Business Domains and Strengths Dentsu Annual Report 2011
Business Domains and Strengths The Dentsu Group, with the communications domain at its core, is engaged in a wide range of business activities. From management and operating solutions to the implementation of marketing and communications strategies for advertisers as well as media and content holders, the Group has earned a top-class reputation. Its presence in the advertising communications industry is unrivalled thanks to the level of quality in each service category as well as what Dentsu calls Integrated Communication Design, which combines individual services into a tangible format. By demonstrating a level of excellence that gives the Group an overwhelming lead over our competitors, and by offering the best integrated solutions capabilities for all manner of communications-related issues, the Group is able to respond swiftly to changes in the operating environment and sustain continuous growth under the concept New Communications Group. 1 Top Share in Japan, Fifth in the Global Ranking 2 Diverse Business Portfolio 3 Integrated Solutions Capabilities 4 High Profitability and a Solid, Stable Financial Base Business Domains and Strengths - 1 Dentsu Annual Report 2011
1 Top Share in Japan, Fifth in the Global Ranking Dentsu Inc. (hereinafter Dentsu or the Company ) maintains the top share in the Japanese advertising market, which accounts for 10.3% of the global market. In terms of net sales, Dentsu is the No. 1 advertising company in the domestic market. According to Advertising Age, the Dentsu Group ranked 5th in the world s top 50 agency company rankings while Dentsu Inc. retained the No. 1 position as a single-brand agency in terms of revenue (gross profit) in calendar 2010. (Advertising Age, April 25, 2011 edition) 1 Source: Advertising Age, April 25, 2011 edition Global Group Ranking 1 2010 Ranking Agency group 1 WPP 2 Omnicom Group 3 Publicis Groupe 4 Interpublic Group of Cos. 5 Dentsu Inc. 6 Aegis Group 7 Havas 8 Hakuhodo DY Holdings 9 Acxiom Corp. 10 MDC Partners Revenue (Millions of U.S. dollars) $14,416 12,543 7,175 6,532 3,600 2,257 2,069 1,674 785 698 Business Domains and Strengths - 2 Dentsu Annual Report 2011
Relative Scale of Advertising Markets, by Principal Media 2 2010 United States 33.9% Other Countries 29.8% Japan 10.3% China 5.8% Germany 5.3% Italy 2.3% United Kingdom 4.0% Australia 2.5% France 2.8% Brazil 3.3% 2 Source: Estimated by Dentsu, based on ZenithOptimedia s World Advertising Expenditure Forecasts, July 2011 edition Note: Principal media includes television, newspapers, magazines, radio, movies, outdoor media and the Internet. Advertising Expenditures in Japan, by Percentage of Net Sales 3 2010 (Percentage of net sales = advertising net sales for each company or group total advertising expenditures in Japan) (%) 50 40 5.5% 5.4% 5.3% 5.2% 30 13.6% 14.0% 13.3% 12.9% 20 10 0 22.6% 22.4% 22.1% 23.9% 2007 2008 2009 2010 Asatsu-DK HDY Dentsu Inc. 3 Sources: Current Situation of Japanese Advertising Agencies, Advertising and Economy (Advertising and Economy Research Institute); Advertising Expenditures in Japan (Dentsu Inc.) Note 1: HDY refers to the total non-consolidated net sales of Hakuhodo, Daiko Advertising and Yomiuri Advertising. Note 2: The scope of statistics used for compiling net sales may differ from that used in compiling Advertising Expenditures in Japan. Percentage figures indicating component ratio by net sales are for reference only. Business Domains and Strengths - 3 Dentsu Annual Report 2011
2 Diverse Business Portfolio The reason for Dentsu s dominance is twofold: The Company has a diverse client portfolio and enjoys solid buying power in all major mass media formats. Dentsu handles the advertising campaigns of many blue-chip companies, and major global clients have chosen the Company to act as a partner in the Japanese market. Such connections underpin a well-balanced client portfolio. In addition, Dentsu maintains the top share in all mass media formats in Japan, but in television, which carries the largest volume of advertising, the Company s share far outdistances that of the competition. Furthermore, Dentsu is always ahead of the domestic market with strategic preparations in high-growth media categories, such as the Internet. The Dentsu Group is also proactive in a variety of services related to mass-media advertising such as media planning, creative production and various marketing and sales promotional activities. Moreover, together with its clients, the Group is active in the area of social communication as more emphasis has been placed on communication activities that serve societal needs rather than just on consumption behaviors. Furthermore, the Group constantly promotes the establishment of new business domains through strong relationships with content holders in the business of sports, where events such as the Olympic Games both summer and winter and the FIFA World Cup attract widespread interest, and in the entertainment business, particularly feature films. As demonstrated by the numerous advertising awards and high honors the Group has received both at home and abroad, the Dentsu Group draws on a wealth of imagination and meticulous arrangement capabilities which are articulated through expressiveness and keen powers of persuasion. Business Domains and Strengths - 4 Dentsu Annual Report 2011
Non-Consolidated Net Sales by Business Category Marketing/Promotion 13.0% Content Services 6.4% Others 1.6% Television Time 20.5% Creative 12.8% Year ended March 31, 2011 OOH Media 3.1% Interactive Media 3.2% Radio 1.3% Magazines 2.8% Newspapers 8.6% Television Spot 26.7% Non-Consolidated Net Sales by Industry Apparel/Fashion, Accessories/Personal Items 2.7% Real Estate/Housing Facilities 2.7% Transportation/Leisure 4.0% Hobbies/Sporting Goods 4.4% Government/Organizations 4.7% Automobiles/Related Products 5.0% Others 8.8% Year ended March 31, 2011 Information/Communications 14.3% Beverages/Cigarettes 10.9% Cosmetics/Toiletries 8.4% Food Services/Other Services 5.0% Distribution/Retailing 5.1% Pharmaceuticals/Medical Supplies 5.2% Finance/Insurance 6.7% Foodstuffs 6.1% Home Electric Appliances/AV Equipment 6.0% The Most Awarded Agencies in the World in 2010 4 Ranking Agency 1 AlmapBBDO (São Paulo) 2 BETC Euro RSCG (Paris) 3 = Dentsu (Tokyo & Osaka) 3 = Wieden+Kennedy (Portland, OR) 5 RKCR/Y&R (London) 4 Source: THE GUNN REPORT AND SHOWREEL OF THE YEAR 2010 Business Domains and Strengths - 5 Dentsu Annual Report 2011
3 Integrated Solutions Capabilities The fragmentation of consumer lifestyles, a changing sense of values and progress in digitization have all resulted in diversification in the modes of communication between companies and consumers as well as a considerable shift in the needs of clients. In response, the Dentsu Group provides integrated solutions services drawing on a deep reservoir of accumulated marketing-related expertise and solid relationships with leading media companies. Today, however, the emphasis is on the search for innovation in a new era of communication. Consequently, the Group will strive to reinforce its integrated solutions capabilities. Starting with the advertising and promotional domains, the Group aims to broaden the scope of its solutions to include upstream domains, such as product development and management and operating strategies. In addition, the Group will endeavor to improve quality. Strengthen both the Group s client and media services, and deliver optimum, integrated solutions The Dentsu Group Provide support across the client value chain from upstream to downstream Business Strategies Product Development Production Channel Development Advertising/Promotions After-Marketing Client Services Content Social Themes Event Marketing Media Services Ad Technology Business Digital Media Out-of-Home Media Satellite Media Four Mass Media Create new value and demand for media Global Implementation Integrated Solutions Delivered by the Dentsu Group Business Domains and Strengths - 6 Dentsu Annual Report 2011
4 High Profitability and a Solid, Stable Financial Base The Dentsu Group achieves high profitability by leveraging its solid financial base in Japan as well as by continuously streamlining its cost structure. Also, by expanding its client portfolio and thereby securing stable profits, the Group has built a robust financial position and is highly ranked by Japan s Rating and Investment Information, Inc. (R&I). The Group will work toward increasing corporate value while emphasizing a good balance between financial stability and soundness, and acquiring the necessary investment resources for such growth areas as global and digital businesses. Business Domains and Strengths - 7 Dentsu Annual Report 2011
Operating Margin 5 (%) 25 20 15 18.0 16.3 16.0 10 13.7 12.6 5 0 Operating Margin 2007 2008 2009 2010 2011 5 Operating margin = operating income gross profit 100 D/E Ratio (Times) 0.35 0.32 0.30 0.25 0.21 0.25 0.21 0.20 0.17 0.15 0.10 0.05 0 D/E Ratio 2007 2008 2009 2010 2011 Finance Rating Rating and Investment Information (R&I) Long-Term Short-Term AA a-1+ (As of September 2011) Business Domains and Strengths - 8 Dentsu Annual Report 2011