Dentsu reveals cost of Russia exit in Q1 results
Dentsu, the holding company behind agencies Mcgarrybowen, iProspect and Carat, has revealed its financial results for the first quarter of 2022.
Japanese holding company Dentsu has released its performance figures for the first quarter of 2022 / The Drum
The advertising group saw its margins increase, and upgraded its organic growth predictions for the rest of the year, reflecting ”a strong start to the year,” according to president and chief executive Hiroshi Igarashi.
It also revealed that the closure of its Russian business, written off as industry players withdrew en masse from the country, cost the company ¥14.2bn – equivalent to around $110m.
What do the results show?
Net revenue for the quarter was ¥258,867bn (approximately $2bn), an increase of 16.4% on the same period last year. Organic growth across the entire group was 9.1%; its international business grew 9.2% while its Japanese network grew 10%.
Dentsu’s operating margin rose in the first quarter, reaching 21.1%; Dentsu Japan recorded its highest-ever margin (35.8%), though the company predicts costs will rise later in 2022. Off the back of the margin growth and revenue increase, Dentsu has pushed its annual growth prediction to 5% (it had previously told investors 4%).
The company’s Russia business, a joint venture with OKS Group which was transferred to local ownership back in March, put a dent in its costs this quarter; the withdrawal cost it around $110m, a similar cost to that absorbed by Omnicom and Publicis. The company stated that it expects further charges in the second quarter of the year but noted that “there is no expected impact on FY2022 net revenue, organic growth, underlying operating profit and operating margin forecasts from the disposal of the Russian business.“
The cost was ameliorated somewhat by further property sales, which raised $85.4m. Wendy Clark, global chief executive officer of Dentsu International, told The Drum: “The humanitarian impact of the past quarter has been unspeakable. We stand unequivocally with Ukraine and the global community calling for the restoration of peace. Along with the personal contributions of thousands in our network, Dentsu Group has donated more than $2m to critical humanitarian aid and refugee relief efforts. These actions are reflective of who we are and what we stand for at Dentsu.”
In a statement, Igarashi said: “Dentsu Group has seen a strong start to the year with organic growth ahead of expectations as clients continue to invest in brand experiences informed by data and analytics.
“The changing macro impact from the Russia-Ukraine conflict, inflation, interest rates rises around the world and the continued Covid-19 restrictions in China are well reported – however, we feel confident in our ability to deliver growth in 2022. Today we upgrade our 2022 organic growth outlook, guiding to 4-5% for Dentsu Group from 4% previously.“
Which territories and sectors performed best?
Typical for Dentsu, almost half of its revenue (46%) came from its Japanese business, while Dentsu International made up the rest; 26% came from the Americas, 19% from Europe, the Middle East and Africa and 9% from the wider Asia Pacific region.
The impact of additional Covid-19 lockdowns in China was clear to see in Dentsu’s APAC results. Although its businesses in Australia, Taiwan and Thailand grew 12%, 6% and 8% respectively, creative income from China fell, and organic growth from the region overall was just 5.2%.
In contrast, organic growth in the Americas for Dentsu International was 13.4%, driven by media spending and customer experience (CX) activity at Merkle.
Clark said: “There continues to be growth opportunity for the year ahead and we are in a strong position to capitalize on that further.”
CX services are still the biggest focus for Dentsu; the company wants to derive at least half of its revenue from the sector, and it saw organic growth of 15%, 14% and 20% in the Americas, EMEA and APAC respectively.
Igarashi added: “As we continue to grow our net revenues in customer transformation and technology, the group becomes more exposed to a faster-growing area of our industry, allowing us to deliver a truly differentiated offer to our clients as we shift our business to a hybrid agency and consultancy.
“Our strengths in first-party data, combined with identity resolution, data management, marketing technology, data sciences, loyalty, CRM, personalization, and media and creative services, have created differentiation against an evolving competitive landscape. We have our sights set on becoming the market leader enabling and activating the total CX as we look to grow customer transformation and technology to 50% of our group net revenue over time.“