Dentsu continues strong growth trajectory in Q2

Dentsu has posted another strong financial quarter, with Q2 organic growth rising 8.2% on year. Net revenue grew 19.3% from a year ago to JPY 260 billion ($1.95 billion), up from the 16.4% gain posted in Q1.

Underlying operating profit in the quarter was up 31.5% on year to JPY 35 billion ($262 million), with a 50% hike in net profit signaling a healthy core business, although its statuatory net profit which includes one-off payments slipped 40% from a year ago. Operating margins rose 13.5% from a year ago.

Much of the strong performance can be attributed to the Customer Transformation & Technology division, which grew 22.5% on year in Q2 to compromise nearly a third of Dentsu's revenues, and even a greater percentage at Dentsu International. 

"Our strategy of growing our revenues in the fast growth area of our industry, Customer Transformation & Technology, brings a number of benefits to the Group—transforming our client offer, our revenue profile and our cost structure," said Dentsu Group CEO Hiroshi Igarashi, who reiterated the company's goal of achieving half of their net revenues from this area as the business becomes a hybrid agency-consultancy. Dentsu made two acquisitions in this space in recent weeks, adding no less than 950 employees from Extentia in India and Pexlify in the UK. 

Dentsu has been posting significantly stronger results over the past year, with strong double-digit organic growth rates in Q2,  Q3 and Q4 2021 compared to pandemic-plagued 2020, and a solid 16.4% YoY increase in net revenue in Q1 2022.

Breakdown by geography 

Dentsu International's organic growth rate of 8.4% outpaced that of Dentsu Japan Network's 7.9% in Q2. Overall, the Americas business saw the largest gain in organic revenue at 9.6%, followed by EMEA at 4.9% and APAC (excluding Japan) at 4.5%.  

As a result the Americas lead H1 organic growth at 11.4% with both media and CXM hitting double-digit growth and Canada performing well, offsetting weakness in Brazil and Mexico.

Japan grew 9% organically in H1 as clients continued to seek help with digital transformation and Septeni Holding gained 12%. The rest of APAC grew more slowly at 4.8%, hurt by Chinese Covid restrictions but offset by stronger results in Australia, India, Korea and Singapore. 

While EMEA was the slowest growing region at 4% organic growth, that rate improves to 7.2% when Russia is excluded. Dentsu says it has reached an agreement in principle to sell the Russia business to local partners. The UK, Denmark and Germany had strong showings and the CXM busienss gained double-digits. 

Japan continues to contribute the most to H1 net revenues at 42%, followed by the Americas (28%), EMEA (21%) and the rest of APAC (9%). 

By service line, the CXM business has been the clear winner in H1, gaining 13.6%, with double-digit growth across all regions. Media is up 5.8%, strongest in the Americas and APAC where it rose by double-digits. Creative remains the weakest service line with just over 1% growth, weighed down by weakness in APAC.

Future confidence

As a result of the solid underlying numbers, Dentsu is again raising its FY2022 forecast to the up end of its 4-5% organic growth projection.

As a sign of strength, Dentsu says it aims to progressively raise its dividend payout. And earlier this month Dentsu bought back more than $25 million in shares as part of a pre-announced plan to acquire as much as JPY 40 billion ($300 million) worth of its stock in 2022.