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Dentsu reports revenue drop and large loss for 2019

Dentsu headquarters, Tokyo. Image credit: Dentsu

Japan-based marketing group Dentsu has reported stagnant or declining revenues across a range of markets in 2019, contributing to a loss of Y80.9bn ($737m) in 2019.

Organic revenue – revenue not attributable to takeovers, mergers or acquisitions – in Asia-Pacific outside Japan was down sharply at 12.3 per cent. The company said there had been particular underperformance in Australia, Brazil, China, France, and the UK. Total organic revenue was down 1 per cent globally, although total revenue was up 3.3 per cent.

The company said its large net loss was down to “an increase in impairment charge (73.6 billion yen) and a recording of restructuring costs (19.6 billion yen) for operating loss, and an absence of the gain on sales of shares of associates recorded in the previous fiscal year (52.1 billion yen) and an increase of loss on revaluation of earnout liabilities and M&A related put-option liabilities due to stronger than expected performance of acquired companies (15.9 billion yen)”.

Dentsu has a large sports marketing business, active in the buying and selling of sports media rights, sponsorship rights, and other commercial aspects of sport. The financial results of the sports marketing business are not reported separately from the rest of the Dentsu business.

Within Japan, Dentsu’s organic revenue was flat and total revenue up 0.4 per cent. The company said large-scale events in Japan, including the Rugby World Cup and the Tokyo Motor Show, boosted results in the final quarter.

Digital business contribution to total revenue less cost of sales was 47.5 per cent up 46.1 per cent in 2019. In Japan, digital accounted for 29.3 per cent of total revenue, up from 23.9 per cent. In Dentsu Aegis Network, it accounted for 59.9 per cent down from 60.6 per cent.

In the company’s Dentsu Aegis Network – its advertising business outside Japan – organic revenue was down 1.9 per cent and total revenue up 3.5 per cent. Regionally, alongside the 12.3-per-cent decline in Asia-Pacific, organic revenue in EMEA was down 0.7 per cent, and in the Americas was up 2.4 per cent.

Toshihiro Yamamoto, president and chief executive of Dentsu Group, said he was confident that recent restructuring in the international business “will deliver the necessary savings and changes to our organisational structure that we need to deliver growth and margin improvement in 2020 and beyond”. In December, the company announced it was cutting 3 per cent of its workforce outside of Japan. The job cuts are to happen in the advertising business, with the sports marketing business unaffected.

Dentsu is forecasting that Tokyo 2020 will help it to a 2.9-per-cent increase in revenue less cost of sales and a 5.8-per-cent increase in underlying operating profit in 2020.

The company warned that the forecasts were “subject to the changing economic situation in China and APAC”, and also excluded “world economy trends likely to be influenced by possible impacts from an outbreak of Coronavirus”.