© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you very much for waiting. We'd now like to start the conference call to explain the first quarter results for fiscal year 2019 of Dentsu Inc. [Operator Instructions]
Today's conference will also be recorded. Please be aware. Mr. Ito, over to you.
[Interpreted] I am Ito from Dentsu IR Department. Thank you very much for participating in the conference call to explain the first quarter results of FY '2019.
Today's explanation will be provided using the document titled FY '2019 First Quarter Results which you can find on our web page. Please have them ready for the conference call. And today's conference call will be held concurrently for both investors from Japan and overseas. Today from Dentsu, we have in attendance from Tokyo Mr. Yushin Soga, Director and CFO; and from London, we have Executive Officer and CFO of Dentsu Aegis network, Mr. Nick Priday. Unfortunately, Mr. Tim Andree is not able to join the call as he is at a client event, and Mr. Nick Priday will speak on his behalf. And with regards to the conference today, Mr. Soga will first explain the overview of the first quarter results. And after that, we will receive questions from the participants. And we intend to finish in about 1 hour's time, 7:00 p.m. Japan time.
Mr. Soga, over to you.
[Interpreted] Thank you very much for participating in our conference call today. Now I would like to explain our consolidated financial results for the first quarter of fiscal 2019. Please take a look at Page 1. Key points. In Q1, consolidated revenue less cost of sales increased due to contributions of newly consolidated subsidiaries in Japan business and international business. On constant currency basis, the growth was plus 2.3%. In particular, the business expanded in digital domain, and the percentage of revenues from the digital domain rose to 47% on a consolidated basis.
On the other hand, organic growth rate was negative both in Japan and the international business, reflecting a soft start to the year. Consolidated, minus 1.6%; Japan business, minus 2.7%; international business, minus 0.7%.
The full year guidance announced in February is maintained. But given Q1 was a soft start to the year, we expect performance to improve during the course of the year. In Japan, there are several large-scale events and the activation related to Tokyo 2020 Olympic sponsors, so we will focus on capturing these opportunities. In the international business, we expect to accelerate growth towards the second half of the year due to robust net new wins. Despite these positive factors, challenging market conditions remain. And we continue to manage costs in a responsible manner.
On to Page 2. For year-on-year changes, we explain revenue less cost of sales and underlying operating profit on a constant currency basis. Revenue less cost of sales was JPY 227.9 billion, up 2.3% year-on-year due to M&A activity both in Japan business and international business. We will explain organic growth later. Underlying operating profit was minus 25.2% year-on-year. As a result, operating margin dropped by 3.9 percentage points year-on-year. Margin decline as of Q1 was roughly in line with expectations. Underlying net profit after taxes is minus 30.2% year-on-year. We will explain statutory losses in detail later in the presentation.
Please take a look at Page 3. Movement of revenue less cost of sales. Breakdown of changes in revenue less cost of sales includes the exchange currency effects of minus JPY 3.7 billion, the contribution of M&A of plus JPY 8.8 billion and the negative impact of organic growth of minus JPY 3.7 billion. Page 4. Regional information. First of all, Japan. Organic growth of revenue less cost of sales was negative. In Q1, we had expected negative growth to begin with in reaction to the previous year's Winter Olympics. Having said so, the results were not really comfortable. On the other hand, the digital domain ratio increased by 4.7% to 27.7%. This is because the newly consolidated VOYAGE GROUP and robust organic growth in digital business. Underlying operating profit decreased due to negative growth of revenue less cost of sales. However, declines of operating profit and operating margin were also within expectations.
Page 5. International business. Q1 organic growth rate was minus 0.7%. We had expected weakness in APAC given the ongoing underperformance of Australia we highlighted in Q4. In addition, the other 2 regions' growth were also under our expectations. Thus, we had a soft start in the international business. However, net new wins has been extremely strong so far, and we have already won $2.6 billion. We expect acceleration of growth from Q3 onwards with such new business impacting our revenues. Seasonally, top line tends to be the smallest in Q1. On the other hand, costs are constant throughout the year, resulting in a slight underlying operating loss. Please now look at Page 6. Changes in underlying operating margin. Breakdown of changes in operating margin is as shown on the slide. Operating margin has declined both in Japan business and international business as planned. And the decline in the first quarter was as expected, as I have explained previously.
Please go to Page 7. The graph shows changes in the operating margin of Q1 since 2016. Operating margin declined in Q1, but we maintain full year guidance. We expect operating margin to improve both in Japan business and international business from Q2.
Please look at Page 8. This slide shows the movement from underlying operating profit to statutory operating profit. As in the previous year, the majority adjustments related to acquisitions, with main items on M&A-related intangible assets and one-off items.
Go to Page 9, please. Statutory operating profit to statutory net profit. As you can see, financial costs increased by JPY 6.4 billion year-on-year. The increase was due to an interest expense and finance costs principally related to updated estimates of acquisition-related liabilities, specifically related to the favorable performance of certain acquired companies. And valuation losses were incurred due to the postponement of the prospects of exercising the put options of the acquired company. The former occurred in multiple companies, and the latter occurred in Merkle. In addition to the decline in operating profit, this one-off factor that I have just explained resulted in a net loss attributable to owners of the parent of minus JPY 2.5 billion, a decline of JPY 13.3 billion year-on-year.
Please go to Page 10. The Page 10 sets out our full year 2019 guidance, unchanged from February.
Now please go to Slide 11. In the Japan business, for the remainder of the year, we focus on large scale sports events such as the Rugby World Cup 2019, IAAF World Championships, the FINA World Aquatics Championship June '20 and motor -- Tokyo Motor Show as well as the related activities of the official partners and supporters of Tokyo 2020.
In the international business, we expect to see an acceleration of growth over the second half of the year based on strong net new wins in North America, including P&G account and the [ signed ] P&Ls of accounts lost in 2018.
Thank you for listening. And I will hand back over to the operator as we welcome the questions.
[Interpreted] So we'd now like to receive our questions. We will receive Japanese questions using Japanese line and English questions using English line. Please be careful not to use the incorrect lines. [Operator Instructions] Operator, please.
[Interpreted] [Operator Instructions] The first question is by Nagao-san of Nomura Securities.
[Interpreted] I have 2 questions. First of all, due to Japan business nonconsolidated revenue less cost of sales ratio, you said revenue was soft or turnover was lost, but the drop at revenue less cost of sales was even more significant. Can you analyze the breakdown of decline of revenue less cost of sales? That's my first question.
[Interpreted] This is Soga speaking. I will respond to that question. Revenue less cost of sales dropped in media -- or performance of media was not so constructive. Please take a look at Page 26. We have the revenue for the parent on nonconsolidated basis for mass media, performance on year-on-year basis was lackluster. That's the biggest reason why.
[Interpreted] My second question, international business. P&G, you acquired P&G. There's been contribution from your acquisition of P&G, and you gave us some of the explanation in your presentation. Do you think that the cycling out will begin to be seen from Q2, or will not be seen until the second half in terms of the improvement of the operating margin in the international business? When will be the timing that the improvement will begin to be seen? And what is the level of certainty or probability in terms of improvement of international business?
So it's Nick Priday speaking. Thank you for the question. So as Soga-san explained, we were delighted to win the P&G business that we didn't already have in North America earlier this year. And that starts to impact our revenues from the beginning of July. So this is a Q3 onwards benefit to our performance.
In terms of the account losses and when they start to cycle out, predominantly that's also from the beginning of the third quarter. The most material plant losses that we suffered during 2018 happened at the end of the first half of the year. And so we will see that benefit coming through from third quarter onwards, too.
In terms of our confidence in revenue performance towards the back-end of the year, as you've seen from the press release, we are reconfirming our guidance for the full year, and that includes the organic revenue growth guidance for Dentsu Aegis Network, which was 3%. Clearly, after a slow start, we -- that requires a step-up in the balance of the year. But our latest expectations is that we expect to deliver against that guidance for the full year. Clearly, the later in the year it goes, the less visibility that we do have in terms of overall levels of client spending. But that is very much our current expectation.
The next question is from Mr. Matthew Walker from Crédit Suisse.
I've got also -- I got 2 questions. The first question is if you took the agency industry as a whole, would you expect acceleration or decline over last year? And how do you think the issues between U.S. and China might impact the industry in the second half of the year? Second question is on Merkle. I don't know if you still stated out, but could you give us a growth rate of that data business at the time of acquisition? And what the growth rate in Merkle is now?
[Foreign Language] [Interpreted] I would like to ask Mr. Nick Priday to respond to this question because this question is related to our international business.
Thank you, Soga-san. All right, Matthew. So yes, in terms of your questions, I think you said there were 2, but I think there may be a bit few more questions from that. So in terms of the comparison against the agency industry overall and whether or not we see an acceleration, we do expect on a full-year basis to be at the top end of the industry performance in terms of our full year guidance. Clearly, after a slow start, we recognized that's not the case in the first quarter, but we do see good reasons for that acceleration over the balance of the year, particularly in the second half of the year. So just like in 2018 overall where the top end of our performance against the agency holding companies, we continue to expect that to be the case for 2019. In terms of the performance between U.S. and China, I think U.S. has had strong momentum over the last year, 1.5 years, demonstrated by the strong quarter-on-quarter performances during the course of 2018. A slightly softer performance in the first quarter of 2019 but with some new business wins. And as we talked about, the P&G win is a benefit to the North American numbers which will come in and benefit that region in particular from the beginning of July onwards for the balance of the year. In terms of China, it's more mixed. We actually had a relatively positive start to the year in China, but the market remains more challenging. And we need to make sure that we -- that our products and our services are relevant and as strong as they can possibly be for the different categories of client we have in that market, for our Japanese clients, for our Western clients and then for local clients. There's a slightly different dynamic applying to those client categories.
Nevertheless, we're constant in the management change we've made recently in China and expect to see ongoing improvement in sustainable growth in that market in the future. Then in terms of Merkle, and the first thing I'd say is when we acquired Merkle, which has been a very strong acquisition for Dentsu overall so far, Merkle was a growing business. As a reminder, we bought Merkle in the autumn of 2016, so it's been in the group over 2.5 years. I'd say, it has continued to thrive under Dentsu ownership. And the growth rates of Merkle, and it was growing strongly when we acquired that business, have continued to outperform than average group growth rates. We've integrated a lot of the Merkle operations and our service offerings into the rest of our product portfolio, and we pitch with Merkle plus a number of clients. We've seen great success in that regard during 2018 and in the first quarter of 2019.
And I think Merkle has been a very positive addition to our portfolio. It goes to market as a people-based marketing agency, enables our clients to work with our customers on a one-to-one basis, and that really is a direction to travel across the industry. And we're not getting into specific growth rates for our specific brands, I would just say that we are very pleased with the continuing outperformance that Merkle is demonstrating against its competitors and against the average performance of the plant business overall. Thank you.
The next question, SMBC Nikko Securities, Maeda-san.
[Interpreted] I have two questions. First of all, Q1 reduction of profits. One of the reasons was expenses for organizational reform and strategic investment. How much was that? And against the full year guidance, what is the progress rate so far? That's my first question. Second question, net wins. It was explained that net new wins are increasing. In the previous term, net new win was not so significant. Why didn't you do well last year? And why are you doing better? What's the background? And what's the prospective? You mentioned U.S., but what about the other regions? Are you gaining new clients in other regions as well? And in Japan, it seems that the number of losses are greater than net new wins. But even in the Japanese market, do you think that you will be able to enter into a cycle of positive net new wins or share increase? Those are my questions.
[Interpreted] First of all, to respond to your first question, this relates to Japan, so myself, Soga, will take the question. You mentioned structural reform and the expenses for organizational reform and how that impacted the reduction in profit and the progress rate. For 2 years, we've done the labor system reform in 2017 and '18 and that has come to a certain end of the cycle. And since the beginning of this year, we will continue normalized labor reform. As you know, working style reform is being applied in all companies around this nation. So what we've done in 2017 and 2018 were emergency level structural reform, so that's not the level we will continue at.
As we spoke in February, post-2020, the Japanese business will pursue sustainable growth. And in order to ensure sustainable growth, we're going to be making investments for growth. And based upon that context, how much impact to the reduction of profit? No, it's not that so significant. The expenses were within the reasonable expectations, and we do not believe that, that was a big factor behind. And the progress rate is well in line with our plan. We're continuing to make investments as planned. Now with regards to the figures in our international business. First, I will ask Nick to respond. And then, thereafter, with regards to net new wins in Japan, I will take over. So first of all, over to you, Nick.
Thank you, Soga-san. So in terms of the question around the net wins for the international business in the first quarter, yes, we've seen that acceleration, $2.6 billion of billings coming into the group. And we've talked about the P&G win in North America. In terms of the -- reflecting on the fact that, that is a step-up on the previous term or the prior year performance, that is absolutely correct.
In terms of the 2018 performance, we won $1.6 billion of net new business, which is below the average win rates that we've achieved over the prior years. As a reminder though, 2017 was a record year of net new business wins across our business with over $5 billion of billings being added. And that clearly contributed to a strong organic growth performance across our group during 2018 because of the time lag between winning new accounts and impacting revenue. I would make a couple of comments on 2018 net new business performance of the $1.6 billion. Our win rate actually remains quite strong during the course of 2018. The reason of the net new business number was below average was actually because, unusually for us, we did suffer to quite large client losses. And that did impact our net number. And so we do have those client losses impacting our performance in terms of year-on-year growth in the first quarter of this year. And as I said, they will cycle out from the end of Q2 onwards in terms of their impact on our revenue growth. I think we should also reflect on the fact that at the end of 2018, we did add a number of the clients that we are extremely pleased and proud to have on our roster, with LVMH, Intel, United Airlines and El Corte Ingles in Spain, which is the large advertiser in the Spanish market. It will take time for us to fully ramp-up in terms of revenues from those clients. But that was a strong end to 2018. Although I do recognize your comments around 2018 being a softer new business performance overall. In terms of the new business pipeline going forward, it's relatively robust. We have a lot of activity underway at the moment. And the good news from our perspective is that more than 80% of that activity is offensive, and we have limited defensive pitches to protect against, and none of those are particularly large or significant. So there are more mid-sized clients which we're defending.
And so I think despite the fact that it's been a soft start for the year from a revenue perspective, we are pleased with the new business performance on a year-to-date basis. And we have confidence in stepping up our revenue performance over the balance of the year, particularly in the second half. Thank you.
[Foreign Language] [Interpreted] Then on the Japanese business, very briefly from myself. As far as the Japanese business is concerned, as we spoke in February, as we target 2020, we are expecting healthy growth in 2019, especially group companies will be engaged in various activations towards -- in the runup to 2020. So rather than parent, we're expecting revenue contribution from our group companies.
Q1 on year-on-year basis. 2018 Q1 had the PyeongChang Olympic Games, which was an extraordinary factor. So on year-on-year basis, you may have the impression that it was soft. But at least when we look at the revenue less cost of sales or underlying operating profit, we think that we've been able to get to a healthy start. But if you look at the nonconsolidated parent performance, as I said, focusing on the media, the numbers are falling. And in the Japanese business, we believe that we are seeing more of group companies taking over. Internet business is growing. And in comparison to our competitors, we have been able to achieve growth rate that is not at a disadvantage. In client business, the picture is mixed. We win, we sometimes lose. But in the context of working style reform and structural reform, somewhere along the line, we have to think about profitability. So even for the client business, we want to shift gears to more highly profitable business wins. Thank you.
The next question is from Mr. Harry Read from Liberum.
Sorry, it's Ian Whittaker from Liberum. It's just one question, actually. It's regarding sort of one of your peers where there seems to be increasing chatter that it will sell perhaps more of its businesses than we originally anticipated in PO and perhaps other areas. I'm just wondering if sort of -- if some substantial assets were to come up for sale, would you be interested in actually having a look at those?
It's Nick Priday speaking. So in terms of the potential sale of more assets by one of our competitors, I think we've got an open mind in terms of looking at assets which were core and central to our business. But we would clearly -- we clearly want to be operating in high-growth segments which are really relevant to our clients and what they're seeking for from their agency partners. And so it's difficult to comment specifically without getting into detail, which probably isn't appropriate. But I think we would be open-minded. But it would have to be extremely relevant and well priced for us to want to participate. Thank you.
The next question is from Sugiyama-san of Goldman Sachs.
[Interpreted] My name is Sugiyama of Goldman Sachs. I have 2 questions. $2.6 billion net new wins in international business was what you shared with us. Does that include quite a significant portion of media business? I would assume so. So in comparison to the profitability of the current international business, what's the level of net new business profitability in comparison to the average profitability of the international business?
My second question is also with regards to international business. You said organic growth was slow in Q1. And if you don't see improvement as you expected, do you think that you can cut expenses to improve margin, to bring up your performance and profit levels close to the full year guidance level? Or in order to achieve the guidance, is organic growth rate a must? Those are my 2 questions.
So yes, thank you for those questions. So in terms of the disclosure of our net new business wins in terms of media billings, the $2.6 billion of media billings, that does relate its entirety to our media performance business. So that is the impact from -- impacting that part of our business.
In terms of the profitability of new business wins and the general profitability compared to the rest of the business, it is typically the case that the year 1 profitability or contribution on these new business wins is lower because we have a significant amount of onboarding to do. There's a lot of people who need to be brought into the group and get up to speed with our clients' business. And so typically in that first period, the profitability is slightly lower than the group average. And then obviously, we had expected that profitability to increase to the levels which us and our clients expect over time. And so we tend to see a step-up in profitability in year's 2 and 3 in that regard. In terms of the organic growth rates in the first quarter and whether or not we need to deliver against the full year our guidance of 3% in order to deliver against the margin guidance, then obviously, the higher the level of organic growth and the scalability of our revenue, the better it is for us in terms of margin improvement. So -- and I know that's not your question, but that sort of goes without saying.
In terms of whether or not we'd be able to still deliver against our margin expectation if organic growth fell short, then clearly, we are very focused on keeping a very close eye on our revenue pipeline and managing costs very responsibly during the course of the year so that we can do that. It's difficult, as I said before, to have a significant amount of visibility much later in the year, but because we have the new business success in the first quarter and that known benefit to our numbers from the beginning of July onwards, currently we have good line of sight to that improvement in revenues in the second half in particular. And I would say that, I'm not going to get into the numbers month by month, but April has been more positive than the first quarter. And even if organic growth was more challenged in the second half because of macro conditions, for instance, I think -- I can -- I just want to stress that we are very focused on managing costs responsibly to make sure that we deliver against our margin guidance and maintain that level of profitability as a -- as the international business within Dentsu Group. Thank you.
Next question is from Mr. [ Julian Book ] from Barclays.
Yes. My first question is on revenue. So you have a guidance of 7.9% growth in net sales at constant currency. You told us that, that was translating into 3% organic for international. Could we get an indication of organic for Japan? That's my first question.
My second question is you bought Merkle, IPG bought Acxiom, Publicis bought Epsilon. My understanding is those business are somewhat similar. They're all are centered around creating a unique ID for consumers, populating it with characteristics and selling that to clients to inform and make a better marketing campaign. Do you agree? Can you compare and contrast those 3 businesses? And where is Merkle different? And why is it a better business than the other one? Or are all the agencies have now similar capabilities?
[Foreign Language] [Interpreted] Thank you very much for your question. The first question was related to Japanese business. Allow me to respond. For the group as a whole of the organic growth rate, what is the organic growth rate we're expecting for the Japan business? And we are expecting about 6% -- around 6% organic growth for the Japan business. As for the first quarter, it was a slow start. But like I explained before, at the very least, the plan that we have internally, we are more or less progressing in line with that. So taking that into consideration, and of course, looking into the future, in the second and third and fourth quarters, the targets are not, of course, that easy. But we feel that we'll be able to achieve 6% guidance for the full year. Second question regarding international business, I'd like to ask Nick to respond.
Thank you. So in terms of the positioning across the sector in terms of the acquisitions by Publicis of Epsilon and IPG of Acxiom and our own acquisition of Merkle, I don't want to comment in too much detail in terms of those -- the other groups and their reasons for acquiring those businesses. But I will stress and try to accentuate what I think is special about the Merkle business. And that is that -- and I said this a little bit earlier, Merkle was a fast-growing business when we acquired Merkle. It was a very, very attractive asset for us, and we considered it to be the best asset in the sector for us to acquire and to become part of our group. And we are very pleased, as I said, in terms of how that's gone. And that business has continued to thrive under our ownerships. And I would just stress that the growth rates for Merkle, since joining DAN, have outperformed the DAN group on average and a key part of our -- a central part of our strategy going forward. I'm not going to comment too much about the other groups, but I think if you looked at the Merkle growth rates in comparison to their direct competitors, you'd see the difference in that regard, at least prior to the acquisition of those businesses by our holding company competitors. I think the other key thing to stress is it's been almost 3 years since we acquired the Merkle business. And therefore, we have, to a large extent -- and we still have some work to do in this regard, but to a large extent, we have integrated the Merkle service offering into our product portfolio and how we go to market particularly in the U.S. but in the other markets around the world, too. And I think that has proved a testament to a lot of hard work from our teams around the world. But it's going pretty well. And we've learned some things along the way, but I think that has proven to be successful. I think, obviously, in terms of the time line here, we are more advanced than the competition because we've had Merkle, which we think is a very high-quality asset, for a lot longer than our competitors have had their respective acquisitions in this space.
I think it's just worth stressing the types of services that Merkle do provide. Merkle provides services to our clients around loyalty, which is increasingly important around the marketing life cycle and the marketing funnel. It operates as a very high-quality B2B agency. It does have some user experience capability. It provides a large amount of data. Our data in Texas is -- it can help clients with large-scale transformation and solving their business problems. And generally, it drives value for our clients through accelerating their digital transformation. And I think it's across that range of services. It also -- I would also stress that, that probably provides a greater breadth of service and capability than some of those other businesses that you provided. But I think -- and I don't understand those businesses in quite so much detail as you'll appreciate. So I think that sort of pulls out what I consider to be some key points of difference between our acquisition of Merkle and our competitors acquisitions in this same space. Thank you.
The next question is from Mitsubishi UFJ Morgan Stanley Securities, Murakami-san.
[Interpreted] This is Murakami speaking. Can you hear me?
[Interpreted] Yes. We can hear you. Please go ahead.
[Interpreted] I have 3 major questions. Some of those points have already been answered. But in North America, you won P&G. Can you elaborate on the background to that win? In short, capability and comprehensive strength got you that client. But in comparison to your competitors, why did they choose you? What was your advantage that led to this win of client? That's my first question.
Second question. SG&A, plus 6.5 -- 6.1% on a consolidated basis first quarter. What was the increased rate of major line items including personnel costs? 6.1%, but is 6.1% within your expectations? And on full year basis, do you think SG&A will continue to increase at this pace? Will this be the full year increase? Third question and final question. In and after Q2, the Japanese business will rely on major events and activation of sponsors for Tokyo 2020. You mentioned that in your presentation. If possible, can you give us a feeling of the size of activation by sponsors? Or specific examples would be very useful.
[Interpreted] Thank you. On the first question with regard to P&G, let's ask Nick to respond. We'll go question-by-question. Nick, please respond to the P&G question.
Thank you, Yushin. So yes, thanks for the question on P&G. In terms of the -- what's transpired in terms of P&G and our relationship there, it's worth noting that prior to the win of some of P&G's categories in the first quarter of 2019, we already worked with P&G quite extensively across some of its categories in North America. And I would -- I think that's a testament to the fact that we've delivered against our proposition to P&G over the last few years in terms of those categories. And so just to stress what those were, we were already managing the media planning and buying for their hair care, family care and shave categories. And P&G, I believe, wanted to bring that approach to more of the categories across their business. And I think -- I would like to think that we have demonstrated, over the last 3 years in working with P&G extensively over that period and prior to that in terms of some planning capabilities we used to provide several years ago, we've demonstrated a really strong ability to understand the P&G brands business and how media could be a greater driver of growth. I think we've also been very flexible in our approach, and we've recognized that P&G wants to be flexible in their approach with their agency partners as well. And so I think that the 2 things I would stress is that we've delivered on what our proposition was in the past and gained the trust of P&G. And we have been flexible in our approach to make sure that we -- that P&G gets what it wants from its agency partners. Thank you.
[Foreign Language] [Interpreted] Then to respond to your Japan business question. On SG&A of the group on year-on-year basis, 6% is where we stand. SG&A on year-on-year basis will probably be staying at this level on year-on-year basis. Operating margin is a very important KPI for us. And as I have repeatedly said, we had a slow start in Q1 for Japan and international. But in Q2 and therein after, for both Japan and international, we will work hard on the top line to reach the guidance. So we will absorb that year-on-year increase of the SG&A on full-year basis to improve operating margin.
Next, activation of Olympics in Japan business and the amount. We're not in a situation we can talk about individual clients. But 3-digit oku or in the order of tens -- or dozens of billions of yen. We call it activation, but in our ordinary dealings with those clients, rather than this being a net addition, some of the ordinary business will be replaced by activation or they transfer to activation. So we're thinking about dozens of billions of yen, but we're not yet in a position to be able to come up with any estimates. We are going to use this momentum in the final runup to the 2020 Olympic games so that we can maximize the activation effect. And as we spoke in February, for activation for 2020, we're thinking of more than JPY 100 billion of revenue. Thank you.
[Interpreted] Sorry, SG&A, personnel and other major line items, can you give us the increase rate?
[Interpreted] I don't have the increase rate of the line items at hand, so let me get back to you later. Our IR team will respond to you later. Thank you very much.
Next question is from Mizuho Securities, Iwasa-sama.
[Interpreted] My name is Iwasa. I have 2 questions. The first question is regarding the international business. In the second half of the year, you've indicated that organic growth rate will increase. Now last year, in EMEA, in comparison to the first quarter, the second, third and fourth quarter had higher level of growth. The same, I think, applied to Americas as well. But when it comes to APAC, the first quarter was minus 2.9%, and it was low but it was minus 3%. And the growth rate will pick up. That would be the April to June to June to September quarters. So in comparison, the first quarter, it's -- I don't think it's quite at all that easy to grow the growth rate in the latter part of the year. Now Omnicom or IPG or Publicis or WPP from -- their organic growth rate in the first quarter in comparison to the fourth quarter, they have slowed down. And if you only look at that, then it seems that the market overall is becoming somewhat more tougher or challenging. Now even if we take that into consideration, do you feel that you'll be able to achieve what you have planned? So maybe that the market condition may not be in line with what was originally assumed, then that may hold achievement or the target somewhat difficult. This is the first question.
The second question. Now in your explanation, the Japan, the actual was in line with expectation. But you still use the expression that it had been slow. So as the actual numbers, was that the better or worse than what was expected? Let me check that once again.
And as for the market condition. When you put together a plan at the beginning of the fiscal year or to now, I feel so there could be some difference there in terms of the condition itself. Now when you put together the plan at the beginning of the fiscal year and in the first quarter and when you're going to April, June -- April, May, June after the Golden Week extended holidays, has things improved? Or have things deteriorated? If you could explain your view with regards to the current market condition.
[Interpreted] And with regards to the first question, I would like to ask Nick to respond. But after that, I will respond to the second question.
Thank you. So this is Nick speaking again. So yes, thank you for the question. And in terms of the international business and our kind of organic growth expectation, then clearly, as we've spoken about it a little bit already, based on our first quarter organic growth performance, we are expecting a step-up in the balance of the year. And we have reconfirmed the guidance of 3% organic growth on a full year basis. And you're right to point out that particularly in Q3, the comparative organic growth performance was strong in the prior year. And overall, our performance during the course of 2018 was strong, and as I said, compared favorably to the agency holding company average. So we do have some tough comparatives. But our guidance is given in the context of those tough comparatives. And let's go back and stress that we did have some account losses around the halfway stage of last year, which clearly wound in our second half performance despite the fact that we had a strong performance overall.
And we're not trying to get too detailed about this, you sort of need to understand what the key 3 performance was in 2018 versus the 2017 comparative as well.
And so if you were to focus on the European region in particular, which you highlighted has some tougher comps particularly given its first quarter performance, then I think we have a large number of markets in Europe, particularly, Germany, Italy and Spain, performing very, very strongly. Italy and Spain is a continuation of the very strong performance over a sustained period of time. And Germany has performed well in the first quarter after change of leadership just over a year or so ago. So we have increasing confidence in those markets. We have a number of other markets performing strongly in Europe. We have 1 or 2 more challenges which we expect to cycle out to the numbers in the second half of the year. And that's why we're relatively confident on that European step-up in growth. And as I said, there are a number of macro factors which we don't necessarily have good visibility on. So in terms of what happens with Brexit, I don't want this to become a detailed discussion around what happens with Brexit, but I think that is an unknown macro factor which we need to bear in mind. But all other things being equal, we do see a step-up in revenues in that region and another strong performance. Europe has been our strongest performing region in terms of organic revenue growth for the last 2 years. And I think it's well placed in a large number of its markets.
And similarly in Asia Pacific, we have called out the performance of Australia in this first quarter set of results. And if you were to take Australia out of the numbers actually, then the rest of the Asia Pacific region has performed really quite strongly and performs very favorably compared to the other agency holding companies in terms of performance in that region. And I think -- so we have got an issue relating to one market. There's been a change of leadership in that market. We think we got the right leadership in that market now, which will need some time to bed in and to turn that business around.
But for that reason and because of the account losses which we suffered in that market tended to happen around the half-year point of last year, we do see line of sight to improving trends across all of our regions in the second half of the year despite the tough comparatives. Thank you.
[Foreign Language] [Interpreted] And second question is with regard to the Japan business. Let me respond. And my explanation might have given a misunderstanding. But if we look at the first quarter, Japan business overall, we are more or less in line with our initial expectations, maybe even higher. Now I did say that the business in the first quarter was somewhat slow because the first quarter last year, we had the PyeongChang Winter Olympic Games, which was very good. So if we actually make a year-on-year comparison, I used the word slow.
But as we explained in February this fiscal year for Japan business, we're expecting 6% organic growth overall and 2% on a consolidated basis, group 9%. That is what we have been expecting. And on the parent, the performance. As against that level, my position is that we'd like to see a little bit more effort. But if you look at the Internet business, it is growing extremely well, and that has been maintained.
For Japan business overall -- for the group overall, the [ data sync ] business and digital business, central group business, if we actually separate the 2. Then parent business, it may have been better if it had done a little bit better. But despite that, I actually end up with a comment that I made before. That completes my response. Thank you.
[Interpreted] And with regards to the current market condition, as against what you have expected, have you seen any changes? Have you felt any changes?
[Interpreted] And for the Japan business overall, I don't feel as though the market condition is all that bad because at least in 2019, from the second half onwards, there are many large events. And in 2020, we have the Olympic Games. So the industry overall, I think, is not experiencing any negative market condition. Thank you very much.
There is no one asking for questions. So over to you, Ito-san.
[Interpreted] Thank you very much for the many questions. And with this, we'd like to conclude the conference call to explain the first quarter results. I thank you all for your participation. With this, we'd like to conclude the conference call to explain the results of Dentsu's first quarter 2019. Thank you very much for your participation despite your busy schedules. Please disconnect your phones.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]