Dentsu Inc. announces its consolidated financial results (IFRS) for the second quarter of the fiscal year ending December 2017 and dividend distribution from retained earnings.
The text of the Dentsu Inc. news release distributed on August 9 is as follows.
Notice Regarding Second Quarter Consolidated Financial Results (IFRS) for the Fiscal Year Ending December 2017 and Dividend Distribution
― Second Quarter Cumulative Period Shows Increased Revenue but Decreased Profit ―
■Consolidated Performance
Revenue: ¥439,485 million (up 11.8% year-on-year)
Gross Profit: ¥414,610 million (up 12.5% YoY)
Adjusted Operating Income: ¥64,354 million (down 6.2% YoY)
Operating profit: ¥45,307 million (down 22.8% YoY)
Adjusted quarterly profit (attributable to owners of the parent): ¥41,010 million (down 5.9% YoY)
Quarterly profit (attributable to owners of the parent company): ¥30,712 million (down 14.2% year-on-year)
Dentsu Inc. (Head Office: Minato-ku, Tokyo; President and CEO: Toshihiro Yamamoto; Capital: ¥74,609.81 million) held a Board of Directors meeting today at the Dentsu Head Office Building in Shiodome, Tokyo, and finalized its consolidated financial results for the first half of the fiscal year ending December 2017 (January 1, 2017 to June 30, 2017).
<Financial Results Overview>
During the first half of the fiscal year, the Japanese economy showed a gradual recovery trend, supported by improvements in corporate earnings, employment, and income levels. Globally, while the economy showed signs of recovery, particularly in the United States, the outlook remained uncertain due to factors such as the policy uncertainty of the new U.S. administration, the UK's moves toward Brexit, and unstable international conditions.
Under these conditions, the Group's performance for the first half of the fiscal year saw gross profit in domestic operations slightly decline year-on-year to ¥180,338 million (down 1.2% year-on-year), partly due to a reactionary decrease following large-scale events in the previous year. For overseas operations, the organic growth rate of gross profit by region was as follows: Europe, Middle East, and Africa (EMEA) increased by 2.9% year-on-year, the Americas decreased by 2.0%, and Asia-Pacific (excluding Japan; APAC) decreased by 0.2%. Overall, the organic growth rate increased by 0.1%. Overseas gross profit increased significantly to ¥234,398 million (up 25.9% year-on-year) due to the contribution of M&A.
As a result, revenue for the first half of the fiscal year was ¥439,485 million (up 11.8% year-on-year), gross profit was ¥414,610 million (up 12.5%), adjusted operating profit*1 was ¥64,354 million (down 6.2%), Operating profit was ¥45,307 million (down 22.8% YoY). Adjusted quarterly profit attributable to owners of the parent company*2 was ¥41,010 million (down 5.9% YoY), while quarterly profit attributable to owners of the parent company was ¥30,712 million (down 14.2% YoY).
※1 Adjusted operating profit is a profit metric that measures the performance of recurring business operations. It excludes from operating profit: amortization of intangible assets related to acquisitions, M&A-related expenses, equity-based compensation expenses and impairment related to the acquired company, and gains/losses on the sale of fixed assets.
※2 Adjusted quarterly profit attributable to owners of the parent is an indicator measuring recurring profit attributable to owners of the parent, derived by excluding from quarterly profit: adjustments related to operating profit, revaluation gains/losses on earn-out obligations and acquisition-related put options, and the related tax equivalents and non-controlling interest equivalents.
The performance of the reportable segments for the first half of the current fiscal year is as follows.
a. Domestic Business
Gross profit for Domestic Operations was ¥180,338 million (down 1.2% year-on-year), and adjusted operating profit was ¥47,568 million (down 9.2% year-on-year).
b. Overseas Business
For Overseas Business, gross profit was ¥234,398 million (up 25.9% year-on-year), and adjusted operating profit was ¥16,807 million (up 3.6% year-on-year).
For the Company's non-consolidated results (Japanese GAAP): ordinary profit was ¥50,069 million (down 19.4% YoY), and quarterly net profit was ¥39,314 million (down 24.0% YoY).
(Reference: Scope of Consolidated Financial Statements) The scope of consolidated financial statements includes 878 consolidated subsidiaries and 66 equity-method affiliates. The breakdown by reporting segment is as follows: for consolidated subsidiaries, 85 domestic businesses and 793 overseas businesses; for equity-method affiliates, 33 domestic businesses and 33 overseas businesses.
For details on the results for the first half of the current fiscal year, please refer to http://www.dentsu.co.jp/ir/.
＜Consolidated Earnings Forecast for Fiscal Year 2017＞
The consolidated and non-consolidated earnings forecasts for the full fiscal year ending December 2017 (January 1, 2017 to December 31, 2017) have been revised from the forecasts announced in the earnings release dated February 14, 2017. For details, please refer to the "Notice Regarding Revision of Earnings Forecasts for the Fiscal Year Ending December 2017" announced on August 9, 2017.
<Dividend on Surplus>
As announced on February 14, 2017, the interim dividend for the second quarter of the fiscal year ending December 2017 is expected to be ¥45 per share (¥40 per share in the previous period). Combined with the projected year-end dividend of ¥45 per share (¥45 per share in the previous period), the annual dividend is expected to be ¥90 per share.
(Reference: Consolidated Financial Highlights for the First Quarter of Fiscal Year 2017)
※1 Revenue represents the total amount billed to customers by our group and the total amount billable to customers (excluding discounts and related taxes such as consumption tax). While this disclosure does not comply with IFRS, we voluntarily provide this information as it is considered useful for financial statement users.
※2 The breakdown of the Group's revenue consists primarily of commissions earned from advertising placements across various media, and fees received from advertisers and others for services such as advertising production (including creative services) and various content services. Revenue from advertising production and other advertising services is recorded as the net amount after deducting costs from the consideration received from advertisers and other clients for these services, or as a fixed amount or fixed fee. Transactions related to businesses other than advertising are reported on a gross basis for both revenue and cost.
※3 Excluding foreign exchange effects: This refers to a comparison between actual results for the current period and comparative figures (such as those from the previous period) restated using the exchange rate at the time of the most recent financial results.
■Consolidated Performance Highlights
・Gross profit for the first half of the current fiscal year increased 13.1% year-on-year on a currency-neutral basis.
(On a currency-neutral basis, domestic operations decreased 1.2% year-on-year, while overseas operations increased 27.2%)
・Organic growth rate (internal growth rate excluding currency and M&A effects) for gross profit in the first half of the current fiscal year decreased by 0.4%. (Q1: +3.9%, Q2: -4.8%)
・Domestic business organic growth rate decreased by 1.1%, while overseas business organic growth rate increased by 0.1%. (Domestic business organic growth rate: Q1: +4.7%, Q2: -8.1%; Overseas business organic growth rate: Q1: +3.1%, Q2: -2.7%)
・Overseas operations accounted for 56.5% of gross profit.
・Digital segment accounted for 42.4% of gross profit (Domestic: 21.7%, Overseas: 58.3%)
・Adjusted operating profit decreased 7.7% year-on-year on a currency-neutral basis.
・Operating margin (adjusted operating profit ÷ gross profit) was 15.5%, down 350 basis points year-on-year on a currency-neutral basis. (Main factors: sluggish gross profit growth and increased overseas business contribution)
・Basic adjusted quarterly earnings per share were ¥144.65, down 5.3% year-on-year.
・Continued focus on corporate acquisitions for growth (acquired 14 overseas companies in January-June 2017).
■Adjustments from Adjusted Operating Income to Operating Income
＜Performance by Region＞
During the first half of the current fiscal year, organic gross profit growth for domestic operations decreased by 1.1%, partly due to the absence of large-scale events seen in the prior year. Organic gross profit growth for overseas operations was 0.1%.
By region: - EMEA: Gross profit increased 19.9% year-on-year (excluding currency effects), with organic gross profit growth of 2.9%. Eastern Europe, particularly Russia and Poland, drove overall growth, while the Nordic region also achieved positive growth through new business acquisitions.
In the Americas, gross profit increased 52.1% year-over-year (excluding currency effects), while organic gross profit growth decreased 2.0%. The U.S. performed solidly, benefiting from the integration effects of both Merkle and Accordant Media, acquired last year. Mexico continued its strong growth, while Brazil continues to face uncertain market conditions.
In APAC, gross profit increased 5.9% year-over-year (on a constant currency basis), while organic gross profit growth decreased 0.2%. Taiwan and India maintained strong performance. In India, we acquired Sokrati, a leading digital agency with strengths in data analytics and performance marketing, last month. Sokrati has been positioned as the Indian hub for Merkle, one of our global network brands. Growth slowed in Australia and China, but we expect momentum to return in the second half. China, in particular, is gaining momentum, including through new business wins.
During the first half of the fiscal year, the Group completed acquisitions of 14 companies (3 in Q1 and 11 in Q2) across the EMEA, Americas, and APAC regions, primarily focused on the digital domain.
■ Quarterly Organic Growth Rate Trend (Based on Gross Profit)
■Trend in Organic Growth Rate by Region for Overseas Operations (Based on Gross Profit)
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