HAKUHODO DY INCORPORATED : Summary of Questions and Answers for 1Q of FY2018

Summary of the Q&A Session for 1Q of FY2018

Date of event: August 7, 2018 (Tuesday)

Attending members of the Company: Masanori Nishioka, Corporate Officer

Satoru Yagi, Executive Manager, IR Division

Q: How do you view the current state of the domestic advertising market? A: In the same manner as other markets, the importance of digitalization within integrated marketing solutions is increasing in the domestic advertising market. As a whole, the domestic advertising market looks to remain on a par with the previous fiscal year.

Q: Yesterday (August 6), there was an announcement of the commencement of tender offer for shares of D.A. Consortium Holdings, Inc. (Securities code: 6534). Why did you choose this timing?

A: In order to gain a competitive edge amid a changing business environment it is necessary to: 1) accelerate growth in the Internet advertising domain, 2)

strengthen digital response capabilities in all media areas, including mass media, and 3) strengthen data and technology domains. To this end, we believe that the integration of the two groups is essential and therefore made a decision at this time.

Q: As one of the causes of SG&A cost increases, you have pointed to the strategic use of funds to promote the Medium-Term Business Plan. What other costs besides personnel costs have increased?

A: Personnel costs have increased with the goal of strengthening the overall structure of the system. In terms of other costs, there have been increases for data purchases required for development of marketing tools and amortization of goodwill due to M&A. The Group works to control SG&A expenses over the year. Therefore, while monitoring the environment from the second quarter onward and making decisions accordingly, we will keep these expenses within the full-year budget.

Q: There has been considerable growth in overseas revenue during the first quarter. We understand that kyu is playing a significant role in this regard, but which companies are contributing specifically?

A: Within kyu there are companies that are performing favorably and unfavorably, but one large contributor was IDEO LP, which became a consolidated subsidiary from this term.

Q: Please tell us which points have improved related to gross margin.

A: As explained in the presentation materials, gross margin is improving in

Japan, even excluding the impact of the sale of investee shares and our performance overseas, where there is a high ratio of fee businesses. Thereare two significant factors behind this improvement. The first factor is the results of our efforts to secure revenue centered on the advertising companies, even amid an environment where it is difficult to grow billings as the domestic adverting market remains at the same level as it was in the previous year. The second factor is the increase in profits from our production services, which include Marketing / Promotion and Creative. Going forward, although the rate of in-house production is stabilizing to some degree, we will continue to thoroughly control costs and expand business volume.

Q: Could you please explain the trends in operating income overseas as well as the outlook for the current term?

A: In regard to operating income overseas for the first quarter, we recorded a loss of over 100 million owing to such factors as amortization of goodwill due to M&A. However, this is an improvement upon the loss recorded in the same period last year, and we are aiming to return to the black over the course of the whole year.

Q: How will this tender offer affect the Company's future M&A strategy? A: Fiscal 2019 represents the final year of the current medium-term business plan, and at this time we are moving forward with the formulation of the next medium-term business plan. While we cannot respond in detail to this question, we do not foresee any fundamental changes to our approach in terms of M&A. We will continue to examine necessary M&A while looking at progress in individual strategic fields.

Q: When this tender offer is concluded, will there be any profit or loss related to the step acquisition?

A: Since this is not the case of an affiliate becoming a consolidated subsidiary, it is our understanding that there will be no profit or loss related to the step acquisition.

Note: The period of the tender offer referred to in the announcement of the commencement of tender offer for shares of D.A. Consortium Holdings, Inc. (Securities code: 6534), made on August 6, 2018, is until September 18, 2018. Please note that at the current time (August 7, 2018) this period is not yet complete.