Information Services International Dentsu : Presentation Material of Financial Results for the Second Quarter of FY2021 (ending December 31, 2021)

PRESENTATION MATERIAL OF FINANCIAL RESULTS

FOR THE SECOND QUARTER OF FY2021 (FROM JANUARY 1, 2021 TO JUNE 30, 2021)

July 29, 2021

Information Services International-Dentsu, Ltd.

Note: This English translation is solely for reference purposes and not a legally definitive translation of the original Japanese text.

In the event a difference arises regarding the meaning herein, the original Japanese version will prevail as the official authoritative version.

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Financial results

for the second quarter of FY2021

Note:

From the first quarter of the current consolidated fiscal year, the Enterprise IT division, which is engaged in the development and implementation of mission-critical systems, was transferred from the Business Solutions segment to the Communication IT segment, establishing a structure that provides integrated support from the marketing domain to mission-critical operations. The figures for the second quarter of the previous consolidated fiscal year and the second quarter of the current consolidated fiscal year have not been reclassified because it is not practicable to prepare the reportable segments for the same period as the respective comparative periods.

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1. Consolidated Results for the 2Q of FY2021 (cumulative)

Vs. initial forecast

Year on year

Interim dividends

Sales and profit increased mainly due to higher sales in Manufacturing Solutions and Communication IT.

Orders received reached record highs for the first half, but sales and profit decreased due to the peak-out of several large-scale projects.

Implemented ¥26 per share in line with initial forecast.

（Unit : Millions of yen）

				Vs. initial forecast			YoY
	2Q of FY2021		(announced on February 10, 2021)
	(cumulative)		Forecast	Variance		% change	2Q of FY2020	Variance	% change
				(cumulative)
Net sales	54,293		53,300	+993		+1.9	55,020	-727	-1.3
Gross profit	19,020		18,849	+171		+0.9	19,163	-143	-0.7
Profit margin	35.0%		35.4%	-0.4p		-	34.8%	+0.2p	-
Selling, general and	12,494		12,849	-355		-2.8	12,192	+302	+2.5
administrative expenses
Operating profit	6,525		6,000	+525		+8.8	6,971	-446	-6.4
Operating margin	12.0%		11.3%	+0.7p		-	12.7%	-0.7p	-
Ordinary income	6,443		5,900	+543		+9.2	6,862	-419	-6.1
Profit attributable to	4,392		4,000	+392		+9.8	4,512	-120	-2.7
owners of parent
Average number of	3,180		3,210	-30		-0.9	2,959	+221	+7.5
employees during the period
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2-1. Factors for Increase/Decrease in Operating Profit (vs. initial forecast)

(Unit : 100 million yen)

Vs. initial

forecast

+5.2

Operating

profit

60.0

2Q of FY2021

(cumulative)

initial forecast

		Impact of decrease in gross	Decrease in SG&A	Operating
		expenses	+3.5	profit
Effect of	Increase	profit margin	-1.8			65.2
in sales	+3.5
	Decrease in gross profit margin	Decrease mainly in
	travel and outsourcing
		vs. forecast	-0.4p
		expenses
	(Gross profit margin of 35.0% is
		a record high for the first half.)
						2Q of FY2021
						(cumulative)
						result

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2-2. Factors for Increase/Decrease in Operating Profit (YoY)

Operating

profit

69.7

2Q of FY2020

(cumulative)

result

Effect of decrease
in sales
-2.5		Impact of increase in gross
		profit margin	+1.0

Increase in gross profit margin
mainly from consulting services
and software products	+0.2p

(Unit : 100 million yen)

YoY

Increase in SG&A-4.5

expenses -3.0

Operating

profit

Increase in personnel65.2 expenses from growth

in staff, etc.

2Q of FY2021

(cumulative)

result

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3. Net Sales and Operating Income by Reportable Segment

								（Unit : Millions of yen）
	Reportable segment	2Q of				YoY	Vs. initial forecast
	FY2021		Variance	% change	Overview	Variance	% change
			(cumulative)
		Net sale	11,804		-420	-3.4	Net sales decreased mainly due to the postponement	-418	-3.4
	Financial	Operating	520		-346	-40.0	of the recording of sales for large-scale project,	-	-
	profit		despite the expansion of BANK･R and DX-support
	Solutions						projects by financial institutions. Operating profit also
	%	4.4		-2.7p	-
			declined due to the impact of lower sales and an
		employees	791		+72	+10.0	increase in the cost of sales of some projects.	-	-
		Net sale	7,718		-3,167	-29.1	Net Sales and operating profit declined due to a	+143	+1.9
		Operating					-	-
	Business	1,231		-489	-28.4	decline in sales in this division following the
	profit
	Solutions						transfer of the Enterprise IT division. However, the
	%	15.9		+0.1p	-	business performed well, centered on POSITIVE,
		employees	412		-151	-26.8	Ci*X, and CCH Tagetik.	-	-
		Net sale	15,637		+106	+0.7	Net sales and operating profit increased due to the	+519	+3.4
	Manufacturing	Operating	1,511		+254	+20.2	expansion of DX support projects that	-	-
	profit		comprehensively provide from consulting to system
	Solutions						development, in-house and third-party software for the
	%	9.7		+1.6p	-
			automotive, electric/precision equipment industries,
		employees	668		+20	+3.1	which aim to innovate their entire value chain.	-	-
		Net sale	19,132		+2,754	+16.8	Despite the peak-out of several large-scale projects,	+748	+4.1
		Operating					-	-
	Communication	3,261		+135	+4.3	both net sales and operating profit increased due to an
	profit
	IT						increase in DX support projects for customers, mainly in
	%	17.0		-2.1p	-	the marketing area, and the transfer and integration of
							the Enterprise IT division.	-	-
		employees	716		+263	+58.0
		* BANK・R: next-generation financing		solution POSITIVE : human capital management solution Ci*X : financial solution system CCH Tagetik : business management solution	5
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Ref.) Supplementary information on Reportable Segment

For comparative purposes, the reference figures for the second quarter cumulative period of FY2020 is adjusted for Enterprise IT division's net sales and operating profit. The comparison with the reference values is as follows.

Business Solutions: Sales and profits increased due to the expansion of sales and installation

projects of third-party software such as CCH Tagetik. Communication IT : Despite the acquisition of new projects, mainly in the marketing area,

sales and profits decreased due to the peak-out of several large-scale projects.

								（Unit : Millions of yen）
							Comparison with reference figures
	Reportable segment			2Q of FY2021		Reference figures
			(cumulative)
						for 2Q of FY2020	Variance	% change
							(cumulative)
		Net sales			7,718		7,303	+415	+5.7
	Business	Operating			1,231		1,146	+85	+7.4
	Solutions	profit
		%			15.9		15.7	+0.2p	-
		Net sales			19,132		19,960	-828	-4.1
	Communication	Operating			3,261		3,700	-439	-11.9
	IT	profit
		%			17.0		18.5	-1.5p	-
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Ref.) Consolidated Results for the 2Q (April - June) of FY2021

Net sales

Operating profit

Net sales decreased due to the peak-out of several large-scale projects and the postponement of sales of large-scale projects in the financial solutions business to the second half of the fiscal year.

Decrease due to lower gross profit margin and higher SG&A expenses, in addition to the impact of lower sales.

（Unit : Millions of yen）

				YoY
		2Q of FY2021
		(April - June)	2Q of FY2020	Variance	% change
			(April - June)
Net sales		26,797	28,654	-1,857	-6.5
Gross profit		9,425	10,185	-760	-7.5
Profit margin		35.2%	35.5%	-0.3p	－
Selling, general and		6,627	6,508	+119	+1.8
administrative expenses
Operating profit		2,798	3,676	-878	-23.9
Operating margin		10.4%	12.8%	-2.4p	－

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4. Consolidated Net Sales by Service Category

（Unit : Millions of yen）

						YoY	Vs. initial forecast
	Service category	2Q of
	FY2021		Variance	% change	Overview	Variance	% change
		(cumulative)
	Consulting Services	3,249		+230	+7.6	Increase in Communication IT and	+357	+12.3
		Financial Solutions.
	Custom System	13,464		-1,531	-10.2	Decrease in Financial Solutions and	-2,291	-14.5
	Development		Communication IT.
	In-house Software	11,441		+1,317	+13.0	Increase in Communication IT (iPLAss) and	+1,006	+9.6
		Financial Solutions (Bank・R).
	Third-party Software	16,452		-247	-1.5	Increase in Business Solutions (CCH Tagetik),	+736	+4.7
		but decrease in Communication IT (ERP, etc.).
	Outsourcing, Operation	5,590		-500	-8.2	Decrease in Communication IT.	+302	+5.7
	and Maintenance Services
	IT Equipment Sales	4,094		+4	+0.1	Almost same level as in 2Q of FY2020.	+883	+27.5
	and Others
							* iPLAss : marketing platform
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5. Consolidated Net Sales by Industry

							（Unit : Millions of yen）
	Industry			2Q of FY2021 (cumulative)		YoY
		Net Sales	Composition Ratio (%)	Variance	% change

	Banks	9,127	16.8	-686	-7.0
	Other financial	2,369	4.4	+241	+11.3
	institutions
	Financial	11,496	21.2	-445	-3.7
	Transportation	8,282	15.3	-85	-1.0
	equipment
	Electric appliances	5,477	10.1	+875	+19.0
	Precision instruments
	Machinery	3,468	6.4	+64	+1.9
	Other products	4,120	7.6	-145	-3.4
	Manufacturing	21,347	39.3	+708	+3.4
	Services and public offices	16,885	31.1	-1,474	-8.0
	Distributions and others	4,564	8.4	+483	+11.8

• As reviewed some of our customers' industries, we used reclassified figures for comparison in the same period of the previous fiscal year.

6. Net Sales for Dentsu Group

Dentsu Group Inc. and		11,849	21.8		-2,615	-18.1
it's subsidiaries

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