Dentsu Q2 organic revenue declines by -4.7%, but pickup eyed in H2

 

The Group's underlying operating profit declined 37.6% year-on-year to USD$154.7 million (JPY 22.4 billion) with continued conservatism from technology and finance clients, plus a one-off financial impact in the Germany, Austria and Switzerland (DACH) cluster within the Europe, Middle East and African (EMEA) region, cited as one reason for the dip.

 

 

However, Dentsu has completed its acquisition of Tag, the digital production company that is expected to contribute to Group revenues from July 1st. In addition, one-off events such as the Rugby World Cup, Tokyo Mobility Show, and easing comparables are expected to help lift organic growth in the second half of the year. 

 

 

"Our second quarter performance reflects the continued impact of the slowdown in spend from clients in the technology and finance sectors," said Hiroshi Igarashi, president and CEO, Dentsu Group Inc. "We expect to see an improving trend in organic growth in the second half with our focus on delivering growth and measurable business results for our clients."

 

 

Regional breakdown

 

 

Japan saw a return to growth in the second quarter with an organic revenue increase of 3.4%, led by double-digit organic growth in customer transformation and digital transformation practices (CT&T), as well as strong client spend in the financial, transportation and household/personal products sectors.

 

 

The Americas reported an organic revenue decline of -7.4% brought on by weaker client spend in both media, particularly from clients in the technology sector, and CT&T. 

 

 

EMEA's second quarter performance was impacted by a one-off financial impact in the DACH cluster as noted above, caused by a complex business transformation and systems integration. However, The UK, Spain, the Netherlands, Denmark and Norway all delivered positive organic growth.

 

 

Meanwhile, APAC (excluding Japan) saw an organic revenue decline of -7.0%. Performance in China is still being affected by macroeconomic headwinds, and market deflation is causing spending to decline in cyclical sectors where Dentsu has more customer exposure. Yet, a more consistent H2 performance is anticipated as a result of several client retentions. Dentsu is confident that Chun Yin Mak, the recently appointed market CEO in China, brings a deep understanding of the market and significant skills in technology and business transformation consulting to the role, that will fuel growth in high-value sectors like CT&T. 

 

 

The North Asian region continued to perform well, with organic growth in Taiwan and Hong Kong reaching the low single digit range.

 

 

India was negatively impacted by client losses in the media sector in Q2, but a new leadership team led by Anita Kotwani in media and Harsha Razdan as CEO, India, has resulted in a significant shift in favour of more effective teamwork and a client-centric approach.

 

 

Vietnam performed remarkably well in Southeast Asia, achieving over 9%. Performance was still affected though, by the cutback in spending in the tech industry and Indonesia's turn off of ATVs. The outlook for H2 is more positive thanks to wins across the cluster in Q2.

 

 

 

 

As of end of June 2023, 33% of net revenues were driven by Dentsu's Customer Transformation & Technology (CT&T), and the Group says it continues to make progress towards its strategy of reaching 50% of net revenues generated by its CT&T business.

 

 

Outlook

 

 

Dentsu is now forecasting organic growth to be between 0% to -2% for FY2023, lower than the Q1 projection of 1-2%. But looking forward, they remain confident in its positioning at the convergence of marketing, technology and consulting. In July, Dentsu announced the latest milestone in their longstanding partnership with Microsoft, launching enterprise-wide access to advanced Azure OpenAI technologies, further expanding their AI product offerings. And the acquisition of Tag, adding 2,800 new colleagues who joined the Group on July 1st, brings AI-driven technology and global content capabilities to add value to Dentsu’s clients.

 

 

(This article first appeared on CampaignAsia.com)