Dentsu Soken Inc.TSE: 4812

Consolidated Financial Results for the Third Quarter of Fiscal Year Ending December 31, 2024 (Japanese GAAP)

Oct 31, 2024 at 6:25 AM UTC · Issued by Dentsu Soken Inc.

Note: This English translation is solely for reference purposes and not a legally definitive translation of the original Japanese text.

In the event a difference arises regarding the meaning herein, the original Japanese version will prevail as the official authoritative version.

October 31, 2024

Consolidated Financial Results for the Third Quarter of Fiscal Year Ending December 31, 2024 (Japanese GAAP)

Name of Listed Company:	DENTSU SOKEN INC.
Listed Exchange:	Tokyo
Code Number:	4812
URL:	https://www.dentsusoken.com/english
Representative:	Hirohisa Iwamoto, President, CEO and COO
Contact for Inquiries:	Naoto Momiki, Executive Office
	Tel: +81-3-6713-6160

	Date of scheduled payment of dividends:		-
	Quarterly earnings supplementary explanatory documents:	Yes
	Quarterly earnings presentation:			Yes (For analysts, institutional investors, etc.)
						(Amounts less than one million yen are rounded down.)
1. Consolidated Business Performance for the Third Quarter of FY2024 (from January 1, 2024 to September 30, 2024)
(1) Consolidated Operating Results (Cumulative)				Percentages indicate year-on-year increase/(decrease)
			Net sales		Operating profit (loss)		Ordinary profit (loss)	Net profit (loss)*

			(million yen)	(%)	(million yen)	(%)		(million yen)	(%)	(million yen)	(%)
	Third Quarter of FY2024		112,231	6.6	14,463	(7.0)		14,413	(8.2)	10,074	(7.0)
	Third Quarter of FY2023		105,267	12.2	15,551	9.6		15,695	10.7	10,838	13.2

* Profit attributable to owners of parent

Note: Comprehensive profit: Third Quarter of FY2024: 10,156 million yen (down8.6%); Third Quarter of FY2023: 11,108 million yen (up10.5%)

	Net profit (loss)	Net profit per share
	per share	after dilution
	(yen)	(yen)
Third Quarter of FY2024	154.83	-
Third Quarter of FY2023	166.56	-

(2) Consolidated Financial Position
	Total assets	Net assets	Equity ratio
	(million yen)	(million yen)	(%)
As of September 30, 2024	141,204	85,977	60.9
As of December 31,2023	133,333	82,971	62.2
Reference: Total shareholders' equity: As of September 30, 2024: 85,977 million yen; As of December 31, 2023: 82,971 million yen
2. Dividends

			Dividends per share
Record date	End of first	End of second	End of third	Fiscal year-end	Full year
quarter	quarter	quarter

	(yen)	(yen)	(yen)	(yen)	(yen)
FY2023	-	44.00	-	56.00	100.00
FY2024	-	54.00
FY2024 (forecast)			-	54.00	108.00

Note: Revision to the dividend forecasts from the latest announcement: No

3. Consolidated Forecasts for FY2024(from January 1, 2024 to December 31, 2024)

Percentages indicate year-on-year increase/(decrease)

	Net sales		Operating profit	Ordinary profit	Net profit *		EPS

	(million yen)	(%)	(million yen)	(%)	(million yen)	(%)	(million yen)	(%)	(yen)
FY2024	152,000	6.6	20,000	(4.9)	20,000	(5.9)	14,000	(4.5)	215.14

Profit attributable to owners of parent

Note: Revision to the consolidated forecasts from the latest announcement: Yes

Notes

1. Changes in the scope of consolidation for significant subsidiaries (Changes in specified subsidiaries resulting in change in the scope of consolidation): Yes

New: 1 Company name: Mitsue-Links Co., Ltd.

Exclusion: - Company name: -

Application of special accounting practices in the preparation of the quarterly consolidated financial statements: None
Changes in accounting policies, changes in accounting estimates and restatements:
1. Changes in accounting policies in accordance with revision of accounting standards: None
2. Changes in accounting policies other than 1) above: None
3. Changes in accounting estimate: None
4. Restatements: None

4. Issued and outstanding common stock

Number of shares issued and outstanding at the end of the period, including treasury stock
Number of treasury stock at the end of the period
Average number of shares outstanding for each period

September 30, 2024:	65,182,480 shares	December 31, 2023:	65,182,480 shares

September 30, 2024:	107,821 shares	December 31, 2023:	112,297shares

Nine months ended	65,073,187 shares	Nine months ended	65,069,464 shares
September 30, 2024:	September 30, 2023:

This quarterly financial report is outside the scope of quarterly review procedures under the Financial Instruments and Exchange Act.

Explanation regarding the appropriate use of forecasts of business results

Forecast figures are projections based on information available at the time of release and are not intended as a guarantee that the Company will achieve these targets. Actual results may differ significantly from the above forecasts as a result of changes in the business environment and other factors.

Index of the Attachment
I. Qualitative Information on the Consolidated Financial Results for the Subject Period
1.	Explanation of Business Results…………………………………………………………………………	2
2.	Explanation of Financial Position …………………………………………...……………….………….	4
3.	Explanation of Consolidated Financial Results Forecasts ………………………………………………	5
II. Consolidated Financial Statement
1.	Consolidated Balance Sheets ……………………………………………………………………………	6
2.	Consolidated Statements of Income and Consolidated Statements of Comprehensive Income
	[Consolidated Statements of Income] ………………………………………………………………….	8
	[Consolidated Statements of Comprehensive Income] …………………………………………………	9
3.	Notes on Quarterly Consolidated Financial Statement
	(Segment Information and other) ………………………………………………………………………	10
	(Notes on Significant Changes in Shareholders' Equity) …………………………………………………….	11
	(Notes on Going Concern Assumption)………………………………………………………………………	11
	(Notes on the Quarterly Consolidated Statement of Cash Flows) ………………………………………	11

－ 1 －

Qualitative Information on the Consolidated Financial Results for the Subject Period

1. Explanation of Business Results

						(Millions of yen)
		Third quarter of	Third quarter of		YoY
		FY2023	FY2024	Variance		% change
		(cumulative)	(cumulative)

Net sales	105,267	112,231	6,964		6.6

Operating profit	15,551	14,463	(1,088)		(7.0)

	Operating profit margin	14.8%	12.9%	(1.9p)		-

Ordinary profit	15,695	14,413	(1,282)		(8.2)

Profit attributable to owners of parent	10,838	10,074	(764)		(7.0)

During the third quarter of the current consolidated fiscal year (January 1, 2024 to September 30, 2024), the Japanese economy continued to show a moderate recovery trend with improvement in the employment and income environment, despite Fluctuations in the financial capital markets and rising prices. The business environment surrounding our group also remained firm, with strong corporate appetite for digital investment.

Amid these circumstances, we changed our company name from Information Services International-Dentsu, Ltd. to DENTSU SOKEN INC. on January 1, 2024. At the same time, we expanded our business functions and made a fresh start as a company that drives societal evolution combining system integration, consulting, and think tanks.

The current consolidated fiscal year is the final year of medium-term management plan "X (Cross) Innovation 2024." which started in 2022. Our group, under the four activity policies of "Business domain expansion," "New capability acquisition," "Earnings model innovation," and "Management foundation innovation," is maximizing the new corporate brand and business functions to expand business performance. We also consider the three-year period beginning in 2025 as extremely important for the realization of our long-term management vision "Vision 2030," and the entire company is working together to formulate the next medium-term management plan to achieve growth that is not an extension of the past plan.

In the third quarter of the current consolidated fiscal year, net sales were ¥112,231 million (up 6.6% year on year), operating profit was ¥14,463 million (down 7.0% year on year), ordinary profit was ¥14,413 million (down 8.2% year on year) and profit attributable to owners of parent was ¥10,074 million (down 7.0% year on year).

Net sales increased mainly in the Financial Solutions Segment and Manufacturing Solutions Segment. Operating profit increased due to the effect of increased sales, all profits items declined due to higher selling, general, and administrative expenses. These expenses were driven by increased personnel costs resulting from an increase in the number of personnel, raised base salaries, and an increase in the man-hours spent on sales support by engineers.

－ 2 －

Net sales, operating profit, and business results by reportable segment are as follows.

Net sales and operating profit (loss) by reportable segment

								(Millions of yen)
	Third quarter of FY2023	Third quarter of FY2024	Variance
		(cumulative)			(cumulative)
Reportable segment

	Net sales		Operating	Operating	Net sales	Operating	Operating	Net sales	Operating
			profit	margin		profit	margin		profit
Financial Solutions	22,582		2,577	11.4%	24,021	2,707	11.3%	1,439	130

Business Solutions	17,466		4,571	26.2%	17,137	3,793	22.1%	(329)	(778)

Manufacturing Solutions	29,819		3,459	11.6%	34,536	3,616	10.5%	4,717	157

Communication IT	35,398		4,942	14.0%	36,535	4,345	11.9%	1,137	(597)

Total	105,267		15,551	14.8%	112,231	14,463	12.9%	6,964	(1,088)

Status of business operations by reportable segment Financial Solutions

The main business of this segment is providing IT solutions that support various financial operations at financial institutions and other companies.

Net sales and operating profit increased due to expanded sales and implementation of third-party software in the accounting area to the banking industry and sales and implementation of Lamp, management system for leasing and finance operations, increased to the leasing industry.

Business Solutions

The main business of this segment is providing IT solutions for business management operations, centered on accounting and human resources.

Net sales decreased due to the peak out of several projects in the human resources and accounting areas, leading to sluggish sales and implementation of solutions in these areas. Profit also decreased due to a significant increase in personnel expenses in line with strategic personnel allocation, in addition to the impact of reduced sales.

Manufacturing Solutions

The main business of this segment is providing IT solutions for the entire product lifecycle, from product development and production to sales and maintenance in the manufacturing industry.

Net sales and operating profit increased due to the expansion of consulting to support system grand design and engineering, as well as sales and implementation of Teamcenter, product lifecycle management solution, mainly to the transportation equipment and electric and precision instruments industries.

Communication IT

The main business of this segment is providing IT solutions that support companies optimize their value chains and business processes, from marketing to core business areas.

Net sales increased due to the expanded implementation of SAP solutions mainly to the machinery industry. On the other hand, profits decreased due to an increase in personnel expenses, the occurrence of goodwill amortization expenses due to the acquisition of Mitsue-Links Co., Ltd. as a subsidiary, and the impact of a project that was unprofitable in FY2023 continuing at a low profit level.

－ 3 －

2. Explanation of Financial Position Status of Assets, Liabilities and Net Assets

Assets

Total assets at the end of the third quarter of the current consolidated fiscal year increased by ¥7,871 million from the end of the previous consolidated fiscal year to ¥141,204 million. Current assets decreased by ¥1,909 million from the end of the previous consolidated fiscal year to ¥112,904 million. This was due to progress in the collection of accounts receivables, as well as a slight increase in funds (cash and deposits, and deposits paid) due to an expense for the acquisition of shares of Mitsue-Links Co., Ltd, while collecting accounts receivable, despite an increase in advance payments related to subscription and maintenance contracts for services to customers. Non-current assets increased by ¥9,780 million from the end of the previous consolidated fiscal year to ¥28,300 million, mainly due to an increase in goodwill resulting from the acquisition of shares of Mitsue-Links Co., Ltd.

(2) Liabilities

Total liabilities at the end of the third quarter of the current consolidated fiscal year increased by ¥4,865 million from the end of the previous consolidated fiscal year to ¥55,227 million. Current liabilities increased by ¥4,735 million from the end of the previous consolidated fiscal year to ¥52,357 million, mainly due to an increase in contract liabilities associated with the provision of maintenance and subscription-based services. Non-current liabilities increased by ¥130 million from the end of the previous consolidated fiscal year to ¥2,869 million.

(3) Net assets

Net assets at the end of the third quarter of the current consolidated fiscal year increased by ¥3,006 million from the end of the previous consolidated fiscal year to ¥85,977 million, mainly as a result of an increase in retained earnings due to the recording of profit attributable to owners of parent, despite the payment of dividends from retained earnings.

－ 4 －

3. Explanation of Consolidated Financial Results Forecasts

Based on recent performance trends, we have revised our consolidated financial forecast announced on July 24, 2024 as follows. Revision to consolidated financial forecast for the fiscal year ending December 31, 2024(January 1, 2024 - December 31, 2024)

		Net sales	Operating	Ordinary	Net profit*	Net profit
		profit	profit	per Share


		(million yen)	(million yen)	(million yen)	(million yen)	(yen)
	Previous Forecast (A)	155,000	22,500	22,500	15,700	241.28

	Revised Forecast (B)	152,000	20,000	20,000	14,000	215.14

	Variance (B - A)	(3,000)	(2,500)	(2,500)	(1,700)	-

	Percentage Change (%)	(1.9) %	(11.1) %	(11.1) %	(10.8) %	-

	(Ref.) Previous fiscal year	142,608	21,028	21,244	14,663	225.35
	(Ended December 31,2023)

* Profit attributable to owners of parent

Reasons for the Revision

In addition to net sales in the third quarter of the current fiscal year falling below expectations, orders received increased mainly in the Business Solutions segment but were at a lower-than-expected level. As a result, we have revised downward our full year forecast of net sales.

In terms of profit, in addition to the impact of a decrease in net sales compared to the forecast, the gross profit margin is expected to be lower than expectations due to the occurrence of unprofitable projects, and selling, general and administrative expenses are expected to expand in line with the aggressive expansion of operating activities. Therefore, we have revised downward the forecast for operating profit, ordinary profit, and profit attributable to owners of parent.

Note: Forecast figures are projections based on information available at the time of release and are not intended as a guarantee that we will achieve these targets. Actual results may differ significantly from the above forecasts because of changes in the business environment.

－ 5 －

II. Consolidated Financial Statement

1. Consolidated Balance Sheets

			(Millions of yen)
		As of December 31, 2023	As of September 30, 2024

Assets
Current assets
Cash and deposits	5,626	5,856
Notes and accounts receivable - trade, and contract assets	35,437	28,924
Merchandise and finished goods	65	36
Raw materials and supplies	12	15
Advance payments to suppliers	19,611	23,307
Deposits paid	52,406	52,823
Other	1,657	1,940
Allowance for doubtful accounts	(4)	－
Total current assets	114,813	112,904
Non-current assets
Property, plant and equipment	3,386	3,607
Intangible assets
Goodwill	143	7,770
Other	5,615	5,798
Total intangible assets	5,758	13,569
Investments and other assets
Investments and other assets	9,376	11,124
Allowance for doubtful accounts	(1)	(1)
Total investments and other assets	9,375	11,123
Total non-current assets	18,520	28,300
Total assets	133,333	141,204
Liabilities
Current liabilities
Notes and accounts payable - trade	14,358	15,021
Income taxes payable	3,462	2,970
Contract liabilities	15,872	19,597
Provision for loss on orders received	180	261
Provision for share awards	18	－
Other	13,730	14,506
Total current liabilities	47,622	52,357
Non-current liabilities
Retirement benefit liability	71	90
Asset retirement obligations	849	951
Provision for share awards	147	245
Other	1,671	1,582
Total non-current liabilities	2,739	2,869
Total liabilities		50,362	55,227

－ 6 －

			(Millions of yen)
		As of December 31, 2023	As of September 30, 2024

Net assets
Shareholders' equity
Share capital	8,180	8,180
Capital surplus	15,270	15,270
Retained earnings	58,909	61,816
Treasury shares	(406)	(389)
Total shareholders' equity	81,953	84,877
Accumulated other comprehensive income
Valuation difference on available-for-sale securities	285	234
Foreign currency translation adjustment	732	865
Total accumulated other comprehensive income	1,018	1,100
Total net assets	82,971	85,977
Total liabilities and net assets		133,333	141,204

－ 7 －

2. Consolidated Statements of Income and Consolidated Statements of Comprehensive Income [Consolidated Statements of Income]

			(Millions of yen)
		Nine months ended	Nine months ended
		September 30, 2023	September 30, 2024

Net sales	105,267	112,231
Cost of sales	67,408	71,807
Gross profit	37,859	40,424
Selling, general and administrative expenses	22,307	25,961
Operating profit	15,551	14,463
Non-operating income
Interest and dividend income	38	109
Share of profit of entities accounted for using equity method	6	－
Dividend income of insurance	47	51
Subsidy income	32	17
Gain on investments in investment partnerships	46	－
Miscellaneous income	10	20
Total non-operating income	180	199
Non-operating expenses
Interest expenses	19	27
Share of loss of entities accounted for using equity method	－	79
Loss on investments in investment partnerships	－	48
Foreign exchange losses	9	86
Miscellaneous losses	6	7
Total non-operating expenses	35	248
Ordinary profit	15,695	14,413
Extraordinary income
Gain on sale of investment securities	135	320
Total extraordinary income	135	320
Extraordinary losses
Impairment losses	75	25
Loss on valuation of investment securities	302	－
Total extraordinary losses	377	25
Profit before income taxes	15,453	14,709
Income taxes - current	5,187	5,387
Income taxes - deferred	(573)	(753)
Total income taxes	4,614	4,634
Profit	10,839	10,074
Profit attributable to non-controlling interests	1	－
Profit attributable to owners of parent		10,838	10,074

－ 8 －

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