Dentsu reported an organic gross profit decline of nearly 5% in the second quarter and a drop of 0.4% for the first half of the year. Dentsu defines gross profit as revenue less direct costs.
The company’s Dentsu Aegis Network—the unit that manages its operations outside Japan—posted a 2.7% organic decline in Q2 and just a tiny bit of growth (0.1%) for the first half. The company cited “challenging market conditions” among the reasons for the lack of growth.
Dentsu, which owns Carat, mcgarrybowen, Isobar, iProspect and other agencies, also downgraded its full-year forecast for revenue by 4.6% and its gross profit projection by nearly 5%. And it now estimates that operating profits will be about 10% lower than the firm had expected at the start of the year.
In the Americas region the organic decline was 4.1% in the second quarter and 2% in the first half. The company stated that while some U.S. operations performed well in the first half “some were impacted by a more difficult trading environment.” But it did give a shout out to two recent acquisitions—Accordant Media and Merkle—which the firm said “continued to grow strongly.”
The Group’s Japan operations posted an organic decline of 1.1% in the first half and 8.1% in Q2, in part attributable to the lack of Olympic-related ad dollars that were generated in the same period a year ago.
The company’s total first half revenue was up almost 12% to nearly 439.5 billion Japanese yen (about $4 billion at today’s exchange rate). Gross profit for the period increased 12.5% although operating profit fell nearly 23% to 45.3 billion yen ($412.5 million).
Dentsu President and CEO Toshihiro Yamamoto stated that “going into the second half of the year, despite uncertain market conditions, the Group is well placed to realize the positive impact of strong new business wins in the first half of 2017.”
And, in an apparent reference to the scandal that has embroiled the firm’s Japan operation for a year and a half (a young and extremely overworked employee committed suicide) Yamamoto added, “Dentsu in Japan remains focused on a new working environment to foster a progressive working culture.”
Yamamoto also stated that Dentsu’s international business “is well positioned with strong new business momentum and a further strengthened top leadership team to continue its long-term track record of market outperformance on a full-year basis.”
In June, agency veteran Nick Brien joined Dentsu Aegis Network as CEO Americas, succeeding Nigel Morris who was named to the new post of chief strategy and innovation officer. Those moves came shortly after the company announced the departure of Rob Horler, US CEO at the network.