Dentsu Group Inc

Welcome to the Dentsu FI 2024 Earnings Call. My name is Morishima from the Group II office, and I'll be your conference operator today. Please refer to our English website for today's presentation materials in English. Joining me today are President and Global CEO, Dentsu, Hiroshi Igarashi, Global CGO, and Global CFO, Dentsu, Yushin Soga. Soga de gozaimasu. Yoroshiku onegai tashimasu. Global COO, and Chairman and Acting CEO, Dentsu Americas, Julio Malegri.

Hi, I'm Julio Malegri.

CEO, Dentsu Japan, and Deputy Global COO, Dentsu, Takeshi Sano. There will be responding to your questions today. The agenda for today will start with business update from Hiroshi Igarashi. Yushin Soga will then present the financial update, followed by explanation of the new mid-term management plan from Hiroshi Igarashi. We will invite you to ask questions after the presentation. So, Mr. Igarashi, over to you. Good evening and thank you for joining our fiscal 2024 earnings announcement today. In fiscal 2024, organic growth rate and operating margins were mostly in line with the November guidance. In addition, all of the underlying profit items exceeded previous year's results. However, we ended up recording a significant statutory loss, mainly due to goodwill impairment loss recorded in the fourth quarter, mostly in EMEA and the Americas. By region, Japan business performed very well. However, the international business results were challenged overall, and we are taking this quite seriously. Our Japan business continues to evolve as an integrated growth partner for many clients based on the trust we have built over our 120-year history. At the same time, we are updating our wide variety of capabilities, mainly in the marketing field, including consulting and DX. In fiscal 2024, our pitch win rate improved even further and we believe that the strong momentum will continue in 2025 against the backdrop of various international events. Today, we announced our three-year mid-term management plan toward 2027. I will explain this in more detail later on in this presentation. In 2025, the first year of our plan, we are focusing on improving profitability through re-evaluating underperforming businesses and rebuilding our business foundation. In fiscal 2024, in addition to the approximately 20 billion yen share buyback that we have completed, we set the annual dividend per share at 139.5 yen, the same amount as the previous year. In our new mid-term management plan, will also aim to achieve stable returns to shareholders. Globally, we expanded our role for the jewelry brand Pandora as a partner and integrated the global media accounts into our group. In Japan, integrated proposals that combine traditional and digital advertising were highly evaluated and we won a project from Samsung Electronics Japan. Additionally, We won media projects such as Principal, a financial group in the Americas and other projects in EMEA. In the area of sustainability, we were selected as a component of the DJSI world for the second consecutive year. In terms of industry evaluations, we were named as a leader in the Forrester Wave media management services. I will now hand over to our global CFO, Yuxin Soga, to explain our financial results. Thank you, Igarashi-san. Hello, everyone. This is Yuxin. I will now explain our financial results for FI 2024. I will start with our key metrics. Organic growth rate for FI 2024 was minus 0.1% in line with the November guidance. The three-month organic growth rate in the fourth quarter was plus 2.6%, showing continuous improvement since bottoming out in the fourth quarter of the previous year. Net revenue increased 5.7% year-on-year to 1.1941 trillion yen, while underlying operating profit increased 7.8% year-on-year to 176.2 billion yen. The group's consolidated full-year operating margin improved by 30 basis points year-on-year and resulted at 14.8%, exceeding the November guidance by 80 basis points. This increase in the operating margin is mainly driven by Japan, where we saw top-line growth, its G&A expenses reduction, and a one-off effect due to changes in hedge accounting for sports content. Throughout the year, Our overall strategy has been to focus on internal investments and to continue to strengthen our integrated growth solutions as our growth driver. As a consequence, we were able to enhance our capability and created a number of global success stories. Accordingly, our underlying basic EPS increased by 4.5% from FY2023 to 355.24 yen. Dividend per share for FI 2024 is 139.5 yen, the same amount as the previous year, in line with the guidance we gave at the beginning of the fiscal year. Meanwhile, on a statutory basis, profit items resulted in significant losses, with an operating loss of 125 billion yen and a net loss of 192.2 billion yen due to the recording of a goodwill impairment loss of 210.1 billion yen in the international business in the fourth quarter. The goodwill impairment loss was mainly related to EMEA, but Americas was also a factor despite being on a recovery trend. There are two main factors behind the impairment loss on goodwill of this scale. Firstly, application of a higher discount rate than previously used based on recent market interest rates. Secondly, conservative reflection of various risks in the international business. The goodwill impairment this time has resulted in a large impairment loss being recorded for FY2024. However, this also has the aspect of reducing future uncertainties and contributing to a healthy balance sheet for the start of our new midterm management plan. The initiatives for the international business will be explained as part of the midterm management plan. Next, I would like to explain the 2024 four-year results by region. While Japan and EMEA posted growth, the Americas and APEC remained negative. More specifically, the UK and the US reported negative organic growth, while positive organic growth was achieved in countries such as Spain, Poland, Taiwan and Thailand. Japan, the largest region accounting for around 40% of the group's net revenue, continued to show steady growth in the fourth quarter, with four-year net revenue reaching a record high for the fourth consecutive year. In addition, underlying operating profit also reached a record high. In FY2024, business transformation domain continued to grow, resulting in double-digit growth following the year-to-date third quarter. digital transformation domain is also performing well. Moreover, our advertising business grew for the full year. In addition to TV's turnover returning to growth for the first time in three years, internet media in particular contributed to growth throughout the year with the group's strength in integrated proposals that combine traditional and digital advertising being adopted mainly by major clients. In FY2024, our internet media turnover was number one in Japan. Internet media exceeded expectations during the three months of the fourth quarter, with double-digit turnover growth continuing from the previous quarter, despite the high year-on-year comparator.