Japan drives Dentsu’s modest Q1 growth, APAC and global markets stumble

Dentsu Group’s earnings for the first quarter of 2025 reflect modest overall growth, driven primarily by strong performance in Japan, while all other regions reported negative organic growth.

 

The company posted a slight positive organic growth of 0.2%,  recovering from the -3.7% decline reported in the same period last year. This growth was largely attributable to Japan’s robust 5.5% organic growth rate.

 

However, net revenue fell 0.6% year-on-year to ¥287.3 billion ($1.97 billion), partly due to the absence of contributions from its Russia business, which was divested in mid-2024. Operating profit, on the other hand, surged by 75.5% year-on-year to ¥25.4 billion, bolstered by cost control measures and a focus on media services, with the operating margin improving to 11.8%, up from 10.4% in Q1 2024.

 

The group stated that results were broadly in line with expectations given the 0.2% organic growth and 11.8% operating margin, but emphasised vigilance and flexibility in response to uncertainty in the global economy with concerns such as the impact of the United States tariff policies.

 

 

Customer Experience Management (CXM) faced headwinds across all regions outside Japan, with the Americas experiencing a double-digit decline. Media services, however, remained relatively stable or showed growth in many markets, becoming a key focus area to offset CXM softness.

 

Looking ahead, Dentsu remains confident in its Mid-Term Management Plan, which includes a significant one-time investment of ¥50 billion in FY2025 to rebuild the business foundation. Over the next three years, the group plans to invest an additional ¥45 billion primarily in AI, data & technology, and talent development.

 

To reach its target operating margin of 16-17% by FY2027, Dentsu has identified approximately 90% of operating cost reduction initiatives, aiming for annual savings of ¥50 billion. The company has not yet specified the exact areas where these cost cuts will occur.

 

APAC performance

 

Japan continues to be the bedrock of Dentsu’s performance. The region reported 5.5% organic growth, marking its eighth consecutive quarter of positive growth. Net revenue for Japan reached ¥129.7 billion, supported by strong gains in internet advertising, business transformation services (BX), and sports & entertainment (SP&E).

The operating margin in Japan also improved to 29%, up from 27.6% a year ago, even amidst rising staff costs due to talent investments. 

 

In APAC (excluding Japan), organic revenue declined 4.6%. Net Revenue stood at ¥23.1 billion, down from ¥24.2 billion in Q1 2024. Operating margin also dipped to -14.0%, compared to -13.0% in the same period last year. Underlying operating loss widened slightly to ¥3.2 billion.

 

The decline was primarily driven by double-digit revenue drops in China, which continues to face economic headwinds and a slowdown in advertising spending. While Taiwan and India delivered strong growth, and Australia remained flat due to stable media performance offsetting CXM challenges, these gains were not enough to counterbalance the broader regional downturn.

 

Americas and EMEA: Mixed results
 

Organic revenue contracted by 5.1%, driven by double-digit declines in customer experience management, particularly in the U.S. and Canada. Despite this, media services remained stable, and the region recorded a 3.5% increase in underlying operating profit to ¥13.5 billion, thanks to cost management. The operating margin improved slightly to 17.7% from 16.2%.

 

In EMEA, organic revenue fell 0.9%, with net revenue at ¥57 billion, also slightly below forecasts. While markets like Germany and Switzerland performed well, key markets such as the UK, Denmark, and the Netherlands faced challenges, primarily in CXM. The UK, in particular, reported double-digit declines in revenue. Spain held steady but posted negative growth due to tough comparisons with a strong prior-year performance. The region’s underlying operating loss widened to ¥1.6 billion, and the operating margin dropped to -2.7%.

 

Outlook

 

Across all regions, the shop's CXM business faced headwinds, particularly in the Americas, EMEA, and China. The division reported double-digit declines in key markets, reflecting ongoing challenges in adapting to shifting consumer behaviors and heightened competition.

In contrast, media services emerged as a key stabiliser, with many markets reporting either stable or slightly positive growth. 

The aegncy reiterated its full-year FY2025 guidance, forecasting around 1% organic growth and an operating margin near 12%, a slight decline from FY2024 primarily due to upfront internal investments aimed at restoring competitiveness.

 

Under the mid-term management plan, the Group targets 4% organic growth and a 16-17% operating margin by FY2027.

 

Hiroshi Igarashi, Dentsu Group's president and global chief executive, said: “Q1 FY2025 marked the expected start of our new Mid-Term Management Plan rollout. We recorded positive organic growth of 0.2%, the fourth consecutive quarter of growth, and improved our operating margin by 140 basis points to 11.8%, in line with our February forecast. Japan continued its strong performance with 5.5% organic growth, marking eight straight quarters of positive growth.

 

"We recognise increasing global economic uncertainty but remain focused on executing our MTMP initiatives, including rebuilding our business foundation and reassessing underperforming businesses. Our internal investments in AI, data & technology, and talent are critical to sustainable growth.

 

"Dentsu is a client-centric organisation committed to driving client growth. Adapting and evolving to meet our clients’ changing needs remains our top priority. I thank our global team for their dedication in bringing our shared vision to life.”