Covid-19 pandemic takes toll on Dentsu Aegis Network organic revenue in Q2
Foreign news agency report has confirmed that Covid-19 pandemic has drastically affected the business fortunes of Dentsu Aegis Network business performance with its organic revenue declining by 17.3% and operating profit plunges 39.2% in quarter two.
Specifically, latest news release by Campaign said the Japan-based agency network has continued to be battered by the impact of Covid-19 pandemic as its home and international business operations have continued to struggle for revenue growth and profitability.
The news release published last week revealed that “for April-June, it (Dentsu Aegis Network) announced that revenue, less cost of sales, declined by nearly 18% to Y18.1bn (yuan) ($169.5m or E128.8m), while its operating profit declined by 32.2% year on year to Y4bn.
It stated that the international operation of Dentsu Aegis Network weighed down the results the most, with revenue less cost of sales down 21.3% year on year to ¥10.7bn ($100.2m or £76.6m), compared with drop of 12.3% for its Japan operations.
Organic revenue for the quarter was down 17.3% across the group, 20% for Dentsu Aegis Network and 12.6% for Dentsu Japan.
In Nigeria, the affiliate agency, MediaFuse Dentsu Aegis has equally not been immune from the general cut down on media advertising budgets by clients whose businesses have not fared better due to Covid-19 pandemic that resulted in general economic lockdown.
Some of its clients have also cut-down on their retainer-ship fee leaving the agency with narrow margins.
The Asia-Pacific market fared worst. Australia, India and Thailand all saw an organic decline of more than 20%, according to a company presentation. Germany, Russia and Switzerland are the only markets to grow in this quarter.
A look at Dentsu’s results for the first half of the year gives us a better understanding of the impact of cuts made in December 2019. Due to these cost reductions, the company’s operating profit increased by nearly 15%, even as its revenue less cost of sales dropped 9%.
In addition, operating margin increased 2.7 percentage points (up 2.4 percentage points on a constant currency basis) year on year to 12.9%. The group is tracking ahead of the targeted 7% cost reduction against the planned financial year 2020 consolidated cost base.
Given the cloudy global economy, Dentsu declined to make a detailed guidance for FY2020 available. Instead, the network noted that “the impact from Covid-19 continues to cause a slowdown in demand for services across the industry. The timing and level of recovery is expected to vary by market – yet the overall macroeconomic trend remains uncertain”.
Instead, Dentsu stated that it expected the second half of the year to show a modest improvement in the rate of organic revenue decline versus the second quarter. The second quarter is still expected to have been the weakest quarter, but the decline in revenue will exceed the running rate of cost savings in the second half of the year.
The network expects to squeeze costs, but with no end to the pandemic in sight the downturn will continue, albeit at a reduced pace, in the second half of this year, with a slow recovery expected in 2021. Dentsu has therefore launched a comprehensive review and accelerated its transformation plan to manage its business in this environment. No more details were disclosed.
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