Business Domains and Strengths

The First Truly Global Communications Network for the Digital Age

In the advertising communications industry, the Dentsu Group is ranked No. 5 in the world—based on gross profit in 2012—and in Japan's ad market, which is the third largest in the world, the Group maintains the top share. Also of note, the Group operates under a unique collaborative agency model that enables all the agencies under its umbrella to draw on each other's expertise to provide respective clients with high value-added services. Furthermore, with creative excellence substantiated by numerous ad awards, and top-class capabilities in the digital domain, the Group has the stuff to offer services of a world-caliber standard to clients.

From a financial perspective, Dentsu seeks a good balance between financial stability and soundness and acquiring the necessary investment resources to build businesses in tomorrow's growth domains.

The Dentsu Group will draw on these strengths to evolve on a new level as "the first truly global communications network for the digital age."

1. Position in the Advertising Communications Industry

1-1 Balanced Global Business Platform That Covers Emerging Markets

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The Dentsu Group is the largest agency network in the world, with a global presence spanning 110 countries across five continents. According to Advertising Age (April 29, 2013 edition), Dentsu is the world's largest advertising company, based on non-consolidated gross profit in 2012, and as an agency group, the Dentsu Group is ranked fifth globally. From a geographical perspective, the Dentsu Group holds formidable market share in the Asia-Pacific region and also in Western Europe, while in North America, the largest ad market in the world, there is still plenty of growth potential.

Relative Scale of Advertising Markets Worldwide

Market Data

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Includes television, newspapers, magazines, radio, outdoor and Internet advertising
Source: CARAT ADSPEND FORECAST SEPTEMBER 2013
New Global Network Business Platform

Market Data

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Source:
(1) RECMA, June 2011
(2) Advertising Age, December 2012

1-2 Market Leader in Japan, World's No. 3 Ad Market

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Dentsu is the largest advertising company in Japan and maintains a very strong position. Consolidated net sales in the fiscal year ended March 31, 2013, were 1.8 times as large as the equivalent consolidated net sales of the second largest advertising company in Japan. In addition, on a non-consolidated basis, Dentsu's net sales account for approximately one-quarter of the domestic market, and the Company maintains top-share status in all mass media categories.

The Group's leading position in the Japanese advertising industry derives from its success in combining superior creative services and planning capabilities with unparalleled domestic media buying power, while its core strengths of innovation and adaptation are evidenced in the Group's continued global expansion and growing digital services businesses.

Furthermore, a growing number of top Japanese companies—the Group's principal clients—are spending more of their advertising budgets outside of Japan. The acquisition of the Aegis Group(currently, “Aegis Media”) has brought the Group significant upside potential to capture these untapped Japanese client needs through its fully integrated, global platform.

Changes in Domestic Ad Agency Market Share
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(1)
HDY is the total of non-consolidated net sales by Hakuhodo, Daiko Advertising and Yomiuri Advertising.
(2)
The scope of statistics used to calculate net sales for individual companies may differ from that used to prepare Advertising Expenditures in Japan. Percentages roughly reflect the ratio of net sales to spending shown in Advertising Expenditures in Japan.
Sources:
Current Situation of Japanese Advertising Agencies, Advertising and Economy (Advertising and Economy Research Institute) and Advertising Expenditures in Japan (Dentsu)

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2. New Agency Model—"One P&L"

The Dentsu Group has established "One P&L," a unique, collaborative operating model that strengthens Group companies' ability to provide comprehensive, client-centric solutions.

"One P&L" reinforces connections between the lead agency and top-tier specialists in various fields in each country and region so that clients have access to high value-added services not previously available from any agency before.

The services offered are highly diverse—including mass media advertising, media planning, creative origination, digital performance marketing, brand management, sales promotion, event marketing, entertainment and sports marketing, public relations and public affairs, social media, digital production, direct marketing services, shopper marketing, consumer insight and business intelligence services.

In the age of "marketing convergence," advertisers look for agencies with highly integrated services, and because the "One P&L" model functions so effectively, it will offer a source of competitive excellence that gives the Dentsu Group an edge over mega-agency competitors.

True Client-centric Network Suitable for the Age of Marketing Convergence

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3. Services of a World-Caliber Standard

3-1 Stellar Reputations for Agency Brands

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Several agencies with solid reputations worldwide belong to the Dentsu Group.

Dentsu is the world's largest advertising company in terms of revenue, and in the media domain, Carat is ranked second in the world in terms of media billings.

World's Largest Agency Networks Ranking by Revenue Top 50 Media Agencies Ranking by Billings
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Source: Advertising Age, April 29, 2013 edition
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Source: Campaign Magazine, 2013

3-2 World-Caliber Digital Franchise

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The Dentsu Group also has several highly recognized digital agencies under its umbrella. For example, isobar was tapped Digital Agency Network of the Year in 2011 and again in 2012, and 360i and iProspect were ranked the second and third largest search-marketing agencies in the United States, respectively, in 2012. By combining powerful, industry-leading brands across all of the key functions in the digital domain, the Group is well positioned to capture the growing digital business opportunities around the world. Going forward, the Group will look to further strengthen its digital franchise through such approaches as bolt-on acquisitions.

Our Powerful Digital Brands Digital Marketing

Achievements of Our Digital Brands Digital agency network of the year 2011, 2012(6) 2nd largest U.S. search-marketing agency in 2012(7) 3rd largest U.S. search-marketing agency in 2012(7)

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Source: Campaign Asia-Pacific
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Source: Advertising Age, April 29, 2013 edition

3-3 Creative Excellence

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With a focus on "innovative creativity," the Dentsu Group draws on a wealth of talent including art directors, copywriters, television commercial planners and communication strategists. By combining their expertise and diverse approaches unrestricted by existing concepts and methods, the Group seeks to continuously deliver original and creative solutions. The Group also believes that it has an excellent history of retaining its creative talent by providing a venue where aspiring creators can realize their potential. The Group's high level of creativity is underscored by tangible results, including the following:

Achievements in Creativity The Group ranked first in The Gunn Report’s Most Awarded Advertising Agencies in the World on a cumulative basis from 1999 to 2012 and fifth in the Most Awarded Digital Agencies in the World on a cumulative basis from 1999 to 2012. The Group’s subsidiary, McGarry Bowen, one of the premier creative agencies in the United States, won Advertising Age’s Agency of the Year in 2009 and 2011. The award Japan Creator of the Year has been given to the Group’s creators 22 out of 24 times.

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4. High Profitability and a Solid, Stable Financial Position

The Dentsu Group achieves high profitability because of its solid financial base in Japan and continuous efforts to streamline its cost structure, and thus maintains a high operating margin.

Also, by securing stable profits, the Group has built a robust financial position. As a result, by steadily enriching shareholders' equity, the Group has secured a high rating from 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.8

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Aggregate net proceeds of 119.5 billion yen from a third-party allotment, together with the issuance of new shares and the disposal of treasury shares, executed in July 2013, will be used to repay a portion of the 200 billion yen in short-term debt borrowed in connection with Dentsu's acquisition of the Aegis Group.
Operating Margin
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Operating margin = operating income ÷ gross profit × 100
D/E Ratio
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D/E ratio = total liabilities ÷ shareholders' equity

Rating and Investment Information (R&I)

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