Dentsu’s Q1 earnings: Japan sees recovery, but overall revenues still down

Dentsu’s Q1 financials

• Revenue (less cost of sales) slid 2.1% compared to Q1 2020, reaching 222.4bn Yen against 227.1bn Yen. The group said this was expected and reflected the impact of Covid-19 on the business.

• The group’s organic revenue decline was -2.4%, with a decline of -0.9% at Dentsu Japan Network and -3.5% at Dentsu International.

• Operating profit increased 20.8%, climbing to 44.9bn Yen; operating margins increased 16.4%, a fact the company credited to “one-time operating cost reductions in Japan and the continued impact of cost actions that took effect from the second quarter in FY2020 in the international business“.

• The holding company’s profits for Q2 are unlikely to look as healthy, with the hit to ad spend more apparent in the later part of the year and one-time cost savings having a smaller impact. Dentsu said it “still expects to deliver modest margin improvement year-on-year“.

Outlook for Japanese giant

• Despite the decline in organic revenue, Dentsu pointed to its return to growth in March (when the company showed growth of 2.5%). It stated: “The group has had a very encouraging start to the year, with improving trends across the business, yet given the macro uncertainty in a number of major markets, retains its FY2021 guidance of delivering positive organic revenue growth on a full year basis.“

• According to president and chief executive officer Toshihiro Yamamoto, the company still expects to hit “mid-term targets“ of 3.4% organic growth.

• He said: “Consumer and client confidence is returning, and this is reflected in the positive momentum in our revenue growth. Profit has been particularly strong, demonstrating our relentless focus on costs and commitment to growing our margins. Uncertainties remain about the progress of the pandemic, and, in particular, with new waves affecting several countries. However, we believe that our momentum will continue to build, underpinning the medium-term commitments we gave in February.

• “Strong progress has been made against each of the four objectives of our comprehensive review to accelerate the transformation of our business. We are tracking ahead of many of our internal targets and demonstrating that we are prepared to take unprecedented action to transform our service to clients and give returns to shareholders. This includes radical rationalization of brands and divestment of assets.

• “Dentsu remains well positioned to benefit from the cyclical recovery in digital solutions and media spend, combined with our leading position in the structural growth area of customer transformation and technology.“

Digital transformation

• Despite overall revenues falling, Dentsu’s revenue from its digital activities continues to build, reaching 51.3% against 48.1% this time last year; Dentsu International led the way with 64.7% of its revenue coming from digital services.

• ‘Customer transformation and technology‘ made up almost 30% of group revenues; Dentsu said it is still committed to growing this area to 50% of its revenue.

• Dentsu’s geographic distribution demonstrates the differing speeds of economic recovery across the globe, with Dentsu Japan seeing single-digit growth as client spend returns.