Q3 FY2021 earnings release（488KB）

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

November 12, 2021Dentsu Group Inc.

Q3 FY2021 Consolidated Financial Results

(The third quarter ending September 30, 2021 - reported on an IFRS basis)

The third quarter results show a recovery across the Group, with organic growth at 27.8% and underlying operating margin +1,160 bp yoy.

Dentsu Japan Network saw an exceptionally strong quarter, +49.7% organic growth, exceeding expectations following a recovery across all advertising mediums, with particular strength in television and digital solutions.

Dentsu International reported double digit organic growth, +13.4%, strengthened by the continued recovery in Media +17.3% as clients recognize the importance of brand investment to drive growth. CXM also saw double digit organic growth, 11.2%.

Strength in the structural growth areas of commerce and experience continued, with demand strong for technology implementation, data services and activation, through creative and media.

Operating margin was substantially ahead of the prior year, showing the gearing effect of higher revenue together with the impact of continued cost reductions.

The Group today raises FY2021 guidance for Group organic growth to 12.0%, with Group margins raised to 18.0% (+320 bp, yoy) from 16.4% previously. Fourth quarter margins are expected to be lower yoy due to phasing of investments, despite this, FY2021 underlying operating profit is expected to be over 40% higher yoy. FY2021 annual dividend per share guidance is raised to JPY 113.5, a record high. The Group remains well positioned to benefit from the structural growth in Customer Transformation & Technology in 2022 and beyond.

Dentsu Group Inc. today announces a number of management changes, including Hiroshi Igarashi's appointment as Representative Director, President and CEO, Dentsu Group Inc. and Norihiro Kuretani as President and CEO, Dentsu Japan Network, with a number of changes to the Board to lead Dentsu Group to the next stage of growth. The changes will support the Group in achieving the goals of the medium-term management plan ending in FY 2024 and driving continued sustainable growth in the years ahead.

Q3 (July to Sep) FY2021 Financial Results Summary

*See page 10 for definitions

Consolidated Group (million yen)	Q3 FY2021	Q3 FY2020		YoY chg, %
Revenue	281,834	217,280		+29.7
Revenue less cost of sales*	255,826	193,059		+32.5
Underlying results*
•	operating profit	60,214	23,076		+160.9
•	operating margin	23.5%	12.0%		+1,160 bp
• net profit (attributable to owners	36,751	11,064		+232.2
	of the parent)
Statutory results
•	operating profit (loss)	127,496	(10,241)	-
• net profit (loss) (attributable to	65,641	(5,508)	-
	owners of the parent)

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9m (Jan-Sep) FY2021 Financial Results Summary

	Consolidated Group (million yen)		9m		9m			YoY chg, %		CC basis, %
		FY2021		FY2020
	Revenue	774,548		676,362		+14.5	-
	Revenue less cost of sales*	696,396		601,927		+15.7	+12.9
	Underlying results*
	•	operating profit	131,826		75,823		+73.9	+71.7
	•	operating margin	18.9%		12.6%			+630 bp		+650 bp
	• net profit (attributable to owners	79,937		39,369		+103.0	-
		of the parent)
	•	basic EPS		285.39 yen	141.23 yen	-	-
	Statutory results
	•	operating profit	211,876		18,503		+1,045.0	-
	• net profit (attributable to owners	101,746		10,286		+889.1	-
		of the parent)

*See page XX for definitions

9m (Jan to Sep) FY2021 Results: Key Financials

9m Group revenue (LCoS) JPY 696.3 bn (YoY +15.7%, +12.9% constant currency basis)

• 19.4% growth in revenue (LCos) at Dentsu Japan Network, and 12.9% (8.3% on a constant currency basis) at Dentsu International.
• Revenue (LCoS) increased due to organic growth of JPY 78.0 bn, currency positively impacted by JPY 14.8 bn, and M&A contributed JPY 1.5 bn.

9m Group organic growth was 12.6%.

• 18.2% organic growth at Dentsu Japan Network, and 8.6% at Dentsu International. 9m FY2021 saw a significant rebound in performance due to the increase in advertising across all mediums as Japanese consumer confidence continued to increase.

9m Group underlying operating profit increased by 73.9% (71.7% on a constant currency basis) yoy to JPY 131.8 bn. Operating margin improved by 630 bp (650 bp on a constant currency basis) to 18.9% reflecting operating leverage from higher revenues and the continued focus on costs across the Group.

• At Dentsu Japan Network, underlying operating profit was JPY 82.0 bn (YoY +87.4%); operating margin of 26.9% (YoY +980 bp).
• At Dentsu International, underlying operating profit was JPY 53.5 bn (YoY +49.3%, +45.5% on a constant currency basis); operating margin of 13.7% (YoY +330 bp, +350 bp on a constant currency basis).

9m Group statutory operating profit increased by 1,045% to JPY 211.8 bn.

• Statutory operating profit helped by gain on sale of non-current assets of JPY 119.2 bn, including the sale of Dentsu headquarters building sold on September 30.

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9m Group underlying net profit (attributable to owners of the parent) increased by 103.0% mainly due to the increase of underlying operating profit.

• The underlying basic EPS of JPY 285.39 (9m FY2020: JPY 141.23).

9m Group statutory net profit increased by 889.1% to JPY 101.7 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 39.8 bn, and the increased income tax expenses.

9m (Jan to Sep) FY2021 Organic Growth and Proportion of Revenue (LCoS) 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)	27.8	(14.8)	(0.1)	49.7	(14.7)	1.7	13.4	(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)	16.3		(15.3)	5.0		12.9		(12.9)	(1.0)		7.6		(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:

• After 40 years of service, and five years leading Dentsu Group, I will be stepping down from my role as President and CEO of Dentsu Group Inc. at the end of the year.

It has been an honor and a privilege to serve a company with such a rich history in such an exciting, fast paced industry.

Over the past 12 months we have laid the foundation for the company to achieve sustainable growth and the third quarter results show a company that's recovering, capitalizing on the market opportunities with rebounds across all business lines.

Under new leadership from within, and with a refreshed Board, Dentsu Group will accelerate the path forward to become the world's leading organization that transforms our client's business, driving top line growth through the power of our creativity, technology, and people.

I have been the proud custodian of Dentsu Group for five years and I am confident that, Hiroshi Igarashi, Wendy Clark and Norihiro Kuretani will lead our people, our clients and our business into a new and exciting chapter of change and growth from 2022.

I would like to extend my thanks to all our clients, partners, shareholders and all our 64,000 talented employees for their continued support and I believe that everyday, together, we are one step closer to achieving our vision to realize a better society."

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9m FY2021 Business Updates

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

• Total revenue (LCoS) from digital activities grew to 51.9% (9m FY2020: 52.7%, YoY -80 bp, (cc:
  +10 bp)), including 34.0% in Dentsu Japan Network (YoY: +80 bp), and 65.8% in Dentsu
  International (YoY: -130 bp (cc: +90 bp)).
• Total revenue (LCoS) from Customer Transformation & Technology reached 28.7% (9m FY2020: 27.7%, YoY +90 bp, (cc: -70 bp)) of Group revenue (LCoS). 23.2% (YoY -80 bp) for Dentsu Japan Network and 32.9% (YoY +240 bp, (cc: -30 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

• For the third quarter, in line with a global recovery from the pandemic, business confidence and consumer sentiment has steadily increased, boosting demand for TV and digital (internet) advertising across all markets. The 2020 Olympic and Paralympic Games additionally boosted that demand in Japan.
• Dentsu Japan Network reported 18.2% organic growth in 9m FY2021 and 49.7% in Q3 FY2021.
  In Japan, Client spend increased as consumer confidence returned to the Japanese economy in the third quarter and has continued as COVID-19 related restrictions continue to be lifted. Client spend across all advertising mediums continued to recover with Dentsu Japan Network seeing an improvement driven by Internet sales +35.6%. Content services (+355.5% yoy), TV (+35.3% yoy) and Creative (+14.7% yoy) also showed a substantial increase. The largest company, Dentsu Inc.'s organic growth significantly improved to 20.5% in 9m FY2021, giving confidence our solutions are well-placed to meet clients' needs. All sectors traded well, but technology, beverages, financials and luxury goods were particular stand out.
  The digital solutions business continued its momentum, supporting client needs for digital transformation, with specialists across Japan collaborating from ISID, Dentsu Digital and Dentsu Inc. around the needs of our clients'. Dentsu Digital reported organic growth of 40.9% in 9m FY2021 while CARTA HOLDINGS reported organic growth of over 15.8%. Collaboration between Septeni and Dentsu Digital continues with the number of shared clients continuing to grow.
  On October 28, the Group announced that it would make Septeni Group a consolidated subsidiary on January 4, 2022, expanding Dentsu Japan Network's market share to become the largest digital marketing company in Japan. The deal will bring additional expertise into Dentsu Japan Network, allowing the Group to bid on larger scale projects and also brings complementary client exposure to Dentsu Japan Network.
  Today management changes were also announced for Dentsu Japan Network, including the appointment of Norihiro Kuretani as President and CEO, Dentsu Japan Network, and President and CEO, Dentsu Inc.

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