Hakuhodo DY Holdings Inc.
Consolidated Financial Results Briefing for FY2024: Q&A
Tuesday, May 13, 2025, at 16:00-17:00
Questions answered by:
Masayuki Mizushima Representative Director & President Hirotake Yajima Director & Executive Vice President Akihiko Ebana Director & Executive Vice President Masanori Nishioka Representative Director
Hidetaka Tada Senior Executive Corporate Officer Takeshi Tokugawa Senior Corporate Officer
How is restructuring in the US progressing, including its top-line contribution this year?
Since the year before last, we have been implementing structural reforms in the kyu business and have laid the groundwork for improved profitability by streamlining our offices and utilizing offshore human resources, etc. In FY2024, we formed an alliance called kyu Pulse between eight kyu companies in the marketing business. We believe that this will enable kyu to enhance collaboration with Hakuhodo and Hakuhodo DY ONE's overseas affiliates. As a result, the operating margin has improved in the current January-March period of 2025, and the number of client acquisitions is on an upward trend compared to last year, and we expect the top line to expand. Although there is a strong sense of uncertainty due to the impact of tariffs, consulting services are on a recovery trend, and we have high expectations for FY 2025.
What was the growth rate, in Japan and overseas, that you expected when developing
the guidance for FY2025?
We expect the Japanese market to grow 3-4% on the previous year. Against this market growth, we plan a 6.4% increase in adjusted gross profit in Japan. We plan for operating income to not grow significantly, as we expect an increase in SG&A expenses that matches, or even exceeds the rise in gross profit, to support the expansion of business domains. Outside Japan, we have planned for a 3.9% increase in gross profit on the previous year. The growth will be led by Taiwan and ASEAN, with some contribution from North America as restructuring efforts in the recent two years begin to bear fruit.
Please explain the decision-making process for share buy-backs and dividend amount,
along with relevant internal discussions. Does the payout ratio that significantly exceeds your internal standards indicate a change in your perception of dividends?
Share buy-backs have always been on the table. Our decision is the result of thorough consideration of our business performance, financial standing and trends in the stock market. We had not repurchased any shares for three years, focusing instead on investing for growth. Meanwhile, internal discussions on capital allocation and financial standing led us to believe that a share buy-back was important and the most reasonable action to send the right message to shareholders in the current market environment.
Our dividend policy is a standard annual payout ratio of 30%, giving priority to stability. We know that the payout ratio this year deviates from the standard. Our decision on the dividend amount can be largely explained by the year-on-year increase in profitability down to the level of operating income, and the robust core business performance, among others. That said, we remain committed to our stable dividend policy.
Please comment on the environment for TV and the internet in Q4, including the impact
of the Fuji TV scandal.
The Fuji TV incident has not had a serious impact on our overall performance as we are redirecting ads to other stations and the internet. TV has thus declined on the previous year as a service type.
Our seemingly weaker performance in internet media compared with the previous year is due to a change in accounting period at SoldOut: the previous business year effectively spanned 15 months, which largely explains the reduction in profit. If this extraordinary factor is excluded, our performance would likely have exceeded market growth.
How about investment areas and timeline for business restructuring in Japan going
forward?
We consider this the inaugural year for Hakuhodo DY ONE, launched last year, in view of the necessary integration of personnel and other systems. Having established itself as a full-fledged organization, we expect collaborations with other Group companies to progress and our digital core domain to grow this year. Hakuhodo Inc. and Hakuhodo DY Media Partners Inc. were integrated from April and will actively develop their proposal-making capabilities to clients and media companies leveraging full-funnel data, increasing competitiveness. The infrastructure that will be developed by the new Hakuhodo will be shared with Group companies as a powerful solution to boost collective growth. The business infrastructure for contact centers established in April is another part of our reform efforts. We are also planning other actions, and will inform you of the details when finalized. Our efforts to change the cost
structure while increasing competitiveness may never end, if we are to secure profitability amid the 3% growth of the Japanese marketing industry.
How do you view your competitiveness and the competitive environment in North
America?
The composition of the kyu Group embodies the future vision of our marketing business originally developed in Japan, integrating specialization and innovation and curating one-of-a-kind companies engaged in new businesses. One of our strengths is our ability to scale business globally by combining two similar concepts, sei-katsu-sha insight in Japan and human-centered thinking overseas. We strive to be an entity that explores new solutions while addressing challenges facing clients with sincerity. What we do best is to find solutions to challenges facing clients and society with a human-centered philosophy, namely sei-katsu-sha insight.
What is your idea behind domestic expense planning for FY2025? Please explain your
plan with reference to the growth of adjustments (company-wide expenses).
For planning purposes, we expect the growth of gross profit and that of adjustments to be almost identical. The increase in adjustments is largely attributable to the rising personnel cost and expenses related to workforce enhancement for improving capabilities. In addition, we expect other expenses to grow, driven by increased expenditures related to technology, including for digital transformation and AI.
Is your view on capital cost related to the share buy-back decision? Are you going to
repurchase shares in future if profit margins fall below capital cost?
Although our view on capital cost is one of the factors behind the share buy-back, the ROE dipping below capital cost is not the only determinant. Our decision is based on a thorough examination of various factors including trends in share price, profits and cashflow. It is true that the relationship between capital cost and ROE is an important measure, but future decisions will continue to be made following consideration of various other factors. ROE below capital cost is not an automatic trigger for a share buy-back; similarly, ROE remaining above capital cost does not preclude a share buy-back.
Are you considering improving the balance sheet as part of your effort to raise ROE?
There will be no change in our policy of giving priority to the numerator over the denominator, focusing on profit growth. Although we will be distributing profit to shareholders, we intend to prioritize profit growth and consistent execution of the Medium-Term Business Plan.
We aim to augment the numerator through business investment, CAPEX and other investment for growth. Investment for growth will be financed by funds on hand and operating cashflow, as well as through balance sheet management including the sale of cross-held shares. Solely focusing on profit growth without balance sheet management is not our way of improving ROE.
How about the stance of management on the share buy-back?
The decision on the share buy-back was not made under extraordinary circumstances. The possibility is considered each year, and the same decision may be made going forward. We consider that growth investments and shareholder returns are not mutually exclusive, and should be pursued simultaneously to the extent possible. It is our hope that the structural reforms in progress will help create enough room for proactive shareholder returns and growth investment next year and beyond as well.
To what extent will entering the IT consulting business contribute to profit growth under
the Medium-Term Business Plan?
The new joint venture is not expected to make a significant contribution to profits this year, as it was only launched in April. We are aiming for substantial monetization in the next year and under the next Medium-Term Business Plan as we become a major player in this domain.
What has been the trend of clients in Japan throughout this year?
We expect the Japanese advertising market to grow 3-4% on the back of economic recovery and improved consumer sentiment. Marketing activities are robust in the information/communications industry, particularly among foreign platform operators. In beverages/cigarettes/luxury foods, we expect active spending among brewers. Active spending is also expected in the food industry, as companies focus on branding to win the loyalty of sei-katsu-sha in new price segments as prices are raised to pass on the rising cost of raw materials due to the depreciation of the yen. The automobiles/related products industry will spend a certain amount on advertising despite tariff-related uncertainties, in the run-up to the Japan Mobility Show this fall. We also expect sizable growth in transportation/leisure, driven by the Osaka Expo and robust demand for inbound tourism related to it.