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Dentsu Inc. Q3 FY2019 Consolidated Financial Results

  • Management
  • Investor Relations

PDF (408 KB)

November 14, 2019

(The First Nine Months ended September 30, 2019 - reported on an IFRS basis)

Executive Summary

• In the first nine months, the Dentsu Group delivered total growth of revenue less cost of sales of 3.3% (constant currency basis) and organic growth of -1.0%.
• The Japan business delivered 1.4% and -0.9% respectively. The impact from the decline in traditional media in the Japanese market was offset by growth in digital-related services and favorable results in subsidiaries. An absence of large scale sporting events impacted the year-to-date results.
• The international business, Dentsu Aegis Network, delivered 4.6% growth of revenue less cost of sales (constant currency basis) and -1.0% organic growth. In the third quarter, the business faced the toughest comparables of the year and organic growth was impacted by further declines in APAC, attributed to the Australian and Chinese markets, while the Americas, in particular the US market, saw continued strength.
• In the fourth quarter, the Japanese business will benefit from a number of large scale events (Rugby World Cup and Tokyo Motor Show) and the International business should benefit from continued momentum in the Americas.  
• The financial guidance announced on August 7, 2019 remains unchanged.    

Financial Results for First Nine Months 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." 

First Nine Months of FY2019 results
• The Dentsu Group delivered growth of revenue less cost of sales of +3.3% (constant currency basis):
o +1.4% in Japan, and +4.6% at Dentsu Aegis Network driven by M&A.
o The breakdown in contribution is: +28.2 billion yen from M&A, -6.9 billion yen by organic growth, and -15.3 billion yen from foreign exchange rates.

• The Group produced organic growth of -1.0%:
o -0.9 % in Japan, and -1.0% at Dentsu Aegis Network. The Japan business declined due to an absence of large scale sporting events as well as a decrease in traditional media in the Japanese market, offset by growth in digital-related services and favorable results in subsidiaries. The international business was impacted by negative growth in APAC, driven by further weakness in the Australian and Chinese markets. Excluding the impact of Australia and China, Q3 organic growth for Dentsu Aegis Network was 1.8%.
o Digital business contribution to total revenue less cost of sales reached 47.8% (9M FY2018: 45.4%), including 28.6% in Japan (9M FY2018: 23.4%), and 61.1% at Dentsu Aegis Network (9M FY2018: 60.5%).
o International business contribution to total revenue less cost of sales reached 59.0% (9M FY2018: 59.2%).

• Group underlying operating profit was 75.5 billion yen (9M FY2018: 89.5 billion yen).
o 50.5 billion yen in Japan (9M FY2018: 61.4 billion yen), and 25.0 billion yen at Dentsu Aegis Network (9M FY2018: 28.0 billion yen).
o The difference between the underlying operating profit and statutory operating profit was largely due to the difference in amortization of M&A related intangible assets.

• Group underlying operating margin was 11.2% (9M FY2018: 13.4%).
o 18.3% in Japan (9M FY2018: 22.6%), and 6.3% at Dentsu Aegis Network (9M FY2018: 7.1%).
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, strong cost management in central and regional costs continues.
o The Group underlying operating margin for Q3 improved by 70 bps over the same period last year.

• Underlying net profit (attributable to owners of the parent) decreased by 17.9%, mainly due to a decline in underlying operating income.
o Difference between the underlying net profit and statutory net profit was mainly due to the operating profit adjustments.

Toshihiro Yamamoto, President and CEO, Dentsu Inc., said:

"In the first nine months of FY2019, Dentsu Group recorded a decline in organic growth of -1.0%, with -0.9% in Japan and -1.0% at Dentsu Aegis Network.

The Japan business has seen sequential improvement through each quarter of 2019, with the fourth quarter set to benefit from many large scale events, including the successful Rugby World Cup hosted in Japan and the Tokyo Motor Show.

We continue to see the shift of revenue from traditional media in Japan into digital channels and this is clearly reflected in the performance of our Group companies, such as Dentsu Digital, ISID and other subsidiaries. We continue to capture the transfer of value as marketing shifts from traditional mediums.

In the International business, in order to future-proof our business and serve clients more effectively, we have streamlined and consolidated our offering around three lines of business: Creative, Media and CRM. These lines of business have been designed around client needs and will ensure we are set up to help clients win, keep and grow their best customers--by being data-driven, tech-enabled and ideas-led. 2020 is a year of transition and by 2021, we will be operating under these three lines of business and be truly integrated by design.

Finally, today we will shortly announce the new management team of Dentsu Group Inc. taking office from January 2020. This announcement marks the start of the next stage in the evolution of Dentsu Group and the team will be fully committed to our shared vision of "One dentsu."

For further details, please see the attached PDF file.



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