Dentsu Group Inc
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Dentsu Group Inc
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[Interpreted] Thank you very much for waiting. We would now like to start the conference call to explain the first quarter results for fiscal year 2020 of Dentsu Group. [Operator Instructions] Today's conference will also be recorded. Please be aware.
Mr. Ito, over to you.
[Interpreted] Thank you. I am Ito from Dentsu Group IR office. I thank you very much for participating in this conference call to explain the first quarter results of fiscal year 2020.
Firstly, we will be referring to presentation materials titled Q1 Business Updates and Fiscal Year 2020 First Quarter Results. You can find it on the Investor Relations section of our website. Please have them ready for the conference call for the conference call will be held concurrently for both the investors from Japan and abroad today.
Let me now introduce to you the participants of this conference call. From Tokyo, we have with us, Mr. Toshi Yamamoto, Representative Director, President and CEO of Dentsu Group.
[Interpreted] Good evening, ladies and gentlemen. Thank you for joining us.
[Interpreted] Mr. Hiroshi Igarashi, Director and Executive Officer, Dentsu Group.
[Interpreted] Igarashi speaking, nice to talk to you.
[Interpreted] Mr. Yushin Soga, Director and Executive Officer, Dentsu Group.
[Interpreted] This is Soga speaking, and thank you for joining us.
[Interpreted] And from London, we have with us Mr. Nick Priday, Executive Officer of Dentsu Group and CFO of DAN.
This is Nick Priday. Welcome to the call.
[Interpreted] Finally, we are going to listen to Mr. Yamamoto's presentation using the material, Q1 2020 Business Updates. That will be followed by the presentation by Mr. Soga using the presentation material Fiscal Year 2020 First Quarter Results. After those 2 presentations, we will accept your questions. The call should end around 19:00 Japan Standard Time.
Over to you, Yamamoto-san.
[Interpreted] Again, this is Yamamoto, President and CEO of Dentsu Group, and thank you for joining us for the Dentsu Group Q1 2020 Earnings Call today. I would like to start my presentation by addressing our policies for COVID-19 crisis. Please go to Page 1, the next page, Slide #1.
Our primary concern to the COVID crisis has been the protection of our people, responding to the need of our clients and the health and safety of our communities. Those have been our 3 priorities. This fundamental principle is shaping our responses in all areas.
Firstly, our people. Across the group, remote working has become commonplace across the organization in accordance with local law and regulations to protect the safety and well-being of our people and their family and to curb the spread of infection. The working life of our people has been disrupted. But the business has reacted at speed. Our teams remain connected through our collaborative work platforms and our new business teams have quickly adapted to hosting and winning pitches virtually. This has been supported by the work environment reforms implemented in Japan and the investment in the operating infrastructure that we have been promoting throughout the group over the past 2 years.
Next, regarding the client. Under these circumstances, we are striving to maintain a business structure that could respond appropriately and promptly to the requests of our business partners and contribute to the maintenance and growth of our business as partners of our business partners. In addition, by utilizing our research, analysis and forecasting capabilities, we provide our clients and related organizations with consumer insights that focus on with corona and post-corona brands. By so doing, we are studying and implementing measures that can best be taken in the event of a corona problem.
Finally, the communities. We have worked with our clients to plan and implement a variety of solutions that contribute to local communities. For example, in China, we worked with the pharmacy clients to provide free online medical consultation services during the crisis in China. Together with another client, we worked to deliver free meals to hospital workers in highly impacted Asian markets. In Japan, one of our employees tested positive with the virus at an early stage and we quickly shifted to a company-wide remote working policy 1 month earlier than the government's guidance. This contributed to curbing the spread of infections to local communities.
COVID-19 is causing a slowdown in demand across our industry, and we are not immune. This has put pressure on our performance in Japan and the international business. We are, therefore, anticipating a decline in revenues across our business in fiscal year 2020. Under these circumstances, we have taken a number of actions to mitigate this revenue decline to protect our profits and safeguard our people's jobs. Our CFO, Soga-san, will provide more detail in his presentation shortly.
Given the level of uncertainty caused by COVID-19, we are withdrawing our fiscal year 2020 guidance because of significant changes in the economic and business environment compared to the assumptions made at the beginning of the fiscal year. We will disclose updated information as soon as we can provide forecast.
Going on to the next slide, transitioning Dentsu Group. Despite the disruption to our business from COVID-19, we remain focused on transitioning the group to deliver sustainable, less cyclical revenue growth. 25% of our consolidated group revenues are now from defensive revenue streams, those offering long-term multiyear contracts. These contracts develop advanced technology solutions and digital transformation for our clients through brands such as Dentsu Digital, Merkle, Isobar and ISID. The speed of change driven by the pandemic will require corporates to think creatively about how to engage consumers and create meaningful brand experiences. For many of our business partners, there is a growing need for innovation that looks towards after corona and with corona societies in all aspects, including products and services, customer experiences and touch points for consumers.
In response to the transformation needs, we are in a unique position that transcends our traditional marketing communications capabilities that can support our clients in an integrated manner. We will continue to strengthen collaboration among all companies within the group and develop integrated solutions that resolve larger issues for our clients. For example, a global technology management team has been formed, allowing us to integrate platforms and infrastructure across the group. This benefits day-to-day operations and delivers cost efficiencies over time. A global creative council has been created to drive consistent standards for client servicing, allowing our creative agencies inside and outside Japan to work seamlessly on shared client accounts.
On to the next slide, let me speak about our Japan business. I should like to explain Dentsu Japan Network and Dentsu Aegis Network individually. First of all, Dentsu Japan Network. Under these circumstances, Dentsu Japan Network continues to diversify revenues away from traditional media. This is demonstrated in our first quarter results through the strength of our digital solutions business and marketing promotions business. This is demonstrated in our first quarter results. Through such strength, we are focused on increasing collaboration across all our companies within Japan, deepening client relationships, developing integrated solutions and solving bigger problems for our clients that go beyond marketing. In addition, Tokyo Olympic and Paralympic Games, which was scheduled to be held this year, has been postponed to next year. We will continue to support clients, partner companies and the Organising Committee in a variety of areas until the times of the games.
Next slide, please, going on to our international business. Progress continues in the implementation of new business models in 3 lines of business. This transformation will simplify our offer and deliver globally consistent solutions tailored around the client need. We are developing new ways of working to drive profitable growth, reduce the complexity of our organization and associated costs to improve our operating margin over time. The restructuring announced in December 2019 is on track to deliver the GBP 45 million in savings in 2020.
In March, we announced the accelerated buyout of the remaining Merkle shares. This will deliver single-digit EPS accretion for Dentsu Group in 2020 in addition to ensuring key talent retention and allowing us to accelerate the final stage of integration. Finally, I'm pleased to announce that Wendy Clark will join the company in September as global CEO of Dentsu Aegis Network. Wendy's experience from the client side, coupled with the strong understanding of the complexities of running a global advertising business, is hugely complementary to the group plan, which focus on the delivery of even more integrated and agile solutions. She will be leading DAN from September. And I'm certain that she will cause progress in the implementation of our strategy.
On to the final slide, on integrated growth solutions. Finally, let me explain our priority strategy. As I explained in February, our strategy remains to deliver integrated growth solutions for our clients. I believe this is becoming more important in the society of after COVID and with COVID. Our diverse assets from Media, Creative, data and analytics, systems integration, sports and entertainment content position us well to support our clients who are in the middle of big social changes, helping them deliver business transformation and top line growth beyond marketing. We will continue to aim to provide these integrated growth solutions throughout our global network.
I would like to express my gratitude to the 66,000 employees of the Dentsu Group around the world during this difficult period and thank our clients, our partners and the shareholders who support us. Thank you very much for your continued support. I'd be most appreciative if you could continue to support us.
Now our Director Soga will explain the financial results of the first quarter. Thank you.
[Interpreted] Thank you, Yamamoto-san. This is Soga speaking. I would like to present the first quarter figures FY 2020 for the Dentsu Group. In the first quarter -- please refer to Page 1.
In the first quarter, Dentsu Group delivered an organic growth of minus 0.8%. Both the Japanese business and the international business started the year well, but the impact from COVID-19 was felt toward the end of the quarter. The Japanese business grew 2.1% organically with a strong performance in digital solutions and marketing promotions. The international business saw an organic decline of minus 3.3% for the quarter, pulled lower by APAC, which saw a decline of almost 20%.
The operating margin for the group improved 430 basis points for the quarter with growth in both Japan and international. The Japanese businesses benefited from a favorable performance across a number of brands. The international business improved over 700 basis points year-on-year, benefiting from the restructuring activities announced in December 2019 and cost actions taken in the first quarter.
As we mentioned, the impact from COVID-19, we saw toward the end of the quarter and is expected to continue to impact through to the second quarter, which we expect to be the weakest quarter of the year. However, due to the level of uncertainty in the business environment, we have withdrawn our fiscal year 2020 guidance. The group remains well-capitalized with AA- credit rating.
Next page, please. On the summary slide, I will highlight the digital domain. And this is now accounting for 40% of the consulting group. And this is -- this demonstrates the speed in which we are expanding our capabilities in fast growth areas, such as digital solutions, CRM and data. The other notable figures on this slide relate to underlying operating profit, which has increased 35% year-on-year due to increased margins as mentioned previously. There has been a change in the accounting method for earnings calculation of the Dentsu Japan Network. Therefore, the figures of 2019 in this material are pro forma and differ from the statutory figures of 2019.
Please turn to next page, Slide 3. This shows the factors contributing to the year-on-year change in revenues less cost of sales. Currency impact was negative at JPY 3.6 billion due to further appreciation of the yen. Acquisitions positively contributed JPY 4.6 billion in the quarter and organic performance saw a negative contribution of JPY 1.7 billion.
Next page, please. For the Japan business, I'm pleased to share some increased disclosure. This increased disclosure is to demonstrate the diversification of our revenue base in Japan and allow us to highlight the strong performance of some of the highly specialized companies within Japan. As we look to deliver a sustainable, less cyclical revenue growth, strengthening the collaboration among our brands, Dentsu Inc., Dentsu Digital and ISID, will lead to integrated solutions and allow us to support the digital transformation of our clients.
In total, the organic growth for the Japan Network was at plus 2.1% in the first quarter with strong growth in Dentsu Digital, Dentsu Live, Dentsu Tec and ISID. I would highlight the growth of digital solutions and marketing promotions, including activation of event-related work. The margin for Dentsu Japan Network increased 40 basis points year-on-year. We have taken a number of actions to protect our margins, including stopping all nonessential travel and discretionary spending. January 2020 saw the formation of the group's holding company and all associated costs are included within the Japan business.
Page 5. The international business saw a mixed performance across the regions. EMEA was slightly negative for the first quarter. The U.K. market returned to growth, posting positive organic growth of over 3% after 4 consecutive quarters of negative growth. Russia delivered double-digit organic growth. And Italy, Denmark, Spain, Sweden and Switzerland all posted positive results. France, Germany and the Netherlands all saw an organic decline for the quarter due to a pullback in client spend.
The Americas saw a solid Q1 performance. Strength in the U.S. market at plus 2.2% organic growth for the quarter was driven by the CRM line of business and M1, our people-based identity and data platform, which performed well with a number of our large -- largest U.S. clients. Growth at Merkle remained in the high single digits. Weakness was seen in Canada and Brazil.
In the APAC region, excluding Japan, we reported a minus 19.5% organic growth. The region saw continued challenges in the Chinese and Australian markets due to accounts lost in fiscal year 2019. This was further impacted by COVID-19. However, in a number of local markets in China, business wins were recorded through the first quarter. And the new Australian CEO has made a strong start and is inspiring confidence of a turnaround in that market.
The 710 basis point year-on-year improvement in margin is attributed to COVID-19-related cost actions, including a temporary salary reduction in exchange for reduced working hours, reducing discretionary spend, hiring fees and a review of contractor roles. The margin also benefited from the restructuring announced in December 2019. The restructuring is on track to deliver GBP 45 million of savings previously announced.
I'm pleased to show you some additional disclosure for the international business as well. We have talked about the transition to our 3 lines of businesses, simplifying our offers, delivering world-class services and integrated solutions tailored around the client need. And we disclosed the organic growth for Media, Creative and CRM.
Our Media business represents just under 50% of DAN's revenues. And in the first quarter, it delivered minus 5.9% organic growth, affected by a pullback in client spend due to COVID-19. Our Creative LoB contributes approximately 25% of revenues and posted a negative 6.5% organic growth. Finally, our CRM LoB posted almost 4% organic growth and is the most defensive part of DAN's portfolios and contributes 30% of DAN's revenue base.
Page 6, leading to the reconciliation from underlying operating profit to statutory profit. The major items include an increase in share-based compensation related to accelerated exercise of the Merkle put option. We accelerated the purchase of the remaining Merkle shares in the first quarter. We agreed an additional stock compensation scheme for a small number of its senior management. Securing the expertise and knowledge of the senior management team will ensure Merkle continues to produce market-leading growth and reduces the risk of attrition of senior management. The deal will also deliver a single-digit EPS accretion for fiscal '20 as well as allowing us to accelerate the final stages of the integration. We also recorded a small impairment loss from an acquired company in the Japan business. Despite this, statutory operating profit increased by 98.8% year-on-year.
Page 7, looking at the difference between statutory profit and net profit. In the first quarter, finance income increased year-on-year due to the revaluation profit of earnout and slower-than-expected performance of several acquisitions. Furthermore, our finance cost was lower because Merkle March's performance was better than expected, comparing favorably to last year when revaluation loss for the put option liability was posted. This resulted in a net profit attributable to owners of the parent of JPY 15.3 billion for the first quarter.
Page 8. And finally, I would like to discuss our approach to COVID-19 and the recent actions we have taken as a consolidated group. We have taken swift actions to mitigate this revenue decline, protect margin and safeguard our people's jobs. We are targeting a 7% reduction on the 2020 rate cost base. We have implemented a number of cost actions in the first quarter, a temporary salary reduction in exchange for reduced working hours at the international business. We have reduced discretionary spending, pausing all M&A activities until at least the end of the second quarter of 2020. The group remains well capitalized with a strong balance sheet and a JPY 326 billion of unused credit lines in addition to JPY 259 billion of cash. We retain our AA- credit rating.
COVID-19 is causing a slowing in demand across our industry, and we are not immune. This has put pressure on our performance in Japan and in our international business. We are, therefore, anticipating a significant decline in revenues across our businesses in the fiscal 2020. As I mentioned previously, we have withdrawn the fiscal year 2020 guidance, given the level of uncertainty we see due to COVID-19. We do anticipate that the second quarter will be the weakest quarter of the year.
Finally, the Dentsu Group's dividend policy emphasizes continuity and stability. The dividend forecast for the end of the second quarter and at the end of year totaling JPY 95 per share remains unchanged at this time. We will continue to focus on maximizing the profits generated by the balance sheet and remain focused on generating value for our shareholders.
Thank you. This ends my remarks. I would now like to hand over to the operator to open the lines for questions.
[Interpreted] [Operator Instructions] Over to you, to the operator, please.
[Interpreted] [Operator Instructions] I would like to introduce the first question. Please wait for the first question to be posed. First question is by Nagao-san of Nomura Securities.
[Interpreted] This is Nagao of Nomura Securities. I have 2 questions. First of all, on the Japanese business, the impact of COVID-19 especially has posed difficulty, especially in the area of television. That is my assumption. If the strength of TV as a media weakens and that speed of weakening accelerated, isn't there a threat that you would not be able to exercise your strength in Creative as well as in sales on both fronts? Under said circumstances, how would you respond? Structurally, how do you intend to improve margin even under COVID-19? So what are the measures you have most recently been taken for your Japanese business? That's my first question. Can I go ahead with my second question?
[Interpreted] Yes, please go ahead.
[Interpreted] The second question is on overseas. 2021 margin target, 15% of operating margin, that has been the target. Can you keep that target? Under COVID-19, the likelihood of achievement has been reduced. So what's your take in terms of the profitability of the international business? I would like to ask the question to Nick.
[Interpreted] Thank you, Nagao-san. Then for the first question on Japan business, including television and mass media and the weakening of the strength of the traditional media, are we put into a condition where the conventional strength of Dentsu cannot be exercised competitively? And are we mindful of the need for structural change? I would like to give the floor to Igarashi-san for a response.
[Interpreted] This is Igarashi speaking. Nagao-san, thank you very much for the question. We're in this situation with COVID-19, true, the situation is extremely harsh. And as you have pointed out, we used to be conventionally strong in TV and Creative. And solution through television or Creative or our sales power may be difficult to be realized under such circumstances. That's how you had -- what you had implied. When we began the working-from-home practice, it was initially difficult. But with our clients being put under similar conditions, we are now able to develop new means of communication. So our people with the clients are being able to find new means for communication. So new methods are being used to deliver presentations, which are delivering results. But in terms of diversification of revenue stream, which had been one of the priorities since a few years ago in our transformation program, one of the focal areas had been and is digital solutions.
Speaking about the Japanese business, the contribution from digital was 29.3% in the first quarter against our total revenues. It's been increasing. And this upward trend remains unchanged, so we are feeling this positive change. And especially in the area of digital solutions, we had been injecting much efforts. What we call digital solutions would include our support to our clients that would change the marketing platform of the clients. And we're making commitments to change their platform. And this is not pure digital media business stream. So this is an area where we can expect higher level of profitability. And we make commitments to the marketing platform of the client so that would foster the mid- to long-range strong relationship with our clients. And that would also develop into other business areas in marketing. So we are hopeful of this domain. 17% is the percentage that this area is already accounting for against our total revenues. So the efforts that we had been implementing during the past few years have begun to deliver results. And for Dentsu Inc., there's insight and client network in Dentsu Inc. And Dentsu Digital as well as ISID are group companies that have very unique strength. And alliance with those group companies is a competitive edge that we have, which is not owned by our peers. So we're quite confident that we will be able to expand into this area further. Thank you. That concludes my answer.
[Interpreted] Now going on to the second question, on international business, I give the floor to Nick Priday. Operating margin, 15%, that has been the target for international business. And what's our take, prospects for achieving that? I give the microphone to Nick.
Thank you. This is Nick Priday speaking, appreciate the question. So as you all know from today's presentation, we've withdrawn guidance for 2020. And in that context, I'm sure you'll understand it's difficult to provide really clear guidance for future periods as well. But our working assumption is that the 15% margin target, which, as you rightly say, we've planned for 2021, will be pushed back by 1 year due to the uncertainty, principally of the revenue outlook. Obviously, that's subject to some change, depending on how things pan out for the balance of 2020 and into 2021. But that would be my general response to the question.
And I think it's important to note that we are pursuing a number of strategic initiatives to make sure that we drive an effective operating environment across all of our markets. We reduce complexity. We consistently deliver world-class services across each of our line of business. We increase our ability to deliver integrated solutions and really have a laser focus on helping our clients, particularly as we come out on the other side of the COVID-19 crisis. And those portfolio of initiatives that we have around operational excellence across our markets, I think, will give us confidence that we can still deliver that 15% margin target. I think our outlook has just been impacted obviously by COVID-19. And so our working assumption of that is being pushed back by 1 year. Thank you.
[Interpreted] May I ask one follow-up question? Now international business, Nick, you said 15% operating margin target. You said that the likelihood of achieving that is quite high. But in comparison, what about the operating margin for the Japanese business? It used to be around 25%. But in fiscal year '19, it dropped to 19%. So such structural change is impacting the Japanese business. So how do you see the trend in terms of Japanese business operating margin? Do you think that it could recover back to the conventional level? Or Igarashi-san, you talked about the initiatives underway. As a result, do you think that the margin can go back to the historical level? What's your forecast at this juncture?
[Interpreted] Thank you very much. The follow-up question was with regards to the operating margin for the Japanese business. And I now would like to give the floor to Igarashi-san, which will be supplemented by comments from Soga-san.
[Interpreted] This is Igarashi speaking. On Japanese business margin, in the past few years, through the working style reform -- working environment reform, we have been making investments in various areas. And that has been proven right because of the effective response we've been able to do in COVID-19. Infrastructure has been improved and the investments we had done in various business domains have borne fruit. At the beginning of this fiscal year, the operating margin was budgeted at 20% for the current fiscal year. And we made a good start in Q1. But because of the difficulty in top line, over many times, we've been reviewing the SG&A strictly in 3 rounds. So top line growth and stringent control of SG&A expenses are both being done post COVID-19. And in a time horizon of a few years after COVID-19, we think that investment for growth will continue to be necessary. So we will continue with diversifying the revenue stream and focus on to what extent can we seek top line growth. Thank you.
[Interpreted] That was Igarashi speaking. And this is Soga speaking. Nagao-san, thank you for your question. In 2016, the Japanese business margin was around 26% or 27%, as high as that level. And your question was, are we ever going to go back to that level? 2016, '17 and '18, for 3 years, working environment was down. So from low margin, our plan was to come back to a high margin in fiscal year 2020. But we are in the social economic environment we are in. So as Igarashi-san said, in 2020, our -- we don't think that we will go back to the target of north of 20% in this fiscal year. But under normalized environment, our margin would be, at minimum, 20%. I think that's the minimum. So by 2021, we want to achieve that. And in order to achieve that level of margin in 2021, we are going to do structural reform. In the present fiscal year 2016, our environment has drastically changed. Our business portfolio is changing in order to respond to the changing client needs. But on the other hand, we are extremely stringent in cost control. So by 2021, a minimum of 20% margin must be achieved for the Japanese business. That's what we are thinking at the moment. Thank you.
[Interpreted] I understand very well your situation.
[Interpreted] Next question is from Bank of America and Mr. de Saint Hilaire.
So I have 2 questions, please, if you don't mind. First of all, related to Dentsu Aegis Network, can you give us more color on the decline that you expect in Q2 and the rate of improvement you are seeing throughout Q2, if any? And the second question is thank you for providing us a breakdown between Creative, Media and CRM. I was a bit surprised to see Media down 6%. Can you give us more color on what's driving that minus 6%? And how does that compare to previous quarters? Or perhaps any trends by geography to help us better understand the performance.
[Interpreted] Thank you very much for the question. First of all, what is the outlook of the decline in Q3 from DAN? And the 3 LoBs, Media, minus 6% was also highlighted. Please elaborate further on these points. So I would like to ask Nick to respond to these questions. Nick, over to you.
It's Nick speaking. Thank you for the question. So in terms of the phasing of the performance so far this year, I think I would say that January and February were in line with our expectations. And then we did see a significant contraction in March, high single-digit contraction in revenues in the month of March. And in terms of April, and April obviously represents the vast majority of markets a month of full lockdown, not surprisingly, we see a steeper decline in the month of April. We do expect the second quarter to be sort of the floor at the moment in terms of quarterly organic revenue performance. And we do expect the second quarter to be down by around 15% to 20% overall. So that would be our guidance. As I've said, we do expect then for there to be a modest recovery in quarters 3 and 4. But in terms of your question in terms of the rate of improvement in Q2, we don't see that at this point in time. And we see each month within the second quarter has been relatively consistent.
In terms of the specific question, as you say, this is the first time we've disclosed the breakdown of the business in this way. And therefore, we're not going back to present what the trends have been in previous years under this new structure. However, in terms of commenting on that 6% decline in Media in the first quarter, I would say that is really due to deferred client spending, delayed product launches, et cetera, across the portfolio of clients that we have, obviously with a greater impact in those industry sectors which you would expect. And that spend may come back in the second half of the year. We've not contemplated a material bounce-back in the second half of the year in terms of the [indiscernible] business. But we do think that some of that spend may come back in the second half, obviously depending a lot on how things play out with COVID-19 across the major economies in which we operate. But hopefully, that provides some further context to your questions.
[Interpreted] The next question is by Daiwa Securities, Ishihara-san.
[Interpreted] This is Ishihara of Daiwa Securities. I also have 2 questions. First of all, Olympics postponed. Dentsu, along with the postponement, will need to bear some cost. Do you expect that you would be needing to book expenses? It's just -- is this just a pure sliding of the timing until next year? Or will this postponement cause any additional costs that you would have to bear?
Second question is on international business. According to the previous explanation, you said that margin target will be deferred by approximately 1 year. Goodwill valuation, do you think that this would cause any impact to goodwill valuation? Or with restructuring, do you think that this will be neutral to goodwill valuation? So to the extent possible, can you respond to that point?
[Interpreted] Thank very much for those questions. The first question is on Olympic postponement. And Igarashi-san of the Japan business will respond.
[Interpreted] Thank you very much for the question. This is Igarashi speaking. Along with the postponement of the Olympics, marketing-related significant cost element does not exist. On the assumption that the Olympics will be postponed by 1 year, we are preparing ourselves. But some of the personnel costs, which was to end by the end of this fiscal year, may continue until next fiscal year and that has to be estimated. We have to be prepared within Dentsu.
[Interpreted] Thank you very much. The second question is the possibility of impairment of goodwill for the international business. Nick, please respond.
I think in terms of goodwill impairment in the international business, obviously there's a heightened sense of uncertainty across the world at the moment. But we did a detailed review of goodwill at the end of 2019 and we recorded an impairment charge relating to our Asia Pacific business at that point in time, which was unrelated to COVID-19, although at the time we announced our results, the impact of COVID-19 was just starting to impact in China in particular. And so we don't -- we haven't seen the need to impact goodwill further. At the end of the first quarter, we've not conducted a formal review. But we will need to keep a very close eye on the outlook at this point in time because of the restructuring activities that we initiated during 2019 at the end of the -- in the Q4 2019, in particular. We see an improvement in profitability, which you can see in our first quarter results today across Dentsu Aegis Network on a consolidated basis.
And obviously, that's under some pressure for the balance of the year because of the revenue add. But I think it's appropriate that we see how that outlook plays out over the next few months in terms of how we assess the answer to that question. So at this point in time, we've not deemed it necessary to impair goodwill any further. It's clearly something we need to keep a close eye on and we will do going forward. But I would just want to confirm that the restructuring we initiated at the end of last year is on track to deliver the savings, which we published an amount. And there is a further annualization of those benefits going to 2021 as well. So the savings we deliver in 2020 is some GBP 45 million with a further GBP 45 million approximately on top of that to be delivered in 2021, which really does help in terms of our margin performance and our profitability.
[Interpreted] Next question is from Barclays, Roch-san.
Yes. My question is on international or my 2 questions are international. Nick, you said you're expecting it to be down 15% to 20%. Sorry to ask, but is it may be closer to 15% or to 20%? And then the second question is can we have a clip of this 15% to 20% by geography and discipline? I would expect CRM to be around flat or doing better than Media and Creative and Europe to be worse. But more color on that would be great.
Yes. So I described April as being down by 15% to 20% and the fact that we see the months during quarter 2 to be relatively consistent. As your question indicates, there is variation by both geography and by line of business. I think it's appropriate to say that the -- we don't really have a large number of geographies which are removed from this impact. I think every geography is impacted to some extent. And I think it's also fair to say that each of our lines of business have been impacted. Having said that, we have -- and you can see from our Q1 performance, there's a variation in terms of the performance by line of business. We would certainly expect that variation to continue. Within our CRM line of business, Merkle actually had a record first quarter and has significant momentum. It's more defensive in nature because of the multiyear contracts, which it has with its clients.
And if you go back to the last global financial crisis back in 2009, actually, Merkle grew its revenues through that period of time. And so we do have a different makeup across our lines of business in terms of the impact, which we expect to see coming through in the future months. And so that's my answer to the question really in terms of the line of business and the geography mix. I think we see -- we expect to see all of our geographies impacted with -- I think the difference there being timing with Asia Pacific impacted earlier and recovering slightly earlier, the other markets across the other 2 regions being impacted principally in the second quarter with some recovery in the second half of the year and the real distinction coming by performance by line of business. So hopefully, that provides further context to the question.
Yes. Just a really quick follow-up. So from your answer, Merkle, having a record year and momentum in multiyear, I guess, with the acquisition, we can roughly calculate the size of Merkle within CRM. But would you think that CRM could be around flat in Q2 thanks to Merkle momentum?
Yes. As you'll appreciate, it's difficult to -- remember in a year when we're withdrawing guidance on a full year basis, although we do have obviously much more visibility on the second quarter, we don't want to provide such granular detail in terms of our second quarter performance by sort of month-by-month and by line of business. But I think it's fair to say that we see the CRM line of business being pretty resilient and Merkle continues to perform strongly. On a year-to-date basis, it's growing strongly, the Merkle business. And CRM overall is proving to be a resilient line of business for us, and we would expect that resilience to continue, particularly relative to the other lines of business within our portfolio. So hopefully, that helps.
[Interpreted] Thank you very much for asking several questions. It's very close to the closing time. [Operator Instructions]
[Interpreted] The next question is by Kishimoto-san of Mizuho Securities.
[Interpreted] It's a brief question, Japanese business. TV drop is very significant according to my research. But should we be cautious of we're seeing at TV or -- for Q2? Or do you think that TV will improve in Q2? And post corona, do you think that TV will rebound to the previous levels? Or do you think that it would be difficult to go back to the previous conventional level so that the proportion of Internet business will continue to rise? So what's your expectations post corona?
[Interpreted] Thank you, Kishimoto-san, for your question. This is Igarashi speaking. TV, Internet, and this is not necessarily a trade-up relationship. The client side, in many ways, want integrated communication solutions. And they are switching their gears towards that orientation. So when we think about the world after corona, we are strong in sport events, and we think that there will be activation of sporting events. So we do not believe that there will continue to be a straight line drop of TV-related ad revenues. We're also developing new solutions, so we will be working on that.
[Interpreted] Last question will be Crédit Suisse, Walker-san.
Walker-san is on the line. A question for Nick, please. In, I guess, the 7% saving, what's your revenue assumption that you've planned against for the 7% saving, please?
Walker-san, so thank you for the question. The 7% saving is the cost saving expectation across the consolidated group. So that is a Dentsu Group number. In terms of the breakdown there, the proportion is slightly higher in the international business. And so that 7% average would be higher if you just look at the international business. And that gives you, I guess, some indication in terms of the revenue expectation, particularly if you take into account our first quarter numbers we've disclosed and the guidance that we've given in respect to the second quarter. So hopefully, that provides some further detail to support your question. Thank you.
[Interpreted] Thank you very much for your active participation and several questions. It is time to close this conference call on the results announcement for the first quarter. And once again, thank you for your participation. Thank you very much from the management as well.
[Interpreted] That concludes the conference call for the results for the Dentsu Group for first quarter fiscal year 2020. Thank you very much for your participation. Please hang up.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]