Dentsu : Q2 FY2021 Consolidated Financial Results

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 11, 2021Dentsu Group Inc.

Q2 FY2021 Consolidated Financial Results

(The second quarter ending June 30, 2021 - reported on an IFRS basis)

Q2 FY2021 organic revenue growth saw a significant rebound in performance, at 15.0%, with 12.0% at Dentsu Japan Network and 17.0% at Dentsu International, showing strong sequential improvement over Q1 decline of 2.4%.

As we pass the anniversary of the start of the pandemic, revenues continue to recover across all regions with strong growth in digital solutions. Client confidence is restoring with spending levels more resilient and predictable.

Operating margin improvement continues to exceed expectation, substantially ahead of the prior year, with Q2 improving +370 bp yoy, showing the gearing effect of higher revenue together with cost reductions being implemented.

The acquisition of LiveArea, announced in July, strengthens the Group expertise in the fast growth areas of consumer experience and commerce and aligns with the Group's ambition of reaching 50% of revenues less cost of sales (LCoS) generated by Customer Transformation & Technology.

The Group expects high single digit organic growth for FY2021, with a line of sight to delivering the long held 2022 margin targets of 20% for Dentsu Japan Network and 15% for Dentsu International one year early, implying a Group margin improvement of +160 bp yoy. FY2021 forecasts are made in the context of a variable economic outlook as the effects of the pandemic remain unpredictable in a number of markets.

FY2021 annual dividend per share confirmed at JPY 101.0 (interim dividend JPY 50.5), a record high, at a 30% payout ratio for FY2021; in line with the Group's progressive dividend policy, to reach 35% over time.

The Group remains well positioned to benefit from the recovery in media & digital solutions spend and the structural growth in Customer Transformation & Technology.

Q2 (April to June) FY2021 Financial Results Summary

*See page 10 for definitions

Consolidated Group (million yen)	Q2 FY2021	Q2 FY2020	YoY chg, %
Revenue	243,863	206,344	+18.2
Revenue less cost of sales*	218,091	181,697	+20.0
Underlying results*
•	operating profit	26,614	15,509	+71.6
•	operating margin	12.2%	8.5%	+370 bp
• net profit (attributable to owners	16,029	7,945	+101.7
	of the parent)
Statutory results
•	operating profit	55,569	4,051	+1,271.6
• net profit (attributable to owners	31,219	438	+7,016.4
	of the parent)

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H1 FY2021 Financial Results Summary

*See page 10 for definitions

Consolidated Group (million yen)	H1 FY2021		H1 FY2020	YoY chg, %	CC basis, %
Revenue	492,714		459,082	+7.3	-
Revenue less cost of sales*	440,569		408,868	+7.8	+5.6
Underlying results*
•	operating profit	71,611		52,747	+35.8	+35.9
•	operating margin	16.3%		12.9%	+340 bp	+360 bp
• net profit (attributable to owners	43,185		28,304	+52.6	-
	of the parent)
•	basic EPS	153.51 yen	102.01 yen	-	-
Statutory results
•	operating profit	84,380		28,745	+193.5	-
• net profit (attributable to owners	36,104		15,795	+128.6	-
	of the parent)

H1 (January to June) FY2021 Results: Key Financials

Group revenue (LCoS) JPY 440.5 bn (YoY +7.8%, +5.6% on a constant currency basis).

• 5.5% at Dentsu Japan Network, and 9.7% (5.8% on a constant currency basis) at Dentsu International.
• Revenue (LCoS) increased due to organic growth of JPY 22.5 bn, M&A contributed JPY 0.6 bn, and currency positively impacted by JPY 8.5 bn.

Group organic growth was 5.4%.

• 4.5% at Dentsu Japan Network, and 6.2% at Dentsu International.
• H1 FY2021 saw a significant rebound in performance as revenues continued to recover across all regions.

Group underlying operating profit increased by 35.8% (35.9% on a constant currency basis) yoy to JPY 71.6 bn. Operating margin improved by 340 bp (360 bp on a constant currency basis) to 16.3% reflecting operating leverage from higher revenues and the continued focus on costs across the Group.

• At Dentsu Japan Network, underlying operating profit was JPY 43.0 bn (YoY +13.1%); operating margin of 22.9% (YoY +160 bp).
• At Dentsu International, underlying operating profit was JPY 30.9 bn (YoY +76.7%, +77.5% on a constant currency basis); operating margin was 12.3% (YoY +460 bp, +500 bp on a constant currency basis).

Group statutory operating profit increased by 193.5% to JPY 84.3 bn.

• Statutory operating profit helped by gain on sales or retirements of non-current assets of JPY 29.1 bn.

Group underlying net profit (attributable to owners of the parent) increased by 52.6% mainly due to the increase of underlying operating profit.

• The underlying basic EPS was JPY 153.51 (H1 FY2020: JPY 102.01).

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Group statutory net profit increased by 128.6% to JPY 36.1 bn.

• Statutory net profit increased due to the increase of statutory operating profit, partially offset by the charge of net finance costs, net by JPY 22.5 bn, and the increased income tax expenses.

H1 (January to June) FY2021 Revenue Less Cost of Sales by Region

Quarterly Organic Revenue Performance

					Dentsu Group Total			Dentsu Japan Network			Dentsu International
					2021		2020		2019			2021		2020		2019			2021		2020		2019
	Q1	(Jan - Mar)	(2.4)	(0.8)	(1.6)	(0.9)		2.1		(2.7)	(3.5)	(3.3)	(0.7)
	Q2	(Apr - June)	15.0		(17.3)	(1.3)		12.0		(12.6)	(1.4)	17.0		(20.0)	(1.3)
Q3	(Jul - Sept)	-	(14.8)	(0.1)		-	(14.7)	1.7		-	(14.6)	(1.0)
Q4	(Oct - Dec)	-	(11.6)	(1.1)	-	(9.9)	4.0		-	(13.2)	(4.0)
	Fiscal Year			-		(11.1)		(1.0)			-		(8.4)		0.4			-		(13.0)		(1.9)

Quarterly Organic Revenue Performance for Dentsu International by Region

							Americas							EMEA						APAC
					2021			2020		2019			2021			2020		2019			2021		2020		2019
	Q1	(Jan - Mar)	(4.1)	1.2	0.1		(2.9)	(0.4)	(0.4)		(3.1)	(19.5)	(3.0)
	Q2 (Apr - June)	15.5	(17.1)	2.8	22.0		(20.2)	0.7		10.2		(26.4)	(12.3)
	Q3	(Jul - Sept)	-	(15.3)	5.0		-	(12.9)	(1.0)		-	(16.4)	(12.3)
	Q4	(Oct - Dec)	-	(13.0)	1.5		-	(14.4)	(1.8)		-	(10.9)	(17.9)
	Fiscal Year			-			(11.3)		2.4			-			(12.4)		(0.7)			-		(18.0)		(12.3)

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Toshihiro Yamamoto,

President and CEO, Dentsu Group Inc., said:

"Dentsu Group delivered a strong second quarter performance, reflecting the growing consumer and client confidence we see across all regions. Underling profit growth continues to be strong, exceeding our expectations, and

demonstrates our commitment to our margin targets.

The second quarter saw a return to acquisitions for the Group with the announcement of an agreement to acquire LiveArea, a global customer experience and commerce agency that will join the Merkle brand within Dentsu International.

The acquisition perfectly aligns with Dentsu Group's stated ambition of reaching 50% of revenue LCoS generated through Customer Transformation & Technology, encompassing the fast growth areas of customer experience and commerce.

These structural growth areas drive deeper client relationships as we become embedded within our clients' data and technology. The greatest opportunity for brands today, as they build strategies to re-emerge from the pandemic, is customer experience transformation. Creating competitive differentiation through marketing strategies, supported by data, technology platforms, and analytics is where we see the greatest demand for our services. These services also transform our revenue profile, generating a higher level of recurring revenues through ongoing managed services whilst also transforming our ability to deliver services from lower cost locations.

With many of our people still working from home, their wellbeing and our future of work approach continue to be a priority for myself and the wider executive leadership team. The extraordinary talent throughout the organisation ensures we are well positioned to remain leaders in our industry. I would like to express my personal thanks to all our 64,000 people across the Group.

Whilst the future path of the pandemic remains uncertain, our full year guidance confirms our confidence in the outlook for the second half of FY2021, as well as our ability to meet our medium-term targets by 2024."

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H1 FY2021 Business Updates

Revenue less cost of sales from digital and Customer Transformation & Technology

• Total revenue (LCoS) from digital activities grew to 52.2% (H1 FY2020: 52.7%, YoY -50 bp, (cc:
  +20 bp)), including 36.7% in Dentsu Japan Network (YoY: +460 bp), and 63.6% in Dentsu
  International (YoY: -490 bp (cc: -320 bp)).
• Total revenue (LCoS) from Customer Transformation & Technology reached 29.4% (H1 FY2020: 27.6%, YoY +180 bp, (cc: +20 bp)) of Group revenue (LCoS). 24.6% (YoY +80 bp) for Dentsu Japan Network and 33.0% (YoY +240 bp, (cc: -40 bp)) for Dentsu International.
• The Group remains committed to reaching 50% of Group revenue (LCoS) from Customer Transformation & Technology over time.

Business updates by business segment

• Dentsu Japan Network reported 4.5% organic growth in H1 FY2021 and 12.0% in Q2 FY2021.
  In Japan, client spend on advertising continued to recover with Dentsu Japan Network seeing an improvement, particularly in the second quarter driven by internet sales +40.3%. The digital solutions business continued its momentum, supporting client needs for digital transformation. Dentsu Digital reported organic growth of 43.1% in H1 FY2021 while CARTA HOLDINGS reported organic growth of over 16%. Collaboration between Septeni and Dentsu Digital continues with the number of shared clients continuing to grow. Dentsu Inc.'s organic growth significantly improved to 3.1% in H1 FY2021 from -8.9% for H1 FY2020, giving confidence our solutions are well-placed to meet clients' needs.
  As part of the comprehensive review, Dentsu Isobar in Japan was consolidated into Dentsu Digital and DA search & link into Dentsu Direct Marketing on July 1, 2021. Dentsu Group and Dream Incubator Inc., a company that has deep strengths in strategic consulting, business creation and innovation support, formed a capital and business alliance to strengthen our transformation capabilities. At present there are more than 20 Dentsu Japan Network companies that are headquartered in the Dentsu headquarters building or that will be relocating into the building. Dentsu Japan Network is preparing the building for a more collaborative work style to aid innovation between brands. FY2021 is the year of transformation for Dentsu Japan Network and additional initiatives will be announced as the year progresses. Dentsu Japan Network retains its vision of becoming an Integrated Growth Partner, supporting clients' through their business transformation.
• Dentsu International reported 6.2% organic growth in H1 FY2021 and 17.0% in Q2 FY2021.
• Americas reported 5.1% organic growth in H1 FY2021 and 15.5% in Q2 FY2021.

1. North America reported Q2 organic growth of 15.1%, driven by strong performances from Canada & the US market. The North American market is benefiting from a strong media performance that we expect to continue into the second half. A number of new client wins are also impacting revenues. CXM momentum continues as clients embrace data and digital transformation solutions to meet their customers' experience needs and expectations. The Creative service line saw a strong new business performance in the second quarter and the impact of clients lost last year will end this quarter, benefitting the top line going forward.

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