Dentsu Group Inc
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Dentsu Group Inc
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Good morning, and welcome to the Dentsu Group third quarter earnings call. My name is Kate Stewart from the Dentsu Group IR office.
Please be aware that today's call is being recorded. The call is simultaneously held in Japanese and English, and you can choose the language you listen to by using the interpretation key at the bottom of the Zoom screen, as shown. Please make sure the original voice is always on, otherwise, the sound could be disconnected. And for those joining on the telephone line, you can listen to original voice only.
[Foreign Language]
Today's presentations are available on our website, named Q3 Earnings Call Presentation Materials, and will be displayed on the screen during the call. Joining me today from Tokyo, Toshihiro Yamamoto, CEO Dentsu Group.
[Foreign Language]
Hiroshi Igarashi, CEO, Dentsu Japan Network.
[Foreign Language]
Yushin Soga, CFO, Dentsu Group.
[Foreign Language]
From the U.S., Wendy Clark, Global CEO, Dentsu International.
Hello, everyone. This is Wendy Clark.
And from the U.K., Nick Priday, CFO, Dentsu International.
Hi, everybody. This is Nick Priday.
The agenda for today will start with the Q3 review and highlights. Yushin Soga will then present the Q3 financial update, followed by a presentation from Mr. Yamamoto and Mr. Igarashi. After that, we will invite you to ask questions.
Mr. Yamamoto. Please go ahead.
[Interpreted] This is Yamamoto. Good evening, good afternoon, good morning. Thank you for attending Dentsu Group's fiscal '21 third quarter earnings call.
On Page 2, please. The group's recovery continued into the third quarter. Today, we upgrade guidance from August to organic growth of approximately 12% and operating margin of 18% for the group this year. We expect revenues to now exceed those reported in 2019, with underlying operating profit over 20% higher. This performance demonstrates the commitment of our people under COVID and through the time of business transformation.
The recovery began with the post-pandemic bounce in media spend on a global scale, as client confidence follows consumer confidence and spending as COVID-19-related restrictions continue to be lifted. In addition to that, both advertising and promotional spending were boosted in Japan in the third quarter of the year, and Dentsu Japan Network was well prepared to capture the increased client spend.
We have achieved a big transformation in the past 1.5 years. I am confident that we are set to benefit from the continued cyclical recovery in 2021 and the first quarter 2022 as well as the fast-growing demand in customer transformation and technology, which will result in our continued growth.
Slide 3, please. I have selected a number of our successes to share from the third quarter. Firstly, about client and capabilities. In Japan, we announced we had increased our stake in Septeni Holdings for deeper collaboration. Septeni will become a consolidated subsidiary, making Dentsu one of the largest digital marketing partners in Japan, bringing on board expertise in the complementary client base.
I cannot give specific client names, but in Dentsu Japan Network, we are starting to see a new type of partnership with our clients as we further execute against our strategy of becoming an integrated growth partner, integrating our capabilities to support our clients' transformation beyond our traditional marketing specialisms.
At Dentsu International, we further expanded our existing relationship with Pernod Ricard and successfully retained our global remit with Standard Chartered. Dentsu International also saw an integrated win from Burger King, covering our CXM and creative capabilities.
Moving to sustainability and ESG. Wendy Clark spoke at COP26 last week, as Dentsu International is a signatory to the G20 letter and The World Economic Forum open letter calling for ambitious climate policy at COP26. I am proud to announce that Dentsu International has been recognized as 1 of only 7 companies worldwide to have its net zero targets validated under the new standard as defined by the Science Based Targets initiative, SBTi.
We have also announced today a number of changes to our group governance, which I will address later in this presentation, but all of which point to Dentsu Group continuing its progressive journey to improve our governance, leading to the enhancement of value for all stakeholders.
Finally, on our industry recognition, we were delighted for Merkle to be honored with the Salesforce Partner Innovation Award. Merkle was also recognized as a strong performer in the Forrester Wave for loyalty solutions. Carat was named as P&G Partner of the Year. And Dentsu International won a Grand Prix and the Social Good award at the World Media Awards 2021 with the campaign Draw The Line for Malaria No More U.K.
I will now hand over to Soga-san to talk through our financials.
[Interpreted] Thank you, Yamamoto-san. I would now like to take you through the financial results for Q3 and 9 months 2021.
Starting with our headline Q3 results, we reported organic growth of 27.8% with an operating margin of 23.5%, a 1,160 basis point increase year-on-year due to operational leverage from the strong top line.
Q3 is the fifth quarter of consecutive improvement. Dentsu Japan saw an exceptional quarter against the weakest quarter of 2020. Dentsu International saw double-digit growth, and although the organic figure is down quarter-on-quarter, the recovery ratio versus fiscal '19 on a 2-year basis continues to improve.
Moving to our 9-month headline results. Revenue less cost of sales and underlying operating profit and margins were all very strong. The business continues to benefit from the transformation we have undertaken over the past 12 months. Also as a result of the sale of the Shiodome Building, net profit at the 9-month stage is over JPY 100 billion.
Slide 8 shows the organic growth broken down across our 4 regions. In Japan, boosted by Q3 due to the rapid recovery of TV, especially spot advertising and strong demand for digital advertising and solutions.
In Americas, Q3 organic growth rate was 16.3%. The Americas was boosted by media, which reported over 25% organic growth as clients continue to invest in their brands.
In EMEA, organic growth rate was 12.9% in Q3. Media and CXM did well, with Denmark, Russia, U.K., Switzerland, Italy, Germany, all reporting double-digit growth in the third quarter.
In APAC, the third quarter organic growth rate was 7.6%. APAC was weakened because of organic revenue declines in China, the biggest market in the region. However, Australia had a strong quarter, up over 20%, and India returned to growth.
In DJN, Dentsu Inc. reported over 20% growth, driven by TV media, digital advertising and out-of-home media.
Dentsu Digital saw strong growth in both media and digital solutions, reporting 40% organic growth in 9 months, demonstrating the strength of our offer.
ISID has returned to positive organic growth. Solutions for financials and manufacturing were the drivers of Q3 performance. The overall pitch environment remains strong, especially in information and telecommunications sector. Our win rate remains strong, giving us a confident outlook.
In Dental International, Media showed a standout performance for Q3 at 17.3%. Clients are reengaging with our consumers with the trend towards premiumization. Creative performance improved in the third quarter, reporting 7.3% due to almost 20% organic growth in the Americas. Weakness in APAC, particularly China, brought the growth rate lower. CXM is now 33% of International revenues, reporting over 11%.
LiveArea, the acquisition announced last quarter, has already started to deliver synergies for both revenue and costs. Demand is strong for technology implementation, data services and commerce.
This slide covers the movement of revenue less cost of sales on a year-on-year basis. Adding to currency effect, organic growth is the main driver of the revenue increase.
Slide 12 shows us the operating margin on an upwards trend over the past 2 years, demonstrating the impact of our transformation efforts to lower our cost base.
Slide 13 shows the movement of underlying operating profit year-on-year. As I mentioned, the lower operating expenses both in Dentsu Japan and Dentsu International have helped operating profit to rise 70% year-on-year.
Reconciliation of operating profit from underlying to statutory. In the third quarter, we recognized the gain from the total headquarter building sale, which is already factored in the full year guidance.
The next slide is on the reconciliation from underlying to net profit. Firstly, the loss of earn-out and put-option liabilities. The better-than-expected performance means we revalued the business at a higher level, which is then recognized as a loss on PL. Secondly, related tax expenses. This is due to sale and leaseback of headquarters building.
We upgrade our fiscal year guidance today. For the top line, the group's revenue less cost of sales will get back to the level of FY 2019. Dentsu Group's organic growth rate for this year is to be around 12%; Dentsu Japan Network, approximately 17%; and Dentsu International, high single digit.
As for margin, Dentsu Group is expected to deliver 18.0% for this year; Dentsu Japan Network, 23.5%; and Dentsu International, 15.0%. As a result, underlying basic EPS of FY 2021 is upgraded by 12%.
Based on the raised guidance, we also upgraded the annual dividend forecast based on a 30% payout ratio. The dividend is now forecast at JPY 113.5 per share, a record level.
Finally, in my concluding thoughts, Q4 margins will be lower year-on-year in both Japan and International due to phasing of investments in talent, training and technology. Yet our guidance is 18% for the group's operating margin, still implying 310 basis points year-on-year improvement. The group recovery remains on track, with FY '21 revenues less cost of sales to be higher than FY '19 levels. We forecast a record dividend for FY '21 at JPY 113.5. And we continue to see the impact of the cyclical recovery in FY '21 and structural growth in customer transformation and technology in FY '22 and beyond.
Thank you very much. I will pass the microphone to Yamamoto-san.
Thank you, Soga-san. I, Yamamoto, will deliver the updates on the medium-term management plan.
Slide 20, please. As always, I start with our purpose: we exist to realize a better society by contributing to the growth of our clients, partners, people and all consumers. All 64,000 employees understand the importance and purpose of Dentsu Group's role in society that sustainability is the lens through which we do business. By positioning social value creation at the heart of our business strategy, not only will we be able to better serve our clients, bring consistency to our actions and drive growth, but also achieve sustainable business growth for another 100 years to come.
Slide 21, please. In August 2020, I announced a comprehensive review to accelerate our transformation across the group. The review launched with 4 clear objectives, and each saw significant progress. One, create a simplified structure benefiting both clients and internal operations. Significant transformation has taken place across the group. At Dentsu International, we are reducing our brands from 160 to 6 as we de-duplicate the business, making it easier to navigate our clients and our people. In Dentsu Japan Network, the consolidation of a number of our brands is ongoing.
Two, structurally and permanently lower operating expenses. Due to cost reduction across the group, we have delivered the reduction of circa JPY 33 billion operating cost at the 9-month stage against the same period in 2019 and remain committed to increasing margins across the group year-on-year.
Three, enhance the efficiency of our balance sheet. Over the past 12 months, we have sold a number of assets on the balance sheet, including the headquarters building in other property assets in Japan and the strategic shareholders in Recruit, Macromill and others.
Four, maximize long-term shareholder value. We announced in February and are expecting to complete a maximum JPY 30 billion buyback. As Soga-san stated earlier, our dividend guidance for fiscal year 2021 is at a record level for the group.
In 2020 and 2021, the transformation of Dentsu Group was significant. And we took a big step forward to realize sustainable growth of corporate value. The most important thing at this point is to accelerate and improve the scale and quality of transformation. We should not believe the transformation is complete. January is the right time to change the leadership.
Please turn to Page 22. As we shift to the new management team, Dentsu Group's transformation will accelerate, sustaining our momentum. Igarashi-san is the best candidate to drive that process. For 35 years of his career, he has been at the forefront, working with clients and contributing to their growth. Partnering with our clients, contributing with clients to realize a sustainable society, building an ecosystem with diverse players to achieve the goals. These are all the things he has led, and the experience has brought growth to Dentsu, too. He knows deeply about Dentsu. I believe Igarashi-san is the only person who can lead the acceleration of the transformation and improvement of the corporate value.
Igarashi-san, please.
[Interpreted] Thank you, Yamamoto-san. Everyone, this is Igarashi speaking.
I'm honored to be the CEO of Dentsu Group after Yamamoto-san. My priority is to execute the medium-term management plan as one of the members who committed to build the plan and achieve the goals. And I will accelerate the transformation for the sustainable growth of Dentsu Group's corporate value. To do so, with the Board, I am going to establish the governance to move the group on to the next level.
Firstly, Tim Andree will step down as an Executive Officer, and he will be nominated as the Chairman at our AGM in March. Today, we announced the separation of the Chairman and CEO role to strengthen our governance.
Secondly, we announced 4 new nominations as Board members who bring diverse experience of global management, digital businesses and finance and accounting. Their combined backgrounds will broaden the experience on the Board and reinforce the foundation of the governance for growth.
Finally, I am pleased to announce Norihiro Kuretani-san as CEO of Dentsu Japan Network. He has accelerated the expansion of our digital capabilities across the whole group. We share the same ambition of transforming Dentsu Group to become an integrated growth partner to our clients. He is considered a talented individual with a track record of progressing our transformation.
Wendy Clark remains Global CEO of Dentsu International. I'm looking forward to collaborating with her deeper than before as we expand our vision of integrated growth solutions, ensuring that Dentsu Japan Network and Dentsu International can work closely together.
The new Board makeup will provide improved diversity as we welcome new directors with global experience and a track record of business transformation. Our new members have experience with multinational organizations such as Sony, Disney and Recruit. The new Board makeup will help lead Dentsu Group into the next stage of growth.
In February 2021, we set our medium-term goals for the business against 4 pillars: first, transformation and growth; second, operations and margins; third, capital allocation priorities and shareholder returns; and fourth, social impact and ESG initiatives. These pillars and the focus on customer transformation and technology and growing our exposure to the fast-growth areas of the industry will continue for our group.
We are seeing the fast and scaled recovery in the advertising business this year. The post-pandemic cyclical recovery will continue to benefit the group throughout 2021 and into the first quarter of 2022, and we remain well placed to capture structural growth in customer transformation and technology in 2022 and beyond.
Our fiscal year guidance indicates group revenues for FY '21 will be higher than those seen in 2019 and underlying operating profit over 20% higher. I'm confident in our outlook and look forward to engaging with as many of our shareholders and other stakeholders in the coming months.
Thank you very much. I will now hand back to Yamamoto-san.
[Interpreted] Thank you. This is Yamamoto again.
This is my final presentation as CEO of Dentsu Group. It has been an honor and a privilege to serve for many years at an exciting company with such a rich history and to take a responsible role through the period of transformation.
Since the summer of a year ago, we have laid the foundation for the company to achieve sustainable growth. Or we can say that not only for the last 12 months, but for the past 5 years, we have put our effort to keep updating the foundation for the transformation and sustainable growth. The Q3 results show a company in full recovery and business transformation, capitalizing on the market opportunities with rebounds across all business lines.
I am sure the new executive team led by Igarashi-san and Board leadership will accelerate the path forward to become the world's leading organization that transforms our clients' business and drives top line growth through the power of our creativity, technology and people.
Thank you for your time, and we look forward to answering your questions. Kate, please.
Thank you, Yamamoto-san. We will now start the Q&A session. [Operator Instructions] We'll take a short pause for a moment. Thank you.
Our first question comes from Julien Roch from Barclays.
Can you hear me?
We can. Thank you. Go ahead, Julien.
Yes. Yes. So 2 questions. The first one, if I look at your guidance for the full year organic of 12% for the group and 17% for Japan, we can work out that International is 8% to 9%, about 8.5%. And based on the performance over the first 9 months, then we have about 8.5% in Q4. 8.5% in Q4 is a 3-point slowdown versus Q3 if you look at the 2-year stack, which is kind of similar guidance to Publicis, Omnicom and WPP. But are you actually seeing a slowdown? Or are you just being conservative because you want to account for potential supply chain disruption or budget adjustment in December? So that's my first question. Are you really seeing a slowdown or you're just being conservative?
And my second question is, this year, organic is higher than usual because of the recovery. But if you look into next year, do you think next year can be a normal growth year for Dentsu overall, i.e., kind of 3% to 4% organic? Or is there other factors that might make 2022 another abnormal year?
[Interpreted] Julien, thank you for your questions. The first question will be addressed by Wendy. The second question will be addressed by Soga-san. Wendy, please?
Thank you, Julien. It's Wendy. Yes, look, as we're looking into Q4, much as you were referencing in your question, we are obviously responding to what we're seeing from clients and looking at our plans accordingly. I think that our clients very much have a growth mindset going into Q4. I want to say that. When we talk to our clients, we hear continued -- a mindset of seeking incremental growth. But we're obviously consolidating what we see from them and charting our plans accordingly. And yes, to your point, our guidance would be holding -- you see us coming in about 8.6% right now, and we will be holding that for the remainder of the year. So there's not a conservatism in this. It's more a reflection of our plans and understanding with our clients.
[Interpreted] This is Soga speaking. I would like to respond to the second question. Julien, thank you for your question. As many of you know, 2021, we were able to record a very high growth rate recovering from 2020 in business. In our medium-term business plan, as it is pointed out in the plan, during the term of the medium-term business plan, 3% to 4% CAGR is to be achieved. In the first year, hurdle becomes higher, certainly. But beyond next year, we expect -- we would like to expect growth. In any event, in 2022 and years beyond, the guidance in the March earnings announcement, we would like to indicate our outlook. Thank you.
Our second question will come from Mr. Maeda from SMBC Nikko Securities.
[Interpreted] This is Maeda from SMBC Nikko Securities. I have 2 questions. First is about the third quarter Japan organic growth, it was high. So judging from that, Tokyo Olympics effect was enjoyed to a certain extent, I think. So this may overlap with the earlier question. But going forward, looking into the future, especially next year, is there going to be a reactionary fall from the Tokyo Olympics? So will this be a factor that pushes down the growth rate next year? So that is my first question.
Second question is in the medium- to long-term organic growth, to maintain the medium- to long-term organic growth rate, customer transformation and technology will be important. So with the growth of CT&T, how much can this sustainably push up the organic growth? If you could show us your thinking.
Thank you very much, Mr. Maeda. So both one -- first and second question will be answered by Soga-san and also have additional information from others, if any. Soga-san?
[Interpreted] Yes, Soga speaking. Thank you very much, Maeda-san, for your question. So first about the third quarter results of the Japan business. As you know, Japan business, third quarter, the advertisement industry as a whole recovered from COVID-19. In other words, us, advertising agency and TV and mass media, Internet media, those companies' performance improved significantly. So with this expected recovery from COVID, the clients' demand was very strong. And as you correctly mentioned, Olympics, Paralympics contents were in mass media, pushed the usage of mass media and Internet media.
So in that sense, this -- you can say that it's a one-off event. But from 2020, the advertisement industry, it pushed up the entire recovery of the entire advertisement industry. So if we look at third quarter alone, this year is a big growth. So third quarter 2022, we'll have some reactionary fall. However, for the full year next year, we will use the recovery from COVID as a basis and expect for further growth. So that is all for the first question.
Now second question. As you correctly mentioned, our entire group is now pursuing group transformation, business transformation, and we just started. As I alluded to earlier, overseas, we acquired LiveArea; and in Japan, B, C and DX business will be expanded going forward.
Now in terms of profit margin, how much impact will this have on the profit? It's difficult to say in one word. First of all, the business transformation will be -- will progress in phases. And so depending on the speed, the profit being generated may be different. And in order to achieve the transformation, we need to spend costs in various ways. But at any rate, in the medium-term management plan we announced in February, the operating margin phased improvement is committed to you. So we will look at the progress of the business and confirm our appropriate level of operating margin. Thank you.
Toshi-san, it's Wendy. I might just layer on here, if that's okay with you, on Merkle's performance because I think it's material to that CT&T question. In Q3, as you know, we saw double-digit performance from Merkle, and that's already ahead of the 2019 revenues for them. And they were cycling a less impact in 2020. We've got a very strong pipeline for Merkle, and they enjoy a 60% win rate.
So to Soga-san's point on the investment here, we see that investment turn into growth. We're up over 20% in commerce and experience. We're up over 30% in B2B, and we're up over 20% in our analytics business. So I think taken together, you can see our positioning around CT&T. We know it's going to be the fastest growth vector in the industry. We're investing to yield the growth and position our company well for the future.
Thank you. Our next question will come from Mr. Ishihara from Daiwa Securities.
[Interpreted] This is Ishihara from Daiwa Securities. I have 2 questions. The first question is about the sale of Shiodome headquarters building. This deal was closed, and cash, I believe, was received. And this cash from Shiodome building sales, will it be invested in growth business or return to shareholders or retained as retained earnings? I believe the cash will be allocated. And based on what thinking will you be allocating the cash?
The second question is a similar question, but investment in growth business, when you make investments in growth business, what are your priorities? For example, between International and Japan, is a priority given to International over Japan? Or is Japan prioritized over International? Or I believe you will be investing in digital domains to increase headcount. Is that why investment will be necessary? Or do you need strength in digital solutions? What parts are you going to accumulate? These are my questions, please.
[Interpreted] Ishihara-san, thank you for your questions. The first question will be addressed by Soga-san. And second question initially will be addressed by Soga-san, and additional comments may be offered by other members.
[Interpreted] This is Soga speaking. Ishihara-san, thank you for your question. First, as you correctly pointed out, we are -- we sold non-core assets after comprehensive review, and we have cash accumulated as a result.
As for the use of the proceeds, growth investment and shareholder return, all of these combined, we have to look at how the proceeds will be used. First, we are implementing transformation, business transformation, and we also have to invest in growth over medium to long term. And we consider this to be most important. Under MTMP, management direction had already been indicated, and including specific direction of growth investment, we would like to update MTMP next year. And in addition, regarding additional shareholder return, we would like to indicate that when we update our MTMP next year. That is my answer to your first question.
And as for the priority of business investment, we do not divide between International or Japan. Of course, Japan is an important market. And outside of Japan, North America is an important market. Priority market for group as a whole will be clarified, and there will be focused investment.
As for business areas, so far, during the MTMP CT&T business, data technology-based business will be increased to 50% in terms of the ratio of revenue less cost of sales, and business is to be expanded. And therefore, in these focus markets, investment will be made. That is the thinking. Thank you for your questions.
Igarashi-san and Wendy will offer additional comment. Igarashi-san, please.
[Interpreted] Thank you. This is Igarashi speaking. In Japan business, customer transformation and technology, CT&T, D, C -- DX, B, C, D, that is how we define CT&T. And in Japan, especially CX domain, customer experience domain, that domain is considered to be important emphasis area, especially digital marketing and digital promotion are considered important, and also commerce area is important. These areas are considered very important. And we have to enhance our capabilities in these areas. And as for DX, how to secure talent, these are emphasis areas in Japan business.
Wendy, could you discuss International business?
Thank you, Toshi-san. Yes, go ahead, Nick. You jump in, please.
Sorry. Thank you, Wendy. Look, just very quickly, adding -- you have recognized that we have good balance sheet flexibility again, which is very positive. Our M&A pipeline is certainly active again. Our M&A committee resumed meeting earlier this year. We've already completed the LiveArea acquisition, which is very positive for the development of our broader business, not just the CXM service line. And we do really continue to focus our M&A firepower on developing the CXM and CT&T business in fast-growth areas, such as digital transformation and e-commerce, and that's where we really see the long-term structural growth in the industry. As well as that, we want to enhance our market-leading capabilities with our key technology alliance partners, including Salesforce, Adobe and Google. And so expect more to come in terms of us investing in growth for the medium and long term for the benefit of our shareholders. Thanks.
Okay. Thank you very much. Our next question comes from Fiona Orford-Williams from Edison.
Good morning. First of all, thank you for the update on Merkle. Wendy, perhaps if you could tell us a little bit more about what's going on in the rest of the International business, particularly on the Creative and whether you're looking for that to pick up in Q4 and into next year.
And my second question is regarding the transformation program. Could you give us an update on the progress that's been made in Q3 and your -- and the short-term outlook for that, particularly in view of the intention to accelerate the transformation?
[Interpreted] Thank you very much, Ms. Williams. So the second question is also on the International side, right? Am I right? So for both first and second question will be from Wendy. Wendy, please?
Thank you, Toshi-san. Thank you, Fiona. Yes, let's talk about our Creative business. I mean, in Q3, you'll see that we're reporting 7.3% growth. That does start to indicate the bounce back of Creative. We've seen that drag the business a little bit earlier in the year based on the events business, MKTG obviously, significantly impacted last year, but we're starting to see those events come back. We're starting to actually see virtual events, too. So we have both physical and virtual, and so you're seeing that play out in our Q3 results.
Within those results, both the Americas and EMEA had double-digit performance in Creative. So we're particularly feeling positive about that. And we're seeing client confidence now come back into this space along with what would have been the quick -- quicker avenue, which is obviously switching media on. So you see that substantially within our performance, but now Creative coming in behind that.
Also probably worthy noting that Fred Levron, our new Global Chief Creative Officer, started November 1. So he now is on board very rapidly integrating into our business with our people and with our clients, already having client meetings and engagement. So we feel very positively about where Creative is heading from here on out, starting with this performance in Q3.
Switching to the transformation, Nick, I might hand over to you for a comprehensive update, if I may.
Sure. Thank you, Wendy, and thank you, Fiona, for the question. Look, I think we continue to make really good progress on our transformation. The goal is to be the most integrated agency business in the world. And I think our program is ambitious, but we're making really good progress against it. We are de-duplicating the business, simplifying the business, making it easier for clients to navigate our services and for us to drive growth in the medium to long term. We're also centralizing our back-office functions. We've made really good progress in that regard. Aligning all of our businesses onto the same common systems and platforms, really pursuing an offshoring agenda to drive efficiency but also competitiveness when we're pitching for new business.
And so I think we would say that we're making good progress in terms of our accelerated transformation. We are delivering returns in line with our business case when we set out on this journey. We're doing that for a lower cost to achieve, which is very positive. And so we've delivered a strong improvement in profitability this year as a result of these initiatives. Our profitability is also over 20% versus 2019, so it's a significant improvement.
And as we look forward, I think all the initiatives that we are undertaking provide a strong midterm margin case. So very positive in terms of our progress. There's still more work to do, but we will undertake that with a continued vigor and rigor. Thank you.
[Operator Instructions] For our next question, we will hear from Mr. Kinoshita of Bank of America.
[Interpreted] Can you hear me?
We can. Please, carry on.
[Interpreted] I was not -- my PC went down. I was not able to hear everything. So if this is the same question as before, my apologies. The first question, International organic growth in comparison to your peers seems that recently, in Americas, in comparison to the trend of the peers, you are superior. But in Asia or in Europe, it seems somewhat behind. Is this due to client reasons? Or is it because of Merkle capability? And because of Merkle capability strength in the United States, is that why growth is higher in Americas? If latter is the case, then these strong capabilities, will these capabilities be deployed in Europe and Asia more effectively? Are there specific measures you have in mind to achieve this? That is my first question.
And the second question is when I look at your full year forecast, in the fourth quarter, excluding onetime factor, expenses from revenue less cost of sales and underlying profit, operating profit, the cost seems to increase by 23%, a very large increase in cost. For International, towards the end of the year, cost was contained significantly towards the end of the year, so I can understand that it will increase as a reaction to that. But it seems that according -- as far as I look at the margins, cost will also increase substantially in Japan as well. How do you plan to spend the money? And how will that be reflected in the growth going forward beyond next year?
[Interpreted] Kinoshita-san, thank you for your question. First question will be addressed by Wendy. Second question will be addressed by Soga-san.
Thank you, Kinoshita-san, for the question. Yes, you are reading our results correctly. We had a very strong performance in the Americas. That's growth across all service lines. So that is confidence and spine, but you do pull out Merkle as well as Media. And then just to my previous answer on Creative, so we've seen wins an expansion with Walgreens, J&J and Altria with CXM. We've seen wins on Hilton, Cracker Barrel and Cox on Media. And in Creative, we've seen wins and expansions with existing clients, American Express, 7-Eleven and Mondelez and GM. So across the board, a very strong performance.
In APAC, we have seen some softening in China particularly that was referenced in Soga-san's earlier comments. What we're seeing is some delay and cancellation of some projects in that region. We have particular exposure in the automotive sector, and that has impacted our performance so far. But we do see performance continue in Media and CXM. So this is really focusing on the Creative area where we need to restore and gain our footing back with some of those delayed and canceled projects. We also have limited exposure to local clients in China. And so that is an area of focus for us also.
So yes, to your question, we are focusing on that. I would comment, though, in that region, we've seen now a standout performance from Australia after many quarters of challenged performance. We're seeing Australia really restore its performance now, 20% growth in the quarter. So we feel strongly that, that market is going to continue to contribute to our performance.
[Interpreted] This is Soga speaking. I would like to address your second question. As you correctly pointed out, in the fourth quarter, we expect increase in cost. First, top line will increase. As a result, there will be increase in personnel costs, and we will hire personnel for customer transformation and technology. And as an assumption, the third quarter, in a positive way, was an exceptional quarter. It was a special quarter. Revenue less cost of sales increased substantially. And cost side, in comparison to last year, did not grow as much. In February, when we announced the MTMP and in this year's performance, there was a very strong commitment after that announcement. And there was a very stringent control of costs. Therefore, the spending, where it was needed, there was not as much spending, and we have to make that spending, including hiring of personnel.
As for operating expenses, we announced the consolidation of Septeni, and we are preparing for integration of companies in Japan, and there will be expenses for reorganization. I will not be -- I'm not able to discuss breakdown, but personnel cost increase and technology or IT cost increase account for the majority. And how much of an impact there will be for performance in the next fiscal year and beyond? First, we are committed to CT&T transformation in our MTMP. And this investment in CT&T is necessary. In any event, we will make sure that there will be appropriate growth in the top line and ensure a margin that is satisfactory to our stakeholders, and we will dynamically use cost that is in between the top line and profit.
Regarding International, Nick will respond. Nick, please?
Thank you, Soga-san. Thank you for the question. Let me build quickly on the International margins. I think, first of all, it's recognized that we've delivered a strong margin performance in Q3 and on a year-to-date basis. As we said, margin up significantly year-to-date. That's a result of the transformation and the cost savings we initiated last year as well as a tremendous effort from all of our people. We've reiterated not only the revenue guidance for the full year but also our 15% margin guidance for the full year, which we brought forward from 2022.
But we do need to recognize that there is an ongoing need for us to invest in the business. There is an outsized impact of that in the fourth quarter due to timing and phasing. We're investing in our people, in incentives, which were not recognized for the most part in 2020, in talent programs as well as IT infrastructure to make working with us from a client perspective as frictionless as possible. We're also continuing to invest heavily in automation, as I've talked about previously, as well as investing in overseas delivery hubs and nearshore locations which reduced our cost to serve over time. And ultimately, that makes us more competitive and will drive sustainable long-term growth.
If we look at the longer-term margin, I've just talked previously about what I think is a compelling case for our margins over the midterm. Going into 2022, we think the scope for margin increase is more modest as we need to continue to balance the need for investment in the business as well as sustaining and delivering long-term margin improvement. But we certainly see a strong case for margin improvement over the midterm. And I hope the comments I've made explain the full year margin guidance as well.
Our next question comes from Rajesh Panjwani from JPMorgan Asset Management.
Can you hear me?
We can. Please, go ahead.
So first of all, I would like to thank Yamamoto-san for his service to the company, and wish all the best to Igarashi-san and his team. I have 2 questions, both related to margins. First question is on Japan margins. This year, margins are substantially higher than what we have seen over the last few years. Are these levels sustainable going forward?
And second, there's a big gap now between International margins and Japan margins. Over the midterm, should we expect the gap to narrow? And is there room for International margins to catch up at least partly with Japan margins?
[Interpreted] Thank you very much, Rajesh-san, and thank you so much for your kind, warm words. So first and second question will be answered by Soga-san.
[Interpreted] This is Soga speaking. Thank you very much for your question. So first of all, Japan's margin, whether it's sustainable or not, let me answer. First of all, it's true that the third quarter performance was extremely high margin, and our full year guidance, 18%. As I mentioned earlier, third quarter, the entire industry was recovering. So this will be the starting line for 2022. So how we can conduct the structural reform and business transformation to grow our top line, we are in that phase now. So it's true that the third quarter was -- helped us a lot. But in the full year, this margin level, we hope, is sustainable. We want to make this sustainable. In the MTMP, a sustainable improvement, continuous improvement of margin is committed to you. So -- but as Nick-san mentioned earlier, the pace of improvement will slow down.
Now regarding the gap between Japan and International margin, will this gap narrow going forward? Japan's market is 1 country and International market is over 140 countries. And so the content of the business is now changing. And so margin, it's difficult to compare on an apple-to-apple basis. So my conclusion, my answer is, the margin may -- whether margin will merge, it's difficult because the business structure is completely different. So the operational efficiency is difficult to compare. Thank you. I hope this answers your question.
Yes, it does.
Thank you. Our next question is from Mr. [ Ashizawa ] from Okasan Securities. Mr. [ Ashizawa ], can you hear us? I think we'll leave it there. He's lowered his hand. So given that we've reached 11:30, I think we'll close the call there. Thank you very much for joining the call, and please feel free to disconnect. Thank you.
[Interpreted] This is Yamamoto. Thank you very much.
[Interpreted] This is Igarashi. Thank you very much.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]