To Our Shareholders

Tadashi Ishii
President & CEO

1. Looking Back on Fiscal 2012

On behalf of the Dentsu Group, I would like to take this opportunity to express my sincere appreciation to you, our shareholders, for your invaluable support and understanding of our efforts.

The fiscal year ended March 31, 2013 (hereinafter "fiscal 2012" or "the fiscal year under review") was a pivotal year that marked an extremely huge step in the Dentsu Group's journey toward further growth. The formalities associated with the acquisition of Aegis Group plc (currently, "Aegis Media") of the United Kingdom, which was announced back in July 2012, were completed on March 26, 2013, and Dentsu Aegis Network Ltd. was established to drive the Dentsu Group's global business forward.

With Aegis Media as part of the Dentsu Group, we increased our global presence to more than 110 countries and political regions, and embraced a new vision to guide our growth into the future. But before I continue with this important development, let me summarize other key events and the results of fiscal 2012.

Uncertainty continued to permeate the domestic economy in fiscal 2012. Although reconstruction demand in the wake of the Great East Japan Earthquake and positive effects from the government's eco-car subsidy program provided some impetus for gradual recovery in Japan, bright prospects were clouded by external factors, especially the lingering sovereign debt crisis in Europe and decelerating growth in some emerging nations, notably China.

Demand for advertising, mainly television spots, shifted in a favorable direction in the first quarter of fiscal 2012 as the market rebounded from the harsh conditions following the earthquake disaster that cooled spending in the corresponding period a year earlier. However, certain issues, particularly a heightened sense of uncertainty over the direction that the global economy would take, caused demand for advertising to slow in the second quarter and the situation did not resolve itself by year-end.

Against this backdrop, the Dentsu Group drew on events such as the London 2012 Olympic Games, TOYOTA Presents FIFA Club World Cup Japan 2012, and the 2013 World Baseball Classic as opportunities for multifaceted business development. The Group also leveraged its integrated capabilities to promote vigorous marketing activities and endeavored to deliver services well-matched to the needs of corporate clients. These efforts kept consolidated results charting an upward path. Net sales edged up 2.5% over the previous fiscal year, to 1,941,223 million yen; gross profit rose 3.9%, to 345,940 million yen; operating income climbed 12.5%, to 58,466 million yen; and net income jumped 22.9%, to 36,336 million yen.

2. Seeking Further Growth

The acquisition of the Aegis Group has significantly changed the business structure of the Dentsu Group. A rough estimate based on fiscal 2012 results indicates that overseas business represents 44%1 of consolidated gross profit, a huge increase from 18% prior to the acquisition. The number of employees has also grown, reaching a level exceeding 37,000 on a Group-wide basis.

Given the changes in business structure, Dentsu formulated a new medium-term management plan—Dentsu 2017 and Beyond—to guide the Group's development over the five-year period from fiscal 2013 through fiscal 2017. Dentsu 2017 and Beyond is based on a review of the Group's overall activities and the progress achieved through Dentsu Innovation 2013, the previous medium-term management plan, and incorporates unresolved issues that require further attention.

Regardless of how big we get as a group or how extensive our business presence is felt around the world, business activity begins and ends with the client. Clients provide opportunities. They always have and always will.

Dentsu 2017 and Beyond reaffirms our view that clients are the starting point of business, and we will strive to identify, from a wider perspective than before, growth and business opportunities that derive from clients and then steadily turn such potential into reality.

For the Dentsu Group to be a corporate group that grows with its clients, we must maintain whatever must be preserved as a source of growth and, at the same time, approach whatever requires changing, not with a repeat of something that was successful in the past, but rather with swift implementation of timely reforms. The new medium-term management plan Dentsu 2017 and Beyond will guide these efforts along the way.

Percentage represents a simple sum of fiscal 2012 gross profits of Dentsu and the Aegis Group.

Let me touch on the objectives behind the guideline for business targets to be achieved by fiscal 2017, as described in the new medium-term management plan.

(1) Gross Profit Organic Growth Rate2: 3%–5% Compound Annual Growth Rate (CAGR)
The acquisition of the Aegis Group has given the Group a considerably wider geographical reach. With this expanded presence, business opportunities available to the Group are more diverse. Market scale and growth rates differ from one region to another, but growth potential definitely exists for us regardless of location. The guideline for average annual gross profit, which targets an organic growth rate of 3%–5% CAGR—that is, without considering the potential impact from M&As—represents our objective to reinforce the post-Aegis Group acquisition business platform and realize steadily higher revenue. This is the most basic target.
The growth of existing businesses after deduction of decrease or increase in gross profit attributable to business acquisitions or foreign exchange fluctuations
(2) Gross Profit Overseas Ratio: 55% or Higher
Our operations have become increasingly multipolar, so gross profit from overseas business is larger, with diverse potential for growth. The guideline for the gross profit from overseas business highlights a ratio of 55% or higher by fiscal 2017, up from the current 44%. However, Japan is still our largest single market, and it will remain a vital core market. Of course, the objective behind a higher gross profit ratio for overseas business is to achieve solid revenue growth from the core domestic business first and then steadily capitalize on diverse growth opportunities overseas.
(3) Gross Profit Digital Domain Ratio3: 35% or Higher

The digital domain has acquired greater importance to client companies in their business and marketing activities. For the Dentsu Group, the digital domain is a key segment, and achieving a sharper competitive edge and strengthening revenue-generating capabilities are central themes that will underpin growth into the future.

We will encourage the implementation of measures to enhance capabilities on a Group-wide basis, a process that includes the possibility of M&As, and strive to augment service lines and expand revenue scale. At the same time, we seek to improve the Group's operating efficiency. Through parallel efforts, we will see higher overall profitability from our digital business. In addition, we will leverage the integrated capabilities of the Group, including the expertise of Dentsu Aegis Network, to develop and capture leading-edge technologies that directly affect competitive superiority in the digital domain.

Digital domain includes Internet-related marketing services and entrusted development and sales of information technology systems.
(4) Operating Margin before Amortization of Goodwill and Other Intangible Assets4: 20% or Higher
Expanding the business platform and improving profitability are key themes. We are already utilizing the acquisition of the Aegis Group as an opportunity to re-engineer overall business processes for higher efficiency throughout the Group. Tighter cost control is essential, of course, as is finding the best approach for investing management resources, as viewed from a wide perspective, as well as efforts to restructure the value chain across the entire Group. Through these steps, we will enhance overall operating efficiency and boost profitability.
Calculated by dividing operating income before deduction of amortization of goodwill and other intangible assets by gross profit. "Operating income before deduction of amortization of goodwill and other intangible assets" is operating income excluding the amount of amortization expense related to business acquisitions.

The Dentsu Group is an innovator of marketing communication that goes beyond the framework of conventional advertising business. We will continue to apply integrated capabilities to the process of change and innovation to evolve into a next-generation agency network offering unrivaled value to corporate clients.

As a global network promoting the "Good Innovation." ideal, we are steadfastly determined to bring creativity and change to society, and we will strive to boost our value as a group that clients consistently view as the best partner for their needs regardless of where in the world they are.

The encouragement and guidance of shareholders are integral to the success of our strategies. On behalf of the Dentsu Group, I ask for your continued support as we travel the road to growth together.

September 2013

Tadashi Ishii
Representative Director
President & CEO