CHINA

Dentsu Inc. Q3 FY2018 Consolidated Financial Results

19 Nov 2018

(The first nine months ended September 30, 2018 – reported on an IFRS basis)

 

Executive Summary

  • In the first nine months, the Dentsu Group delivered total growth of revenue less cost of sales of 8.0% (constant currency basis) and organic growth of 4.4%. The Japan business delivered 4.1% and 4.1%, respectively, in part, due to an increase in digital-related services, favorable results in subsidiaries and new business wins. The international business, Dentsu Aegis Network, delivered 10.8% (constant currency basis) and 4.6%, respectively, partly driven by new business wins in H2FY2017.
  • Underlying operating profit declined 4.0%(constant currency basis). InJapan, profitdeclined due to planned investments in the working environment reforms. At Dentsu Aegis Network, investments in global platforms and systems continue as planned, increasing shared services to enable our agency brands to collaborate more effectively.
  • There is no change to the FY2018 financial guidance announced on August 9, 2018.
  • In line with the medium-term direction announced in August, Dentsu Inc. has announced its intention to invest in two listed Japanese mid-sized digital advertising agencies to strengthen its digital capability.
  • The international business achieved the fifth consecutive quarter of improving organic growth, partly due to the business wins gained in H2FY2017.

First Nine Months of FY2018 results

  • The Dentsu Group delivered growth of revenue less cost of sales of 8.0% (constant currency basis) in the first nine months ofFY2018:

o   4.1% in Japan, and 10.8% (constant currency basis) at Dentsu Aegis Network driven by acquisitions and organicgrowth.

o   Contribution amount to the increase: +28.3 billion yen by organic growth, +20.9 billion yen from M&As, and (0.0) billion yen from foreign exchangerates.

 

  • The Group produced organic growth of 4.4% in the first nine months ofFY2018:

o   4.1% in Japan, and 4.6% at Dentsu Aegis Network. The international business benefited from the strong new business wins in H2 FY2017; further impact from new business wins is expected in Q4FY2018.

o   Digital business contribution to total revenue less cost of sales reached 45.4% (9M FY2017: 43.1%), including 23.4% in Japan (9M FY2017: 21.6%), and 60.5% at Dentsu Aegis Network (9M FY2017:58.8%).

o   International business contribution to total revenue less cost of sales reached 59.2% (9M FY2017: 57.7%).

 

  • Group underlying operating profit was 89.5 billion yen (9M FY2017: 93.6 billionyen).

o   61.4 billion yen in Japan (9M FY2017: 62.3 billion yen), and 28.0 billion yen at Dentsu Aegis Network (9M FY2017: 31.3 billionyen).

 

  • Group underlying operating margin was 13.4% (9M FY2017:15.1%).

o   22.6% in Japan (9M FY2017: 23.8%), and 7.1% at Dentsu Aegis Network (9M FY2017:8.8%).

o   The decline in Japan was mainly due to planned SG&A costs related to the working environment reforms. At Dentsu Aegis Network, the operating margin reflects planned internal investments inFY2018.

o   The margin for the first nine months of FY2018 is aligned to our budget and is largely on track for FY2018 expectations.

 
  • Underlying net profit (attributable to owners of the parent) and underlying basic EPS decreased by 18.5% and 18.2% respectively mainly due to the decline of underlying operating income and an increase of  corporate taxes, etc. As for the significant increase in statutory net profit, it was mainly due to a gain on sale of shares in affiliates of 51.5 billion yen (before tax), recorded by the sale of all shares of Kakaku.com,Inc.

Toshihiro Yamamoto, President and CEO, Dentsu Inc., said:

“In the third quarter of FY2018, Dentsu Group recorded 5.4% organic growth. Dentsu Aegis Network achieved  7.0% organic growth - the fifth consecutive quarter of improving organic growth, and the business in Japan delivered2.7%.

Dentsu Aegis Network has shown strong growth in Q3 FY2018, with September the strongest month in the quarter. The media business continued its strong performance and project-based business continued to improve. We have seen success in FY2018 when we work collaboratively. Increasingly, some of our most successful pitches are those where several of our brands work together to provide a coherent, holistic solution for clients. Growth is becoming broader based with eight of our top 20 markets delivering double digit organic growth.

In Japan, we have continued to build and improve our digital services and announced, in October, a plan to invest in two listed mid-sized digital agencies. These investments will bring new skills and enhanced product offerings for our clients. Dentsu will continue to search for investments and alliances in Japan, in line with the mid-term direction announced in August 2018.

We continue to generate our own momentum in a challenging market and reiterate the revised FY2018 financial guidance we issued in August.”


Note:

- IFRS 15 “Revenue from Contracts with Customers” is applied from January 1, 2018. In this material, past results are also presented on a pro-forma basis to facilitate the year-on-yearcomparison.

- The term “Gross profit” is changed to “Revenue less cost of sales” from Q1FY2018.