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Dentsu returns to growth, but still lags behind rivals in half-year results

Dentsu’s reliance on Asian markets such as Japan and India has impacted its results

Japanese holding company Dentsu has released its financial results for the first half of 2021, showing a major improvement in the advertising group’s fortunes.

A strong second quarter built upon its return to growth in the spring, has put the Japanese giant back on the path to recovery after taking a battering at the height of the Covid-19 pandemic.

But overall organic growth levels still lagged behind its holding company rivals.

How has Dentsu performed?

  • Group revenues increased 7.8% year-on-year to ¥440.5bn, with increases of 5.5% at Dentsu Japan and 9.7% from Dentsu International in H1.

  • Dentsu Group’s H1 organic growth was 5.4%, with 4.5 from Japan, and 6.2% from its international business.

  • In contrast, WPP saw growth of 9.8% in H1, Publicis reached 9.7% and IPG 10.6%. Wendy Clark, global chief executive officer of Dentsu International, said that Dentsu is “absolutely in the mix“ compared to its peers.

  • “We are closing the gap on our competitors. I have a measure of confidence looking forward for the rest of the year that we will remain in the mix from an organic growth perspective,“ she said.

  • While Japan, as usual, accounted for the lion’s share of Dentsu’s net sales (43%), EMEA outperformed the US and Japan for organic growth and accounted for 22% of revenue. France and the UK were particularly strong drivers.

  • Dentsu’s reliance on Asian markets such as Japan and India has impacted its results. Its business in India, which saw a major resurgence of Covid-19 in the spring, saw negative growth.

  • In its home market, the company’s deep involvement in the muted Olympic Games in Tokyo was revealed in a recent exposé from The New York Times. Speaking during an earnings call, Yamamoto declined to comment on the impact of the Olympics on its Q2 results: “The Olympics and Paralympic Games is one event... and its impact is limited in this context.“

  • The second quarter has carried much of Dentsu’s 2021 growth. Organic revenue growth reached 15% in Q2, with 12% from Dentsu Japan and 17% at Dentsu International.

  • Toshihiro Yamamoto, president and chief executive officer, Dentsu Group, said: “Dentsu Group delivered a strong second quarter performance, reflecting the growing consumer and client confidence we see across all regions. Underlying profit growth continues to be strong, exceeding our expectations, and demonstrates our commitment to our margin targets.”

  • Key client wins included new business for GSK, American Express and Nestlé.

Signs of recovery

  • Dentsu recorded a $1.3bn loss in 2020, and negative growth of 2.4% in the first quarter of this year. Its strong Q2 performance is a turnaround.

  • The company is confident it can achieve ’high single-digit organic growth’ over the course of 2021, and predicts it will be able to achieve long-term operating margin targets of 15% and 20% (for its international and Japanese businesses respectively) a year earlier than planned.

  • Yamamoto said: “While the future path of the pandemic remains uncertain, our full-year guidance confirms our confidence in the outlook for the second half of FY2021, as well as our ability to meet our medium-term targets by 2024.”

  • The company confirmed dividends on its shares will reach a record high this year at ¥101.0 ($0.91) per share.

Digital transformation

  • Yamamoto echoed WPP and Publicis, pointing to particular growth from digital commerce and services. In particular, he highlighted the acquisition of LiveArea as furthering its goal of deriving 50% of net sales from digital transformation services.

  • He said: “The greatest opportunity for brands today, as they build strategies to re-emerge from the pandemic, is customer experience transformation. Creating competitive differentiation through marketing strategies, supported by data, technology platforms and analytics, is where we see the greatest demand for our services.”

  • While its media businesses still account for the bulk of Dentsu’s revenues, CXM activities saw 18.4% year-on-year growth, outpacing its creative businesses.