Hakuhodo DY : Presentation Material (Medium-Term Business Plan) for FY2020 (with Commentary)

Good afternoon. My name is Masayuki Mizushima, and I am the Representative Director & President of Hakuhodo DY Holdings Inc.

Please allow me to provide an explanation on the progress we are making under the Hakuhodo DY Group's Medium-Term Business Plan.

We have been moving forward with a variety of initiatives in accordance with the Medium-Term Business Plan you can see here, which runs through FY2023.

Due to the COVID-19 pandemic, our view of the economy and advertising market, which underpins the Medium-Term Business Plan, has changed greatly. For that reason, at the time of the release of our financial results for the first half of FY2020, we announced that we had withdrawn the numerical targets of the current Medium-Term Business Plan.

Today, I will explain the progress we are making with various initiatives amid the accelerating shift to complete digitalization, which is the cornerstone of the Medium-Term Business Plan.

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First, let me discuss operating income before amortization of goodwill.

Operating income excluding investment projects, after adjustments and before amortization of goodwill, was stable in the first year of the Medium-Term Business Plan, a period in which we pursued not only M&A but also proactive strategic investments in such areas as human resources and the development of data and system infrastructure.

In the second year of the plan, various factors had a significant negative impact on the Hakuhodo DY Group's performance, including the declaration of states of emergency and the rapid decline in economic activities due to the COVD-19 pandemic. While we were able to secure ¥48.5 billion in operating income excluding investment projects, after adjustments and before amortization of goodwill, the above factors resulted in a year-on-year decrease.

Facing the sudden deterioration in our profit/loss environment, we started to implement emergency measures to reduce costs and began examining the feasibility of medium- to long-term cost structure reforms.

In addition, changes in sei-katsu-sha behavior, lifestyles, and client needs are occurring at a rapid pace, and we are thus working to innovate the services we provide from the perspectives of marketing DX and media DX.

I will now explain some specific actions we are taking, so please see the next slide.

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First, I will talk about marketing DX.

The shift to complete digitalization has been accelerating due in part to people refraining from going outside and avoiding direct contact with others as a result of the pandemic. Amid these conditions, there has been a greater number of opportunities to establish direct touchpoints between sei-katsu-sha and companies through such means as owned media and apps. Accordingly, we are witnessing a growing need for marketing DX, which involves innovating the marketing activities of companies to better respond to these direct touchpoints and cater to the new environment.

To that end, we developed new solutions and built a structure for responding to DX needs in CRM, EC/D2C, owned media, stores, and other business domains.

Next, I will discuss media DX.

Last year, we announced our next-generation model for the advertising media business, Advertising as a Service (AaaS). Upon doing so, we began the provision of new integrated operations services for advertising media.

With advances in digital technology, the ways sei-katsu-sha come in contact with information have been diversifying through the use of various media, devices, and platforms. Furthermore, sei-katsu-sha are now constantly connected.

Accordingly, reaching across a wide range of media and platforms, it is expected that companies' marketing communication initiatives will be more effective.

AaaS is a next-generation model for the advertising media business that emphasizes the transition from businesses focused on advertising space transactions to businesses focused on maximizing advertising effects. We aim to maximize the effects of advertising and contribute to the business growth of companies through the provision of integrated operations services for advertising media based on this model.

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Furthermore, we established HAKUHODO DX_UNITED, a strategic organization that implements DX for companies in an integrated manner through a two-pronged approach incorporating marketing DX and media DX.

HAKUHODO DX_UNITED spans the three companies Hakuhodo Inc., Hakuhodo DY Media Partners Inc., and D.A.Consortium Inc., and brings together eight expert functions and roughly 700 specialists in various domains from these three companies. Going beyond the perspectives of enhancing efficiency and reducing costs, HAKUHODO DX_UNITED will implement value-creating DX that uncovers latent demand and encourages new preferences and actions in sei-katsu-sha to create better lifestyles and a better society.

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