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Dentsu warns on looming Covid-19 hit

Dentsu headquarters, Tokyo. Image credit: Dentsu

Japanese marketing giant Dentsu Group has withdrawn its earnings guidance for 2020 and is looking to make a 7-per-cent cut in global costs this year, as Covid-19 starts to affect its financial results.

Dentsu’s results this year are expected to be heavily hit by the postponement of the Tokyo 2020 Olympics. The company was conducting a large amount of work around the Games, including managing a record-breaking domestic sponsorship sales round.

The pandemic is also hitting Dentsu’s core advertising business, with economic activity slumping in Japan and around the world.

Reuters reported that Japan’s second-biggest advertising firm, Hakuhodo DY Holdings, last week announced advertising sales fell 20 per cent in April year-on-year. March sales had been down 8 per cent.

In the company’s results for the first quarter of 2020, from January to March, it withdrew the guidance it had issued on February 13 for its 2020 full-year results “due to the level of uncertainty caused by the impact of Covid-19”. It said it had “taken a number of cost actions in the first quarter to mitigate the impact of the expected revenue decline due to COVID-19 and is targeting a 7 per cent cost reduction against the planned FY2020 consolidated cost”.

The company said Covid-19 started to impact results towards the end of the first quarter, and it expects its second quarter, April to June, to be the weakest of the year.

Campaign reported that Dentsu had from February cut non-essential travel and discretionary spending, paused mergers and acquisitions until at least the end of the second quarter. It has also reduced working hours, and made temporary salary reductions. Executive pay will be reduced from the second quarter onwards.

In the first quarter, the company reported a 0.9-per-cent year-on-year increase in revenue to 252.7bn yen (€2.12bn/$2.34bn). Ebitda was up 36.6 per cent year-on-year, to 48.3bn yen.