(The first quarter ended March 31, 2018 –
reported on an IFRS basis)
Dentsu Inc.
(TOKYO:4324)(ISIN:JP3551520004):
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-year comparison.
- The term “Gross profit” is changed to
“Revenue less cost of sales” from Q1 FY2018.
Overview of Q1 FY2018 performance
- In Q1 FY2018 the Dentsu Group delivered
total growth of revenue less cost of sales of 5.7% (constant
currency basis) and organic growth of 2.1%.
- This is the third consecutive quarter
of improving organic growth following the slowdown in Q2 FY2017;
the Group’s quarterly comparables ease significantly through the
remainder of FY2018.
- The Japan business delivered total
growth of revenue less cost of sales of 1.9%, in part, due to an
increase in digital related business.
- The international business, Dentsu
Aegis Network, delivered total growth of revenue less cost of sales
of 9.0% (constant currency basis) and organic growth of 2.2%,
partly driven by new business wins in H2 FY2017. Momentum remains
with the business as we enter the second quarter.
- Underlying operating profit declined
13.0% (constant currency basis). In Japan, this was due to planned
investments in the working environment reforms. At Dentsu Aegis
Network, the year-on-year decline reflects planned investments in
global platforms and systems to support future growth. The Q1
FY2018 margin is aligned to our budget and is on track for FY2018
guidance.
Financial Results for Q1 FY2018
Consolidated Group (million yen)
Q1FY2018
Q1FY2017*
YoYchange, %
Constantcurrency basis,
%
Revenue 242,107 229,071 5.7 -
Revenue less
cost of sales** 226,665 213,729 6.1 5.7
Statutory results
22,393 28,587 (21.7 ) -
- net profit (attributable to owners of the parent)
10,788 15,616 (30.9 ) -
38.27 yen 54.84 yen (30.2 ) -
Underlying results***
32,744 37,749 (13.3 ) (13.0 )
14.4% 17.7% (330) bps (310) bps
- net profit (attributable to owners of the parent)
17,972 23,556 (23.7 ) -
63.76 yen 82.73 yen (22.9 ) -
EBITDA**** 37,022
42,604 (13.1 ) -
Average JPY/USD rate 108.3 yen 113.6
yen (4.7 ) -
Average JPY/GBP rate 150.9 yen
140.8 yen 7.2 -
* IFRS 15 “Revenue from Contracts with Customers” is applied and
adjusted.**Revenue less cost of sales 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.”
Q1 FY2018 results
- The Dentsu Group delivered growth of
revenue less cost of sales of 5.7% (constant currency basis) in
Q1 FY2018:
- 1.9% in Japan, and 9.0% (constant
currency basis) at Dentsu Aegis Network driven by acquisitions and
organic growth.
- The Group produced organic
growth of 2.1 % (constant currency basis) in Q1 FY2018:
- 1.9% in Japan, and 2.2% (constant
currency basis) 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 through the remainder of
FY2018.
- Digital business contribution to
total revenue less cost of sales reached 43.7% (Q1 FY2017:
40.0%), including 23.0% in Japan (Q1 FY2017: 21.0%), and 60.8% at
Dentsu Aegis Network (Q1 FY2017: 56.9%).
- International business contribution
to total revenue less cost of sales reached 54.9% (Q1 FY2017:
53.0%).
- Group underlying operating
profit was 32.7 billion yen (Q1 FY2017: 37.7 billion yen).
- 30.4 billion yen in Japan (Q1 FY2017:
33.0 billion yen), and 2.3 billion yen at Dentsu Aegis Network (Q1
FY2017: 4.6 billion yen).
- Group underlying operating
margin was 14.4% (Q1 FY2017: 17.7%).
- 29.7% in Japan (Q1 FY2017: 32.9%), and
1.9% at Dentsu Aegis Network (Q1 FY2017: 4.1%).
- Decline of group underlying operating
margin was mainly due to planned SG&A costs related to the
working environment reforms in Japan. At Dentsu Aegis Network,
while the usual seasonality of the business is reflected in the
first quarter margin, the year-on-year decline reflects the planned
internal investment in global platforms and systems which remains
on track.
- The Q1 FY2018 margin is aligned to our
budget and is on track for FY2018 expectations.
- Underlying net profit (attributable
to owners of the parent) and underlying basic EPS decreased by
23.7% and 22.9% respectively mainly due to the decline in operating
profit.
Toshihiro Yamamoto, President and CEO, Dentsu Inc., said:
“FY2018 marks the five-year anniversary since
the establishment of Dentsu Aegis Network. During that time much
has been achieved. Our global workforce has increased from 36,000
to 60,000 people. Approximately 60% of our Group revenues are now
generated outside of Japan, and of those revenues, 60% come from
digital activities. We have transformed into a truly global
competitor.
In Q1 FY2018, Dentsu Group continued on its
return to growth, as seen over the past three quarters. The
operating environment remains challenging, yet momentum is with the
business.
As a Group, we remain focused on innovating
at pace to help our clients stay ahead of the competition. We’re
leading the industry in the move from marketing to audiences to
marketing to real people. In a rapidly changing marketplace, we
help our clients maximize the value of data and drive competitive
advantage for their brands—turning consumer data into addressable
insight, powered by dynamic content, that delivers consumer
engagement.
Our world-class talent and leading edge
capabilities are designed to build our clients’ greatest marketing
assets—their brands—in a consumer-led digital economy.”
Q1 FY2018 Consolidated Financial Results and
FY2018 Forecasts
1. Q1 FY2018 performance review by region
Japan:The Group’s operations in Japan produced organic growth of
1.9% in the Q1 FY2018. This was due, in part, to an increase in
digital related business driven by “People Driven Marketing”
activities.
Underlying operating margin in Japan declined by 320 bps to
29.7%. This was primarily due to planned investments in the working
environment reforms.
In Japan, a range of measures have been implemented to complete
the overhaul of our in-house working environment by the end of
FY2018. To date, over 50 measures related to working environment
reforms have been completed. These include streamlining workflows
and improving the office environment for our people. Thanks to
these efforts, we have observed a number of positive results that
have increased efficiency across the business resulting in a
further reduction in total work hours per employee for three months
from January 2018. We will continue to build on the programs that
were successful in FY2017 and introduce further additional measures
in FY2018.
International:Dentsu Aegis Network delivered organic growth of
2.2% in Q1 FY2018; the third consecutive quarter of organic growth
improvement. The quarterly comparable base eases significantly as
we progress through FY2018.
Following a strong year in FY2017, the media agencies saw
continued growth while our project based agencies saw a pick-up in
momentum – particularly in the US.
Q1 FY2018 benefitted from new business accounts won in H2
FY2017. We expect further benefit from new business wins in Q4
FY2017 to impact performance through the remainder of FY2018. Our
year-to-date new business performance is tracking ahead of FY2017,
a record year for new business. The pitch pipeline remains healthy
and is over 80% offensive.
The Q1 FY2018 underlying operating margin reflects the
seasonality of the business. Profitability is lower year-on-year
due to the planned internal investment in global systems and
platforms which remains on track. These investments will allow the
business to operate more efficiently at scale, standardize business
operations and support faster decision making. The Q1 FY2018 margin
is aligned to our budget and is on track for FY2018
expectations.
In EMEA, Dentsu Aegis Network delivered organic growth of 2.7%
in Q1 FY2018. Performance was mixed across the region. Germany and
France remain in negative territory. However, the UK posted
positive organic growth and we had continued stand-out performances
from Russia and the Nordics.
In the Americas, Dentsu Aegis Network delivered organic growth
of 4.6% in Q1 FY2018; a strong start to the year and the best
quarterly performance since Q3 FY2016. Results in the region were
boosted by new business won last year and the new management team
continue to positively impact results. The U.S. market showed
continued momentum with mid-single digit organic growth and Brazil
showed a significant turnaround, posting double digit organic
growth.
In APAC excluding Japan, Dentsu Aegis Network delivered organic
growth decline of 2.9% in Q1 FY2018. There were strong performances
from India and Thailand. China continued to face challenging market
conditions.
Acquisitions continue to accelerate the Group’s progress against
strategic business goals. Two new acquisitions were signed in Q1
FY2018; Character and M8 both in the Americas. The M&A pipeline
for the remainder of FY2018 remains healthy.
Note:The EMEA related amount of Merkle, one of our subsidiaries,
was included in the Americas in Q1 FY2017. In Q1 FY2018, the
related amount is included in EMEA as the split became possible.
The related amount is included in EMEA of Q1 FY2017 for the organic
growth calculation.
2. Outlook & Forecasts for FY2018 full year
performance
Outlook for FY2018
Our performance for the Q1 FY2018 was in line with the financial
forecast at the beginning of the year, and there is no change to
the FY2018 Consolidated Financial Forecast announced in February
2018.
FY2018 Forecasts
Consolidated Group (million
yen)
2018Jan-Dec
Forecasts
2017Jan-DecActual
Results
YoYchange, %
Constantcurrency basis,
%
Revenue 1,006,900
938,017
*
7.3
*
-
Revenue less cost of sales 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
%
(300) bps (290) bps Japan 19.8
% 24.5
% (470)
bps (470) bps International total 13.2
% 14.6
%
(140) bps (130) bps
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 -
* IFRS 15 “Revenue from Contracts with Customers” is applied and
adjusted.**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 Revenue less cost of sales.
- 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 Q1 FY2018
Consolidated Group (million yen) – reported on an IFRS basis
Q1 FY2018 Q1 FY2017* Change,
% Underlying operating profit 32,744 37,749 (13.3)
Adjustment items: (10,350) (9,161) Amortization of M&A related
intangible assets (8,792) (7,833) Acquisition costs (320) (215)
Share-based compensation expenses related to acquired companies
(1,099) (366) One-off items (140) (747) Impairment loss - (616)
Special retirement expenses (17) (113) Others (123) (18)
Statutory operating profit 22,393
28,587 (21.7)
* IFRS 15 “Revenue from Contracts with
Customers” is applied and adjusted.
Quarterly organic growth for the
Dentsu Group, Dentsu in Japan, and Dentsu Aegis Network
Dentsu Group Total Dentsu in
Japan Dentsu Aegis Network Total 2018
2017*
2016* 2018 2017*
2016* 2018 2017* 2016*
Q1 (Jan – Mar) 2.1% 3.7% 4.1% 1.9% 4.3% 3.6% 2.2% 3.1% 4.5%
Q2 (Apr – June) - (4.6%) 10.0% - (7.6%) 13.4% - (2.7%) 7.2%
Q3 (Jul – Sept) - (2.1%) 3.0% - (4.8%) 0.9% - (0.2%) 5.2%
Q4 (Oct – Dec) - 2.8% 4.1% - 5.5% 1.4% - 1.2% 5.8%
Fiscal
Year - 0.1% 5.1% - (0.3%)
4.5% - 0.4% 5.7%
* IFRS 15 “Revenue from Contracts with
Customers” is applied and adjusted.
Quarterly organic growth figures of
Dentsu Aegis Network by region
Dentsu Aegis NetworkEMEA
Dentsu Aegis Network
Americas
Dentsu Aegis NetworkAPAC
2018 2017* 2016* 2018
2017* 2016* 2018
2017* 2016* Q1 (Jan – Mar) 2.7% 5.8%
10.7% 4.6% 0.6% (2.0%) (2.9%) 4.5% 5.2%
Q2 (Apr – June) -
(0.3%) 5.0% - (4.1%) 2.4% - (3.8%) 16.8%
Q3 (Jul – Sept) -
5.9% 5.0% - (2.0%) 5.4% - (5.5%) 5.3%
Q4 (Oct – Dec) - 1.3%
7.5% - (0.0%) 4.4% - 2.6% 5.6%
Fiscal Year -
3.1% 6.9% - (1.5%) 3.1% -
(0.6%) 7.9%
* IFRS 15 “Revenue from Contracts with
Customers” is applied and adjusted.
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
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180514006517/en/
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:TokyoDentsu
Inc.Masa Okuzono, +81 3 6216
8015mokuzono@dentsu.co.jpLondonDentsu Aegis NetworkKate
Stewart, +44 (0)203 535 8237Kate.Stewart@dentsuaegis.com