(The first half ended June 30, 2019 - reported on an IFRS basis)
Executive Summary
In H1 FY2019, the Dentsu Group delivered total growth of revenue less cost of sales of 2.6% (constant currency basis) and organic growth of -1.5%.
The Japan business delivered 0.1% and -2.1% respectively. Organic growth decline was mainly due to a decrease in traditional media in the Japanese market as well as an absence of large scale sport events, partially offset by digital-related services and favorable results in subsidiaries.
The international business, Dentsu Aegis Network, delivered 4.4% growth of revenue less cost of sales (constant currency basis) and -1.0% organic growth. Organic growth was impacted by negative growth in APAC mainly due to weakness in the Australian and Chinese markets.
The Forecast of Consolidated Financial Results for the Fiscal Year Ending December 31, 2019 is lowered, reflecting the lower than expected H1 FY2019 results and updated H2 FY2019 outlook. *
In line with our shareholder return policy that we combine stable dividend payments and flexible share repurchases, we also announced a repurchase of up to 30 billion yen, together with 95 yen per share dividend for the full year as previously announced. *
Preparation for a shift to a holding company structure scheduled in January 2020 progresses on track.
* Please refer to the separate press releases also released today. URL: https://www.dentsu.com/news/release/
Financial Results for H1 FY2019
*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 page 6 in the enclosed PDF for definition of "underlying."
*** See page 6 in the enclosed PDF for definition of "EBITDA."
Highlights of H1 FY2019 results
The Dentsu Group delivered growth of revenue less cost of sales of 2.6% (constant currency basis):
o 0.1% in Japan, and 4.4% at Dentsu Aegis Network driven by M&A.
o The breakdown in contribution is: +18.0 billion yen from M&A, -6.7 billion yen by organic growth, an -7.7 billion yen from foreign exchange rates.
The Group produced organic growth of -1.5%:
o -2.1 % in Japan, and -1.0% at Dentsu Aegis Network. The Japan business declined due to an absence of large scale sport events as well as a decrease in traditional media in the Japanese market, partially offset by digital-related services and favorable results in subsidiaries. The international business was impacted by negative growth in APAC, due to weakness in the Australian and Chinese markets. Excluding the impact of Australia and China, H1 organic growth for Dentsu Aegis Network would be 0.9%.
o Digital business contribution to total revenue less cost of sales reached 48.9% (H1 FY2018: 45.0%), including 28.5% in Japan (H1 FY2018: 23.9%), and 63.3% at Dentsu Aegis Network (H1 FY2018: 60.1%).
o International business contribution to total revenue less cost of sales reached 58.5% (H1 FY2018: 58.2%).
Group underlying operating profit was 44.9 billion yen (H1 FY2018: 60.8 billion yen).
o 35.6 billion yen in Japan (H1 FY2018: 45.5 billion yen), and 9.3 billion yen at Dentsu Aegis Network (H1 FY2018: 15.3 billion yen).
o The difference between the underlying operating profit and statutory operating profit was mainly due to the difference in amortization of M&A related intangible assets.
Group underlying operating margin was 10.0% (H1 FY2018: 13.7%).
o 19.1% in Japan (H1 FY2018: 24.4%), and 3.6% at Dentsu Aegis Network (H1 FY2018: 5.9%).
o The decline in Japan was mainly due to planned SG&A costs related to investments to drive future growth. At Dentsu Aegis Network the decline was due to planned investments, but strong cost management in central and regional costs provides confidence in the upgraded FY2019 margin guidance.
Underlying net profit (attributable to owners of the parent) and underlying basic EPS decreased by 27.6% and 27.6% respectively, mainly due to the decline of underlying operating income.
o Difference between the underlying net profit and statutory net profit was mainly due to operating profit adjustments and a loss on revaluation of earnout liabilities and M&A related put-option liabilities.
Interim dividend per share was determined to be 47.5 yen, as announced in the earnings release on February 14, 2019.
Toshihiro Yamamoto, President and CEO, Dentsu Inc., said:
"In H1 FY2019, Dentsu Group recorded a decline in organic growth of -1.5%, with -2.1% in Japan and -1.0% at Dentsu Aegis Network. The weaker than expected H1 results have led us lower our FY2019 forecasts. We also announced a share repurchase of up to 30 billion yen to demonstrate our confidence in the future performance of the Group.
In the Japan business, our growth strategy is focused on business "For the client and With the client". This remains central as we move to become trusted partners for our clients undergoing business transformation.
Today, brands are not what they say, they are what they do. They need to go beyond advertising to deliver highly crafted brand moments around the consumer that are inspired by data and insights that use storytelling to resonate, and leverage technology to unlock products and services that deliver value.
Experiences, when designed well and powered by digital and creativity, have the potential to build brands, move products and impact people's lives.
As we continue to bring the Japanese and International business closer together we can fuse our capabilities and increasingly leverage the diverse and talented 62,000 individuals across the Group. This will allow us to anticipate continuous change, drive innovation and offer world-class services to our clients.
Although our business has expanded beyond advertising and is increasingly diverse in nature, our role and value are crystal clear: to find and execute the best solution for our clients. This is why it is imperative that we discover, connect and develop the diversity that will comprise One Dentsu."
For further details, please see the attached PDF file.
