Hakuhodo DY : Presentation Material (Medium-Term Business Plan) for FY2023(with Commentary)

Hakuhodo DY Group

New Medium-Term Business Plan

Abbreviations

HC: Hakuhodo DY Holdings, H: Hakuhodo, D: Daiko Advertising, Y: YOMIKO ADVERTISING,

MP: Hakuhodo DY Media Partners, DAC: D.A.Consortium, SO: SoldOut

My name is Masayuki Mizushima, and I am the Representative Director & President of Hakuhodo DY Holdings Inc.

I'd like to brief you on Hakuhodo DY Group's new Medium-Term Business Plan, or MTBP.

1

Review of FY2021-FY2023

Medium-Term Business Plan

Let me start by reviewing the outcome of the previous Medium-Term Business Plan.

2

Medium-Term Business Plan (Revised: FY2021-FY2023)

*Initial plan

Core Medium-Term

Strategy

With sei-katsu-sha insight as our cornerstone, the Hakuhodo DY Group will combine our creativity, integrative capabilities, and data and technology utilization skills to play a leading role in evolving companies' marketing activities and generating innovation in a digitalized era. In this way, we will continue to impact and provide new value to sei-katsu-sha and society as a whole.

Transformation of Our

Services and Business

Foundation

• Transform the services we provide: Implementation of full-funnelSei-katsu-sha Data-Driven Marketing
• Strengthen cross-organizational functions to accelerate transformation
• Continuously pursue transformation based on existing strategies
• Strengthen our foundation for sustainable business management

Target Levels for Core

Domains

(FY2023)

• Marketing execution domain: Annual gross profit growth rate of at least +10%*1
• Internet domain: Annual billings growth rate of at least +15%
• Overseas business domain: Annual gross profit growth rate of at least +15%

Medium-Term Business

Plan (MTBP) Targets

(FY2023)

Operating income before amortization of goodwill: At least ¥65.0 billion (revised downward to ¥50 billion in H1 FY2023)

Annual growth rate of gross profit after adjustments*2: At least +7%

Annual growth rate of operating income after adjustments and before amortization of goodwill: At least +7%

Important indicators

• Operating margin after adjustments and before amortization of goodwill: Approx. 15%
• ROE before amortization of goodwill: At least 10%

	*1 FY2023 vs. base year (FY2020) *2 After adjustments＝Excluding investment projects
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We moved forward with a variety of initiatives in accordance with the plan described on this page.

Please note that we revised downward our outlook for operating income before amortization of goodwill to ¥50 billion in November, in view of the latest trends in our business performance.

3

Review of medium-term business targets

⚫ Although gross profit growth exceeded the target, operating income before amortization of goodwill fell short of the initial target of ¥65 billion.

Medium-

term

business

targets

Important indicators

Operating income before amortization

of goodwill

Growth rate of gross profit after

adjustments

Growth rate of operating income after adjustments and before amortization of goodwill

Operating margin after adjustments and before amortization of goodwill

ROE before amortization of goodwill

Medium-term target

At least ¥50 billion

(as revised in H1 FY2023)

At least +7%

CAGR

At least +7%

CAGR

Approx. 15%

At least 10%

FY2023

¥50.1 billion

+8.0%

CAGR

-3.6%

CAGR

11.2%

11.5％

© Hakuhodo DY Holdings Inc. All rights reserved | CONFIDENTIAL

4

Here are the results for our planned business targets.

In fiscal 2023, operating income before amortization of goodwill reached ¥50.1 billion, thus exceeding the revised target but missing the initial target.

4

Review of medium-term business targets: Target levels for core domains

• With the increase in gross profit, each of the three core domains recorded a double-digit growth.

Gross profit after adjustments	Core domains

			387,220			Marketing
						execution domain
307,350						CAGR of gross
					profit
						Internet domain
		CAGR				CAGR of billings
		Target: At least +7%
		Overseas
		Actual: +8.0%
			business domain
						CAGR of gross
FY2020	FY2021	FY2022	FY2023	profit

© Hakuhodo DY Holdings Inc. All rights reserved | CONFIDENTIAL

Target level

+10％

+15％

+15％

Actual level

+11.9％

+11.5％

+19.4％

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Nevertheless, CAGR of gross profit after adjustments, a measure of growth potential, reached 8.0%, thus exceeding the initial plan.

As regards the targets set for the priority domains, we managed to realize double-digit growth in each of the three priority domains, although we failed to reach the CAGR target for billings in the Internet domain.

5

New Medium-Term Business Plan

Now I would like to describe our new Medium-Term Business Plan.

6

Business environment: Megatrends
Changing society	Changing shopping behavior	Changing economy/technology
Urbanization	Healthy lifestyles	Rise of emerging
economies
Longevity	Sustainability	Intensified global
consciousness	competition
Changing role	Increased	Advancement
importance of	of
of women
brands	digitalization
Uncertain environment leading toward an age requiring constant transformation
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Here is our understanding of the present business environment.

The business environment surrounding our Group has been undergoing major, unprecedented changes.

Amid the transformation of society as a whole, characterized by urbanization, longevity and the changing roles of women, shopping behavior is even more oriented toward health and sustainability, thus increasing the importance of brands.

The economic and technological landscape is now characterized by the rise of emerging economies, intensified global competition and accelerated digitalization driven by generative AI, among others.

This highly unpredictable and uncertain environment, which is undergoing a paradigm shift, is expected to require constant transformation.

And our Group is no exception.

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Situational awareness: Changing society "with S"

• Advent of a full-fledgedsei-katsu-sha-driven society where sei-katsu-sha (S) are at the center of everything we do.
• A generalized consciousness of sustainability (S) will be a defining factor for the activities of sei-katsu-sha and businesses.

Approach behind the evolution of the sei-katsu-sha-driven society

to C	with C	ei-katsu-sha
with
		ustainability
Unilateral	Sharing of values	Sharing of values with "Sei-katsu-sha"
communication
with "Consumers"	"Sustainability" as one of the values to be shared
with "Consumers"
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We believe that "with S" is a keyword to help understand those ongoing changes.

Indeed, we moved from the "to C" era, meaning unilateral communication from businesses, to the era of "with C."

And now we are about to embrace the advent of a "society driven by sei-katsu-sha," where sei-katsu-sha are at the center of everything we do.

That is our first "S."

Our second "S" is sustainability, which is fast becoming a defining factor for the activities of sei-katsu-sha and businesses.

In short, we have entered a new era, when we must focus on the "two Ss" - sei-

katsu-sha and sustainability.

8

Situational awareness: Changing technology "beyond Tech"

• The rapid advancement of technology is effectively redefining the industrial/business structure and the role of humans.
• Human-techco-creation to augment creativity and shape a new world.

Jobs that can be automated with AI	Human-techco-creation

Present	100％

		▲25%
Jobs likely to
75％
survive automation

About 25% of existing jobs might be automated, particularly those based on rules or precedents.

Source: Compiled from Goldman Sachs and BCG data

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•	Ideation	•	Reasoning
•	Judgment	•	Information gathering
•	Accountability	•	Precise execution

• Communication

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The rapid advancement of technology is another major theme.

Following the expansion of digital infrastructure during the Covid-19 pandemic, we have witnessed a rapid evolution of data-leveraging techniques powered by generative AI.

Artificial intelligence will drive job automation, transforming the structures of all industries and businesses along the way.

But this does not mean that AI will replace all jobs.

It will be increasingly important to boost creativity and maximize value added through cocreation between humans and technology.

We believe that technology will help expand human capacity and potential.

Our future will be best defined by the words "beyond Tech."

9

Situational awareness: Changing business needs "beyond ads"

• Amid market maturity and disruptive innovation, companies are increasingly committed to radical business transformation.
• Attention needs to be focused on questions like "what value to create" and "how to maintain connection with sei-katsu-sha."

Traditional center of business

Business design	Product	Advertising	Sales	Relation
development	building

Rising importance of integrated marketing

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10

This substantial change in the environment is also changing business needs.

Amid market maturity and disruptive innovation, companies are increasingly committed to radical business transformation, which can be characterized as a

"second founding period."

Against this backdrop, advertising cannot simply focus on the traditional question of "what to communicate."

The focus must now be on questions like "what value to create," reflecting the needs for consulting upstream, as well as "how to maintain connection with sei- katsu-sha," in order to meet the needs for CRM and digital marketing.

Indeed, business needs are now moving "beyond ads," in search of solutions to broader issues.

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