Dentsu Group Inc
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Dentsu Group Inc
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I am Okuzono from Dentsu IR Department. Thank you very much for participating in the conference call to explain the first quarter result of FY 2018.
Today's explanation will be provided using the document titled FY 2018 First Quarter Results, which you can find on your web page -- on our web page. Please have them ready for the conference call. And the conference call will be held concurrently for both the investors from Japan and abroad today.
Today, from Dentsu, we have in attendance from Tokyo, Mr. Yushin Soga, Director and Executive Officer in charge of Finance and Disclosure; and from London, we have Executive Officer and CEO of Dentsu Aegis Network, Mr. Jerry Buhlmann; and Executive Officer and CFO of Dentsu Aegis Network, Mr. Nick Priday.
And with regards to the conference today, Mr. Soga will first explain the overview of the first quarter results and after that, we will receive questions from the participants. And we intend to finish in about 1 hour time from now, which is 7 p.m. Japan time.
Mr. Soga, over to you.
Thank you for taking the time to join us. Our group's first quarter results were just announced, so you may not have had enough time to confirm the details, and therefore, following the document, I will give you the results.
Generally speaking, as indicated in the release, the progress was in line with the forecast disclosed in February. To wrap up, revenue less cost of sales flat at apparent on nonconsolidated basis slight increase at group companies for '18 and '18 only. We will prioritize the completion of working style and working environment reform rather than business expansion.
Internationally, diverging on the new client business obtained in '17 as a launchpad, we are aiming for between 3% to 5% organic growth. And on top of that, along with the M&A, we're expecting double-digit growth.
Underlying operating profit for the Japan business, working style reform and working environment reform will take place, and the overseas we will invest in corporate infrastructure to cater to the expanded group. So there will be decline in profit but expenses for the group will be investments for sustainable growth in and after 2019.
Now, going to the document. Page 1, which describes the highlight. As indicated at the bottom, IFRS 15 revenue from contracts with customers is applied from January 1, 2018, to enable year-on-year performance comparison on this file, IFRS 15 is applied to the past years and presented as performer information.
In the English version, what used to be referred to as gross profit is now expressed as revenue less cost of sales since it better reflects the reality.
Please take a look at Page 2. Revenue less cost of sales from organic growth and overseas M&A increased 5.7% on constant currency basis. And because of the new growth phase through the working style reform and improvement of corporate infrastructure, underlying operating profit is down by 13 points. But this result is in line with what we had projected operating margin because of the same reason it ended at 14.4%, as indicated.
Please take a look at Page 3. Organic growth was robust in Japan and overseas and on top of that, with M&A, it has been an increase of JPY 4.7 billion organic growth and growth rate for organic was 2.1%, and for Japan and International businesses, we were able to achieve positive growth.
The details of Japan and International business organic growth will be explained in the next page. Please take a look at the next page, which is the Japan business. Plus JPY 1.9 billion in terms of revenue less cost of sales, which is 1.9%, this the organic growth rate, and both the parent as well as of the subsidiaries grew quite substantially. And driven by digital domain, there has been a growth that is significant as indicated on this page. There has been an increase in digital domain ratio by 2 points at 23%.
By the way, from this first quarter, we've decided to disclose the Japanese business turnover by business category, and this will be touched upon later but this is on Page 24.
Underlying operating profit declined by JPY 2.6 billion year-on-year due to improvement of corporate infrastructure and working environment reform, the result is as shown.
Page 5, this is the International business, and for International business, a plus JPY 11 billion in terms of revenue less cost, and this is a growth of 9%. Organic growth rate was plus 2.2%.
After third quarter of 2017, for 3 successive quarters, growth rate had continued. And on year-on-year basis, of the 9% growth, 7.4% is through contribution from M&A.
If you take a look at the regional results, Americas grew by 4.6%, so there has been quite solid growth in the Americas. As I explained previously, the new client business acquisition in '17 has been a big contributor. EMEA, M&A as well as the booking of Europe-related Merkle business, which was previously booked in North America has now been shifted to Europe which has led the growth for EMEA.
And from Q1, we began to disclose organic growth of major countries and later on, when you have the time, please refer to Page 17.
Underlying operating margin. There has been a decline by JPY 2.3 billion. And as I have been explaining, due to corporate infrastructure improvement, expenses increased. And this is because of the increased investments for growth to be attained in 2019 and beyond. [Foreign Language]
Next, change in underlying operating margin on Page 6. Margin declined from 17.7% by 3.3 points to 14.4%, and the details will be given on the next page, Page 7. [Foreign Language]
The left graph shows the transition on a quarterly basis. Right graph shows the transition on annual basis.
So for a quarter, the OPM of the quarter are both for the Japanese and International business because the investment I have already explained about. However, the first quarter was influenced by seasonality where revenue less cost of sales for International business was small as usual and hence, we are still expecting to achieve the full year forecast announced on the February 13 as a consequence.
And as described on Slide 10, forecast for fiscal 2018 remains unchanged.
And please turn to Slide 8. It's describing the adjustment item for operating profit.
The underlying operating profit is JPY 32.7 billion, and the operating profit ended up at JPY 22.3 billion. The adjustment items is described here but there has been a significant change from the previous year, the same period.
Please turn to Slide 9. The operating profit JPY 22.3 billion, the net profit attributable to our owners of the parent are JPY 10.7 billion, there was hardly no change as far as net financial income.
And Slide 10, please. And this is a forecast for FY 2018. As I have been explaining so far, the forecast for fiscal 2018 remains unchanged for both the Japanese and International business. As we explained in February, Dentsu Group has positioned 2018 as a period for reform and improving corporate infrastructure and continuing on from 2017, first enable the group to enter into the new growth phase. We are going to spend the necessary money this fiscal year, so that we can return to a growth phase from 2019 onwards, and that is what we are going to focus on.
And Slide 11, please. And you can see the regional breakdown for the consolidated forecast. And the numbers here remains unchanged from what we have disclosed on the 13th of February. That's for the appendix.
I would like to give a brief explanation. Please turn to Slide 15. And this is showing the difference as a result of application of IFRS 15. First is number 1, for certain revenue, revenue is presented on gross basis. But this does not have impact on numbers, if you lower the revenue less cost of sales then number 2 is that we have changed the timing of recognizing our revenue for certain transactions.
In the first quarter, what -- we used to recognize for the total amount but we have a change to recognizing them on a quality basis and so, there is no impact as far as the full year numbers are concerned as a result of this change.
And Slide 17 is showing the organic growth rate for the major countries.
And if you could turn to Slide 24. And this is showing the turnover of Japanese business by business category. And this is the first time that we are disclosing this information starting this fiscal year. As you can see, the number for the Internet, it is 13.8% at the bottom right, but the Internet digital handing continues to grow quite steadily and that is quite evident from what is shown on this slide.
And Slide 25, shows the Japan business, digital domain numbers. So we have these numbers now available to you as well. The digital domain turnover and digital domain revenue less cost of sales, so these are 2 numbers that we now will provide to you.
So that was quite brief, but it concludes my explanation with regards to these results of the first quarter. [Foreign Language]
Thank you. We would now like to receive questions from the audience. If you would like to ask questions in Japanese, please use the Japanese line, and if you would like to ask your question in English, please use the English line. Please do not make a mistake. And also, in order to receive as many question as possible from as many people as possible, we'd like to ask that you ask only 2 question at a time.
Operator, take over please.
[Operator Instructions] The first question is by Sugiyama of Goldman Sachs.
This is Sugiyama of Goldman Sachs. Can you hear me?
Yes, we can hear you well.
Operating margin of the International business, that's 1 question that I wish to ask. On Page 7 of the presentation, the plan for the current year is something that I am fully aware of. For 3 successive quarters, operating margin of the International business is expected to decline, 1.9% is the latest number. So it seems that organic growth is sacrificing operating margins. So I would like to ask you 2 points: Is this only because of the investment? And this is a one-time off phenomenon? And that in and after 2019 that recovery of operating margin will begin? That's my first question; and the most recent new client acquisitions. In comparison to existing client business, is the margin lower? If that's a fact, what's the risk of that kind of situation continuing? Those are my questions.
[Foreign Language] Thank you for the question. Something that I should note at the beginning. Depending on the nature of the question, I may respond, but I may ask Jerry Buhlmann or Nick Priday in London to respond. Your question was on International business, so I will ask London team to respond. Thank you.
Yes, thank you. It's Jerry Buhlmann here. So in relation to the margin, the margin decrease is entirely purposeful. So we are hypothecating funds directly to invest in organizing the business to better cope with the disruptive nature of the market. That's primarily around systems and platforms, but also very specifically into our data platform, which we see as a part of the businesses delivering significant competitive advantage at the moment as demonstrated by our very good new business run in 2017. And we do anticipate that the margin will recover on an ongoing basis from 2019.
In relation to the question around clients and the negotiated fees for new clients. We do not, in any way, shape or form, discount, especially our fees for new clients, what we've learned over many years is that clients make a decision on who they want to work with first and foremost, and if you discount your fees too much you just end up getting paid less. So that isn't the reason why there is a margin decrease. Consistently over 3 to 5 years, we've had new strong business wins that haven't had a negative impact on margin, and that is not the case in 2017 and '18, the margin on new businesses are competitive and compatible with the commercial policies of our business. [Foreign Language]
Next, our question is from Mr. [ Jerry Lotrock ] from Barclays.
I have one more question on the international margin, which I guess will be for Jerry. You said that the margin will recover from 2019, so is your investment in platforms, especially your data platform, Merkle, I guess. Is there a bit of a one-off nature in 2018? And then after that, the cost will go back down? Or is the cost you put in recurring and the margin expansion in 2019 comes from operational gearing? That's my first question. And then my second question is on GDPR. Most agencies have said so far that they're ready, they work very hard, there will be no impact. But a lot of agencies, value add services, as you said, is there data offering? And you might get less data from consumers, so I was wondering what's your view on GDPR? Those are my 2 questions.
Thank you. Yes, it's Jerry, I'll pick this one up again. In terms of the point around the margin recovery, clearly, there is investment in people and in systems which is diluting the margin, but we anticipate direct revenue uplift as a consequence of that coming through strongly in 2019. So it's relative position between revenue and cost that is having the impact, and we're very confident that as we go through '18 and '19 -- through to 2020, we'll increase the margin.
In relation to GDPR, we're completely ready. We have something like 45 lawyers employed, they're focusing almost directly on GDPR around the group. We have several steady compliance offices in every single market, every single key market. And we have adopted a strategy of ensuring that we are basically compliant to GDPR on a global basis. [indiscernible] GDPR only relates to Europe in the first instance, we anticipate further GDPR-type regulation around the world. And as the [indiscernible] like toppest stand at the moment, we've organized ourselves thoroughly to be completely compliant on a global basis to that regulation so that we, if you like to have the highest possible standards. We're very confident that the criteria of GDPR, which is, is often that we can satisfy their requirements [indiscernible] but also there is an important element of GDPR which is called legitimate interest. The whole legitimate interest is relatively high and it does require you to have significantly good-quality data systems and processes and management, and we do have that. And we think that legitimate interest is hurdle is one that we can pass as well, so we're very confident of our position in detail and with full resources as were policies and procedures around GDPR. Thank you.
The next question is by Mr. [ Nashiboku ] of Credit Suisse.
Just 2 questions, please. You obviously have strong growth in the U.S. due to new business. I just want to ask the question about China, in particular. All of the agency seem to be struggling a bit in China. Could you maybe explain a little bit about that? And then on the future of new business. Could you enlighten us as to what you think of the new business environment now in terms of how much is available, potential new business up on last year? And who's defending the most and who is defending the least? So where there are sort of big opportunities or threats lie in next sort of current new business cycle?
Okay. Thank you. It's Jerry. I'll pick up on those two questions. In relation to the U.S., you're quite right. That business is going strongly. It's not really just about new business, it's obviously a key part of it. But we have new strong management in the Americas, and we are seeing every line of business growing revenue, very dynamic leadership we've got out there at the moment and that's coming through and having an impact across the board in the U.S., in particular so that's a positive aspect to it.
In relations to China, you're right, china is much more challenged. And I think the way to describe that, there are effectively 3 client segments and 2 business segments. The business segments are Tencent and Alibaba, one. And two, everything else. And at the moment, agencies in general and also, to some extent, us, are more exposed to the second segment which is outside of Tencent and Alibaba. Tencent and Alibaba are growing at 30% than -- and everything else is not really growing. And clearly, part of our strategy is to make sure we're more uprate in our ability to advise and support clients around e-commerce in particular, around e-commerce on those 2 major platforms, and that is something that we've been focusing on. We have new leadership in China as well, and we're very comfortable we've got a good strategy that will help us. If you like to have a high profile in high growing parts of that market. It is a short-term challenge. In relation to the client segments, we have, in particular, strong Japanese clients, Western clients and local clients and the dynamics we're seeing there at the moment, is at the moment, Japanese clients are not particularly growing. We think, to some extent that may be a timing issue, it's not a relation to client wins or losses, it's just absolute spend. Western clients are spending reasonably well and a bit more strongly than we expected in China, and local clients are spending less too. So there is, if you like, a profile and simulation to composition of our own client business but I think the broader and long-term story is around the ability to do with a very high e-commerce market. Thank you.
Sorry, yes. There's one more question, it was around volume of new business. So at the moment, we see significant increase in the amount of business pitched this year. We think the amount that we'll pitch this year is probably 2x the volume we saw in total last year. From our perspective, we have, if you like, done the majority part of our defending this year in retaining the Microsoft contract, therefore, if we look forward on the pitches that we're aware of, and obviously they're all subject to NDA. 80% of the pitches were involved in our upside with only a small minority defenses, so we see a big opportunity.
In relation to where those pitches are coming from, primarily, they are WPP and Publicis, but I don't think any of that is strategically important. I think it's just a case of when contracts are up for renewal. This is a sort of a long-predicted year of high media pitches, it's just how contracts work, I don't think it needs a particular statements on our competitors in particular. Thank you.
Next question is from Mr. Nagao, Nomura Securities.
My name is Nagao from Nomura. Can you hear me?
Yes, we can here.
I would like to ask 2 questions. First is with regards to the International organic growth forecast. This fiscal year, I think the plan is between 4% and 5%. In the first quarter, it was only 2%. So going forward in the second, third and fourth quarters, at what timing and at what speed can we see this develop? So with regards to the remaining 3 quarters, what is the forecast and what is your expectation with regards to the strength of these 3 quarters? The second question is with regards to the Japanese business. On Slide 25 of the document, it talks about the domestic digital domain, the turn over, and you also disclosed the digital domain revenue at less cost of sales. But at the operating profit level, what will be the level? If you could elaborate on that, please?
First of all, could I ask Nick Priday to respond to the question with regards to the International part.
So thank you, everybody. So in terms of the organic revenue growth for Dentsu Aegis Network in the first quarter, as you said, it was up 2.2%. And the full year guidance, which remains unchanged, following our Q1 results is 3% to 5%. And so as you can tell us, most of the guidance being somewhat ahead of our Q1 performance, we expect an uplift in organic growth over the remaining quarters of 2018 for 2 reasons. Firstly, is the strength of our new business momentum, particularly the new business which we secured in Q4 of last year and in first quarter of this year start to have an increasing impact from Q2 onwards. But secondly and an important factor is the phasing of our comparatives in 2017. So Q2 in 2017 was a shell shocked slowed down across the sector and we were not immune to that. So organic revenue growth was down 2.7% in Q2 of last year. It was minus 0.2% in Q3 and a return to growth of 1.2% in Q4. And so we expect the -- our performance in terms of organic revenue growth to be impacted not surprisingly by our client comparatives and to see if sequential improvement in organic growth over the past several years. We're not going give guidance in terms of what each quarter will be, but we are reiterating our guidance of 3% to 5% for the full year.
And I like to respond to the second question. And as shown on Slide 25, it shows the digital domain turnover and the digital domain revenue less cost of sales. And at the operating profit level, what will be the impact, I think that was your question. And at this point in time, and this is something that we put together for the group as a whole. So what this will be at the operating profit is not something that we have calculated accurately at this point in time. But the additional domain turnover and digital domain revenue less cost of sales, how much operating profit are we going to get? Well, I don't think the operating margin will change significant from other business. But as for 2018, because the group as a whole is working on the working environmental reform and so -- and if we look at the operating profit, operating margin for the group as a whole, we probably will end up as a single level for this part as well for digital domain.
The next question is by Kinoshita-san of Merrill Lynch Japan.
Kinoshita of Merrill Lynch Japan. I have 2 questions. First of all, Japan business. Q1 numbers on nonconsolidated basis, thank you for the information. Turnover declined 2%, but revenue less cost of sales increased by 2.8%. What are the factors behind margin improvement? That's my first question. And secondly, for the Japan business, what's the outlook, especially the top line outlook? Most recently, TV spot is bearish and demand seems to be slowing down, at least that's what we hear from broadcasters. In comparison to Q1, how do you view the April, June quarter in terms of domestic advertising spend? There will be contribution from FIFA World Cup games. So that's my second question.
Thank you very much. Then I will respond to that question. First of all, as indicated on Page 26, minus 2.1% turnover and revenue less cost of sales of plus 2.8% and the factors behind. This will included solution-related revenue less cost of sales ratio high business areas saw a significant growth. As indicated at the parent on nonconsolidated basis, TV spot numbers are not as healthy, but digital and creative solutions-related businesses and services is growing. It compensated for the weakness in TV spot and that had led to the improvement in revenue less cost of sales margin. And for the parent or Japan business, how do we view this year's business environment? As we have indicated in Q1, turnover due to TV spot and some business bearishness declined, other businesses supported that and revenue less cost of sales grew by 2.8% year-on-year. This healthiness is sustainable until the end of the year. On ad spend, our internal consensus is growth of 2% year-on-year for the Japanese ad spend. And in the months ahead, at the end of -- in the future, there will be the FIFA World Cup games and also in the run-up to the 2020 Tokyo Olympic and Paralympic Games, we are expecting some execution-related spend. So for fiscal year 2018 in general, we think that the original budget is comfortably achievable. And to what extent is there an upside against the budget? That's one of the things we are studying internally. Thank you.
Next question is from Mr. Simon Baker from Societe Generale.
So my first question is on the consecutive improvement that you've been enjoying in organic net sales growth ex-Japan over the last 3 quarters and of course, that's quite consistent with what we've seen from your U.S. and European broader ad agency groups in their first quarter. But how much of what you're seeing in your first quarter is driven by the good new business you've had in the second half last year? And what are your thoughts, please, on whether the market pressures that we were seeing last year such as at MCG ad spending squeezed are easing? And specifically, in response to Nick's previous answer -- earlier answer, does your guidance for the rest of this year then look a little bit conservative if it's just driven by net new business and comparatives helping you later this year? The second question is on Facebook's data handling practices coming under increased scrutiny. Are you seeing, in your business, any effects either in terms of cost per thousand pricing across the industry or the way allocation of budgets are changing or any analytical requests that you're receiving operationally?
Okay. I will take the first part of that question on the consecutive improvement in organic growth, which you're right, we're seeing similar trends across the broader agency sector. In terms of our -- immediate way to answer that, in terms of our full year guidance of 3% to 5% organic revenue growth, we expect the new business wins to contribute around 2 percentage points through that organic growth for full year, with the balance to be made up from market trends. And that's where you get depending on where we end up between a 3% to 5% range I think will be indicative of talking about in the market place. Obviously, as Jerry mentioned earlier, we have strong momentum in a number of parts of our business, particularly the U.S. market where we've seen revenue growth across the board. And I don't think that's just from new business. It's from 7 new services, the clients as well, and we continue to rely on our operating model to facilitate that much strongly. In terms of the question around is that guidance conservative, I think we found our guidance in 2017 to be overly optimistic, and therefore, we think we've taken a balanced view in terms of reiterating our guidance today for the full year. I think the new business opportunities are mostly offensive, as Jerry said, rather than defensive, but as you go later into the year, the biggest opportunities will start to impact 2019 more than 2018, so I think our guidance is balanced I would say and not overly conservative.
So in regard to your second question around Facebook, at this stage, whilst there are concerns and many questions of clients around those sort of the issues of viewability, use of data, click fraud, all those sort of normal areas of concern around the environment. There is no downturn in terms of client spend. There is no lack of appetite for using Facebook as a communication channel in case if we can see this. And there is no change in pricing. So at this stage, there is no material change in terms of how clients are actually performing. So there is change in terms of the levels of interest which we're closely responding to.
The next question is by Iwasa-san of Mizuho Securities.
Iwasa of Mizuho Securities. I hope you can hear me.
Yes, we hear you.
I have 2 questions. First of all, Japan business and expenses. The working environment reform you've been talking about an annual budget of JPY 13 billion, so that taken into context, Q1 against the previous term seems to be a quarter where expenses had increased, but if we look at the reduction of profit against the full year decline of 18%, Q1 was a drop of 8%. So does that mean that there has not been a front loading of expenses and more expenses shall be incurred in Q2 and Q3? Or do you think that turnover expectations are good so that progress rate is in line with your expectations? So against the expense budget, what's the progress rate? And also, International business, again, on expenses, IT-related investment for future growth, Q1 numbers were disclosed. The pace, will there be front-loading in Q1 and Q2 and lighter investment for IT in Q3 and Q4? When will -- which quarter will be the peak? Or which half will be the peak in terms of expense, because I want to know the degree of impact to the revenue and profits?
I will take up the first question, and I will ask Nick Priday in London to respond to the second question. On your first question, JPY 13 billion for working environment reform and the progress rate so far. Against JPY 13 billion, the mirror image or progress rate, so far we've spend about JPY 2.5 billion. So it's slightly below a quarter of the full year budget, and that is the amount expensed in Q1 for working environment reform. As you said, for Q1, the Japan business, top line business grew. But that being said, that does not mean that we're postponing working environment reform and deferring it until the next fiscal year. We believe that the top line numbers are quite sound. And as we had budgeted, we will be expending the costs for structural reform in the remaining months as planned. Now London team, could you respond to the second question? Thank you very much.
Yes, of course. So in terms of the second question, which was around the phasing of IT-related expenditure by quarter, really I would said that, that expenditure is phased consistently across the quarters, covering firstly our investment in cyber security, which is important for all businesses, data privacy and governance as we've talked about already, but also the systems and platforms strategic development points, which Jerry referred to earlier, and that includes the rollout of the global ERP platform, the rollout of the global people platform, the rollout of a global sales and growth platform. All of those are well in progress. And we're continuing to see benefits from having those systems deployed over the coming months and years. And we don't say in one specific question, the phasing of the expenditure is relatively consistent by quarter. We expect to see the benefits of that system and platform deployment from 2019 onwards and that will contribute towards guidance around margin improvement in 2019, 2020 and beyond.
Next question is from Ian Whittaker.
Thank you. 2 questions, please. First of all, just sort of -- just in terms of the trends in media. One thing that let's say the outdoor company Ströer was mentioning this morning is that they're seeing more and more clients go directly to them for the campaigns and actually bypass the agencies just -- so just wondered what your thoughts were sort of regarding that sense of general industry trends, whether there is any difference by geography? And then the second of all, I think recently you swapped out some stakes and assets with WPP, where you had some joint ventures. Just wondering if there is any similar assets or any sort of similar ventures that you have sort of where again there could be a swap of assets to come through?
Ian, it's Jerry. Let me answer the first part of the question, then I think the second part of question probably needs to go back to Japan. So the first part, we're seeing no material change in terms of clients going direct. From time to time, we do see clients buying such things as out-of-home packages and that's not unusual, special site in the out-of-home environment. But in general, agencies still add very significant value to clients and most clients recognize that. So I don't see any particular trend towards them buying media directly except in certain circumstances, which out-of-home occasionally happen to be one of them.
And with regards to the second question, let the Tokyo side respond.
We acquired Aegis 5 years ago, and we have expanded our business on a global basis. But prior to that, what is part of the WPP group today, Young & Rubicam, we used to have a joint venture business with them. In particular, we had worked on a joint venture business quite proactively in Asia and after we have achieved a global expansion based on Aegis but that remained as a legacy business, but on this occasion, we have conducted a swap and basically result this business. So it's not a front looking or backward-looking type of operation, so a business that had remained as a legacy business, mainly in Japan and Asia as such business because we have a discontinued the alliance and this has kind of been -- or cleared. So numerical impact of this transaction is almost 0.
The next question Merrill Lynch, Mr. Adrien de Saint Hilaire.
I've got 2 questions that relate to competition. So first of all, amongst your traditional competitors, we are witnessing some players saying that they want to bring together creative, media, digital, consultancy work altogether. So I'm just wondering, how you've positioned yourself against these offers? That's the first question. And then second question is, over the last few months, Accenture made a couple of hires. Actually, they made 1 senior hire around media buying and planning. So do you see consultancies as making inroads around media buying and planning, particularly, around AI for example?
Thank you, Adrien. It's Jerry. So in relation to, if you like, the solutions question you're asking. So there's always talk in the market about whether the market rebundles and actually none of them are rebundling. What I do see is some trend towards integration and where there are opportunities, clients consider integrating different capabilities and that probably has the ability for some businesses and some sectors. We also now operate solutions software as well in the market and we've had some success with that. And whilst there is clients who are interested, if you like in that integrated solutions elements then we can provide it. But I'm not seeing it as materially affecting the pitch environment where there is still significant discrimination between different specializations and many clients are also looking to ensure they get the best services from that we provide them. One element now I think works very much in our favor is that we've been operating of 1 P&L system for 5 years now, therefore we are able to offer a range of integrated services pretty seamlessly and the vast majority of our clients take significant range of services across the business and that's been the case for many years. So I see that trend continuing but not so much in an overall solutions pitch, where they want everything in 1 supplier, I don't see that trend growing but there are some clients who take up that opportunity and we're participating in that part. In relation to management consultancies and then moves into media planning and buying, at the moment, most of their focus and effort is around managing pitches and advising clients around pitches. That trend continues. And I think you know the fact that Accenture hired somebody who's going to be your planning point, I'm not sure it's material in the context of hundreds, thousands of people that they employ. What I do see though is that way the management consultancies are having an impact is, they are advising clients on how they restructure their businesses in relation to marketing services. And I think if you looked at the different divisions of business like Accenture or Deloitte, then they do have some success in growing around that consultant piece, which is to some extent more upstream of the decisions around which agencies to use. So I think that is growing. And clearly that does have some impact on our -- on the business overall, but I don't see that materially, at this stage, moving into media planning per se.
On the first question, let me add a few comments on the Japanese market. Talking about the Japanese market or in the area of marketing and communications, there are regional gaps at the moment. In all regions, business transformation is demanded. In Japan, where mass media is relatively still strong, the necessity for business transformation is on the increase. So AI or recently Data Artist is a company we acquired, an AI company. So leveraging on such initiatives, how can we promote business transformation? This is something we have to think. And for several years, mass media centered core client service was our key phrase. But co-working or doing -- working together with clients is now our new keyword as we launch new types of businesses. In comparison to other regions, this may be unique form of business transformation in Japan but the speed of business transformation will accelerate and the quality will deepen in terms of the depth. Thank you.
The next question is from Mitsubishi UFJ Morgan Stanley Securities, Mr. Murakami.
Can you hear me? This is Murakami.
Yes, we can.
I have 2 broad questions. Recently, the pitch for Microsoft you won. And I understand that the business will continue to be with you. But the reason why you won, how have you analyzed them? What were things that was evaluated favorably that had lead for you to maintaining this business? So that's the first question. And if possible, in comparison to the past, the impact, amount wise, has this increased? Or had it remained the same? So if you could share with us any measure of the scale that will be appreciated, that's the first question. The second question is with regards to wining growth overseas for International business and for -- had the consecutive -- in the quarter, you have maintained a positive trend which is recovering as a trend. And this is something we view positively, but then compared to the competing the mega agencies, I feel as though it's somewhat on an average level. In comparison to few years ago, where you have continued to outperform competitors quite considerably. You have not gotten to that kind of a strong growth. And could you explain the reason why that is the case? I think about a year ago, at this meeting, one of your strength is the 1 P&L, but the benefit of that is starting to fade away. And so you're trying to make the business model itself more advanced. And I think that was the kind of explanation that was provided a year ago, but so what type of the evolution have you been able to achieve in that respect? And as a consequence, can you far outperform the competitors as far as organic growth is concerned? Can that be possible? Is there a time schedule that will enable for you to do that? If you have any forecast in that respect, if you could share that with us please, and that's all.
Okay. Thank you. It's Jerry. In relation to Microsoft, I'm not going to go into the specifics of that. But what I would say is the reason we won that review was because of strength of our strategy, our consistent global capability and our ability to deliver innovation, overall add value to Microsoft and those are the elements they recognized. And clearly, for us, it's very good that a highly successful business like Microsoft, which is growing very successfully in the market and is fundamentally digital economy business choose to work with us. In terms of the scale of the business again, I'm not going to give indication on the likely expense going forward. That's very sensitive information. But you can clearly see that Microsoft if you look at their own results are growing extremely well and are very successful in the market. So it's a great partnership and we're looking forward to supporting that business going forward. In terms of the question around growth, clearly, the disruptive factors that impacted the sector, last year, it impacted us to a similar amount and of course, those very significant gains we made in previous years in terms of organic outperformance, they've been secured because we haven't got backwards in any way, shape or form. So we've maintained the strong growth that we achieved up [ to ] '16, and in '17, we had a similar level of disruption. And if you like, we're against very high comparatives compared to our competitors. In relation to the first quarter of this year, again, whilst we're happy with the results so far, again this is against our best rolling quarter last year, so it's tough comparison -- comparatives and we are guiding that we anticipate to outperform the market for the remainder of this year. Longer term, and I think you asked a question about 1 P&L, if organizationally, we were ahead of the game in terms of delivering 1 P&L, the benefits of that, I'm not stating at all. The benefits of that is secured and are impacting the business for longer term. And as we develop more shared services and create more global platforms, having a 1 P&L system that works extremely effectively is a competitive advantage, it continues to be so. And if you like the phase, the digital phase that we invested heavily in, which has driven our business to be predominantly digital. So 60% of our revenues come from digital is now, in our view, moving towards the database where the ability to deliver data symmetry across the whole marketing value chain is a competitive advantage. And hence, big investments in data and the fundamentals that's driving in terms of addressability, and in the long term, customization. So we feel that we are continuing to move forward, but we've had a very ambitious strategy that we've executed well against. We do have an evolving organization, that we believe is ripe for the market. And with a very strong digital base, we are, now, if you like migrating our focus into data as we see that as an important move to maintain our competitive growth. For longer term, it's our intention to outgrow the market and we anticipate we will do that this year and for the longer term. Thank you.
So the next question will be the final question. Mori-san of JPMorgan Securities.
This is Mori speaking. Can you hear me?
Yes, we can hear you.
Sorry when you're running out of time, I have 2 questions on International business. First of all, organic growth for the International business. On China, you've mentioned that the situation is quite challenging, but in the United States, we are seeing strong signs of recovery. And EMEA, if I take a look at Page 17, major countries, there is not an uplift and I think as that nation has been somewhat prolonged. So regionally, America is doing well, but APAC and EMEA you're having difficulty in seeing signs of recovery. So there could be some risk in terms of growth, especially in the second half of the year, that's my first question. Is that analysis correct? And secondly, you've been saying that the investment in the International business incurred this year will be a onetime off event, but in '19 and the years after, to what extent will margin recover? In past years, it was around 16%. This year, it will be the single year of expense. So will there be sudden uplift in margin in 2019 and beyond? So can you give us the details of improvement of margin and the road map?
So in relation to your analysis of the regions, it's not quite right. So the U.S. is growing very strongly, as you've indicated. We're pretty happy with EMEA. I think 1 aspect of Europe is that it always put together as a region it's really a compilation of very different regions and different markets. So it's difficult to read from the overall number. But what I would also say is that in 2017, Europe was our fastest growing region. So I'm not unduly concerned about Europe, whilst Europe is relatively low growth with pretty scale, we do anticipate we'll be able to deliver set of robust figures in Europe growing forward in a market that is, if you like disrupting, probably more slowly even China. The issues around China, I've already talked about. And we see that as a more of a challenge, but I wouldn't align the challenges we face in China with Europe where we're much more confident about the consistent performance going forward on the back of a strong year in 2017. In relation to margin uplift, we've guided that we anticipate that margin will recover in '19 and '20. We're not providing specific guidance beyond that message. In due courses, we arrive towards the end of '18, we'll give much more specific guidance over the long term, but we do anticipate a recovery in margin as the quality of our services and products bear fruit following the current level of investments. Thank you.
Thank you very much for your questions. With this, we like to conclude the conference call to explain the result. I thank everyone for your participation. With this, we would like to conclude the conference call to explain the first quarter result of FY 2018 of Dentsu Inc. Thank you very much for your participation despite your busy schedules, and please hang up your phone.