Dentsu : H1 FY2022 earnings release（658KB）

(Figures excluding Russia*)

DENTSU GROUP INC.

Group Corporate Communications Office 1-8-1,Higashi-shimbashi,Minato-ku, Tokyo 105-7050, Japan https://www.group.dentsu.com/en/

FOR IMMEDIATE RELEASE

August 12, 2022

Dentsu Group Inc.

Q2 FY2022 Consolidated Financial Results

(The second quarter ended June 30, 2022 - reported on an IFRS basis)

Dentsu Group reports a strong second quarter with organic growth of 8.2%, Dentsu Japan Network 7.9% and Dentsu International 8.4% as clients continue to invest in their brands, supported by technology, data and digital solutions to enhance their customer strategies.

Operating margin increased to 13.9%, +120bp yoy. Margin growth was supported by continued organizational simplification and cost efforts the Group has been undertaking over the past two years.

• Customer Transformation & Technology grew 22.5% reaching 32.3% of Group revenues, 27.5% at Dentsu Japan Network and 35.7% at Dentsu International. Growing exposure to the structural growth area of Customer Transformation & Technology provides a more resilient revenue mix, placing the Group in a strong position as we enter the second half of the year.
• The Group has completed two acquisitions in recent weeks, in line with our stated strategy of reaching 50% of revenues generated by Customer Transformation & Technology. Pexlify a UK and Ireland based Salesforce consultancy and Extentia a global consultancy delivering solutions across mobile, cloud and experience. Both acquisitions further cement our position as Salesforce's largest agency partner. Pexlify and Extentia grew 15% and over 50% respectively in the second quarter. The acquisition pipeline remains active.
• Given the robust H1 FY2022 performance, the Group guides to the upper end of 4 to 5% organic growth with 17.7% operating margin, despite the dilutive impact of Russia on operating margins. Excluding the impact of Russia, the Group operating margin would reach 18.0%. Underlying basic EPS is today upgraded by 8.1% due to updated FX, a reduced tax rate at Dentsu International and the reduced number of shares following the buyback completed year to date.
• The Group today announces a record interim dividend of 70.25 yen per share for FY2022, +39% yoy.
• The Group retains confidence in the medium-term targets of 4 to 5% Group organic growth, 18.0% Group margins with a pay-out ratio reaching 35.0% by FY2024.
• • Including the impact of the Russian business Group organic growth Q2 was 7.3%, 7.9% at Dentsu Japan Network and 7.0% at Dentsu International. Group operating margins were 13.5%, +120bp; Dentsu Japan Network reported 15.0% and Dentsu international 13.6%. All figures in the rest of the release refer to results including the impact from Russia.

Q2 (April to June) FY2022 Financial Results Summary

	Consolidated Group (million yen)		Q2			Q2		YoY change,
		FY2022			FY2021		%
	Net Revenue*	260,079		218,091	+19.3
	Underlying results
	•	Operating profit	35,000		26,614	+31.5
	•	Operating margin	13.5%		12.2%	+130bps
	•	Net profit (attributable to owners of the parent)	24,030		16,029	+49.9
	Statutory results
	•	Operating profit	26,068		55,569	(53.1)
	•	Net profit (attributable to owners of the parent)	18,579		31,219	(40.5)

Dentsu Group Inc. Earnings Release Q2 FY2022

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H1 (January to June) FY2022 Financial Results Summary

				H1		H1		YoY		Constant
	Consolidated Group (million yen)				change,		currency
		FY2022		FY2021
						%		basis, %
	Net Revenue*	518,947		440,569	+17.8	+11.5
	Underlying results
	•	Operating profit	89,918		71,611	+25.6	+19.8
	•	Operating margin	17.3%		16.3%		+100bps	+120bps
	•	Net profit (attributable to owners of the parent)	58,966		43,185	+36.5	-
	•	Basic EPS		217.35 yen	153.51 yen
	Statutory results
	•	Operating profit	66,790		84,380	(20.8)
	•	Net profit (attributable to owners of the parent)	42,483		36,104	+17.7

*Notation of "Revenue less cost of sales" was changed to "Net revenue" from the first quarter

H1 (January to June) FY2022 Results: Key Financials

Group net revenue JPY 518.9 bn (YoY +17.8%, +11.5% on a constant currency basis)

• 14.6% growth in net revenue at Dentsu Japan Network, and 20.2% (9.5% on a constant currency basis) at Dentsu International.
• Net revenue increased due to organic growth of JPY 39.2 bn, currency positively impacted by JPY 24.7 bn, and M&A contributed JPY 14.3 bn.

Group organic growth was 8.2%. (8.9% excluding Russia)

• 9.0% organic growth at Dentsu Japan Network, and 7.6% at Dentsu International (8.8% excluding Russia). H1 FY2022 saw growth in all regions by continued growth in media as well as increased client spend on digital transformation initiatives.

Group underlying operating profit increased by 25.6% (19.8% on a constant currency basis) yoy to JPY 89.9 bn. Operating margin improved by 100 bp (120 bp on a constant currency basis) to 17.3% reflecting operating leverage from higher revenues and the continued focus on costs.

• At Dentsu Japan Network, underlying operating profit was JPY 57.1 bn (YoY +32.6%); operating margin of 26.5% (YoY +360 bp)
• At Dentsu International, underlying operating profit was JPY 36.1 bn (YoY +16.8%, +5.1% on a constant currency basis); operating margin excluding Russia of 12.5% and operating margin including Russia of 11.9% (YoY -20 bp, -50 bp on a constant currency basis).

Group underlying net profit (attributable to owners of the parent) increased by 36.5% yoy to JPY 58.9 bn due to the increase of underlying operating profit.

• The underlying basic EPS of JPY 217.35 (H1 FY2021: JPY 153.51).

Group statutory operating profit and net profit (attributable to owners of the parent) are of JPY 66.7 bn and JPY 42.4 bn.

• Statutory operating profit is lower yoy due to a one-off increase in FY2021 on the gain on sale of non-current assets. In Q2 FY2022 the Group sold further property assets in Japan, continuing with our stated strategy of streamlining our balance sheet and reviewing all non-trading assets. Business transformation costs increased yoy as previously highlighted.

Dentsu Group Inc. Earnings Release Q2 FY2022

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H1 (January to June) FY2022 Organic growth and Proportion of net revenue by Region

Quarterly Organic Revenue Performance

					Dentsu Group Total			Dentsu Japan Network			Dentsu International
					2022*1		2021		2020			2022		2021			2020			2022*2		2021		2020
	Q1	(Jan - Mar)	9.1	(2.4)	(0.8)	10.0	(0.9)	2.1		8.4	(3.5)	(3.3)
	Q2	(Apr - Jun)	7.3	15.0		(17.3)	7.9	12.0		(12.6)	7.0	17.0		(20.0)
Q3	(Jul - Sep)	-	27.8	(14.8)	-	49.7		(14.7)	-	13.4		(14.6)
Q4	(Oct - Dec)	-	14.2	(11.6)	-	17.3		(9.9)	-	12.1		(13.2)
	Fiscal Year			-		13.1		(11.1)			-		17.9			(8.4)			-		9.7		(13.0)

Quarterly Organic Revenue Performance for Dentsu International by Region

							Americas						EMEA				APAC (ex Japan)
						2022		2021		2020			2022*3		2021		2020			2022		2021		2020
	Q1	(Jan - Mar)	13.4	(4.1)	1.2		3.3	(2.9)	(0.4)		5.2	(3.1)	(19.5)
	Q2 (Apr - Jun)	9.6	15.5	(17.1)		4.9	22.0		(20.2)	4.5	10.2		(26.4)
	Q3	(Jul - Sep)	-	16.3	(15.3)		-	12.9		(12.9)	-	7.6		(16.4)
	Q4	(Oct - Dec)	-	15.4	(13.0)		-	12.6		(14.4)	-	3.8		(10.9)
	Fiscal Year			-		10.6		(11.3)			-		11.1		(12.4)			-		4.7		(18.0)
*1	Dentsu Group Total excluding Russia - Q1: 9.6% / Q2: 8.2%
*2	Dentsu International Total excluding Russia - Q1：9.2% / Q2: 8.4%
*3	EMEA excluding Russia - Q1: 5.3% / Q2: 8.9%

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Hiroshi Igarashi, President and CEO, Dentsu Group Inc., said:

"The Group's strong performance continued into the second quarter as we reported 8.2% organic growth and 120 bp margin improvement (exc. Russia). The quarter saw success with new client wins across the Group as well as significant success at the Cannes Lions International Festival of Creativity 2022, winning Agency of the Year, Regional Network of the Year, a Titanium and three coveted Grand Prix awards

- my deepest congratulations to all our teams involved.

Clients continue to invest in their brands, supported by hyper-personalized customer experiences, driven by insights, data and technology. By connecting data across our clients' organization we can bring a cohesive, 360-degree view of their customers - driving competitive differentiation, brand resilience and measurable business results for our clients.

Our strategy of growing our revenues in the fast growth area of our industry, Customer Transformation & Technology, brings a number of benefits to the Group - transforming our client offer, our revenue profile and our cost structure. We retain our ambition of generating 50% of our net revenues from this structural growth area as we shift our business to a hybrid agency / consultancy.

We continue to grow revenues in Customer Transformation & Technology both organically and through acquisition and I am delighted to welcome all 950 employees from both Pexlify and Extentia who joined the Dentsu Group in recent weeks.

The 65,000 dedicated employees across the Group are what gives dentsu its competitive edge - and as always, I would like to thank them for their commitment.

Whilst the macro-outlook may remain uncertain, we enter the second half of the year with confidence. Our improved revenue mix, our deep client relationships, strong balance sheet underpinned by the transformation the Group has undertaken over the past two years positions us well for the future.

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H1 (January to June) FY2022 Business Updates

Customer Transformation & Technology ratio of net revenues

• Net revenue from Customer Transformation & Technology reached 32.3% of Group net revenue (YoY +280 bp, +290 bp on a constant currency basis), 27.5% (YoY +280 bp) from Dentsu Japan Network and 35.7% (YoY +270 bp, +310 bp on a constant currency basis) from Dentsu International.

Japan business (Dentsu Japan Network)

• In Japan, organic growth was 9.0%.
  Japan, the biggest region with 42% of Group net revenue, reported 9.0% organic growth, with strong demand for digital solutions. In addition to the significant increase in Customer Transformation & Technology net revenue, client spend on advertising remained robust throughout the first half. Dentsu Inc., accounting for the half of the Japan business net revenue, significantly contributed with advertising remaining buoyant. The digital/consulting business maintained momentum throughout the quarter, supporting clients' ever-growing needs for business and digital transformation. By company, Dentsu Inc., ISID and Dentsu Digital reported 4.2%, 20.8% and 10.1% organic growth, respectively. ISID grew over 20%, supported by strong demand from clients for digital transformation toward their business and operations.
  SEPTENI HOLDINGS, consolidated in the first quarter, reported 11.9% organic growth and cements the Group's position as the leader in digital advertising in Japan.
  Together with the increase in net revenue, a transformed cost base contributed to the higher operating margin of 26.5%.
  In May 2022, Dentsu Japan Network acquired two companies, IGNITION POINT Inc., a consultancy business in the Customer Transformation & Technology space, focused on Business Transformation (BX) & Digital Transformation (DX) and Dig into Inc., a digital marketing operations company (AX). The company's name was changed to Dentsu Digital Anchor Inc. from June 1.

International business (Dentsu International)

By region:

• In the Americas, organic growth was 11.4%.

The Americas reported 11.4% organic growth in the first half with both Media and CXM reporting double digit organic growth. The US market continued to perform very strongly driven by new client wins and expansion of existing client relationships in Media. Canada continues to perform well on growing scope from existing clients within Media & Creative. The US and Canada offset weakness seen in Brazil & Mexico.

• In EMEA, organic growth was 4.0%, excluding Russia was 7.2%.
  CXM continued to report double digit growth in EMEA with particular strength in the UK market, Denmark and Germany. Creative momentum continued into the second quarter with Italy and the UK showing particular strength. Media saw client losses within certain markets within the region. Highlights include the UK reporting organic growth of 8.3%, Italy 10.8% and Denmark over 20%.

Dentsu Group Inc. Earnings Release Q2 FY2022

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