Digital Expansion and New Product Launches... Growth Trends of Cheil Worldwide and Innocean

Cheil Worldwide Reports Operating Profit of 311.4 Billion KRW Last Year, Up 26% YoY
Continued Expansion of Digital Business Leads to Profitability Improvement
Innocean Posts Operating Profit of 135.9 Billion KRW Last Year, Up 0.9%
Hyundai Motor's New Car Marketing Impact at 'Qatar World Cup'

Cheil Worldwide and Innocean, the two major domestic advertising companies, continued their growth as digital performance steadily increased and the effect of advertisers' new product launches added momentum.

According to the Financial Supervisory Service's electronic disclosure system (DART) on the 8th, Cheil Worldwide's annual operating profit last year was 311.4 billion KRW, a 26% increase from the previous year, and its annual gross profit was 1.5383 trillion KRW, up 20%. Due to the nature of the advertising industry, gross profit, which excludes cost of sales such as outsourcing fees paid to partner companies, is used as an indicator of the company's scale growth.

They continuously expanded their digital business and improved profitability. Last year, the digital business accounted for 53% of gross profit, up 3 percentage points from 2021. As a result of continuously expanding digital businesses such as dot-com and e-commerce and diversifying digital service areas, digital business performance increased by 27% compared to the previous year. Non-media advertising (BTL) businesses such as retail accounted for 30%, and media advertising (ATL) businesses accounted for 18%.

Innocean also saw its annual operating profit increase by 0.9% to 135.9 billion KRW last year, and gross profit rose 14.4% to 765.1 billion KRW. In the fourth quarter, operating profit was 49.5 billion KRW, up 14.8% year-on-year, and gross profit was 230.4 billion KRW, up 14.4%. The company ended the year by somewhat recovering from the sluggish second and third quarters due to the '2022 FIFA Qatar World Cup' and Hyundai Motor Group's new car marketing effects. As Hyundai Motor Group, the largest advertiser, was an official sponsor of the World Cup, Innocean benefited from the expansion of related orders, and the release of the new Grandeur model at the end of last year positively increased agency work.

Despite the challenging external environment due to the economic downturn, both companies are expected to continue their growth. Cheil Worldwide is expected to maintain its performance growth this year based on its digital business. As concerns over global economic slowdown deepen, the performance outlook for advertising companies, which are highly sensitive to the economy, is rapidly being downgraded because companies are reducing their overall marketing budgets. However, apart from campaign-centered marketing budget cuts, marketing related to sales is being strengthened. In particular, advertisers' spending on marketing channels such as consumer direct-to-consumer (DTC), where Cheil Worldwide shows competitiveness, as well as dot-com and e-commerce channels, continues to open.

Jisoo Jung, a researcher at Meritz Securities, said, "Although conservative advertising spending by advertisers is expected due to the economic slowdown, the demand for performance marketing linked to sales (rather than brand campaign-centered marketing) to improve marketing efficiency is increasing, so the expansion of digital agency volumes from major advertisers will continue." Cheil Worldwide's digital business proportion, which was around 43% in 2020, exceeded 50% in 2021 and grew 10 percentage points over two years to 53% last year.

Innocean is also expected to continue stable growth this year with Hyundai Motor's agency volumes such as Genesis G90, Kia Seltos, and Sorento. Minha Choi, a researcher at Samsung Securities, forecasted, "In addition to the stable growth of captive volumes due to the expansion of new car agency volumes, they will increase non-affiliated volumes by attracting new domestic and overseas advertisers." According to financial information provider FnGuide, Cheil Worldwide's operating profit this year is estimated to increase by 7.4% year-on-year to 334.4 billion KRW. During the same period, Innocean's operating profit is expected to grow 6.3% year-on-year to 144.8 billion KRW.