(Fiscal year ended December 31, 2017 – reported
on an IFRS basis)
Dentsu Inc.
(TOKYO:4324)(ISIN:JP3551520004):
Overview of FY2017 performance
- In FY2017 the Dentsu Group delivered
total gross profit growth of 9.2% (constant currency basis) and
organic gross profit growth of 0.1%.
- FY2017 saw Dentsu in Japan deliver a
resilient performance against the backdrop of a challenging market.
While the market continued the transition to digital media, Dentsu
in Japan remained focused on further developing its digital
capabilities to offer clients new opportunities for consumer
engagement and growth.
- The international business, Dentsu
Aegis Network, delivered total gross profit growth of 17.1% with a
record year for net new business; $5.2bn of net new media billings.
This success will drive above peer group average organic growth in
FY2018.
- In FY2017, Dentsu Aegis Network made a
total of 31 acquisitions and investments to accelerate its growth
strategy.
- Dentsu in Japan is committed to the
completion of environmental/infrastructural overhaul for future
growth by accelerating the work environment reforms.
- The Dentsu Group forecasts an improving
market in FY2018, driven by an increase in advertising spend. While
the operating environment remains challenging, the Group enters
FY2018 with strong momentum.
Financial Results for FY2017
Consolidated Group (million yen)
FY2017
FY2016
YoY
change, %
Constantcurrencybasis,
%
Revenue 928,841 838,359 10.8 -
Gross
profit* 877,622 789,043 11.2 9.2
Statutory
results
137,392 137,681 (0.2 ) -
- net profit (attributable to owners of the parent)
105,478 83,501 26.3 -
373.11 292.85 27.4 -
Underlying results**
163,946 166,565 (1.6 ) (3.8 )
18.7% 21.1%
(240 bps
)
(250 bps
)
- net profit (attributable to owners of the parent)
107,874 112,972 (4.5 ) -
381.58 396.20 (3.7 ) -
EBITDA*** 194,073 184,064 5.4
-
Average JPY/USD rate 112.2 yen 108.9 yen 3.0
-
Average JPY/GBP rate 144.5 yen
147.8 yen (2.2 ) -
* 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 previous year.** See below for
definition of “underlying.”*** See below for definition of
“EBITDA.”
FY2017 results
- The Dentsu Group delivered gross
profit growth of 9.2% (constant currency basis) in FY2017:
- (0.4%) in Japan, and 17.1% (at constant
currency) at Dentsu Aegis Network. This growth was mainly due to
contribution from M&A and a positive impact from foreign
exchange rates.
- The Group produced organic gross
profit growth of 0.1% (constant currency basis) in
FY2017, including 2.8% in Q4 FY2017:
- FY2017: (0.3%) in Japan, and 0.4% (at
constant currency) at Dentsu Aegis Network. The business was
challenged by industry-wide conditions, however, following the
sharp slowdown in Q2 FY2017 the Group has seen 760 bps of organic
gross profit growth rate improvement to Q4 FY2017.
- Q4 FY2017: 5.5% in Japan, and 1.2% (at
constant currency) at Dentsu Aegis Network. Dentsu in Japan has
improved mainly due to Tokyo Motor Show related business. Dentsu
Aegis Network has sequentially improved its performance quarter on
quarter since Q2 FY2017 due to accumulated new business wins during
FY2017, with much of the impact still to be seen in FY2018.
- Digital business contribution to
total gross profit reached 43.2% (FY2016: 37.3%), including
22.2% in Japan (FY2016: 19.7%), and 57.9% at Dentsu Aegis Network
(FY2016: 52.3%).
- International business contribution
to total gross profit reached 58.8% (FY2016: 54.0%).
- Group underlying operating
profit was 163.9 billion yen (FY2016: 166.5 billion yen).
- 88.8 billion yen in Japan (FY2016: 97.3
billion yen), and 75.1 billion yen at Dentsu Aegis Network (FY2016:
69.0 billion yen).
- Group underlying operating
margin was 18.7% (FY2016: 21.1%).
- 24.5 % in Japan (FY2016: 26.8%), and
14.6 % at Dentsu Aegis Network (FY2016: 16.2%).
- Decline of group underlying operating
margin was mainly due to planned SG&A costs related to the work
environment reforms in Japan. At Dentsu Aegis Network the margin
contraction reflects both planned investments in global platforms
and systems and the impact from slower top line growth. However,
the Group margin was better than the revised forecast announced in
August 2017.
- Net profit (attributable to owners
of the parent) increased by 26.3% due to factors including an
increase of financial income from a gain on revaluation of earnout
liabilities and M&A related put option liabilities.
- Underlying basic EPS were 381.58
yen, a 3.7% decrease from the previous year.
- Dividend per share for FY2017
was 90 yen, an increase by five yen from the previous year,
equating to a dividend payout ratio of 23.6% (based on
underlying net profit attributable to owners of the parent).
Toshihiro Yamamoto, President and CEO, Dentsu Inc., said:
“In FY2017, Dentsu Group delivered a
resilient performance in a challenging market. Following the pull
back in performance in Q2 FY2017, Dentsu Group achieved sequential
quarter on quarter improvement in organic gross profit growth
across the business.
Clients are looking for a more data-driven
approach with greater insights and addressability. Dentsu in Japan
continues to deliver against our digital ambitions and remains
focused on our People Driven Marketing (PDM) initiative - an
integrated framework which executes full-funnel marketing through
the integration of on-line and off-line activities.
Dentsu Aegis Network continues to invest in
data capabilities. The M1 platform is a key pillar of our data
strategy and is the first phase in realizing our vision for all
media planning and activation to be people based. FY2018 will see
the rollout of the M1 platform outside of the US.
At Dentsu in Japan, we are committed to
accomplishing our work environment reforms for future growth by the
end of FY2018. Looking ahead, the record year for net new business
at Dentsu Aegis Network showcases the strength of our talent and
the competitiveness of our product. We are upbeat about the
prospects for further new business growth in FY2018. We remain
committed to differentiating our product offering and momentum is
with the business as we enter FY2018.”
Dentsu Inc.'s FY2017 Consolidated Financial
Results and FY2018 Forecasts
1. FY2017 performance review by region
Japan:The Group’s operations in Japan produced organic gross
profit decline of 0.3% in the FY2017. This was due, in part, to the
absence of large-scale events (the 2016 Summer Olympics &
Paralympic Games in Rio de Janeiro), and our investment in work
environment reforms. This was partially offset by the growth of the
digital business.
Although Q4 FY2017 was also challenging, the organic gross
profit rate improved by 1,050 bps from Q3 FY2017 due to Tokyo Motor
Show related business.
Underlying operating margin in Japan declined by 230 bps to
24.5%. This was primarily due to planned investments in the working
environment reforms.
International:Dentsu Aegis Network delivered organic gross
profit growth of 0.4% in FY2017, including 1.2% in Q4 FY2017. Q4
FY2017 showed an improvement of 140 bps on Q3 FY2017 organic growth
rate driven by new business wins and strength in the media
agencies.
FY2017 was a record year for net new business at Dentsu Aegis
Network, generating $5.2bn in media billings. The pitch pipeline
remains healthy and we remain upbeat about the prospects for
further business growth in FY2018. We expect to return to
outperforming the peer group in FY2018 driven by our strong new
business performance in FY2017.
In FY2017 the underlying operating margin at Dentsu Aegis
Network declined in line with our budget by 160 bps to 14.6%. The
margin contraction reflects both planned investments and the impact
from slower top line growth in a challenging market environment. We
continue to responsibly manage the cost base and close management
of costs will continue in FY2018.
Investment in the business for long term growth will continue in
FY2018 and FY2019 to support common platforms and shared global
systems. This will allow the business to operate efficiently at
scale. Further inward investment will standardize business
operations, support faster decision making and improve efficiency.
Further margin moderation is expected in FY2018 with a return to
growth in FY2019.
Dentsu Aegis Network finished the year with a strong cash
position driven by close management of working capital giving the
business capacity to continue to invest in targeted
acquisitions.
Regionally, the Americas contributed 40% of Dentsu Aegis Network
gross profit, EMEA 35% and APAC excluding Japan 25%. The continued
expansion and diversification of the global gross profit footprint
is evidenced by double digit growth (at constant currency) in
countries such as India, Russia, Malaysia, Denmark, Poland and
Sweden.
In the Americas, Dentsu Aegis Network delivered organic gross
profit decline of 1.5% in FY2017 with a flat organic performance in
Q4 FY2017. The U.S. market showed a strong finish to the year with
positive organic gross profit growth in Q4 but Brazil remained a
drag on the region’s overall performance. The media agencies
continue to show growth; while creative and project based work has
been more challenging and is expected to remain under pressure in
the near term. Management changes earlier in the year will continue
to build on recent successes that are expected to contribute to
FY2018 performance.
In EMEA, Dentsu Aegis Network delivered organic gross profit
growth of 3.1% in FY2017, including 1.3% in Q4 FY2017. Some of our
largest markets in Europe had a difficult end to the year; this was
offset by robust performances from Russia, Italy, Denmark and
Sweden.
In APAC excluding Japan, Dentsu Aegis Network delivered organic
gross profit decline of 0.6% in FY2017, including a growth of 2.6%
in Q4 FY2017. The Q4 FY2017 showed a strong performance in
Australia, one of our top five markets, after a weaker Q2 and Q3.
China remained a challenging market; our exposure to Western and
Japanese clients remained solid but reduced spend by local clients
continued. Recent management changes in China will strengthen our
position going forward.
2. Highlights of the Group’s M&A activity in
FY2017
Acquisitions remain a strong focus to accelerate the growth
strategy of the Group. Acquisitions provide scale, capability
in-fill and entrepreneurial talent. In FY2017 Dentsu Aegis Network
made a total of 31 acquisitions and investments taking the total
over the past five years to 150.
Dentsu Aegis Network continues to support the planned
international expansion of Merkle. In FY2017 Merkle made six
acquisitions; these include Sokrati in India, a leading data driven
performance marketing and analytics agency and Oxyma Group a
leading performance marketing agency in the Netherlands and
Dubai.
Number of acquisitions and investments by Dentsu Aegis Network
are as follows:
Number of Acquisitions and Investments
by Dentsu Aegis Network
2017 2016
2015 31 45
36
3. Balance sheet position and capital utilization
strategy
The Group’s balance sheet remains strong and its leverage
position enables flexibility for the Group to continue to invest in
growth. Net debt, as at December 31, 2017, was 154.7 billion yen.
Its leverage position, as at December 31, 2017, on a Net Debt:
EBITDA basis remained comfortable at 0.80 times. The Group’s
strategy for capital utilization continues to be focused on:
Prioritizing the deployment of capital to drive the growth of
the business, by investing in growth through value-enhancing
acquisitions which provide scale, in-fill and innovation.
Cash dividends per share of common stock applicable to the
fiscal year ended December 31, 2017 was determined to increase by
five yen year-on-year to 90 yen, including an interim dividend of
45 yen and a year-end dividend of 45 yen.
This equates to a dividend payout ratio of 23.6% based on
underlying net profit attributable to owners of the parent.
4. Outlook & Forecasts for FY2018 full year
performance
Outlook for FY2018
Dentsu Aegis Network forecasts that global ad spend growth rate
will be 3.6% in 2018 (2017: 3.1%) in “DENTSU AEGIS NETWORK AD SPEND
REPORT JANUARY 2018.” Events such as the Winter Olympics &
Paralympics, the FIFA World Cup in Russia and U.S. Congressional
elections will help to drive this growth.
Guidance for Dentsu in Japan is a decline of operating profit
margin mainly due to the proactive investment accelerating the
working environment reforms, which continues to be a priority. We
are committed to the completion of environmental/infrastructural
overhaul for future growth by the end of FY2018.
Guidance for Dentsu Aegis Network for FY2018 is low to
mid-single digit organic gross profit growth; we expect to return
to outperforming the peer group in FY2018 driven by our strong new
business performance. Further margin moderation is expected in
FY2018 at Dentsu Aegis Network as planned investments to support
business growth continue. Margin growth is expected from FY2019
onwards.
Cash dividends per share of common stock applicable to the
fiscal year ending December 31, 2018 are expected to be 90 yen,
including an interim dividend of 45 yen and a year-end dividend of
45 yen. This equates to a dividend payout ratio of 25.4% (FY2017:
23.6%) based on underlying net profit attributable to owners of the
parent forecast.
FY2018 Forecasts
Consolidated Group(million
yen)
2018Jan-DecForecasts
2017Jan-DecActual
Results
YoYchange, %
Constantcurrencybasis,
%
Revenue 1,006,900 928,841 8.4 -
Gross
profit 954,700 877,622 8.8 7.2 Japan 366,600
361,902 1.3 1.3 International total 588,100 516,052
14.0 11.2
Underlying operating profit 150,000
163,946 (8.5 ) (9.5 ) Japan 72,500 88,801 (18.4 ) (18.4 )
International total 77,500 75,146 3.1 0.9
Operating profit margin
15.7%
18.7%
(3.0 ) (2.9 ) Japan
19.8%
24.5%
(4.7 ) (4.7 ) International total
13.2%
14.6%
(1.4 ) (1.3 )
Underlying net profit 99,800 107,874 (7.5 ) -
Underlying basic EPS 354.03 yen 381.58 yen (7.2 ) -
Operating profit 112,900 137,392 (17.8 ) -
Net
profit 61,600 105,478 (41.6 ) -
JPY/USD rate*
110.9 yen 112.2 yen (1.2 ) -
JPY/GBP rate*
153.4 yen 144.5 yen 6.2 -
* Estimated exchange rates adopted in FY2018 forecasts are based
on average exchange rates in January 2018. Actual exchange rates in
FY2017 are annual average exchange rates in 2017.
Note: Underlying net profit, Underlying basic EPS and Net
profit: Excluding attribution to non-controlling interests.
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.
Definitions of “underlying” and “EBITDA”
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 gain/loss on sales and
retirement of non-current assets and impairment loss.
Operating margin: Underlying operating profit divided by gross
profit.
Underlying net profit (attributable to owners of the parent):
KPI to measure recurring net profit attributable to owners of the
parent which is calculated as net profit (attributable to owners of
the parent) added with adjustment items related to operating
profit, revaluation of earnout liabilities / M&A related
put-option liabilities, tax-related, NCI profit-related and other
one-off items.
Underlying basic EPS: EPS based on underlying net profit
(attributable to owners of the parent).
EBITDA: Operating profit before depreciation, amortization and
impairment losses.
Reconciliation from underlying to
statutory operating profit in FY2017
Consolidated Group (million yen) – reported on an IFRS
basis FY2017 FY2016
Change, %
Underlying operating profit 163,946
166,565 (1.6 ) Adjustment items: (26,554 ) (28,883 )
Amortization of M&A related intangible assets (31,779 ) (24,506
) Acquisition costs (1,795 ) (3,579 ) Share-based compensation
expenses related to acquired companies (2,046 ) (446 ) One-off
items 9,066 (352 ) Payment related to working hours* (3,103
) - Gain (loss) on sales and retirement of non-current
assets 13,168 6,074 Gain (loss) on sales of shares of
subsidiaries and associates 602 11 Impairment loss
(1,093 ) (522 ) Special retirement expenses (366 ) (5,183 ) Others
(142 ) (732 )
Statutory operating profit
137,392 137,681 (0.2 )
* This is an allowance for a lump sum payment based on the
results of surveys of the Dentsu Group 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 from April 2015 to March
2017.
Quarterly organic gross profit
growth for the Dentsu Group, Dentsu in Japan, and Dentsu
Aegis Network
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) 2.8%
3.9% 10.6% 5.5% 1.0% 12.9% 1.2% 5.8% 8.2%
Fiscal Year
0.1% 5.1% 7.0% (0.3%) 4.5% 3.9%
0.4% 5.7% 9.4%
Quarterly organic gross profit growth
figures of Dentsu Aegis Network by region
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) 5.9% 5.0% 11.0% (2.0%) 5.4% 0.1% (5.5%) 5.3% 9.3%
Q4
(Oct – Dec) 1.3% 7.5% 11.0% (0.0%) 4.4% 2.1% 2.6% 5.6% 11.0%
Fiscal Year 3.1% 6.9% 12.2%
(1.5%) 3.1% 4.9% (0.6%) 7.9%
11.4%
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 117 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 and regions across five
continents, and employs more than 60,000 dedicated professionals.
Dentsu Aegis Network Ltd., its international 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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For additional enquiriesMedia –Please contact
Corporate Communications:TokyoDentsu Inc.Shusaku Kannan,
+81 3 6216 8042s.kannan@dentsu.co.jpLondonDentsu Aegis
NetworkAndrew Moys, +44 7440
7828Andrew.Moys@dentsuaegis.comorInvestors & analysts
–Please contact Investor Relations:Dentsu Inc.Masa
Okuzono, +81 3 6216
8015mokuzono@dentsu.co.jpLondonDentsu Aegis NetworkKate
Stewart, +44 (0)203 535 8237Kate.Stewart@dentsuaegis.com