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Edited Transcript of 4324.T earnings conference call or presentation 14-Feb-20 11:00am GMT

Full Year 2019 Dentsu Group Inc Earnings Call

Tokyo Mar 2, 2020 (Thomson StreetEvents) -- Edited Transcript of Dentsu Group Inc earnings conference call or presentation Friday, February 14, 2020 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Chuya Aoki

Dentsu Group Inc. - IR Officer

* Nick Priday

Dentsu Group Inc. - Executive Officer

* Toshihiro Yamamoto

Dentsu Group Inc. - President, CEO & Representative Director

* Yushin Soga

Dentsu Aegis Network Ltd. - Non-Executive Director

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Conference Call Participants

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* Adrien de Saint Hilaire

BofA Merrill Lynch, Research Division - VP & Head of Media Research

* Yoshitaka Nagao

Nomura Securities Co. Ltd., Research Division - Analyst

* Yoshiyuki Kinoshita

BofA Merrill Lynch, Research Division - Research Analyst

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Presentation

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Chuya Aoki, Dentsu Group Inc. - IR Officer [1]

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Thank you, operator. This is Chuya Aoki speaking. Thank you for joining us today.

Before starting, let me tell you a few things. Firstly, we will be referring to our presentation material titled Earning Presentation. You can find it on the IR section of our website.

Secondly, let me introduce the host for this conference call. Joining me today are Mr. Toshihiro Yamamoto, Representative Director, President, CEO, Dentsu Group, Inc.

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Toshihiro Yamamoto, Dentsu Group Inc. - President, CEO & Representative Director [2]

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Good morning. (foreign language)

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Chuya Aoki, Dentsu Group Inc. - IR Officer [3]

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And Yushin Soga, Director, Executive Officer, Dentsu Group Inc.

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Yushin Soga, Dentsu Aegis Network Ltd. - Non-Executive Director [4]

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Good morning.

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Chuya Aoki, Dentsu Group Inc. - IR Officer [5]

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And Nick Priday, Executive Officer, Dentsu Group Inc., Chief Financial Officer, Dentsu Aegis Network.

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Nick Priday, Dentsu Group Inc. - Executive Officer [6]

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Good morning.

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Chuya Aoki, Dentsu Group Inc. - IR Officer [7]

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Finally, we are going to have a Q&A session after 2 presentations from Mr. Toshihiro Yamamoto and Mr. Yushin Soga. The call should take around 1 hour, including the Q&A.

So Yushin, please go ahead.

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Yushin Soga, Dentsu Aegis Network Ltd. - Non-Executive Director [8]

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[Interpreted] Thank you for taking time today to attend the conference call for earnings presentation by Dentsu Group Inc.

This fiscal year, after issuing multiple profit warnings, we are having to report huge losses, which I believe is a cause for great concern to our stakeholders. Rather than being at the mercy of drastic changes in the business environment, we will make an all-out effort to quickly shift to a structure that will enable us to lead and create changes and show a credible ability to achieve sustainable growth.

About the highlight of the performance this year. Fiscal 2019 full year organic growth rate of revenue less cost of sales was negative 1.0%. In Japan business, we were able to solidly generate profit from large-scale events in the fourth quarter and achieved strong growth. In international business, due to sluggish performance in key markets, growth was negative.

Fiscal 2019 full year operating margin exceeded the forecast announced in December. In Japan business, in the fourth quarter, thanks to cost controls, operating margin improved year-on-year. In international business, despite weaker top line, the fourth quarter operating margin remained unchanged from the previous year. In international business, in view of continued underperformance and uncertainties in APAC, in particular in China and Australia, the future profitability is estimated more conservatively, which resulted in our decision to recognize goodwill impairment in this region.

In the meantime, the buyback announced in August 2019 of up to JPY 30 billion is almost complete.

In fiscal 2020, leveraging on large-scale events of Tokyo 2020, growth is forecasted centering around Japan business. In addition, margin improvements are expected as a result of cost reduction following the business restructuring of the international business. Fiscal 2020 forecast does not take into account impacts on performance stemming from novel coronavirus.

Turning to the summary on Page 2. In fiscal 2019, revenue less cost of sales grew 3.3% on a constant currency basis to be nearly in line with the earnings forecast announced in December. The digital domain composition ratio expanded to 47% as digital business in Japan continued to grow. Underlying operating profit fell below the level of previous year, but exceeded the forecast announced in December, thanks to cost control in Japan in the fourth quarter. As a result, operating margin exceeded December forecast by 60 basis points. Losses are reported at statutory recorded operating level and net income level, which are attributable to the negative results in items under adjustment items and to the increase in finance costs. I will come back to these points in more detail later.

Next, movement of revenue less cost of sales. Factors contributing to year-on-year changes are as follows. M&A accounted for positive JPY 39.8 billion, of which JPY 9.6 billion was from Japan business and JPY 30.1 billion from international business. Organic growth was negative JPY 9.9 billion, representing negative 1.0% difference. The appreciation of the yen resulted in negative impact of JPY 23.2 billion.

Next, regional information, Japan. Revenue less cost of sales increased by 3% year-on-year. Organic growth was positive due to accelerated growth solidly capturing profits from large-scale events in the second half of the year. Digital domain composition ratio reached 29.3%, 540 basis points higher than the previous year, boosted by the VOYAGE integration effect as well as by strong results in digital advertising, mainly led by Dentsu Digital and in digital solutions space led by ISID.

In addition to the digital business, the promotion field performed well with Dentsu Live showing good growth. In Japan business, group companies with strengths in their respective fields have become the growth drivers. Underlying operating margin fell short of the previous year's level, declining by 9.7% in spite of efforts to control costs.

Next, international business. The goodwill impairment announced yesterday and the business restructuring announced in December will be explained later. In EMEA, Europe, Middle East and Africa, the U.K. and France struggled, and restructuring is implemented in both countries. On the other hand, Switzerland, Russia and Spain are achieving strong growth, with other markets generally continuing to show positive growth.

The Americas is a region that continues to post steady positive growth. After winning P&G business in the beginning of the year in North America, that business has been expanding. Merkle-based integrated solution offering centering around CRM is creating added value and competitive advantage for our group. For 4 continuous quarters, positive growth is recorded.

APAC is being hurt by weak sales in China and Australia, the biggest and the second biggest markets in the region. Business restructuring is underway in both countries, like in the U.K. and France. But due to coronavirus problem, the uncertainties are once again deepening.

Australia continues to face difficulties and a few more quarters will be required before achieving recovery. Operating margin was 12.2%, down from the previous year despite tighter cost controls in the second half of the year.

Next, reconciliation from underlying OP to statutory operating profit. I'd now like to explain the items with large variance from the previous year. The third item from the top, share-based compensation expenses related to acquired companies increased by JPY 3.3 billion from the third quarter or JPY 5.2 billion increase for the full year due to increase in share-based compensation expenses as a result of upward revision of the future performance mainly of Merkle, a strongly performing acquired business. For similar reason, the revaluation loss of put-option liabilities under finance costs increased, as will be discussed later. Business restructuring cost, which appears a few lines below, is in line with the forecast announced at the time of revised forecast announcement in December. Around JPY 5 billion of business restructuring cost is expected to be incurred in fiscal 2020, but cost reduction benefit is expected to outweigh that cost.

A large item amongst the adjustment items is the earlier announced impairment loss. It comprises goodwill impairment loss of JPY 70.1 billion and intangible asset impairment of JPY 3.5 billion. The deterioration of performance in China and Australia was significant. And with uncertainties still growing, impairment test was carried out on the Asia Pacific region, treating it as one cash-generating unit, and goodwill impairment loss as a result was recognized. Other than these, there are no major changes from the third quarter.

Next, statutory operating profit to net profit or loss. Gain on sales of shares of associates declined due to a pullback from the previous year's sale of Kakaku.com shares, as explained in the third quarter. Finance cost includes JPY 9.5 billion of revaluation loss of put option from the upward revision of the future performance of acquired businesses, including Merkle. For a similar reason, revaluation loss of earn-out liabilities was recognized for several acquired businesses. Furthermore, interest expense increased, resulting in an increase of JPY 18.8 billion in finance cost from the third quarter.

Next, international business restructuring. International business is reorganized into 3 lines of business, namely Creative, CRM and Media, while at the same time, the businesses are managed by regions. We believe that the business restructuring that is underway will enable rapid implementation of new business model in the 7 key markets that are facing challenges.

The 7 markets that are implementing restructuring are as shown here: Australia, Brazil, China, France, Germany, Singapore and the U.K. The total cost of restructuring is GBP 177 million. In fiscal 2019, GBP 141 million will be incurred, and GBP 36 million will be incurred in fiscal 2020 or are included in the budget. Annual savings of GBP 100 million is expected, mainly from personnel expenses. Expected savings in the first year fiscal 2020 is GBP 45 million. After the announcement in December, to date, business restructuring is proceeding according to the plan.

With the restructuring, markets facing challenges can now focus on building capabilities in high-growth areas. Of the 3 lines of business, CRM has already expanded to 25% of international business. However, in the markets undergoing restructuring, this percentage is substantially lower. For example, in APAC, e-commerce capability needs to be built in China. Services related to e-commerce capability needs to be built. The acquisition of EBP last year was for the purpose of addressing this need in Australia through the acquisition of Accordant and Davanti, CRM will be enhanced and business structure will be transformed to deploy all 3 lines of business in an integrated fashion.

In EMEA, brands will be consolidated in the United Kingdom to simplify the business. Of the market's undergoing business restructuring in 4 markets, we now have new management in place.

Now turning to fiscal 2020 forecast. As we have explained so far, we have taken steps before the end of fiscal 2019 to put a stop to this bad momentum. 2020 is the year when 2020 Tokyo games will be held. We are determined to show a solid recovery in the group. Moreover, to achieve sustainable growth thereafter, we consider the year 2020 to be the year to accelerate our business transformation.

Revenue less cost of sales is expected to increase by 3.3% year-on-year and operating margin by 15.4% -- operating margin of 15.4%. Contribution from Japan business and international business to the consolidated results are as shown in the table below. We would like to achieve top line growth with contribution from Japan business and operating margin improvement with contribution from international business.

Now about medium-term direction. When the forecast that I have explained thus far is applied to 2020 results, unfortunately, neither the 3-year CAGR nor operating margin can be reached. In comparison to the time when medium-term plan was developed initially, the changes in the business environment were quite profound. Once again, we are keenly aware of the need to continue with business transformation at the pace exceeding the changes in the environment. The KPIs included in the midterm plan are important indicators over the medium to long term, and we will continue to make efforts to make constant improvements.

With respect to the third objective of shareholder return, share repurchase was carried out during the year. And based on the basic policy for capital management, the forecast for increased dividend was maintained, despite the net loss situation.

Next, dividend. In fiscal 2019, even though net income declined, the company maintained an increase in dividends. The forecasted dividend for fiscal 2020 is JPY 95, which is considered a commitment.

Finally, capital management strategy. The company has not changed its capital policy, and we'll continue to implement cash allocation and financial measures based on the policy shown here.

That is all. Thank you. Thank you very much for your attention.

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Chuya Aoki, Dentsu Group Inc. - IR Officer [9]

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Thank you, Yushin. Next, Toshihiro.

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Toshihiro Yamamoto, Dentsu Group Inc. - President, CEO & Representative Director [10]

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[Interpreted] This is Yamamoto speaking. Thank you very much for joining the call today. I will explain the outlook for the Dentsu Group going forward. The world situation is opaque, and we are in a difficult environment. In addition, the impact of the new coronavirus is spreading globally. Therefore, the uncertainty will continue to increase and the situation becoming more severe. However, what the Dentsu Group can do and what it should do does not change essentially. We will take into consideration the external environment, look for changes in the environment and continue to identify growth that's in the group to achieve growth from a medium- to a long-term perspective.

Please refer to Page 14. Dentsu has transformed the group structure to a pure holding company on the 1st of January 2020. In addition to maximizing the advantage of pure holding company in enhancing governance and efficient allocation of resources in the group, we will also transform into a network-type organization that is flat and open, where diverse entities and individuals will collaborate organically to generate new values one after another.

The role of the Dentsu Group is more than the conventional holding company, serving as a supporting organization to promote teaming of our 60,000 employees. As you can see in this diagram, the mission of the Dentsu Group is not to control the operating companies from the top down, but rather to establish a platform, upon which operating companies can promote their growth. This is what we are referring to as the teaming company.

At the same time, we emphasize diversity from a governance perspective. For example, if approved in March at the AGM, the Board of Directors will be composed of one additional non-Japanese non-Executive Director and 2 non-Japanese Executive Directors, enhancing the diversity of the Board. Following the changes made in January, 5 members or about 40% of the members of the Dentsu Group's managing committee are now from overseas or non-Japanese.

Now I'm sure you are concerned about the health of Tim Andree. He is recovering well, and we expect to nominate Tim as a candidate for the Board of Directors in March. And we are eagerly looking forward to his comeback.

Now please refer to Page 15. Next, I would like to explain the 3 strategic priorities of the Dentsu Group. The first is growth, the second is value and the last is team. I would like to give a brief explanation of each.

Please refer to Page 16. First of all, growth. Specifically, we have defined the new area of marketing transformation as the Dentsu Group's strategic growth area. While the advertising market is no longer expected to grow as rapidly as it used to, there is a growing need for marketing transformation and business transformation to enable clients to transform their business structure and grow sustainably, and these markets are growing year by year. As a result, in recent years, the Dentsu Group is increasingly competing with new competitors, such as consulting firms and tech vendors for new markets.

Clients also want to reduce the number of partners they work with, so we need to address the integration of our capabilities to meet the needs of our clients. In other words, how to integrate individual capabilities to suit the client needs will be the first and foremost focus. Although there are regional variations, the Dentsu Group as a whole already possesses many of the necessary capabilities to provide these services. For example, consulting services that support clients in the process of change to provide a vision for their future business and development of its growth strategy can be provided; design of the entire customer experience, including on and off utilizing creativity.

In recent years, in particular, we have seen rapid growth in the implementation and operation of the CRM, which has become an important pillar of the Dentsu Group earnings. This is particularly critical because it is the starting point for all clients' marketing activities. The Dentsu Group has broadened its capabilities from its traditional core business of advertising, such as Creative and Media, to encompass technology and data as well as DX and growth strategies and, most importantly, has created an environment where these capabilities can be integrated.

Please refer to Page 17. While this only demonstrates the position of a small number of our brands, the Dentsu Group has diversified. And by integrating these capabilities, we aim to provide not only advertising campaigns, but also solutions that resolve the customers' marketing and business issues, not just as an agency, but as a trusted partner.

Please refer to Page 18. We define these integrated solutions as the integrated growth solution and aim to provide a global offering in the midterm going forward. Growth means supporting the growth of the client business from a broader perspective beyond advertising and marketing and working as trusted partners not only to improve cost effectiveness, but also to expand the top line.

Page 19. We will proceed with the following 3 specific actions for integrated growth solutions. The first is the development of DX capabilities. As one Dentsu, we will promote the market alliance, which promotes collaboration with the marketing technology companies to strengthen DX and our global media partners program, which promotes collaboration with various platforms on a group-wide basis.

Second, we will establish 4 solution hubs in Tokyo, Singapore, London and New York. We will identify clients in each market that are actively seeking integrated solutions through the newly appointed integrated client leaders in a proactive manner.

Third, we will strengthen synergies with our existing businesses, such as Media and Creative services through DX support and ultimately transform our existing businesses. Through the DX services, we will establish a position as a partner for customers' marketing strategies and further strengthen the Dentsu Group's revenue base and marketing communications business.

Page 20. Next, I will explain value. For all companies, issues such as the sustainable development goals and ESGs are business issues that the C-suite management are facing. The Dentsu Group already has the capability to respond to these changing client needs through our collective capabilities because we have experienced various services accumulating various capabilities over the years.

Page 21. We would like to introduce a specific case. This is the case relating to a Japanese client. This client had a business issue of how to reduce excess production and simultaneously reduce waste. This is not only a management issue that has relevance to the company's existence, but also a social issue for the realization of a sustainable society. By integrating the supply chain and demand chain data of the client businesses through digital transformation, Dentsu has started working together with a plan to minimize production and food waste. This was initially a project undertaken by nonadvertising-related companies. But on this occasion, the client chose Dentsu Group as a new partner in this field.

Throughout our history, at the risk of exaggeration, I would like to say that the Dentsu Group has aspired to deliver new value to society by envisioning a better society and building the platforms of co-creation with clients. In the case of Olympics and Paralympic Games are good cases in point, and this has led to the creation of new markets for the Dentsu Group. This is the opportune time for us to harness our knowledge and experience.

For example, in last year's Rugby World Cup, our business expanded from broadcast rights to the media, the TV program sponsorship, event management and marketing to activation for our clients after obtaining rights and management of spin-off events and promotion of regional media and other businesses, reinvigorating other regions of Japan. As a result, significant results have been achieved in our business. In addition, through the Rugby World Cup, people outside of Japan discovered the essential values of Japan through rugby, which was then rediscovered by the Japanese people. I'm very proud of the fact that Dentsu contributed to such outstanding results accomplished with our clients.

By integrating the capabilities of the Dentsu Group, we will resolve clients' business challenges while, at the same time, solving social issues and creating new values, establishing an ecosystem for that purpose with our clients. I believe that these are the reasons for the existence of the Dentsu Group as well as our source of strong competitiveness.

Page 22. Finally, I will talk about the team. We are now working to develop the processes for integration and creating a framework for collaboration on a group-wide basis. Based on the concept of the teaming platform, which is an initiative to promote collaboration across the group as a whole, we have started programs to increase the mobility of our human resources, know-how, knowledge and services and to efficiently enhance our team capabilities. In addition, as part of our efforts to strengthen the abilities of our employees to integrate solutions, we have begun training programs to deepen the employees' understanding of the group's capabilities. Examples include global interns that transcend borders and workplaces.

Page 23. Once again, I would like to state our 3 strategic priorities. Growth defines the new area of marketing transmission as the Dentsu Group's strategic growth area and aims to build the foundation of the integrated growth solutions throughout the network. Value aims to create new value for society through the integrated group solutions by solving social issues and business issues that have become inseparable from society. Team is about promoting collaboration within the group, developing talent who can lead integration and establishing a platform for collaboration at the global level. These are the 3 priorities of strategy for the Dentsu Group.

The situation facing the Dentsu Group is challenging, but there are signs of new growth on the ground. Each company will not only make every effort to realize the growth, but, at the same time, we will also provide support at the group level to achieve short-term targets and to strive and to realize medium- to long-term growth.

Thank you. Thank you very much for your kind attention.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today comes from Mr. Adrien de Saint Hilaire from Bank of America.

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Adrien de Saint Hilaire, BofA Merrill Lynch, Research Division - VP & Head of Media Research [2]

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I've got 3 of them, please. First of all, in Asia, in the press release yesterday, you've mentioned changes in the media landscape, impacting the performance in China and Australia. How can we be confident that this would not apply to the U.S. or Western Europe? That's the first question. Second question, we saw in the news that Accenture was ramping down its media auditing practice. Do you expect Accenture to be a fiercer competitor in traditional media buying and planning and programmatic buying in 2020? And then the last question is, Tim, you usually give us a bit of an outlook around how busy do you think the year will be around media reviews. Can you give us an update there? And can you tell us if you think it will be more offensive or defensive around pitches?

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Unidentified Company Representative, [3]

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[Interpreted] Thank you for the questions. Turning to the first question, Priday will answer.

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Nick Priday, Dentsu Group Inc. - Executive Officer [4]

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So the first question was in respect of Asia and the impacts on our Media business and how we could be confident that, that doesn't apply to other markets. I do think we've seen, as we've highlighted throughout the course of 2019, impacts in our Australian and China business, which we've been keen to highlight. We have made acquisitions in China to develop our e-commerce proposition, as my colleagues in Japan just mentioned, the EBP acquisition in China, for instance. And I think the main thing I would stress is that in terms of our 3 lines of business, the CRM line of business, which is scaled and very strong, particularly in the Americas, increasingly so in Europe is much more or less developed in the Asia Pacific part of the world. And so that is a key strategic imperative for us is to further develop and internationalize the CRM and Merkle capability across our group. But we are confident that we have the right approach and the right leadership in terms of our Media business, and that the impacts we've seen in Australia and China can be relatively constrained and confined to those markets.

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Unidentified Company Representative, [5]

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[Interpreted] Going to the question regarding Accenture, I would like to address. And afterwards, I would like to ask Nick to add. Regarding the movements by Accenture, there are various speculations, as I understand. And probably, as you pointed out, maybe as early as this year that in the Media business, Accenture may become our direct competitor, leading to more fierce competition. That is a possibility. If that actually materializes, even in that event, as I mentioned in my presentation, we have diverse capabilities, and we are able to offer them to clients in an integrated fashion and will not only help cost efficiency of the client, but will contribute to growth of the client and we are confident in that. That is, we are competing in a different way and we are confident that we have strength. Nick, would you like to add?

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Nick Priday, Dentsu Group Inc. - Executive Officer [6]

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Yes, thank you. So I think what I'd say is that Accenture has operated a relatively small part of our business as a pitch consultant to advertisers. That's been the case for a number of years. And as you'll be aware, they faced an increasingly vocal accusations of conflicts of interest in respect of that relationship. I think what we see here is their decision to close down this part of that business as either them recognizing that conflict and responding to some of the claims made against them or potentially need to expand more into the Media business more generally.

I think in terms of our response to that, I'd say that if you look at our overall business, the international business of Dentsu, then in round numbers, 50% of our revenues come from our Media business with 25% coming from CRM and 25% from Creative in round numbers. And so we're very well established, well scaled, highly regarded across the media landscape and have had a very successful year in terms of net new business in 2019, which gives us a better tailwinds going into 2020 and in the recent (inaudible) surveys have been very highly regarded by them, too. So we are very confident in our position in respect of our Media line of business, irrespective of what Accenture may or may not do in this space going forward.

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Unidentified Company Representative, [7]

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[Interpreted] Turning to the third question of our outlook on Media review, Nick Priday will answer.

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Nick Priday, Dentsu Group Inc. - Executive Officer [8]

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Thank you. Yes, so we understand and we're seeing evidence that it's going to be a busy year for pitches. That's what the pitch consultants are telling us, notwithstanding Accenture moving out of that space. And so we are geared up for a busy year in terms of pitches.

In terms of our current pipeline, approximately 2/3 of the opportunities, which are live at the moment, are offensive and 1/3 are defensive. But we expect another busy year in that respect. And obviously, we're coming off the back of 2019 where we gained market share in respect of our Media business and would hope to do the same again during the course of 2020.

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Operator [9]

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(Operator Instructions) Our next question comes from Mr. Yoshiyuki Kinoshita of Merrill Lynch Japan.

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Yoshiyuki Kinoshita, BofA Merrill Lynch, Research Division - Research Analyst [10]

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This is Yoshi. I have 2 questions. Can you hear me?

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Chuya Aoki, Dentsu Group Inc. - IR Officer [11]

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Yes, loud and clear. Thank you.

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Yoshiyuki Kinoshita, BofA Merrill Lynch, Research Division - Research Analyst [12]

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And I have 2 questions. One is the restructuring in the overseas side, and you said that you see that the impact of the cost of saving about JPY 14.2 billion, but only realize the JPY 6.4 billion in 2020. And when do you expect that you realize that the whole portion of the cost of reduction, JPY 14.2 billion, in 2021 or 2022?

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Unidentified Company Representative, [13]

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[Interpreted] Nick Priday to respond to this question, please.

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Nick Priday, Dentsu Group Inc. - Executive Officer [14]

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Thank you, Yoshi, for your question. So yes, just to confirm, we have been clear in terms of expecting approximately GBP 45 million of savings to arise in the fiscal year 2020, with the balance between that in-year saving and the overall total annual savings to be derived in 2021. So there wouldn't be any further delay into subsequent years in respect of those savings. So the balance would all be derived in 2021.

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Yoshiyuki Kinoshita, BofA Merrill Lynch, Research Division - Research Analyst [15]

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Okay. That's clear. And the second is strategic expenses in domestic business. And at the beginning of the FY December '19, I believe that you explained that you spend at that time a strategic cost in the domestic corporation, and you will spend -- you would spend JPY 2 billion for the educational expenses for your staff and also that you will spend the IT-related cost JPY 2 billion and the DX digital transformation JPY 2 billion and also that spend for the preparing for the organic change and the Dentsu Group strategy for JPY 1 billion. And I'd like to ask you that, is that the result of this plan in last fiscal year and you have planned for the strategic spending for this year?

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Unidentified Company Representative, [16]

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[Interpreted] Thank you very much for the question, Kinoshita. As you have rightly mentioned, last year, we had JPY 7 billion. In terms of growth in investment that was planned for last year, and around 60% to 70% have been implemented because during the fiscal year, the top line did not grow as expected from what was originally planned. Taking that into consideration in each of the items, there have been ups and downs. Therefore, to the JPY 7 billion plan, we were able to absorb 70% of the total.

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Yoshiyuki Kinoshita, BofA Merrill Lynch, Research Division - Research Analyst [17]

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That's good. Okay. Some detail or that -- which area did you say? And which area did you postpone or...

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Unidentified Company Representative, [18]

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[Interpreted] Now what was planned for the 3 areas that was mentioned, that was the original plan. And in terms of detailed numbers, the actual numbers are not being disclosed. But there was no deferment into this fiscal year. There is education investment that will -- that has been earmarked for this fiscal year as well. This will be a continuous effort. And inclusive of that, for 2020 budget has been formulated accordingly.

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Yoshiyuki Kinoshita, BofA Merrill Lynch, Research Division - Research Analyst [19]

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So about in this -- in the investor meeting this morning in Japan that you said that you still spend the DX cost. And in total, should we expect that you are -- strategically, the investment cost will increase this year or stay flattish this year or see some decline this year?

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Unidentified Company Representative, [20]

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[Interpreted] Regarding JPY 7 billion last year, it will be lower this fiscal year.

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Operator [21]

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Our next question comes from Mr. Yoshi Nagao of Nomura Securities.

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Yoshitaka Nagao, Nomura Securities Co. Ltd., Research Division - Analyst [22]

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I have 2 questions to Nick-san or Soga-san. Could you give us any colors on the pitch pipeline for gaining new business in 2020? Is the cyclicality is more positive than that of in 2019? Also could you share us whether you are going to be defensive or offensive this year? And also my second question is the operating margin forecast for Dentsu Aegis Network. You are planning to increase about 70 to 100 basis point this year. Could we expect that improvement will start from the beginning of this year? Or mostly is going to be happen in the second half of this year?

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Unidentified Company Representative, [23]

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[Interpreted] Nick Priday will answer.

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Nick Priday, Dentsu Group Inc. - Executive Officer [24]

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Yes. Thank you for the questions. So in respect to the first question in respect to the pitch pipeline, as I've said, I think we expect 2020 to be another busy year from a pitch perspective. We do see a trend that the average contract length for the Media business and the bigger contracts is actually decreasing a little bit. But against that, our average tenure of relationship with our clients within that part of our business is just over 10 years, so we have longstanding relationships with our client base on average across our portfolio. We're expecting another busy year on the back of 2019, which is our second best year since Dentsu acquired Aegis. And we would be confident, based upon that momentum, in capturing further new business during the course of 2020.

I should stress, of course, that the Media business and the new business metrics around the billings, which we gained for 2019 and which we hopefully will gain again for 2020, only represents half of our portfolio, with CRM and Creative each representing 25%, too. And obviously, their numbers are not included in that billing KPI, which we've disclosed. And so in terms of 2019 performance, the CRM line of business and Merkle, in particular, also had a record year in terms of gaining market share and winning new business, which gives us momentum and confidence going into 2020.

And in terms of your second question, which was around the phasing of margin improvement, due to the nature of the restructuring program which we announced in December that has been affected. Some of that's been affected already. But as you would imagine, we expect those savings to be realized more meaningfully over or as we progress through 2020. And so to your question in terms of do we expect the phasing to be more second half weighted? The answer is, yes. And I think you see that naturally being the case. When you look at the annual savings, we expected around GBP 100 million to be derived here with GBP 45 million of those savings due to come through in 2020. And so you can imagine that there is a further phasing into 2021, as I've just said, when we expect the full annual savings to be derived in our P&L.

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Operator [25]

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(Operator Instructions) Mr. Aoki, there are no further questions today. So at this time, I would like to turn the conference back to you for any additional or closing remarks.

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Chuya Aoki, Dentsu Group Inc. - IR Officer [26]

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Thank you very much, operator, and thank you all for joining us today. Thank you.

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Operator [27]

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That concludes today's conference. Thank you for your participation, and you may now disconnect.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]