Dentsu revenue up but profits down, plans structural change

Dentsu Group saw operating profit fall 5.6% to 40.5 billion yen (US$365.2 million) year-on-year for the first half of 2018, with net profit down 62.9% to 10.8 billion yen (US$97.4 million).

Underlying operating profit fell 1.8% to 60.9 billion yen (US$549.2 million), while underlying net profit was down 19.8% to 31.6 billion yen (US$285 million). 

The company posted revenue growth of 7.6%—4.7% for Japan and 9.7% across Dentsu Aegis Network (DAN). Organic growth stood at 4%—4.7% in Japan and 3.4% for DAN.

Operations in Japan accounted for around three-quarters of total profit, with the rest coming from DAN.

Digital accounted for 45% of revenue. While it contributed under a quarter of revenue in Japan, it made up more than 60% for DAN. Overall, international business amounted to 58.2% of total revenue, up from 56.8% last year.

The company noted that 5.4 billion yen (US$48.7 million) had been spent on work reforms in Q2, out of a budget of 13 billion yen (US$117.2 million) for the year. Dentsu said in February that it expected the ongoing measures to improve the workplace would cut into its profit margin.

Among other measures, Dentsu has operated a trial monthly ‘input holiday’ since June. The concept is to give all staff an additional day in which to pursue personal interests. A release issued in April described it as “a monthly no-work day to encourage employees to take input for their output”.

Internationally, Dentsu said new business has “tracked behind the standout performance of last year” but said the “pitch pipeline is healthy”.

Dentsu forecasts an operating profit of 112.9 billion yen (US$1 billion) and a net profit of 79.5 billion yen (US$717 million) for the full year ending 31 December. The figures are down from 137.4 billion yen (US$1.24 billion) and 105.5 billion yen (US$952 million) respectively.

In a statement, Toshihiro Yamamoto, president and CEO of Dentsu Inc, said “the digital and technological revolution that our clients are facing continues to provide enormous opportunity for the Dentsu Group”. Among other things, Dentsu recently announced that it is looking to build business around innovations in the field of transport and mobility.

Dentsu said it is looking to make changes to its holding structure in January 2020. It anticipates splitting Dentsu Inc into “an operating company and a pure holding company”.

Dentsu said it needed to review its governance to be able to maintain growth, respond to radical changes and speed up decision-making.

Separately, Dentsu has been appointed as the marketing agency for the Japan esports Union (JeSU). Sponsors include KDDI, Suntory, Lawson, Beams and Indeed. Esports was legalised as a professional competitive sport in Japan in February.