Dentsu's underlying operating profit slips, reports slow start in Q1 results

Dentsu has seen a slightly slower start to the year, with Q1 organic revenue declining 1.6% against strong prior year comparables.

However, stronger than expected contributions from recent acquisitions have seen Q1 net revenues reach +4.5% year-on-year.

In March, two acquisitions were announced in line with Dentsu's strategy of expanding its Customer Transformation and Technology (CT&T) business, which it hopes will eventually generate 50% of net revenues. These acquisitions include Shift7, a US based B2B experience and commerce agency, and Tag, a dynamic digital production powerhouse.

"The first quarter was impacted by a lengthening of the sales cycle for Customer Transformation and Technology contracts in the US," said Hiroshi Igarashi, president and CEO, Dentsu Group Inc. "But a growing pipeline and increase in new business wins in the first quarter provides greater visibility for an improvement in second half growth."

Regional breakdown

Japan saw a decline in organic revenue of 0.2% in the first quarter, with TV spot advertising and internet advertising businesses seeing a slow down.

The Americas reported 4.9% organic revenue decline, and APAC (excluding Japan) declined 7.8%.

Bucking the trend was EMEA, that delivered positive organic growth of 3.4% driven by continued momentum in Customer Transformation and Technology client spend. The Netherlands, Norway and Switzerland all reported double digit organic growth in the quarter, while Denmark, Poland, Spain and Sweden also performed well.

Meanwhile, Japan contributed the most to net revenues at 45%, followed by the Americas (27%), EMEA (20%) and the rest of APAC (8%).

35% of net revenues were driven by Dentsu's Customer Transformation & Technology business, and Dentsu says it continues to make progress towards the stated strategy of reaching 50% of net revenues generated by its CT&T business.

Future confidence in CT&T strategy

Dentsu has forecast organic growth to be 1-2% for FY 2023. Their strategy is to continue growing revenues in the fast growth market of Customer Transformation & Technology. They are hoping their latest announced acquisition, Tag, will position them well to deliver the integrated solutions clients are looking for. The deal, announced in March, will add 2800 staff to Dentsu’s creative digital production capabilities in 29 different global markets and will represent 3% of its future revenue. The acquisition is expected to be completed in the second half of the year.