Dentsu Now Gets Nearly Half Its Revenue From Outside Japan

Following Aegis Purchase, Japanese Ad Giant Looks for More Global Growth

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Japanese ad giant Dentsu Inc. generated 48% of its revenue from outside Japan during its most recently completed fiscal year, the company said Tuesday, a sign of how its purchase of U.K.-based Aegis Group has transformed the company into a more global player.

Dentsu acquired the media and digital group for $4.9 billion, with the goal of boosting its international and digital business. Before the acquisition was completed in March 2013, the agency company earned about 15% of its revenue outside Japan.

Now that Publicis and Omnicom have called off their planned merger, the Dentsu-Aegis deal stands as the ad industry's largest-ever. Soon after it was completed, the Japanese company announced a five-year plan called "Dentsu 2017 and Beyond." It aims to earn at least 55% of revenue from outside Japan by 2017. (The company's businesses outside Japan are referred to as the Dentsu Aegis Network.)

Digital will also be a priority, with a goal of getting at least 35% of revenue from that area by 2017, said Dentsu, which also owns McGarryBowen and digital agency 360i. In the year ended March 31, the earnings report showed 28% of revenue came from digital. Organic revenue grew 7.7% last year, the company said.

"The key is not to buy growth -- the key is to stimulate organic growth," Tim Andree, who oversees the company's markets outside of Japan, said at the International Advertising Association World Congress last week.

The Densu Aegis Network encompasses the company's businesses outside Japan.
The Densu Aegis Network encompasses the company's businesses outside Japan.

"In the Aegis deal there was such a great complement, both geographically and operationally, that I think in our case we had very good alignment, we had very good complementary businesses," he said, adding that communication with clients and employees also was smooth. His comments followed the news that the Publicis-Omnicom deal had collapsed.

"These things are hard to do," Mr. Andree said. "I think we executed them very well. If you don't have that I can understand why a deal may not be able to come to fruition."

Dentsu reported revenue of 594.0 billion yen ($5.94 billion) in the year ended March 31, up from 345.9 billion yen in the year-earlier period, which did not include Aegis. The company has not yet provided pro-forma figures giving a like-for-like comparison.

Dentsu said revenue was boosted in part by recovery in the U.S. and Japan, where there was a surge in demand ahead of a consumption tax rate increase on April 1. But the global outlook remained uncertain because of concerns about China and emerging markets, it said.

Dentsu reported annual net income of 38.8 billion yen ($388 million), up from 36.3 billion yen the previous year. Quarterly figures for the period ending March 31 were not yet available.

Management also announced it will lift its dividend by 1 yen, bringing the 2014 payment to 33 yen per share and the 2015 payment to 34 yen.

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