakeholders ............................................... 3

History of Value Creation in the DyDo Group.......... 5

Value Creation Business Models of the DyDo Group ...................................... 11

Value Creation Process through Our Core Business of Vending Machines................... 15

Financial and Non-Financial Highlights................. 17

A Story of Value Creation

Efforts to Create Corporate ValueSpecial Feature 1:

Domestic Beverage Business ...................... 27

Special Feature 2: International Beverage Business................. 30

Special Feature 3: Pharmaceutical-Related Business .............. 31

Special Feature 4: Food Business......................... 32

Consolidated Financial Index 5-year Summary .... 53

Overview of Business Results, etc. ....................... 54

Consolidated Financial Statement ........................ 57

Business Risks ...................................................... 63

Status of Shares / Rating Information / Corporate Bond Information ....................... 65

Corporate Data / Group Companies ..................... 66

Financial/Corporate Information

Offering delicious productsfor the sound mind and body

DyDo Group strives to achieve happiness and prosperity together with people and society as a whole. To realize this, we will continue our dynamic efforts to take on new challenges.

Together with customersWe are always offering high-quality products with added surprise to deliver distinctively DyDo taste and wellness to customers.

Together with societyWe are committed to building a rich and vibrant society through “All DyDo” product development and corporate activities involving the entire group.

Together with future generationsWe create “DyDo standards” for future generations that go beyond current frameworks and values.

Together with peopleWe uphold a tireless “DyDo challenging spirit” to bring happiness to all people whose lives are touched by the DyDo Group.

1 2DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Editorial PolicyWe began issuing an Integrated Report in FY2017. We prepare this report to help shareholders, investors, and all our other stakeholders understand the DyDo Group’s management policy, business strategy, and efforts toward medium- and long-term creation of corporate value, and to communicate that we are a corporate group which continues to dynamically take up challenges while valuing a spirit of striving to achieve happiness and prosperity together.

Applicable Period/ScopeThe applicable period of this report is the fiscal year ended in January 2017 (Jan. 21, 2016 to Jan. 20, 2017). However, events before and after that period are also mentioned when necessary. Unless specifically indicated otherwise, the range for tabulating data is always the range of the consolidated financial statement.

Precautions Regarding Forward-Looking StatementsAmong the group plans, future outlooks, strategies and other information described in this report, those not relating to past or current facts are forecasts of future results based on the judgments and assumptions of our management staff in accordance with information available at our company at the current time. Therefore, actual business results may differ greatly due to uncertainties, economic conditions, and other risk factors.

DyDo Group Slogan

DyDo Group Philosophy

DyDo Group Vision

Contents

Message from the President ................................. 19

Strategy for Creating Corporate Value

DyDo Group’s ESG ............................................... 34

Corporate Governance.......................................... 35

Interview with an Independent Outside Director ... 42

Internal Control and Compliance .......................... 43

Risk Management and Crisis Management .......... 44

Fostering a Corporate Culture of Taking Up Challenges................................. 45

Responsible Engagement with Stakeholders........ 47

Efforts to Revitalize Communities ......................... 49

Realizing Reductions in Both Environmental Impact and Costs ... 50

Management ......................................................... 51

Foundation for Corporate Value Creation

To Our Stakeholders ............................................... 3

History of Value Creation in the DyDo Group.......... 5

Value Creation Business Models of the DyDo Group ...................................... 11

Value Creation Process through Our Core Business of Vending Machines................... 15

Financial and Non-Financial Highlights................. 17

A Story of Value Creation

Efforts to Create Corporate ValueSpecial Feature 1:

Domestic Beverage Business ...................... 27

Special Feature 2: International Beverage Business................. 30

Special Feature 3: Pharmaceutical-Related Business .............. 31

Special Feature 4: Food Business......................... 32

Consolidated Financial Index 5-year Summary .... 53

Overview of Business Results, etc. ....................... 54

Consolidated Financial Statement ........................ 57

Business Risks ...................................................... 63

Status of Shares / Rating Information / Corporate Bond Information ....................... 65

Corporate Data / Group Companies ..................... 66

Financial/Corporate Information

Offering delicious productsfor the sound mind and body

DyDo Group strives to achieve happiness and prosperity together with people and society as a whole. To realize this, we will continue our dynamic efforts to take on new challenges.

Together with customersWe are always offering high-quality products with added surprise to deliver distinctively DyDo taste and wellness to customers.

Together with societyWe are committed to building a rich and vibrant society through “All DyDo” product development and corporate activities involving the entire group.

Together with future generationsWe create “DyDo standards” for future generations that go beyond current frameworks and values.

Together with peopleWe uphold a tireless “DyDo challenging spirit” to bring happiness to all people whose lives are touched by the DyDo Group.

1 2DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Based on the DyDo Group’s corporate philosophy of “striving to achieve happiness and prosperity together with people and society as a whole,” we have sought to raise corporate value while pursuing mutually beneficial relationships with our stakeholders—customers, employees, business partners, local communities, and shareholders.

The roots of our group lie in a post-war business model of salesmen visiting homes and leaving medicine on a “use first, pay later” basis. From there, we began manufacturing and selling pharmaceuticals and drinkable preparations, and then switched to our current business of selling canned coffee from vending machines. Through this process we have taken on all sorts of challenges to adapt to changing times and find a path to survival, without fearing failure.

The DyDo Group currently has three core companies: DyDo DRINCO, Inc. handles DyDo Blend, our flagship coffee brand, primarily through vending machines; DAIDO Pharmaceutical Corporation is engaged in OEM (contract) manufacturing of drinkable preparations; and Tarami Corporation holds the overwhelming top share of the fruit dessert jelly market. In addition, since 2016 we have also begun expansion in earnest of our International Beverage Business in countries such as Turkey and Malaysia.

Also, to meet the challenge of creating new corporate value for the next generation, we decided to shift to a holding company system, starting from January 21, 2017, and change the company name to “DyDo Group Holdings, Inc.” We will strengthen group governance, clarify the responsibilities and authority of each business, achieve continuous growth in cash flow in our core Domestic Beverage Business, and step up to the challenge of strengthening and nurturing our International Beverage Business, and expanding new business domains.

Based on the idea of striving to achieve happiness and prosperity together, our group will continue in the future to make full use of the views of all our stakeholders, and all of our group employees will persist in working as a team to dynamically tackle new challenges.

The Holding Company “DyDo Group Holdings” was Launched in January 2017

Purpose of Transition to a Holding Company Structure

Strengthening group managementWe will clarify the responsibility and authority of each operating company, and improve the profitability and efficiency of the group as a whole.

Agile response to expansion of business domainsThrough strategic business investment, we will actively take up the challenge of new business domains with high profitability and growth potential.

Strengthening and nurturing International Beverage BusinessWe will work to strengthen and nurture our International Beverage Business through synergy with our Domestic Beverage Business.

Tomiya TakamatsuPresidentDyDo Group Holdings, Inc.

To Our Stakeholders

We regard the shift to a holding company structure as the first step toward dramatic growth in the future, and we will continue to meet the challenge of creating corporate value for the next generation.

A S

tory of Value Creation

A Story of Value Creation

3 4DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Based on the DyDo Group’s corporate philosophy of “striving to achieve happiness and prosperity together with people and society as a whole,” we have sought to raise corporate value while pursuing mutually beneficial relationships with our stakeholders—customers, employees, business partners, local communities, and shareholders.

The roots of our group lie in a post-war business model of salesmen visiting homes and leaving medicine on a “use first, pay later” basis. From there, we began manufacturing and selling pharmaceuticals and drinkable preparations, and then switched to our current business of selling canned coffee from vending machines. Through this process we have taken on all sorts of challenges to adapt to changing times and find a path to survival, without fearing failure.

The DyDo Group currently has three core companies: DyDo DRINCO, Inc. handles DyDo Blend, our flagship coffee brand, primarily through vending machines; DAIDO Pharmaceutical Corporation is engaged in OEM (contract) manufacturing of drinkable preparations; and Tarami Corporation holds the overwhelming top share of the fruit dessert jelly market. In addition, since 2016 we have also begun expansion in earnest of our International Beverage Business in countries such as Turkey and Malaysia.

Also, to meet the challenge of creating new corporate value for the next generation, we decided to shift to a holding company system, starting from January 21, 2017, and change the company name to “DyDo Group Holdings, Inc.” We will strengthen group governance, clarify the responsibilities and authority of each business, achieve continuous growth in cash flow in our core Domestic Beverage Business, and step up to the challenge of strengthening and nurturing our International Beverage Business, and expanding new business domains.

Based on the idea of striving to achieve happiness and prosperity together, our group will continue in the future to make full use of the views of all our stakeholders, and all of our group employees will persist in working as a team to dynamically tackle new challenges.

The Holding Company “DyDo Group Holdings” was Launched in January 2017

Purpose of Transition to a Holding Company Structure

Strengthening group managementWe will clarify the responsibility and authority of each operating company, and improve the profitability and efficiency of the group as a whole.

Agile response to expansion of business domainsThrough strategic business investment, we will actively take up the challenge of new business domains with high profitability and growth potential.

Strengthening and nurturing International Beverage BusinessWe will work to strengthen and nurture our International Beverage Business through synergy with our Domestic Beverage Business.

Tomiya TakamatsuPresidentDyDo Group Holdings, Inc.

To Our Stakeholders

We regard the shift to a holding company structure as the first step toward dramatic growth in the future, and we will continue to meet the challenge of creating corporate value for the next generation.

A S

tory of Value Creation

A Story of Value Creation

3 4DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Adhering to a Mindset of Always Considering the Customer

FounderTomio Takamatsu

Medicine box

Early products

From our original “use first, pay later” medicine business to contract manufacturing of drinkable preparations

Founding

and Future...

Food Business

Domestic Beverage Business

Pharmaceutical-Related Business

International Beverage Business

The history of the DyDo Group began when our founder took up the “use first, pay later” medicine business as a personal business after World War II. This business is also called okigusuri, and was a medicine sales system unique to Japan, in use for more than 300 years. With this system, medicine boxes were placed in each home. Customers used remedies such as cold medicine and stomach medicine when needed, and payment was collected later. This system can be regarded as the forerunner of today’s vending machine business, where a vending machine is first installed at a location where it is needed, and a variety of products are provided, so that customers can buy them any time, when needed. Due to the nature of the business, our founder visited each home, kept detailed records of information such as customer names and the brands and amount used of each medicine, and on that basis grew the business by proposing health management to address the unique perspective of each home. This was the origin of the DyDo Group’s approach of making suggestions tailored to each customer by making the best use of sales data.

With the growth of this “use first, pay later” medicine business, the company was incorporated. DAIDO YAKUHIN K.K. (today’s DAIDO Pharmaceutical Corporation) was established, and after obtaining licensing for manufacturing and sales of pharmaceuticals two years later, we built a new plant. We first manufactured ampules (liquid medication sealed in a small glass container), and then moved on to manufacturing today’s drinkable preparations with caps. (For details on the business model, see “Pharmaceutical-Related Business” on p. 13.)

On the other hand, sales channels for the “use first, pay later” medicine business broadened from homes to offices, and as sales grew with demand for drinkable preparations, Japan entered a period of high economic growth.

A spirit of striving to achieve happiness and prosperity together, passed down from our founding business

History of Value Creation in the DyDo Group

Inside plant in the 1960s Drinkable preparations at the time

The DyDo Group started out in the Japanese “use first, pay later”

medicine business, which values relationships with individual

customers. From there, the group has expanded its

business by constantly taking up all sorts of

challenges, with the top priority of “striving to

achieve happiness and prosperity together.”

We regard the shift to a holding company

structure in January 2017 as the first step

toward dramatic growth in the future,

and we are accelerating steps to

meet the challenge of creating

corporate value for the next

generation.

DAIDO YAKUHIN K.K. established

Name changed to DAIDO Pharmaceutical Corporation

Built new plant and relocated to Katsuragi City, Nara Prefecture, our current location, and launched business for contract manufacturing of pharmaceuticals and other products in earnest

Acquired ISO 9001 certification

Acquired FSSC 22000 certification

Pioneering the Next Generation by Always Taking Up New Challenges

1940s

2013

2012

1975

1956

1947

A S

tory of Value Creation

A Story of Value Creation

5 6DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Adhering to a Mindset of Always Considering the Customer

FounderTomio Takamatsu

1956

1959

1991

2003

2013

Medicine box

Early products

From our original “use first, pay later” medicine business to contract manufacturing of drinkable preparations

and Future...

The history of the DyDo Group began when our founder took up the “use first, pay later” medicine business as a personal business after World War II. This business is also called okigusuri, and was a medicine sales system unique to Japan, in use for more than 300 years. With this system, medicine boxes were placed in each home. Customers used remedies such as cold medicine and stomach medicine when needed, and payment was collected later. This system can be regarded as the forerunner of today’s vending machine business, where a vending machine is first installed at a location where it is needed, and a variety of products are provided, so that customers can buy them any time, when needed. Due to the nature of the business, our founder visited each home, kept detailed records of information such as customer names and the brands and amount used of each medicine, and on that basis grew the business by proposing health management to address the unique perspective of each home. This was the origin of the DyDo Group’s approach of making suggestions tailored to each customer by making the best use of sales data.

With the growth of this “use first, pay later” medicine business, the company was incorporated. DAIDO YAKUHIN K.K. (today’s DAIDO Pharmaceutical Corporation) was established, and after obtaining licensing for manufacturing and sales of pharmaceuticals two years later, we built a new plant. We first manufactured ampules (liquid medication sealed in a small glass container), and then moved on to manufacturing today’s drinkable preparations with caps. (For details on the business model, see “Pharmaceutical-Related Business” on p. 13.)

On the other hand, sales channels for the “use first, pay later” medicine business broadened from homes to offices, and as sales grew with demand for drinkable preparations, Japan entered a period of high economic growth.

A spirit of striving to achieve happiness and prosperity together, passed down from our founding business

History of Value Creation in the DyDo Group

Inside plant in the 1960s Drinkable preparations at the time

The DyDo Group started out in the Japanese “use first, pay later”

medicine business, which values relationships with individual

customers. From there, the group has expanded its

business by constantly taking up all sorts of

challenges, with the top priority of “striving to

achieve happiness and prosperity together.”

We regard the shift to a holding company

structure in January 2017 as the first step

toward dramatic growth in the future,

and we are accelerating steps to

meet the challenge of creating

corporate value for the next

generation.

DAIDO YAKUHIN K.K. established

Name changed to DAIDO Pharmaceutical Corporation

Built new plant and relocated to Katsuragi City, Nara Prefecture, our current location, and launched business for contract manufacturing of pharmaceuticals and other products in earnest

Acquired ISO 9001 certification

Acquired FSSC 22000 certification

Pioneering the Next Generation by Always Taking Up New Challenges

1940s

2013

2012

1975

1956

1947

A S

tory of Value Creation

A Story of Value Creation

5 6DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

A product lineup that appeals to the

diverse tastes of our customers

Growing Dramatically by Grasping the Needs of the Times

1975DyDo Blend Coffee goes on sale

1973DyDo Jamaican Blend Coffee goes on sale

During Japan’s period of high economic growth, our group also achieved major growth. Driving this were sales of drinkable preparations and beverages, primarily canned coffee, which is currently the mainstay product of our group.

With the sudden increase in automobile traffic, in addition to the offices of companies which were previously customers for our “use first, pay later” medicine business, we expanded our focus at first to truck drivers as a new customer segment, due to their pressing need to stay awake while driving, and began sales of drinkable preparations by installing showcases at parking facilities along national highways.

After that, we turned to canned coffee, a new product on the scene expected to have the same effects, made an early decision to enter the field, and launched a beverage sales business selling coffee as a new business of DAIDO Pharmaceutical Corporation.

At the time, we had almost no ready know-how regarding manufacturing of canned coffee or soft drinks, and it was a major challenge to take up the manufacturing and sale of canned coffee. In all processes, such as selection of ingredients used and examination of manufacturing methods, we were in a situation where nothing could be achieved without the cooperation of outside manufacturing plants and producers of ingredients and materials. This led us to opt for joint development with affiliated manufacturers. The taste of canned coffee changes if the water or manufacturing environment is different, even if the blend of beans is the same. We repeated a process of trial and error together with affiliated manufacturers by, for example, changing the degree of roasting and extraction temperature at each plant, and as a result, we finally achieved a product we could be proud of, one that would meet customer needs. This was the birth of DyDo Jamaican Blend Coffee in 1973. At the time, 250g cans were the mainstream, but we were convinced that our product, which pursued “genuine delicious taste” could

1977Hot and cold vending machine

Countertop vending machineat the time

Meeting the challenges of the Domestic Beverage Business, from drinkable preparations to canned coffee

The DyDo Group began with the “use first, pay later” medicine business and shifted to the vending machine business which is our current core business. At first glance, our growth may appear to be a history of changes in business category. However, our group has consistently worked to develop a sales network through which we can provide the products customers need based on the location. Generally speaking, manufacturers develop their own products and seek out sales channels to sell them, but our group has grown based on the exact opposite concept, growing together with our customers. We see vending machines as our retail outlets, and to serve that function, they must be something which motivates the customer to want to visit again.

This idea is what has led to our group’s unique position in the industry.

There are a number of important elements for making the vending machines which are our retail outlets more attractive. First is the vending machine installation location. We recommend installation at locations enabling easy use by customers at any time, and we have built a vending machine network currently composed of approximately

As Retail Outlets Always Near to the Customer

No. of vendingmachines in Japan

Approx.

280,000

FourCommitments to

the VendingMachines that areOur Retail Outlets

Making vending machines that are appealing as retail outlets

Working to improve service as a retail outlet

Improving convenience as a retail outlet

Providing products with high customer satisfaction

Vending machines became our core business

deliver fully satisfying quality and taste in a smaller volume, and it was decided to sell coffee in 190g short cans.

After the launch, sales steadily grew, and canned coffee sales became our second mainstay. Seizing that opportunity, a new beverage sales business company, DAIDO K.K. (today’s DyDo DRINCO, Inc.), was established in 1975. With the founding of this beverage company, DyDo Jamaican Blend Coffee evolved into DyDo Blend Coffee, and even today its legacy continues as the flagship product of our group. We are committed to never using flavoring agents in our coffee, and it has attracted tremendous support from customers due to its understanding of their needs.

At the same time, vending machines enabling simultaneous sales of both hot and cold canned drinks appeared. Our group foresaw that this would be an effective sales tool for canned coffee, which customers want to drink hot or cold, depending on their taste, and we replaced our previous showcases with vending machines, and entered in earnest into the vending machine business.

In order to expand sales channels and meet dramatically growing demand amidst the explosive dissemination of vending machines in Japan, our group developed its regionally-based sales activities and promoted the expansion of its network of companies and vending machines in regions throughout Japan. We then organized the special operators throughout Japan who handle our products as the DyDo Vending Partner Association (“Kyoeikai”), promoting the sharing of vending machine deployment methods and operational know-how, and establishing an organized sales structure.

By taking up challenges which respond to current trends and cooperating with companies in each region, we can provide an operation system boasting the highest quality in the industry and a nationwide network of approximately 280,000 vending machines.

(For details on the business model, see “Domestic Beverage Business” on p. 11.)

1975

1984

1992

2012

DAIDO K.K. established

Name changed to DyDo DRINCO, Inc.

DAIDO Pharmaceutical Corporation becomes a consolidated subsidiary

Tarami Corporation becomes a consolidated subsidiary

280,000 machines nationwide. Next, to pursue attractiveness as retail outlets, we have

strengthened vending machine features, e.g., a talking feature for delivering fun to the customer, a roulette feature for winning an extra drink from the vending machine for free, energy-saving functions to protect the environment, and universal design to enable easy use by all customers.

Boosting customer satisfaction with the delivered product is also an important role of these machines that serve as our retail outlets. For that reason, we are committed to making our flagship coffee drinks without the use of any flavoring agents, and we aim to provide “genuine delicious taste” to our customers. By maintaining retail outlets with a fresh and neat profile, and conducting operations which tailor product offerings to suit the season and location, we work to ensure that customers can use our vending machines at any time, pleasantly, easily, and with reasonable pricing.

In this way, we constantly pursue customer satisfaction, and for all of the elements of our retail outlets—vending machines, products, services, and location—we ensure that our retail outlets motivate the customer to want to come and purchase again, and we thereby burnish the value of our business.

1970s

• Talking feature

• Roulette feature for winning a free product

• Universal design

• Energy-saving features

Pursuing “genuine delicious taste” by never using flavoring agents in our flagship coffee drinks

• Tailoring products to suit the season and location

• Maintaining a fresh and neat impression

Installing at locations that can be easily used by the customer at any time

A S

tory of Value Creation

A Story of Value Creation

7 8DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

A product lineup that appeals to the

diverse tastes of our customers

Growing Dramatically by Grasping the Needs of the Times

1975DyDo Blend Coffee goes on sale

1973DyDo Jamaican Blend Coffee goes on sale

During Japan’s period of high economic growth, our group also achieved major growth. Driving this were sales of drinkable preparations and beverages, primarily canned coffee, which is currently the mainstay product of our group.

With the sudden increase in automobile traffic, in addition to the offices of companies which were previously customers for our “use first, pay later” medicine business, we expanded our focus at first to truck drivers as a new customer segment, due to their pressing need to stay awake while driving, and began sales of drinkable preparations by installing showcases at parking facilities along national highways.

After that, we turned to canned coffee, a new product on the scene expected to have the same effects, made an early decision to enter the field, and launched a beverage sales business selling coffee as a new business of DAIDO Pharmaceutical Corporation.

At the time, we had almost no ready know-how regarding manufacturing of canned coffee or soft drinks, and it was a major challenge to take up the manufacturing and sale of canned coffee. In all processes, such as selection of ingredients used and examination of manufacturing methods, we were in a situation where nothing could be achieved without the cooperation of outside manufacturing plants and producers of ingredients and materials. This led us to opt for joint development with affiliated manufacturers. The taste of canned coffee changes if the water or manufacturing environment is different, even if the blend of beans is the same. We repeated a process of trial and error together with affiliated manufacturers by, for example, changing the degree of roasting and extraction temperature at each plant, and as a result, we finally achieved a product we could be proud of, one that would meet customer needs. This was the birth of DyDo Jamaican Blend Coffee in 1973. At the time, 250g cans were the mainstream, but we were convinced that our product, which pursued “genuine delicious taste” could

1977Hot and cold vending machine

Countertop vending machineat the time

Meeting the challenges of the Domestic Beverage Business, from drinkable preparations to canned coffee

The DyDo Group began with the “use first, pay later” medicine business and shifted to the vending machine business which is our current core business. At first glance, our growth may appear to be a history of changes in business category. However, our group has consistently worked to develop a sales network through which we can provide the products customers need based on the location. Generally speaking, manufacturers develop their own products and seek out sales channels to sell them, but our group has grown based on the exact opposite concept, growing together with our customers. We see vending machines as our retail outlets, and to serve that function, they must be something which motivates the customer to want to visit again.

This idea is what has led to our group’s unique position in the industry.

There are a number of important elements for making the vending machines which are our retail outlets more attractive. First is the vending machine installation location. We recommend installation at locations enabling easy use by customers at any time, and we have built a vending machine network currently composed of approximately

As Retail Outlets Always Near to the Customer

No. of vendingmachines in Japan

Approx.

280,000

FourCommitments to

the VendingMachines that areOur Retail Outlets

Making vending machines that are appealing as retail outlets

Working to improve service as a retail outlet

Improving convenience as a retail outlet

Providing products with high customer satisfaction

Vending machines became our core business

deliver fully satisfying quality and taste in a smaller volume, and it was decided to sell coffee in 190g short cans.

After the launch, sales steadily grew, and canned coffee sales became our second mainstay. Seizing that opportunity, a new beverage sales business company, DAIDO K.K. (today’s DyDo DRINCO, Inc.), was established in 1975. With the founding of this beverage company, DyDo Jamaican Blend Coffee evolved into DyDo Blend Coffee, and even today its legacy continues as the flagship product of our group. We are committed to never using flavoring agents in our coffee, and it has attracted tremendous support from customers due to its understanding of their needs.

At the same time, vending machines enabling simultaneous sales of both hot and cold canned drinks appeared. Our group foresaw that this would be an effective sales tool for canned coffee, which customers want to drink hot or cold, depending on their taste, and we replaced our previous showcases with vending machines, and entered in earnest into the vending machine business.

In order to expand sales channels and meet dramatically growing demand amidst the explosive dissemination of vending machines in Japan, our group developed its regionally-based sales activities and promoted the expansion of its network of companies and vending machines in regions throughout Japan. We then organized the special operators throughout Japan who handle our products as the DyDo Vending Partner Association (“Kyoeikai”), promoting the sharing of vending machine deployment methods and operational know-how, and establishing an organized sales structure.

By taking up challenges which respond to current trends and cooperating with companies in each region, we can provide an operation system boasting the highest quality in the industry and a nationwide network of approximately 280,000 vending machines.

(For details on the business model, see “Domestic Beverage Business” on p. 11.)

DAIDO K.K. established

Name changed to DyDo DRINCO, Inc.

DAIDO Pharmaceutical Corporation becomes a consolidated subsidiary

Tarami Corporation becomes a consolidated subsidiary

280,000 machines nationwide. Next, to pursue attractiveness as retail outlets, we have

strengthened vending machine features, e.g., a talking feature for delivering fun to the customer, a roulette feature for winning an extra drink from the vending machine for free, energy-saving functions to protect the environment, and universal design to enable easy use by all customers.

Boosting customer satisfaction with the delivered product is also an important role of these machines that serve as our retail outlets. For that reason, we are committed to making our flagship coffee drinks without the use of any flavoring agents, and we aim to provide “genuine delicious taste” to our customers. By maintaining retail outlets with a fresh and neat profile, and conducting operations which tailor product offerings to suit the season and location, we work to ensure that customers can use our vending machines at any time, pleasantly, easily, and with reasonable pricing.

In this way, we constantly pursue customer satisfaction, and for all of the elements of our retail outlets—vending machines, products, services, and location—we ensure that our retail outlets motivate the customer to want to come and purchase again, and we thereby burnish the value of our business.

1970s

• Talking feature

• Roulette feature for winning a free product

• Universal design

• Energy-saving features

Pursuing “genuine delicious taste” by never using flavoring agents in our flagship coffee drinks

• Tailoring products to suit the season and location

• Maintaining a fresh and neat impression

Installing at locations that can be easily used by the customer at any time

A S

tory of Value Creation

A Story of Value Creation

7 8DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Strengthening Our Group’s Capabilities,and Making Even Greater Strides

To the Next Stage of Growth

In January 2017, we transitioned to a holding company structure. Our objectives were to bolster the group’s management system through stronger governance, develop an organizational structure which can nimbly respond to investment in new business areas, and strengthen and nurture our International Beverage Business by exhibiting synergy with our Domestic

Continual launching of innovative products

“We want people to enjoy fruits from all over the world all year long.”Tarami began as a green grocer

Vending machine installed in Russia Major product brands in Turkey

CIS region with Russia as the hub

Chinese region with Shanghai as the hub

Islamic region with Malaysia as the hub

In 2012, with the aim of creating a new source of profits, we acquired all of the shares of Tarami, a company with outstanding name recognition and overwhelming brand strength in the fruit dessert jelly market, and the company was made into a consolidated subsidiary.

Going forward, Tarami will continue to provide products which

The foundation of our group’s business has been selling canned coffee through vending machines in Japan, but we are accelerating international expansion with the aim of achieving dramatic top line growth. By making use of know-how cultivated in Japan, we are expanding our field of business to the world, using methods suited to the characteristics of each country and region.

Among advanced countries, Russia has the lowest rate of vending machine dissemination and strong potential for future growth. We are striving to expand the vending machine business that we have developed in Japan into Moscow, actively promoting the installation of vending machines in cooperation with local partners, and taking up the challenge of achieving greater penetration in the Russian market.

In Turkey and Malaysia, we have acquired local beverage manufacturers through M&A, thereby obtaining strategic bases in the Islamic world, which is expected to show further market growth in the future.

Going forward, we will bolster our management and sales

Well-Loved, Delicious Flavors with Timeless Appeal

Steps of the DyDo Group toward the next stage of growth

1992: Demitasse Coffee goes on sale

The first company to launch 160g small-can coffee products*1, using a high content of premium coffee beans in order to create a high-quality taste*1 At the time of product launch;

compiled by DyDo Group

Including the black and slightly sweetened varieties, became the No. 1 selling product*2 in the Japanese small-can coffee market*2 Intage SRI: Market for cans and

bottle-cans at 180ml or less; cumulative sales revenue for Demitasse series, March 2014–December 2016

2000: MIU goes on sale

Entering a bottle-shaped can coffee market dominated by sugar-free black coffees

“miu” expands into a brand, consisting of a lineup that includes water, flavored water, carbonated water, and sports drinks

Launched as a bodysonic drink, “MIU” features as an ingredient mineral-rich deep-seawater

In addition to the continued expansion of our vending machine network, we took on the challenge of expanding the lineup of our flagship coffee drinks to match the diverse tastes and settings of our customers while still adhering to our commitment to not using any flavoring agents. In addition to coffee drinks, we also expanded the lineup of products in our vending machines for customers to enjoy, developing new products with a focus on ingredient quality and other

unique products that stand out from the competition in a way that only the DyDo Group can provide. From our well-loved, delicious flavors with timeless appeal to the excitement of discovering a new taste with each visit to a vending machine, the DyDo Group continues to pursue customer satisfaction through its innovative product lineup as well.

1969

1988

2000

2014

Tarami Fruit and Vegetable founded in Tarami-cho, Nishisonogi District, Nagasaki Prefecture (present-day Isahaya City, Nagasaki Prefecture)

Changed company name to Tarami CorporationOpened food processing plant (Takematsuhonmachi, Omura City)Began development and manufacturing of jams, fruit jellies, and other processed fruit products.

Completed Konagai FactoryAcquired ISO 9001 certification

Established joint venture in Republic of Indonesia (PT. Tarami Aeternit Food)Acquired FSSC 22000 certification

DyDo DRINCO RUS, LLC established in Moscow, Russia

Capital participation in the beverage business division of Mamee-Double Decker (M) Sdn. Bhd. of Malaysia (51% investment in sales subsidiary, 49% investment in production subsidiary)

Acquired 90% of shares each in three beverage companies of Yildiz Holding A.Ș. of Turkey, making them consolidated subsidiaries

Transitioned to a holding company structure and changed company name to DyDo Group Holdings, Inc. Domestic Beverage Business inherited by DyDo DRINCO, Inc. due to corporate split

Accelerated international expansion; striving for dramatic top line growth2013

Group management strengthened through transition to a holding company structure2017

Brought Tarami, number one in market share for fruit dessert jellies, under our banner2012

1990s

2014: Slightly sweetened coffee with added milk in a bottle-shaped can goes on sale

generate surprise and wonder in response to the multifaceted needs of customers, thereby ensuring that its position at the top of the industry is solid, and developing and strengthening jelly as the third main contributor to our group.

(For details on the business model, see “Food Business” on p. 14.)

Beverage Business. This was the beginning of DyDo Group Holdings.

This transition to a holding company structure is positioned as the first step toward dramatic growth in the future, and the DyDo Group will continue to meet the challenge of creating corporate value for the next generation.

systems in each area, strengthen existing brands, and take on the challenge of creating new categories exploiting the product development capabilities of DyDo in Japan.

By actively using the strategic bases of Turkey, Malaysia, Russia, and China, we will realize dramatic top line growth in overseas markets, and this will transform into a business which can contribute to profits.

A S

tory of Value Creation

A Story of Value Creation

9 10DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Strengthening Our Group’s Capabilities,and Making Even Greater Strides

To the Next Stage of Growth

In January 2017, we transitioned to a holding company structure. Our objectives were to bolster the group’s management system through stronger governance, develop an organizational structure which can nimbly respond to investment in new business areas, and strengthen and nurture our International Beverage Business by exhibiting synergy with our Domestic

Continual launching of innovative products

“We want people to enjoy fruits from all over the world all year long.”Tarami began as a green grocer

Vending machine installed in Russia Major product brands in Turkey

CIS region with Russia as the hub

Chinese region with Shanghai as the hub

Islamic region with Malaysia as the hub

In 2012, with the aim of creating a new source of profits, we acquired all of the shares of Tarami, a company with outstanding name recognition and overwhelming brand strength in the fruit dessert jelly market, and the company was made into a consolidated subsidiary.

Going forward, Tarami will continue to provide products which

The foundation of our group’s business has been selling canned coffee through vending machines in Japan, but we are accelerating international expansion with the aim of achieving dramatic top line growth. By making use of know-how cultivated in Japan, we are expanding our field of business to the world, using methods suited to the characteristics of each country and region.

Among advanced countries, Russia has the lowest rate of vending machine dissemination and strong potential for future growth. We are striving to expand the vending machine business that we have developed in Japan into Moscow, actively promoting the installation of vending machines in cooperation with local partners, and taking up the challenge of achieving greater penetration in the Russian market.

In Turkey and Malaysia, we have acquired local beverage manufacturers through M&A, thereby obtaining strategic bases in the Islamic world, which is expected to show further market growth in the future.

Going forward, we will bolster our management and sales

Well-Loved, Delicious Flavors with Timeless Appeal

Steps of the DyDo Group toward the next stage of growth

1992: Demitasse Coffee goes on sale

The first company to launch 160g small-can coffee products*1, using a high content of premium coffee beans in order to create a high-quality taste*1 At the time of product launch;

compiled by DyDo Group

Including the black and slightly sweetened varieties, became the No. 1 selling product*2 in the Japanese small-can coffee market*2 Intage SRI: Market for cans and

bottle-cans at 180ml or less; cumulative sales revenue for Demitasse series, March 2014–December 2016

2000: MIU goes on sale

Entering a bottle-shaped can coffee market dominated by sugar-free black coffees

“miu” expands into a brand, consisting of a lineup that includes water, flavored water, carbonated water, and sports drinks

Launched as a bodysonic drink, “MIU” features as an ingredient mineral-rich deep-seawater

In addition to the continued expansion of our vending machine network, we took on the challenge of expanding the lineup of our flagship coffee drinks to match the diverse tastes and settings of our customers while still adhering to our commitment to not using any flavoring agents. In addition to coffee drinks, we also expanded the lineup of products in our vending machines for customers to enjoy, developing new products with a focus on ingredient quality and other

unique products that stand out from the competition in a way that only the DyDo Group can provide. From our well-loved, delicious flavors with timeless appeal to the excitement of discovering a new taste with each visit to a vending machine, the DyDo Group continues to pursue customer satisfaction through its innovative product lineup as well.

Tarami Fruit and Vegetable founded in Tarami-cho, Nishisonogi District, Nagasaki Prefecture (present-day Isahaya City, Nagasaki Prefecture)

Changed company name to Tarami CorporationOpened food processing plant (Takematsuhonmachi, Omura City)Began development and manufacturing of jams, fruit jellies, and other processed fruit products.

Completed Konagai FactoryAcquired ISO 9001 certification

Established joint venture in Republic of Indonesia (PT. Tarami Aeternit Food)Acquired FSSC 22000 certification

2013

2015

2016

2017

DyDo DRINCO RUS, LLC established in Moscow, Russia

Capital participation in the beverage business division of Mamee-Double Decker (M) Sdn. Bhd. of Malaysia (51% investment in sales subsidiary, 49% investment in production subsidiary)

Acquired 90% of shares each in three beverage companies of Yildiz Holding A.Ș. of Turkey, making them consolidated subsidiaries

Transitioned to a holding company structure and changed company name to DyDo Group Holdings, Inc. Domestic Beverage Business inherited by DyDo DRINCO, Inc. due to corporate split

Accelerated international expansion; striving for dramatic top line growth2013

Group management strengthened through transition to a holding company structure2017

Brought Tarami, number one in market share for fruit dessert jellies, under our banner2012

1990s

2014: Slightly sweetened coffee with added milk in a bottle-shaped can goes on sale

generate surprise and wonder in response to the multifaceted needs of customers, thereby ensuring that its position at the top of the industry is solid, and developing and strengthening jelly as the third main contributor to our group.

(For details on the business model, see “Food Business” on p. 14.)

Beverage Business. This was the beginning of DyDo Group Holdings.

This transition to a holding company structure is positioned as the first step toward dramatic growth in the future, and the DyDo Group will continue to meet the challenge of creating corporate value for the next generation.

systems in each area, strengthen existing brands, and take on the challenge of creating new categories exploiting the product development capabilities of DyDo in Japan.

By actively using the strategic bases of Turkey, Malaysia, Russia, and China, we will realize dramatic top line growth in overseas markets, and this will transform into a business which can contribute to profits.

A S

tory of Value Creation

A Story of Value Creation

9 10DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Value Chain

83.7%

Vendingmachines

56.1%

Coffeebeverages

Ensures stable sales and profit

Overall industry figure

Approx. 30%*Vending machines

Overall industry figure

Approx. 20%*Coffee beverages

*Compiled by DyDo Group

The vending machine channel that is DyDo DRINCO’s foundation has the feature that sale prices are stable, and thus although the marginal profit rate is high, fixed costs are also high, and there are major differences in general distribution channels and revenue structure. Therefore, if net sales are increased while also reducing fixed costs, the result can be a dramatic improvement in profitability.

The business climate for vending machine-based business continues to be severe due to current trends such as the increasing frugality of consumers and the

increasing level of competition with convenience stores. However, at DyDo DRINCO, we are raising the percentage of vending machines installed at in-office locations and other places that continue to be seen as a steady source of sales, while also working to maximize sales by further improving the attractiveness of vending machine purchases through efforts such as high-quality operations and expanded deployment of IoT-enabled vending machines. We are also working to revamp our cost structure by reducing fixed costs through efficient procurement of vending machines and lengthening their lifespans.

DyDo DRINCO, the core company of our group, is in charge of our Domestic Beverage Business. By outsourcing production and logistics to cooperating companies, we have established a unique business model where we focus management resources onto product development and the development and operation of the vending machines which are our core sales channel, and in this way achieve stable, efficient business management.

The Ability to Reliably Generate Profit with Sales of Coffee from Vending Machines

Vending machines are DyDo DRINCO’s leading sales channel and account for more than 80% of our domestic beverage net sales. Since they have comparatively good price stability and steady sales, we can keep sales stable. By product, coffee drinks are highly profitable within the beverage category and account for more than 50% of net sales. Our business strategy is to focus on selling highly profitable coffee drinks via vending machines with reliable price and sales stability to secure steady business results.

A Solid Financial Base Thanks to Fabless Management

Number One Operational StructureCarefully selecting from a diverse range of products to suit the purchasers at each vending machine

Issues and Future Strategy

At DyDo DRINCO, we have built a solid sales system through our group’s sales companies and our “Kyoeikai” (vending machine operators that handle our products). Based on the results of analysis using the vast amount of sales data accumulated by our company, we set the optimal product lineup to suit the characteristics of each vending machine installation location, and on that basis we strive to maximize sales by having the operations staff in charge of each vending machine respond in a way closely tailored to suit the location. Synergistic effects of personnel education and IT utilization maintain and improve high-quality operations.

DyDo DRINCO does not have its own production sites; instead we have a strong relationship with our affiliated production plants.

Product logistics is also outsourced to cooperating companies all across Japan. This business strategy enables us to reduce large investment risks, such as capital investment risks, and logistics costs. This approach also realizes efficient allocation of operating resources as well as concentrating our investments into product development and vending machine operations. We strive to develop products with high added value that other companies are unable to offer, and operate our vending machines more in line with customer needs.

Also, one reason why vending machines are attractive is the extensive lineup of products, but to manufacture all of those product types in-house would require major capital investment, on top of other additional costs relating to the logistics of placing products in our nationwide network of vending machines. A high percentage of our company’s sales is due to vending machines, and for us, it is an extremely rational choice to adopt the fabless approach where we break up the manufacturing process into parts and outsource them to

affiliated production plants throughout Japan. In terms of funding, products are purchased on credit from

affiliated production plants, and sales are primarily collected in cash from vending machines. Therefore the revenue/expenditure gap is always small, and we generate a stable cash flow. It is this solid financial base that is the strength of DyDo DRINCO, and the driving force underlying our promotion of aggressive management, and realization of new growth by our group.

Product Selection A

Product Selection B

Product Selection C

Domestic Beverage Business

Planning and development LogisticsProduction Operations Sales

Commercialization

Vending machinemanufacturers

Planning anddevelopment

Affiliatedproduction plants

Convenience stores,merchandisersand retailers

DyDoOnline Shop

Vendingmachines

Distributioncenters

Outsourcing

Outsourcing

Containers Beverageproduction

Vending machineproduction

Diverseproducts

Reduced logistics costs

Efficient deployment of management resources

Feedback of consumer needs

Net sales

128,444 million yen

144,902 million yen

Operating income

74.9%

Domestic BeverageBusiness

Planning and development

Highly valued vending machine operations

9.6%

International BeverageBusiness

92.7%

Domestic BeverageBusiness

-22.7%

International BeverageBusiness

Breakdown of net sales (including International Beverage Business)

Breakdown of operating income (including International Beverage Business)

Ratio of Domestic Beverage Sales (FY2016)

3,576 million yen

Our unique vending machines

Vendingmachines

Purchaseon credit

Resupplyingproducts

Cashcollectionof sales

Procurement

Affiliatedproduction

plants

70.0%84.5%

Including International Beverage Business

2,700 million yen

Including International Beverage Business

No. of vending machinesin Japan approx.

280,000

Cash-in first business modelRevenue/expenditure gap is always small,

so cash flow is stable

DyDo Groupnationwide sales

companies,“Kyoeikai”*

*DyDo special operators (vending machine operators that handle our products)

Value Creation Business Models of the DyDo Group

Efficient deployment of management resources

A S

tory of Value Creation

A Story of Value Creation

11 12DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Value Chain

83.7%

Vendingmachines

56.1%

Coffeebeverages

Ensures stable sales and profit

Overall industry figure

Approx. 30%*Vending machines

Overall industry figure

Approx. 20%*Coffee beverages

*Compiled by DyDo Group

The vending machine channel that is DyDo DRINCO’s foundation has the feature that sale prices are stable, and thus although the marginal profit rate is high, fixed costs are also high, and there are major differences in general distribution channels and revenue structure. Therefore, if net sales are increased while also reducing fixed costs, the result can be a dramatic improvement in profitability.

The business climate for vending machine-based business continues to be severe due to current trends such as the increasing frugality of consumers and the

increasing level of competition with convenience stores. However, at DyDo DRINCO, we are raising the percentage of vending machines installed at in-office locations and other places that continue to be seen as a steady source of sales, while also working to maximize sales by further improving the attractiveness of vending machine purchases through efforts such as high-quality operations and expanded deployment of IoT-enabled vending machines. We are also working to revamp our cost structure by reducing fixed costs through efficient procurement of vending machines and lengthening their lifespans.

DyDo DRINCO, the core company of our group, is in charge of our Domestic Beverage Business. By outsourcing production and logistics to cooperating companies, we have established a unique business model where we focus management resources onto product development and the development and operation of the vending machines which are our core sales channel, and in this way achieve stable, efficient business management.

The Ability to Reliably Generate Profit with Sales of Coffee from Vending Machines

Vending machines are DyDo DRINCO’s leading sales channel and account for more than 80% of our domestic beverage net sales. Since they have comparatively good price stability and steady sales, we can keep sales stable. By product, coffee drinks are highly profitable within the beverage category and account for more than 50% of net sales. Our business strategy is to focus on selling highly profitable coffee drinks via vending machines with reliable price and sales stability to secure steady business results.

A Solid Financial Base Thanks to Fabless Management

Number One Operational StructureCarefully selecting from a diverse range of products to suit the purchasers at each vending machine

Issues and Future Strategy

At DyDo DRINCO, we have built a solid sales system through our group’s sales companies and our “Kyoeikai” (vending machine operators that handle our products). Based on the results of analysis using the vast amount of sales data accumulated by our company, we set the optimal product lineup to suit the characteristics of each vending machine installation location, and on that basis we strive to maximize sales by having the operations staff in charge of each vending machine respond in a way closely tailored to suit the location. Synergistic effects of personnel education and IT utilization maintain and improve high-quality operations.

DyDo DRINCO does not have its own production sites; instead we have a strong relationship with our affiliated production plants.

Product logistics is also outsourced to cooperating companies all across Japan. This business strategy enables us to reduce large investment risks, such as capital investment risks, and logistics costs. This approach also realizes efficient allocation of operating resources as well as concentrating our investments into product development and vending machine operations. We strive to develop products with high added value that other companies are unable to offer, and operate our vending machines more in line with customer needs.

Also, one reason why vending machines are attractive is the extensive lineup of products, but to manufacture all of those product types in-house would require major capital investment, on top of other additional costs relating to the logistics of placing products in our nationwide network of vending machines. A high percentage of our company’s sales is due to vending machines, and for us, it is an extremely rational choice to adopt the fabless approach where we break up the manufacturing process into parts and outsource them to

affiliated production plants throughout Japan. In terms of funding, products are purchased on credit from

affiliated production plants, and sales are primarily collected in cash from vending machines. Therefore the revenue/expenditure gap is always small, and we generate a stable cash flow. It is this solid financial base that is the strength of DyDo DRINCO, and the driving force underlying our promotion of aggressive management, and realization of new growth by our group.

Product Selection A

Product Selection B

Product Selection C

Domestic Beverage Business

Planning and development LogisticsProduction Operations Sales

Commercialization

Vending machinemanufacturers

Planning anddevelopment

Affiliatedproduction plants

Convenience stores,merchandisersand retailers

DyDoOnline Shop

Vendingmachines

Distributioncenters

Outsourcing

Outsourcing

Containers Beverageproduction

Vending machineproduction

Diverseproducts

Reduced logistics costs

Efficient deployment of management resources

Feedback of consumer needs

Net sales

128,444 million yen

144,902 million yen

Operating income

74.9%

Domestic BeverageBusiness

Planning and development

Highly valued vending machine operations

9.6%

International BeverageBusiness

92.7%

Domestic BeverageBusiness

-22.7%

International BeverageBusiness

Breakdown of net sales (including International Beverage Business)

Breakdown of operating income (including International Beverage Business)

Ratio of Domestic Beverage Sales (FY2016)

3,576 million yen

Our unique vending machines

Vendingmachines

Purchaseon credit

Resupplyingproducts

Cashcollectionof sales

Procurement

Affiliatedproduction

plants

70.0%84.5%

Including International Beverage Business

2,700 million yen

Including International Beverage Business

No. of vending machinesin Japan approx.

280,000

Cash-in first business modelRevenue/expenditure gap is always small,

so cash flow is stable

DyDo Groupnationwide sales

companies,“Kyoeikai”*

*DyDo special operators (vending machine operators that handle our products)

Value Creation Business Models of the DyDo Group

Efficient deployment of management resources

A S

tory of Value Creation

A Story of Value Creation

11 12DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Highly Trusted by Major Manufacturers Due to Our Top-class Track Record in the IndustryThe drinkable preparations which are the specialty of DAIDO Pharmaceutical Corporation are subdivided by function and target due to the continuing diversification of the market. Therefore, while there is an increasing need for small-lot/high-diversity manufacturing, there is also a need to ensure a higher level of quality and safety. DAIDO Pharmaceutical Corporation naturally has know-how on pharmaceutical manufacturing cultivated over 60 years, and we also have strong pipelines with ingredient and bulk drug manufacturers giving us early access to new material information, production lines allowing flexible response to the diverse needs of many customers, and a system for delivering

high, stable quality. Through planning, development, and proposal capabilities exploiting these strengths, we receive orders from major Japanese pharmaceutical and cosmetics manufacturers, and maintain a top-class track record as a contract manufacturer of drinkable preparations.

A Segment for Ensuring Stability of RevenueThe sources which generate our high profit are responsiveness enabling production of highly diverse products in small lots, a superior quality control system, and the strong trust of partner manufacturers due to those assets. Manufacturing of pharmaceutical and quasi-drugs is an industry requiring licensing, and a niche with high barriers to entry. Those factors are also linked with our high earning power, and this segment is positioned to ensure stable revenue within our group.

In the Pharmaceutical-Related Business, DAIDO Pharmaceutical Corporation is expanding businesses specialized for OEM (contract manufacturing) such as nutritional drinks with pharmaceuticals and quasi-drugs, and beauty tonics. Through our development/manufacturing capability boasting a daily production of 1.7 million units, and our high level of production quality, we have earned the trust of major manufacturers in Japan, and we maintain high profitability through a top-class track record as a drinkable preparations manufacturer.

Company plant

Commercialization

Planning,development,

and prototyping

Accumulatinginformation

Jointdevelopment

manufacturersJointdevelopment

manufacturers

Responding flexibly to various needs

Grasping consumer needs

Feedback on diversifying consumer needs

Manufacturers of ingredients, bulk drugs

Value ChainPlanning and development Production Sales

Operations andplanning

Developmentand proposal

Ascertaining the latest information

Daily production

1.7million units

Small-lot/high-diversity production, and quality control to ensure effectiveness and safety

Over

100firms

Tarami maintains the top share in the fruit dessert jelly market, and is in charge of the Food Business of our group. After becoming a consolidated subsidiary in 2012, it has contributed to our consolidated results as the third main contributor to our group, and its high name recognition is helping to improve the brand strength of the group as a whole.

Breakdown of net sales

10.5%

Breakdown of operating income

Net sales

17,972 million yen

Operating income

212 million yen

Food Business

CommercializationCompany

plant

Producers

Convenience stores,merchandisersand retailers

TaramiOnline Shop

Value ChainPlanning and development ProductionProcurement SalesOperations

Directdialogue

Quality controlISO 9001 and FSSC 22000 certification

No.1 shareof the dry

jelly market

Using its Roots as a Green Grocer to Establish a Unique PositionAs the pioneer of fruit dessert jelly, Tarami has had a firm hold on the industry’s top share for many years. Tarami was originally a green grocer, and their departure point for development is allowing consumers to enjoy fruits from all over the world with a delicious taste even greater than the raw ingredients. Products created with this approach are esteemed as fruit rather than just jelly, and are displayed in the fruit section of large retailers. In this and other ways, Tarami has simultaneously established a unique position to go with its top share.

Responding to Expectations as a Top Company in the IndustryAt Tarami, we believe it is our mission as the top firm in the

5.5%

Net sales

8,526 million yen

Operating income

944 million yen

The climate in the nutritional drink market is severe due to aging of the core user segment and the emergence of new markets, such as growth of the energy drink market. In the overall pharmaceuticals/health field, on the other hand, there are

prospects for new demand due, for example, to the increasing need for products for international export in the category of beauty tonics. DAIDO Pharmaceutical Corporation will pioneer these new markets, and at the same time we will aim as a group to expand our field of business, including acquisition of new business domains through M&A.

Issues and Future StrategyIn the food industry, there are issues with increasing raw material unit and logistics costs as well as a reduction of market scale due to Japan’s decreasing population. Also, competition is intensifying in the jelly industry. Tarami will meet these challenges from every direction, with the aim of improving added value of products and transforming to a business model which continuously generates profits under such business conditions. Tarami will strive to differentiate itself from other

companies and improve its brand value through a broad range of initiatives. In specific terms, we will continue to create products which meet the multifaceted needs of customers and generate surprise and wonder, improve the efficiency of production through strenuous work to control raw material and manufacturing costs and curb loss, make new efforts to attract customers and promote products, develop international business, and ensure thoroughgoing commitment to food safety through a stringent response based on the FSSC 22000 certification the company has acquired.

Issues and Future Strategy

Breakdown of net sales Breakdown of operating income

• Second-class pharmaceutical manufacturing and sale• Quasi-drug manufacturing • Pharmaceutical manufacturing• Quasi-drug manufacturing and sale • Beverage manufacturing

Licensed industries

Quality controlISO 9001 and FSSC 22000 certification

Pharmaceutical-Related Business

Note: Sales figures by business are sales to external customers.

5.0% 24.5%

Note: Sales figures by business are sales to external customers.

Planning anddevelopment

industry to provide the customer with delicious products that capture new expectations at a reasonable price, while maintaining the safety and security of food. In that spirit, we take up the challenge of improving the added value of products from every angle. In development, we continually investigate and research new raw ingredients (fruits), strive for products which achieve an overwhelming difference from competitors in terms of jelly taste, texture, and other characteristics. In manufacturing, we engage in continual reform to produce products with a high degree of quality and perfection while reducing loss due to waste through meticulous equipment management. Tarami’s strength is its stance of never being satisfied with the status quo and always striving for self-improvement, and that is the driving force that keeps us at the top of the industry.

Commercializing needs through consumer monitoring

Devising new flavors and food textures to enable response to diverse needs

Guidance regarding quality control methods

Procurement through strict selection from all over the world

A S

tory of Value Creation

A Story of Value Creation

13 14DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Highly Trusted by Major Manufacturers Due to Our Top-class Track Record in the IndustryThe drinkable preparations which are the specialty of DAIDO Pharmaceutical Corporation are subdivided by function and target due to the continuing diversification of the market. Therefore, while there is an increasing need for small-lot/high-diversity manufacturing, there is also a need to ensure a higher level of quality and safety. DAIDO Pharmaceutical Corporation naturally has know-how on pharmaceutical manufacturing cultivated over 60 years, and we also have strong pipelines with ingredient and bulk drug manufacturers giving us early access to new material information, production lines allowing flexible response to the diverse needs of many customers, and a system for delivering

high, stable quality. Through planning, development, and proposal capabilities exploiting these strengths, we receive orders from major Japanese pharmaceutical and cosmetics manufacturers, and maintain a top-class track record as a contract manufacturer of drinkable preparations.

A Segment for Ensuring Stability of RevenueThe sources which generate our high profit are responsiveness enabling production of highly diverse products in small lots, a superior quality control system, and the strong trust of partner manufacturers due to those assets. Manufacturing of pharmaceutical and quasi-drugs is an industry requiring licensing, and a niche with high barriers to entry. Those factors are also linked with our high earning power, and this segment is positioned to ensure stable revenue within our group.

In the Pharmaceutical-Related Business, DAIDO Pharmaceutical Corporation is expanding businesses specialized for OEM (contract manufacturing) such as nutritional drinks with pharmaceuticals and quasi-drugs, and beauty tonics. Through our development/manufacturing capability boasting a daily production of 1.7 million units, and our high level of production quality, we have earned the trust of major manufacturers in Japan, and we maintain high profitability through a top-class track record as a drinkable preparations manufacturer.

Company plant

Commercialization

Planning,development,

and prototyping

Accumulatinginformation

Jointdevelopment

manufacturersJointdevelopment

manufacturers

Responding flexibly to various needs

Grasping consumer needs

Feedback on diversifying consumer needs

Manufacturers of ingredients, bulk drugs

Value ChainPlanning and development Production Sales

Operations andplanning

Developmentand proposal

Ascertaining the latest information

Daily production

1.7million units

Small-lot/high-diversity production, and quality control to ensure effectiveness and safety

Over

100firms

Tarami maintains the top share in the fruit dessert jelly market, and is in charge of the Food Business of our group. After becoming a consolidated subsidiary in 2012, it has contributed to our consolidated results as the third main contributor to our group, and its high name recognition is helping to improve the brand strength of the group as a whole.

Breakdown of net sales

10.5%

Breakdown of operating income

Net sales

17,972 million yen

Operating income

212 million yen

Food Business

CommercializationCompany

plant

Producers

Convenience stores,merchandisersand retailers

TaramiOnline Shop

Value ChainPlanning and development ProductionProcurement SalesOperations

Directdialogue

Quality controlISO 9001 and FSSC 22000 certification

No.1 shareof the dry

jelly market

Using its Roots as a Green Grocer to Establish a Unique PositionAs the pioneer of fruit dessert jelly, Tarami has had a firm hold on the industry’s top share for many years. Tarami was originally a green grocer, and their departure point for development is allowing consumers to enjoy fruits from all over the world with a delicious taste even greater than the raw ingredients. Products created with this approach are esteemed as fruit rather than just jelly, and are displayed in the fruit section of large retailers. In this and other ways, Tarami has simultaneously established a unique position to go with its top share.

Responding to Expectations as a Top Company in the IndustryAt Tarami, we believe it is our mission as the top firm in the

5.5%

Net sales

8,526 million yen

Operating income

944 million yen

The climate in the nutritional drink market is severe due to aging of the core user segment and the emergence of new markets, such as growth of the energy drink market. In the overall pharmaceuticals/health field, on the other hand, there are

prospects for new demand due, for example, to the increasing need for products for international export in the category of beauty tonics. DAIDO Pharmaceutical Corporation will pioneer these new markets, and at the same time we will aim as a group to expand our field of business, including acquisition of new business domains through M&A.

Issues and Future StrategyIn the food industry, there are issues with increasing raw material unit and logistics costs as well as a reduction of market scale due to Japan’s decreasing population. Also, competition is intensifying in the jelly industry. Tarami will meet these challenges from every direction, with the aim of improving added value of products and transforming to a business model which continuously generates profits under such business conditions. Tarami will strive to differentiate itself from other

companies and improve its brand value through a broad range of initiatives. In specific terms, we will continue to create products which meet the multifaceted needs of customers and generate surprise and wonder, improve the efficiency of production through strenuous work to control raw material and manufacturing costs and curb loss, make new efforts to attract customers and promote products, develop international business, and ensure thoroughgoing commitment to food safety through a stringent response based on the FSSC 22000 certification the company has acquired.

Issues and Future Strategy

Breakdown of net sales Breakdown of operating income

• Second-class pharmaceutical manufacturing and sale• Quasi-drug manufacturing • Pharmaceutical manufacturing• Quasi-drug manufacturing and sale • Beverage manufacturing

Licensed industries

Quality controlISO 9001 and FSSC 22000 certification

Pharmaceutical-Related Business

Note: Sales figures by business are sales to external customers.

5.0% 24.5%

Note: Sales figures by business are sales to external customers.

Planning anddevelopment

industry to provide the customer with delicious products that capture new expectations at a reasonable price, while maintaining the safety and security of food. In that spirit, we take up the challenge of improving the added value of products from every angle. In development, we continually investigate and research new raw ingredients (fruits), strive for products which achieve an overwhelming difference from competitors in terms of jelly taste, texture, and other characteristics. In manufacturing, we engage in continual reform to produce products with a high degree of quality and perfection while reducing loss due to waste through meticulous equipment management. Tarami’s strength is its stance of never being satisfied with the status quo and always striving for self-improvement, and that is the driving force that keeps us at the top of the industry.

Commercializing needs through consumer monitoring

Devising new flavors and food textures to enable response to diverse needs

Guidance regarding quality control methods

Procurement through strict selection from all over the world

A S

tory of Value Creation

A Story of Value Creation

13 14DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Embodying theGroup Philosophy

and Vision

● Corporate culture of taking up challenges

Issues Faced

Changes in theExternal Environment

Embodying theGroup Philosophy

and Vision

InputOutcomes

Outcomes

What the DyDo Group aims to give to society

Input

Outcomes

Outcomes

Input

Input

Expansion into new business fields

Development of overseas business

Continuous growth in cash flow through vending machine business model innovation

Vending Machine Business Model: Creation of Stable Cash Flow

Embodying theGroup Philosophy

and Vision

Generationof

cash flow

DyDo Group Vision

Together with customers

DyDo Group Philosophy

“The Source of Value Creation”Implementation of our Group Philosophy and Vision

Together with society

Together with future generations

Together with people

Value Creation Process through Our Core Business of Vending Machines

We are always offering high-quality products with added surprise to deliver distinctively DyDo taste and wellness to customers.

We are committed to building a rich and vibrant society through “All DyDo” product development and corporate activities involving the entire group.

We create “DyDo standards” for future generations that go beyond current frameworks and values.

We uphold a tireless “DyDo challenging spirit” to bring happiness to all people whose lives are touched by the DyDo Group.

DyDo Group strives to achieve happiness and prosperity together with people and society as a whole. To realize this, we will continue our dynamic efforts to take on new challenges.

• Decrease in net sales per vending machine

• High dependence on vending machine channels

● Slowdown in domestic beverage market growth due to decreasing birthrate and aging population

● Saturation of the vending machine market

● Increase in convenience stores

● Social demand for reduction of environmental impact

● Rising personnel and logistics costs

● Government promotion of work style reforms

Changes in the external environment● Rise in health

consciousness

● Arrival of a highly aged society

Changes in the external environment● Increase in global

population

● Potential for creation of new markets in developing nations due to economic growth

Changes in the external environment● Technological

advancements

● Corporate culture of taking up challenges

● Accumulated internal reserves

● Acquisition of new business domains with high profitability and growth potential

● Creation of new value in the “Food and Health” business field

● Creation of new beverage categories in overseas markets

● Improvement of value of existing brands

● Fundamental revamping of vending machine fixed cost structure

● Reduction of environmental impact of vending machines

● Creation of new value through development of IoT-enabled vending machines

● Building mechanisms as social infrastructure

● Nationwide network of approximately 280,000 vending machines

● High-quality vending machine operations● Happiness and prosperity with

cooperating companies

● Concentrated investment in management resources• Vending machine development• Product development

● Attractiveness of vending machines as retail outlets

● High marginal profit rate through coffee (sales stability) and vending machines (price stability)

● Product development committed to “genuine delicious taste”

● Stable financial base through fabless management

(DyDo)● Corporate culture of taking up

challenges● Product development know-how● Quality control capabilities● Vending machine operation

know-how(Local partners)● Brand strength● Partner sales network

A S

tory of Value Creation

A Story of Value Creation

15 16DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Embodying theGroup Philosophy

and Vision

● Corporate culture of taking up challenges

Issues Faced

Changes in theExternal Environment

Embodying theGroup Philosophy

and Vision

InputOutcomes

Outcomes

What the DyDo Group aims to give to society

Input

Outcomes

Outcomes

Input

Input

Expansion into new business fields

Development of overseas business

Continuous growth in cash flow through vending machine business model innovation

Vending Machine Business Model: Creation of Stable Cash Flow

Embodying theGroup Philosophy

and Vision

Generationof

cash flow

DyDo Group Vision

Together with customers

DyDo Group Philosophy

“The Source of Value Creation”Implementation of our Group Philosophy and Vision

Together with society

Together with future generations

Together with people

Value Creation Process through Our Core Business of Vending Machines

We are always offering high-quality products with added surprise to deliver distinctively DyDo taste and wellness to customers.

We are committed to building a rich and vibrant society through “All DyDo” product development and corporate activities involving the entire group.

We create “DyDo standards” for future generations that go beyond current frameworks and values.

We uphold a tireless “DyDo challenging spirit” to bring happiness to all people whose lives are touched by the DyDo Group.

DyDo Group strives to achieve happiness and prosperity together with people and society as a whole. To realize this, we will continue our dynamic efforts to take on new challenges.

• Decrease in net sales per vending machine

• High dependence on vending machine channels

● Slowdown in domestic beverage market growth due to decreasing birthrate and aging population

● Saturation of the vending machine market

● Increase in convenience stores

● Social demand for reduction of environmental impact

● Rising personnel and logistics costs

● Government promotion of work style reforms

Changes in the external environment● Rise in health

consciousness

● Arrival of a highly aged society

Changes in the external environment● Increase in global

population

● Potential for creation of new markets in developing nations due to economic growth

Changes in the external environment● Technological

advancements

● Corporate culture of taking up challenges

● Accumulated internal reserves

● Acquisition of new business domains with high profitability and growth potential

● Creation of new value in the “Food and Health” business field

● Creation of new beverage categories in overseas markets

● Improvement of value of existing brands

● Fundamental revamping of vending machine fixed cost structure

● Reduction of environmental impact of vending machines

● Creation of new value through development of IoT-enabled vending machines

● Building mechanisms as social infrastructure

● Nationwide network of approximately 280,000 vending machines

● High-quality vending machine operations● Happiness and prosperity with

cooperating companies

● Concentrated investment in management resources• Vending machine development• Product development

● Attractiveness of vending machines as retail outlets

● High marginal profit rate through coffee (sales stability) and vending machines (price stability)

● Product development committed to “genuine delicious taste”

● Stable financial base through fabless management

(DyDo)● Corporate culture of taking up

challenges● Product development know-how● Quality control capabilities● Vending machine operation

know-how(Local partners)● Brand strength● Partner sales network

A S

tory of Value Creation

A Story of Value Creation

15 16DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Financial and Non-Financial Highlights

Financial Information (Consolidated Business Results) Non-Financial Information

Net Sales Number of Frontier Vendors Installed

*Total employees of DyDo Beverage Service, DyDo Beverage Shizuoka, DyDo DRINCO Service Kanto, and DyDo West Vending

Festivals Supported by DyDo DRINCO

Annual Power Consumption Per Unit of Our Vending Machines*

Outside Director Ratio, Rate of Board of Directors Attendance by Outside Directors

Ratio of Employees Engaged in Vending Machines Operations* in the Domestic Beverage Business

148,902 154,828 149,526 149,856

171,401

7,934

6,0045,174 4,988

3,857

2012 2013 2014 2015 2016

200,000

150,000

100,000

50,000

0

(million yen)

Sales by Business

Operating Income

2012 2013 2014 2015 2016

10,000

7,500

5,000

2,500

0

(million yen)

2014 2015 20162011 20122004 2005 2006 2007 2008 2009 20102003 2013 2014 2015 2016

20

15

5

10

0

40

20

10

30

0

(times)

Net Income Attributable to Owners of Parent

2012 2013 2014 2015 2016

(million yen)

Net Assets / Capital Adequacy Ratio

2012 2013 2014 2015 2016

100,000

75,000 45

30

15

0

60

50,000

25,000

0

(million yen) (%)

Yearly Dividends Per Share

2012 2013 2014 2015 2016

80

60

40

20

0

(yen)

2012 2013 2014 2015 2016

1,000

800

600

400

200

0

(kWh)

5,000

4,000

3,000

2,000

1,000

0

55.1 55.1 56.0

50.8 51.3

79,09782,554 84,734

4,410

3,712

2,322 2,347

860

716

594 589 580

1

15 16

(times)

3,269

60 60 60 60 60

2927

24

2018

13

9

1

323434 34 34 34

85,181 85,693

Total: 343times

For more information on vending machine operations, see p. 12.For more information on Frontier Vendors, see p. 27–28.

Number of Company Seminars for Individual Investors

Total number of participants

2,500 or more

For information on efforts toward contributing to the vitality of local society,see p. 49.

For information on reducing environmental impact and reducing costs, see p. 50.

*Our mainstay modelNote: Figures for annual power consumption measured using JIS standards;

figures vary by usage environment For an interview with an outside director, see p. 42.

For information on responsible engagement with our stakeholders,see p. 47-48.

(FY)

(FY)

(FY)

(FY)

(FY)

(FY)(FY)

(FY)

Consolidatednet sales

171,401 million yen

Net assets Capital adequacy ratio

Note: Sales by business indicate sales to outside clients

Food Business

17,972 million yen

(10.5%)

Pharmaceutical-Related Business

8,526 million yen(5.0%)

Domestic Beverage Business / International Beverage Business

144,902 million yen(84.5%)

Outside directorratio

Rate of Boardof Directors

attendance byoutside

directors

33% 100%

67.8% Number of employees engaged in vending machine operations

1,721

Total number of employees

2,539

2015 2016

1,000

5,000

4,000

3,000

2,000

0

(vendingmachines)

3,696

1,512

(FY)

19companies

FY2016

FY2016FY2016

End of FY2016

(FY2016)

Number of Affiliated Manufacturers Participating in Quality Assurance Meetings

A S

tory of Value Creation

A Story of Value Creation

17 18DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Financial and Non-Financial Highlights

Financial Information (Consolidated Business Results) Non-Financial Information

Net Sales Number of Frontier Vendors Installed

*Total employees of DyDo Beverage Service, DyDo Beverage Shizuoka, DyDo DRINCO Service Kanto, and DyDo West Vending

Festivals Supported by DyDo DRINCO

Annual Power Consumption Per Unit of Our Vending Machines*

Outside Director Ratio, Rate of Board of Directors Attendance by Outside Directors

Ratio of Employees Engaged in Vending Machines Operations* in the Domestic Beverage Business

148,902 154,828 149,526 149,856

171,401

7,934

6,0045,174 4,988

3,857

2012 2013 2014 2015 2016

200,000

150,000

100,000

50,000

0

(million yen)

Sales by Business

Operating Income

2012 2013 2014 2015 2016

10,000

7,500

5,000

2,500

0

(million yen)

2014 2015 20162011 20122004 2005 2006 2007 2008 2009 20102003 2013 2014 2015 2016

20

15

5

10

0

40

20

10

30

0

(times)

Net Income Attributable to Owners of Parent

2012 2013 2014 2015 2016

(million yen)

Net Assets / Capital Adequacy Ratio

2012 2013 2014 2015 2016

100,000

75,000 45

30

15

0

60

50,000

25,000

0

(million yen) (%)

Yearly Dividends Per Share

2012 2013 2014 2015 2016

80

60

40

20

0

(yen)

2012 2013 2014 2015 2016

1,000

800

600

400

200

0

(kWh)

5,000

4,000

3,000

2,000

1,000

0

55.1 55.1 56.0

50.8 51.3

79,09782,554 84,734

4,410

3,712

2,322 2,347

860

716

594 589 580

1

15 16

(times)

3,269

60 60 60 60 60

2927

24

2018

13

9

1

323434 34 34 34

85,181 85,693

Total: 343times

For more information on vending machine operations, see p. 12.For more information on Frontier Vendors, see p. 27–28.

Number of Company Seminars for Individual Investors

Total number of participants

2,500 or more

For information on efforts toward contributing to the vitality of local society,see p. 49.

For information on reducing environmental impact and reducing costs, see p. 50.

*Our mainstay modelNote: Figures for annual power consumption measured using JIS standards;

figures vary by usage environment For an interview with an outside director, see p. 42.

For information on responsible engagement with our stakeholders,see p. 47-48.

(FY)

(FY)

(FY)

(FY)

(FY)

(FY)(FY)

(FY)

Consolidatednet sales

171,401 million yen

Net assets Capital adequacy ratio

Note: Sales by business indicate sales to outside clients

Food Business

17,972 million yen

(10.5%)

Pharmaceutical-Related Business

8,526 million yen(5.0%)

Domestic Beverage Business / International Beverage Business

144,902 million yen(84.5%)

Outside directorratio

Rate of Boardof Directors

attendance byoutside

directors

33% 100%

67.8% Number of employees engaged in vending machine operations

1,721

Total number of employees

2,539

2015 2016

1,000

5,000

4,000

3,000

2,000

0

(vendingmachines)

3,696

1,512

(FY)

19companies

FY2016

FY2016FY2016

End of FY2016

(FY2016)

Number of Affiliated Manufacturers Participating in Quality Assurance Meetings

A S

tory of Value Creation

A Story of Value Creation

17 18DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Tomiya TakamatsuPresident

Since our founding, we have built up a stable business foundation. This is supported first of all by a stable cash flow produced via our unique business model using approximately 280,000 vending machines throughout Japan as our main sales channel, and highly profitable coffee drinks as our core product. Secondly, it is supported by solid finances based on internal reserves built up using this business model.

However, in the beverage industry, the situation is such that major growth cannot be expected in the domestic beverage market due to the effects of a decreasing birthrate and aging population—trends which are expected to progress even further in the future. Under these conditions, the earnings environment will continue to be severe. To respond to changing times in the environment, and realize an improvement in corporate value over the medium to long term, I believe it is important to continue dynamic efforts to take on new challenges while valuing our founding spirit of striving to achieve happiness and prosperity together.

Based on our Group Philosophy and Group Vision, our group is promoting the five-year-long the mid-term business plan “Challenge the Next Stage,” whose last year will be FY2018, and focus efforts on the following four challenges. In that way, we are

FY2018 Mid-term Management Objectives

Netsales

Operatingmarginbillion yen200 4.0%

Challenge to grow existing businesses

Work to increase cash flows on an ongoing basis by reforming the vending machine business model

Four Challenges and Business Strategies

Direction of our Mid-term Business Plan “Challenge the Next Stage”

Challenge to enhance product strength

Enhance the DyDo Blend brand and strive to make it the leading brand in its market segment

Challenge to expand overseas businesses

Achieve dramatic top line growth by accelerating the development of our overseas businesses

Challenge to establish new business foundations

Establish new profit centers through an M&A strategy

Promoting Our Mid-term Business Plan “Challenge the Next Stage” and Engaging in Four Challenges

Continuing Dynamic Efforts to Take On New Challenges in Order to Realize Sustained Growth

Domestic

Existing

fields

New

fields

Overseas

Achievement of products thatonly the DyDo Group can create

Development of new food- andhealth-related business

Optimized business results / Improved productivity(Generate stable cash flow)

FY2018

Net sales: 200 billion yen

Operating margin: 4.0%

Challenge to enhanceproduct strength

Challenge toexpand overseas

businesses

Marketexpansion throughoverseas business

development

Challenge togrow existingbusinesses

Challenge toestablish new

businessfoundations

Pharmaceutical-Related

Business

FoodBusiness

aiming to be a corporate group which perpetually develops, taking achievement of this plan as a milestone.

DomesticBeverageBusiness

Message from the President

Background Behind Establishment of Our Mid-term Business Plan

Strategy for C

reating Corporate Value

20DyDo Group Holdings Integrated Report 201719 DyDo Group Holdings Integrated Report 2017

Strategy for Creating Corporate Value

Tomiya TakamatsuPresident

Since our founding, we have built up a stable business foundation. This is supported first of all by a stable cash flow produced via our unique business model using approximately 280,000 vending machines throughout Japan as our main sales channel, and highly profitable coffee drinks as our core product. Secondly, it is supported by solid finances based on internal reserves built up using this business model.

However, in the beverage industry, the situation is such that major growth cannot be expected in the domestic beverage market due to the effects of a decreasing birthrate and aging population—trends which are expected to progress even further in the future. Under these conditions, the earnings environment will continue to be severe. To respond to changing times in the environment, and realize an improvement in corporate value over the medium to long term, I believe it is important to continue dynamic efforts to take on new challenges while valuing our founding spirit of striving to achieve happiness and prosperity together.

Based on our Group Philosophy and Group Vision, our group is promoting the five-year-long the mid-term business plan “Challenge the Next Stage,” whose last year will be FY2018, and focus efforts on the following four challenges. In that way, we are

FY2018 Mid-term Management Objectives

Netsales

Operatingmarginbillion yen200 4.0%

Challenge to grow existing businesses

Work to increase cash flows on an ongoing basis by reforming the vending machine business model

Four Challenges and Business Strategies

Direction of our Mid-term Business Plan “Challenge the Next Stage”

Challenge to enhance product strength

Enhance the DyDo Blend brand and strive to make it the leading brand in its market segment

Challenge to expand overseas businesses

Achieve dramatic top line growth by accelerating the development of our overseas businesses

Challenge to establish new business foundations

Establish new profit centers through an M&A strategy

Promoting Our Mid-term Business Plan “Challenge the Next Stage” and Engaging in Four Challenges

Continuing Dynamic Efforts to Take On New Challenges in Order to Realize Sustained Growth

Domestic

Existing

fields

New

fields

Overseas

Achievement of products thatonly the DyDo Group can create

Development of new food- andhealth-related business

Optimized business results / Improved productivity(Generate stable cash flow)

FY2018

Net sales: 200 billion yen

Operating margin: 4.0%

Challenge to enhanceproduct strength

Challenge toexpand overseas

businesses

Marketexpansion throughoverseas business

development

Challenge togrow existingbusinesses

Challenge toestablish new

businessfoundations

Pharmaceutical-Related

Business

FoodBusiness

aiming to be a corporate group which perpetually develops, taking achievement of this plan as a milestone.

DomesticBeverageBusiness

Message from the President

Background Behind Establishment of Our Mid-term Business Plan

Strategy for C

reating Corporate Value

20DyDo Group Holdings Integrated Report 201719 DyDo Group Holdings Integrated Report 2017

Strategy for Creating Corporate Value

Looking Back on Our Mid-term Business Plan after the First Three Years

Reflecting on the first three years of our mid-term business plan, from its start until FY2016, I believe one major result was that we were able to consolidate a foundation for future growth. In our existing businesses, we are revamping our fixed cost structure and have started deployment of IoT-enabled vending machines, with the aim of innovating with our vending machine business model. (For details, see “Special Feature 1: Taking Up the Challenge of Creating New

Vending Machine Value” on p. 27-28.) Also, in our international business, we are moving into the Islamic regions of Turkey and Malaysia, and have acquired strategic bases for dramatic top line growth in the future.

More than anything else, it is important to foster a corporate culture of taking up challenges, and strengthen our governance system for supporting transparent, fair, quick, and resolute decision-making. We have worked hard in these areas and formed a solid foundation for our group’s growth, which I think is a great achievement.

Through various efforts, we have worked to deepen commitment to our Group Philosophy and Group Vision, and energize in-house communication. As a result, we have steadily nurtured a corporate climate of taking on challenges. I feel that by working to continually improve corporate governance and transitioning—starting this year—to a holding company structure, we have been able take our first step toward dramatic growth in the future. (For details, see “Ongoing Improvements to Corporate Governance” on

p. 37-41.)

Summary of Results for FY2016

Consolidated net sales for FY2016 were 171,401 million yen, up 14.4% over the previous year. Results improved due to favorable sales in our Domestic Beverage Business, and international sales increased due to the effects of M&A. This was also a year where we actively promoted prior investment as groundwork for next-generation growth.

Domestically, we actively invested in advertising and sales promotion to further strengthen the DyDo Blend brand, deployed IoT-enabled vending machines, and took measures to reduce fixed costs of vending machine channels in the future and control rising logistics costs. Internationally, we focused on consolidating a business foundation for dramatic growth in the future, through initiatives such as acquiring new strategic bases in the Islamic region. While our performance in the domestic beverage market was good, our International Beverage Business struggled, and as a result operating income remained at 3,857 million yen, but extraordinary gains were booked, such as a gain on negative goodwill of 494 million yen accompanying acquisition of our Turkish beverage business and a 433 million yen gain on sale of investments in capital of an affiliated company. As a result, net income attributable to parent was 3,269 million yen, 39.3% higher than the previous year.

The Situation of the Domestic Beverage Business, Our Core Business

Sales volume in the Domestic Beverage Business in FY2016 was 4.1% higher than the previous year, exceeding the industry average. Also per-machine sales were previously in a declining trend, due in part to a slump in consumption after the rise in the consumption tax, but in FY2016, the results achieved were almost on a par with the previous year, and thus conditions are moving in a favorable direction toward an improving trend. I feel that, as fostering a corporate culture of taking up challenges has become our foundation, with regard to our mainstay vending machine channels, results due to education of personnel and active use of IT—such as acquiring prime locations, working to maintain our top-class position in operations, and optimizing our product lineups to suit location characteristics, all via a more comprehensive effort to manage sales based on a problem-solving approach—are beginning to mesh well with our merchandise policy.

Business Model Revamping and Corporate Culture Reforms are Progressing, and We Have Laid a Foundation for Growth

Consolidated Business Results for FY2016

Domestic Beverage Business

128,444 million yen

16,457 million yen

8,526 million yen

17,972 million yen

Net sales 171,401 million yen

Operating income 3,857 million yen

Net income attributable to owners of parent

Net sales 3,576 million yen

–876 million yen

Operating income

3,269 million yen

International Beverage Business

Net sales

Operating income

Pharmaceutical-Related Business

Net sales

Operating income

Food Business

Net sales

Operating income

944 million yen

212 million yen

Based on the progress thus far in our mid-term business plan, I think there are three key points where we need to make efforts in FY2017.

First is firming up the trend toward continuous growth in cash flow from our Domestic Beverage Business, which has turned in a favorable direction. To achieve that, we will work even harder to enhance the appeal of our vending machines by making improvements in three areas— locations, operations, and products.

Next, we will strive for solid improvement of earnings by establishing a business foundation for our International Beverage Business. Within Turkey, already we are working to improve efficiency, including logistics, through rebuilding in the production system, e.g., by relocation of production lines, and promoting restructuring of our sales system.

The third issue is promoting M&A strategies for acquiring one more business domain to serve as a major profit center. Taking “Food and Health” as a theme, we are thinking in particular of targeting the healthcare domain, where we can expect to see synergies with our pharmaceutical-related business, and we will link this with achievement of our mid-term business plan.

Based on the above approach, we will promote initiatives in each business field, and we expect consolidated net sales for FY2017 to increase by 2.4% over the previous year to 175.5 billion yen. Also, operating income is expected to increase by 37.4% over the previous year to 5.3 billion yen due to increased sales in our Domestic Beverage Business and increased earnings in our International Beverage Business. Ordinary income should be 5.2 billion yen, up 39.0% year-on-year. Net income attributable to owners of parent is expected to be 3.0 billion yen, or 8.2% less than the previous year, due to the resolution of extraordinary gains, such as a gain on negative goodwill accompanying acquisition of our Turkish beverage business incurred in the previous year, and a gain on the sale of investments in capital of an affiliated company.

Breakdown by Business

FY2017 Initiatives

Note: Sales by business indicate sales to outside clients

Strategy for C

reating Corporate Value

Strategy for Creating Corporate Value

21 22DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Looking Back on Our Mid-term Business Plan after the First Three Years

Reflecting on the first three years of our mid-term business plan, from its start until FY2016, I believe one major result was that we were able to consolidate a foundation for future growth. In our existing businesses, we are revamping our fixed cost structure and have started deployment of IoT-enabled vending machines, with the aim of innovating with our vending machine business model. (For details, see “Special Feature 1: Taking Up the Challenge of Creating New

Vending Machine Value” on p. 27-28.) Also, in our international business, we are moving into the Islamic regions of Turkey and Malaysia, and have acquired strategic bases for dramatic top line growth in the future.

More than anything else, it is important to foster a corporate culture of taking up challenges, and strengthen our governance system for supporting transparent, fair, quick, and resolute decision-making. We have worked hard in these areas and formed a solid foundation for our group’s growth, which I think is a great achievement.

Through various efforts, we have worked to deepen commitment to our Group Philosophy and Group Vision, and energize in-house communication. As a result, we have steadily nurtured a corporate climate of taking on challenges. I feel that by working to continually improve corporate governance and transitioning—starting this year—to a holding company structure, we have been able take our first step toward dramatic growth in the future. (For details, see “Ongoing Improvements to Corporate Governance” on

p. 37-41.)

Summary of Results for FY2016

Consolidated net sales for FY2016 were 171,401 million yen, up 14.4% over the previous year. Results improved due to favorable sales in our Domestic Beverage Business, and international sales increased due to the effects of M&A. This was also a year where we actively promoted prior investment as groundwork for next-generation growth.

Domestically, we actively invested in advertising and sales promotion to further strengthen the DyDo Blend brand, deployed IoT-enabled vending machines, and took measures to reduce fixed costs of vending machine channels in the future and control rising logistics costs. Internationally, we focused on consolidating a business foundation for dramatic growth in the future, through initiatives such as acquiring new strategic bases in the Islamic region. While our performance in the domestic beverage market was good, our International Beverage Business struggled, and as a result operating income remained at 3,857 million yen, but extraordinary gains were booked, such as a gain on negative goodwill of 494 million yen accompanying acquisition of our Turkish beverage business and a 433 million yen gain on sale of investments in capital of an affiliated company. As a result, net income attributable to parent was 3,269 million yen, 39.3% higher than the previous year.

The Situation of the Domestic Beverage Business, Our Core Business

Sales volume in the Domestic Beverage Business in FY2016 was 4.1% higher than the previous year, exceeding the industry average. Also per-machine sales were previously in a declining trend, due in part to a slump in consumption after the rise in the consumption tax, but in FY2016, the results achieved were almost on a par with the previous year, and thus conditions are moving in a favorable direction toward an improving trend. I feel that, as fostering a corporate culture of taking up challenges has become our foundation, with regard to our mainstay vending machine channels, results due to education of personnel and active use of IT—such as acquiring prime locations, working to maintain our top-class position in operations, and optimizing our product lineups to suit location characteristics, all via a more comprehensive effort to manage sales based on a problem-solving approach—are beginning to mesh well with our merchandise policy.

Business Model Revamping and Corporate Culture Reforms are Progressing, and We Have Laid a Foundation for Growth

Consolidated Business Results for FY2016

Domestic Beverage Business

128,444 million yen

16,457 million yen

8,526 million yen

17,972 million yen

Net sales 171,401 million yen

Operating income 3,857 million yen

Net income attributable to owners of parent

Net sales 3,576 million yen

–876 million yen

Operating income

3,269 million yen

International Beverage Business

Net sales

Operating income

Pharmaceutical-Related Business

Net sales

Operating income

Food Business

Net sales

Operating income

944 million yen

212 million yen

Based on the progress thus far in our mid-term business plan, I think there are three key points where we need to make efforts in FY2017.

First is firming up the trend toward continuous growth in cash flow from our Domestic Beverage Business, which has turned in a favorable direction. To achieve that, we will work even harder to enhance the appeal of our vending machines by making improvements in three areas— locations, operations, and products.

Next, we will strive for solid improvement of earnings by establishing a business foundation for our International Beverage Business. Within Turkey, already we are working to improve efficiency, including logistics, through rebuilding in the production system, e.g., by relocation of production lines, and promoting restructuring of our sales system.

The third issue is promoting M&A strategies for acquiring one more business domain to serve as a major profit center. Taking “Food and Health” as a theme, we are thinking in particular of targeting the healthcare domain, where we can expect to see synergies with our pharmaceutical-related business, and we will link this with achievement of our mid-term business plan.

Based on the above approach, we will promote initiatives in each business field, and we expect consolidated net sales for FY2017 to increase by 2.4% over the previous year to 175.5 billion yen. Also, operating income is expected to increase by 37.4% over the previous year to 5.3 billion yen due to increased sales in our Domestic Beverage Business and increased earnings in our International Beverage Business. Ordinary income should be 5.2 billion yen, up 39.0% year-on-year. Net income attributable to owners of parent is expected to be 3.0 billion yen, or 8.2% less than the previous year, due to the resolution of extraordinary gains, such as a gain on negative goodwill accompanying acquisition of our Turkish beverage business incurred in the previous year, and a gain on the sale of investments in capital of an affiliated company.

Breakdown by Business

FY2017 Initiatives

Note: Sales by business indicate sales to outside clients

Strategy for C

reating Corporate Value

Strategy for Creating Corporate Value

21 22DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

As the simplest indicators of profitability and growth, we have previously used net sales and operating margin as management indicators for each operating company, but in transitioning to a holding company structure, we have newly established ROA and ROIC as indicators of investment efficiency, and we will strengthen group management by clarifying the responsibility and authority of each business.

First, in our Domestic Beverage Business, we will increase net sales and improve profitability in our vending machine business. At the same time, we will shrink assets and realize major improvement in ROIC through reduction of fixed costs relating to vending machine investment. In this way, we hope to drive improvement in efficiency of the group as a whole.

Agile Response to Expansion of Business Domains

To realize sustainable, profitable growth and improved capital efficiency in response to major changes in the business environment, I believe it is also a crucial issue to acquire new business domains with high profitability and growth such as healthcare, using as capital for growth the previous internal reserves and cash newly produced by each group company.

In our holding company, we have developed an organizational structure enabling agile response to M&A strategies, and actively take up the challenge of acquiring new profit centers for our group.

We Will Boost Our Group’s Strength by Further Clarifying Responsibility and Authority through Our Transition to a Holding Company Structure

Purpose of Transition to a Holding Company Structure

Image of Domestic Beverage Business Balance Sheet

Strengthening and Enhancing the Group’s Business Portfolio

Totalassets

DomesticBeverageBusiness

International Beverage Business

Strategicgrowth

investments

Continuousexpansion of cash

flow throughinnovation in the

vendingmachinebusiness

model

ROIC

Growth

Totalassets

Liabilities

Shareholderequity

Shareholderequity

At beginning of FY2017 Image of FY2020

Strengthening and Nurturing the International Beverage Business

I think that strengthening and nurturing our International Beverage Business is an urgent issue for our group. To promote this effectively, we have established an International Business Management Department within the holding company to supervise our international subsidiaries. In this way, we have developed systems for business and risk management, and at the same time strive for optimization of resources to bring out synergies with our Domestic Beverage Business. In the future, by using the strategic bases we have previously acquired in Turkey, Malaysia, Russia, and China, we will work with a sense of urgency to realize dramatic top line growth in international markets, and nurture these operations into businesses which can contribute to our group in terms of profits.

Through these efforts, we will strengthen and expand the business portfolio of the group as a whole, and aim to be a corporate group with high growth, profitability and efficiency.

NewM&A

Driving the group’s managementin the International Beverage Business

Facilitation of partnerships among group companies

Holding company

Support

Dom

estic B

everage B

usiness

China (S

hanghai)

Russia (M

oscow)

Malaysia

Turkey

Management

International Business Management Department

Business managementRisk management( )

Liabilities

Strengthening Group Management

Transition to a Holding Company and Portfolio Management

At our company, we believe it is extremely important to work to improve corporate value through continuous improvement of corporate governance—our system for transparent, fair, quick, and resolute decision-making. Thus far, we have promoted improvement of corporate governance by strengthening our Board of Directors, through steps such as inviting outside directors and reducing the number of directors as defined in the Articles of Incorporation, but in order to achieve further reform, we transitioned to a holding company structure on January 21, 2017.

Function andresource partnership

as support

Role of the International Business Management Department in the Holding Company

Group companies

Optimal allocation of resources

Dom

estic B

everage Business

International B

everage Business

Pharm

aceutical-R

elated B

usiness

Food B

usiness

New

b

usinesses

Profitability Efficiency

Roles of holding company

Roles of group companies

Concentration of capital

Holding company

• Strengthening the group’s brands

• Strengthening the group’s services (sales capabilities and vending machines)

• Optimizing costs

• Making strategic business investments

• Optimal allocation of resources

• Strengthening and expanding the group’s portfolio of businesses

• Optimizing the group’s balance sheet

Domestic Beverage Business• Shrinking vending machine

assets• Improving asset turnover

ratio

Pharmaceutical-Related Business / Food Business / International Beverage Business• Improving plant operation

ratio

• Increasing net sales and improving profitability through innovation in the vending machine business model

• Shrinking assets and achieving continuous improvement in the asset turnover ratio by cutting vending machine fixed costs

• Strengthening group management

• Agile response to expansion of business domains

• Strengthening and nurturing the International Beverage Business

Investments in expanding the

group’s business domains

Cultivation ofbusiness

Creation of synergieswith the DomesticBeverage Business

Strategy for C

reating Corporate Value

Strategy for Creating Corporate Value

23 24DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

As the simplest indicators of profitability and growth, we have previously used net sales and operating margin as management indicators for each operating company, but in transitioning to a holding company structure, we have newly established ROA and ROIC as indicators of investment efficiency, and we will strengthen group management by clarifying the responsibility and authority of each business.

First, in our Domestic Beverage Business, we will increase net sales and improve profitability in our vending machine business. At the same time, we will shrink assets and realize major improvement in ROIC through reduction of fixed costs relating to vending machine investment. In this way, we hope to drive improvement in efficiency of the group as a whole.

Agile Response to Expansion of Business Domains

To realize sustainable, profitable growth and improved capital efficiency in response to major changes in the business environment, I believe it is also a crucial issue to acquire new business domains with high profitability and growth such as healthcare, using as capital for growth the previous internal reserves and cash newly produced by each group company.

In our holding company, we have developed an organizational structure enabling agile response to M&A strategies, and actively take up the challenge of acquiring new profit centers for our group.

We Will Boost Our Group’s Strength by Further Clarifying Responsibility and Authority through Our Transition to a Holding Company Structure

Purpose of Transition to a Holding Company Structure

Image of Domestic Beverage Business Balance Sheet

Strengthening and Enhancing the Group’s Business Portfolio

Totalassets

DomesticBeverageBusiness

International Beverage Business

Strategicgrowth

investments

Continuousexpansion of cash

flow throughinnovation in the

vendingmachinebusiness

model

ROIC

Growth

Totalassets

Liabilities

Shareholderequity

Shareholderequity

At beginning of FY2017 Image of FY2020

Strengthening and Nurturing the International Beverage Business

I think that strengthening and nurturing our International Beverage Business is an urgent issue for our group. To promote this effectively, we have established an International Business Management Department within the holding company to supervise our international subsidiaries. In this way, we have developed systems for business and risk management, and at the same time strive for optimization of resources to bring out synergies with our Domestic Beverage Business. In the future, by using the strategic bases we have previously acquired in Turkey, Malaysia, Russia, and China, we will work with a sense of urgency to realize dramatic top line growth in international markets, and nurture these operations into businesses which can contribute to our group in terms of profits.

Through these efforts, we will strengthen and expand the business portfolio of the group as a whole, and aim to be a corporate group with high growth, profitability and efficiency.

NewM&A

Driving the group’s managementin the International Beverage Business

Facilitation of partnerships among group companies

Holding company

Support

Dom

estic B

everage B

usiness

China (S

hanghai)

Russia (M

oscow)

Malaysia

Turkey

Management

International Business Management Department

Business managementRisk management( )

Liabilities

Strengthening Group Management

Transition to a Holding Company and Portfolio Management

At our company, we believe it is extremely important to work to improve corporate value through continuous improvement of corporate governance—our system for transparent, fair, quick, and resolute decision-making. Thus far, we have promoted improvement of corporate governance by strengthening our Board of Directors, through steps such as inviting outside directors and reducing the number of directors as defined in the Articles of Incorporation, but in order to achieve further reform, we transitioned to a holding company structure on January 21, 2017.

Function andresource partnership

as support

Role of the International Business Management Department in the Holding Company

Group companies

Optimal allocation of resources

Dom

estic B

everage Business

International B

everage Business

Pharm

aceutical-R

elated B

usiness

Food B

usiness

New

b

usinesses

Profitability Efficiency

Roles of holding company

Roles of group companies

Concentration of capital

Holding company

• Strengthening the group’s brands

• Strengthening the group’s services (sales capabilities and vending machines)

• Optimizing costs

• Making strategic business investments

• Optimal allocation of resources

• Strengthening and expanding the group’s portfolio of businesses

• Optimizing the group’s balance sheet

Domestic Beverage Business• Shrinking vending machine

assets• Improving asset turnover

ratio

Pharmaceutical-Related Business / Food Business / International Beverage Business• Improving plant operation

ratio

• Increasing net sales and improving profitability through innovation in the vending machine business model

• Shrinking assets and achieving continuous improvement in the asset turnover ratio by cutting vending machine fixed costs

• Strengthening group management

• Agile response to expansion of business domains

• Strengthening and nurturing the International Beverage Business

Investments in expanding the

group’s business domains

Cultivation ofbusiness

Creation of synergieswith the DomesticBeverage Business

Strategy for C

reating Corporate Value

Strategy for Creating Corporate Value

23 24DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Approach to Personnel Training

We are a company that has always placed our primary focus on domestic business, but as we expand our business into new domains, including international business, I believe it is crucial to secure human resources. We train personnel to drive the next generation by accumulating a wide range of knowledge and experience in-house, while also utilizing various types of personnel from outside the company and personnel with high skill levels. Previously, we have promoted reform of corporate culture in our domestic business, but going forward, we will foster shared values in our international business as well, and strive for deeper commitment throughout the group to a corporate culture of taking up challenges.

Approach to Returns to Shareholders

I believe that the current stage of our company is a time requiring investment for further development as a group, and we will allocate internal reserves with high priority to strategic business investment. Regarding returns to shareholders, we will maintain stable dividends for the time being, and aim to increase dividends over the medium to long term by realizing sustainable, profitable growth while taking into account the balance with effective use of capital and maintaining fiscal soundness.

Striving to be a Perpetually Developing Corporate Group, Taking Achievement of the Mid-term Business Plan as a Milestone

To be a Perpetually Developing Corporate Group

The environment surrounding the beverage industry is undergoing major changes, and our group too is at a major turning point, but I believe it is precisely times of change like these that present the greatest opportunities. We are accelerating efforts toward reform and strive to be a perpetually developing corporate group, taking the achievement of our mid-term business plan as one milestone.

Realizing sustainable,profitable growth

Returns to shareholders

Establishing a new businessfoundation via

strategic investment

Effective use of capital

Improving cash creationcapacity in existing businesses

Maintaining fiscalsoundness

FY2016

Dividend payout ratio

Dividends per share yen60 %30.4

Efforts To Create Corporate Value

1 Domestic Beverage Businessp. 27

p. 30

p. 31

p. 32

SpecialFeature

2SpecialFeature

3SpecialFeature

4SpecialFeature

p. 29

Challenge to grow existing businesses

International Beverage Business

Challenge to expand overseas businesses

Pharmaceutical-Related Business

Challenge to grow existing businesses

Food Business

Challenge to grow existing businesses

Domestic Beverage Business

Challenge to enhance product strength

26DyDo Group Holdings Integrated Report 2017

Strategy for Creating Corporate Value

25 DyDo Group Holdings Integrated Report 2017

Approach to Personnel Training

We are a company that has always placed our primary focus on domestic business, but as we expand our business into new domains, including international business, I believe it is crucial to secure human resources. We train personnel to drive the next generation by accumulating a wide range of knowledge and experience in-house, while also utilizing various types of personnel from outside the company and personnel with high skill levels. Previously, we have promoted reform of corporate culture in our domestic business, but going forward, we will foster shared values in our international business as well, and strive for deeper commitment throughout the group to a corporate culture of taking up challenges.

Approach to Returns to Shareholders

I believe that the current stage of our company is a time requiring investment for further development as a group, and we will allocate internal reserves with high priority to strategic business investment. Regarding returns to shareholders, we will maintain stable dividends for the time being, and aim to increase dividends over the medium to long term by realizing sustainable, profitable growth while taking into account the balance with effective use of capital and maintaining fiscal soundness.

Striving to be a Perpetually Developing Corporate Group, Taking Achievement of the Mid-term Business Plan as a Milestone

To be a Perpetually Developing Corporate Group

The environment surrounding the beverage industry is undergoing major changes, and our group too is at a major turning point, but I believe it is precisely times of change like these that present the greatest opportunities. We are accelerating efforts toward reform and strive to be a perpetually developing corporate group, taking the achievement of our mid-term business plan as one milestone.

Realizing sustainable,profitable growth

Returns to shareholders

Establishing a new businessfoundation via

strategic investment

Effective use of capital

Improving cash creationcapacity in existing businesses

Maintaining fiscalsoundness

FY2016

Dividend payout ratio

Dividends per share yen60 %30.4

Efforts To Create Corporate Value

1 Domestic Beverage Businessp. 27

p. 30

p. 31

p. 32

SpecialFeature

2SpecialFeature

3SpecialFeature

4SpecialFeature

ActivitiesActivitiesActivitiesActivities

Challenge theChallenge theChallenge theChallenge theNext StageNext StageNext StageNext StageNext StageNext Stage

p. 29

Challenge to grow existing businesses

International Beverage Business

Challenge to expand overseas businesses

Pharmaceutical-Related Business

Challenge to grow existing businesses

Food Business

Challenge to grow existing businesses

Domestic Beverage Business

Challenge to enhance product strength

26DyDo Group Holdings Integrated Report 2017

Strategy for Creating Corporate Value

25 DyDo Group Holdings Integrated Report 2017

Toward Continuous Growth in Cash Flow

Taking Up the Challenge of Creating New Vending Machine Value

Vending Machine Recycling Business Model

As a specific effort to reduce the environmental impact of vending machines, we are working to extend the lifespan of each machine. A vending machine is composed of multiple parts, with external cabinet parts constantly in contact with the outside environment as well as internal parts such as those for cooling and heating and shelves for loading drinks, and the speed of wear differs for each. Thus, at DyDo DRINCO, we inspect and disassemble vending machines which have finished their conventional lifespans, and, by combining old parts such as rejuvenated doors and racks with the latest energy-saving units, bring them back to life as machines with like-new energy-saving features. We call these vending machines which realize this extended lifespan “Frontier Vendors,” and they simultaneously reduce both environmental impact and costs.

The ability to stably generate cash in our core Domestic Beverage Business is a major strength of our group. Going forward, we will strive to produce capital for further growth of our group, and to achieve that we will greatly reduce fixed costs by using technical innovations for lowering the environmental impact of vending machines, and allocate the cost savings from those efforts to aggressive IoT investment aimed at an increase in per-machine sales. In this way, we will meet the challenge of business model innovation and continuous growth in cash flow.

Step 1

Step 2

Step 3 Step 4

Step

1

2018

Free cash flow

Vend

ing machine

investment

20162014

Achieving both eco-friendliness and cost reductionFull-scale deployment of “Frontier Vendors”

FY2018 free cash flow

Improvement of approx. 6 billion yen or more from FY2014

• Talking feature

• Smile STAND

FY2018 consumption of steel resources

Top linegrowth

Reduction in number of discarded machines

Recycling• Iron, copper, etc.

Proper waste disposal• CFCs, etc.

Reduction of approx. 25% from FY2014

Efforts to Reduce Environmental ImpactStep

2 Continuous Growth of Cash Flow

Step

3

Vending machines already function as social infrastructure, providing drinks 24 hours a day, 365 days a year, but we are looking at providing services to make the lives of our customers richer in a wide range of fields, beyond just the sale of drinks, through innovation in our vending machine business model. Going forward, we will accelerate these efforts to make vending machines an essential part of social infrastructure.

Vending Machines as Social Infrastructure

Through aggressive IoT investment, DyDo DRINCO is strongly promoting efforts to enter the platform business using vending machines and strives to maximize the value of the vending machines which are a major asset of our group.

In 2016, we started a service using the “DyDo Smile STAND” smartphone app, and we are working to retain consumers by featuring content such as point exchange services and games that are popular among the younger generation. As the next step, we will go beyond simple sales promotion measures and transition from vending machines where people just buy drinks to machines which are bases for disseminating information, and thereby create “a new way for consumers and vending machines to interact.” This will be achieved by using app users’ purchasing data for marketing, and eventually making 150,000 of our vending machines nationwide into IoT platforms. As for the vending machine market, which has been regarded as a mature market for a long time, at DyDo DRINCO we are

Toward Creation of New Vending Machine Value

Step

4

*Years of depreciation for vending machines: 5 years

working to continuously grow our cash flow by breaking out of the existing framework, innovating our vending machine business model, and creating new value as social infrastructure.

Concept of Vending Machine Reconditioning

Usedvending machine

Newenergy-saving

unit

FrontierVendor

In addition to lengthening the lifespan of existing vending machines, we are working to reduce fixed costs, while maintaining the same number of machines in use, by reducing procurement costs for new machines.

Capital expenditure for the Domestic Beverage Business in FY2016 was 6.8 billion yen, a drop of 2.5 billion yen from the previous year. Through these efforts we will steadily reduce depreciation costs for vending machines every year over the five years* from FY2016 to FY2020. By allocating the savings from these efforts to aggressive IoT investment, we expect to achieve an increase in per-machine sales and steady improvement every year in profit.

Vending machines are an important asset for our Domestic Beverage Business, which is our core business, and most of our capital investment goes into vending machines. We have introduced a number of unique and novel types of vending machines to date, including vending machines with a roulette feature for winning an extra drink for free, vending machines that talk, and vending machines that allow consumers to collect points. At present we are taking measures to make vending machines more eco-friendly, including vastly reducing the procurement costs per machine and lengthening their lifespans. These are innovative efforts that only a company like DyDo could accomplish, as vending machines are part of our core business. We aim to further heighten the appeal of our vending machines, maximizing their value, with the aim of getting customers to equate DyDo with vending machines.

The vending machine channel is our primary, core channel for our Domestic Beverage Business. To date we have created many unique features that distinguish our vending machines from those of other companies. We have continued innovating further, releasing the “Smile STAND” smartphone app and service that turns a vending machine from a simple drink dispenser into an information center. We currently provide a point system for electronically collecting points that can be used for a variety of services, and now we are promoting the downloading of this app to make more services available, aiming to increase the fun and excitement of our vending machines. In the future we plan to utilize this network of vending machines to develop other businesses. This will allow us to create new value and further distinguish our vending machines from those of other companies.

Using Our Vending Machine Network to Further Distinguish DyDoMessageAiming for Customers to Equate DyDo with

Vending MachinesMessage

(3) Per-machine performance results(2) Increase in IoT costs(1) Depreciation cost reduction results

5

4

3

2

1

0

-1

-2

(billion yen)

IoT costs will remain flat from FY2017 onward

FY2016

FY2017

Results of (3)

Results of (1) + (2)

Improvement in Profit in the Domestic Beverage Business(Compared to FY2015)

Reduction of environmental impact Aggressive IoT investment Business model innovation

Continuous growth of cash flow

1SpecialFeature

Domestic Beverage Business

Challenge to grow existing businesses

Reconditioned as a vending machine with like-new energy- saving features

Energy-saving unit equipped with new compressor, etc.

Rejuvenated parts such as doors and racks

Takanori NakashimaDirector, Executive OfficerDirector of Vending Machine Sales Division and General Manager of Vending Machine Sales Planning DepartmentDyDo DRINCO, Inc.

Newly equipped with cooling equipment incorporating energy-saving features

• Rejuvenate more than 50% of vending machine parts and reuse

• Reduce per-machine cost while maintaining the number of newly launched machines

Creating new ways to connect people, society, and vending machines

Katsuji KasaiDirector, Executive OfficerGeneral Manager of Corporate Strategy DepartmentDyDo DRINCO, Inc.

Efforts to C

reate Corporate Value

Efforts to Create Corporate Value

27 28DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Toward Continuous Growth in Cash Flow

Taking Up the Challenge of Creating New Vending Machine Value

Vending Machine Recycling Business Model

As a specific effort to reduce the environmental impact of vending machines, we are working to extend the lifespan of each machine. A vending machine is composed of multiple parts, with external cabinet parts constantly in contact with the outside environment as well as internal parts such as those for cooling and heating and shelves for loading drinks, and the speed of wear differs for each. Thus, at DyDo DRINCO, we inspect and disassemble vending machines which have finished their conventional lifespans, and, by combining old parts such as rejuvenated doors and racks with the latest energy-saving units, bring them back to life as machines with like-new energy-saving features. We call these vending machines which realize this extended lifespan “Frontier Vendors,” and they simultaneously reduce both environmental impact and costs.

The ability to stably generate cash in our core Domestic Beverage Business is a major strength of our group. Going forward, we will strive to produce capital for further growth of our group, and to achieve that we will greatly reduce fixed costs by using technical innovations for lowering the environmental impact of vending machines, and allocate the cost savings from those efforts to aggressive IoT investment aimed at an increase in per-machine sales. In this way, we will meet the challenge of business model innovation and continuous growth in cash flow.

Step 1

Step 2

Step 3 Step 4

Step

1

2018

Free cash flow

Vend

ing machine

investment

20162014

Achieving both eco-friendliness and cost reductionFull-scale deployment of “Frontier Vendors”

FY2018 free cash flow

Improvement of approx. 6 billion yen or more from FY2014

• Talking feature

• Smile STAND

FY2018 consumption of steel resources

Top linegrowth

Reduction in number of discarded machines

Recycling• Iron, copper, etc.

Proper waste disposal• CFCs, etc.

Reduction of approx. 25% from FY2014

Efforts to Reduce Environmental ImpactStep

2 Continuous Growth of Cash Flow

Step

3

Vending machines already function as social infrastructure, providing drinks 24 hours a day, 365 days a year, but we are looking at providing services to make the lives of our customers richer in a wide range of fields, beyond just the sale of drinks, through innovation in our vending machine business model. Going forward, we will accelerate these efforts to make vending machines an essential part of social infrastructure.

Vending Machines as Social Infrastructure

Through aggressive IoT investment, DyDo DRINCO is strongly promoting efforts to enter the platform business using vending machines and strives to maximize the value of the vending machines which are a major asset of our group.

In 2016, we started a service using the “DyDo Smile STAND” smartphone app, and we are working to retain consumers by featuring content such as point exchange services and games that are popular among the younger generation. As the next step, we will go beyond simple sales promotion measures and transition from vending machines where people just buy drinks to machines which are bases for disseminating information, and thereby create “a new way for consumers and vending machines to interact.” This will be achieved by using app users’ purchasing data for marketing, and eventually making 150,000 of our vending machines nationwide into IoT platforms. As for the vending machine market, which has been regarded as a mature market for a long time, at DyDo DRINCO we are

Toward Creation of New Vending Machine Value

Step

4

*Years of depreciation for vending machines: 5 years

working to continuously grow our cash flow by breaking out of the existing framework, innovating our vending machine business model, and creating new value as social infrastructure.

Concept of Vending Machine Reconditioning

Usedvending machine

Newenergy-saving

unit

FrontierVendor

In addition to lengthening the lifespan of existing vending machines, we are working to reduce fixed costs, while maintaining the same number of machines in use, by reducing procurement costs for new machines.

Capital expenditure for the Domestic Beverage Business in FY2016 was 6.8 billion yen, a drop of 2.5 billion yen from the previous year. Through these efforts we will steadily reduce depreciation costs for vending machines every year over the five years* from FY2016 to FY2020. By allocating the savings from these efforts to aggressive IoT investment, we expect to achieve an increase in per-machine sales and steady improvement every year in profit.

Vending machines are an important asset for our Domestic Beverage Business, which is our core business, and most of our capital investment goes into vending machines. We have introduced a number of unique and novel types of vending machines to date, including vending machines with a roulette feature for winning an extra drink for free, vending machines that talk, and vending machines that allow consumers to collect points. At present we are taking measures to make vending machines more eco-friendly, including vastly reducing the procurement costs per machine and lengthening their lifespans. These are innovative efforts that only a company like DyDo could accomplish, as vending machines are part of our core business. We aim to further heighten the appeal of our vending machines, maximizing their value, with the aim of getting customers to equate DyDo with vending machines.

The vending machine channel is our primary, core channel for our Domestic Beverage Business. To date we have created many unique features that distinguish our vending machines from those of other companies. We have continued innovating further, releasing the “Smile STAND” smartphone app and service that turns a vending machine from a simple drink dispenser into an information center. We currently provide a point system for electronically collecting points that can be used for a variety of services, and now we are promoting the downloading of this app to make more services available, aiming to increase the fun and excitement of our vending machines. In the future we plan to utilize this network of vending machines to develop other businesses. This will allow us to create new value and further distinguish our vending machines from those of other companies.

Using Our Vending Machine Network to Further Distinguish DyDoMessageAiming for Customers to Equate DyDo with

Vending MachinesMessage

(3) Per-machine performance results(2) Increase in IoT costs(1) Depreciation cost reduction results

5

4

3

2

1

0

-1

-2

(billion yen)

IoT costs will remain flat from FY2017 onward

FY2016

FY2017

Results of (3)

Results of (1) + (2)

Improvement in Profit in the Domestic Beverage Business(Compared to FY2015)

Reduction of environmental impact Aggressive IoT investment Business model innovation

Continuous growth of cash flow

1SpecialFeature

Domestic Beverage Business

Challenge to grow existing businesses

Reconditioned as a vending machine with like-new energy- saving features

Energy-saving unit equipped with new compressor, etc.

Rejuvenated parts such as doors and racks

Takanori NakashimaDirector, Executive OfficerDirector of Vending Machine Sales Division and General Manager of Vending Machine Sales Planning DepartmentDyDo DRINCO, Inc.

Newly equipped with cooling equipment incorporating energy-saving features

• Rejuvenate more than 50% of vending machine parts and reuse

• Reduce per-machine cost while maintaining the number of newly launched machines

Creating new ways to connect people, society, and vending machines

Katsuji KasaiDirector, Executive OfficerGeneral Manager of Corporate Strategy DepartmentDyDo DRINCO, Inc.

Efforts to C

reate Corporate Value

Efforts to Create Corporate Value

27 28DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Expanding Sales Channels for the DyDo Blend Brand

Carefully Selected Coffee Beans and Pursuit of the Perfect Blend

Striving to be the Top Canned Coffee BrandMoving into the International Market with its High Growth Potential

Realizing Sustained Growth by Strengthening and Nurturing International Business

Initiatives in Turkey

Our business in Turkey, where we entered through M&A of a local company in 2016, has the sales scope to become the core of our group’s international business. In FY2016, the first fiscal year of our move into Turkey, our operations were affected by the sudden weakening of the lira, particularly from the fourth quarter, and prices of imported raw materials such as PET bottles soared, resulting in a major impact on our business results. In the current environment, severe conditions will likely continue, but the Turkish market has an extremely high percentage of young people as a fraction of the total population, and the population will likely increase further in the future. Therefore our view remains unchanged that this is a promising market where we can anticipate growth over the medium to long term.

Under these conditions, we are working this term to strengthen our sales system and focus on core brands, and thereby raise the distribution rate, improve the existence value of our brand in the market, and boost the efficiency of sales promotion through brand concentration and selection. In terms of manufacturing, we have finished relocating our fruit juice production lines to CSD*1 plants in the north and south so we can efficiently cover a broad area of the country, and we are starting operations with a system allowing greater efficiency of production and distribution through improvement in the operating rate of plants.

Furthermore, in the medium to long term, we are aiming for growth outpacing the market by creating new drink categories in Turkey. While the Turkish people are accustomed to drinking beverages such as coffee and black tea, the current beverage market in Turkey is made up of comparatively simple

Our group is accelerating expansion into the international market, with its high growth potential, in order to realize sustained growth. In the Islamic region, which we have been targeting since the formulation of our current mid-term business plan, we acquired strategic bases in Malaysia in the east in December 2015, and in Turkey in the west in February 2016. We are strengthening and nurturing our international business in order to achieve dramatic top line growth.

categories such as water, cola, carbonated drinks, and fruit juices, and RTD*2 beverages such as coffee and black tea are almost never commercialized. For this reason, we believe there is high future potential for market growth, a higher rate of valuable drinks, and creation of new drink categories. By deploying products exploiting the know-how our group has cultivated in Japan, we will strive for growth outpacing the market, and take up challenges with an eye toward expanding into the EU region in the future with Turkey as our base.

*1 CSD: Carbonated Soft Drinks*2 RTD: Ready-to-Drink, beverages that can be drunk as-is soon after

opening the lid

Strengthening the DyDo Blend Brand

DyDo Blend was developed using carefully selected coffee beans and through meticulous attention to blending techniques, and we continue our pursuit to bring out the natural taste of coffee and pride ourselves on being a canned coffee without flavoring agents. The brand value of DyDo Blend and the support of our customers over the long term are the sources of the stable cash flow of our group. Going forward, we will further improve the brand strength of DyDo Blend, a major asset of our group, and strive to be the top brand in the canned coffee category.

In recent years, due to the acceleration of store openings by café chains and the popularization of brewed coffee at convenience stores, the trend in overall coffee consumption in Japan has been increasing. The customer base has broadened to women and young consumers, and styles of coffee drinking have diversified. Against this backdrop, canned coffee culture has changed. On top of the previous style where men drank coffee quickly for refreshment during breaks at work, customers now also want to be able to cap their coffee, and drink it slowly over a longer period of time. In 2014, we began sales of slightly sweetened coffee with added milk in a bottle-shaped can. This was an effort to broaden a market with many sugar-free black coffees.

A program of mutual sales of products in vending machines with Kirin Beverage Co., Ltd., started in April 2016, is helping to improve product brand strength by expanding sales channels for the DyDo Blend brand and increasing points of

Working Toward Securing Younger Consumers

In the canned coffee market, bottle-shaped cans are in a growing trend, but SOT* cans still remain the premium market segment. DyDo DRINCO is also launching products for the younger segment in this genre in order to cultivate core future consumers of canned coffee. DyDo Blend UMAMI Blend, which went on sale in February 2016, is a product which brings out the “UMAMI” (savory flavor) of coffee, by using not only the coffee bean but also the flesh of the coffee fruit, and adding the faint sweetness of the fruit to the richness of the bean. In FY2016, we conducted some trials among young consumers, and in transitioning to FY2017, we will newly launch a sweetened black iced coffee, and adopt a new package design highlighting the “UMAMI.” In this way, we will step up to the challenge of acquiring more young consumers, and expand the market for canned coffee by revitalizing the SOT can.

*Pete Licata, 14th World Barista Championship winner

*Pete Licata, 14th World Barista Championship winner

contact with customers. We will further improve product appeal within vending machines by broadening the products subject to the FY2017 mutual vending machine sales to the two bottle-shaped can coffees in the DyDo Blend, Supervised by the World’s Top Barista* Series.

DyDo Blend is a blend of more than five types of coffee beans that produce a delicious taste without the use of any flavoring agents. It is the brand that embodies our spirit of challenge. Coffee beans come in many varieties and from many different regions. Combined with varying degrees of roasting, there are infinite possibilities for producing a tasty coffee. Because of our advanced blending technologies, we are able to go the extra mile to find tastes that suit our customers’ needs over time. Since the release of our Supervised by the World’s Top Barista* series and our UMAMI Blend, we have steadily been gaining new customers. As customers acquire a better understanding of the value of the blend, we hope to expand our fan base for the DyDo Blend brand to make it the top brand in canned coffee.

Bringing High DyDo Standards to Overseas MarketsMessageAiming to be the Top Brand in Canned CoffeeMessage

Our International Beverage Business is growing in importance, becoming critical to further corporate development. While sales and profit growth outside of Japan are important, we also consider it our mission to communicate the excellence of DyDo and get customers to resonate with DyDo’s principles in their quest for high-quality beverages. There is a strong interest in health in the countries where our group companies sell beverages—Russia (Moscow), Turkey, and Malaysia—and there is a growing cultural trend toward safe and reliable products. By getting people to recognize DyDo’s high standards, we can grow along with our distributors. Toward that end we are making every effort to boost the presence of DyDo’s overseas business in the group as a whole.

Turkey

Products: CSD, fruit juice, iced tea

Hendek

Akyazı

Products: Mineral water(without gas)

PamukovaProducts: Fruit juice

KarabükProducts: Mineral water

(with gas)

Relocation of Pamukova’s fruit juice production line

AdanaProducts: CSD, fruit juice

Plant Locations and Products Produced

1SpecialFeature

Domestic Beverage Business

Challenge to enhance product strength

2SpecialFeature

International Beverage Business

Challenge to expand overseas businesses

*SOT (Stay-on-Tab): Cans frequently used for coffee, juice and other beverages in which the tab remains attached to the can after opening

Akito NakaiExecutive OfficerDeputy Director of Marketing Division and General Manager of Marketing DepartmentDyDo DRINCO, Inc.

Mamoru MitamuraExecutive OfficerGeneral Manager of International Business Management DepartmentDyDo Group Holdings, Inc.

Efforts to C

reate Corporate Value

Efforts to Create Corporate Value

29 30DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Expanding Sales Channels for the DyDo Blend Brand

Carefully Selected Coffee Beans and Pursuit of the Perfect Blend

Striving to be the Top Canned Coffee BrandMoving into the International Market with its High Growth Potential

Realizing Sustained Growth by Strengthening and Nurturing International Business

Initiatives in Turkey

Our business in Turkey, where we entered through M&A of a local company in 2016, has the sales scope to become the core of our group’s international business. In FY2016, the first fiscal year of our move into Turkey, our operations were affected by the sudden weakening of the lira, particularly from the fourth quarter, and prices of imported raw materials such as PET bottles soared, resulting in a major impact on our business results. In the current environment, severe conditions will likely continue, but the Turkish market has an extremely high percentage of young people as a fraction of the total population, and the population will likely increase further in the future. Therefore our view remains unchanged that this is a promising market where we can anticipate growth over the medium to long term.

Under these conditions, we are working this term to strengthen our sales system and focus on core brands, and thereby raise the distribution rate, improve the existence value of our brand in the market, and boost the efficiency of sales promotion through brand concentration and selection. In terms of manufacturing, we have finished relocating our fruit juice production lines to CSD*1 plants in the north and south so we can efficiently cover a broad area of the country, and we are starting operations with a system allowing greater efficiency of production and distribution through improvement in the operating rate of plants.

Furthermore, in the medium to long term, we are aiming for growth outpacing the market by creating new drink categories in Turkey. While the Turkish people are accustomed to drinking beverages such as coffee and black tea, the current beverage market in Turkey is made up of comparatively simple

Our group is accelerating expansion into the international market, with its high growth potential, in order to realize sustained growth. In the Islamic region, which we have been targeting since the formulation of our current mid-term business plan, we acquired strategic bases in Malaysia in the east in December 2015, and in Turkey in the west in February 2016. We are strengthening and nurturing our international business in order to achieve dramatic top line growth.

categories such as water, cola, carbonated drinks, and fruit juices, and RTD*2 beverages such as coffee and black tea are almost never commercialized. For this reason, we believe there is high future potential for market growth, a higher rate of valuable drinks, and creation of new drink categories. By deploying products exploiting the know-how our group has cultivated in Japan, we will strive for growth outpacing the market, and take up challenges with an eye toward expanding into the EU region in the future with Turkey as our base.

*1 CSD: Carbonated Soft Drinks*2 RTD: Ready-to-Drink, beverages that can be drunk as-is soon after

opening the lid

Strengthening the DyDo Blend Brand

DyDo Blend was developed using carefully selected coffee beans and through meticulous attention to blending techniques, and we continue our pursuit to bring out the natural taste of coffee and pride ourselves on being a canned coffee without flavoring agents. The brand value of DyDo Blend and the support of our customers over the long term are the sources of the stable cash flow of our group. Going forward, we will further improve the brand strength of DyDo Blend, a major asset of our group, and strive to be the top brand in the canned coffee category.

In recent years, due to the acceleration of store openings by café chains and the popularization of brewed coffee at convenience stores, the trend in overall coffee consumption in Japan has been increasing. The customer base has broadened to women and young consumers, and styles of coffee drinking have diversified. Against this backdrop, canned coffee culture has changed. On top of the previous style where men drank coffee quickly for refreshment during breaks at work, customers now also want to be able to cap their coffee, and drink it slowly over a longer period of time. In 2014, we began sales of slightly sweetened coffee with added milk in a bottle-shaped can. This was an effort to broaden a market with many sugar-free black coffees.

A program of mutual sales of products in vending machines with Kirin Beverage Co., Ltd., started in April 2016, is helping to improve product brand strength by expanding sales channels for the DyDo Blend brand and increasing points of

Working Toward Securing Younger Consumers

In the canned coffee market, bottle-shaped cans are in a growing trend, but SOT* cans still remain the premium market segment. DyDo DRINCO is also launching products for the younger segment in this genre in order to cultivate core future consumers of canned coffee. DyDo Blend UMAMI Blend, which went on sale in February 2016, is a product which brings out the “UMAMI” (savory flavor) of coffee, by using not only the coffee bean but also the flesh of the coffee fruit, and adding the faint sweetness of the fruit to the richness of the bean. In FY2016, we conducted some trials among young consumers, and in transitioning to FY2017, we will newly launch a sweetened black iced coffee, and adopt a new package design highlighting the “UMAMI.” In this way, we will step up to the challenge of acquiring more young consumers, and expand the market for canned coffee by revitalizing the SOT can.

*Pete Licata, 14th World Barista Championship winner

*Pete Licata, 14th World Barista Championship winner

contact with customers. We will further improve product appeal within vending machines by broadening the products subject to the FY2017 mutual vending machine sales to the two bottle-shaped can coffees in the DyDo Blend, Supervised by the World’s Top Barista* Series.

DyDo Blend is a blend of more than five types of coffee beans that produce a delicious taste without the use of any flavoring agents. It is the brand that embodies our spirit of challenge. Coffee beans come in many varieties and from many different regions. Combined with varying degrees of roasting, there are infinite possibilities for producing a tasty coffee. Because of our advanced blending technologies, we are able to go the extra mile to find tastes that suit our customers’ needs over time. Since the release of our Supervised by the World’s Top Barista* series and our UMAMI Blend, we have steadily been gaining new customers. As customers acquire a better understanding of the value of the blend, we hope to expand our fan base for the DyDo Blend brand to make it the top brand in canned coffee.

Bringing High DyDo Standards to Overseas MarketsMessageAiming to be the Top Brand in Canned CoffeeMessage

Our International Beverage Business is growing in importance, becoming critical to further corporate development. While sales and profit growth outside of Japan are important, we also consider it our mission to communicate the excellence of DyDo and get customers to resonate with DyDo’s principles in their quest for high-quality beverages. There is a strong interest in health in the countries where our group companies sell beverages—Russia (Moscow), Turkey, and Malaysia—and there is a growing cultural trend toward safe and reliable products. By getting people to recognize DyDo’s high standards, we can grow along with our distributors. Toward that end we are making every effort to boost the presence of DyDo’s overseas business in the group as a whole.

Sakarya

Turkey

Products: CSD, fruit juice, iced tea

Hendek

Akyazı

Products: Mineral water(without gas)

PamukovaProducts: Fruit juice

KarabükProducts: Mineral water

(with gas)

Relocation of Pamukova’s fruit juice production line

AdanaProducts: CSD, fruit juice

Karabük

Adana

Plant Locations and Products Produced

1SpecialFeature

Domestic Beverage Business

Challenge to enhance product strength

2SpecialFeature

International Beverage Business

Challenge to expand overseas businesses

*SOT (Stay-on-Tab): Cans frequently used for coffee, juice and other beverages in which the tab remains attached to the can after opening

Akito NakaiExecutive OfficerDeputy Director of Marketing Division and General Manager of Marketing DepartmentDyDo DRINCO, Inc.

Mamoru MitamuraExecutive OfficerGeneral Manager of International Business Management DepartmentDyDo Group Holdings, Inc.

Efforts to C

reate Corporate Value

Efforts to Create Corporate Value

29 30DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Strict Quality Control and Quality Assurance Systems that Earn the Trust of Business Partners

DAIDO Pharmaceutical Corporation is engaged in the OEM (contract manufacturing) business for drinkable preparations, and as a top-class contract manufacturer, we are highly regarded by the major pharmaceutical, cosmetics, and health food manufacturers which are our business partners. This is due to our outstanding development capabilities, safe and secure production system, our quality control system for ensuring high product quality, and our quality assurance system for ensuring manufacturing quality before and during the manufacturing process. Naturally, we maintain the required high levels of quality, and our stance of maintaining and improving quality beyond requirements helps us to earn the complete trust of our business partners.

Earning the Trust of Business Partners with Reliability that Exceeds Safety

Thorough quality control begins with the water that is the raw material of our drinkable preparations. Our plants are sited at locations with a good natural environment and we use high-quality groundwater. In the process of turning this groundwater into purified water, we perform quality inspections three times per day based on our unique inspection chart. In this and other ways, we ensure total commitment to the safety of the raw materials we use. In addition, we perform stringent quality control of raw materials through quantitative testing of components as well as microbial testing of each received lot to check for contamination.

Quickly Bringing Products with High Added Value to Market

Maintaining the No. 1 Market Share by an Overwhelming Margin

We Continue to Propose Ways to Enjoy Fruit that Suit the Needs of the Times

One of the mottos which Tarami cherishes as part of its corporate philosophy is “two-way communication between customer needs and product seeds.” Product development responsive to customer needs that change with the times begins by listening carefully to the views of consumers and retailers, and actively perceiving trends and tastes regarding fruit ingredients.

On the other hand, “seeds” refers to “seeds of ideas” accumulated in-house at Tarami. At Tarami, we carry out research and development every day in pursuit of new ingredients and textures. Naturally, we research fruits from around the world as ingredients, and our developers seek out new possibilities by taste testing any sort of food product which uses fruit. Precisely because we accumulate these ideas, we can speedily realize commercialization when signs appear that a new trend is surfacing in customer tastes.

Even if we have “seeds” (of ideas), these won’t result in sales if there are no customer needs, and in the opposite case, the customer will not be satisfied. Therefore, we are always aware of these two directions, and we believe the most important thing is continuing to create new products which generate surprise and wonder. Going forward, Tarami will market healthy

Dry jelly market

Share exceeds40%

Industry highest*Number of products

manufactured each year

*Compiled by DyDo Group

Providing Not Only Safe but Reliable Products As a First-rate Contract Manufacturer of Drinkable Preparations

Number ofTarami fan club members

(Tarami Hohoemi Supporters,online shopping members)

Approx. 20,000Growth in net sales

105%

Building High-quality Plants that Assure Brand Owners who Commission Production to DyDo

Message from the Top

From the time of DyDo’s founding in 1956 to the present day, we have constantly strived to ensure the safety and reliability of our products. As one of the top contract manufacturers of drinkable preparations in the industry, we have set our sights on building the highest quality plants in the industry so that brand owners feel assured when commissioning production.

Amidst growing consumer awareness toward health and beauty, we consider it our mission to help build a rich, vibrant society. As a drinkable preparations manufacturer with a high level of expertise, we strive to improve our product development system for quick response to customers’ needs, strengthen our quality control and quality assurance systems, and further expand our production system to supply safe products in a timely manner.

The drinkable preparations market is at a major turning point, with consumer needs diversifying and the core user segment for nutritional drinks aging. The challenge for management is to recognize that new needs will emerge particularly as such change occurs in the marketplace. We see this as an opportunity and will utilize our assets to generate new value as we endeavor to build a solid business foundation for the future.

Yutaka TakahashiPresident and Representative DirectorDAIDO Pharmaceutical Corporation

Changing Ourselves through the Customer’s Viewpoint, Changing Ourselves through Innovation

Message from the Top

Conditions continue to be severe in the food industry due to rising raw material and distribution costs, a shrinking market due to Japan’s decreasing population, and other factors. In particular, we have recently made various efforts with competitors, and competition is intensifying further.

Against this backdrop, we believe that a corporate structure resistant to environmental changes and risks, and a response with a sense of speed in all situations, will help us continue stable and sustained growth, and we have worked to reform our internal structure and mindset. In order to transition early to a business model which continuously generates profits, we feel it is essential to take on challenges from all directions to improve the added value of our products.

To achieve that, we have adopted “changing ourselves through the customer’s viewpoint, changing ourselves through innovation” as the foundation of our growth strategy, and made that into a common understanding and motto within the company. Working as a company-wide team, we strive for innovation, and through superior technological capabilities and techniques for making products more cheaply, we work to differentiate ourselves from competing products, and improve our brand value.

In manufacturing, we ensure the trust of business partners in terms of quality control through the acquisition of certification according to the ISO 9001 international standard for quality management systems, and the FSSC 22000 international standard for food safety management systems. A clean environ-ment is maintained by regularly inspecting for suspended particles in each plant, and we actively promote adoption of the latest equipment for high safety, such as non-contact equipment for filling containers on production lines. In addition to these technical improvements, we keep a strict eye on everything relating to product quality, such as improvement of work clothing and work rules, and we are always working to ensure a higher level of quality.

Furthermore, we carry out component testing of manufactured pharmaceuticals and quasi-drugs, working hard to ensure their effectiveness and safety, and we place all products in a liquid storage room, so follow-up evaluation can be done in the unlikely event of an incident for a fail-safe system.

In our quality control, we create an environment for assuring product quality, and we ensure manufacturing quality at all stages from pre-manufacturing to the manufacturing stage and post-shipment. We strictly examine everything relating to quality, and provide reliability exceeding product safety to our business partners.

jellies which emphasize health and beauty aspects, and work to expand the fruit jelly domain. As the top brand, we will continue to create products which generate customer surprise and wonder.

Masayuki YaoPresident and Representative DirectorTarami Corporation

3SpecialFeature

Pharmaceutical-Related Business

Challenge to grow existing businesses

4SpecialFeature

Food Business

Challenge to grow existing businesses

Efforts to C

reate Corporate Value

Efforts to Create Corporate Value

31 32DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Strict Quality Control and Quality Assurance Systems that Earn the Trust of Business Partners

DAIDO Pharmaceutical Corporation is engaged in the OEM (contract manufacturing) business for drinkable preparations, and as a top-class contract manufacturer, we are highly regarded by the major pharmaceutical, cosmetics, and health food manufacturers which are our business partners. This is due to our outstanding development capabilities, safe and secure production system, our quality control system for ensuring high product quality, and our quality assurance system for ensuring manufacturing quality before and during the manufacturing process. Naturally, we maintain the required high levels of quality, and our stance of maintaining and improving quality beyond requirements helps us to earn the complete trust of our business partners.

Earning the Trust of Business Partners with Reliability that Exceeds Safety

Thorough quality control begins with the water that is the raw material of our drinkable preparations. Our plants are sited at locations with a good natural environment and we use high-quality groundwater. In the process of turning this groundwater into purified water, we perform quality inspections three times per day based on our unique inspection chart. In this and other ways, we ensure total commitment to the safety of the raw materials we use. In addition, we perform stringent quality control of raw materials through quantitative testing of components as well as microbial testing of each received lot to check for contamination.

Quickly Bringing Products with High Added Value to Market

Maintaining the No. 1 Market Share by an Overwhelming Margin

We Continue to Propose Ways to Enjoy Fruit that Suit the Needs of the Times

One of the mottos which Tarami cherishes as part of its corporate philosophy is “two-way communication between customer needs and product seeds.” Product development responsive to customer needs that change with the times begins by listening carefully to the views of consumers and retailers, and actively perceiving trends and tastes regarding fruit ingredients.

On the other hand, “seeds” refers to “seeds of ideas” accumulated in-house at Tarami. At Tarami, we carry out research and development every day in pursuit of new ingredients and textures. Naturally, we research fruits from around the world as ingredients, and our developers seek out new possibilities by taste testing any sort of food product which uses fruit. Precisely because we accumulate these ideas, we can speedily realize commercialization when signs appear that a new trend is surfacing in customer tastes.

Even if we have “seeds” (of ideas), these won’t result in sales if there are no customer needs, and in the opposite case, the customer will not be satisfied. Therefore, we are always aware of these two directions, and we believe the most important thing is continuing to create new products which generate surprise and wonder. Going forward, Tarami will market healthy

Dry jelly market

Share exceeds40%

Industry highest*Number of products

manufactured each year

*Compiled by DyDo Group

Providing Not Only Safe but Reliable Products As a First-rate Contract Manufacturer of Drinkable Preparations

Number ofTarami fan club members

(Tarami Hohoemi Supporters,online shopping members)

Approx. 20,000Growth in net sales

105%

Building High-quality Plants that Assure Brand Owners who Commission Production to DyDo

Message from the Top

From the time of DyDo’s founding in 1956 to the present day, we have constantly strived to ensure the safety and reliability of our products. As one of the top contract manufacturers of drinkable preparations in the industry, we have set our sights on building the highest quality plants in the industry so that brand owners feel assured when commissioning production.

Amidst growing consumer awareness toward health and beauty, we consider it our mission to help build a rich, vibrant society. As a drinkable preparations manufacturer with a high level of expertise, we strive to improve our product development system for quick response to customers’ needs, strengthen our quality control and quality assurance systems, and further expand our production system to supply safe products in a timely manner.

The drinkable preparations market is at a major turning point, with consumer needs diversifying and the core user segment for nutritional drinks aging. The challenge for management is to recognize that new needs will emerge particularly as such change occurs in the marketplace. We see this as an opportunity and will utilize our assets to generate new value as we endeavor to build a solid business foundation for the future.

Yutaka TakahashiPresident and Representative DirectorDAIDO Pharmaceutical Corporation

Changing Ourselves through the Customer’s Viewpoint, Changing Ourselves through Innovation

Message from the Top

Conditions continue to be severe in the food industry due to rising raw material and distribution costs, a shrinking market due to Japan’s decreasing population, and other factors. In particular, we have recently made various efforts with competitors, and competition is intensifying further.

Against this backdrop, we believe that a corporate structure resistant to environmental changes and risks, and a response with a sense of speed in all situations, will help us continue stable and sustained growth, and we have worked to reform our internal structure and mindset. In order to transition early to a business model which continuously generates profits, we feel it is essential to take on challenges from all directions to improve the added value of our products.

To achieve that, we have adopted “changing ourselves through the customer’s viewpoint, changing ourselves through innovation” as the foundation of our growth strategy, and made that into a common understanding and motto within the company. Working as a company-wide team, we strive for innovation, and through superior technological capabilities and techniques for making products more cheaply, we work to differentiate ourselves from competing products, and improve our brand value.

In manufacturing, we ensure the trust of business partners in terms of quality control through the acquisition of certification according to the ISO 9001 international standard for quality management systems, and the FSSC 22000 international standard for food safety management systems. A clean environ-ment is maintained by regularly inspecting for suspended particles in each plant, and we actively promote adoption of the latest equipment for high safety, such as non-contact equipment for filling containers on production lines. In addition to these technical improvements, we keep a strict eye on everything relating to product quality, such as improvement of work clothing and work rules, and we are always working to ensure a higher level of quality.

Furthermore, we carry out component testing of manufactured pharmaceuticals and quasi-drugs, working hard to ensure their effectiveness and safety, and we place all products in a liquid storage room, so follow-up evaluation can be done in the unlikely event of an incident for a fail-safe system.

In our quality control, we create an environment for assuring product quality, and we ensure manufacturing quality at all stages from pre-manufacturing to the manufacturing stage and post-shipment. We strictly examine everything relating to quality, and provide reliability exceeding product safety to our business partners.

jellies which emphasize health and beauty aspects, and work to expand the fruit jelly domain. As the top brand, we will continue to create products which generate customer surprise and wonder.

Masayuki YaoPresident and Representative DirectorTarami Corporation

3SpecialFeature

Pharmaceutical-Related Business

Challenge to grow existing businesses

4SpecialFeature

Food Business

Challenge to grow existing businesses

Efforts to C

reate Corporate Value

Efforts to Create Corporate Value

31 32DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

• Application of the Corporate Governance Code

• Promotion of sustained growth through constructive dialogue with stakeholders

• Transitioning to aggressive governance

• Changes in the environment surrounding our core vending machine business

• Diversification of services• Technological advancements

• Progression of decreasing birthrate and aging population in Japan

• Economic development of developing nations

• Progression of global warming

Our group believes that continuing to provide society with new value responsive to the times and environment, while exploiting our strengths as a company, will help us achieve sustained growth and improve our corporate value over the medium to long term. To achieve that, we are sharing our Group Philosophy with all of our stakeholders—customers, employees, business partners, communities, and shareholders—and working to foster a corporate climate of taking up challenges, and pursuing ongoing improvement in corporate governance, our system for transparent, fair, swift, and bold decision-making.

Changes in the EnvironmentSurrounding the DyDo Group

Key Initiatives

ocialS

overnanceG

ocialS

nvironmentE

nvironmentE ocialS

overnanceGorporateC

Customers

Employees

BusinessPartners

Shareholders

Communities

• Sharing the DyDoGroup Philosophy

• Two-WayCommunication

Environment

overnanceG

nvironmentE

DyDo Group’s ESG

DyDo Group’s ESG

Corporate Governance

1. Basic Approach to Corporate Governance

2. Outline of Our Corporate Governance System

3. Ongoing Improvements to Corporate Governance

Interview with an Independent Outside Director

Internal Control and Compliance

Risk Management and Crisis Management

Fostering a Corporate Culture of Taking Up Challenges

Responsible Engagement with Stakeholders

Efforts to Revitalize Communities

Realizing Reductions in Both Environmental Impact and Costs

Management

p. 34

p. 35

p. 35

p. 36

p. 37

p. 42

p. 43

p. 44

p. 45

p. 47

p. 49

p. 50

p. 51

Foundation for Corporate Value Creation

ESGESGESGESGESGESGActivitiesActivitiesActivitiesActivities

Ensure proper, upstanding business practices and rigid compliance with relevant laws and regulations, and constantly improve management efficiency and transparency

Contribute to building a rich and vibrant society by making full use of the views of our stakeholders

Strive to carry out operations with full consideration for the environment

Ongoing Improvements to Corporate Governance• Revitalizing the Board of Directors and

Strengthening its Functions (p. 37)• Transition to Holding Company Structure (p. 38)• Evaluation of the Effectiveness of the Board of

Directors (p. 41)

Fostering a Corporate Climate of Taking Up Challenges• Developing Personnel Who Can Initiate Change

(p. 45)• Offering a Dynamic Workplace (p. 46)

Realizing Reductions in Both Environmental Impact and Costs• Reduction of Environmental Impact and Costs of

Vending Machines (p. 50)• Reduction of Environmental Impact and Costs at

Plants (p. 50)

Foundation for Corporate Value C

reation

33 34DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Foundation for Corporate Value Creation

• Application of the Corporate Governance Code• Promotion of sustained growth

through constructive dialogue with stakeholders

• Transitioning to aggressive governance

• Changes in the environment surrounding our core vending machine business• Diversification of services• Technological advancements

• Progression of decreasing birthrate and aging population in Japan

• Economic development of developing nations

• Progression of global warming

Our group believes that continuing to provide society with new value responsive to the times and environment, while exploiting our strengths as a company, will help us achieve sustained growth and improve our corporate value over the medium to long term. To achieve that, we are sharing our Group Philosophy with all of our stakeholders—customers, employees, business partners, communities, and shareholders—and working to foster a corporate climate of taking up challenges, and pursuing ongoing improvement in corporate governance, our system for transparent, fair, swift, and bold decision-making.

Changes in the EnvironmentSurrounding the DyDo Group

Key Initiatives

ocialS

overnanceG

ocialS

nvironmentE

nvironmentE ocialS

overnanceGorporateC

Customers

Employees

BusinessPartners

Shareholders

Communities

• Sharing the DyDoGroup Philosophy

• Two-WayCommunication

Environment

overnanceG

nvironmentE

DyDo Group’s ESG

DyDo Group’s ESG

Corporate Governance

1. Basic Approach to Corporate Governance

2. Outline of Our Corporate Governance System

3. Ongoing Improvements to Corporate Governance

Interview with an Independent Outside Director

Internal Control and Compliance

Risk Management and Crisis Management

Fostering a Corporate Culture of Taking Up Challenges

Responsible Engagement with Stakeholders

Efforts to Revitalize Communities

Realizing Reductions in Both Environmental Impact and Costs

Management

p. 34

p. 35

p. 35

p. 36

p. 37

p. 42

p. 43

p. 44

p. 45

p. 47

p. 49

p. 50

p. 51

Foundation for Corporate Value Creation

Ensure proper, upstanding business practices and rigid compliance with relevant laws and regulations, and constantly improve management efficiency and transparency

Contribute to building a rich and vibrant society by making full use of the views of our stakeholders

Strive to carry out operations with full consideration for the environment

Ongoing Improvements to Corporate Governance• Revitalizing the Board of Directors and

Strengthening its Functions (p. 37)• Transition to Holding Company Structure (p. 38)• Evaluation of the Effectiveness of the Board of

Directors (p. 41)

Fostering a Corporate Climate of Taking Up Challenges• Developing Personnel Who Can Initiate Change

(p. 45)• Offering a Dynamic Workplace (p. 46)

Realizing Reductions in Both Environmental Impact and Costs• Reduction of Environmental Impact and Costs of

Vending Machines (p. 50)• Reduction of Environmental Impact and Costs at

Plants (p. 50)

Foundation for Corporate Value C

reation

33 34DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Foundation for Corporate Value Creation

■ Appropriate Cooperation with Stakeholders Other than Shareholders

We are keenly aware that our efforts to generate sustainable growth and improve corporate value over the medium to long term (as enshrined in our Group Philosophy) are reliant on the valuable resources and contributions of a broad spectrum of stakeholders, including our customers, our employees, our business partners, and our communities. Moreover, we are proud to work in close partnership with our stakeholders, and we proactively incorporate their feedback into the running of the DyDo Group.

The executives and the Board of Directors are charged with leading the creation and maintenance of a corporate culture that demands respect for the rights and positions of stakeholders and firm adherence to corporate ethics.

■ Ensuring Appropriate Information Disclosure and Transparency

In line with our policy of transparency, fairness, and long-term focus, we provide shareholders, investors, and all other stakeholders the information they need to make informed decisions. This includes information on our companies’ finances, business performance, management strategies and issues, risks, and other matters relating to governance. Indeed, we consider our legal obligation to disclose pertinent information promptly and appropriately to be a serious matter. In addition, however, we are also eager to publish information that encourages correct understanding of the DyDo Group to the furthest possible extent.

■ Responsibilities of the Board of DirectorsThe Board of Directors seeks to discharge its responsibility and accountability to shareholders by pursuing a three-pronged strategy for consistent improvement of the group’s earning power and capital efficiency so as to achieve sustainable growth and improve corporate value over the medium to long term. Those three facets are: 1) set the direction for implementation of the group’s corporate strategy; 2) establish a platform for executives to take calculated risks; and 3) institute effective, independent, and objective oversight of executives and directors. We strive to fulfill the roles and responsibilities of the Board of Directors based on this strategy.

■ Dialogue with ShareholdersThe DyDo Group strives for constructive dialogue with shareholders and proactively carries out IR activities which are geared toward our goal of sustainable growth and improved corporate value over the medium to long term. Such communication not only deepens understanding of the DyDo Group, but it also generates valuable feedback to management that serves as a frank appraisal of our corporate value as we aim to become a trustworthy company.

(1) Basic Approach to Corporate Governance

“DyDo Group strives to achieve happiness and prosperity together with people and society as a whole. To realize this, we will continue our dynamic efforts to take on new challenges.”

Our Group Philosophy inspires us in our ongoing quest to ensure proper, upstanding business practices and rigid compliance with relevant laws and regulations. It motivates us to constantly improve management efficiency and transparency, and to promote the group’s mutual benefits with all of our stakeholders, including our customers, our employees, our business partners, our communities, and our shareholders. It is the very cornerstone of our corporate governance, which is geared toward generating sustainable growth and improving corporate value over the medium to long term.

Our core business is our Domestic Beverage Business and, as more than 80% of those sales come from vending machines in the local community, it is fair to say that our products are familiar parts of consumers’ everyday lives. Moreover, our operations are conducted under a “fabless management” system, which means we have no plants of our own and instead outsource work in close cooperation with producers and distributors nationwide to make and deliver products. We concentrate our resources on more specific roles, such as product planning and development and vending machine operations. We have about 280,000 vending machines around Japan, which are maintained by DyDo Group employees and the “Kyoeikai” (special vending machine operators that handle DyDo products).

It is a rather unique business model that depends on the trust of our stakeholders. As such, we believe “happiness and prosperity together with people and society as a whole” is our duty, and the overriding objective of our business activities. To that end, our “dynamic efforts” are founded on a bedrock of corporate governance, a steadfast platform of transparent, fair, swift, and bold decision-making. Moreover, we continually work to improve that foundation in order to contribute to the benefit of our shareholders.

(2) Response Policy for the Fundamental Principles of Our Corporate Governance Code

■ Securing the Rights and Equal Treatment of Shareholders

At the DyDo Group, our Group Philosophy of “happiness and prosperity together with people and society as a whole” guides us to work in close partnership with a broad range of stakeholders. For instance, we endeavor to effectively secure the rights of our shareholders as key stakeholders, and to prepare an environment in which they can exercise those rights appropriately.

1. Basic Approach to Corporate Governance

Corporate Governance

Roles

Board of Directors

Board of Corporate Auditors

Management Committee

Group Risk Management Committee

Group Cooperation Committee

*1 DAIDO Pharmaceutical Corporation, Tarami Corporation*2 Executive officers who are not also directors participate as observers

● All persons concerned　○ Only full-time members

Directors

○

●

○

○

Auditors

○

●

●

○

○

ExecutiveOfficers

●

( )●*2

●

●

Presidentsof Major

Subsidiaries*1

●

●

overnanceG

(as of April 14, 2017)

Organizational structure

Number of directors as defined in the Articles of Incorporation

Term of directors as defined in the Articles of Incorporation

Number of directors

Company with Kansayaku board

7 or fewer

1 year

6 (of which 2 are independent outside directors)

Yes

4 or fewer

4 years

4 (of which 3 are outside auditors)

Executive officer system

Number of auditors as defined in the Articles of Incorporation

Term of auditors as defined in the Articles of Incorporation

Number of auditors

2. Outline of Our Corporate Governance System

Execution of Operations

Monitoring

Internal Audit

Accounting Audit

Coordination

Coordination

Appointment / Stepping Down

Audit

Appointment / Stepping Down

Appointment / Stepping Down

Accounting A

uditors

Legal Consultants, etc.

Advice / Guidance

Coordination

Guidance

Report

Report

Appointment / Stepping Down

Report

Guidance

Report

Board of Corporate Auditors

Audit Department

Board of Directors

Group Risk Management Committee

Operating Divisions / Group Companies

Group Cooperation Committee

Management Committee

General Meeting of Shareholders

President and Representative Director

Discusses/decides management strategy and other important matters, and oversees execution of the duties of directors, and execution of the operations of each group company.

Receives reports, discusses, and makes decisions on important matters relating to auditing, and audits execution of the duties of directors.

Formulates policy and plans for overall execution of management, and carries out tasks including investigations, research, planning, management, communication, and coordination.

Shares important matters in the group, and carries out tasks such as reporting the management situation from each subsidiary.

Identifies and evaluates company-wide risks, formulates countermeasures, and conducts checks and improvement of overall risk management.

Foundation for Corporate Value C

reation

35 36DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Foundation for Corporate Value Creation

■ Appropriate Cooperation with Stakeholders Other than Shareholders

We are keenly aware that our efforts to generate sustainable growth and improve corporate value over the medium to long term (as enshrined in our Group Philosophy) are reliant on the valuable resources and contributions of a broad spectrum of stakeholders, including our customers, our employees, our business partners, and our communities. Moreover, we are proud to work in close partnership with our stakeholders, and we proactively incorporate their feedback into the running of the DyDo Group.

The executives and the Board of Directors are charged with leading the creation and maintenance of a corporate culture that demands respect for the rights and positions of stakeholders and firm adherence to corporate ethics.

■ Ensuring Appropriate Information Disclosure and Transparency

In line with our policy of transparency, fairness, and long-term focus, we provide shareholders, investors, and all other stakeholders the information they need to make informed decisions. This includes information on our companies’ finances, business performance, management strategies and issues, risks, and other matters relating to governance. Indeed, we consider our legal obligation to disclose pertinent information promptly and appropriately to be a serious matter. In addition, however, we are also eager to publish information that encourages correct understanding of the DyDo Group to the furthest possible extent.

■ Responsibilities of the Board of DirectorsThe Board of Directors seeks to discharge its responsibility and accountability to shareholders by pursuing a three-pronged strategy for consistent improvement of the group’s earning power and capital efficiency so as to achieve sustainable growth and improve corporate value over the medium to long term. Those three facets are: 1) set the direction for implementation of the group’s corporate strategy; 2) establish a platform for executives to take calculated risks; and 3) institute effective, independent, and objective oversight of executives and directors. We strive to fulfill the roles and responsibilities of the Board of Directors based on this strategy.

■ Dialogue with ShareholdersThe DyDo Group strives for constructive dialogue with shareholders and proactively carries out IR activities which are geared toward our goal of sustainable growth and improved corporate value over the medium to long term. Such communication not only deepens understanding of the DyDo Group, but it also generates valuable feedback to management that serves as a frank appraisal of our corporate value as we aim to become a trustworthy company.

(1) Basic Approach to Corporate Governance

“DyDo Group strives to achieve happiness and prosperity together with people and society as a whole. To realize this, we will continue our dynamic efforts to take on new challenges.”

Our Group Philosophy inspires us in our ongoing quest to ensure proper, upstanding business practices and rigid compliance with relevant laws and regulations. It motivates us to constantly improve management efficiency and transparency, and to promote the group’s mutual benefits with all of our stakeholders, including our customers, our employees, our business partners, our communities, and our shareholders. It is the very cornerstone of our corporate governance, which is geared toward generating sustainable growth and improving corporate value over the medium to long term.

Our core business is our Domestic Beverage Business and, as more than 80% of those sales come from vending machines in the local community, it is fair to say that our products are familiar parts of consumers’ everyday lives. Moreover, our operations are conducted under a “fabless management” system, which means we have no plants of our own and instead outsource work in close cooperation with producers and distributors nationwide to make and deliver products. We concentrate our resources on more specific roles, such as product planning and development and vending machine operations. We have about 280,000 vending machines around Japan, which are maintained by DyDo Group employees and the “Kyoeikai” (special vending machine operators that handle DyDo products).

It is a rather unique business model that depends on the trust of our stakeholders. As such, we believe “happiness and prosperity together with people and society as a whole” is our duty, and the overriding objective of our business activities. To that end, our “dynamic efforts” are founded on a bedrock of corporate governance, a steadfast platform of transparent, fair, swift, and bold decision-making. Moreover, we continually work to improve that foundation in order to contribute to the benefit of our shareholders.

(2) Response Policy for the Fundamental Principles of Our Corporate Governance Code

■ Securing the Rights and Equal Treatment of Shareholders

At the DyDo Group, our Group Philosophy of “happiness and prosperity together with people and society as a whole” guides us to work in close partnership with a broad range of stakeholders. For instance, we endeavor to effectively secure the rights of our shareholders as key stakeholders, and to prepare an environment in which they can exercise those rights appropriately.

1. Basic Approach to Corporate Governance

Corporate Governance

Roles

Board of Directors

Board of Corporate Auditors

Management Committee

Group Risk Management Committee

Group Cooperation Committee

*1 DAIDO Pharmaceutical Corporation, Tarami Corporation*2 Executive officers who are not also directors participate as observers

● All persons concerned　○ Only full-time members

Directors

○

●

○

○

Auditors

○

●

●

○

○

ExecutiveOfficers

●

( )●*2

●

●

Presidentsof Major

Subsidiaries*1

●

●

overnanceG

(as of April 14, 2017)

Organizational structure

Number of directors as defined in the Articles of Incorporation

Term of directors as defined in the Articles of Incorporation

Number of directors

Company with Kansayaku board

7 or fewer

1 year

6 (of which 2 are independent outside directors)

Yes

4 or fewer

4 years

4 (of which 3 are outside auditors)

Executive officer system

Number of auditors as defined in the Articles of Incorporation

Term of auditors as defined in the Articles of Incorporation

Number of auditors

2. Outline of Our Corporate Governance System

Execution of Operations

Monitoring

Internal Audit

Accounting Audit

Coordination

Coordination

Appointment / Stepping Down

Audit

Appointment / Stepping Down

Appointment / Stepping Down

Accounting A

uditors

Legal Consultants, etc.

Advice / Guidance

Coordination

Guidance

Report

Report

Appointment / Stepping Down

Report

Guidance

Report

Board of Corporate Auditors

Audit Department

Board of Directors

Group Risk Management Committee

Operating Divisions / Group Companies

Group Cooperation Committee

Management Committee

General Meeting of Shareholders

President and Representative Director

Discusses/decides management strategy and other important matters, and oversees execution of the duties of directors, and execution of the operations of each group company.

Receives reports, discusses, and makes decisions on important matters relating to auditing, and audits execution of the duties of directors.

Formulates policy and plans for overall execution of management, and carries out tasks including investigations, research, planning, management, communication, and coordination.

Shares important matters in the group, and carries out tasks such as reporting the management situation from each subsidiary.

Identifies and evaluates company-wide risks, formulates countermeasures, and conducts checks and improvement of overall risk management.

Foundation for Corporate Value C

reation

35 36DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Foundation for Corporate Value Creation

Disclosure of a summary of the evaluation results

Changes in Ongoing Improvements to Corporate Governance

President

Group structure

Corporate philosophy

To 2014 2016 20172012

Appointment of Tomiya Takamatsu as President

Transition to holding company structure

Transfer of authority to group companies

Review of the scope of authority

Number of members on the Board of Directors as determined in the Articles of Incorporation: 7 or fewer

Introduction of a performance-based incentive program

Evaluation of the effectiveness of the Board of Directors

Appointment of two outside directors

Outside directors as one-third of all directors (2 of 6)

Enactment of the Basic Approach to Corporate Governance

1984: Enactment of DyDo DRINCO Corporate Mind (company philosophy)

Enactment of a new Group Philosophy, Vision, and Slogan

Revitalizing the Board of Directors and strengthening its functions

Improving the effectiveness of the Board of Directors

Outside directors

Transition to Holding Company Structure

On January 21, 2017, the DyDo Group completed its transition to a holding company structure. We will continue taking up the challenge of creating corporate value for the next generation by positioning this transition to a holding company structure as the first step toward dramatic growth in the future.

■ Purpose of Transition to Holding Company Structure

(1) Strengthening Group ManagementBy transitioning to a holding company structure, we will strengthen group governance, and clarify the responsibility and authority of each business. As indicators of business management at each operating company, we will establish ROA and ROIC as indicators of investment efficiency in addition to our previous indicators of net sales and operating income ratio, clarify capital efficiency of each operating company, and expand indicators linked to the front lines of business. In this way, we will strive to improve profitability and efficiency of the group as a whole.

(2) Agile Response to Expansion of Business DomainsIn order to respond to major changes in the business environment, and realize sustained improvements in profit growth and capital efficiency as a group, we will step up to the challenge of continually increasing cash flow through our core Domestic Beverage Business, and in addition, we feel another key issue will be acquiring new business domains with high profitability and growth potential, such as the healthcare sector, by effectively utilizing the retained profits we have built up. We will put in place a system to enable agile response to M&A strategies, and proactively take up new challenges.

(3) Strengthening and Nurturing International Beverage Business

In response to the increasing importance of the International Beverage Business in our group management, we will establish an International Business Management Department within the holding company, and work to develop business and risk management systems for international beverage operating companies. To strengthen and nurture International Beverage Businesses through synergy with our Domestic Beverage Business, we have decided to adopt a system where the holding company directly supervises International Beverage Businesses.Revitalizing the Board of Directors and

Strengthening its Functions

■ Reduction in the Number of Members on the Board of Directors as Determined in the Articles of Incorporation

With the aim of improving the functionality of the Board of Directors and streamlining the deliberation process, we reduced the maximum number of directors as determined in the Articles of Incorporation from nine to seven as of April 2016.

■ Shortening of the Term of Directors as Determined in the Articles of Incorporation

With an aim of clarifying the management responsibilities of the directors and creating a functional management structure that is able to quickly respond to changes in the management environment, we shortened the term of board members as determined in the Articles of Incorporation from two years to one year as of April 2016.

■ Appointment and Ratio of Independent Outside Directors

Since April 2014, we have appointed two independent outside directors with the aim of introducing an outside viewpoint to management and strengthening supervisory functions for the execution of operations. Furthermore, since April 2016, two of the six directors are outside, bringing the ratio of independent outside directors to one-third.

Ratio of independent outside directors: 1/3

DyDo Group Holdings, Inc.

After Transition

Group Structure

DyDo DRINCO, Inc.

Domestic Beverage Business

International Beverage Business

Before Transition

Domestic Beverage Business

DyDo DRINCO, Inc.

International Beverage Business

International Beverage Subsidiaries

Pharmaceutical-Related Business

DAIDO Pharmaceutical Corporation

Food Business

Tarami Corporation

Pharmaceutical-Related Business

DAIDO Pharmaceutical Corporation

Food Business

Tarami Corporation

Introduction of an executive officer system

Number of members on the Board of Directors as determined in the Articles of Incorporation: 9 or fewer

Achieving Deeper Commitment to the Group Philosophy, Vision, and Slogan

Amid dramatic changes in the environment surrounding the Domestic Beverage Business that is our core business, in 2014 we established a new Group Philosophy, Vision, and Slogan with the aim of achieving sustained growth in the future through teamwork by all of our group employees. To win out in this tough business environment, and to ensure our employees grow together with the company, we are working to foster a corporate climate of taking up challenges.

■ Visits to Bases by the PresidentOur President has toured 116 of our bases and facilities throughout Japan, and talked with employees about our Group Philosophy, Vision, and Slogan. This deepened understanding of the background and purpose behind the establishment of these principles, and there were many discussions of the role of each department and future efforts. Even after this, we have continued to hold DyDo Offsite Meetings where the President visits each location and engages in dialogue with employees (for details, see p. 47–48). The purpose is to ensure that the Group Philosophy, Vision, and Slogan continue to serve as the basis for decisions and conduct at all positions in the company.

■ Developing an Environment for Realizing the Group Philosophy

To realize the “challenges”―one of the keywords in our Group Philosophy―we offer DyDo Challenge Awards, a system for supporting and commending our employees who take up challenges (for details, see p. 46). Also, by using our in-house portal site to share information on employees who take up challenges and their efforts, we aim to foster a corporate climate of taking up challenges without fear of failure.

3. Ongoing Improvements to Corporate Governance

Foundation for Corporate Value C

reation

37 38DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Foundation for Corporate Value Creation

Disclosure of a summary of the evaluation results

Changes in Ongoing Improvements to Corporate Governance

President

Group structure

Corporate philosophy

To 2014 2016 20172012

Appointment of Tomiya Takamatsu as President

Transition to holding company structure

Transfer of authority to group companies

Review of the scope of authority

Number of members on the Board of Directors as determined in the Articles of Incorporation: 7 or fewer

Introduction of a performance-based incentive program

Evaluation of the effectiveness of the Board of Directors

Appointment of two outside directors

Outside directors as one-third of all directors (2 of 6)

Enactment of the Basic Approach to Corporate Governance

1984: Enactment of DyDo DRINCO Corporate Mind (company philosophy)

Enactment of a new Group Philosophy, Vision, and Slogan

Revitalizing the Board of Directors and strengthening its functions

Improving the effectiveness of the Board of Directors

Outside directors

Transition to Holding Company Structure

On January 21, 2017, the DyDo Group completed its transition to a holding company structure. We will continue taking up the challenge of creating corporate value for the next generation by positioning this transition to a holding company structure as the first step toward dramatic growth in the future.

■ Purpose of Transition to Holding Company Structure

(1) Strengthening Group ManagementBy transitioning to a holding company structure, we will strengthen group governance, and clarify the responsibility and authority of each business. As indicators of business management at each operating company, we will establish ROA and ROIC as indicators of investment efficiency in addition to our previous indicators of net sales and operating income ratio, clarify capital efficiency of each operating company, and expand indicators linked to the front lines of business. In this way, we will strive to improve profitability and efficiency of the group as a whole.

(2) Agile Response to Expansion of Business DomainsIn order to respond to major changes in the business environment, and realize sustained improvements in profit growth and capital efficiency as a group, we will step up to the challenge of continually increasing cash flow through our core Domestic Beverage Business, and in addition, we feel another key issue will be acquiring new business domains with high profitability and growth potential, such as the healthcare sector, by effectively utilizing the retained profits we have built up. We will put in place a system to enable agile response to M&A strategies, and proactively take up new challenges.

(3) Strengthening and Nurturing International Beverage Business

In response to the increasing importance of the International Beverage Business in our group management, we will establish an International Business Management Department within the holding company, and work to develop business and risk management systems for international beverage operating companies. To strengthen and nurture International Beverage Businesses through synergy with our Domestic Beverage Business, we have decided to adopt a system where the holding company directly supervises International Beverage Businesses.Revitalizing the Board of Directors and

Strengthening its Functions

■ Reduction in the Number of Members on the Board of Directors as Determined in the Articles of Incorporation

With the aim of improving the functionality of the Board of Directors and streamlining the deliberation process, we reduced the maximum number of directors as determined in the Articles of Incorporation from nine to seven as of April 2016.

■ Shortening of the Term of Directors as Determined in the Articles of Incorporation

With an aim of clarifying the management responsibilities of the directors and creating a functional management structure that is able to quickly respond to changes in the management environment, we shortened the term of board members as determined in the Articles of Incorporation from two years to one year as of April 2016.

■ Appointment and Ratio of Independent Outside Directors

Since April 2014, we have appointed two independent outside directors with the aim of introducing an outside viewpoint to management and strengthening supervisory functions for the execution of operations. Furthermore, since April 2016, two of the six directors are outside, bringing the ratio of independent outside directors to one-third.

Ratio of independent outside directors: 1/3

DyDo Group Holdings, Inc.

After Transition

Group Structure

DyDo DRINCO, Inc.

Domestic Beverage Business

International Beverage Business

Before Transition

Domestic Beverage Business

DyDo DRINCO, Inc.

International Beverage Business

International Beverage Subsidiaries

Pharmaceutical-Related Business

DAIDO Pharmaceutical Corporation

Food Business

Tarami Corporation

Pharmaceutical-Related Business

DAIDO Pharmaceutical Corporation

Food Business

Tarami Corporation

Introduction of an executive officer system

Number of members on the Board of Directors as determined in the Articles of Incorporation: 9 or fewer

Achieving Deeper Commitment to the Group Philosophy, Vision, and Slogan

Amid dramatic changes in the environment surrounding the Domestic Beverage Business that is our core business, in 2014 we established a new Group Philosophy, Vision, and Slogan with the aim of achieving sustained growth in the future through teamwork by all of our group employees. To win out in this tough business environment, and to ensure our employees grow together with the company, we are working to foster a corporate climate of taking up challenges.

■ Visits to Bases by the PresidentOur President has toured 116 of our bases and facilities throughout Japan, and talked with employees about our Group Philosophy, Vision, and Slogan. This deepened understanding of the background and purpose behind the establishment of these principles, and there were many discussions of the role of each department and future efforts. Even after this, we have continued to hold DyDo Offsite Meetings where the President visits each location and engages in dialogue with employees (for details, see p. 47–48). The purpose is to ensure that the Group Philosophy, Vision, and Slogan continue to serve as the basis for decisions and conduct at all positions in the company.

■ Developing an Environment for Realizing the Group Philosophy

To realize the “challenges”―one of the keywords in our Group Philosophy―we offer DyDo Challenge Awards, a system for supporting and commending our employees who take up challenges (for details, see p. 46). Also, by using our in-house portal site to share information on employees who take up challenges and their efforts, we aim to foster a corporate climate of taking up challenges without fear of failure.

3. Ongoing Improvements to Corporate Governance

Foundation for Corporate Value C

reation

37 38DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Foundation for Corporate Value Creation

Transfer of Authority to Group Companies

Together with the transition to a holding company structure, we delegated authority to operating companies in order to speed up decision-making and promote constructive, lively discussion by the Board of Directors of topics such as group strategy and management plans. More specifically, starting from January 2017, we have set new, specific standards by revising related rules, including the Board of Directors Rules, Management Meeting Rules, and Administrative Authority Rules.

Creating a Fair Voting Environment

The General Meeting of Shareholders is a forum for constructive dialogue with shareholders, and we prepare an environment that enables fair and rapid information disclosure and smooth voting for shareholders.

Continuing Measures to Prevent Large-Scale Acquisitions (Takeover Defense Measures)

Based on our Basic Approach to Corporate Governance, we have reached the conclusion that it is essential to continue to establish measures to prevent large-scale acquisitions (takeover defense measures) as one measure for working to achieve sustained growth and improve medium- to long-term corporate value, while striving for happiness and prosperity together with all of our stakeholders—customers, employees, business partners, communities, and shareholders. At the meeting of the Board of Directors held on March 6, 2017, it was decided to continue these measures, and at the 42nd Annual General Meeting of Shareholders held on April 14, 2017, we obtained the approval of our shareholders, and we are continuing with this plan.

■ Reasons for Continuing with the PlanIn terms of whether we should accept a bid by a large-scale purchaser for large-scale acquisition of our company’s stock, bearing in mind that the final decision should be left to the shareholders. With regard to acquisition attempts that would seek to contribute to the management of the company, the company shall not categorically reject all such acquisition attempts if they would greatly increase the corporate value of the company.

The purpose of the large-scale acquisition rules laid out in the Plan regarding the large-scale acquisition of our company’s stock is to provide to our shareholders the information needed to determine whether or not a large-scale acquisition bid should be accepted, and to advise our shareholders of the opinions of the members of the Board of Directors who are presently engaged in the management of the company, in order to ensure that our shareholders have the opportunity to learn about any alternate plans. Currently, although there are some measures in place to control the abusive acquisition of stocks under the Financial Instruments and Exchange Act, it is conceivable that there are cases in which the law is not always effective, for example, when it is not possible to legally secure the time to submit and consider information prior to the commencement of a takeover bid or to restrict buying-up in the market. Therefore, we believe that establishing large-scale acquisition rules will form the basis on which our shareholders and investors can make appropriate investment decisions, and that securing adequate time can be an effective means of facilitating constructive dialogue between shareholders and prospective large-scale purchasers who have the potential to improve corporate value.

The economic environment surrounding our Domestic Beverage Business, which is our group’s core business, remains harsh, and in order to improve medium- to long-term corporate value, we are in a situation that requires us to constantly modify our earnings structure to be able to more flexibly cope with the changing times.

We believe that it is necessary at times, from a medium- to long-term perspective, to act rapidly and decisively to implement bold measures as a company, in order to be able to promptly cope with the changes that are expected to occur in the industry at an ever-increasing pace and achieve continuous growth and increased corporate value in the medium to long term, while ensuring the harmonious coexistence and mutual prosperity of all stakeholders, namely our customers, our employees, our business partners, local communities and our shareholders. In cases where stock equivalent to more than 20% of the total number of issued shares of the company has been acquired, however, it is feared that this will have a major influence on the management of the company and may lead to a situation in which the aforementioned policies cannot be executed. Furthermore, when we consider factors such as the quorum and the ratio of voting rights, there is clearly the potential for such a situation to have a major impact on special resolutions at the Annual General Meeting of Shareholders. It was determined that reapproving the large-scale acquisition rules is essential in order to maintain sustained growth and

Introducing a Performance-Based Incentive System

With our transition to a holding company structure, we have introduced a performance-based incentive system which awards shares in our company in accordance with the degree to which business results are achieved. Implementing a highly transparent, objectively assessed incentive system closely linked to group performance will heighten targeted directors’ and executive officers’ awareness of the importance of improved performance and the need to contribute to greater corporate value.

Rapid Disclosure of Convocation Notice

To give our shareholders sufficient time to study agenda items, we send out the convocation notice three weeks prior to the date of the General Meeting of Shareholders and post information at the Tokyo Stock Exchange, on the Electronic Voting Platform operated by ICJ, Inc., and on our website four weeks prior to the date of the meeting.

For our overseas shareholders we post an English version of the agenda items to be covered at the Tokyo Stock Exchange, on the Electronic Voting Platform operated by ICJ, Inc., and on our website.

In addition to allowing voting by postal mail, we have adopted a system of electronic voting via the Internet that enables access through personal computers, smartphones, and other devices. Also, we participate in the on the Electronic Voting Platform operated by ICJ, Inc.

English Translation of Agenda Items

ExpandedVoting Methods

enhance medium- to long-term corporate value, and to be able to respond quickly to changes that are expected to occur in the industry at an ever-increasing pace, and that it is the duty of the Board of Directors to be constantly ready for any unexpected events by continuing with the Plan based on the essence of our group’s proprietary vending machine business model.

■ Incentive System Due to Start on:January 21, 2017

■ Targeted Positions:Directors* and executive officers of the companies listed below:● DyDo Group Holdings, Inc.● DyDo DRINCO, Inc.● DAIDO Pharmaceutical Corporation● Tarami Corporation*Not including outside directors or non-executive directors

■ Method for Calculating the Number of Shares Awarded

On the last day of March following the end of each business year in the target period, a certain number of points are awarded. This number is determined by multiplying the base point award for each individual’s position for the business year that ended that January 20 by a performance-based coefficient calculated according to the extent to which performance targets were achieved. The performance-based coefficient is calculated based on the rate of attainment of anticipated operating income and anticipated net sales, on a consolidated basis, at the start of each fiscal year, disclosed in the financial results. However, in FY2018, the final fiscal year of our mid-term business plan “Challenge the Next Stage,” the coefficient will also reflect degree of attainment of the mid-term business plan.

Points are then converted into shares at the rate of one share of holding company common stock per point.

■ Time of Awarding Company SharesAs a rule, shares are awarded when the pertinent person has retired from the position of director, etc. of the company or one of its subsidiaries, and met the requirements of a beneficiary.

Plan Overview

Evaluation p

eriod b

y Board

of Directors,

maxim

um of 60 or 90 d

ays

Decision not to

execute

Statement of intention is not submitted

Necessary information is not submitted

Evaluation period cannot be secured

Consultation,advice

Independentcommittee

If large-scale acquisitionrules are followed

Submission of list ofnecessary informationby Board of Directors

Shareholder reviewperiod, maximum

of 60 days

Shareholder decisionby General Meeting

of Shareholders

Execution of countermeasuresNo execution ofcountermeasures

Large-scale acquisition rules

Rejected Accepted

Purchaser making large-scale acquisition

Decision to execute

Submission of statement ofintention by purchaser making

large-scale acquisition

Submission of necessaryinformation by purchaser

making large-scale acquisition

Decision to executeby Board of Directors

If large-scale acquisitionrules are not followed

If General Meetingof Shareholders

is held

Note: The aim of this diagram is to aid understanding of the Plan. As such, although it depicts an outline of typical procedures, it should by no means be considered as showing all procedures that can be taken. For further details, please refer to the following: https://www.dydo-ghd.co.jp/ir/pdf/20170306_08.pdf

• Evaluation and review of acquisition proposal

• Formulation of alternative plan

• Negotiation with purchaser making large-scale acquisition

If there is conspicuous harm to corporate value, and thus to joint interests

of shareholders

Board ofDirectors

If a reasonable explanation is provided for not being able to provide all necessary information

Consultation,advice Foundation for C

orporate Value Creation

39 40DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Foundation for Corporate Value Creation

Transfer of Authority to Group Companies

Together with the transition to a holding company structure, we delegated authority to operating companies in order to speed up decision-making and promote constructive, lively discussion by the Board of Directors of topics such as group strategy and management plans. More specifically, starting from January 2017, we have set new, specific standards by revising related rules, including the Board of Directors Rules, Management Meeting Rules, and Administrative Authority Rules.

Creating a Fair Voting Environment

The General Meeting of Shareholders is a forum for constructive dialogue with shareholders, and we prepare an environment that enables fair and rapid information disclosure and smooth voting for shareholders.

Continuing Measures to Prevent Large-Scale Acquisitions (Takeover Defense Measures)

Based on our Basic Approach to Corporate Governance, we have reached the conclusion that it is essential to continue to establish measures to prevent large-scale acquisitions (takeover defense measures) as one measure for working to achieve sustained growth and improve medium- to long-term corporate value, while striving for happiness and prosperity together with all of our stakeholders—customers, employees, business partners, communities, and shareholders. At the meeting of the Board of Directors held on March 6, 2017, it was decided to continue these measures, and at the 42nd Annual General Meeting of Shareholders held on April 14, 2017, we obtained the approval of our shareholders, and we are continuing with this plan.

■ Reasons for Continuing with the PlanIn terms of whether we should accept a bid by a large-scale purchaser for large-scale acquisition of our company’s stock, bearing in mind that the final decision should be left to the shareholders. With regard to acquisition attempts that would seek to contribute to the management of the company, the company shall not categorically reject all such acquisition attempts if they would greatly increase the corporate value of the company.

The purpose of the large-scale acquisition rules laid out in the Plan regarding the large-scale acquisition of our company’s stock is to provide to our shareholders the information needed to determine whether or not a large-scale acquisition bid should be accepted, and to advise our shareholders of the opinions of the members of the Board of Directors who are presently engaged in the management of the company, in order to ensure that our shareholders have the opportunity to learn about any alternate plans. Currently, although there are some measures in place to control the abusive acquisition of stocks under the Financial Instruments and Exchange Act, it is conceivable that there are cases in which the law is not always effective, for example, when it is not possible to legally secure the time to submit and consider information prior to the commencement of a takeover bid or to restrict buying-up in the market. Therefore, we believe that establishing large-scale acquisition rules will form the basis on which our shareholders and investors can make appropriate investment decisions, and that securing adequate time can be an effective means of facilitating constructive dialogue between shareholders and prospective large-scale purchasers who have the potential to improve corporate value.

The economic environment surrounding our Domestic Beverage Business, which is our group’s core business, remains harsh, and in order to improve medium- to long-term corporate value, we are in a situation that requires us to constantly modify our earnings structure to be able to more flexibly cope with the changing times.

We believe that it is necessary at times, from a medium- to long-term perspective, to act rapidly and decisively to implement bold measures as a company, in order to be able to promptly cope with the changes that are expected to occur in the industry at an ever-increasing pace and achieve continuous growth and increased corporate value in the medium to long term, while ensuring the harmonious coexistence and mutual prosperity of all stakeholders, namely our customers, our employees, our business partners, local communities and our shareholders. In cases where stock equivalent to more than 20% of the total number of issued shares of the company has been acquired, however, it is feared that this will have a major influence on the management of the company and may lead to a situation in which the aforementioned policies cannot be executed. Furthermore, when we consider factors such as the quorum and the ratio of voting rights, there is clearly the potential for such a situation to have a major impact on special resolutions at the Annual General Meeting of Shareholders. It was determined that reapproving the large-scale acquisition rules is essential in order to maintain sustained growth and

Introducing a Performance-Based Incentive System

With our transition to a holding company structure, we have introduced a performance-based incentive system which awards shares in our company in accordance with the degree to which business results are achieved. Implementing a highly transparent, objectively assessed incentive system closely linked to group performance will heighten targeted directors’ and executive officers’ awareness of the importance of improved performance and the need to contribute to greater corporate value.

Rapid Disclosure of Convocation Notice

To give our shareholders sufficient time to study agenda items, we send out the convocation notice three weeks prior to the date of the General Meeting of Shareholders and post information at the Tokyo Stock Exchange, on the Electronic Voting Platform operated by ICJ, Inc., and on our website four weeks prior to the date of the meeting.

For our overseas shareholders we post an English version of the agenda items to be covered at the Tokyo Stock Exchange, on the Electronic Voting Platform operated by ICJ, Inc., and on our website.

In addition to allowing voting by postal mail, we have adopted a system of electronic voting via the Internet that enables access through personal computers, smartphones, and other devices. Also, we participate in the on the Electronic Voting Platform operated by ICJ, Inc.

English Translation of Agenda Items

ExpandedVoting Methods

enhance medium- to long-term corporate value, and to be able to respond quickly to changes that are expected to occur in the industry at an ever-increasing pace, and that it is the duty of the Board of Directors to be constantly ready for any unexpected events by continuing with the Plan based on the essence of our group’s proprietary vending machine business model.

■ Incentive System Due to Start on:January 21, 2017

■ Targeted Positions:Directors* and executive officers of the companies listed below:● DyDo Group Holdings, Inc.● DyDo DRINCO, Inc.● DAIDO Pharmaceutical Corporation● Tarami Corporation*Not including outside directors or non-executive directors

■ Method for Calculating the Number of Shares Awarded

On the last day of March following the end of each business year in the target period, a certain number of points are awarded. This number is determined by multiplying the base point award for each individual’s position for the business year that ended that January 20 by a performance-based coefficient calculated according to the extent to which performance targets were achieved. The performance-based coefficient is calculated based on the rate of attainment of anticipated operating income and anticipated net sales, on a consolidated basis, at the start of each fiscal year, disclosed in the financial results. However, in FY2018, the final fiscal year of our mid-term business plan “Challenge the Next Stage,” the coefficient will also reflect degree of attainment of the mid-term business plan.

Points are then converted into shares at the rate of one share of holding company common stock per point.

■ Time of Awarding Company SharesAs a rule, shares are awarded when the pertinent person has retired from the position of director, etc. of the company or one of its subsidiaries, and met the requirements of a beneficiary.

Plan OverviewE

valuation period

by B

oard of D

irectors,m

aximum

of 60 or 90 days

Decision not to

execute

Statement of intention is not submitted

Necessary information is not submitted

Evaluation period cannot be secured

Consultation,advice

Independentcommittee

If large-scale acquisitionrules are followed

Submission of list ofnecessary informationby Board of Directors

Shareholder reviewperiod, maximum

of 60 days

Shareholder decisionby General Meeting

of Shareholders

Execution of countermeasuresNo execution ofcountermeasures

Large-scale acquisition rules

Rejected Accepted

Purchaser making large-scale acquisition

Decision to execute

Submission of statement ofintention by purchaser making

large-scale acquisition

Submission of necessaryinformation by purchaser

making large-scale acquisition

Decision to executeby Board of Directors

If large-scale acquisitionrules are not followed

If General Meetingof Shareholders

is held

Note: The aim of this diagram is to aid understanding of the Plan. As such, although it depicts an outline of typical procedures, it should by no means be considered as showing all procedures that can be taken. For further details, please refer to the following: https://www.dydo-ghd.co.jp/ir/pdf/20170306_08.pdf

• Evaluation and review of acquisition proposal

• Formulation of alternative plan

• Negotiation with purchaser making large-scale acquisition

If there is conspicuous harm to corporate value, and thus to joint interests

of shareholders

Board ofDirectors

If a reasonable explanation is provided for not being able to provide all necessary information

Consultation,advice Foundation for C

orporate Value Creation

39 40DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Foundation for Corporate Value Creation

Q.A.

Q.A.

What is your role as an outside director?

I bring up matters with the perspective of shareholders and investors in mind to keep the DyDo Group on track for growth.

A full year has passed since I was appointed as an outside director for DyDo DRINCO, Inc. (now DyDo Group Holdings, Inc.) in April 2016. My ideal of governance is one based on principles. I believe that the group’s overall approach and actions will maintain the proper direction as long as we hold fast to our philosophy and vision. The DyDo Group’s corporate philosophy is clear about its mission toward contributing to people and society.

I think there are two functions expected of an outside director as we strive for sustainable corporate growth. One is reducing risk. This role falls primarily to Outside Director Shinji Mori, who is a lawyer. The other is increasing shareholder interest. This role I feel is my role, as I have long been involved in the management of business. This requires my efforts to be made from the viewpoint of the shareholder and investor.

I believe that the basis for doing good business is to “do the right thing in the right way.” If the direction of your strategies and investments is in line with the corporate philosophy and vision, and if the medium-term plan lays out steps over time for carrying out those strategies, that is how you know that the “right thing” is being done the “right way.”

The atmosphere at the Board of Directors’ meetings is one that brings about active discussion. The outside directors have a lot of expertise, and the questions and points that they present are addressed carefully and earnestly, and because of this I feel that the Board of Directors operates in a in a very open and transparent way.

At present the DyDo Group is putting energy into developing overseas markets. I believe my own experience in overseas business management and auditing can be of great use in this area.

What kind of proposals are you making for overseas business development?

That sharing a coherent scenario for success and putting PDCA into practice is paramount.

The DyDo Group got started in overseas business development in 2008 with its advance into China. Today the group also does business in Russia, Malaysia, and Turkey. Various obstacles stand in the way of applying DyDo’s domestic standards to local measures in different countries. I emphasize that the path to success will depend on drawing up a scenario that clarifies the order of priority for individual projects and that implements a

Masataka InoueIndependent Outside Director

Interview with an IndependentOutside Director

Q.A.

What are your aspirations as an outside director?

To provide support for the dynamic challenges the company takes on from an independent, objective standpoint.

This transition to a holding company structure is a turning point for the DyDo Group. After the shift, the responsibilities and authority of each operating company were clarified and the authority transferred. It is now up to the outside directors to provide an independent and objective point of view on how the holding company can best support and coordinate the operating companies so that each business can grow.

I will continue to take a long-term view of the DyDo Group’s business development and provide support for the dynamic challenges the company takes on.

Profile

Evaluation of the Effectiveness of the Board of Directors

To strengthen the function of the Board of Directors and further improve its effectiveness, we have been conducting effectiveness evaluation of the Board of Directors since FY2016, by using the following analysis and evaluation method.

■ Analysis and Evaluation MethodIn order to analyze and evaluate the effectiveness of the Board of Directors, our Board of Directors conducts a questionnaire-based self-evaluation by all directors and auditors, and individual interviews by the secretariat of the Board of Directors. At the Board of Directors meeting held afterwards, the directors analyze the results of their self-evaluation, share their understanding of current issues, and engage in constructive discussions of topics such as efforts going forward to realize a more effective Board of Directors.

■ Evaluation ItemsThe major items featured in the self-evaluation survey were as shown below.

(1) The composition of the Board of Directors(2) The operation of the Board of Directors(3) The agenda of the Board of Directors(4) The framework supporting the Board of Directors

■ Overview of Analysis/Evaluation Results from FY2016

On the basis of the outcome of discussions regarding the analysis of the results of the self-evaluation surveys, the Board of Directors came to the conclusion that the Board of Directors is functioning effectively.

● President and Representative Director of the company, Tomiya Takamatsu, is from the founding family of the company and is one of the major shareholders of the company. He demonstrates strong leadership, as evidenced by his medium- to long-term management stance and timely and decisive decision-making skills as he leads the company.

● The composition of the Board of Directors is such that its ideal size makes it easy to raise and discuss matters, it has a high degree of independence thanks to the fact that 50% of the participants of the Board of Directors are outside directors or outside auditors (5 out of 10), and it can monitor and supervise things effectively from an objective standpoint.

● When discussing important matters, proceedings are carried out while giving respect to the opinions of outside directors and outside auditors in order to ensure transparent decision-making in the Board of Directors.

The following challenges lie ahead as we seek to strengthen the functions of the Board of Directors and further increase effectiveness.

(1) With regard to the composition of the Board of Directors, we will appoint an even more diverse range of personnel as we push forward with our management strategy to accelerate overseas business development and expand our fields of business.

(2) With regard to the agenda of the meeting of the Board of Directors, we will refine discussion items and further deepen constructive dialogue regarding the major directions of our corporate strategy as part of our group management, and decide how best to handle risk amidst the increasing requirements of our international business operations.

(3) With regard to the operation of the Board of Directors, there is room for improvement in the way in which information is provided to outside officers, the way in which time is allocated for discussion of matters according to their relative importance, and the way in which information is prepared and explained.

■ Future EffortsIn addition to making the transition to a holding company structure on January 21, 2017, in order to streamline decision-making, our group has delegated authority to each of the individual businesses. We believe that this will enable the Board of Directors to refine discussion items and further deepen constructive dialogue regarding the major directions of our corporate strategy as part of our group management, and gain a better understanding of how best to handle risk amidst the increasing requirements of our international business operations.

In the future, on the basis of the results of the evaluation of the efficiency of the Board of Directors, it is our aim to endeavor to strengthen the functions of the Board of Directors and to further increase its effectiveness, while realizing sustained growth for the group and increasing medium- to long-term corporate value.

Apr. 1978 Joined Nakano Vinegar Co., Ltd.Jul. 2005 Appointed Director at Mizkan Group CorporationMay 2007 Appointed Managing Director at Mizkan Group CorporationOct. 2009 Appointed Standing Auditor at Mizkan Group CorporationMar. 2011 Appointed Divisional Manager in charge of the Management Auditing Office

at Mizkan Group CorporationMar. 2014 Appointed Divisional Manager in charge of the Business Planning Division at

Mizkan Holdings Co., Ltd.Mar. 2016 Resigned from Mizkan Holdings Co., Ltd.Apr. 2016 Appointed Director of the company (current position)

Stimulating discussion from an independent viewpoint to encourage sustainable growth with the group’s philosophy in mind.

PDCA management method in an integrated fashion. You then need consistency when turning that strong-willed vision for how you want things to be into an annual plan and a medium-term plan. The annual plan must contain a “success scenario” that has an end in view, based on which it becomes possible to evaluate progress throughout the term, summarize progress at the end of the term, and get the PDCA cycle working.

By sharing this coherent scenario of the future it becomes easier to get on the same page with local management personnel and employees. Even for the Board of Directors, clarifying evaluation criteria, such as whether or not a scenario is appropriate or what stage of achievement it has reached, allows a constructive exchange of opinions.

Global investments are still relatively new for the DyDo Group, and to this extent, success will require a long-term readiness, but we are working to develop these seeds of growth so that will lead to further expansion.

Foundation for Corporate Value C

reation

41 42DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Foundation for Corporate Value Creation

Q.A.

Q.A.

What is your role as an outside director?

I bring up matters with the perspective of shareholders and investors in mind to keep the DyDo Group on track for growth.

A full year has passed since I was appointed as an outside director for DyDo DRINCO, Inc. (now DyDo Group Holdings, Inc.) in April 2016. My ideal of governance is one based on principles. I believe that the group’s overall approach and actions will maintain the proper direction as long as we hold fast to our philosophy and vision. The DyDo Group’s corporate philosophy is clear about its mission toward contributing to people and society.

I think there are two functions expected of an outside director as we strive for sustainable corporate growth. One is reducing risk. This role falls primarily to Outside Director Shinji Mori, who is a lawyer. The other is increasing shareholder interest. This role I feel is my role, as I have long been involved in the management of business. This requires my efforts to be made from the viewpoint of the shareholder and investor.

I believe that the basis for doing good business is to “do the right thing in the right way.” If the direction of your strategies and investments is in line with the corporate philosophy and vision, and if the medium-term plan lays out steps over time for carrying out those strategies, that is how you know that the “right thing” is being done the “right way.”

The atmosphere at the Board of Directors’ meetings is one that brings about active discussion. The outside directors have a lot of expertise, and the questions and points that they present are addressed carefully and earnestly, and because of this I feel that the Board of Directors operates in a in a very open and transparent way.

At present the DyDo Group is putting energy into developing overseas markets. I believe my own experience in overseas business management and auditing can be of great use in this area.

What kind of proposals are you making for overseas business development?

That sharing a coherent scenario for success and putting PDCA into practice is paramount.

The DyDo Group got started in overseas business development in 2008 with its advance into China. Today the group also does business in Russia, Malaysia, and Turkey. Various obstacles stand in the way of applying DyDo’s domestic standards to local measures in different countries. I emphasize that the path to success will depend on drawing up a scenario that clarifies the order of priority for individual projects and that implements a

Masataka InoueIndependent Outside Director

Interview with an IndependentOutside Director

Q.A.

What are your aspirations as an outside director?

To provide support for the dynamic challenges the company takes on from an independent, objective standpoint.

This transition to a holding company structure is a turning point for the DyDo Group. After the shift, the responsibilities and authority of each operating company were clarified and the authority transferred. It is now up to the outside directors to provide an independent and objective point of view on how the holding company can best support and coordinate the operating companies so that each business can grow.

I will continue to take a long-term view of the DyDo Group’s business development and provide support for the dynamic challenges the company takes on.

Profile

Evaluation of the Effectiveness of the Board of Directors

To strengthen the function of the Board of Directors and further improve its effectiveness, we have been conducting effectiveness evaluation of the Board of Directors since FY2016, by using the following analysis and evaluation method.

■ Analysis and Evaluation MethodIn order to analyze and evaluate the effectiveness of the Board of Directors, our Board of Directors conducts a questionnaire-based self-evaluation by all directors and auditors, and individual interviews by the secretariat of the Board of Directors. At the Board of Directors meeting held afterwards, the directors analyze the results of their self-evaluation, share their understanding of current issues, and engage in constructive discussions of topics such as efforts going forward to realize a more effective Board of Directors.

■ Evaluation ItemsThe major items featured in the self-evaluation survey were as shown below.

(1) The composition of the Board of Directors(2) The operation of the Board of Directors(3) The agenda of the Board of Directors(4) The framework supporting the Board of Directors

■ Overview of Analysis/Evaluation Results from FY2016

On the basis of the outcome of discussions regarding the analysis of the results of the self-evaluation surveys, the Board of Directors came to the conclusion that the Board of Directors is functioning effectively.

● President and Representative Director of the company, Tomiya Takamatsu, is from the founding family of the company and is one of the major shareholders of the company. He demonstrates strong leadership, as evidenced by his medium- to long-term management stance and timely and decisive decision-making skills as he leads the company.

● The composition of the Board of Directors is such that its ideal size makes it easy to raise and discuss matters, it has a high degree of independence thanks to the fact that 50% of the participants of the Board of Directors are outside directors or outside auditors (5 out of 10), and it can monitor and supervise things effectively from an objective standpoint.

● When discussing important matters, proceedings are carried out while giving respect to the opinions of outside directors and outside auditors in order to ensure transparent decision-making in the Board of Directors.

The following challenges lie ahead as we seek to strengthen the functions of the Board of Directors and further increase effectiveness.

(1) With regard to the composition of the Board of Directors, we will appoint an even more diverse range of personnel as we push forward with our management strategy to accelerate overseas business development and expand our fields of business.

(2) With regard to the agenda of the meeting of the Board of Directors, we will refine discussion items and further deepen constructive dialogue regarding the major directions of our corporate strategy as part of our group management, and decide how best to handle risk amidst the increasing requirements of our international business operations.

(3) With regard to the operation of the Board of Directors, there is room for improvement in the way in which information is provided to outside officers, the way in which time is allocated for discussion of matters according to their relative importance, and the way in which information is prepared and explained.

■ Future EffortsIn addition to making the transition to a holding company structure on January 21, 2017, in order to streamline decision-making, our group has delegated authority to each of the individual businesses. We believe that this will enable the Board of Directors to refine discussion items and further deepen constructive dialogue regarding the major directions of our corporate strategy as part of our group management, and gain a better understanding of how best to handle risk amidst the increasing requirements of our international business operations.

In the future, on the basis of the results of the evaluation of the efficiency of the Board of Directors, it is our aim to endeavor to strengthen the functions of the Board of Directors and to further increase its effectiveness, while realizing sustained growth for the group and increasing medium- to long-term corporate value.

Apr. 1978 Joined Nakano Vinegar Co., Ltd.Jul. 2005 Appointed Director at Mizkan Group CorporationMay 2007 Appointed Managing Director at Mizkan Group CorporationOct. 2009 Appointed Standing Auditor at Mizkan Group CorporationMar. 2011 Appointed Divisional Manager in charge of the Management Auditing Office

at Mizkan Group CorporationMar. 2014 Appointed Divisional Manager in charge of the Business Planning Division at

Mizkan Holdings Co., Ltd.Mar. 2016 Resigned from Mizkan Holdings Co., Ltd.Apr. 2016 Appointed Director of the company (current position)

Stimulating discussion from an independent viewpoint to encourage sustainable growth with the group’s philosophy in mind.

PDCA management method in an integrated fashion. You then need consistency when turning that strong-willed vision for how you want things to be into an annual plan and a medium-term plan. The annual plan must contain a “success scenario” that has an end in view, based on which it becomes possible to evaluate progress throughout the term, summarize progress at the end of the term, and get the PDCA cycle working.

By sharing this coherent scenario of the future it becomes easier to get on the same page with local management personnel and employees. Even for the Board of Directors, clarifying evaluation criteria, such as whether or not a scenario is appropriate or what stage of achievement it has reached, allows a constructive exchange of opinions.

Global investments are still relatively new for the DyDo Group, and to this extent, success will require a long-term readiness, but we are working to develop these seeds of growth so that will lead to further expansion.

Foundation for Corporate Value C

reation

41 42DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Foundation for Corporate Value Creation

Risk Management

■ Group Risk Management SystemWe consider risks to be various factors that obstruct us from achieving our business strategy based on our corporate philosophy. We have therefore established basic matters regarding the group’s risk management system based on our Fundamental Policy Regarding the Building of Internal Control Systems aimed at implementing sound and effective risk management.

■ Promotion of Risk ManagementEvery year, our group investigates and identifies risks based on changes in the environment surrounding our business, and in our Group Risk Management Committee we select important risks which pose a danger of major effects on our group, and discuss and decide on measures to address these risks. Our company divisions in charge of risk measures and the risk management promotion departments of our consolidated subsidiaries promote measures to reduce significant risks, and risks to be addressed that have been selected by each division or department.

After that, the Group Risk Management Committee evaluates the effectiveness of risk measures and the appropriateness of risk management, provides improvement instructions if necessary, and thereby strives to strengthen risk management in the group as a whole. (For details on risks which may have a serious impact on the business performance and financial soundness of the DyDo Group, see “Business Risks” on p. 63-64.)

■ Future Issues for Strengthening Risk Management

The risks surrounding our group are constantly changing—against a backdrop of accelerating overseas expansion, broadening of our fields of business, amendment of laws and regulations, changes in social conditions, and other trends—and these risks are expected to diversify even further in the future.

In this situation, we believe it is crucial to strengthen our Group Risk Management System by striving for even greater collaboration with group companies in order to prevent risks before they happen.

Crisis Management

■ Group Crisis Management SystemIn the event of a crisis that threatens to seriously impact the group, an emergency measures headquarters shall be established to provide a rapid response for the purpose of keeping damage and impact to a minimum.

■ Emergency Response Manual MaintenanceOur Emergency Response Manual sets out rules of conduct for when a crisis occurs that requires emergency measures to be taken. Procedures are aimed at protecting the safety of employees, securing corporate assets, preventing the spread of damage, and quickly restoring the business and business operations.

Internal Control

At the DyDo Group, by executing the duties of the directors in compliance with the law and the Articles of Incorporation and by pursuing sound and efficient work, we have established a Fundamental Policy Regarding the Building of Internal Control Systems based on the Companies Act and its enforcement regulations.

Based on this policy, group companies have established and operate an internal control system: our Internal Auditing Department coordinates with the manager in charge of internal auditing at each group company, and we use effective visiting audits and other means based on an annual auditing plan to determine whether or not business is being executed properly and efficiently.

Also, to further increase the credibility of financial reports, we comply with internal control and assessment regulations for financial reporting that are based on the Financial Instruments and Exchange Act. We put into writing the status of the internal control at major business locations, along with the process leading to the preparation of financial statements, and carry out evaluations and ongoing improvements on a consolidated basis.

Compliance

■ Establishment of Compliance Action GuidelinesSharing our Group Philosophy and Group Vision as our ideal structure, to realize this we have established Compliance Action Guidelines as important matters that should be adhered to from a compliance perspective.

■ Efforts to Improve Compliance AwarenessIn order to improve the compliance awareness of employees, DyDo DRINCO conducts compliance training focused on new employees, provides learning opportunities through e-learning, and periodically issues the Compliance Tsushin newsletter introducing examples of compliance in familiar situations in an easy-to-understand format using illustrations.

■ Establishing an Internal Reporting LiaisonWe have established an internal reporting liaison called the “DyDo Group Compliance Hotline” and we are working to ensure that group employees know about it. If there is a violation of laws, regulations, in-house rules, or social norms, or a risk of such a violation, we ensure that the employees of our group (employees, temporary workers based on the Worker Dispatch Act, and part-timers) and employees of business partners of our group can directly report that information without fear of negative repercussions.

Additionally, as we strive for even further improvement in response to the further diversification of business, we have ensured independence by establishing a new liaison in a third-party law office in January 2017.

Fundamental Policy Regarding the Building of Internal Control Systems (Section Headings Only)

Group RiskManagementCommittee

Internal Control and ComplianceovernanceG

Risk Management and Crisis ManagementovernanceG

Board of Directors

Secretariat

Chairperson:President

Members of the Group RiskManagement Committee

Coordination and information sharing

Risk management status reporting

Auditing of overall

control situation

Decision on Annual Policy

Strategy

Risk Extraction and EvaluationDecision on Risk Measures

Plan

Plan Implementation

Do

Activity Evaluation

Check

Risk ManagementImprovements

Action

Aud

it Dep

artment

Risk management promotion departments of thecompany’s divisions and consolidated subsidiaries

Frameworks to ensure that directors and employees of the corporate group comprised of the company and the subsidiaries of the company (the “Group”) perform their duties in conformity with laws and regulations and the Articles of IncorporationFrameworks concerning the preservation and manage-ment of reports on the performance of directors’ dutiesRegulations and other frameworks for managing the risk of damages to the GroupFrameworks to ensure that directors, etc. of the Group perform their duties in an efficient mannerMatters concerning reports to the company regarding the performance of the duties of directors, etc. of subsidiariesMatters concerning employees whose deployment is requested by corporate auditors to support their duties, matters concerning the independence of such employees from directors, and matters for ensuring the effectiveness of instructions issued by corporate auditors to such employeesFrameworks for reports to corporate auditors and frameworks to prevent retaliation against persons who have reported to corporate auditorsProcedures for advances or reimbursement of costs that arise in connection with the performance of the duties of corporate auditors and matters concerning policies for the treatment of other costs and obligations that arise from the performance of such dutiesOther frameworks to ensure the effective execution of audits of corporate auditorsFrameworks to ensure the reliability of financial reporting

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

For further details, please refer to the following:https://www.dydo-ghd.co.jp/en/about/governance/internal_control.html

Risk Management Yearly Activity Scheme

• Progress management

All-company riskmap and risk

management chartAll-company risk map

and risk management chart

Subm

it

• Risk extraction • Implementation of risk reduction measures

Revision

request

Progressreport

Report

Advice

Vice Chairperson:Internal Control Officer or General Manager of HR &

General Affairs Department

• Decision on risk response policy

• Formulation of risk response plan

• Risk evaluation and selection of significant risks

• Discussion and decision on risk measures

• Evaluation of risk measure conditions

• Designation of additional measures as necessary

• Review yearly activities and extract issues

• Implementation of additional measures

Risk

Managem

ent C

omm

ittee and S

ecretariat

Com

pany Divisions’

and Consolidated

Subsidiaries’ Risk

Managem

ent Prom

otion D

epartment

Risk map and risk management chart for each group company

and department

Foundation for Corporate Value C

reation

43 44DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Foundation for Corporate Value Creation

Risk Management

■ Group Risk Management SystemWe consider risks to be various factors that obstruct us from achieving our business strategy based on our corporate philosophy. We have therefore established basic matters regarding the group’s risk management system based on our Fundamental Policy Regarding the Building of Internal Control Systems aimed at implementing sound and effective risk management.

■ Promotion of Risk ManagementEvery year, our group investigates and identifies risks based on changes in the environment surrounding our business, and in our Group Risk Management Committee we select important risks which pose a danger of major effects on our group, and discuss and decide on measures to address these risks. Our company divisions in charge of risk measures and the risk management promotion departments of our consolidated subsidiaries promote measures to reduce significant risks, and risks to be addressed that have been selected by each division or department.

After that, the Group Risk Management Committee evaluates the effectiveness of risk measures and the appropriateness of risk management, provides improvement instructions if necessary, and thereby strives to strengthen risk management in the group as a whole. (For details on risks which may have a serious impact on the business performance and financial soundness of the DyDo Group, see “Business Risks” on p. 63-64.)

■ Future Issues for Strengthening Risk Management

The risks surrounding our group are constantly changing—against a backdrop of accelerating overseas expansion, broadening of our fields of business, amendment of laws and regulations, changes in social conditions, and other trends—and these risks are expected to diversify even further in the future.

In this situation, we believe it is crucial to strengthen our Group Risk Management System by striving for even greater collaboration with group companies in order to prevent risks before they happen.

Crisis Management

■ Group Crisis Management SystemIn the event of a crisis that threatens to seriously impact the group, an emergency measures headquarters shall be established to provide a rapid response for the purpose of keeping damage and impact to a minimum.

■ Emergency Response Manual MaintenanceOur Emergency Response Manual sets out rules of conduct for when a crisis occurs that requires emergency measures to be taken. Procedures are aimed at protecting the safety of employees, securing corporate assets, preventing the spread of damage, and quickly restoring the business and business operations.

Internal Control

At the DyDo Group, by executing the duties of the directors in compliance with the law and the Articles of Incorporation and by pursuing sound and efficient work, we have established a Fundamental Policy Regarding the Building of Internal Control Systems based on the Companies Act and its enforcement regulations.

Based on this policy, group companies have established and operate an internal control system: our Internal Auditing Department coordinates with the manager in charge of internal auditing at each group company, and we use effective visiting audits and other means based on an annual auditing plan to determine whether or not business is being executed properly and efficiently.

Also, to further increase the credibility of financial reports, we comply with internal control and assessment regulations for financial reporting that are based on the Financial Instruments and Exchange Act. We put into writing the status of the internal control at major business locations, along with the process leading to the preparation of financial statements, and carry out evaluations and ongoing improvements on a consolidated basis.

Compliance

■ Establishment of Compliance Action GuidelinesSharing our Group Philosophy and Group Vision as our ideal structure, to realize this we have established Compliance Action Guidelines as important matters that should be adhered to from a compliance perspective.

■ Efforts to Improve Compliance AwarenessIn order to improve the compliance awareness of employees, DyDo DRINCO conducts compliance training focused on new employees, provides learning opportunities through e-learning, and periodically issues the Compliance Tsushin newsletter introducing examples of compliance in familiar situations in an easy-to-understand format using illustrations.

■ Establishing an Internal Reporting LiaisonWe have established an internal reporting liaison called the “DyDo Group Compliance Hotline” and we are working to ensure that group employees know about it. If there is a violation of laws, regulations, in-house rules, or social norms, or a risk of such a violation, we ensure that the employees of our group (employees, temporary workers based on the Worker Dispatch Act, and part-timers) and employees of business partners of our group can directly report that information without fear of negative repercussions.

Additionally, as we strive for even further improvement in response to the further diversification of business, we have ensured independence by establishing a new liaison in a third-party law office in January 2017.

Fundamental Policy Regarding the Building of Internal Control Systems (Section Headings Only)

Group RiskManagementCommittee

Internal Control and ComplianceovernanceG

Risk Management and Crisis ManagementovernanceG

Board of Directors

Secretariat

Chairperson:President

Members of the Group RiskManagement Committee

Coordination and information sharing

Risk management status reporting

Auditing of overall

control situation

Decision on Annual Policy

Strategy

Risk Extraction and EvaluationDecision on Risk Measures

Plan

Plan Implementation

Do

Activity Evaluation

Check

Risk ManagementImprovements

Action

Aud

it Dep

artment

Risk management promotion departments of thecompany’s divisions and consolidated subsidiaries

Frameworks to ensure that directors and employees of the corporate group comprised of the company and the subsidiaries of the company (the “Group”) perform their duties in conformity with laws and regulations and the Articles of IncorporationFrameworks concerning the preservation and manage-ment of reports on the performance of directors’ dutiesRegulations and other frameworks for managing the risk of damages to the GroupFrameworks to ensure that directors, etc. of the Group perform their duties in an efficient mannerMatters concerning reports to the company regarding the performance of the duties of directors, etc. of subsidiariesMatters concerning employees whose deployment is requested by corporate auditors to support their duties, matters concerning the independence of such employees from directors, and matters for ensuring the effectiveness of instructions issued by corporate auditors to such employeesFrameworks for reports to corporate auditors and frameworks to prevent retaliation against persons who have reported to corporate auditorsProcedures for advances or reimbursement of costs that arise in connection with the performance of the duties of corporate auditors and matters concerning policies for the treatment of other costs and obligations that arise from the performance of such dutiesOther frameworks to ensure the effective execution of audits of corporate auditorsFrameworks to ensure the reliability of financial reporting

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

For further details, please refer to the following:https://www.dydo-ghd.co.jp/en/about/governance/internal_control.html

Risk Management Yearly Activity Scheme

• Progress management

All-company riskmap and risk

management chartAll-company risk map

and risk management chart

Subm

it

• Risk extraction • Implementation of risk reduction measures

Revision

request

Progressreport

Report

Advice

Vice Chairperson:Internal Control Officer or General Manager of HR &

General Affairs Department

• Decision on risk response policy

• Formulation of risk response plan

• Risk evaluation and selection of significant risks

• Discussion and decision on risk measures

• Evaluation of risk measure conditions

• Designation of additional measures as necessary

• Review yearly activities and extract issues

• Implementation of additional measures

Risk

Managem

ent C

omm

ittee and S

ecretariat

Com

pany Divisions’

and Consolidated

Subsidiaries’ Risk

Managem

ent Prom

otion D

epartment

Risk map and risk management chart for each group company

and department

Foundation for Corporate Value C

reation

43 44DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Foundation for Corporate Value Creation

To realize our Group Philosophy of “striving to achieve happiness and prosperity together with people and society as a whole,” we believe the growth of the individual is the growth of the company and thus consider it important that we allow the individuality and capabilities of each and every employee who makes up our organization to shine, and that they are able to continue to pursue tireless challenge.

DyDo DRINCO’s Basic Approach to HR

❶ Recruit diverse personnel who are prepared to boldly take on challenges and are capable of taking responsibility for innovation.

❷ Train personnel to increase knowledge and improve skills in order to create and implement a vision and become capable of bringing about innovation.

❸ Build an organizational culture and personnel system that promote an ongoing handling of challenges.

Fostering a Corporate Culture of Taking Up Challenges

❸ Building an Organizational Culture and Personnel System

Innovation

❶ Recruiting Diverse Personnel→

Recruiting Diverse Personnel

■ Hiring Female EmployeesOur group is promoting the proactive recruitment of women and working to develop an environment and foster a corporate climate where it is easy for women to participate and work. At DyDo Beverage Service, our company in charge of management and operation of vending machines, we are working to recruit and develop women for the role of operations staff, a position previously staffed mainly by men.

■ Hiring People with DisabilitiesAt DyDo DRINCO, we always strive to hire people with disabilities in numbers above the statutory rate. We aim to create a workplace environment where each person can fully exploit their strengths and capabilities, and work to enable everyone to grow together.

■ Hiring Individuals with Overseas ExperienceAt DyDo DRINCO, we are working to actively hire Japanese students with study abroad experience, foreign students, and personnel with international business experience, in order to promote globalization. As part of that, we participate in career forums held overseas, and have adopted an autumn entry system for graduates of overseas universities.

Developing Personnel Who Can Initiate Change

At DyDo DRINCO, we aim to develop and improve employee capabilities through two types of training: level-specific training to promote understanding of the knowledge and approaches needed at each level, and department-specific training for acquiring specialized skills. In addition, we have a training program to develop and select the next generation of executives who will play a leading role in our sustained growth and development.

■ Level-specific Training: Newly-appointed Sales Office Manager Training

At DyDo DRINCO, newly-appointed sales office managers* undergo a training program upon appointment to their new position. In this training, which focuses on goal and business management as well as the development of subordinates, we strive to impart not only the mission and conduct requirements of a sales office manager, but also the knowledge and skills needed to accomplish duties.

■ Next-generation Executive Development/Selection Program: DyDo Innovation Academy

At DyDo DRINCO, we have a long-term training program, DyDo Innovation Academy, for mid-level employees. The objective is to develop and select the next generation of executives to play leadership roles in our organization’s sustained growth and development. Through combined off- and on-the-job training programs, we plan to help employees acquire problem- and issue-solving skills, management literacy, and help them to strengthen their leadership skills.

■ Innovation Valley At DyDo DRINCO, our employees independently plan and organize Innovation Valley, a forum for active exchange of views and development of innovative ideas. Volunteer participants from facilities (bases, sales offices, branch offices) all over Japan create ideas through workshops, and aim to realize ideas by integrating the knowledge and know-how of each participant.

Comparative hiring rate of female employees among graduate hires

(For FY2017)Note: Average based on DyDo DRINCO, DyDo Beverage Service, DAIDO Pharmaceutical Corporation, and Tarami

(for FY2016)

53%

(for FY2016)

No. of participants in newly-appointed sales office manager training 15

(for FY2016)

Reported challenges 14

(for FY2016)

No. of participants in Innovation Valley 33

No. of participants in DyDo Innovation Academy 132

Offering a Dynamic Workplace

■ DyDo Challenge AwardTo support challenges by our employees and foster a corporate culture of taking up challenges, DyDo DRINCO has been bestowing the DyDo Challenge Award since FY2017. Under this system, we have established DyDo Challenge Awards commending contributions, to improvement of corporate value in particular, from among the challenges executed in the past year, and DyDo Challenge Idea Awards where we solicit ideas for challenges from employees and select some for execution starting in the following fiscal year.

In FY2016, prior to the launch of this system, we held the FY2016 DyDo Challenge Report Meeting, and each department reported on the results of challenges in the most recent year.

Use of Neuromarketing

The Marketing Department reported on the use in television commercial production of “neuro investigation,” a technique for analyzing and measuring brain activity. In the beverage business, where purchase decisions are made in just a few seconds, it is crucial to understand consumer psychology from the perspective of both subconscious words and unconscious reactions, and we were the first beverage manufacturer to use neuro investigation for marketing. Going forward, we will continue to try out various types of investigation with the aim to expanding sales, and use findings obtained from investigation results in our marketing policy.

Entry into the Health Server Business

Recently graduated employees who joined the company in FY2016 reported on a proposal to enter the supplement server business for supporting health management. A feasibility study was carried out, and this led to investment in dricos, Inc. (referred to below as “dricos”), which has developed “healthServer” for on-the-spot extraction of order-made supplements to suit the health condition of the user. In the future, our two companies will conduct studies to create attractive new services, and we will promote initiatives to grow our vending machine business and the health server business of dricos.

Examples of Reports from the FY2016 DyDo Challenge Report Meeting

A scene from a workshop at Innovation Valley

DyDo Challenge Award DyDo Challenge Idea AwardRecognition of

executed challengesExecute suggested

challenge ideas

January 20January 20of last year

January 20of next year

ocialS

*DyDo Beverage Service sales office managers, who are responsible for vending machine management and operations

FY2016 DyDo Challenge Report Meeting participants(President is in the center of the front row)

Members of the Marketing Department who reported on the use of neuromarketing

New employees who proposed ideas that resulted in the entry into the health server business

←❷ Developing Personnel Who Can Initiate Change

Foundation for Corporate Value C

reation

45 46DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Foundation for Corporate Value Creation

To realize our Group Philosophy of “striving to achieve happiness and prosperity together with people and society as a whole,” we believe the growth of the individual is the growth of the company and thus consider it important that we allow the individuality and capabilities of each and every employee who makes up our organization to shine, and that they are able to continue to pursue tireless challenge.

DyDo DRINCO’s Basic Approach to HR

❶ Recruit diverse personnel who are prepared to boldly take on challenges and are capable of taking responsibility for innovation.

❷ Train personnel to increase knowledge and improve skills in order to create and implement a vision and become capable of bringing about innovation.

❸ Build an organizational culture and personnel system that promote an ongoing handling of challenges.

Fostering a Corporate Culture of Taking Up Challenges

❸ Building an Organizational Culture and Personnel System

Innovation

❶ Recruiting Diverse Personnel→

Recruiting Diverse Personnel

■ Hiring Female EmployeesOur group is promoting the proactive recruitment of women and working to develop an environment and foster a corporate climate where it is easy for women to participate and work. At DyDo Beverage Service, our company in charge of management and operation of vending machines, we are working to recruit and develop women for the role of operations staff, a position previously staffed mainly by men.

■ Hiring People with DisabilitiesAt DyDo DRINCO, we always strive to hire people with disabilities in numbers above the statutory rate. We aim to create a workplace environment where each person can fully exploit their strengths and capabilities, and work to enable everyone to grow together.

■ Hiring Individuals with Overseas ExperienceAt DyDo DRINCO, we are working to actively hire Japanese students with study abroad experience, foreign students, and personnel with international business experience, in order to promote globalization. As part of that, we participate in career forums held overseas, and have adopted an autumn entry system for graduates of overseas universities.

Developing Personnel Who Can Initiate Change

At DyDo DRINCO, we aim to develop and improve employee capabilities through two types of training: level-specific training to promote understanding of the knowledge and approaches needed at each level, and department-specific training for acquiring specialized skills. In addition, we have a training program to develop and select the next generation of executives who will play a leading role in our sustained growth and development.

■ Level-specific Training: Newly-appointed Sales Office Manager Training

At DyDo DRINCO, newly-appointed sales office managers* undergo a training program upon appointment to their new position. In this training, which focuses on goal and business management as well as the development of subordinates, we strive to impart not only the mission and conduct requirements of a sales office manager, but also the knowledge and skills needed to accomplish duties.

■ Next-generation Executive Development/Selection Program: DyDo Innovation Academy

At DyDo DRINCO, we have a long-term training program, DyDo Innovation Academy, for mid-level employees. The objective is to develop and select the next generation of executives to play leadership roles in our organization’s sustained growth and development. Through combined off- and on-the-job training programs, we plan to help employees acquire problem- and issue-solving skills, management literacy, and help them to strengthen their leadership skills.

■ Innovation Valley At DyDo DRINCO, our employees independently plan and organize Innovation Valley, a forum for active exchange of views and development of innovative ideas. Volunteer participants from facilities (bases, sales offices, branch offices) all over Japan create ideas through workshops, and aim to realize ideas by integrating the knowledge and know-how of each participant.

Comparative hiring rate of female employees among graduate hires

(For FY2017)Note: Average based on DyDo DRINCO, DyDo Beverage Service, DAIDO Pharmaceutical Corporation, and Tarami

(for FY2016)

53%

(for FY2016)

No. of participants in newly-appointed sales office manager training 15

(for FY2016)

Reported challenges 14

(for FY2016)

No. of participants in Innovation Valley 33

No. of participants in DyDo Innovation Academy 132

Offering a Dynamic Workplace

■ DyDo Challenge AwardTo support challenges by our employees and foster a corporate culture of taking up challenges, DyDo DRINCO has been bestowing the DyDo Challenge Award since FY2017. Under this system, we have established DyDo Challenge Awards commending contributions, to improvement of corporate value in particular, from among the challenges executed in the past year, and DyDo Challenge Idea Awards where we solicit ideas for challenges from employees and select some for execution starting in the following fiscal year.

In FY2016, prior to the launch of this system, we held the FY2016 DyDo Challenge Report Meeting, and each department reported on the results of challenges in the most recent year.

Use of Neuromarketing

The Marketing Department reported on the use in television commercial production of “neuro investigation,” a technique for analyzing and measuring brain activity. In the beverage business, where purchase decisions are made in just a few seconds, it is crucial to understand consumer psychology from the perspective of both subconscious words and unconscious reactions, and we were the first beverage manufacturer to use neuro investigation for marketing. Going forward, we will continue to try out various types of investigation with the aim to expanding sales, and use findings obtained from investigation results in our marketing policy.

Entry into the Health Server Business

Recently graduated employees who joined the company in FY2016 reported on a proposal to enter the supplement server business for supporting health management. A feasibility study was carried out, and this led to investment in dricos, Inc. (referred to below as “dricos”), which has developed “healthServer” for on-the-spot extraction of order-made supplements to suit the health condition of the user. In the future, our two companies will conduct studies to create attractive new services, and we will promote initiatives to grow our vending machine business and the health server business of dricos.

Examples of Reports from the FY2016 DyDo Challenge Report Meeting

A scene from a workshop at Innovation Valley

DyDo Challenge Award DyDo Challenge Idea AwardRecognition of

executed challengesExecute suggested

challenge ideas

January 20January 20of last year

January 20of next year

ocialS

*DyDo Beverage Service sales office managers, who are responsible for vending machine management and operations

FY2016 DyDo Challenge Report Meeting participants(President is in the center of the front row)

Members of the Marketing Department who reported on the use of neuromarketing

New employees who proposed ideas that resulted in the entry into the health server business

←❷ Developing Personnel Who Can Initiate Change

Foundation for Corporate Value C

reation

45 46DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Foundation for Corporate Value Creation

Based on the idea of achieving happiness and prosperity together, our group strives to raise corporate value by making full use of the views of all our stakeholders at all stages of our business activities.

Engaging with Shareholders

■ General Meeting of ShareholdersEvery year in April, we hold our Annual General Meeting of Shareholders at a hotel in the city of Osaka, where our head office is located. At this meeting, our President acts as the chair and reports on our business. Attendees vote on resolutions, and there is a lively question-and-answer session with shareholders. At the 42nd Annual General Meeting of Shareholders, held on April 14, 2017, a total of 15 questions were received from 15 shareholders in all.

■ DyDo Challenge TsushinTwice each year, we publish DyDo Challenge Tsushin, a Japanese-language newsletter for our shareholders. In keeping with the theme of “two-way communication” that is central to our IR activities, a shareholder survey is carried out. The opinions and impressions expressed by shareholders are provided as feedback to the relevant departments and used to create content for the newsletter. Also, survey results are disclosed in the newsletter and on our company website.

Seminars Held for Individual

Investors: 16 (FY2016)

Osaka: 1

Fukuoka: 1

Kagoshima: 1

Hiroshima: 1

Nara: 1Aichi: 1

Tokyo: 4

Shizuoka: 2

Ehime: 1

Tochigi: 1

Kanagawa: 1

Miyagi: 1

42nd Annual General Meeting of Shareholders (held on April 14, 2017)

Engagement with Institutional Investors (FY2016)

Voting percentage

Shareholders in attendance

Meeting time

79.7%

732

1 hour 49 minutes

Financial results briefings

Small meetings

Individual meetings

2

5

191

Engaging with Investors

■ Engaging with Institutional InvestorsWe hold financial results briefings, small meetings, and other events for institutional investors. Our President himself works hard to achieve constructive dialogue with institutional investors, explaining matters such as our Group Vision and business strategy. We also hold individual meetings organized by our IR team, and provide timely feedback to management regarding the concerns and views of institutional investors.

■ Engaging with Individual InvestorsWe hold corporate seminars for individual investors in various regions throughout Japan. After the seminars are finished, we administer a questionnaire, and review seminar content and methods based on the opinions and impressions received.

Evaluation of Customer Support

Purchase Intention of DyDo DRINCO Products

Engaging with Customers

■ The Roles of Our Customer Support SectionDyDo DRINCO listens carefully to feedback from customers that comes in forms such as inquiries, comments, impressions, and requests, and strives to respond quickly and with care and honesty. We share such valuable feedback on a timely basis with the relevant departments to help improve our products and services. We also actively share information of all kinds that meets customers’ needs so that we can win over more DyDo DRINCO fans.

Engaging with Business Partners

■ Information Briefings for Business PartnersCommunication on a daily basis is essential for building better partnerships of mutual trust with our suppliers and other partners. At DyDo DRINCO we also hold regular briefings to explain policies with the goal of making progress together by sharing DyDo’s management vision and business strategy.

■ Quality Assurance MeetingsDyDo DRINCO contracts out manufacturing to outside affiliated plants, and holds annual quality assurance meetings where all of these affiliated plants can meet together. Through a frank exchange of views, we strive to improve quality control and strengthen relationships of trust.

Engaging with Employees

■ DyDo Offsite MeetingsIn the DyDo Group, the President visits every region of the country and conducts DyDo Offsite Meetings for direct dialogue with employees. At these meetings, participants discuss topics such as the Group Philosophy, Vision, and Slogan, which lay the groundwork for each job’s judgment and decision-making, and at the same time work towards developing a workplace environment with good communication to facilitate the free exchange of opinions.

■ Customer Support Evaluation SurveyDyDo DRINCO conducts surveys for customers who call customer support. We want those who contact us to feel good that they did so. Toward that end we are working to improve the quality of customer support while valuing the customer’s point of view.

Topics addressed at quality assurance meetings

More thanbefore:17.1%

Same as before:75.6%

Poor: 4.6%

Very poor: 1.4%

Other: 2.3%

Other: 1.8%

Providing a better service

Response and provision of information, etc.

Sharing of information

Customers

Customer supportsection

Related DyDo departments

Products,vending machines

Improvements, R&D

Inquiries, comments, requests, etc.

Less than before: 5.0%

Never again: 0.5%

(for FY2016)

(for FY2016)

Very good:52.0%

Good:39.7%

Responsible Engagement with StakeholdersocialS

A scene from the 42nd Annual General Meeting of Shareholders

A scene from an individual investor corporate seminar

President (left) and participantsDyDo Challenge Tsushin Spring 2017

● Report on results of quality assurance audits

● Case studies of major issues encountered during the year, their causes and measures taken

● Presentations of measures taken to improve quality by affiliate plant managers

Foundation for Corporate Value C

reation

47 48DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Foundation for Corporate Value Creation

Based on the idea of achieving happiness and prosperity together, our group strives to raise corporate value by making full use of the views of all our stakeholders at all stages of our business activities.

Engaging with Shareholders

■ General Meeting of ShareholdersEvery year in April, we hold our Annual General Meeting of Shareholders at a hotel in the city of Osaka, where our head office is located. At this meeting, our President acts as the chair and reports on our business. Attendees vote on resolutions, and there is a lively question-and-answer session with shareholders. At the 42nd Annual General Meeting of Shareholders, held on April 14, 2017, a total of 15 questions were received from 15 shareholders in all.

■ DyDo Challenge TsushinTwice each year, we publish DyDo Challenge Tsushin, a Japanese-language newsletter for our shareholders. In keeping with the theme of “two-way communication” that is central to our IR activities, a shareholder survey is carried out. The opinions and impressions expressed by shareholders are provided as feedback to the relevant departments and used to create content for the newsletter. Also, survey results are disclosed in the newsletter and on our company website.

Seminars Held for Individual

Investors: 16 (FY2016)

Osaka: 1

Fukuoka: 1

Kagoshima: 1

Hiroshima: 1

Nara: 1Aichi: 1

Tokyo: 4

Shizuoka: 2

Ehime: 1

Tochigi: 1

Kanagawa: 1

Miyagi: 1

42nd Annual General Meeting of Shareholders (held on April 14, 2017)

Engagement with Institutional Investors (FY2016)

Voting percentage

Shareholders in attendance

Meeting time

79.7%

732

1 hour 49 minutes

Financial results briefings

Small meetings

Individual meetings

2

5

191

Engaging with Investors

■ Engaging with Institutional InvestorsWe hold financial results briefings, small meetings, and other events for institutional investors. Our President himself works hard to achieve constructive dialogue with institutional investors, explaining matters such as our Group Vision and business strategy. We also hold individual meetings organized by our IR team, and provide timely feedback to management regarding the concerns and views of institutional investors.

■ Engaging with Individual InvestorsWe hold corporate seminars for individual investors in various regions throughout Japan. After the seminars are finished, we administer a questionnaire, and review seminar content and methods based on the opinions and impressions received.

Evaluation of Customer Support

Purchase Intention of DyDo DRINCO Products

Engaging with Customers

■ The Roles of Our Customer Support SectionDyDo DRINCO listens carefully to feedback from customers that comes in forms such as inquiries, comments, impressions, and requests, and strives to respond quickly and with care and honesty. We share such valuable feedback on a timely basis with the relevant departments to help improve our products and services. We also actively share information of all kinds that meets customers’ needs so that we can win over more DyDo DRINCO fans.

Engaging with Business Partners

■ Information Briefings for Business PartnersCommunication on a daily basis is essential for building better partnerships of mutual trust with our suppliers and other partners. At DyDo DRINCO we also hold regular briefings to explain policies with the goal of making progress together by sharing DyDo’s management vision and business strategy.

■ Quality Assurance MeetingsDyDo DRINCO contracts out manufacturing to outside affiliated plants, and holds annual quality assurance meetings where all of these affiliated plants can meet together. Through a frank exchange of views, we strive to improve quality control and strengthen relationships of trust.

Engaging with Employees

■ DyDo Offsite MeetingsIn the DyDo Group, the President visits every region of the country and conducts DyDo Offsite Meetings for direct dialogue with employees. At these meetings, participants discuss topics such as the Group Philosophy, Vision, and Slogan, which lay the groundwork for each job’s judgment and decision-making, and at the same time work towards developing a workplace environment with good communication to facilitate the free exchange of opinions.

■ Customer Support Evaluation SurveyDyDo DRINCO conducts surveys for customers who call customer support. We want those who contact us to feel good that they did so. Toward that end we are working to improve the quality of customer support while valuing the customer’s point of view.

Topics addressed at quality assurance meetings

More thanbefore:17.1%

Same as before:75.6%

Poor: 4.6%

Very poor: 1.4%

Other: 2.3%

Other: 1.8%

Providing a better service

Response and provision of information, etc.

Sharing of information

Customers

Customer supportsection

Related DyDo departments

Products,vending machines

Improvements, R&D

Inquiries, comments, requests, etc.

Less than before: 5.0%

Never again: 0.5%

(for FY2016)

(for FY2016)

Very good:52.0%

Good:39.7%

Responsible Engagement with StakeholdersocialS

A scene from the 42nd Annual General Meeting of Shareholders

A scene from an individual investor corporate seminar

President (left) and participantsDyDo Challenge Tsushin Spring 2017

● Report on results of quality assurance audits

● Case studies of major issues encountered during the year, their causes and measures taken

● Presentations of measures taken to improve quality by affiliate plant managers

Foundation for Corporate Value C

reation

47 48DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Foundation for Corporate Value Creation

(as of January 20, 2017)

No. of Smile STAND vending machines in use Over 15,000

(as of December 31, 2016)

No. of festivals supported 343

(as of January 20, 2017)

No. of participating children Over 300

(as of January 20, 2017)

No. of papercraft vending machine kits provided 5,500

(as of January 20, 2017)

Annual power consumption reduction per unit of our vending machines (in comparison to 2000) Over 80%

(as of January 20, 2017)

Weight reduction of a steel can* (in comparison to 1987) About 45％

(for FY2016)

No. of Frontier Vendors in use 3,696

In the Domestic Beverage Business which is our group’s core business, we are engaged in business activities based on vending machines with roots in local communities. Therefore, we believe that contributing to the revitalization of communities through our business and community activities helps to improve our corporate value.

Efforts to Revitalize Communities

The DyDo Group understands with the utmost importance that our beverages and food products are made using the bounty of this beautiful planet, and we work together with our business partners in actively promoting environmentally sound business activities.

Realizing Reductions in Both Environmental Impact and CostsnvironmentEocialS

A portion ofprofits

Association /organization

Location owners of our “community

action vending machines”

FundraisingFundraising

Installation /contract

Sales commission

*185g capacity container type

Contributing to Society through Business

■ Creating New Value through Vending MachinesAt DyDo DRINCO, we are equipping our vending machines with communication equipment and working to make our vending machine network into an IoT network. In this way, we aim to use our vending machines as an IoT platform to provide not only drinks, but also services in a wide range of fields to make our customers’ lives more comfortable and fulfilling. As a first step, we began a full-scale rollout in September 2016 of our “Smile STAND” service for connecting customers and vending machines via smartphone.

Contribution to Society through Community Activities

■ DyDo DRINCO Japanese “MATSURI” FestivalsIn order to build ties between people and revitalize local communities, DyDo DRINCO has implemented Japanese “MATSURI” Festivals since 2003 as a way to support festivals, a Japanese cultural tradition. These activities aim, through media such as television shows and websites, to realistically communicate the pure emotion, such as the energy of festivals full of vital power and interpersonal bonds, and we are working to preserve the history and forms of each festival in videos and documentation.

Reduction of Environmental Impact and Costs of Vending Machines

■ Development of “Frontier Vendors”DyDo DRINCO inspects and disassembles vending machines which have finished their conventional service life, and, by combining old parts such as rejuvenated doors and racks with the latest energy-saving units, brings them back to life as machines with like-new energy-saving features. We call these vending machines which realize this extended lifespan “Frontier Vendors,” and through actively promoting their development, both environmental impact and costs can be reduced.

Reducing the Environmental Impact and Costs of Our Products

DyDo DRINCO has adopted the use of new model TULC (Toyo Ultimate Can) steel cans for our mainstay line of coffee products through use of cutting-edge technology, making them the lightest cans* in the domestic market.*Compiled by Toyo Seikan Co., Ltd.

This can is made using a manufacturing process that creates only a small amount of carbon dioxide emissions, no water is used during processing, and the amount of solid waste generated during the washing process is almost zero, greatly reducing its impact on the environment.

Reduction of Environmental Impact and Costs at Plants

Our domestic group companies who possess production factories set energy reduction targets and promote efforts for reducing energy consumption. Priority is given to upgrading to factory equipment that offers better environmental performance, while investigations are conducted to ensure that energy is not being wasted, making efforts to effectively utilize energy while guaranteeing quality.

■ Energy-saving Vending MachinesThrough the promotion of energy-saving vending machines, DyDo DRINCO has reduced the annual power consumption of our vending machines by more than 80% per unit compared to the year 2000.

■ Planning and Execution of Vending Machine Experience Workshops

As well as offering a space for children to learn about society, each company in the Domestic Beverage Business provides an opportunity for children to arouse their interest in vending machines, learn about their history and functions, and to experience the work of operations staff in replenishing drinks and replacing vendor samples*.*Drink models displayed in a vending machine

■ Providing Free-of-charge Papercraft Vending Machine Kits

DyDo DRINCO produces papercraft vending machine kits that encourage children to express themselves and provides them free of charge across Japan. Starting in FY2016, we have also included a learning support sheet that aims to provide easy and fun assistance so that children can learn how to make a purchase from a vending machine.

■ Fundraising via Vending MachinesWorking together with the location owners of our vending machines, we set up what we call “community action vending machines” and donate a portion of profits taken by vending machines to raise funds. We are deploying vending machines that raise funds for different charitable purposes, such as conserving woodlands around Japan. Collected funds are utilized in activities run by various associations and organizations.

Based on the idea of achieving happiness and prosperity together, the DyDo Group recognizes the role of nature in allowing us to produce the beverages and food products that we deliver to people throughout society.We consider it an important responsibility to pass on to the next generation a clean earth and a society full of vitality, so we strive to carry out operations with full consideration for the environment.

● We comply with all environment-related laws and regulations applicable to our business activities.● We conserve resources and save energy in our business activities at all times.● We reduce the environmental impact of our products and services.● We engage in communication with people and society as a whole while working to achieve better

environmental and business activities.

DyDo DRINCO’s Environmental Policy

Basic Philosophy

Action Guidelines

Established: June 7, 2001Revised: April 16, 2014

Tomiya TakamatsuPresident

DyDo DRINCO, Inc.

Concept of Vending Machine Reconditioning

Used vending machine New energy-saving unit Frontier Vendor

Drinks

Health

CommunityContribution

Security

Communication

Information

New Model TULC (Toyo Ultimate Can)

Rejuvenated parts such as doors and

racks

Energy-saving unit equipped with a new

compressor, etc.

Reconditioned as a vending machine with like-new energy-saving features

Note: Annual power consumption per unit of our mainstay vending machine model; figures for annual power consumption measured using JIS standards

Foundation for Corporate Value C

reation

49 50DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Foundation for Corporate Value Creation

(as of January 20, 2017)

No. of Smile STAND vending machines in use Over 15,000

(as of December 31, 2016)

No. of festivals supported 343

(as of January 20, 2017)

No. of participating children Over 300

(as of January 20, 2017)

No. of papercraft vending machine kits provided 5,500

(as of January 20, 2017)

Annual power consumption reduction per unit of our vending machines (in comparison to 2000) Over 80%

(as of January 20, 2017)

Weight reduction of a steel can* (in comparison to 1987) About 45％

(for FY2016)

No. of Frontier Vendors in use 3,696

In the Domestic Beverage Business which is our group’s core business, we are engaged in business activities based on vending machines with roots in local communities. Therefore, we believe that contributing to the revitalization of communities through our business and community activities helps to improve our corporate value.

Efforts to Revitalize Communities

The DyDo Group understands with the utmost importance that our beverages and food products are made using the bounty of this beautiful planet, and we work together with our business partners in actively promoting environmentally sound business activities.

Realizing Reductions in Both Environmental Impact and CostsnvironmentEocialS

A portion ofprofits

Association /organization

Location owners of our “community

action vending machines”

FundraisingFundraising

Installation /contract

Sales commission

*185g capacity container type

Contributing to Society through Business

■ Creating New Value through Vending MachinesAt DyDo DRINCO, we are equipping our vending machines with communication equipment and working to make our vending machine network into an IoT network. In this way, we aim to use our vending machines as an IoT platform to provide not only drinks, but also services in a wide range of fields to make our customers’ lives more comfortable and fulfilling. As a first step, we began a full-scale rollout in September 2016 of our “Smile STAND” service for connecting customers and vending machines via smartphone.

Contribution to Society through Community Activities

■ DyDo DRINCO Japanese “MATSURI” FestivalsIn order to build ties between people and revitalize local communities, DyDo DRINCO has implemented Japanese “MATSURI” Festivals since 2003 as a way to support festivals, a Japanese cultural tradition. These activities aim, through media such as television shows and websites, to realistically communicate the pure emotion, such as the energy of festivals full of vital power and interpersonal bonds, and we are working to preserve the history and forms of each festival in videos and documentation.

Reduction of Environmental Impact and Costs of Vending Machines

■ Development of “Frontier Vendors”DyDo DRINCO inspects and disassembles vending machines which have finished their conventional service life, and, by combining old parts such as rejuvenated doors and racks with the latest energy-saving units, brings them back to life as machines with like-new energy-saving features. We call these vending machines which realize this extended lifespan “Frontier Vendors,” and through actively promoting their development, both environmental impact and costs can be reduced.

Reducing the Environmental Impact and Costs of Our Products

DyDo DRINCO has adopted the use of new model TULC (Toyo Ultimate Can) steel cans for our mainstay line of coffee products through use of cutting-edge technology, making them the lightest cans* in the domestic market.*Compiled by Toyo Seikan Co., Ltd.

This can is made using a manufacturing process that creates only a small amount of carbon dioxide emissions, no water is used during processing, and the amount of solid waste generated during the washing process is almost zero, greatly reducing its impact on the environment.

Reduction of Environmental Impact and Costs at Plants

Our domestic group companies who possess production factories set energy reduction targets and promote efforts for reducing energy consumption. Priority is given to upgrading to factory equipment that offers better environmental performance, while investigations are conducted to ensure that energy is not being wasted, making efforts to effectively utilize energy while guaranteeing quality.

■ Energy-saving Vending MachinesThrough the promotion of energy-saving vending machines, DyDo DRINCO has reduced the annual power consumption of our vending machines by more than 80% per unit compared to the year 2000.

■ Planning and Execution of Vending Machine Experience Workshops

As well as offering a space for children to learn about society, each company in the Domestic Beverage Business provides an opportunity for children to arouse their interest in vending machines, learn about their history and functions, and to experience the work of operations staff in replenishing drinks and replacing vendor samples*.*Drink models displayed in a vending machine

■ Providing Free-of-charge Papercraft Vending Machine Kits

DyDo DRINCO produces papercraft vending machine kits that encourage children to express themselves and provides them free of charge across Japan. Starting in FY2016, we have also included a learning support sheet that aims to provide easy and fun assistance so that children can learn how to make a purchase from a vending machine.

■ Fundraising via Vending MachinesWorking together with the location owners of our vending machines, we set up what we call “community action vending machines” and donate a portion of profits taken by vending machines to raise funds. We are deploying vending machines that raise funds for different charitable purposes, such as conserving woodlands around Japan. Collected funds are utilized in activities run by various associations and organizations.

Based on the idea of achieving happiness and prosperity together, the DyDo Group recognizes the role of nature in allowing us to produce the beverages and food products that we deliver to people throughout society.We consider it an important responsibility to pass on to the next generation a clean earth and a society full of vitality, so we strive to carry out operations with full consideration for the environment.

● We comply with all environment-related laws and regulations applicable to our business activities.● We conserve resources and save energy in our business activities at all times.● We reduce the environmental impact of our products and services.● We engage in communication with people and society as a whole while working to achieve better

environmental and business activities.

DyDo DRINCO’s Environmental Policy

Basic Philosophy

Action Guidelines

Established: June 7, 2001Revised: April 16, 2014

Tomiya TakamatsuPresident

DyDo DRINCO, Inc.

Concept of Vending Machine Reconditioning

Used vending machine New energy-saving unit Frontier Vendor

Drinks

Health

CommunityContribution

Security

Communication

Information

New Model TULC (Toyo Ultimate Can)

Rejuvenated parts such as doors and

racks

Energy-saving unit equipped with a new

compressor, etc.

Reconditioned as a vending machine with like-new energy-saving features

Note: Annual power consumption per unit of our mainstay vending machine model; figures for annual power consumption measured using JIS standards

Foundation for Corporate Value C

reation

49 50DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Foundation for Corporate Value Creation

Board of Directors

Management

President and Representative Director

Tomiya Takamatsu

Apr. 2004 Joined the companyApr. 2008 Appointed DirectorApr. 2009 Appointed Managing DirectorMar. 2010 Appointed Executive DirectorApr. 2012 Appointed Vice President and DirectorApr. 2014 Appointed President and Representative Director (his

current position)

Reason for NominationSince his appointment to the position of President in April 2014, Mr. Takamatsu has demonstrated strong leadership by managing the company with rapid, decisive decision-making in line with its medium- and long-term management posture based on the perspective of all stakeholders and in keeping with the newly formulated Group Philosophy and Group Vision. He has focused on laying the business foundation for dramatic future growth, which plays a key role in the transition to a holding company organization and working toward radical reforms to the business model, including a rollout of IoT-enabled vending machines and securing new strategic bases overseas. Based on this proven track record, he is considered highly qualified to be a member of the Board of Directors.

Mar. 1971 Joined DAIDO Pharmaceutical CorporationJan. 1975 Appointed Managing Director following the company’s

establishmentMay 1984 Appointed Executive DirectorJun. 1990 Appointed Vice President and DirectorApr. 1992 Appointed Vice President and Representative DirectorApr. 1994 Appointed President and Representative DirectorApr. 2014 Appointed Chairman and Director (his current position)

Reason for NominationHaving guided the company as President for 20 years, Mr. Takamatsu brings a wealth of experience and a history of accomplishments to the table. In his current position as Chairman and Director, he fulfills a range of roles as appropriate, including strengthening the foundation of the group’s management in areas such as governance, deciding important issues, and overseeing execution of business operations. In addition, he has worked tirelessly to revitalize the local communities in which the company does business by orchestrating its community service activities over many years. Based on this proven track record, he is considered highly qualified to be a member of the Board of Directors.

Apr. 1972 Joined the Legal Training and Research Institute of JapanApr. 1974 Appointed as a judge on the Yokohama District CourtApr. 1986 Appointed as a judge on the Kyoto District CourtApr. 1989 Registered as a member of the Osaka Bar AssociationApr. 2001 Appointed Corporate Auditor of the companyApr. 2014 Appointed Director of the company (his current position)

Reason for NominationMr. Mori has extensive experience and an advanced level of specialized knowledge as an attorney, and he has served the company for 13 years as an outside auditor and for 3 years as an outside director. He uses that expertise to effectively carry out his role in further strengthening the oversight function of the Board of Directors by offering advice and suggestions as to the company’s management from an independent perspective. Based on this proven track record, he is considered highly qualified to be an outside director on the Board of Directors.

Important Concurrent PostsOutside Corporate Auditor at Osaka Soda Co., Ltd.Auditor at Credit Guarantee Corporation of Osaka

Mar. 1980 Joined the companyMar. 1996 Appointed Branch Manager of Chiba OfficeJan. 2006 Appointed General Manager of General Affairs

DepartmentMar. 2010 Appointed General Manager of Area Distribution Sales

DepartmentMar. 2012 Appointed General Manager of No. 3 Corporate Sales

DepartmentJan. 2015 Appointed Chief Manager of Corporate Sales DepartmentApr. 2015 Appointed Corporate Auditor (his current position)

Jan. 1979 Registered as licensed tax accountantFeb. 1979 Opened Yoshida Tax Accountant OfficeApr. 1999 Appointed Corporate Auditor of the company

(his current position)

Reason for NominationWith years of experience as a licensed tax accountant, Mr. Yoshida possesses a wealth of expertise and high-level specialized knowledge related to finance and accounting. He is thus in a position to audit the company from a broad perspective with a great deal of autonomy. Based on this proven track record, he is considered highly qualified to be an outside corporate auditor.

Profile

Profile

Chairman and Director

Tomihiro TakamatsuProfile

Director and Executive Officer

Naoki TonokatsuDirector and Executive Officer

Naoyuki NishiyamaProfile

Independent Outside Director

Masataka Inoue

Apr. 1978 Joined Nakano Vinegar Co., Ltd.Jul. 2005 Appointed Director at Mizkan Group CorporationMay 2007 Appointed Managing Director at Mizkan Group

CorporationOct. 2009 Appointed Standing Auditor at Mizkan Group CorporationMar. 2011 Appointed Divisional Manager in charge of the

Management Auditing Office at Mizkan Group CorporationMar. 2014 Appointed Divisional Manager in charge of the Business

Planning Division at Mizkan Holdings Co., LtdMar. 2016 Left Mizkan Holdings Co., Ltd.Apr. 2016 Appointed Director of the company (his current position)

Reason for NominationMr. Inoue has a wealth of knowledge and experience in the food industry. With his auditing experience in areas such as business development through overseas M&A and overseas subsidiaries, he plays an appropriate role in further strengthening the functions of the Board of Directors by offering advice and suggestions as to the company’s management from an independent perspective concerning such issues as accelerating the development of the company’s business overseas and expanding its business domain. Based on this proven track record, he is considered highly qualified to be an outside director on the Board of Directors.

Mar. 1986 Joined the companyJan. 2011 Appointed General Manager of the Financial Affairs

DepartmentMar. 2013 Appointed Executive Officer and Division Director of the

Administrative DivisionJan. 2014 Appointed Executive Officer and Division Director of the

Finance DivisionJan. 2017 Appointed Executive Officer and General Manager of the

Finance DepartmentApr. 2017 Appointed Director, Executive Officer, and General

Manager of Finance Department (his current position)

Reason for NominationSince joining the company, Mr. Tonokatsu has engaged in finance for many years and has extensive experience and achievements. He fulfills duties central to procuring funds, etc. for achieving the Mid-term Business Plan. Currently, as Executive Officer and General Manager of the Finance Department, he is putting effort into sound company management such as building a solid structure for the entire group’s financial base. Based on this proven track record, he is considered highly qualified to be a member of the Board of Directors.

Mar. 1988 Joined the companyJan. 2014 Appointed General Manager of the Corporate Strategy

DepartmentFeb. 2014 Appointed General Manager of the Corporate Strategy

Department and General Manager of the International Business Department

Mar. 2015 Appointed Executive Officer, General Manager of the Corporate Strategy Department, and General Manager of the International Business Department

Jan. 2016 Appointed Executive Officer, General Manager of the Corporate Strategy Department, and General Manager of the Strategic Investment Department

Jan. 2017 Appointed Executive Officer and General Manager of the Corporate Strategy Department

Apr. 2017 Appointed Director, Executive Officer, and General Manager of Corporate Strategy Department (his current position)

Reason for NominationMr. Nishiyama has engaged in a wide range of duties covering overall management such as corporate strategy, strategic investment, and international business and has extensive experience and achievements. Currently, he is leading group companies as General Manager of the Corporate Strategy Department and pursuing new business development and initiatives to improve profitability. Based on this proven track record, he is considered highly qualified to be a member of the Board of Directors.

Profile

Corporate Auditors Executive Officers

Executive Officer and General Manager of Corporate Communication Department

Naokazu Hasegawa

Executive Officer and General Manager of HR & General Affairs Department

Akikazu Hamanaka

Executive Officer and General Manager of International Business Management Department

Mamoru Mitamura

Standing Corporate Auditor

Kazuyoshi HasegawaOutside Corporate Auditor

Taizo Yoshida

Outside Corporate Auditor

Hiroshi MatsumotoOutside Corporate Auditor

Sachie Kato

Profile Profile

Profile Profile

Independent Outside Director

Shinji MoriProfile

We have established the following standards to govern the independence of independent outside directors:

1. Candidates may not be a director (except as an outside director), auditor (except as an outside auditor), corporate officer, or employee of the DyDo Group.

2. Candidates may not count the DyDo Group as a major business partner or be a director, auditor, corporate officer, or employee of company that counts the DyDo Group as a major business partner.

3. Candidates may not be a major business partner of the DyDo Group or a director, auditor, corporate officer, or employee of a major business partner of the DyDo Group.

4. Candidates may not be a consultant, accounting specialist, or legal specialist who receives a large amount of money or other assets apart from officer compensation from the DyDo Group.

5. Candidates may not be a trustee, director, auditor, corporate officer, or employee of an organization that receives donations or subsidies in excess of a certain amount from the DyDo Group.

6. Candidates must not have fallen under the statuses described in (1) through (5) above at any time during the last three years.

7. Candidates must not be a family member of an individual who falls under any of the statuses described in (1) through (5) above. (However, in the case of employees described in [1], the restriction is limited to employees in key roles.)

*In this context, the DyDo Group would be considered a major business partner if the entity’s payments or receipts for transactions with the Group totaled 2% or more of the its total annual consolidated sales during the last business year.

*In this context, “a large amount of money” refers to payments averaging 10 million yen or more per year over the last three years (for individuals) or payments averaging 2% or more of the organization’s total consolidated sales over the last three business years (for organizations).

*In this context, a family member is a relative within the second degree of kinship, or a cohabitant relative.

*In this context, an employee in a key role is an employee with the rank of general manager or above.

*In this context, “a certain amount” refers to an annual average of 10 million yen over the last three business years, or 30% of the organization’s average annual expenditures, whichever is larger.

Feb. 1984 Registered as licensed tax accountantApr. 1984 Opened Hiroshi Matsumoto Tax Accountant OfficeApr. 1992 Appointed Corporate Auditor of the companyApr. 2007 Retired from position of Corporate AuditorApr. 2007 Appointed AdvisorApr. 2011 Retired from position of AdvisorApr. 2011 Appointed Corporate Auditor (his current position)

Reason for NominationWith years of experience as a licensed tax accountant, Mr. Yoshida possesses a wealth of expertise and high-level specialized knowledge related to finance and accounting. He is thus in a position to audit the company from a broad perspective with a great deal of autonomy. Based on this proven track record, he is considered highly qualified to be an outside corporate auditor.

Apr. 1969 Joined the Legal Training and Research InstituteApr. 1971 Appointed Public Prosecutor at the Tokyo District Public

Prosecutors OfficeMay 1974 Registered as a member of the Osaka Bar AssociationApr. 2014 Appointed Corporate Auditor of the company

(her current position)

Reason for NominationWith years of experience as a lawyer, Ms. Kato has the high principles of a legal specialist and extensive knowledge of corporate management as concerns multiple corporate legal issues. She is thus in a position to audit the company from a broad perspective with a great deal of autonomy. Based on this proven track record, she is considered highly qualified to be an outside corporate auditor.

Important Concurrent PostsOutside Director of Yamazen CorporationOutside Director of Hisaka Works, Ltd.

Independence Standards and Qualification for Independent Directors

Foundation for Corporate Value C

reation

51 52DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Foundation for Corporate Value Creation

Board of Directors

Management

President and Representative Director

Tomiya Takamatsu

Apr. 2004 Joined the companyApr. 2008 Appointed DirectorApr. 2009 Appointed Managing DirectorMar. 2010 Appointed Executive DirectorApr. 2012 Appointed Vice President and DirectorApr. 2014 Appointed President and Representative Director (his

current position)

Reason for NominationSince his appointment to the position of President in April 2014, Mr. Takamatsu has demonstrated strong leadership by managing the company with rapid, decisive decision-making in line with its medium- and long-term management posture based on the perspective of all stakeholders and in keeping with the newly formulated Group Philosophy and Group Vision. He has focused on laying the business foundation for dramatic future growth, which plays a key role in the transition to a holding company organization and working toward radical reforms to the business model, including a rollout of IoT-enabled vending machines and securing new strategic bases overseas. Based on this proven track record, he is considered highly qualified to be a member of the Board of Directors.

Mar. 1971 Joined DAIDO Pharmaceutical CorporationJan. 1975 Appointed Managing Director following the company’s

establishmentMay 1984 Appointed Executive DirectorJun. 1990 Appointed Vice President and DirectorApr. 1992 Appointed Vice President and Representative DirectorApr. 1994 Appointed President and Representative DirectorApr. 2014 Appointed Chairman and Director (his current position)

Reason for NominationHaving guided the company as President for 20 years, Mr. Takamatsu brings a wealth of experience and a history of accomplishments to the table. In his current position as Chairman and Director, he fulfills a range of roles as appropriate, including strengthening the foundation of the group’s management in areas such as governance, deciding important issues, and overseeing execution of business operations. In addition, he has worked tirelessly to revitalize the local communities in which the company does business by orchestrating its community service activities over many years. Based on this proven track record, he is considered highly qualified to be a member of the Board of Directors.

Apr. 1972 Joined the Legal Training and Research Institute of JapanApr. 1974 Appointed as a judge on the Yokohama District CourtApr. 1986 Appointed as a judge on the Kyoto District CourtApr. 1989 Registered as a member of the Osaka Bar AssociationApr. 2001 Appointed Corporate Auditor of the companyApr. 2014 Appointed Director of the company (his current position)

Reason for NominationMr. Mori has extensive experience and an advanced level of specialized knowledge as an attorney, and he has served the company for 13 years as an outside auditor and for 3 years as an outside director. He uses that expertise to effectively carry out his role in further strengthening the oversight function of the Board of Directors by offering advice and suggestions as to the company’s management from an independent perspective. Based on this proven track record, he is considered highly qualified to be an outside director on the Board of Directors.

Important Concurrent PostsOutside Corporate Auditor at Osaka Soda Co., Ltd.Auditor at Credit Guarantee Corporation of Osaka

Mar. 1980 Joined the companyMar. 1996 Appointed Branch Manager of Chiba OfficeJan. 2006 Appointed General Manager of General Affairs

DepartmentMar. 2010 Appointed General Manager of Area Distribution Sales

DepartmentMar. 2012 Appointed General Manager of No. 3 Corporate Sales

DepartmentJan. 2015 Appointed Chief Manager of Corporate Sales DepartmentApr. 2015 Appointed Corporate Auditor (his current position)

Jan. 1979 Registered as licensed tax accountantFeb. 1979 Opened Yoshida Tax Accountant OfficeApr. 1999 Appointed Corporate Auditor of the company

(his current position)

Reason for NominationWith years of experience as a licensed tax accountant, Mr. Yoshida possesses a wealth of expertise and high-level specialized knowledge related to finance and accounting. He is thus in a position to audit the company from a broad perspective with a great deal of autonomy. Based on this proven track record, he is considered highly qualified to be an outside corporate auditor.

Profile

Profile

Chairman and Director

Tomihiro TakamatsuProfile

Director and Executive Officer

Naoki TonokatsuDirector and Executive Officer

Naoyuki NishiyamaProfile

Independent Outside Director

Masataka Inoue

Apr. 1978 Joined Nakano Vinegar Co., Ltd.Jul. 2005 Appointed Director at Mizkan Group CorporationMay 2007 Appointed Managing Director at Mizkan Group

CorporationOct. 2009 Appointed Standing Auditor at Mizkan Group CorporationMar. 2011 Appointed Divisional Manager in charge of the

Management Auditing Office at Mizkan Group CorporationMar. 2014 Appointed Divisional Manager in charge of the Business

Planning Division at Mizkan Holdings Co., LtdMar. 2016 Left Mizkan Holdings Co., Ltd.Apr. 2016 Appointed Director of the company (his current position)

Reason for NominationMr. Inoue has a wealth of knowledge and experience in the food industry. With his auditing experience in areas such as business development through overseas M&A and overseas subsidiaries, he plays an appropriate role in further strengthening the functions of the Board of Directors by offering advice and suggestions as to the company’s management from an independent perspective concerning such issues as accelerating the development of the company’s business overseas and expanding its business domain. Based on this proven track record, he is considered highly qualified to be an outside director on the Board of Directors.

Mar. 1986 Joined the companyJan. 2011 Appointed General Manager of the Financial Affairs

DepartmentMar. 2013 Appointed Executive Officer and Division Director of the

Administrative DivisionJan. 2014 Appointed Executive Officer and Division Director of the

Finance DivisionJan. 2017 Appointed Executive Officer and General Manager of the

Finance DepartmentApr. 2017 Appointed Director, Executive Officer, and General

Manager of Finance Department (his current position)

Reason for NominationSince joining the company, Mr. Tonokatsu has engaged in finance for many years and has extensive experience and achievements. He fulfills duties central to procuring funds, etc. for achieving the Mid-term Business Plan. Currently, as Executive Officer and General Manager of the Finance Department, he is putting effort into sound company management such as building a solid structure for the entire group’s financial base. Based on this proven track record, he is considered highly qualified to be a member of the Board of Directors.

Mar. 1988 Joined the companyJan. 2014 Appointed General Manager of the Corporate Strategy

DepartmentFeb. 2014 Appointed General Manager of the Corporate Strategy

Department and General Manager of the International Business Department

Mar. 2015 Appointed Executive Officer, General Manager of the Corporate Strategy Department, and General Manager of the International Business Department

Jan. 2016 Appointed Executive Officer, General Manager of the Corporate Strategy Department, and General Manager of the Strategic Investment Department

Jan. 2017 Appointed Executive Officer and General Manager of the Corporate Strategy Department

Apr. 2017 Appointed Director, Executive Officer, and General Manager of Corporate Strategy Department (his current position)

Reason for NominationMr. Nishiyama has engaged in a wide range of duties covering overall management such as corporate strategy, strategic investment, and international business and has extensive experience and achievements. Currently, he is leading group companies as General Manager of the Corporate Strategy Department and pursuing new business development and initiatives to improve profitability. Based on this proven track record, he is considered highly qualified to be a member of the Board of Directors.

Profile

Corporate Auditors Executive Officers

Executive Officer and General Manager of Corporate Communication Department

Naokazu Hasegawa

Executive Officer and General Manager of HR & General Affairs Department

Akikazu Hamanaka

Executive Officer and General Manager of International Business Management Department

Mamoru Mitamura

Standing Corporate Auditor

Kazuyoshi HasegawaOutside Corporate Auditor

Taizo Yoshida

Outside Corporate Auditor

Hiroshi MatsumotoOutside Corporate Auditor

Sachie Kato

Profile Profile

Profile Profile

Independent Outside Director

Shinji MoriProfile

We have established the following standards to govern the independence of independent outside directors:

1. Candidates may not be a director (except as an outside director), auditor (except as an outside auditor), corporate officer, or employee of the DyDo Group.

2. Candidates may not count the DyDo Group as a major business partner or be a director, auditor, corporate officer, or employee of company that counts the DyDo Group as a major business partner.

3. Candidates may not be a major business partner of the DyDo Group or a director, auditor, corporate officer, or employee of a major business partner of the DyDo Group.

4. Candidates may not be a consultant, accounting specialist, or legal specialist who receives a large amount of money or other assets apart from officer compensation from the DyDo Group.

5. Candidates may not be a trustee, director, auditor, corporate officer, or employee of an organization that receives donations or subsidies in excess of a certain amount from the DyDo Group.

6. Candidates must not have fallen under the statuses described in (1) through (5) above at any time during the last three years.

7. Candidates must not be a family member of an individual who falls under any of the statuses described in (1) through (5) above. (However, in the case of employees described in [1], the restriction is limited to employees in key roles.)

*In this context, the DyDo Group would be considered a major business partner if the entity’s payments or receipts for transactions with the Group totaled 2% or more of the its total annual consolidated sales during the last business year.

*In this context, “a large amount of money” refers to payments averaging 10 million yen or more per year over the last three years (for individuals) or payments averaging 2% or more of the organization’s total consolidated sales over the last three business years (for organizations).

*In this context, a family member is a relative within the second degree of kinship, or a cohabitant relative.

*In this context, an employee in a key role is an employee with the rank of general manager or above.

*In this context, “a certain amount” refers to an annual average of 10 million yen over the last three business years, or 30% of the organization’s average annual expenditures, whichever is larger.

Feb. 1984 Registered as licensed tax accountantApr. 1984 Opened Hiroshi Matsumoto Tax Accountant OfficeApr. 1992 Appointed Corporate Auditor of the companyApr. 2007 Retired from position of Corporate AuditorApr. 2007 Appointed AdvisorApr. 2011 Retired from position of AdvisorApr. 2011 Appointed Corporate Auditor (his current position)

Reason for NominationWith years of experience as a licensed tax accountant, Mr. Yoshida possesses a wealth of expertise and high-level specialized knowledge related to finance and accounting. He is thus in a position to audit the company from a broad perspective with a great deal of autonomy. Based on this proven track record, he is considered highly qualified to be an outside corporate auditor.

Apr. 1969 Joined the Legal Training and Research InstituteApr. 1971 Appointed Public Prosecutor at the Tokyo District Public

Prosecutors OfficeMay 1974 Registered as a member of the Osaka Bar AssociationApr. 2014 Appointed Corporate Auditor of the company

(her current position)

Reason for NominationWith years of experience as a lawyer, Ms. Kato has the high principles of a legal specialist and extensive knowledge of corporate management as concerns multiple corporate legal issues. She is thus in a position to audit the company from a broad perspective with a great deal of autonomy. Based on this proven track record, she is considered highly qualified to be an outside corporate auditor.

Important Concurrent PostsOutside Director of Yamazen CorporationOutside Director of Hisaka Works, Ltd.

Independence Standards and Qualification for Independent Directors

Foundation for Corporate Value C

reation

51 52DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Foundation for Corporate Value Creation

Consolidated Financial Index 5-year Summary

(Units: millions of yen)

Fiscal year FY2012 FY2013 FY2014 FY2015 FY2016

Net sales 148,902 154,828 149,526 149,856 171,401

Domestic Beverage Business International Beverage Business

131,671 130,400 124,597 124,192 144,902

Pharmaceutical-Related Business 10,612 10,154 9,603 8,548 8,526

Food Business 6,617 14,273 15,325 17,115 17,972

Cost of sales 67,976 70,553 67,553 68,859 81,947

Gross profits 80,925 84,275 81,972 80,996 89,454

SG&A expenses 72,990 78,270 76,798 76,008 85,596

Operating income 7,934 6,004 5,174 4,988 3,857

Ordinary income 7,725 5,962 4,470 4,262 3,741

Net income attributable to owners of parent 4,410 3,712 2,322 2,347 3,269

Main SG&A expenses (consolidated)

Shipping costs 4,213 4,607 4,588 4,803 6,572

Advertising costs 6,167 6,697 5,963 5,096 6,190

Sales promotion costs 21,101 23,203 23,126 24,128 26,368

Salary and other allowances 11,526 11,281 11,006 11,143 11,893

Equipment

Capital expenditure 16,833 14,376 12,261 10,681 10,100

Depreciation expenses 11,202 12,080 12,343 11,704 12,611

End of fiscal year

Total assets 140,487 146,479 147,894 163,697 163,870

Net assets 79,097 82,554 84,734 85,181 85,693

Number of employees (persons) 2,916 2,770 2,767 2,887 3,602

Cash flow

Cash flow from operating activities 16,491 14,764 13,959 14,603 15,309

Cash flow from investing activities (6,704) (16,580) 3,734 (8,090) (20,560)

Cash flow from financing activities (219) (469) (2,561) 12,412 (9,445)

Cash and cash equivalent at end of year 29,051 26,874 42,020 60,898 46,120

Financial index

Gross profit margin (%) 54.3 54.4 54.8 54.0 52.2

Operating margin (%) 5.3 3.9 3.5 3.3 2.3

Profit margin on net sales (%) 3.0 2.4 1.6 1.6 1.9

Total asset turnover (times) 1.1 1.1 1.0 0.9 1.0

Inventory turnover (times) 24.1 24.1 22.0 21.0 22.2

Capital adequacy ratio (%) 55.1 55.1 56.0 50.8 51.3

Return on equity (%) 5.9 4.7 2.8 2.8 3.9

Information per share

Earnings per share (yen) 266.22 224.08 140.16 141.68 197.34

Book value per share (yen) 4,670.18 4,872.53 4,999.88 5,022.16 5,075.31

Dividend per share (yen) 60 60 60 60 60

Dividend payout ratio (%) 22.5 26.8 42.8 42.3 30.4

Shares

Numbers of shares outstanding (thousands) 16,568 16,568 16,568 16,568 16,568

Overview of Business Results, etc.

1. PerformanceIn the current consolidated accounting period (January 21, 2016 – January 20, 2017), net sales in DyDo Group Holdings, Inc. were 171,401 million yen (a 14.4% increase over the previous consolidated fiscal year). Operating income was 3,857 million yen (down 22.7% year-on-year), while ordinary income was 3,741 million yen (down 12.2% year-on-year). In spite of this drop, the net income attributable to the owners of the parent was 3,269 million yen (up 39.3% year-on-year).

2. Sales and Income(1) Net SalesNet sales were 171,401 million yen (a 14.4% increase year-on-year). The sales volume increased in our core Domestic Beverage Business by 4.1% year-on-year, and the sales of our five subsidiaries in the International Beverage Business (four in Turkey and one in Malaysia), included in the consolidated accounting, accounted for a significant revenue growth of 16,457 million yen.

(2) Operating IncomeOperating income for this fiscal year was 3,857 million yen (down 22.7% year-on-year).

Gross profit margin increased significantly, due to the effects of increased sales volume and cost of sales reductions in the Domestic Beverage Business. However, operating income decreased due to investments made in the future calculated as one-time costs in the current fiscal year—costs associated with the development of IoT-enabled vending machines (484 million yen); efforts to control logistical costs that are expected to rise (620 million yen); and costs related to the acquisition of beverage businesses in Turkey (249 million yen). In the International Beverage Business, the effect of ongoing devaluation of the lira in Turkey is another factor in the tough situation.

(3) Net Income Attributable to Owners of ParentThis fiscal year, there was a gain of 494 million yen on negative goodwill from the acquisition of our Turkish beverage businesses and an extraordinary gain of 433 million yen from the sale of stock of subsidiaries and affiliates. Factoring in these two gains, the net income attributable to the shareholders of the parent company was 3,269 million yen (an increase of 39.3% year-on-year).

3. Performance by Segment(1) Beverage Sales Division (Domestic Beverage

Business/International Beverage Business)In the beverage industry this fiscal year, sales were strong and up from the previous year thanks to good weather that prompted strong demand for thirst-quenching drinks such as mineral water, and the steady performance of coffee in bottle-shaped cans.

Every company in the industry is working on an earnings improvement plan, which often includes focusing on a flagship brand or rearranging product lines and containers. The earnings environment remains as tough as ever, and to improve corporate value over the medium and long term calls for earnings structure reforms in order to become more responsive to changing times.

To cope with such a situation, at DyDo we began to take on the challenge of creating corporate value for the next generation based on a business strategy that we implemented in FY2016.

As measures to bring innovation to the vending machine business model we are promoting environmental considerations by lengthening the lifespan of vending machines. We are also vastly reducing the procurement costs per machine. In these ways we are working to fundamentally reform the fixed cost structure.

Also, the new “Smile STAND” service began its full-scale rollout in September 2016. This platform creates a new kind of value for vending machines by offering “a new way for consumers and vending machines to interact.”

In the area of products, to boost the DyDo Blend brand strength we are aiming to win the support of young people who will make up the premium market segment for consumption in the future. Toward that end we released DyDo Blend UMAMI Blend to become a new standard for canned coffee, and through a tie-up with Kirin Beverage Co., Ltd. began a mutual product placement tie-up using each other’s vending machines. In April, we began placing two products from the DyDo Blend series in Kirin Beverage vending machines to expand points of contact with customers.

DyDo also released three products in the Supervised by the World’s Top Barista* series, which has been popular for its authentic taste, to provide choices for different drinking situations—Rich, Low-sugar Blend (Nomigotae no Hitotoki), Aromatic, Low-sugar Blend (Saigo Made Tsuzuku Hojun na Jikan), and Black. We expanded the miu brand line of mineral water products made with deep-seawater minerals; released the

*Pete Licata, 14th World Barista Championship winner

FY2015 results

4,988

Gross profit

increase

Increase in promotional/advertising costs, etc.

Personnelcosts, etc.

New consolidated subsidiaries

Pharmaceutical-related, food, and other adjustments

3,857

FY2016 results

(Units: millions of yen)

FY2016 Year-on-Year Comparison of Factors Driving Increases/Decreases in Consolidated Operating Income

Year-on-year comparison -1,130

Prior investment-1,353

Volume/cost/unit price factors)(

TurkeyMalaysia )(

+3,300 -1,718

-647-484

-620-249 -627

-85

Waka-Gokochi series of fruit-flavored drinks made from fruits from each of Japan’s four seasons that offer a feeling of relaxation; released the Twin Sensation series of carbonated drinks that combines soda jelly and nata de coco that you “shake and enjoy.” We also adjusted the product lines in vending machines depending on their location to reach a broader base of customers.

IoT-enabled vending machine rollout costs

One-time logistics-related costs

One-time costs associated with acquisition of Turkish business

Financial/Corporate Inform

ation

53 54DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Financial/Corporate Information

Consolidated Financial Index 5-year Summary

(Units: millions of yen)

Fiscal year FY2012 FY2013 FY2014 FY2015 FY2016

Net sales 148,902 154,828 149,526 149,856 171,401

Domestic Beverage Business International Beverage Business

131,671 130,400 124,597 124,192 144,902

Pharmaceutical-Related Business 10,612 10,154 9,603 8,548 8,526

Food Business 6,617 14,273 15,325 17,115 17,972

Cost of sales 67,976 70,553 67,553 68,859 81,947

Gross profits 80,925 84,275 81,972 80,996 89,454

SG&A expenses 72,990 78,270 76,798 76,008 85,596

Operating income 7,934 6,004 5,174 4,988 3,857

Ordinary income 7,725 5,962 4,470 4,262 3,741

Net income attributable to owners of parent 4,410 3,712 2,322 2,347 3,269

Main SG&A expenses (consolidated)

Shipping costs 4,213 4,607 4,588 4,803 6,572

Advertising costs 6,167 6,697 5,963 5,096 6,190

Sales promotion costs 21,101 23,203 23,126 24,128 26,368

Salary and other allowances 11,526 11,281 11,006 11,143 11,893

Equipment

Capital expenditure 16,833 14,376 12,261 10,681 10,100

Depreciation expenses 11,202 12,080 12,343 11,704 12,611

End of fiscal year

Total assets 140,487 146,479 147,894 163,697 163,870

Net assets 79,097 82,554 84,734 85,181 85,693

Number of employees (persons) 2,916 2,770 2,767 2,887 3,602

Cash flow

Cash flow from operating activities 16,491 14,764 13,959 14,603 15,309

Cash flow from investing activities (6,704) (16,580) 3,734 (8,090) (20,560)

Cash flow from financing activities (219) (469) (2,561) 12,412 (9,445)

Cash and cash equivalent at end of year 29,051 26,874 42,020 60,898 46,120

Financial index

Gross profit margin (%) 54.3 54.4 54.8 54.0 52.2

Operating margin (%) 5.3 3.9 3.5 3.3 2.3

Profit margin on net sales (%) 3.0 2.4 1.6 1.6 1.9

Total asset turnover (times) 1.1 1.1 1.0 0.9 1.0

Inventory turnover (times) 24.1 24.1 22.0 21.0 22.2

Capital adequacy ratio (%) 55.1 55.1 56.0 50.8 51.3

Return on equity (%) 5.9 4.7 2.8 2.8 3.9

Information per share

Earnings per share (yen) 266.22 224.08 140.16 141.68 197.34

Book value per share (yen) 4,670.18 4,872.53 4,999.88 5,022.16 5,075.31

Dividend per share (yen) 60 60 60 60 60

Dividend payout ratio (%) 22.5 26.8 42.8 42.3 30.4

Shares

Numbers of shares outstanding (thousands) 16,568 16,568 16,568 16,568 16,568

Overview of Business Results, etc.

1. PerformanceIn the current consolidated accounting period (January 21, 2016 – January 20, 2017), net sales in DyDo Group Holdings, Inc. were 171,401 million yen (a 14.4% increase over the previous consolidated fiscal year). Operating income was 3,857 million yen (down 22.7% year-on-year), while ordinary income was 3,741 million yen (down 12.2% year-on-year). In spite of this drop, the net income attributable to the owners of the parent was 3,269 million yen (up 39.3% year-on-year).

2. Sales and Income(1) Net SalesNet sales were 171,401 million yen (a 14.4% increase year-on-year). The sales volume increased in our core Domestic Beverage Business by 4.1% year-on-year, and the sales of our five subsidiaries in the International Beverage Business (four in Turkey and one in Malaysia), included in the consolidated accounting, accounted for a significant revenue growth of 16,457 million yen.

(2) Operating IncomeOperating income for this fiscal year was 3,857 million yen (down 22.7% year-on-year).

Gross profit margin increased significantly, due to the effects of increased sales volume and cost of sales reductions in the Domestic Beverage Business. However, operating income decreased due to investments made in the future calculated as one-time costs in the current fiscal year—costs associated with the development of IoT-enabled vending machines (484 million yen); efforts to control logistical costs that are expected to rise (620 million yen); and costs related to the acquisition of beverage businesses in Turkey (249 million yen). In the International Beverage Business, the effect of ongoing devaluation of the lira in Turkey is another factor in the tough situation.

(3) Net Income Attributable to Owners of ParentThis fiscal year, there was a gain of 494 million yen on negative goodwill from the acquisition of our Turkish beverage businesses and an extraordinary gain of 433 million yen from the sale of stock of subsidiaries and affiliates. Factoring in these two gains, the net income attributable to the shareholders of the parent company was 3,269 million yen (an increase of 39.3% year-on-year).

3. Performance by Segment(1) Beverage Sales Division (Domestic Beverage

Business/International Beverage Business)In the beverage industry this fiscal year, sales were strong and up from the previous year thanks to good weather that prompted strong demand for thirst-quenching drinks such as mineral water, and the steady performance of coffee in bottle-shaped cans.

Every company in the industry is working on an earnings improvement plan, which often includes focusing on a flagship brand or rearranging product lines and containers. The earnings environment remains as tough as ever, and to improve corporate value over the medium and long term calls for earnings structure reforms in order to become more responsive to changing times.

To cope with such a situation, at DyDo we began to take on the challenge of creating corporate value for the next generation based on a business strategy that we implemented in FY2016.

As measures to bring innovation to the vending machine business model we are promoting environmental considerations by lengthening the lifespan of vending machines. We are also vastly reducing the procurement costs per machine. In these ways we are working to fundamentally reform the fixed cost structure.

Also, the new “Smile STAND” service began its full-scale rollout in September 2016. This platform creates a new kind of value for vending machines by offering “a new way for consumers and vending machines to interact.”

In the area of products, to boost the DyDo Blend brand strength we are aiming to win the support of young people who will make up the premium market segment for consumption in the future. Toward that end we released DyDo Blend UMAMI Blend to become a new standard for canned coffee, and through a tie-up with Kirin Beverage Co., Ltd. began a mutual product placement tie-up using each other’s vending machines. In April, we began placing two products from the DyDo Blend series in Kirin Beverage vending machines to expand points of contact with customers.

DyDo also released three products in the Supervised by the World’s Top Barista* series, which has been popular for its authentic taste, to provide choices for different drinking situations—Rich, Low-sugar Blend (Nomigotae no Hitotoki), Aromatic, Low-sugar Blend (Saigo Made Tsuzuku Hojun na Jikan), and Black. We expanded the miu brand line of mineral water products made with deep-seawater minerals; released the

*Pete Licata, 14th World Barista Championship winner

FY2015 results

4,988

Gross profit

increase

Increase in promotional/advertising costs, etc.

Personnelcosts, etc.

New consolidated subsidiaries

Pharmaceutical-related, food, and other adjustments

3,857

FY2016 results

(Units: millions of yen)

FY2016 Year-on-Year Comparison of Factors Driving Increases/Decreases in Consolidated Operating Income

Year-on-year comparison -1,130

Prior investment-1,353

Volume/cost/unit price factors)(

TurkeyMalaysia )(

+3,300 -1,718

-647-484

-620-249 -627

-85

Waka-Gokochi series of fruit-flavored drinks made from fruits from each of Japan’s four seasons that offer a feeling of relaxation; released the Twin Sensation series of carbonated drinks that combines soda jelly and nata de coco that you “shake and enjoy.” We also adjusted the product lines in vending machines depending on their location to reach a broader base of customers.

IoT-enabled vending machine rollout costs

One-time logistics-related costs

One-time costs associated with acquisition of Turkish business

Financial/Corporate Inform

ation

53 54DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Financial/Corporate Information

FY2016 results FY2017 forecast

FY2017 Year-on-Year Comparison of Factors Driving Increases/Decreases in Planned Consolidated Operating Income

3,857

(Units: millions of yen)

Streamlining of promotional advertising

Decrease in vending machine fixed costs

IoT-enabled vending machines

Prior investment

Improved profitability in Turkey and Malaysia

Other

5,300

Year-on-year comparison +1,443

Gross profitincrease

Volume/cost/unit price factors)(

+790 +160+660 -820 +790 -137

Waka-Gokochi series of fruit-flavored drinks made from fruits from each of Japan’s four seasons that offer a feeling of relaxation; released the Twin Sensation series of carbonated drinks that combines soda jelly and nata de coco that you “shake and enjoy.” We also adjusted the product lines in vending machines depending on their location to reach a broader base of customers.

This fiscal year, with strong sales of the Supervised by the World’s Top Barista*1 series of bottle-shaped can coffee and the release of our first beverage with a functional claim, “Calolimit” Blended Tea, developed jointly with Fancl Health Science*2, our domestic sales volume grew, contributing to a rise in income.

We also aggressively invested in advertising and sales promotion to further strengthen the DyDo Blend brand, rolled out IoT-enabled vending machines, and carried out measures to reduce fixed costs of vending machine channels in the future and control rising logistics costs. Internationally, we focused on laying the foundation for robust future growth by converting the four beverage companies in Turkey and one beverage company in Malaysia into consolidated subsidiaries, and establishing new strategic bases in Islamic countries.

Resulting from the above, net sales in the Beverage Sales Division were 144,902 million yen (up 16.7% year-on-year), with a segment profit of 2,700 million yen (down 27.9% year-on-year).

(2) OEM Beverage Production Division(Pharmaceutical-Related Business)

DAIDO Pharmaceutical Corporation, the OEM beverage production division, engages in research and development of a variety of drinkable preparations such as health and beauty tonics, with a focus on pharmaceuticals. The division’s production system is set up to manufacture products to meet the needs of customers; it employs rigorous quality control to ensure safe, reliable products.

In recent years the core segment for nutritional drinks has been aging and the needs of women, the core segment for beauty tonics, are diversifying. These factors have reduced the drinkable preparation market, and market conditions are become tougher.

In such circumstances, DAIDO Pharmaceutical Corporation, holding an overwhelming share of the market as a contract manufacturer, has been working to maintain and expand its safe and reliable production system, develop solutions-based sales at the organizational level along with original solution proposal materials, improve production efficiency, and strengthen cost competitiveness.

In this fiscal year, the drinkable preparation market shrank, which reduced orders for existing nutritional drink products, but orders were solid for beauty drink products for overseas export.

Resulting from the above, net sales in the OEM Beverage Production Division were 8,526 million yen (down 0.3% year-on-year), with a segment profit of 944 million yen (down 3.6% year-on-year).

(3) Food Production and Sales Division (Food Business)Tarami Corporation, our Food Production and Sales Division, is the leader in the fruit jelly market. It has been growing every year, but we aim to change the business model to achieve sustained profits even as costs continue to rise, making “changing ourselves through the customer’s viewpoint” our slogan. We want to carry out structural reforms from production to sales as we speed up this change in thinking.

Based on a fundamental policy of continuing to create a wide

range of delightful and inspiring products to meet the multifaceted needs of customers, to supply dessert jellies that feel affordable and provide further added value that raises customer satisfaction, Tarami released the Torokeru Ajiwai series of dessert jellies that bring out the tasty flavor of the fruit, and the Koi Shibori series that provides the rich taste of fruit juice from the original fruit. These products are aimed at further penetration in the convenience store and mass retailer markets.

This fiscal year, the introduction of new products and the acquisition of new business deals increased earnings. While efforts to reform the earnings structure were carried out company-wide, rising costs still suppressed earnings.

Resulting from the above, net sales in the Food Production and Sales Division were 17,972 million yen (up 5.0% year-on-year), with a segment profit of 212 million yen (down 18.4% year-on-year).

4. Forecast for the Next Fiscal Year (January 21, 2017 – January 20, 2018)

In the next fiscal year we will be working to achieve the following:(1) Continuing to expand cash flow in the Domestic Beverage

Business(2) Establishing a foundation for the International Beverage

Business and improving its profitability(3) Embracing the challenge of expanding our business

domains

(1) Continuing to Expand Cash Flow in the Domestic Beverage Business

We are revamping vending machine procurement methods and extending the lifespan of vending machines by making effective use of secondhand parts. These efforts have helped us to maintain the quantity of vending machines we have in operation while vastly lowering per-unit procurement costs. For the future, we plan to network together 150,000 vending machines nationwide to create new value by turning vending machines into information centers. Whereas vending machines were once merely for buying drinks, we aim to develop new businesses using them as an IoT platform.

On the product front, we will continue to place products in Kirin Beverage Co., Ltd. vending machines through a mutual product placement tie-up. In the spring of 2017, in Kirin Beverage machines we began selling the same two bottle-shaped cans of coffee in the DyDo Blend Supervised by the World’s Top Barista*1 series to increase the appeal at the vending machine and further raise brand recognition and sales effectiveness. In our vending machines we are selling two products from Kirin Beverage—“Gogo no Kocha” Milk Tea and Mets Cola. These products, especially in the summer, are expected to boost sales per machine.

In addition, we are renewing DyDo Blend UMAMI Blend, released last year, and are also releasing UMAMI Blend THE ICE, a new flavor of sweetened black iced coffee, to enhance the UMAMI brand. By so doing we aim to win over consumers in the youth segment and activate the high-volume stay-on-tab can market to further revitalize the canned coffee market.

(2) Establishing a Foundation for the International Beverage Business and Improving its Profitability

For the next fiscal year in our business in Turkey, we will aim to strengthen our sales system by increasing the adoption and introduction rate at retail outlets, thereby improving the existence value of our brand. At the same time, we will streamline sales promotion costs by focusing on certain selected brands, and make

production and distribution more efficient by restructuring our production centers. These measures are designed to boost earnings.

In our business in Malaysia, using the sales channels of our joint venture Mamee-Double Decker (M) Sdn. Bhd., we will focus on chilled beverages, which have a relatively high profit margin, thereby increasing the overall volume of business and improving profitability.

(3) Embracing the Challenge of Expanding our Business Domains

To adapt to a business climate in which major changes are taking place and to bring about sustained growth in profits for the group with greater capital efficiency, the need to effectively utilize the retained earnings we have built up to date and secure a foothold in new business areas with high earnings and growth potential, such as healthcare, is also an issue of great importance. With the shift to a holding company system, we have created a more agile organizational structure capable of handling M&A actions internally, so we can now move aggressively on these issues going forward.

(4) Performance ReviewAs a result of these activities, net sales for the next fiscal year are estimated to be 175,500 million yen (up 2.4% year-on-year).

Operating income is estimated to be 5,300 million yen (up 37.4% year-on-year).

In the Domestic Beverage Business, efforts to maintain and improve net sales per vending machine, combined with the placement of two products in the DyDo Blend Supervised by the World’s Top Barista*1 series in Kirin Beverage vending machines, estimates are for an increase in sales volume of 0.2% year-on-year, with a gross profit increase of 790 million yen over the previous year.

On the costs front, we have been revamping vending machine procurement methods, making effective use of secondhand parts, and extending the lifespan of vending machines to lower the fixed costs for vending machines by 660 million yen. We are using these funds to roll out IoT-enabled vending machines and build a foundation for future growth. In the International Beverage Business we have been working to strengthen our sales system and have developed products using know-how built in Japan. These efforts are expected to improve earnings in Turkey and Malaysia by 790 million yen in total.

Based on the above, ordinary income is expected to be 5,200 million yen (up 39.0% year-on-year). Net income attributable to the owners of the parent company this fiscal year is estimated to be

3,000 million yen (down 8.2% year-on-year), due to negative goodwill from the acquisition of our Turkish beverage businesses and resolution of extraordinary gains from the sale of stock of subsidiaries and affiliates.

5. Analysis of Financial Situation(1) Assets, Liabilities, and Net AssetsAt the end of this fiscal year our total assets were up 172 million yen from the previous year to 163,870 million yen.

Cash and deposits declined due to the stock acquisition of our Turkish beverage companies, but the goodwill on the books increased the intangible fixed assets. With the businesses becoming consolidated, inventory assets and fixed assets increased. Liabilities decreased 339 million yen from the end of the previous year to 78,176 million yen, due to an increase in accounts payable and decrease in interest-bearing debt.

Net assets increased 512 million yen from the end of the previous year to 85,693 million yen, due to a decrease in currency translation adjustments, an increase in earned surplus, and an increase in valuation gains on other marketable securities.

(2) Cash FlowAt the end of this fiscal year, our cash and cash equivalent (hereafter, “cash”) decreased 14,777 million yen from the end of the previous year to 46,120 million yen.

Cash flows and their contributing factors this fiscal year are as follows.1. Cash flow from operating activities

Income before income taxes and other adjustments was 4,784 million yen (up 943 million yen year-on-year), and with an increase in accounts payable, cash provided by operating activities was 15,309 million yen (compared to an income of 14,603 million yen in the previous year).

2. Cash flow from investing activitiesDue to expenditures from the stock acquisition of our Turkish subsidiaries, etc., there was a cash outflow from investing activities of 20,560 million yen (compared to an outflow of 8,090 million yen in the previous year).

3. Cash flow from financing activitiesResulting from the repayment of long-term debt and lease obligations, etc., there was a cash outflow of 9,445 million yen (compared to an inflow of 12,412 million yen in the previous year).

*1 Pete Licata, 14th World Barista Championship winner*2 Acquired from Fancl Corporation on April 1, 2017

Financial/Corporate Inform

ation

55 56DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Financial/Corporate Information

FY2016 results FY2017 forecast

FY2017 Year-on-Year Comparison of Factors Driving Increases/Decreases in Planned Consolidated Operating Income

3,857

(Units: millions of yen)

Streamlining of promotional advertising

Decrease in vending machine fixed costs

IoT-enabled vending machines

Prior investment

Improved profitability in Turkey and Malaysia

Other

5,300

Year-on-year comparison +1,443

Gross profitincrease

Volume/cost/unit price factors)(

+790 +160+660 -820 +790 -137

Waka-Gokochi series of fruit-flavored drinks made from fruits from each of Japan’s four seasons that offer a feeling of relaxation; released the Twin Sensation series of carbonated drinks that combines soda jelly and nata de coco that you “shake and enjoy.” We also adjusted the product lines in vending machines depending on their location to reach a broader base of customers.

This fiscal year, with strong sales of the Supervised by the World’s Top Barista*1 series of bottle-shaped can coffee and the release of our first beverage with a functional claim, “Calolimit” Blended Tea, developed jointly with Fancl Health Science*2, our domestic sales volume grew, contributing to a rise in income.

We also aggressively invested in advertising and sales promotion to further strengthen the DyDo Blend brand, rolled out IoT-enabled vending machines, and carried out measures to reduce fixed costs of vending machine channels in the future and control rising logistics costs. Internationally, we focused on laying the foundation for robust future growth by converting the four beverage companies in Turkey and one beverage company in Malaysia into consolidated subsidiaries, and establishing new strategic bases in Islamic countries.

Resulting from the above, net sales in the Beverage Sales Division were 144,902 million yen (up 16.7% year-on-year), with a segment profit of 2,700 million yen (down 27.9% year-on-year).

(2) OEM Beverage Production Division(Pharmaceutical-Related Business)

DAIDO Pharmaceutical Corporation, the OEM beverage production division, engages in research and development of a variety of drinkable preparations such as health and beauty tonics, with a focus on pharmaceuticals. The division’s production system is set up to manufacture products to meet the needs of customers; it employs rigorous quality control to ensure safe, reliable products.

In recent years the core segment for nutritional drinks has been aging and the needs of women, the core segment for beauty tonics, are diversifying. These factors have reduced the drinkable preparation market, and market conditions are become tougher.

In such circumstances, DAIDO Pharmaceutical Corporation, holding an overwhelming share of the market as a contract manufacturer, has been working to maintain and expand its safe and reliable production system, develop solutions-based sales at the organizational level along with original solution proposal materials, improve production efficiency, and strengthen cost competitiveness.

In this fiscal year, the drinkable preparation market shrank, which reduced orders for existing nutritional drink products, but orders were solid for beauty drink products for overseas export.

Resulting from the above, net sales in the OEM Beverage Production Division were 8,526 million yen (down 0.3% year-on-year), with a segment profit of 944 million yen (down 3.6% year-on-year).

(3) Food Production and Sales Division (Food Business)Tarami Corporation, our Food Production and Sales Division, is the leader in the fruit jelly market. It has been growing every year, but we aim to change the business model to achieve sustained profits even as costs continue to rise, making “changing ourselves through the customer’s viewpoint” our slogan. We want to carry out structural reforms from production to sales as we speed up this change in thinking.

Based on a fundamental policy of continuing to create a wide

range of delightful and inspiring products to meet the multifaceted needs of customers, to supply dessert jellies that feel affordable and provide further added value that raises customer satisfaction, Tarami released the Torokeru Ajiwai series of dessert jellies that bring out the tasty flavor of the fruit, and the Koi Shibori series that provides the rich taste of fruit juice from the original fruit. These products are aimed at further penetration in the convenience store and mass retailer markets.

This fiscal year, the introduction of new products and the acquisition of new business deals increased earnings. While efforts to reform the earnings structure were carried out company-wide, rising costs still suppressed earnings.

Resulting from the above, net sales in the Food Production and Sales Division were 17,972 million yen (up 5.0% year-on-year), with a segment profit of 212 million yen (down 18.4% year-on-year).

4. Forecast for the Next Fiscal Year (January 21, 2017 – January 20, 2018)

In the next fiscal year we will be working to achieve the following:(1) Continuing to expand cash flow in the Domestic Beverage

Business(2) Establishing a foundation for the International Beverage

Business and improving its profitability(3) Embracing the challenge of expanding our business

domains

(1) Continuing to Expand Cash Flow in the Domestic Beverage Business

We are revamping vending machine procurement methods and extending the lifespan of vending machines by making effective use of secondhand parts. These efforts have helped us to maintain the quantity of vending machines we have in operation while vastly lowering per-unit procurement costs. For the future, we plan to network together 150,000 vending machines nationwide to create new value by turning vending machines into information centers. Whereas vending machines were once merely for buying drinks, we aim to develop new businesses using them as an IoT platform.

On the product front, we will continue to place products in Kirin Beverage Co., Ltd. vending machines through a mutual product placement tie-up. In the spring of 2017, in Kirin Beverage machines we began selling the same two bottle-shaped cans of coffee in the DyDo Blend Supervised by the World’s Top Barista*1 series to increase the appeal at the vending machine and further raise brand recognition and sales effectiveness. In our vending machines we are selling two products from Kirin Beverage—“Gogo no Kocha” Milk Tea and Mets Cola. These products, especially in the summer, are expected to boost sales per machine.

In addition, we are renewing DyDo Blend UMAMI Blend, released last year, and are also releasing UMAMI Blend THE ICE, a new flavor of sweetened black iced coffee, to enhance the UMAMI brand. By so doing we aim to win over consumers in the youth segment and activate the high-volume stay-on-tab can market to further revitalize the canned coffee market.

(2) Establishing a Foundation for the International Beverage Business and Improving its Profitability

For the next fiscal year in our business in Turkey, we will aim to strengthen our sales system by increasing the adoption and introduction rate at retail outlets, thereby improving the existence value of our brand. At the same time, we will streamline sales promotion costs by focusing on certain selected brands, and make

production and distribution more efficient by restructuring our production centers. These measures are designed to boost earnings.

In our business in Malaysia, using the sales channels of our joint venture Mamee-Double Decker (M) Sdn. Bhd., we will focus on chilled beverages, which have a relatively high profit margin, thereby increasing the overall volume of business and improving profitability.

(3) Embracing the Challenge of Expanding our Business Domains

To adapt to a business climate in which major changes are taking place and to bring about sustained growth in profits for the group with greater capital efficiency, the need to effectively utilize the retained earnings we have built up to date and secure a foothold in new business areas with high earnings and growth potential, such as healthcare, is also an issue of great importance. With the shift to a holding company system, we have created a more agile organizational structure capable of handling M&A actions internally, so we can now move aggressively on these issues going forward.

(4) Performance ReviewAs a result of these activities, net sales for the next fiscal year are estimated to be 175,500 million yen (up 2.4% year-on-year).

Operating income is estimated to be 5,300 million yen (up 37.4% year-on-year).

In the Domestic Beverage Business, efforts to maintain and improve net sales per vending machine, combined with the placement of two products in the DyDo Blend Supervised by the World’s Top Barista*1 series in Kirin Beverage vending machines, estimates are for an increase in sales volume of 0.2% year-on-year, with a gross profit increase of 790 million yen over the previous year.

On the costs front, we have been revamping vending machine procurement methods, making effective use of secondhand parts, and extending the lifespan of vending machines to lower the fixed costs for vending machines by 660 million yen. We are using these funds to roll out IoT-enabled vending machines and build a foundation for future growth. In the International Beverage Business we have been working to strengthen our sales system and have developed products using know-how built in Japan. These efforts are expected to improve earnings in Turkey and Malaysia by 790 million yen in total.

Based on the above, ordinary income is expected to be 5,200 million yen (up 39.0% year-on-year). Net income attributable to the owners of the parent company this fiscal year is estimated to be

3,000 million yen (down 8.2% year-on-year), due to negative goodwill from the acquisition of our Turkish beverage businesses and resolution of extraordinary gains from the sale of stock of subsidiaries and affiliates.

5. Analysis of Financial Situation(1) Assets, Liabilities, and Net AssetsAt the end of this fiscal year our total assets were up 172 million yen from the previous year to 163,870 million yen.

Cash and deposits declined due to the stock acquisition of our Turkish beverage companies, but the goodwill on the books increased the intangible fixed assets. With the businesses becoming consolidated, inventory assets and fixed assets increased. Liabilities decreased 339 million yen from the end of the previous year to 78,176 million yen, due to an increase in accounts payable and decrease in interest-bearing debt.

Net assets increased 512 million yen from the end of the previous year to 85,693 million yen, due to a decrease in currency translation adjustments, an increase in earned surplus, and an increase in valuation gains on other marketable securities.

(2) Cash FlowAt the end of this fiscal year, our cash and cash equivalent (hereafter, “cash”) decreased 14,777 million yen from the end of the previous year to 46,120 million yen.

Cash flows and their contributing factors this fiscal year are as follows.1. Cash flow from operating activities

Income before income taxes and other adjustments was 4,784 million yen (up 943 million yen year-on-year), and with an increase in accounts payable, cash provided by operating activities was 15,309 million yen (compared to an income of 14,603 million yen in the previous year).

2. Cash flow from investing activitiesDue to expenditures from the stock acquisition of our Turkish subsidiaries, etc., there was a cash outflow from investing activities of 20,560 million yen (compared to an outflow of 8,090 million yen in the previous year).

3. Cash flow from financing activitiesResulting from the repayment of long-term debt and lease obligations, etc., there was a cash outflow of 9,445 million yen (compared to an inflow of 12,412 million yen in the previous year).

*1 Pete Licata, 14th World Barista Championship winner*2 Acquired from Fancl Corporation on April 1, 2017

Financial/Corporate Inform

ation

55 56DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Financial/Corporate Information

Consolidated Resultsas of January 20, 2016

Consolidated Resultsas of January 20, 2017

Assets

Current assets

Cash and deposits 60,294 48,113

Notes and accounts receivable 14,580 17,955

Securities 16,494 12,100

Merchandise and finished goods 5,550 5,621

Work in process 10 17

Raw materials and supplies 1,415 2,830

Prepaid expenses 701 692

Accounts receivable 1,330 2,812

Deferred tax assets 999 701

Other 454 770

Allowance for doubtful accounts (35) (36)

Total current assets 101,797 91,578

Non-current assets

Property, plant and equipment

Buildings and structures, net 3,857 5,898

Machinery, equipment, and vehicles, net 1,329 3,494

Tools, furniture, and fixtures, net 20,570 19,059

Land 3,843 4,381

Lease assets, net 4,135 3,128

Construction in progress ー 273

Total property, plant and equipment 33,737 36,236

Intangible assets

Goodwill 5,407 7,188

Other 5,431 7,413

Total intangible assets 10,838 14,602

Investments and other assets

Investment securities 12,215 15,440

Long-term prepaid expenses 495 525

Lease and guarantee deposits 1,854 1,998

Net defined benefit assets 1,488 2,098

Deferred tax assets 153 339

Other 1,134 1,069

Allowance for doubtful accounts (16) (18)

Total investments and other assets 17,324 21,454

Total non-current assets 61,900 72,292

Total assets 163,697 163,870

(Units: millions of yen) (Units: millions of yen)

Consolidated Financial Statement

Consolidated Balance Sheets

Consolidated Resultsas of January 20, 2016

Consolidated Resultsas of January 20, 2017

Liabilities

Current liabilities

Notes and accounts payable – trade 17,664 19,908

Current portion of long-term loans payable 7,997 6,935

Lease obligations 1,937 1,477

Accounts payable 9,852 11,158

Income taxes payable 1,031 776

Accrued expenses 1,754 1,947

Provision for bonuses 1,032 1,112

Asset retirement obligations 7 ーDeferred tax liabilities ー 21

Other 1,755 1,170

Total current liabilities 43,032 44,508

Non-current liabilities

Bonds payable 15,000 15,000

Long-term loans payable 13,661 10,193

Lease obligations 2,167 1,642

Long-term guarantee deposited 2,382 2,489

Net defined benefit liability 205 402

Provision for directors’ retirement benefits 174 178

Asset retirement obligations 162 158

Deferred tax liabilities 1,619 3,494

Other 110 110

Total non-current liabilities 35,483 33,668

Total liabilities 78,516 78,176

Net assets

Shareholders’ equity

Capital stock 1,924 1,924

Capital surplus 1,464 1,084

Retained earnings 79,076 80,835

Treasury stock (4) (4)

Total shareholders’ equity 82,460 83,840

Accumulated other comprehensive income

Valuation difference on available-for-sale securities 924 3,292

Deferred gains or losses on hedges (455) 228

Foreign currency translation adjustment 383 (3,420)

Remeasurements of defined benefit plans (112) 140

Total accumulated other comprehensive income 740 241

Non-controlling interests 1,979 1,611

Total net assets 85,181 85,693

Total liabilities and net assets 163,697 163,870

Financial/Corporate Inform

ation

57 58DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Financial/Corporate Information

Consolidated Resultsas of January 20, 2016

Consolidated Resultsas of January 20, 2017

Assets

Current assets

Cash and deposits 60,294 48,113

Notes and accounts receivable 14,580 17,955

Securities 16,494 12,100

Merchandise and finished goods 5,550 5,621

Work in process 10 17

Raw materials and supplies 1,415 2,830

Prepaid expenses 701 692

Accounts receivable 1,330 2,812

Deferred tax assets 999 701

Other 454 770

Allowance for doubtful accounts (35) (36)

Total current assets 101,797 91,578

Non-current assets

Property, plant and equipment

Buildings and structures, net 3,857 5,898

Machinery, equipment, and vehicles, net 1,329 3,494

Tools, furniture, and fixtures, net 20,570 19,059

Land 3,843 4,381

Lease assets, net 4,135 3,128

Construction in progress ー 273

Total property, plant and equipment 33,737 36,236

Intangible assets

Goodwill 5,407 7,188

Other 5,431 7,413

Total intangible assets 10,838 14,602

Investments and other assets

Investment securities 12,215 15,440

Long-term prepaid expenses 495 525

Lease and guarantee deposits 1,854 1,998

Net defined benefit assets 1,488 2,098

Deferred tax assets 153 339

Other 1,134 1,069

Allowance for doubtful accounts (16) (18)

Total investments and other assets 17,324 21,454

Total non-current assets 61,900 72,292

Total assets 163,697 163,870

(Units: millions of yen) (Units: millions of yen)

Consolidated Financial Statement

Consolidated Balance Sheets

Consolidated Resultsas of January 20, 2016

Consolidated Resultsas of January 20, 2017

Liabilities

Current liabilities

Notes and accounts payable – trade 17,664 19,908

Current portion of long-term loans payable 7,997 6,935

Lease obligations 1,937 1,477

Accounts payable 9,852 11,158

Income taxes payable 1,031 776

Accrued expenses 1,754 1,947

Provision for bonuses 1,032 1,112

Asset retirement obligations 7 ーDeferred tax liabilities ー 21

Other 1,755 1,170

Total current liabilities 43,032 44,508

Non-current liabilities

Bonds payable 15,000 15,000

Long-term loans payable 13,661 10,193

Lease obligations 2,167 1,642

Long-term guarantee deposited 2,382 2,489

Net defined benefit liability 205 402

Provision for directors’ retirement benefits 174 178

Asset retirement obligations 162 158

Deferred tax liabilities 1,619 3,494

Other 110 110

Total non-current liabilities 35,483 33,668

Total liabilities 78,516 78,176

Net assets

Shareholders’ equity

Capital stock 1,924 1,924

Capital surplus 1,464 1,084

Retained earnings 79,076 80,835

Treasury stock (4) (4)

Total shareholders’ equity 82,460 83,840

Accumulated other comprehensive income

Valuation difference on available-for-sale securities 924 3,292

Deferred gains or losses on hedges (455) 228

Foreign currency translation adjustment 383 (3,420)

Remeasurements of defined benefit plans (112) 140

Total accumulated other comprehensive income 740 241

Non-controlling interests 1,979 1,611

Total net assets 85,181 85,693

Total liabilities and net assets 163,697 163,870

Financial/Corporate Inform

ation

57 58DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Financial/Corporate Information

(Units: millions of yen)

(Units: millions of yen)

Consolidated Statement of Changes in Equity

Consolidated Results for FY2015From January 21, 2015

to January 20, 2016

Consolidated Results for FY2016From January 21, 2016

to January 20, 2017

Net sales 149,856 171,401

Cost of sales 68,859 81,947

Gross profit 80,996 89,454

Selling general and administrative expenses 76,008 85,596

Operating income 4,988 3,857

Non-operating income

Interest income 142 213

Share of profit of entities accounted for using equity method － 131

Rebate income 47 35

Other 240 470

Total non-operating income 430 851

Non-operating expenses

Interest expenses 455 457

Share of loss of entities accounted for using equity method 399 －Foreign exchange losses 0 172

Other 302 337

Total non-operating expenses 1,156 967

Ordinary income 4,262 3,741

Extraordinary income

Gain on sales of investment securities － 132

Gain on sales of investments in capital of subsidiaries and associates － 433

Gain on bargain purchase － 494

Total extraordinary income － 1,060

Extraordinary expenses

Impairment loss 311 17

Loss on valuation of investment securities 109 －Total extraordinary expenses 421 17

Income before income taxes 3,841 4,784

Income taxes – current 1,714 1,419

Income taxes – deferred (291) 213

Total income taxes 1,422 1,633

Net income 2,418 3,151

Net income or loss attributable to non-controlling interests 71 (117)

Net income attributable to owners of parent 2,347 3,269

Consolidated Results for FY2015From January 21, 2015

to January 20, 2016

Consolidated Results for FY2016From January 21, 2016

to January 20, 2017

Net income 2,418 3,151

Other comprehensive income

Valuation difference on available-for-sale securities (188) 2,370

Deferred gains or losses on hedges (482) 683

Foreign currency translation adjustment (134) (3,461)

Remeasurements of defined benefit plans, net of tax (45) 252

Shares of other comprehensive income of entities accounted for using equity method

(53) (622)

Total other comprehensive income (904) (775)

Comprehensive income 1,513 2,375

(Breakdown)

Comprehensive income attributable to owners of parent 1,439 2,770

Comprehensive income attributable to non-controlling interests 73 (394)

( )

( )

( )

( )

(Units: millions of yen)

(Units: millions of yen)

Shareholders’ equity

Capital stock Capital surplus Retained earnings Treasury shares Total shareholders’ equity

Balance at the beginning of current period 1,924 1,464 77,800 (4) 81,184Cumulative effects of changes in accounting policies (76) (76)

Restated balance 1,924 1,464 77,723 (4) 81,107Changes of items during the period

Dividends of surplus (994) (994)Net income attributable to owners of parent 2,347 2,347Purchase of treasury shares (0) (0)Net changes of items other than shareholders’ equity

Total changes of items during the period － － 1,353 (0) 1,353Balance at the end of current period 1,924 1,464 79,076 (4) 82,460

Shareholders’ equity

Capital stock Capital surplus Retained earnings Treasury shares Total shareholders’ equity

Balance at the beginning of current period 1,924 1,464 79,076 (4) 82,460Cumulative effects of changes in accounting policies (345) (345)

Restated balance 1,924 1,464 78,731 (4) 82,115Changes of items during the period

Dividends of surplus (994) (994)Net income attributable to owners of parent 3,269 3,269Change in scope of equity-method coverage (170) (170)Gain on change in equity involving transactions of non-controlling-interest shareholders (379) (379)

Net changes of items other than shareholders’ equity

Total changes of items during the period － (379) 2,104 － 1,724Balance at the end of current period 1,924 1,084 80,835 (4) 83,840

Consolidated Results for FY2015 (From January 21, 2015 to January 20, 2016)

Consolidated Results for FY2016 (From January 21, 2016 to January 20, 2017)

Accumulated other comprehensive incomeNon-

controlling interest

Total net assets

Valuation difference on available-for-sale securities

Deferred gains or losses on

hedges

Foreign currency translation adjustment

Remeasurement of defined

benefit plans, net of tax

Total accumulated other

comprehensive income

Balance at the beginning of current period 1,108 27 578 (66) 1,647 1,901 84,734Cumulative effects of changes in accounting policies (76)

Restated balance 1,108 27 578 (66) 1,647 1,901 84,657Changes of items during the period

Dividends of surplus (994)Net income attributable to owners of parent 2,347Purchase of treasury shares (0)Net changes of items other than shareholders’ equity (184) (482) (195) (45) (907) 78 (829)

Total changes of items during the period (184) (482) (195) (45) (907) 78 524Balance at the end of current period 924 (455) 383 (112) 740 1,979 85,181

Accumulated other comprehensive incomeNon-

controlling interest

Total net assets

Valuation difference on available-for-sale securities

Deferred gains or losses on

hedges

Foreign currency translation adjustment

Remeasurement of defined

benefit plans, net of tax

Total accumulated other

comprehensive income

Balance at the beginning of current period 924 (455) 383 (112) 740 1,979 85,181Cumulative effects of changes in accounting policies (345)

Restated balance 924 (455) 383 (112) 740 1,979 84,836Changes of items during the period

Dividends of surplus (994)Net income attributable to owners of parent 3,269Change in scope of equity-method coverage (170)Gain on change in equity involving transactions of non-controlling-interest shareholders (379)

Net changes of items other than shareholders’ equity 2,367 683 (3,803) 252 (498) (367) (866)Total changes of items during the period 2,367 683 (3,803) 252 (498) (367) 857Balance at the end of current period 3,292 228 (3,420) 140 241 1,611 85,693

Consolidated Profit and Loss Statements

Consolidated Statement of Comprehensive Income

Financial/Corporate Inform

ation

59 60DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Financial/Corporate Information

(Units: millions of yen)

(Units: millions of yen)

Consolidated Statement of Changes in Equity

Consolidated Results for FY2015From January 21, 2015

to January 20, 2016

Consolidated Results for FY2016From January 21, 2016

to January 20, 2017

Net sales 149,856 171,401

Cost of sales 68,859 81,947

Gross profit 80,996 89,454

Selling general and administrative expenses 76,008 85,596

Operating income 4,988 3,857

Non-operating income

Interest income 142 213

Share of profit of entities accounted for using equity method － 131

Rebate income 47 35

Other 240 470

Total non-operating income 430 851

Non-operating expenses

Interest expenses 455 457

Share of loss of entities accounted for using equity method 399 －Foreign exchange losses 0 172

Other 302 337

Total non-operating expenses 1,156 967

Ordinary income 4,262 3,741

Extraordinary income

Gain on sales of investment securities － 132

Gain on sales of investments in capital of subsidiaries and associates － 433

Gain on bargain purchase － 494

Total extraordinary income － 1,060

Extraordinary expenses

Impairment loss 311 17

Loss on valuation of investment securities 109 －Total extraordinary expenses 421 17

Income before income taxes 3,841 4,784

Income taxes – current 1,714 1,419

Income taxes – deferred (291) 213

Total income taxes 1,422 1,633

Net income 2,418 3,151

Net income or loss attributable to non-controlling interests 71 (117)

Net income attributable to owners of parent 2,347 3,269

Consolidated Results for FY2015From January 21, 2015

to January 20, 2016

Consolidated Results for FY2016From January 21, 2016

to January 20, 2017

Net income 2,418 3,151

Other comprehensive income

Valuation difference on available-for-sale securities (188) 2,370

Deferred gains or losses on hedges (482) 683

Foreign currency translation adjustment (134) (3,461)

Remeasurements of defined benefit plans, net of tax (45) 252

Shares of other comprehensive income of entities accounted for using equity method

(53) (622)

Total other comprehensive income (904) (775)

Comprehensive income 1,513 2,375

(Breakdown)

Comprehensive income attributable to owners of parent 1,439 2,770

Comprehensive income attributable to non-controlling interests 73 (394)

( )

( )

( )

( )

(Units: millions of yen)

(Units: millions of yen)

Shareholders’ equity

Capital stock Capital surplus Retained earnings Treasury shares Total shareholders’ equity

Balance at the beginning of current period 1,924 1,464 77,800 (4) 81,184Cumulative effects of changes in accounting policies (76) (76)

Restated balance 1,924 1,464 77,723 (4) 81,107Changes of items during the period

Dividends of surplus (994) (994)Net income attributable to owners of parent 2,347 2,347Purchase of treasury shares (0) (0)Net changes of items other than shareholders’ equity

Total changes of items during the period － － 1,353 (0) 1,353Balance at the end of current period 1,924 1,464 79,076 (4) 82,460

Shareholders’ equity

Capital stock Capital surplus Retained earnings Treasury shares Total shareholders’ equity

Balance at the beginning of current period 1,924 1,464 79,076 (4) 82,460Cumulative effects of changes in accounting policies (345) (345)

Restated balance 1,924 1,464 78,731 (4) 82,115Changes of items during the period

Dividends of surplus (994) (994)Net income attributable to owners of parent 3,269 3,269Change in scope of equity-method coverage (170) (170)Gain on change in equity involving transactions of non-controlling-interest shareholders (379) (379)

Net changes of items other than shareholders’ equity

Total changes of items during the period － (379) 2,104 － 1,724Balance at the end of current period 1,924 1,084 80,835 (4) 83,840

Consolidated Results for FY2015 (From January 21, 2015 to January 20, 2016)

Consolidated Results for FY2016 (From January 21, 2016 to January 20, 2017)

Accumulated other comprehensive incomeNon-

controlling interest

Total net assets

Valuation difference on available-for-sale securities

Deferred gains or losses on

hedges

Foreign currency translation adjustment

Remeasurement of defined

benefit plans, net of tax

Total accumulated other

comprehensive income

Balance at the beginning of current period 1,108 27 578 (66) 1,647 1,901 84,734Cumulative effects of changes in accounting policies (76)

Restated balance 1,108 27 578 (66) 1,647 1,901 84,657Changes of items during the period

Dividends of surplus (994)Net income attributable to owners of parent 2,347Purchase of treasury shares (0)Net changes of items other than shareholders’ equity (184) (482) (195) (45) (907) 78 (829)

Total changes of items during the period (184) (482) (195) (45) (907) 78 524Balance at the end of current period 924 (455) 383 (112) 740 1,979 85,181

Accumulated other comprehensive incomeNon-

controlling interest

Total net assets

Valuation difference on available-for-sale securities

Deferred gains or losses on

hedges

Foreign currency translation adjustment

Remeasurement of defined

benefit plans, net of tax

Total accumulated other

comprehensive income

Balance at the beginning of current period 924 (455) 383 (112) 740 1,979 85,181Cumulative effects of changes in accounting policies (345)

Restated balance 924 (455) 383 (112) 740 1,979 84,836Changes of items during the period

Dividends of surplus (994)Net income attributable to owners of parent 3,269Change in scope of equity-method coverage (170)Gain on change in equity involving transactions of non-controlling-interest shareholders (379)

Net changes of items other than shareholders’ equity 2,367 683 (3,803) 252 (498) (367) (866)Total changes of items during the period 2,367 683 (3,803) 252 (498) (367) 857Balance at the end of current period 3,292 228 (3,420) 140 241 1,611 85,693

Consolidated Profit and Loss Statements

Consolidated Statement of Comprehensive Income

Financial/Corporate Inform

ation

59 60DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Financial/Corporate Information

(Units: millions of yen) Consolidated Statement of Cash Flows

Consolidated Results for FY2015From January 21, 2015

to January 20, 2016

Consolidated Results for FY2016From January 21, 2016

to January 20, 2017

Cash flows from operating activities

Income before income taxes 3,841 4,784

Depreciation 11,704 12,611

Amortization of goodwill 306 480

Increase (decrease) in provision for directors’ retirement benefits 4 4

Increase (decrease) in provision for doubtful accounts 2 4

Increase (decrease) in provision for bonuses 14 80

Interest and dividend income (174) (246)

Interest expenses 455 457

Share of (profit) loss of entities accounted for using equity method 399 (131)

Impairment loss 311 17

Gain on bargain purchase － (494)

Loss (gain) on sales of investment securities － (132)

Loss (gain) on valuation of investment securities 109 －Loss (gain) on sales of investments in capital of subsidiaries and associates － (433)

Decrease (increase) in notes and accounts receivable – trade (644) (1,673)

Decrease (increase) in inventories 343 (372)

Increase (decrease) in notes and accounts payable – trade 1,245 1,179

Increase (decrease) in accounts payable – other (499) 1,672

Decrease (increase) in other assets (690) (965)

Increase (decrease) in other liabilities (7) 320

Subtotal 16,724 17,162

Interest and dividend income received 204 314

Interest expenses paid (444) (453)

Income taxes paid (1,881) (1,713)

Net cash provided by operating activities 14,603 15,309

Cash flows from investing activities

Payments into time deposits (7,089) (10,264)

Proceeds from withdrawal of time deposits 9,972 6,993

Purchase of securities (9,582) (6,100)

Proceeds from sales and redemption of securities 11,884 11,485

Purchase of property, plant and equipment and intangible assets (9,797) (8,447)

Proceeds from sales of property, plant and equipment 0 371

Purchase of investment securities (2,872) (1,255)

Proceeds from sales and redemption of investment securities 2,105 1,083

Purchase of shares of subsidiaries resulting in change in scope of consolidation (400) (14,671)

Proceeds from sales of investments in capital of subsidiaries and associates － 300

Purchase of shares of subsidiaries and associates (2,244) －Other (65) (57)

Net cash used in investing activities (8,090) (20,560)

Cash flow from financing activities

Proceeds from long-term loans payable 8,100 3,951

Repayment of long-term loans payable (6,950) (8,372)

Repayment of lease obligations (2,689) (2,077)

Proceeds from issuance of bonds 15,000 －Cash dividends paid (994) (994)

Dividends paid to non-controlling interests (52) (52)

Payments from changes in ownership interests in subsidiaries that do not result in change in scope of consolidation － (1,900)

Purchase of treasury shares (0) －Net cash provided by (used in) financing activities 12,412 (9,445)

Effect of exchange rate change on cash and cash equivalents (46) (81)

Net increase (decrease) in cash and cash equivalents 18,878 (14,777)

Cash and cash equivalent at the beginning of period 42,020 60,898

Cash and cash equivalent at the end of period 60,898 46,120

( ) ( ) (Units: millions of yen)

(Units: millions of yen)

Segment Information

Reporting segments

Adjustments*1Consolidated

financial statement amount recorded*2

Beverage Sales Division

OEM Beverage Production Division

Food Production and Sales Division Total

Net sales

Sales to external customers 124,192 8,548 17,115 149,856 － 149,856

Internal sales or transfers between segments － 578 39 618 (618) －

Total 124,192 9,126 17,155 150,474 (618) 149,856

Segment profit 3,745 979 259 4,985 2 4,988

Segment assets 145,737 13,568 17,537 176,843 (13,145) 163,697

Other items

Depreciation 10,657 459 587 11,704 － 11,704

Amortization of goodwill － － 306 306 － 306

Gain on bargain purchase － － － － － －Impairment loss 311 － － 311 － 311

Amount invested in entities accounted for using equity method 499 － － 499 5,046 5,546

Increase in property, plant and equipment, and intangible non-current assets 10,404 298 599 11,302 － 11,302

Reporting segments

Adjustments*1Consolidated

financial statement amount recorded*2

Beverage Sales Division

OEM Beverage Production Division

Food Production and Sales Division Total

Net sales

Sales to external customers 144,902 8,526 17,972 171,401 － 171,401

Internal sales or transfers between segments － 541 41 583 (583) －

Total 144,902 9,068 18,013 171,984 (583) 171,401

Segment profit 2,700 944 212 3,857 0 3,857

Segment assets 144,255 14,880 17,395 176,530 (12,660) 163,870

Other items

Depreciation 11,548 430 632 12,611 － 12,611

Amortization of goodwill 182 － 298 480 － 480

Gain on bargain purchase 494 － － 494 － 494

Impairment loss 17 － － 17 － 17

Amount invested in entities accounted for using equity method 142 － － 142 2,395 2,538

Increase in property, plant and equipment, and intangible non-current assets 14,187 423 742 15,353 － 15,353

Consolidated Results for FY2015 (From January 21, 2015 to January 20, 2016)

Consolidated Results for FY2016 (From January 21, 2016 to January 20, 2017)

Notes1. The adjustment of 2 million yen posted in segment income consists of the elimination of 1 million yen in transactions among segments and a 1 million yen adjustment in

wholesale inventory. The adjustment in segment assets figure of negative 13,145 million yen consists of the elimination of 13,379 million yen in transactions among segments, a 20 million yen adjustment loss in wholesale inventory, a 366 million yen investment in entities accounted for using equity method, and a 112 million yen adjustment loss in net defined benefit assets. The 5,046 million yen adjustment for investments in entities accounted for using equity method is an investment in entities accounted for using equity method not belonging to reportable segments.

2. Segment profit is adjusted by taking into account operating profit in consolidated profit and loss statements.

Notes1. The adjustment of 0 million yen posted in segment income consists of the elimination of 0 million yen in transactions among segments and a 0 million yen adjustment in

wholesale inventory. The adjustment in segment assets figure of negative 12,660 million yen consists of the elimination of 12,984 million yen in transactions among segments, a 22 million yen adjustment loss in wholesale inventory, a 137 million yen investment in entities accounted for using equity method, and a 209 million yen adjustment in net defined benefit assets. The 2,395 million yen adjustment for investments in entities accounted for using equity method is an investment in entities accounted for using equity method not belonging to reportable segments.

2. Segment profit is adjusted by taking into account operating profit in consolidated profit and loss statements.

Financial/Corporate Inform

ation

61 62DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Financial/Corporate Information

(Units: millions of yen) Consolidated Statement of Cash Flows

Consolidated Results for FY2015From January 21, 2015

to January 20, 2016

Consolidated Results for FY2016From January 21, 2016

to January 20, 2017

Cash flows from operating activities

Income before income taxes 3,841 4,784

Depreciation 11,704 12,611

Amortization of goodwill 306 480

Increase (decrease) in provision for directors’ retirement benefits 4 4

Increase (decrease) in provision for doubtful accounts 2 4

Increase (decrease) in provision for bonuses 14 80

Interest and dividend income (174) (246)

Interest expenses 455 457

Share of (profit) loss of entities accounted for using equity method 399 (131)

Impairment loss 311 17

Gain on bargain purchase － (494)

Loss (gain) on sales of investment securities － (132)

Loss (gain) on valuation of investment securities 109 －Loss (gain) on sales of investments in capital of subsidiaries and associates － (433)

Decrease (increase) in notes and accounts receivable – trade (644) (1,673)

Decrease (increase) in inventories 343 (372)

Increase (decrease) in notes and accounts payable – trade 1,245 1,179

Increase (decrease) in accounts payable – other (499) 1,672

Decrease (increase) in other assets (690) (965)

Increase (decrease) in other liabilities (7) 320

Subtotal 16,724 17,162

Interest and dividend income received 204 314

Interest expenses paid (444) (453)

Income taxes paid (1,881) (1,713)

Net cash provided by operating activities 14,603 15,309

Cash flows from investing activities

Payments into time deposits (7,089) (10,264)

Proceeds from withdrawal of time deposits 9,972 6,993

Purchase of securities (9,582) (6,100)

Proceeds from sales and redemption of securities 11,884 11,485

Purchase of property, plant and equipment and intangible assets (9,797) (8,447)

Proceeds from sales of property, plant and equipment 0 371

Purchase of investment securities (2,872) (1,255)

Proceeds from sales and redemption of investment securities 2,105 1,083

Purchase of shares of subsidiaries resulting in change in scope of consolidation (400) (14,671)

Proceeds from sales of investments in capital of subsidiaries and associates － 300

Purchase of shares of subsidiaries and associates (2,244) －Other (65) (57)

Net cash used in investing activities (8,090) (20,560)

Cash flow from financing activities

Proceeds from long-term loans payable 8,100 3,951

Repayment of long-term loans payable (6,950) (8,372)

Repayment of lease obligations (2,689) (2,077)

Proceeds from issuance of bonds 15,000 －Cash dividends paid (994) (994)

Dividends paid to non-controlling interests (52) (52)

Payments from changes in ownership interests in subsidiaries that do not result in change in scope of consolidation － (1,900)

Purchase of treasury shares (0) －Net cash provided by (used in) financing activities 12,412 (9,445)

Effect of exchange rate change on cash and cash equivalents (46) (81)

Net increase (decrease) in cash and cash equivalents 18,878 (14,777)

Cash and cash equivalent at the beginning of period 42,020 60,898

Cash and cash equivalent at the end of period 60,898 46,120

( ) ( ) (Units: millions of yen)

(Units: millions of yen)

Segment Information

Reporting segments

Adjustments*1Consolidated

financial statement amount recorded*2

Beverage Sales Division

OEM Beverage Production Division

Food Production and Sales Division Total

Net sales

Sales to external customers 124,192 8,548 17,115 149,856 － 149,856

Internal sales or transfers between segments － 578 39 618 (618) －

Total 124,192 9,126 17,155 150,474 (618) 149,856

Segment profit 3,745 979 259 4,985 2 4,988

Segment assets 145,737 13,568 17,537 176,843 (13,145) 163,697

Other items

Depreciation 10,657 459 587 11,704 － 11,704

Amortization of goodwill － － 306 306 － 306

Gain on bargain purchase － － － － － －Impairment loss 311 － － 311 － 311

Amount invested in entities accounted for using equity method 499 － － 499 5,046 5,546

Increase in property, plant and equipment, and intangible non-current assets 10,404 298 599 11,302 － 11,302

Reporting segments

Adjustments*1Consolidated

financial statement amount recorded*2

Beverage Sales Division

OEM Beverage Production Division

Food Production and Sales Division Total

Net sales

Sales to external customers 144,902 8,526 17,972 171,401 － 171,401

Internal sales or transfers between segments － 541 41 583 (583) －

Total 144,902 9,068 18,013 171,984 (583) 171,401

Segment profit 2,700 944 212 3,857 0 3,857

Segment assets 144,255 14,880 17,395 176,530 (12,660) 163,870

Other items

Depreciation 11,548 430 632 12,611 － 12,611

Amortization of goodwill 182 － 298 480 － 480

Gain on bargain purchase 494 － － 494 － 494

Impairment loss 17 － － 17 － 17

Amount invested in entities accounted for using equity method 142 － － 142 2,395 2,538

Increase in property, plant and equipment, and intangible non-current assets 14,187 423 742 15,353 － 15,353

Consolidated Results for FY2015 (From January 21, 2015 to January 20, 2016)

Consolidated Results for FY2016 (From January 21, 2016 to January 20, 2017)

Notes1. The adjustment of 2 million yen posted in segment income consists of the elimination of 1 million yen in transactions among segments and a 1 million yen adjustment in

wholesale inventory. The adjustment in segment assets figure of negative 13,145 million yen consists of the elimination of 13,379 million yen in transactions among segments, a 20 million yen adjustment loss in wholesale inventory, a 366 million yen investment in entities accounted for using equity method, and a 112 million yen adjustment loss in net defined benefit assets. The 5,046 million yen adjustment for investments in entities accounted for using equity method is an investment in entities accounted for using equity method not belonging to reportable segments.

2. Segment profit is adjusted by taking into account operating profit in consolidated profit and loss statements.

Notes1. The adjustment of 0 million yen posted in segment income consists of the elimination of 0 million yen in transactions among segments and a 0 million yen adjustment in

wholesale inventory. The adjustment in segment assets figure of negative 12,660 million yen consists of the elimination of 12,984 million yen in transactions among segments, a 22 million yen adjustment loss in wholesale inventory, a 137 million yen investment in entities accounted for using equity method, and a 209 million yen adjustment in net defined benefit assets. The 2,395 million yen adjustment for investments in entities accounted for using equity method is an investment in entities accounted for using equity method not belonging to reportable segments.

2. Segment profit is adjusted by taking into account operating profit in consolidated profit and loss statements.

Financial/Corporate Inform

ation

61 62DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Financial/Corporate Information

Business Risks

The risks that could potentially have a major influence on matters such as the group’s operational results and financial situation are listed below. Please note that the items listed below relating to future matters were decided by the DyDo Group at the end of this consolidated fiscal year, and risks such as those relating to business are not limited to the following.

1. Domestic Economic SituationBecause the DyDo Group carries out business in Japan, domestic economic conditions, business trends, the financial landscape, and trends in consumer spending that are in turn influenced by these conditions could have an impact on the group’s business performance and financial situation.

The Japanese government plans to further raise the consumption tax in October 2019. The effect that this policy will have on the domestic economic situation and on business trends is as yet unclear, but possible lower demand and downward price pressure caused by stagnant consumer spending could have an impact on the group’s business performance and financial situation.

2. Market Competition in the Beverage IndustryThe market environment in the Domestic Beverage Business, which is the group’s mainstay business, has changed significantly in recent years. Diversifying consumer preferences have led to a polarization of consumption, with high value-added products on one side and pressure to lower pricing on the other.

In addition, consolidation and mergers in the distribution chain have led to the development of private brands, which have greater negotiating leverage and competitiveness in sales promotion activities. Against this background, the marketing and price battles among competing companies for share of sales in the beverage industry are intensifying, and sales promotion costs are rising for placing new products with retailers, on top of rising costs related to securing locations for vending machines.

Moving forward, we will try to flexibly predict market trends and put effort into developing attractive products in response to diversifying consumer preferences. Also, to achieve cost optimization throughout the supply chain, we will test effectiveness and control budgets thoroughly to maintain the optimal ratio of sales promotion costs to sales, but if these strategies are insufficient to meet the changes in the market environment, we could see an impact on the group’s business performance and financial situation.

3. Focus on Sales in the Vending Machine Channel and Reliance on Coffee Beverages for Sales

The group has been built on the foundation of canned coffee sales through vending machines. In this consolidated fiscal year, within the beverage sales division (domestic), vending machine sales accounted for 83.7% of sales, with coffee drinks comprising 56.1% of beverages sold. Both of these figures are far above the average for the industry.

However, the vending machine market is already considerably mature, and sales per vending machine are on a downward trend, since there has been no increase in the total number of vending machines in the market overall in recent years while the number of convenience stores has been increasing, and more vending machines are selling drinks at lower prices. Another source of competition for coffee drinks that has emerged is the brewed

coffee that has recently become commonplace at convenience stores.

We will continue to develop highly competitive vending machines and attractive product lines to suit the characteristics of vending machine locations, while adding other soft drinks to our coffee drinks to enhance our product line. If we are unable to supply attractive products and vending machines that win the support of customers, however, our sales could be impacted, resulting in lower revenue and business performance.

4. Procurement of Ingredients and MaterialsA wide range of ingredients and materials are used to produce the group’s products, among them coffee beans, which are a staple ingredient subject to international commodity prices and exchange rate fluctuations. The group contracts with domestic roasters at a market price with a view toward the future and aims to stabilize procurement prices, but if we are unable to manage long-term price fluctuations that exceed the scope of our estimates, the group’s business performance and financial situation could be affected.

Regarding the effects of price fluctuations, which is the same with other raw materials and resources, if a sudden rise in demand occurs for a certain raw material or resource and the group is unable to procure the amount needed to make our products, a sales opportunity loss may result for the products that use those materials or resources.

In addition, rises in the cost of ingredients and materials lead to higher manufacturing costs. Sometimes these costs cannot be passed on through the sales price due to market conditions, and this could impact the group’s business performance and financial situation.

5. Production SystemWe carry out product planning for most of the soft drinks that the group sells, and production may be outsourced to multiple beverage manufacturers based on the specifications. We contract with beverage manufacturers in various parts of Japan to mitigate the risk of an unanticipated situation with outsourcing contractors. This is a mutual backup system, but there is never a perfect guarantee. A natural disaster might occur that affects production, and if outsourcing contractors cannot make products in sufficient volume, our business performance and financial situation could be affected.

6. Weather and Natural DisastersDemand for the soft drinks and drinkable preparations sold by the group is affected by the weather and daily temperatures. Abnormal weather patterns such as cool summers and warm winters in particular slow sales and can impact our business performance and financial situation.

The occurrence of a large-scale natural disaster such as an earthquake or typhoon would require measures such as repairing or scrapping damaged vending machines, procuring replacements and reinforcing their installation. The costs incurred would likely affect our business performance and financial situation.

7. Legal Regulations, etc.Our business is subject to various legal regulations, such as the Food Sanitation Act, Pharmaceutical and Medical Device Act, the

Act against Unjustifiable Premiums and Misleading Representations, and laws related to the environment and recycling. The group has systems in place to comply with all legal regulations, but if an event occurs that exceeds these limitations, or if regulations become stricter and there is a rise in costs required for compliance, these things could affect our business performance and financial situation.

8. Management of Customer InformationThe group possesses an immense amount of customer information from route sales, online and mail-order shopping, other sales transactions, and from sales promotion activities that include consumer campaigns. The group manages the personal information of customers and outsources some management to external management companies.

Our management system for handling this personal information is secure, but in the future if an incident were to occur in which some information were to leak, trust in the group would be breached, which could affect our business performance and financial situation.

9. Food Safety and Quality ControlThe group has a robust system in place to perform quality control and freshness control to supply safe, high-quality products.

The group has never suffered any major incidents or been sued regarding food safety, quality control, or improperly labeled products. However, if in the future an incident were to occur in which a product has been distributed that is contaminated with foreign matter or has quality or improper labeling issues, the group’s business performance and financial situation could be affected.

10. Changes in the Market Value of SecuritiesThe group invests in securities based on a stance that focuses on safe, sound management of investments, but deteriorating markets can cause market value to drop or the need to book an impairment loss due to loss of trust in an investment. In such cases, the group’s business performance and financial situation could be affected.

11. Securing and Developing PersonnelThe running of the group’s business operations relies heavily on our personnel, and it is essential to secure and develop personnel on a continuing basis who are capable of taking actions that are also mutually beneficial for our customers and other stakeholders.

The operation of our approximately 280,000 vending machines throughout Japan relies heavily on the direct efforts of group employees and the special vending machine operators who make up the “Kyoeikai.” A smooth-running operations system that includes the Kyoeikai is necessary to keep vending machines in good condition at all times and to ensure that an optimal selection of products is chosen to suit the location of the vending machine. In today’s business climate, and with changes taking place in the employment market, if it becomes difficult to secure suitable personnel and maintain a properly functioning operations system, that could affect the group’s business performance and financial situation.

Additionally, a diverse range of personnel with high-level expertise and experience will be needed to strengthen and expand our business outside of Japan and to make forays into

new business domains. If it becomes difficult to secure well-qualified personnel due to increased competition in attracting talented personnel, this could affect the group’s business performance and financial situation.

12. International Business DevelopmentThe group has positioned the expansion of international business development as part of our medium-term growth strategy. A wide range of risks are involved, however, including differences from country to country in laws and systems, politics, economies, social conditions, cultures, religions, and business practices, not to mention exchange rate fluctuations. We conduct detailed surveys of our target markets and fully assess the risks involved in international business development, but if business development is impeded by unforeseen problems that arise or the inability to cope with these risks, or if it becomes difficult to recover our investment, the group’s business performance and financial situation may be affected.

Because the financial statements of our international subsidiaries must be converted into Japanese yen when producing consolidated statements, exchange rate fluctuations could affect the group’s business performance and financial situation.

13. Corporate Takeovers and Business/Capital Alliances

The group has positioned new business development related to “food and health” as part of our medium-term growth strategy. Corporate acquisitions and strategic investments such as business and capital tie-ups are effective means of accelerating business expansion, and we are constantly looking into these possibilities. However, when effective investment opportunities cannot be found or the initially anticipated benefits from a strategic investment do not emerge, the group’s business performance and financial situation may be affected. Also, when entering new business domains and new markets through a corporate acquisition, etc., new risks may emerge that are unique to that particular business and market.

For every corporate acquisition we conduct detailed investigations of the business plans, financial details, and contractual relationships of the target company, and fully assess the risks involved, but if unforeseen problems arise or the business development does not go according to plan, it may become necessary to record an impairment of goodwill, which could affect the group’s business performance and financial situation.

14. Other RisksOther than the risks mentioned above that may occur as we carry out our group’s business activities, a variety of risks, such as those relating to the handling of environmental problems or compliance, could affect the group’s business performance and financial situation. In order to avoid and minimize the impact of the above risks, the group is strengthening its risk management system.

Through the visualization of the potential risks associated with our group, and in order to strengthen measures which minimize the impact of risks when they occur, every year we create a “risk map” which analyzes the impact of the said risks and the likelihood of their occurrence. We are promoting our risk management system through the identification of major risks and the adoption of measures that respond to changes in the environment.

Financial/Corporate Inform

ation

63 64DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Financial/Corporate Information

Business Risks

The risks that could potentially have a major influence on matters such as the group’s operational results and financial situation are listed below. Please note that the items listed below relating to future matters were decided by the DyDo Group at the end of this consolidated fiscal year, and risks such as those relating to business are not limited to the following.

1. Domestic Economic SituationBecause the DyDo Group carries out business in Japan, domestic economic conditions, business trends, the financial landscape, and trends in consumer spending that are in turn influenced by these conditions could have an impact on the group’s business performance and financial situation.

The Japanese government plans to further raise the consumption tax in October 2019. The effect that this policy will have on the domestic economic situation and on business trends is as yet unclear, but possible lower demand and downward price pressure caused by stagnant consumer spending could have an impact on the group’s business performance and financial situation.

2. Market Competition in the Beverage IndustryThe market environment in the Domestic Beverage Business, which is the group’s mainstay business, has changed significantly in recent years. Diversifying consumer preferences have led to a polarization of consumption, with high value-added products on one side and pressure to lower pricing on the other.

In addition, consolidation and mergers in the distribution chain have led to the development of private brands, which have greater negotiating leverage and competitiveness in sales promotion activities. Against this background, the marketing and price battles among competing companies for share of sales in the beverage industry are intensifying, and sales promotion costs are rising for placing new products with retailers, on top of rising costs related to securing locations for vending machines.

Moving forward, we will try to flexibly predict market trends and put effort into developing attractive products in response to diversifying consumer preferences. Also, to achieve cost optimization throughout the supply chain, we will test effectiveness and control budgets thoroughly to maintain the optimal ratio of sales promotion costs to sales, but if these strategies are insufficient to meet the changes in the market environment, we could see an impact on the group’s business performance and financial situation.

3. Focus on Sales in the Vending Machine Channel and Reliance on Coffee Beverages for Sales

The group has been built on the foundation of canned coffee sales through vending machines. In this consolidated fiscal year, within the beverage sales division (domestic), vending machine sales accounted for 83.7% of sales, with coffee drinks comprising 56.1% of beverages sold. Both of these figures are far above the average for the industry.

However, the vending machine market is already considerably mature, and sales per vending machine are on a downward trend, since there has been no increase in the total number of vending machines in the market overall in recent years while the number of convenience stores has been increasing, and more vending machines are selling drinks at lower prices. Another source of competition for coffee drinks that has emerged is the brewed

coffee that has recently become commonplace at convenience stores.

We will continue to develop highly competitive vending machines and attractive product lines to suit the characteristics of vending machine locations, while adding other soft drinks to our coffee drinks to enhance our product line. If we are unable to supply attractive products and vending machines that win the support of customers, however, our sales could be impacted, resulting in lower revenue and business performance.

4. Procurement of Ingredients and MaterialsA wide range of ingredients and materials are used to produce the group’s products, among them coffee beans, which are a staple ingredient subject to international commodity prices and exchange rate fluctuations. The group contracts with domestic roasters at a market price with a view toward the future and aims to stabilize procurement prices, but if we are unable to manage long-term price fluctuations that exceed the scope of our estimates, the group’s business performance and financial situation could be affected.

Regarding the effects of price fluctuations, which is the same with other raw materials and resources, if a sudden rise in demand occurs for a certain raw material or resource and the group is unable to procure the amount needed to make our products, a sales opportunity loss may result for the products that use those materials or resources.

In addition, rises in the cost of ingredients and materials lead to higher manufacturing costs. Sometimes these costs cannot be passed on through the sales price due to market conditions, and this could impact the group’s business performance and financial situation.

5. Production SystemWe carry out product planning for most of the soft drinks that the group sells, and production may be outsourced to multiple beverage manufacturers based on the specifications. We contract with beverage manufacturers in various parts of Japan to mitigate the risk of an unanticipated situation with outsourcing contractors. This is a mutual backup system, but there is never a perfect guarantee. A natural disaster might occur that affects production, and if outsourcing contractors cannot make products in sufficient volume, our business performance and financial situation could be affected.

6. Weather and Natural DisastersDemand for the soft drinks and drinkable preparations sold by the group is affected by the weather and daily temperatures. Abnormal weather patterns such as cool summers and warm winters in particular slow sales and can impact our business performance and financial situation.

The occurrence of a large-scale natural disaster such as an earthquake or typhoon would require measures such as repairing or scrapping damaged vending machines, procuring replacements and reinforcing their installation. The costs incurred would likely affect our business performance and financial situation.

7. Legal Regulations, etc.Our business is subject to various legal regulations, such as the Food Sanitation Act, Pharmaceutical and Medical Device Act, the

Act against Unjustifiable Premiums and Misleading Representations, and laws related to the environment and recycling. The group has systems in place to comply with all legal regulations, but if an event occurs that exceeds these limitations, or if regulations become stricter and there is a rise in costs required for compliance, these things could affect our business performance and financial situation.

8. Management of Customer InformationThe group possesses an immense amount of customer information from route sales, online and mail-order shopping, other sales transactions, and from sales promotion activities that include consumer campaigns. The group manages the personal information of customers and outsources some management to external management companies.

Our management system for handling this personal information is secure, but in the future if an incident were to occur in which some information were to leak, trust in the group would be breached, which could affect our business performance and financial situation.

9. Food Safety and Quality ControlThe group has a robust system in place to perform quality control and freshness control to supply safe, high-quality products.

The group has never suffered any major incidents or been sued regarding food safety, quality control, or improperly labeled products. However, if in the future an incident were to occur in which a product has been distributed that is contaminated with foreign matter or has quality or improper labeling issues, the group’s business performance and financial situation could be affected.

10. Changes in the Market Value of SecuritiesThe group invests in securities based on a stance that focuses on safe, sound management of investments, but deteriorating markets can cause market value to drop or the need to book an impairment loss due to loss of trust in an investment. In such cases, the group’s business performance and financial situation could be affected.

11. Securing and Developing PersonnelThe running of the group’s business operations relies heavily on our personnel, and it is essential to secure and develop personnel on a continuing basis who are capable of taking actions that are also mutually beneficial for our customers and other stakeholders.

The operation of our approximately 280,000 vending machines throughout Japan relies heavily on the direct efforts of group employees and the special vending machine operators who make up the “Kyoeikai.” A smooth-running operations system that includes the Kyoeikai is necessary to keep vending machines in good condition at all times and to ensure that an optimal selection of products is chosen to suit the location of the vending machine. In today’s business climate, and with changes taking place in the employment market, if it becomes difficult to secure suitable personnel and maintain a properly functioning operations system, that could affect the group’s business performance and financial situation.

Additionally, a diverse range of personnel with high-level expertise and experience will be needed to strengthen and expand our business outside of Japan and to make forays into

new business domains. If it becomes difficult to secure well-qualified personnel due to increased competition in attracting talented personnel, this could affect the group’s business performance and financial situation.

12. International Business DevelopmentThe group has positioned the expansion of international business development as part of our medium-term growth strategy. A wide range of risks are involved, however, including differences from country to country in laws and systems, politics, economies, social conditions, cultures, religions, and business practices, not to mention exchange rate fluctuations. We conduct detailed surveys of our target markets and fully assess the risks involved in international business development, but if business development is impeded by unforeseen problems that arise or the inability to cope with these risks, or if it becomes difficult to recover our investment, the group’s business performance and financial situation may be affected.

Because the financial statements of our international subsidiaries must be converted into Japanese yen when producing consolidated statements, exchange rate fluctuations could affect the group’s business performance and financial situation.

13. Corporate Takeovers and Business/Capital Alliances

The group has positioned new business development related to “food and health” as part of our medium-term growth strategy. Corporate acquisitions and strategic investments such as business and capital tie-ups are effective means of accelerating business expansion, and we are constantly looking into these possibilities. However, when effective investment opportunities cannot be found or the initially anticipated benefits from a strategic investment do not emerge, the group’s business performance and financial situation may be affected. Also, when entering new business domains and new markets through a corporate acquisition, etc., new risks may emerge that are unique to that particular business and market.

For every corporate acquisition we conduct detailed investigations of the business plans, financial details, and contractual relationships of the target company, and fully assess the risks involved, but if unforeseen problems arise or the business development does not go according to plan, it may become necessary to record an impairment of goodwill, which could affect the group’s business performance and financial situation.

14. Other RisksOther than the risks mentioned above that may occur as we carry out our group’s business activities, a variety of risks, such as those relating to the handling of environmental problems or compliance, could affect the group’s business performance and financial situation. In order to avoid and minimize the impact of the above risks, the group is strengthening its risk management system.

Through the visualization of the potential risks associated with our group, and in order to strengthen measures which minimize the impact of risks when they occur, every year we create a “risk map” which analyzes the impact of the said risks and the likelihood of their occurrence. We are promoting our risk management system through the identification of major risks and the adoption of measures that respond to changes in the environment.

Financial/Corporate Inform

ation

63 64DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Financial/Corporate Information

Status of Shares / Rating Information / Corporate Bond Information

Group Companies

DyDo Group HoldingsWebsite Information

Corporate Data / Group Companies

Company Name

Head Office

Representative

Established

DyDo Group Holdings, Inc.

2-2-7 Nakanoshima, Kita-ku, Osaka 530-0005, Japan

President and Representative Director Tomiya Takamatsu

January 27, 1975

Fiscal Year

Paid-in Capital

Stock Exchange Listing

Securities Code

Number of Employees

From every January 21 to January 20 of the following year

1,924 million yen

Tokyo Stock Exchange, 1st Section

2590

Consolidated: 3,602 (as of January 20, 2017)

Corporate Data

■ Domestic Beverage Business ■ International Beverage Business

■ Pharmaceutical-Related Business

■ Food Business

Consolidated Subsidiary Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Equity Method Affiliate

Equity Method Affiliate

Equity Method Affiliate

Equity Method Affiliate

Equity Method Affiliate

Non-consolidated Subsidiary

DyDo DRINCO, INC.

DyDo Beverage Service, Inc.

DyDo Business Service, Inc.

DyDo Beverage Shizuoka, Inc.

DyDo West Vending, Inc.

DyDo DRINCO Service Kanto, Inc.

DyDo-Takenaka Beverage, Inc.

DyDo-Takenaka Vending, Inc.

Akita-DyDo Corporation

Gunma-DyDo Corporation

Shanghai DyDo DRINCO, Inc.

DyDo DRINCO RUS, LLC

DyDo Mamee Distribution Sdn. Bhd.

MDD Beverage Sdn. Bhd.

Della Gıda Sanayi ve Ticaret A.Ş.

Bahar Su Sanayi ve Ticaret A.Ş.

İlk Mevsim Meyve Suları Pazarlama A.Ș.

DyDo DRINCO TURKEY İçecek Satış ve Pazarlama A.Ş.

DAIDO Pharmaceutical Corporation

Tarami Corporation

Shunnotoki Inc.

PT. Tarami Aeternit Food

In order to provide the latest news to our shareholders and investors in a timely manner, we are committed to IR activities through our website.

https://www.dydo-ghd.co.jp/ URL

Authorized number of shares: 50,000,000

Number of shares outstanding: 16,568,500

Minimum trading unit: 100 shares

Number of shareholders: 25,088

Japan Trustee Services Bank, Ltd. (Trust Account)

The Master Trust Bank of Japan, Ltd. (Trust Account)

HighWood Co. Ltd.

Santomi

Taita Corporation

Shareholder name

2,470,800

2,011,600

495,000

495,000

494,000

480,800

461,050

14.91

12.14

2.98

2.98

2.98

2.90

2.78

Number of Shareholders by Shareholder Category■ Total Shares / Number of Shareholders

■ Major Shareholders

Number of Shares by Shareholder Category

Tomihiro Takamatsu

Tomiya Takamatsu

Akira Takamatsu

Tamon Takamatsu

Takamatsu Co., Ltd.

Number of shares Percentage ofvoting rights (%)

738,100 4.45

442,300 2.66

303,700 1.83

25,088Total shareholders

16,568,500Total shares

98.62%(24,742)

0.10%(25)

0.51%(128)

0.68%(170)

0.09%(22)

0.00%(1)

36.67%(6,074,896)

11.55%(1,912,850)

41.19%(6,824,850)

9.66%(1,600,637)

Non-Japanese 0.93%(154,317) 0.00%

(950)

Status of Shares

(as of January 20, 2017)

(as of January 20, 2017)Individuals/Other

Financial institutions

Other corporations in Japan

Non-Japanese Securities companies

Treasury stock

Financial institutions

Individuals/Other

Treasury stock

Securities companies

Other corporations in Japan

■ Trends in Stock Price and Turnover

7,000

6,000

5,000

4,000

3,000

Jan.

Feb.

Mar.

Apr.

May

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

Apr.

May

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

(2015) (2016) (2017)

Stock price (yen) Turnover (thousand shares)

0

500

1,000

1,500

2,000

■ Corporate Bond Information

Description

Date of issue

Total amount issued

Interest rate

Redemption date

First unsecured straight bond

October 16, 2015

¥15 billion

0.341% (per year)

October 16, 2020

Rating agency Rating

A-Japan Credit Rating Agency, Ltd. (JCR)

■ Rating Information

Rating Information / Corporate Bond Information

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business Outline

Location

Sales and production of fruit dessert jellies, etc.Nagasaki

Sales of fruit dessert jellies, etc.Isahaya, Nagasaki

Sales and production of fruit dessert jellies, etc.Jakarta, Indonesia

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

The DyDo Group has been given the following rating by the credit rating agency listed below.

(as of August 9, 2016)

Development, manufacture, and salesOsaka

Sales of soft drinks, etc.Osaka

Business processing services for the GroupOsaka

Sales of soft drinks, etc.Fukuroi, Shizuoka

Sales of soft drinks, etc.Yonago, Tottori

Sales of soft drinks, etc.Shimotsuga, Tochigi

Manufacture and sales of soft drinks, etc.Muroto, Kochi

Sales of soft drinks, etc.Nankoku (registered location: Kochi), Kochi

Sales of soft drinks, etc.Akita

Sales of soft drinks, etc.Sawa, Gunma

Sales of soft drinks, etc.Shanghai, China

Sales of soft drinks, etc.Moscow, Russia

Sales of chilled drinks and soft drinks, etc.Johor Bahru, Malaysia

Production and sales of chilled drinks and soft drinks, etc.Johor Bahru, Malaysia

Production of soft drinks, etc.Istanbul, Turkey

Production of soft drinks, etc.Istanbul, Turkey

Production of soft drinks, etc.Istanbul, Turkey

Sales of soft drinks, etc.Istanbul, Turkey

Sales and production of drinkable preparations (medicines, quasi-medicines, soft drinks) , etc.Katsuragi, Nara

Financial/Corporate Inform

ation

65 66DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Financial/Corporate Information

Status of Shares / Rating Information / Corporate Bond Information

Group Companies

DyDo Group HoldingsWebsite Information

Corporate Data / Group Companies

Company Name

Head Office

Representative

Established

DyDo Group Holdings, Inc.

2-2-7 Nakanoshima, Kita-ku, Osaka 530-0005, Japan

President and Representative Director Tomiya Takamatsu

January 27, 1975

Fiscal Year

Paid-in Capital

Stock Exchange Listing

Securities Code

Number of Employees

From every January 21 to January 20 of the following year

1,924 million yen

Tokyo Stock Exchange, 1st Section

2590

Consolidated: 3,602 (as of January 20, 2017)

Corporate Data

■ Domestic Beverage Business ■ International Beverage Business

■ Pharmaceutical-Related Business

■ Food Business

Consolidated Subsidiary Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Consolidated Subsidiary

Equity Method Affiliate

Equity Method Affiliate

Equity Method Affiliate

Equity Method Affiliate

Equity Method Affiliate

Non-consolidated Subsidiary

DyDo DRINCO, INC.

DyDo Beverage Service, Inc.

DyDo Business Service, Inc.

DyDo Beverage Shizuoka, Inc.

DyDo West Vending, Inc.

DyDo DRINCO Service Kanto, Inc.

DyDo-Takenaka Beverage, Inc.

DyDo-Takenaka Vending, Inc.

Akita-DyDo Corporation

Gunma-DyDo Corporation

Shanghai DyDo DRINCO, Inc.

DyDo DRINCO RUS, LLC

DyDo Mamee Distribution Sdn. Bhd.

MDD Beverage Sdn. Bhd.

Della Gıda Sanayi ve Ticaret A.Ş.

Bahar Su Sanayi ve Ticaret A.Ş.

İlk Mevsim Meyve Suları Pazarlama A.Ș.

DyDo DRINCO TURKEY İçecek Satış ve Pazarlama A.Ş.

DAIDO Pharmaceutical Corporation

Tarami Corporation

Shunnotoki Inc.

PT. Tarami Aeternit Food

In order to provide the latest news to our shareholders and investors in a timely manner, we are committed to IR activities through our website.

https://www.dydo-ghd.co.jp/ URL

Authorized number of shares: 50,000,000

Number of shares outstanding: 16,568,500

Minimum trading unit: 100 shares

Number of shareholders: 25,088

Japan Trustee Services Bank, Ltd. (Trust Account)

The Master Trust Bank of Japan, Ltd. (Trust Account)

HighWood Co. Ltd.

Santomi

Taita Corporation

Shareholder name

2,470,800

2,011,600

495,000

495,000

494,000

480,800

461,050

14.91

12.14

2.98

2.98

2.98

2.90

2.78

Number of Shareholders by Shareholder Category■ Total Shares / Number of Shareholders

■ Major Shareholders

Number of Shares by Shareholder Category

Tomihiro Takamatsu

Tomiya Takamatsu

Akira Takamatsu

Tamon Takamatsu

Takamatsu Co., Ltd.

Number of shares Percentage ofvoting rights (%)

738,100 4.45

442,300 2.66

303,700 1.83

25,088Total shareholders

16,568,500Total shares

98.62%(24,742)

0.10%(25)

0.51%(128)

0.68%(170)

0.09%(22)

0.00%(1)

36.67%(6,074,896)

11.55%(1,912,850)

41.19%(6,824,850)

9.66%(1,600,637)

Non-Japanese 0.93%(154,317) 0.00%

(950)

Status of Shares

(as of January 20, 2017)

(as of January 20, 2017)Individuals/Other

Financial institutions

Other corporations in Japan

Non-Japanese Securities companies

Treasury stock

Financial institutions

Individuals/Other

Treasury stock

Securities companies

Other corporations in Japan

■ Trends in Stock Price and Turnover

7,000

6,000

5,000

4,000

3,000

Jan.

Feb.

Mar.

Apr.

May

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

Apr.

May

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

(2015) (2016) (2017)

Stock price (yen) Turnover (thousand shares)

0

500

1,000

1,500

2,000

■ Corporate Bond Information

Description

Date of issue

Total amount issued

Interest rate

Redemption date

First unsecured straight bond

October 16, 2015

¥15 billion

0.341% (per year)

October 16, 2020

Rating agency Rating

A-Japan Credit Rating Agency, Ltd. (JCR)

■ Rating Information

Rating Information / Corporate Bond Information

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

Business Outline

Location

Sales and production of fruit dessert jellies, etc.Nagasaki

Sales of fruit dessert jellies, etc.Isahaya, Nagasaki

Sales and production of fruit dessert jellies, etc.Jakarta, Indonesia

Business OutlineLocation

Business OutlineLocation

Business OutlineLocation

The DyDo Group has been given the following rating by the credit rating agency listed below.

(as of August 9, 2016)

Development, manufacture, and salesOsaka

Sales of soft drinks, etc.Osaka

Business processing services for the GroupOsaka

Sales of soft drinks, etc.Fukuroi, Shizuoka

Sales of soft drinks, etc.Yonago, Tottori

Sales of soft drinks, etc.Shimotsuga, Tochigi

Manufacture and sales of soft drinks, etc.Muroto, Kochi

Sales of soft drinks, etc.Nankoku (registered location: Kochi), Kochi

Sales of soft drinks, etc.Akita

Sales of soft drinks, etc.Sawa, Gunma

Sales of soft drinks, etc.Shanghai, China

Sales of soft drinks, etc.Moscow, Russia

Sales of chilled drinks and soft drinks, etc.Johor Bahru, Malaysia

Production and sales of chilled drinks and soft drinks, etc.Johor Bahru, Malaysia

Production of soft drinks, etc.Istanbul, Turkey

Production of soft drinks, etc.Istanbul, Turkey

Production of soft drinks, etc.Istanbul, Turkey

Sales of soft drinks, etc.Istanbul, Turkey

Sales and production of drinkable preparations (medicines, quasi-medicines, soft drinks) , etc.Katsuragi, Nara

Financial/Corporate Inform

ation

65 66DyDo Group Holdings Integrated Report 2017 DyDo Group Holdings Integrated Report 2017

Financial/Corporate Information

Integrated Report2017

DyDo Group Holdings

Chall

enge

the

Next S

tage

2-2-7 Nakanoshima, Kita-ku, Osaka, Japan 530-0005https://www.dydo-ghd.co.jp/

DyDo Group Holdings, Inc.

Offering delicious productsfor the sound mind and body

Offering delicious productsfor the sound mind and body

For inquiries regarding this report, please contact:Corporate Communication Departmentir_info@dydo.co.jp