Dentsu sees Q1 organic growth fall as it prepares for new corporate structure

The advertising giant is optimistic about major upcoming events in Japan and sees planned new holding company improving alignment between domestic and international operations.

Dentsu saw organic growth fall 1.6% in Q1 2019, with its Japan business slipping 2.7% and operations at Dentsu Aegis Network by 0.7%. Overall revenue minus sales increased 2.3% to ¥227.9 billion ($2 billion).

The company’s underlying operating profit fell by more than 25% to ¥24.4 billion ($222.9 million).

For EMEA, organic growth was down 0.4% with overall revenue in the region reported as ¥47.2 billion, up 2% compared with the same period last year.

Dentsu attributed its slump in Japan mainly to lower spending on traditional media, but said spending on digital helped to partially offset that. Digital accounted for 27.7% of revenue in the market, Dentsu said, and 47% overall, taking into account its 62.5% share of revenues for Dentsu Aegis Network.

International business makes up 55.5% of Dentsu’s total revenue. The company blamed weaker organic growth there on negative growth in Asia-Pacific and in particular Australia.

Dentsu called the results "a soft start to the year," but said it expected things to improve and made no revisions to its outlook.

In a statement, Toshihro Yamamoto, Dentsu’s president and chief executive, said he expected "world-class, one-off events" to strengthen results in the year’s second half.

He noted that Dentsu will move to a new holding group structure from January 2020, with the new entity called Dentsu Group Inc. It will absorb all group companies and 62,000 staff, he said, enabling better corporate governance and integration between Japan and Dentsu Aegis Network.

Dentsu was the most active of all major advertising networks in terms of acquisitions in this year’s first quarter as direct competitors continued to scale back their activities. Dentsu indicated it would continue in this vein.

"Acquisitions continue to accelerate the group strategy by providing innovation, scale, geographic and capability infill as well as bringing new entrepreneurial talent into the organisation," Dentsu said. 

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

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