Dentsu Aegis expects Q2 revenue to drop 15-20%

Forecast is better than worst predictions for global agency sector.

Dentsu's UK headquarters.
Dentsu's UK headquarters.

Dentsu Aegis Network expects revenue to drop "15% to 20%" in Q2, but offered some hope because its forecast was not worse.

Trading conditions in June look to be "relatively consistent" with April and May, according to Nick Priday, the long-serving CFO, who added that he expected Q2 to be "the floor in terms of quarterly organic performance" because of the coronavirus slump.

His guidance about Q2 performance is the clearest indication yet from any of the big six agency groups about the impact of coronavirus in the April-to-June period.

Analysts at leading investment banks, including Barclays and UBS, warned at the end of April that some of the big agency holding companies such as WPP could be facing a 25% revenue drop in Q2.

WPP disclosed in its annual report last month that it had modeled a "worst-case" scenario where revenues less pass-through costs would fall 35% from April, although it said it considered that as a "remote" possibility.

Priday’s comments suggest Q2 might not be so bad. He cautioned that he was not expecting a big "bounceback" in revenue in the second half of 2020.

Dentsu's share price rose strongly on hopes that margins could improve next year.

Bigger cuts for international operation

Dentsu Aegis Network, which has its headquarters in London, also revealed for the first time the performance of its three lines of business – creative, media and CRM – after a restructuring to simplify the international operation in December.

CRM grew 3.9%, but media fell 5.9% and creative dropped 6.5% – an overall decline of 3.3% for Dentsu Aegis Network in Q1.

Merkle, the key part of the CRM division, had a "record" Q1. Priday expects it to remain "pretty resilient" because it has a lot of stable, "multi-year" contracts.

Each of the lines of business has been impacted by the coronavirus crisis, but Merkle should continue to hold up better than creative and media, he added.

Dentsu Aegis Network’s decision to disclose the figures by discipline was notable because most of the other big global groups tend to report media and creative in a single, overall number.

The company is cutting 7% of costs globally because of the coronavirus slump. Priday revealed the cuts would be "slightly higher" for the international operation outside Japan, without disclosing a figure.

The restructuring in December is on track to make £45 million in savings in 2020 and another £45 million in 2021.

Dentsu has recruited Wendy Clark, global chief executive of Omnicom's DDB, to be chief executive of Dentsu Aegis Network. She is set to join in September.

This story first appeared on campaignlive.co.uk. 

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