Dentsu Group Inc
TSE:4324
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
3 557
4 861
|
| Price Target |
|
We'll email you a reminder when the closing price reaches JPY.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Dentsu Group Inc
You don't have any saved screeners yet
[Interpreted] Thank you very much for waiting. We would now like to start the Conference Call to explain the Third Quarter Results for Fiscal Year 2019 of Dentsu Inc. We have a request to the participants. In order to prevent howling noise or acoustic feedback, if you have a communication device nearby, such as mobile phones, so please switch them off or place them away from your telephone. If the howling noise or the acoustic noise is excessive during the conference, we may have to suspend the conference with the consent of the organizers, so as to make direct contact with the offending line. Today's conference will also be recorded. Please be aware.
Mr. Aoki, over to you.
[Interpreted] I am Aoki from Dentsu IR department. I thank you very much for participating in the conference call to explain the third quarter results of FY 2019. Today's explanation will be provided using the document titled Fiscal Year 2019 Third Quarter Results, which you can find 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 CFO of Dentsu Inc.; and from London, we have Mr. Tim Andree, Director and Executive Vice President of Dentsu Inc. and Executive Chairman and CEO of Dentsu Aegis Network; and Mr. Nick Priday, Executive Officer of Dentsu Inc. and CFO of Dentsu Aegis Network. And with regards to the conference today, Mr. Soga will first explain the overview of the third quarter results. And after that, we will receive questions from the participants, and we intend to finish in 1 about -- in about 1 hour from now at 8:30 Japan Time.
[Interpreted] Good morning, and thank you for joining the Dentsu Q3 earnings Call. My name is Yushin Soga, Director and Executive Officer of Dentsu Inc. I will talk through our Q3 results, and then we will open for Q&A.
Please turn to Page 1. I will begin with a summary of the financial results. In the third quarter, revenue less cost of sales organic growth rate for July-September was negative 0.1%; Japan, plus 1.7%; and international, negative 1.0%. That leads us to a year-to-date revenue less cost of sales organic growth rate of minus 1%; Japan, minus 0.9%; and international, minus 1%. The proportion of revenue from digital has expanded to 47.8% at a consolidated level, with Japan showing significant improvement year-on-year, up almost 5 percentage points.
Our year-to-date operating margin is negative 220 basis points year-on-year, but the third quarter operating margin is plus 70 basis points year-on-year. Looking ahead to the fourth quarter, the Japan business expect to benefit from a number of large-scale events, including Tokyo Motor Show, the Rugby World Cup and other sporting events. The International business is expected to see continuous -- continued momentum in the U.S. market. The fiscal year 2019 financial guidance announced on August 7, 2019, remains unchanged.
Please turn to Page 2. Next, I will highlight the consolidated results for the third quarter. The top line was explained on the previous page. Operating margin turned positive in the third quarter on a year-on-year basis and was 11.2% over the 9-month period. Statutory net profit attributable to owners of the parent declined -- negative 91.9% year-on-year due to the impact in the prior year from the sale of Kakaku.com shares. I will explain this in more detail later.
Please turn to Page 3. Factors contributing to the year-on-year change in revenue as cost of sales. M&A contributed JPY 28.2 billion. Organic growth came to negative JPY 6.9 billion. The yen appreciated further from the second quarter, negative JPY 15.3 billion. M&A activity contributed JPY 28.2 billion, of which JPY 6.3 billion was in Japan business and JPY 21.8 billion in international business.
Next, please turn to Page 4. For the Japan business, the organic growth rate was slightly negative at the 9-month stage due to the impact from large-scale sporting events in 2018, including the Winter Olympics and the soccer World Cup. However, in the 3 months from July to September, the organic growth rate improved for the third consecutive quarter, rising to plus 1.7% due to the strong performance of group companies, mainly digital-related companies. These results reflect the steady progress we are making as we continue to see the transition into digital.
Moving to margins. While planning investments for growth were maintained, we continue to review some existing costs. Operating margins fell 430 basis points from the same period of the previous fiscal year to 18.3%.
Please now turn to Page 5. The international business faced tough comparables in the third quarter 2018 when we reported 7% organic growth. Despite this, the performance in the Americas, and particularly the U.S. market, was robust due to new business wins coming online as well as growth in Merkle, Vizeum and Dentsu X. The third quarter organic growth for the Americas was 5%, and for the U.S. market, it was 7.4%.
Organic growth in EMEA was negative, adversely impacted by the French and U.K. markets. And in APAC, our organic growth performance continued to be severely impacted by Australia and China. Australia continued to be affected by client losses and China remains sluggish in a difficult business environment. If we were to exclude the impact from Australia and China from our Q3 results, the international business would have reported 1.8% organic growth. We have recently made changes to the regional management in APAC.
The operating margin for the 9 months totaled 6.3%, but the operating margin for the July-September 3-month showed a plus 230 basis points year-on-year, showing an improvement trend as a result of steady implementation of cost management.
Please go to Page 6. In addition to a decrease in operating profit, the absence this year of the sale of Kakaku.com shares we booked last year caused JPY 52.1 billion drop year-on-year for gain on sales of shares of associates. Finance costs increased by JPY 10.3 billion year-on-year, mainly due to an increase in interest expenses and a valuation loss on put options. As a result, statutory net profitable -- net profit attributable to owners of the parent declined significantly, as I mentioned previously.
Please go to Page 7. The FY 2019 financial guidance announced on August 7, 2019, remains unchanged. For the Japan business, the momentum of the organic growth, which has been improving for 3 consecutive quarters, will be further accelerated from October to December. Specifically, the company intends to focus on further growth of its digital subsidiaries and capturing businesses, driven by large-scale events. On the other hand, the international business, by accelerating the growth of the Americas and adverse -- and advancing measures for countries facing challenges, we hope to recover business momentum. In addition, we will continue with cost management, allowing us to focus on improving operating margin.
This is the end of my prepared remarks. And I would like to open for Q&A.
[Interpreted] We are now ready for the Q&A session.
[Operator Instructions]
Operator, please.
[Operator Instructions] The first question is from Nomura Securities, Mr. Nagao.
[Interpreted] I have 2 questions. First is Japan advertisement demand environment. The advertisers, what is their mindset in advertisement? For example, in TV, TV is sluggish, but time is strong. So in total, year-to-date, January to September, how it -- has the mindset of the Japanese advertisers changed? My second question is international business. So third quarter -- 3 quarters cumulative, JPY 4 billion net new business was acquired on a year-to-date basis. Majority of that, I think, will be reflected next year. Is that correct? Two questions, please.
[Interpreted] Thank you for your questions. So the first question, I, Soga, will respond. And second question will be responded by Mr. Tim Andree. So let me start with the first question. In January-September, the advertisement -- mindset of the advertisers. For January-September, especially foreign mass media, the private broadcasters have already announced their financial forecasts. It is not strong. Our digital subsidiary is recording double-digit growth from last year. As you can see from that, marketing, especially advertisement and especially the foreign mass media, the digital shift is moving strongly in time and spot. In TV, it was [ all flat ]. The spot environment is not favorable year-on-year. And this is not just us, the large -- the broadcasters and other media, you can see the same trend.
But our marketing service as a whole, this advertisement sentiment, the client's cost is not necessarily declining. So if we look at the entire industry, mass media to digital, from advertisement to solution, the money is shifting in this direction. So the new market is being developed, and the clients are selling new products into new markets. And the -- and they are doing investment in that direction, and we think this trend is still strong and solid.
So the second question will be responded by Mr. Tim Andree.
Yes. Thank you, Yushin. Thank you for the question. The question you had was of the reported JPY 4.0 billion net new business figure, is the majority of that going to be reflected in 2020? Yes, but not all of it. So the P&G account that was won this year in January, began to show its impact in the third quarter of this year, accounting for some of the uplift in our U.S. business. So it will count -- about 6 months of their impact is in this year, and the remainder will come in next year.
The rest of the JPY 4.0 billion wins that have been reported, such as Vodafone and Ferrero, Upfield as well as a wide band of local wins will be reflected in the numbers next year.
[Interpreted] Your question is from Crédit Suisse, Mr. Matthew Walker.
I've got 2 questions. The first is, are you now seeing much recovery in spending from FMCG clients? And the second question is, could you update us on the performance of Merkle and contrast that in terms of offering with businesses like Epsilon and Acxiom?
Yes. So your first question is about the FMCG environment. I think what we've seen to -- from the FMCG clients is generally a positive attitude towards the business and their investment in the future. And while the performance varies across our clients, I would say that the actual spend levels have remained steady to slightly positive.
In your question about Merkle's performance, Merkle is -- and our entire CRM and data business is really leading our growth. If you look at the numbers in the Americas where Merkle as a brand has its highest percentage of business, it really accounts for the lion's share of the growth and momentum we have in the market. As -- Merkle cannot really be compared as a business or an offering to Acxiom or Epsilon, which are largely just data businesses. Merkle has always been even -- and has continued to be, since our acquisition, a double-digit organic growth business. But when you look at the AMS and the Epsilon businesses, those are -- those have always been low single-digit businesses because they're in the data management business, the data storage type of business. Merkle is in the people-based marketing business, which is currently in high demand from clients and in the highest-growing sectors of ad tech, martech and commerce implementation. And so we're clearly benefiting from their capability. And as an overall reflection on their numbers, Merkle's now our largest-single brand, and also our fastest-growing brand.
[Interpreted] Next question is from SMBC Nikko Securities, Mr. Maeda.
[Interpreted] I have 2 questions. First is APAC organic growth remains low and Australia and China are low. For Australia, last fourth quarter, it started declining. So the bar is lower, but the management replacement effect, is it starting to show? So the bar is coming down, but are you hitting the bottom right now? And in China, how is it bad? So my first question is APAC.
My second question, the third quarter, new customer, new wins, new acquisition, pace has decelerated somewhat. What is the factor behind it? The new acquisition environment in the fourth quarter and your competitiveness in the fourth quarter, how do you see the fourth quarter?
[Interpreted] Thank you for your question. So Mr. Tim Andree will respond to those questions.
Thank you. This is Tim, Tim Andree. In response to your first question, well, I'll take them maybe in reverse order. In response to your question on the slowdown of the net new media wins compared to our report in August, it does reflect the loss of -- recent loss of our Disney pitch. And that weighed on the numbers, but it has been largely replaced by some local wins in that respect. So that, I believe, answers your first question.
In regard to Australia, sad to say, we have not seen really any green shoots in the market. The situation is very tough. We see continued pitching, but no real wins to remark on. And in the existing clients, some slowdown of spend. So yes, in the fourth quarter, we do have a much more favorable comparator. The business started performing and experiencing its problems in the fourth quarter of last year. But I cannot say that we have had a lot of green shoots that I can report on the performance in the market.
Your third question was related to China. And the business in China has had kind of continued difficulty with the continued kind of client losses as well as the market really has -- had seen a reduction in spend of our global clients and our Japanese clients as well, with some client losses. And the situation in China is becoming much more complex. The traditional forms of advertising are becoming much less prevalent with the growth in the market all going to Baidu, Alibaba, Tencent. Even now, 27% of the consumers in China seem to be employing some sort of ad-blocking technologies. So as this becomes more complex, our needs in China to really reform and structurally reform our offering in that business, and that's going to be more of a mid- to long-term turnaround in -- to see better performance out of our Chinese market.
[Interpreted] Next question is from Barclays, Mr. Julien Roch.
My first question is, you said you would reorganize DAN into 3 divisions: Media, Creative and CRM. Could we get an approximate split of DAN revenue between those 3 businesses? That's my first question.
And then the second question is, on Page 8 of the presentation, you give you full year guidance between Japan and international, and you give us reported revenue and constant currency. Can we have an approximate translation into organic for the 2 regions?
[Interpreted] Thank you for your question. And for the first question, I would like to ask Nick Priday to respond.
Thank you, Soga-san. So in terms of the first question, in terms of the split of the international business across those 3 lines of business, in round numbers, 50% in the Media line of business, 25% in Creative and 25% in CRM.
In terms of the second question, which was around the full year guidance for the international business. We've guided previously that our full year organic growth number, which is obviously stated at constant currency, would be positive. As you can see, the Q3 numbers that we're reporting today are negative 1% in the third quarter and were negative 1% on the first 9 months of the year. That does mean that there's an accelerating growth required to deliver positive growth for the full year. It implies that we need to grow by 2.5% in the fourth quarter.
Obviously, the continued weakness in revenue in Q3 makes that slightly more challenging. We're not changing the guidance today. I would call out that if you look at the growth we've reported over the last 2 years in the third quarter, we faced our toughest comparative in the third quarter of 2018, where we reported plus 7% organic revenue growth. If you take that, combined with the negative 1% in the first quarter of 2019, we get organic growth over the last 2 years of plus 6%, which compares quite favorably with quarter 1 and quarter 2 measured in the same way.
I'm not trying to say that the -- our guidance is not without risk. It's more risky now having reported negative 1% for the third quarter, but we do have some momentum in terms of the new business pipeline and revenues coming online in Q3 and Q4, which means we're working very hard to deliver against that guidance.
And on the same question, on Japan, the 3.8%, which is your full year target on constant currency, what's the equivalent in organic?
[Interpreted] With regards to Japan, 1.4% is the full year guidance for organic growth, 1.4%. And as I explained the third quarter, our organic growth was 1.7% positive year-on-year. And so in the fourth quarter, for Japan operations, we had the Rugby World Cup, and we had also had other large events. So we will benefit from them. And so we will want to achieve 1.4% of organic growth for the full year.
[Interpreted] Next question is from Merrill Lynch Securities, Mr. Kinoshita.
[Interpreted] This is Kinoshita speaking. I have 2 questions. First, International business. Earlier, Tim-san, you said P&G will contribute to the third quarter and 6 months' worth of contribution. In your release, I can see that in the U.S., it improved from September. So P&G contribution is starting from the second half of third quarter -- latter half of third quarter. That's what I was thinking. But is it wrong? Or if it's -- if I'm wrong, then U.S. improved in September. What was the factor behind the improvement of the U.S. in September? That's my first question.
And my second question is about Japan business. TV broadcasting stations have sports events. And so time is strong, but spot is weak. According to you, marketing spending has not decreased much. So under the current circumstances, Olympics next year. How do you see the Olympics next year? Do you anticipate any change? For example, time will sell well, but spot may decrease. So it will be plus-minus 0? Or is this something a risk that we need to prepare for? Or including all these points, if you could comment, please?
[Interpreted] Thank you for the questions. So first question, Mr. Tim Andree would like to respond. And second question will be responded from myself, Soga.
Thank you, Kinoshita-san. This is Tim Andree. The P&G business came online 1st of July and then built up momentum and will continue to get build momentum across the rest of the year. The other improvements you're seeing in the third quarter in the U.S. related to increased martech application -- or implementations and really the strong overall performance of Merkle. I believe that we're continuing to see the momentum of the U.S. market working in that way, and we expect that to continue into the fourth quarter. I hope that answers your question. Thank you.
[Interpreted] So let me answer the second question. So next year, 2020, the TV advertisement, is there any change in our view on the TV advertisement next year? It is a difficult question to answer. 2020, we have a good momentum towards the 2020 Olympics. In September and October, we had the Rugby World Cup, and this was a good touchstone for the Olympics next year. So both time and spot are showing strong signs, strong trends. And for clients, mass media and especially TV media is strong, and we were able to feel that. So we want to use this as a touchstone for next year.
So TV market, centering on the Olympics, we think this will be a good trigger. However, as I said at the outset, from foreign mass media, the advertisement spend is shifting to nonforeign-mass media and to solutions, data, CRM, and commerce, so we're seeing this shift. This is progressing for sure. So as Kinoshita-san said, time and spot is plus-minus 0. It's not that simple. So it's difficult to answer this clearly, but as a start, we are off to a pretty good start.
The next question is from Daiwa Securities, Takeshi Ishihara.
[Interpreted] This is Ishihara from Daiwa Securities. I also have 2 questions. First question, and if you look at the TV broadcasters, the financial results are quite tough. But for your case, you're continuing to expand your digital domain. And you are securing the advertising budget that continues to shift. But if we look into the future, I think the competitive environment will be such that you need to compete with consulting firms more, in that respect, your capability in Japan.
And based on the management resources that you have, are they sufficient for the change? Say, for example, bringing Merkle into Japan, do you need to work on something like that? Or do you need to accelerate some of the efforts? Or do you think status quo is sufficient? If you could explain on this point.
The second question is about International. It's a little bit early, but next year, the pitch environment, what do you think? To the extent possible, if you could disclose offensive pitches, defensive pitches, what is the image that you have for next fiscal year 2020? So these were the 2 questions.
[Interpreted] Thank you very much, Ishihara-san, for your questions. For first question, I will respond. And for the second question, I will ask Tim Andree to respond.
And for the first question, well, the digitalization within the marketing service, this will make a progress without a question, in the advertising area and also traditional to digital and solutions from the advertisement. And the change of -- the speed of change will accelerate in our view. And on the client side as well, we are seeing digitalization and also more solutions. We are seeing progress there. And we, as a group, how can we capture that in Japan? We need to have the right capabilities, and that's going to be very important.
Now, we have been nurturing those or we have been enhancing the digital domain so far or this year, we have managed -- excuse me, we have integrated the subsidiaries like CARTA HOLDINGS, or we have signed a capital -- the partnership arrangement with Septeni and they form part of our group. And it's a very important group company in ISID. So inclusive of all these entities, digitalization of marketing service overall and greater use of technology, I think we have been able to capture that well. And that is the reason why we have been able to achieve steady growth in the digital area.
Then is our management resource sufficient? Well, if we look at the industry, environment and client needs continue to change significantly. So it's difficult for us to say that what we have right now is sufficient. And as a consequence, are we going to accelerate M&A in Japan? Well, it's not really accelerating, per se. Any capability is necessary. We're not going to just depend organic there. We will proactively try to capture from even outside the group inside, so that we will continue to be able to respond to the client needs in terms of services. And so we made an announcement today, from 1st of January, we will change to a holding company structure, where the business overall become more flat. And so innovation can be created from anywhere within the organization. That's the kind of structure we will implement.
As for the second question, I'd like to ask Tim Andree to respond.
Thank you, Ishihara-san. This is Tim Andree. Your question was, you wanted some insight into the future pitch environment, particularly into 2020. The current announced pitches, pitches that we have -- have been announced by clients totals about JPY 4.7 billion in size of media billings. And of that, about 75% of those opportunities are offensive pitches, opportunities for us, with 25% being cases where we're the incumbent. Our expectation, and it's only an expectation, but based upon our assessment of the market, we expect 2020 and 2021 for that pitch pipeline to grow and to be larger than it currently is. However, also looking at the mix, we expect that the defensive pitches may have a slightly higher percentage as we look at 2020 and 2021 based upon our existing contracts with the -- with clients.
So in that respect, those are the major global pitches. Of course, a large portion of our Media business, for example, still remains to be regular pitching for local multi-market media accounts, which really accounts for about 40% of our mix. And that factors in as a kind of constant basis. But the bigger, larger pitches we have vision on are as I described. I hope that helps give you some sense of what we expect, which should be a rather robust new business environment. Thank you very much.
[Interpreted] Next question is from Bank of America, Adrien de Saint Hilaire-san.
I would like to add, please, a couple of follow-up questions to the previous ones. First of all, about the pitching environment, Tim, that you described. Do you find that in the recent pitches that you have participated in that the pricing environment got tougher or perhaps some players have become more aggressive around prices? And the second question on this is, have you observed that new competitors participate in these kind of pitches, perhaps consulting companies or perhaps companies that help and promote in-housing of programmatic capabilities?
Thank you very much for your question. I think the client reviews are always aggressive. And clearly, the pitch environment, pricing does play an element of it, but where clients are expecting more than that, it is total value for their dollars. They're expecting much more addressability in their capability. Data plays a bigger role. So in that respect, pricing is always a factor. It -- there's always that aggressive competitive nature of that business. But in the end, the type of business we want to win is not where we're the lowest bidder.
And in fact, we do lose business because we will not intentionally undercut ourselves in order to bring on business or to win any pitch. But the pitching environment is aggressive. The pricing environment relative to these pitches is aggressive, but it's not only based upon the price. Clients are expecting much more services, but what allows us to have a robust win rate is the combination of our capability. The fact that we can deliver an idea-led data-driven and tech-enabled offerings to clients that -- particularly the -- with the strong data and analytics products we've been able to make that -- since our acquisition of Merkle. And these are the things that make us more competitive in the pitch environment.
Next question is from Goldman Sachs -- Securities, Mr. Sugiyama.
[Interpreted] I also have 2 questions. First question is about expense for Dentsu parent. Also for International, the operating expense came down year-on-year. What type of cost reduction efforts are you implementing? And two, when do you expect this to continue? And is there an impact towards new wins? And that's the first question.
Second, the question, now, Tim, has explained that the accelerating factor in U.S. in September was largely due to Merkle -- or the contribution from the Merkle was quite significant. So specifically, what did happen that led to strong contribution from Merkle in September?
[Interpreted] Thank you for your question. With regards to the first cost-related question, I will respond with regard to Japan. For international business, I'll ask Nick Priday to respond. And for the overseas, the business environment, I would like to ask Mr. Tim Andree to explain.
So with regards to expense for the Japan business, and I don't know whether you know or I think you remember, in our case, in fiscal '17 and '15 and '18, we spent a lot of money on working environment reform. And so of course, in FY '19, the business expense needs to come down. But the business environment changed and a lot. We are spending more money to develop people. And so we spent a lot of money to develop people. And so fiscal 2019, for Japan, overall, it may have come down, but it hasn't come down sufficiently as yet, but the expenses are for development. Apart from that, we have the operating expense, and particularly, IT costs.
Our new IT infrastructure to be implemented. And of course, the money spent on the older, the equipment, we need to review that. We need to work on reducing that. And also, of the operating expense, we will continue to take a closer view and reduce what needs to be reduced. But what needs investments will continue to be invested, but it's not necessary we will stop. So we are looking at everything in quite detail from a 0 basis.
And from here, I'll ask Nick and Tim to respond.
Thank you, Soga-san. So it's Nick Priday speaking. And I'll answer the same question for the international business. In terms our -- the management of our cost base, I think this breaks down into a number of component parts. We've announced the 3 lines of business around Media, Creative and CRM. I think it's important as we move forward that we do understand and drive margin and accountability across the service lines relating to those lines of business. And that is very much the intention in the balance of this year and going into 2020.
I think also, it's important that at the DAN level, Dentsu Aegis Network level, that we look at our cost base across our 3 regions and in the center, and we seek to make sure that we are as efficient as possible in those areas, particularly around the functions in our operations. And we have a number of initiatives around driving operational excellence across our business, which cover both people and organization elements, process and technology, as you'd expect. And those are the key areas of focus for us as we seek to make sure that we centralize our functional teams and then drive both consistency, control and efficiency across our organization, but also drive the operational excellence initiatives, too. So we get better visibility and better business information from which to manage our business going forward. So there's a number of initiatives, which are all very closely connected, that will enable us to manage our cost base effectively and to deliver the margin improvement, which we've committed to over time. Thank you.
And this is Tim Andree, again. In regard to your question about the -- maybe further clarification of the uplift of our business performance in the U.S. and how it relates to Merkle, let me again clarify, I don't want there to be a misunderstanding. Merkle's performance has been consistent and strong and continues to operate at very high levels of growth. But the uplift in the U.S., I attribute, in September, largely to the coming online of the P&G North America win in our Media business that came on stream in July and then built momentum and reached, really, the kind of consistent level in September.
And as I've mentioned before, we'll benefit from that business for the remainder of this year, but also it will have, as a comparable, we'll have 6 months of that benefit next year. So Merkle, there was no particular uplift in September. It's been a consistent high performer in the market and continues to go to strength -- from strength-to-strength. Thank you very much.
[Interpreted] Next question is from Mizuho Securities, Mr. Iwasa.
[Interpreted] This is Iwasa from Mizuho Securities. I have one question. The earlier question is related to mine, activation. What is your sense on the activation? As of August, the advertisement forecast was down -- revised downward in Japan. So -- and activation was not increasing. And that you said was the reason for the downward revision, but now there was the Rugby World Cup and other events. So as we had these events, the activation that you felt in summer and your current feeling after the event or the trend after the turn of the year, is there any change? How do you see it?
[Interpreted] Thank you. Mr. Iwasa for your question. So this is Japan business. So let me, Soga, respond. As overall activation, I earlier mentioned that it was not as strong as we thought, but towards the Olympics next year, we thought the activation business will emerge earlier. But last time, it was not as strong as we anticipated. Including the third quarter, I can say that activation business is becoming more active, for sure. Rugby World Cup was successful and Motor Show and athletics, so the World Athletics Championship was there. So activation is coming up, for sure, towards the next event. So I think we have a good foothold.
[Interpreted] So one additional question, if I may. So by industry, the -- which industry has good activation? Are there strong and weak industries?
[Interpreted] There is not much difference among the industries, strong or weak. This is event-driven. So related to events sponsored, the activation numbers move up or down. So that's the big trend, so the World Athletics Championship and the large events in the fourth quarter. The large -- it depends on the large sponsors. So it's not that there are particular strong or weak industries.
[Interpreted] The next question is from Mitsubishi UFJ Morgan Stanley Security, Mr. Murakami.
[Interpreted] This is Murakami from Mitsubishi UFJ Morgan Stanley Security. The first question is regarding Google. They are not using advertising agency and starting to increase their direct translation with advertisers based on what I hear. So what is the actual situation to your knowledge? If that is the case, so if that is the truth, then are you implementing countermeasures or strategies to counter this? And the second question is [ adage ]. If we look at the ranking of the advertising agency, there are 5, the mega agencies, including yourself and you have Accenture. And you have seen the consulting firm starting come up in the rankings. And in comparison to mega agencies and the consulting firms, where do you think is the difference in terms of competitiveness between these 2 types of entities? And from your perspective, when competing against the consulting terms, how would you intend to compete? And do you have measures for that?
[Interpreted] Thank you for your question. With regards to the first question, the Google-related question, are large platformers doing direct business with clients and omitting ad agencies. And for Japan and International, essentially, the situation seems to be the same. But as for Japan, I will respond. And after that, for international business, I will ask Tim Andree to also comment on that. And with regards to the second question, I would like to ask Tim to respond.
Now this is not just limited to Japan, but true, the client and Google are omitting the usage of agency like us. I am aware that there is [ powerful ] marketing activities are taking place. As to whether this will continue to expand in the future? I think there is a limit to where this can go because the marketing service that we are providing -- the value that we provide, can Google as platformer, can they provide that at a sufficient level to the client? I think not.
And at the same time, Google is a important partner to us. They are a very important trading partner to us. And one can refer them as frenemy, a friend and enemy. And they will play a more important role in advertising. But as I said before, new capabilities, the client marketing services, we -- the key is whether we can continue to provide value. And that is where the role of us and the role of platformers will clearly be distinguished. And that will be the key for us to be able to maintain our position as an agency.
And if I could ask Tim to also supplement, then I will ask for the second part of the question to also be answered.
Thank you, Soga-san. Yes. In the matter of your first question regarding Google, we don't see ourselves being directly disintermediated in a large way from Google media. It's true with some smaller clients and D2C clients do go to Google and some of the social media platforms first. But in large scale, that's not impacting our business, largely because it -- that the role that we could play that Google can't, it is to manage the entire media and marketing ecosystem and balance out in a strategic way the client's investment. When clients go directly to Google, Google's recommendation is for them to buy more Google. And so that has not been a big impact on our business. And as -- so as I mentioned, in many ways, we partner in developing products for -- with Google to help benefit our clients. And so I don't see that as a particularly impactful concern of direct disintermediation of media going to Google in our markets.
In regard to the consultancies, you know that we compete daily against the consultants. Our Merkle and Isobar brands compete and win regularly against them. Our approach is far more about growing the top line and having deep consumer insights in how consumers behave. And then those insights can play themselves into full execution. Where I think the consultants have largely focused on -- less on execution, more on strategy as well as more on bottom line efficiency. So I think there's -- everyone's evolving. They're formidable competitors.
But I'd say, right now, maybe 25% of our business, as we mentioned, is in the CRM space and the competitors in that space are the consultancies, and we are able to win and grow and compete against them and differentiate ourselves, along with being able to use our data and analytics and those types of insight capabilities that come from customer CRM activities to help cross-sell our other services in Creative and Media. So we've -- we're trying to deliver fully integrated solutions for clients that allow them to win, keep and grow their best customers. And we're doing that by delivering still idea-led offerings that are data-driven and tech-enabled. And that's a different offering than currently we see from many of the consultancies. Thank you very much.
[Interpreted] We have no other questions, and time has come, so we would like to end the conference call now. With this, we would like to end the Conference Call to explain the Third Quarter Results for Fiscal Year 2019 of Dentsu Inc. Thank you very much again for your attendance.
[Interpreted] With that, we will close the conference call to explain the Third Quarter Results for Fiscal Year 2019 of Dentsu Inc. Thank you very much for taking time out of your busy schedule to attend. Please discontinue your call.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]