Dentsu Inc. (TOKYO:4324)(ISIN:JP3551520004):
Consolidated Group (million yen) H1
FY2017 H1 FY2016
YoYChange, %
Constantcurrencybasis,
%
Revenue 439,485 393,167 11.8 -
Gross profit* 414,610
368,619 12.5 13.1
Statutory results
45,307 58,651 (22.8) -
- net profit (attributable to owners of the parent)
30,712 35,785 (14.2) -
108.33 125.50 (13.7) -
Underlying results**
64,354 68,612 (6.2) (7.7)
15.5% 18.6% (3.1) (3.5)
- net profit (attributable to owners of the parent)
41,010 43,559 (5.9) -
144.65 152.77 (5.3) -
EBITDA 73,575 79,662 (7.6) -
Average JPY/USD rate 112.4 yen 111.9 yen 0.5 -
Average
JPY/GBP rate 141.4 yen 160.3 yen (11.8)
-
* Gross profit, defined as revenue less direct costs, is the
metric by which the Group’s organic growth is measured. Organic
growth represents the constant currency year-on-year growth after
adjusting for the effect of businesses acquired or disposed of
since the beginning of the prior year.** Throughout this
announcement, results are stated on an underlying basis unless
otherwise indicated. See below for definition of “underlying.”
Highlights of H1 FY2017:
- The Dentsu Group delivered total gross
profit growth of 13.1% (constant currency basis) in H1 FY2017:
- (1.2%) gross profit growth at the
Group’s operations in Japan, and 27.2% gross profit growth
(constant currency basis) at Dentsu Aegis Network, its
international business.
- The Group produced organic gross profit
growth of (0.4%) during H1 FY2017, including (4.8%) in Q2 FY2017:
- The Group’s operations in Japan
produced organic gross profit decline of (1.1%) in H1 FY2017,
including (8.1%) in Q2 FY2017. This was due, in part, to the
absence of specific business such as TV advertising for the
qualifying games for the 2016 Summer Olympics and Paralympic Games
in Rio de Janeiro, and large-scale events in Marketing and
Promotions.
- Dentsu Aegis Network delivered organic
gross profit growth of 0.1% in H1 FY2017, with a 3.1% growth in Q1
FY2017 and (2.7%) decline in Q2 FY2017. This decline was impacted
by strong performance in comparative periods with 7.2% in Q2 FY2016
and 10.2% Q2 FY2015, as well as recent new business wins not due to
be realized until Q3 and challenging market conditions.
- H1 FY2017 saw major new business wins
at Dentsu Aegis Network with new and existing clients generating
net new media billings over this period totalling US$1.9 billion,
up US$722 million from the same time last year.
- Gross profit contribution from digital
businesses reached 42.4% at a Group level, including 21.7% in Japan
and 58.3% in Dentsu Aegis Network.
- Group underlying operating profit
decreased by (7.7%) on a constant currency basis.
- Group underlying operating margin was
15.5% (H1 FY2016: 18.6%) mainly due to an unexpected slower growth
in gross profit and an increase in the international business
ratio.
- Group underlying basic EPS decreased by
(5.3%).
- 14 acquisitions and investments signed
in H1 FY2017 contributed to the Group’s strategic objectives.
- Dividend per share for H1 FY2017 was 45
yen, an increase from 40 yen from the prior year.
Reconciliation from underlying to
statutory operating profit
Consolidated Group (million yen) – reported on an IFRS basis
H1 FY2017 H1 FY2016 Change,
% Underlying operating profit* 64,354 68,612 (6.2)
Adjustment items: (19,047) (9,961) Amortization of M&A related
intangible assets (16,258) (10,736) Acquisition costs (743) (637)
Share-based compensation expenses related to acquired companies
(1,473) - One-off items (573) 1,412 Gain (loss) on sales and
retirement of non-current assets 629 1,446 Gain (loss) on sales of
shares of subsidiaries and associates (114) 744 Impairment loss
(689) (56) Others (399) (722)
Statutory operating
profit 45,307 58,651 (22.8)
*Underlying net profit (attributable to owners of the parent):
KPI to measure recurring net profit attributable to the owners of
the parent which is calculated as net profit (attributable to
owners of the parent) added with adjustment items related to
operating profit, reevaluation of earn-out liabilities/M&A
related put-option liabilities, tax-related, NCI profit-related and
other one-off items
Toshihiro Yamamoto, President and Chief Executive Officer of
Dentsu Inc., said: “The Group has continued to accelerate revenue
from digital – both in Japan and in our international business – by
investing in leading technology and data, both organically and
through acquisition. This strategy will ensure that the Group is in
the best position to deliver competitive advantage for our
clients.
Although the Group has seen slower growth in Q2 FY2017, it has
shown continued resilience with strong total gross profit growth
across H1 FY2017. Going into the second half of the year,
despite uncertain market conditions, the Group is well placed to
realize the positive impact of strong new business wins in the
first half of 2017. Dentsu in Japan remains focused on a new
working environment to foster a progressive working culture, and
our international business is well positioned with strong new
business momentum and a further strengthened top leadership team to
continue its long-term track record of market outperformance on a
full year basis.”
H1 FY2017 Consolidated Financial
Results
Overview
Gross profit for the Dentsu Group in the first half of the 2017
fiscal year was 414,610 million yen, up 13.1% on a constant
currency basis, from the same period of the previous fiscal year.
Organic growth, based on gross profit, for the Group was (0.4%),
including (4.8%) in Q2 FY2017.
On a reported basis, there was a 2 billion yen decline in gross
profit from foreign exchange movements as the JPY continued to
remain strong against the GBP, compared to H1 FY2016 (as outlined
in the first table of this announcement).
Group underlying operating profit was 64,354 million yen, a
decrease of (7.7%) on a constant currency basis, from the same
period of the previous fiscal year. The Group’s underlying
operating margin declined by 350 basis points, on a constant
currency basis, to 15.5%, mainly due to an unexpected slower growth
in gross profit and an increase in the international business
ratio.
Underlying basic earnings per share was down (5.3%) to 144.65
yen, from 152.77 yen in the same period of the previous fiscal
year.
Regional performance review
The Group’s operations in Japan produced organic gross profit
decline of (1.1%) in H1 FY2017, including (8.1%) in Q2 FY2017. This
was due, in part, to the absence of specific business like TV
advertising for the qualifying games for the 2016 Summer Olympics
and Paralympic Games in Rio de Janeiro, and large-scale events in
Marketing and Promotions.
Dentsu Aegis Network delivered strong total gross profit growth
of 27.2% on a constant currency basis with the annualization of
2016 acquisitions, including Merkle, having a positive impact.
Organic gross profit growth was 0.1% in H1 FY2017, with a decline
of (2.7%) in the second quarter. The group has had good new
business momentum over the period but the positive impact of these
will not be realized in gross profit terms until H2 FY2017. The
results were also impacted by challenging market conditions as well
as the strong performance in comparative periods.
Dentsu Aegis Network reported very strong performance in
comparative periods – with a market leading 7.2% organic gross
profit growth in Q2 FY2016 and 10.2% organic gross profit growth in
Q2 FY2015. Over the last three years (H1 FY2015 – H1 FY2017), the
business has delivered 14.7% organic gross profit growth in Q2 and
17.9% organic gross profit growth in H1, showing strong growth and
momentum over this period. The network has had good new business
momentum which is expected to drive a positive impact on
performance in H2 FY2017, with net new media billings totalling
US$1.9 billion, up US$722 million from the same time last year.
In EMEA, Dentsu Aegis Network delivered total gross profit
growth of 19.9% and organic gross profit growth of 2.9% in H1
FY2017, including a (0.3%) decline in Q2 FY2017. Markets across
Eastern Europe performed particularly well with Russia and Poland
reporting strong growth as well as the Nordics, buoyed by some
solid new business wins.
In the Americas, Dentsu Aegis Network delivered total gross
profit growth of 52.1%, however posted an organic gross profit
decline of (2.0%), including a (4.1%) decline in Q2 FY2017.
Challenging market conditions continued to impact the business in
Brazil and although H1 FY2017 saw good performances across a number
of US businesses, some were impacted by a more difficult trading
environment. The business in Mexico continued to grow strongly as
did recent acquisitions including Accordant Media and Merkle.
In APAC, excluding Japan, Dentsu Aegis Network delivered total
gross profit growth of 5.9%, and organic gross profit decline of
(0.2%) in H1 FY2017, including (3.8%) decline in Q2 FY2017. There
were strong performances in Taiwan and India, the latter having
just announced the launch of Merkle in the market through the
acquisition of Sokrati. Australia and China experienced a period of
weaker growth but are expected to deliver stronger performance in
the second half with China supported by new business wins.
Digital remains the dominant force in the industry
The digital economy is the dominant force that will shape future
business, and Dentsu Aegis Network is well positioned to take
advantage with digital services accounting for 58.3% of gross
profit, up 8.2% from the same period last year. Digital continues
to disrupt the way brands connect with their consumers; the Dentsu
Aegis Network Advertising Spend Report (June 2017) predicts
2017-2018 will be a period of significant milestones where Digital
(mobile and paid search in particular) will take the lion’s share
of investment over traditional forms of advertising spend, like
television. Reflecting increased consumer use of digital media,
driven by mobile, the Digital share of total media spend is
predicted to reach 37.6% in 2018 (up from 34.8% in 2017), versus
35.9% for television. This will take total Digital media spend to a
predicted US$215.8 billion.
Acquisitions continue to accelerate our strategy and drive
business value
Dentsu Aegis Network continues to accelerate its strategy
through acquisitions, motivated by growing scale, geographic and
capability in-fill and innovation with a focus on digital
capability including data and CRM, brand commerce, customer
experience, performance marketing and social &
mobile. There were 14 deals signed in H1 FY2017, 11 of these
in Q2 FY2017. These included Accordant, Australia’s leading
data-driven customer experience and personalisation agency (May),
Leapfrog Online, a US based performance marketing solutions agency
(April) and Gleam, the global leader in digital-first talent
management based in the UK (June). These acquisitions continue to
accelerate Dentsu Aegis Network’s progress against strategic
business goals, driving the business ambition to be a 100% digital
economy business by 2020.
Forecast for FY2017 full year performance
There is a change to both FY2017 Consolidated and
non-Consolidated Financial Forecast. Please see the press release
titled “Dentsu Announces Changes to the Forecast of Financial
Results for the Fiscal Year Ending December 31, 2017” issued
concurrently.
Further information:
Details of Dentsu Inc.’s H1 FY2017 results, including all
related financial statements, can be found in the Investor
Relations section of the Dentsu Inc. website:
http://www.dentsu.com/ir.
The quarterly organic gross profit growth figures for 2015, 2016
and 2017 to date for the Dentsu Group, Dentsu in Japan and Dentsu
Aegis Network, are as follows:
Dentsu Group Total Dentsu in
Japan
Dentsu Aegis
NetworkTotal
2017 2016 2015 2017
2016 2015 2017
2016 2015 Q1 (Jan – Mar) 3.9% 5.1% 6.2%
4.7% 5.6% 0.0% 3.1% 4.5% 13.7%
Q2 (Apr – June) (4.8%) 9.5%
6.5% (8.1%) 12.2% 1.9% (2.7%) 7.2% 10.2%
Q3 (Jul – Sept) -
2.7% 4.2% - 0.3% 1.4% - 5.2% 6.6%
Q4 (Oct – Dec) -
3.9% 10.6% - 1.0% 12.9% -
5.8% 8.2%
The quarterly organic gross profit growth figures for 2015, 2016
and 2017 to date for Dentsu Aegis Network in each geographic region
are as follows:
Dentsu Aegis NetworkEMEA
Dentsu Aegis
NetworkAmericas
Dentsu Aegis NetworkAPAC
2017 2016 2015 2017
2016 2015 2017
2016 2015 Q1 (Jan – Mar) 5.8% 10.7%
11.1% 0.6% (2.0%) 10.4% 4.5% 5.2% 22.5%
Q2 (Apr – June)
(0.3%) 5.0% 16.1% (4.1%) 2.4% 7.9% (3.8%) 16.8% 5.4%
Q3 (Jul –
Sept) - 5.0% 11.0% - 5.4% 0.1% - 5.3% 9.3%
Q4 (Oct –
Dec) - 7.5% 11.0% - 4.4%
2.1% - 5.6% 11.0%
About the Dentsu Group
Dentsu is the world’s largest advertising agency brand. Led by
Dentsu Inc. (Tokyo: 4324; ISIN: JP3551520004), a company with a
history of 116 years of innovation, the Dentsu Group provides a
comprehensive range of client-centric brand, integrated
communications, creative, media and digital services. Dentsu Aegis
Network Ltd., its global business headquarters in London, oversees
Dentsu’s agency operations outside of Japan and has ten global
network brands —Carat, Dentsu, dentsu X, iProspect, Isobar,
mcgarrybowen, Merkle, MKTG, Posterscope and Vizeum and supported by
its specialist/multi-market brands. The Dentsu Group has a
strong presence in over 145 countries across five continents, and
employs more than 55,000 dedicated professionals.
www.dentsu.com
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For additional enquiries:Media –Please contact
Corporate Communications:TokyoDentsu Inc.Shusaku Kannan,
+81 3 6216 8042s.kannan@dentsu.co.jpLondonDentsu Aegis
NetworkDani Jordan, +44 7342
076617dani.jordan@dentsuaegis.comorInvestors & analysts
–Please contact Investor Relations:TokyoDentsu
Inc.Masa Okuzono, +81 3 6216
8015mokuzono@dentsu.co.jpLondonDentsu Aegis NetworkDani
Jordan, +44 7342 076617dani.jordan@dentsuaegis.com