Dentsu Aegis Network organic revenue down a fifth in Q2

Organic revenue at parent company declines 17.3% and operating profit plunges 39.2%, although cost cuts announced in December have begun to have impact.

Dentsu: business decline was less severe in home market of Japan
Dentsu: business decline was less severe in home market of Japan

Dentsu, the Japan-based agency network, continues to be battered by the impact of the Covid-19 pandemic, as its home business and international operations continue to struggle for revenue growth and profitability.

For April-June, it announced that revenue, less cost of sales, declined by nearly 18% to ¥18.1bn ($169.5m or £128.8m), while its operating profit declined by 39.2% year on year to ¥4bn. 

The international operation, Dentsu Aegis Network, weighed down the results the most, with revenue less cost of sales down 21.3% year on year to ¥10.7bn ($100.2m or £76.6m), compared with drop of 12.3% for its Japan operations.

Organic revenue for the quarter was down 17.3% across the group, 20% for Dentsu Aegis Network and 12.6% for Dentsu Japan.

The Asia-Pacific market fared worst. Australia, India and Thailand all saw an organic decline of more than 20%, according to a company presentation. Germany, Russia and Switzerland are the only markets to grow in this quarter. 

A look Dentsu's results for the first half of the year gives us a better understanding of the impact of cuts made in December 2019. Due to these cost reductions, the company's operating profit increased by nearly 15%, even as its revenue less cost of sales dropped 9%.

In addition, operating margin increased 2.7 percentage points (up 2.4 percentage points on a constant currency basis) year on year to 12.9%. The group is tracking ahead of the targeted 7% cost reduction against the planned FY2020 consolidated cost base, Dentsu announced. 

Given the cloudy global economy, Dentsu declined to make a detailed guidance for FY2020 available. Instead, the network noted that "the impact from Covid-19 continues to cause a slowdown in demand for services across the industry. The timing and level of recovery is expected to vary by market – yet the overall macroeconomic trend remains uncertain."

Instead, Dentsu stated that it expects the second half of the year to show a modest improvement in the rate of organic revenue decline versus the second quarter. The second quarter is still expected to have been the weakest quarter, but the decline in revenue will exceed the running rate of cost savings in the second half of the year. 

The network expects to squeeze costs, but with no end to the pandemic in sight the downturn will continue, albeit at a reduced pace, in the second half of this year, with a slow recovery expected in 2021. Dentsu has therefore launched a comprehensive review and accelerated its transformation plan to manage its business in this environment. No more details were disclosed.

A version of this story first appeared on Campaign Asia-Pacific

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