Dentsu Inc.
(TOKYO:4324)(ISIN:JP3551520004):
Consolidated Group (million yen)
First NineMonths
ofFY2017
First NineMonths
ofFY2016
YoYChange, %
Constantcurrency basis,
%
Revenue 657,143 588,278 11.7 -
Gross profit* 620,371
552,107 12.4 11.0
Statutory results
63,774 83,998 (24.1)
- net profit (attributable to owners of the parent)
44,513 50,929 (12.6)
157.31 178.61 (11.9)
Underlying results**
94,835 102,233 (7.2) (9.2)
15.3% 18.5% (3.2) (3.4)
- net profit (attributable to owners of the parent)
59,740 63,958 (6.6) -
211.12 224.31 (5.9) -
EBITDA 106,873 115,350 (7.3) -
Average JPY/USD rate (January – September 2017) 111.9 yen
108.7 yen 3.0 -
Average JPY/GBP rate (January – September
2017) 142.7 yen 151.8 yen (6.0) -
* 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 First Nine Months of FY2017:
- The Dentsu Group delivered total gross
profit growth of 11.0% (constant currency basis) in the first nine
months of FY2017:
- 2.4% gross profit decline at the
Group’s operations in Japan, and 23.5% gross profit growth
(constant currency basis) at Dentsu Aegis Network, its
international business.
- The Dentsu Group delivered organic
gross profit decline of 1.0% in the first nine months of FY2017, a
decline of 60bps on H1 FY2017. In Q3 FY2017, organic gross profit
decline was 2.1%, an improvement of 270bps on the Q2 FY2017 growth
rate:
- The Group’s operations in Japan
delivered organic gross profit decline of 2.4% in the first nine
months of FY2017, including a decline of 5.0% in Q3 FY2017. This
was due, in part, to the absence of large-scale events, including
the 2016 Summer Olympics and Paralympic Games in Rio de Janeiro,
and affects related to Working Environment Reform implementation in
Dentsu Japan.
- Dentsu Aegis Network delivered flat
organic gross profit growth of 0.0% in the first nine months of
FY2017, a decline of 10bps on H1 FY2017. In Q3 FY2017, organic
gross profit decline was 0.2%, an improvement of 250bps on the Q2
FY2017 growth rate with performance stabilizing over Q3
FY2017.
- The first nine months of FY2017 saw
major new business wins at Dentsu Aegis Network generating net new
media billings of US$3.5 billion, up US$2.1 billion from the same
period of the previous fiscal year. Some of these wins will not
impact the business until FY2018.
- Gross profit contribution from Dentsu
Aegis Network reached 57.6%, up 640bps from the same period of the
previous fiscal year.
- Gross profit contribution from digital
businesses reached 43.0% at a Dentsu Group level, including 21.5%
in Japan and 58.8% in Dentsu Aegis Network, up 830bps from the same
period of the previous fiscal year.
- Group underlying operating profit
decreased by 9.2% on a constant currency basis.
- Group underlying operating margin was
15.3%, down by 340bps on a constant currency basis from the same
period of the previous fiscal year, mainly due to the decline in
organic gross profit, investments related to Working Environment
Reform implementation in Japan, and an increase in the
international business ratio.
- Group underlying basic EPS decreased by
5.9 % to 211.12 yen.
- 17 acquisitions and investments signed
in the first nine months of FY2017 contributed to the Group’s
strategic objectives.
- The Dentsu Group continues working
towards its full year forecast and makes no changes to its full
year financial forecast disclosed on August 9, 2017.
Reconciliation from underlying to
statutory operating profit
Consolidated Group (million yen) – reported on an IFRS
basis
First NineMonths
ofFY2017
First NineMonths
ofFY2016
Change, % Underlying operating profit*
94,835 102,233 (7.2) Adjustment items: (31,060)
(18,234) Amortization of M&A related intangible assets (25,066)
(15,743) Acquisition costs (1,333) (2,926) Share-based compensation
expenses related to acquired companies (1,883) - One-off items
(2,778) 435 Payment related to working hours** (2,367) - Gain
(loss) on sales and retirement of non-current assets 629 1,691 Gain
(loss) on sales of shares of subsidiaries and associates 593 460
Impairment loss (705) (69) Special retirement expenses (335)
(1,012) Others (593) (635)
Statutory operating profit
63,774 83,998 (24.1)
*Underlying operating profit: KPI to measure recurring business
performance which is calculated as operating profit added with
amortization of M&A related intangible assets, acquisition
costs, share-based compensation expenses related to acquired
companies and one-off items such as impairment loss and gain/loss
on sales of non-current assets** This is an allowance for a lump
sum payment based on the results of a survey the Parent Company in
Japan carried out on employees’ individual testimonies in order to
confirm the unregistered time which an individual employee may have
been engaged in work over the past two years.
Toshihiro Yamamoto, President and CEO, Dentsu Inc., said:
“The Dentsu Group saw improvement in organic gross profit growth
in Q3 versus Q2 FY2017, driven by both Dentsu in Japan and the
international business, Dentsu Aegis Network. Although market
conditions remain challenging, the Group has continued to deliver
strong new business momentum with some key global wins for Dentsu
Aegis Network, which will be realized through Q4 FY2017 and
FY2018.”
“The Group continues to make strong progress against its digital
ambitions, in Japan this includes our People Driven Marketing (PDM)
initiative. Dentsu Aegis Network delivered almost 60% of gross
profit from digital and remains focused on delivering leading data
driven marketing solutions to real people through the rollout of
Merkle’s M1 data platform. This approach is helping to drive a
strong new business pipeline through the remainder of 2017 and
beyond.”
“The Group continues to invest in talent and is working steadily
to implement Working Environment Reform in Japan in line with the
plan announced in July 2017. Across Dentsu Aegis Network the
business continues to strengthen its management team across key
markets with strong and proven leadership appointments in 2017,
including the US and the UK. These appointments will continue to
progress the company’s digital ambitions and deliver on the company
vision to innovate the way brands are built.”
“As we enter the final quarter of the year we continue to invest
to deliver long term growth in future years and we remain focused
on the achievement of our FY2017 targets.”
The First Nine Months of FY2017 Consolidated
Financial Results
Overview
Gross profit for the Dentsu Group in the first nine months of
the 2017 fiscal year was 620,371 million yen, up 11.0% on a
constant currency basis from the same period of the previous fiscal
year. Organic gross profit decline for the Group was 1.0% in the
first nine months of FY2017, a decline of 60bps on H1 FY2017. In Q3
FY2017, organic gross profit decline was 2.1%, an improvement of
270bps on the Q2 FY2017 growth rate.
On a reported basis, there was a 6.6 billion yen increase in
gross profit from foreign exchange movements as the JPY weakened
slightly against the USD, compared to the first nine months of
FY2016 (as outlined in the first table of this announcement). There
was also a 67.9 billion yen increase in gross profit from M&A,
including the acquisition of Merkle in autumn 2016.
Group underlying operating profit was 94,835 million yen, a
decrease of 9.2% on a constant currency basis, from the same period
of the previous fiscal year. The Group’s underlying operating
margin declined 340bps, on a constant currency basis, to 15.3%,
mainly due to an unexpected slower growth in gross profit and an
increase in the international business ratio.
Group underlying basic EPS decreased by 5.9% to 211.12 yen, from
224.31 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 2.4% in the first nine months of FY2017, including a
decline of 5.0% in Q3 FY2017. This was due, in part, to the absence
of large-scale events, including the 2016 Summer Olympics and
Paralympic Games in Rio de Janeiro, and affects related to Working
Environment Reform implementation in Japan.
Dentsu Aegis Network delivered strong total gross profit growth
of 23.5% on a constant currency basis in the first nine months of
FY2017. Organic gross profit growth was 0.0% over the first nine
months. In Q3 FY2017, organic gross profit decline was 0.2%, an
improvement of 250bps on the Q2 FY2017 growth rate with performance
stabilizing over Q3 FY2017. The network faces strong comparable
periods, with Q3 aggregate organic gross profit growth of more than
5% over the past two fiscal years. The network continued its strong
new business momentum into Q3 FY2017; with year to date net new
media billings reaching US$3.5 billion, up US$2.1 billion from the
same period of the previous fiscal year. In addition to this new
business success, the business retained several key accounts,
extended a number of existing contracts and expanded existing
clients into new geographies.
In EMEA, Dentsu Aegis Network delivered total gross profit
growth of 21.1% on a constant currency basis and organic gross
profit growth of 3.9% in the first nine months of FY2017, including
5.9% organic gross profit growth in Q3 FY2017. Performance was
robust across the region, with stand-out performances from Russia,
the Nordics and Southern Europe.
In the Americas, Dentsu Aegis Network delivered total gross
profit growth of 40.6% on a constant currency basis with organic
gross profit decline of 2.0% in the first nine months of FY2017,
including organic gross profit decline of 2.0% in Q3 FY2017.
Although Canada and Mexico delivered strong performances, the
performance in the Americas was affected by continued challenging
conditions in Brazil, and weaker performances by the project-led
businesses in the US. Recent management changes in the region and
strong new business wins in the US and Brazil will strengthen its
position going forward.
In APAC, excluding Japan, Dentsu Aegis Network delivered total
gross profit growth of 4.2% on a constant currency basis with
organic gross profit decline of 2.0% in the first nine months of
FY2017, including organic gross profit decline of 5.5% in Q3
FY2017. There were strong performances from India, Thailand and
Taiwan, the latter posting strong double-digit growth following
management changes earlier in the year. Australia and China
experienced a period of weaker performance, China in particular
experiencing reduced spend by local clients while global client
spend remained solid.
The Dentsu Group signed 17 acquisitions and investments during
the first nine months of FY2017; accelerating its strategy
motivated by growing scale, geographic and capability in-fill with
a focus on digital capability. Merkle was launched in APAC with the
acquisition of Sokrati in India, and Merkle’s proposition was
supported in EMEA with the acquisition of Aquila Insights in the
UK. In New Zealand, Little Giant, a digital creative agency joined
Isobar.
Further information:
Further details of these 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 to
date for the Dentsu Group and Dentsu in Japan, and the figures for
2015 to date for Dentsu Aegis Network, are as follows:
Dentsu Group Total Dentsu in
Japan
Dentsu Aegis Network
Total
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) (2.1 %) 2.7 % 4.2 % (5.0 %) 0.3 % 1.4 % (0.2 %)
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 to
date for Dentsu Aegis Network in each geographic region are as
follows:
Dentsu Aegis Network
EMEA
Dentsu Aegis
NetworkAmericas
Dentsu Aegis Network
APAC
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) 5.9 % 5.0 % 11.0 % (2.0 %) 5.4 % 0.1 % (5.5 %) 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, media and digital services through its ten global
network brands—Carat, Dentsu, dentsu X, iProspect, Isobar,
mcgarrybowen, Merkle, MKTG, Posterscope and Vizeum—as well as
through its specialist/multi-market brands. The Dentsu Group has a
strong presence in over 140 countries across five continents, and
employs more than 55,000 dedicated professionals. Dentsu Aegis
Network Ltd., its global business headquarters in London, oversees
Dentsu’s agency operations outside of Japan. The Group is also
active in the production and marketing of sports and entertainment
content on a global scale. www.dentsu.com
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version on businesswire.com: http://www.businesswire.com/news/home/20171113006513/en/
For additional enquiries:Media –Please contact
Corporate Communications:TokyoDentsu Inc.Shusaku
Kannan, +81 3 6216
8042s.kannan@dentsu.co.jpLondonDentsu Aegis NetworkDani
Jordan, +44 (0)207 070
4073Dani.Jordan@dentsuaegis.comorInvestors & analysts
–Please contact Investor Relations:TokyoDentsu
Inc.Masa Okuzono, +81 3 6216
8015mokuzono@dentsu.co.jpLondonDentsu Aegis NetworkKate
Stewart, +44 (0)203 535 8237Kate.Stewart@dentsuaegis.com