APAC region shines on Dentsu FY 2015 balance sheet as gross profit up 11.4%
Dentsu Group has released its first combined full-year financial results after it acquired British media buyer Aegis Media, with its international arm reporting profit growth of 9.4 per cent in 2015 while the agency giant saw profits rise 3.9 per cent in its home turf of Japan last year.
In Asia Pacific – excluding its home market – Dentsu Aegis Network, the international arm launched last year that includes Carat, iProspect, Vizeum, Posterscope and Synovate as well as Dentsu and Dentsu Media, organic gross profit grew by 11.4 per cent, including double-digit growth in China, DAN’s largest market, India, Thailand, Vietnam and Hong Kong.
Globally, revenue was up 12.8 per cent to 818,566 million yen (US$7.1 billion), while gross profit grew by 12.6 per cent.
Dentsu’s earnings before interest, tax, depreciation and amortization (EBITDA) – the truest measure of company growth – edged down 1.9 per cent year on year.
In response to Mumbrella’s questions about why EBITDA had declined, Dentsu said that operating profit, and as a result EBITDA, were affected by a gain in the sale of the company’s old headquarters in Tokyo in 2014.
In a statement commenting on the results, Tadashi Ishii, president and CEO of Dentsu Inc., commented: “In 2015, the third year of our medium-term management plan ‘Dentsu 2017 and Beyond,’ we continued to make steady progress in delivering on our strategic objectives, while producing another peer group-leading performance. Looking ahead, in addition to further growth in the Group’s core Japanese market, we will leverage our extensive global network to its fullest potential in order to contribute to the growth of all our clients.”
He continued: “We will continue to invest in our business, particularly in integrating our digital capabilities, to ensure we take advantage of the opportunities that will arise in an increasingly fast-paced digital economy. With this in mind, and supported by our continued focus on our strategic objectives, we expect to continue outperforming the market in the year ahead and beyond.”
Next year, the company said that it wants at least 55 per cent of gross profit to come from its business outside of Japan, and the ratio of gross profit from digital business to be 35 per cent or higher.
Report highlights from the company:
- Dentsu Group organic gross profit growth of 7.0%
- Group underlying operating margin was 21.1% (FY2014: 19.7%)
- Organic gross profit growth of the Group’s business in Japan was 3.9%
- At Dentsu Aegis Network, the international business, organic gross profit growth was 9.4%, including 8.2% in Q4 FY2015
- Ratio of gross profit from international (non-Japanese) business reached 54.3% (from 50.7% in FY2014)
- Ratio of gross profit from digital now stands at 34% (from 30% in FY2014)
- Impact of strong cost containment across the Group, planned reduction in investment in global functional transformation programs during the year
- A record number of acquisitions signed during FY2015, around half of which are digital businesses
- Underlying basic earnings per share were 395.67 yen, a 27.9% increase over the prior year
- Dividend per share for FY2015 was 75 yen, an increase from 55 yen for the prior year, equating to a dividend payout ratio of 22.7% (based on underlying net profit attributable to owners of the parent)
- The Dentsu Group expects to continue delivering market outperformance in 2016
Last year was a record one for acquisitions for the group, with the likes of JaymeSyfu and Aspac in the Philippines, and Mangham Gaxiola and B2B agency Band in Singapore joining the family in Southeast Asia. However, Dentsu Aegis Network saw the need to retrench a chunk of its Southeast Asia team last month, which regional boss Nick Waters telling staff in an email that the move was to “eliminate duplicate costs”.
Dentsu acquired Aegis for $5 billion in 2012.
Am I the only one wondering, if the business is performing so bloody brilliantly and the acquisition was such a success, why has EBITDA gone down?
ReplyHi Analysis,
I put this question to Dentsu this morning, and they have just responded as follows:
“EBITDA is in fact calculated on “statutory” operating profit, not “underlying” operating profit, so is not a direct measure of the underlying performance of the business. As you can see from our results, underlying operating profit increased by 20.3%. For the record, 2015 “statutory” operating profit, and consequently EBITDA, were impacted by a gain on the sale of our old HQ in Tokyo in 2014”
Cheers,
ReplyRobin – Mumbrella
This is spin … EBITDA is the universally accepted measure of business performance and growth, because it recognises that businesses do, from time to time, have to book extraordinary gains and losses from business decisions. EBITDA recognises that there is a business decision involved in selling a building. If you sell a building in order to pad out poor performance results, then it shows up in your EBITDA, but it’s also recognised you can only do this once. EBITDA measures growth – growth comes from the working of your balance sheet. On this score, these results aren’t much to be proud of.
ReplySorry weren’t these guys just firing people because of costs? Now they’re celebrating their stellar year? And all off at a management offsite in one of Bangkok’s most expensive hotels … Seriously, what a lack of sincerity. This is a firm riddled with personality conflicts at senior management levels, so people shouldn’t take any comfort from these numbers … It’s all through acquisitions not real growth.
ReplyThe real analysis that needs to be done here is an apples for apples comparison. This is a firm growing through acquisitions, so strip out the acquisitions and the underlying performance of the business isn’t nearly as rosy as they would like to claim. Of course, the current financials won’t show yet whether they’ve overpaid for the acquisitions they’ve made in the recent past, but the current market position would suggest that waiting out on many of them may have given them a better result in the longer term because the prices would have come down. The next big challenge will be to integrate the acquisitions into the parent, which is a lot more difficult than signing them up. Few get this right, and I’m hearing some of them are already looking shaky. All up, these results warn of tough times ahead.
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