Dentsu is joining the chorus of other agency holding companies forecasting a grim financial year thanks to lowered demand for advertising.
The Tokyo-based holding company projects net income will be down 5% for the year ending March 31, 2013, compared with the previous year. It had said in May that net profit would likely be down 1.3%.
“Although the net sales and operating income results for the first half were almost in line with expectations, advertising demand is slowing down,” Dentsu said in a statement explaining the revision.
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Dentsu also reported Thursday that in the six months ended Sept. 30, 2012, gross profit (revenue) rose 8.9 % in yen, while net income was up 16.8%. Revenue converted to U.S. dollars rose 9.2% to $2 billion. The company’s net income in dollars jumped 17.2% to $117.8 million, up from $100.5 million for the same period last year.
Dentsu dominates the Japanese advertising market, which is the second-largest in the world, and its financial results are an indication of the country’s economic health.
Ad Age has initiated coverage of Dentsu’s financial results as the company continues its expansion outside its home market and adopts an increasingly global outlook, most recently with the $4.9 billion acquisition of London-based media and digital network Aegis Group. Dentsu is the fifth-largest agency company by global revenue, behind WPP, Omnicom Group, Publicis Groupe and Interpublic Group of Cos.
In June, it acquired the Montreal-based BOS and merged it with Dentsu’s Toronto office to form DentsuBos. The move was largely an attempt to make inroads in Canada’s French markets, according to then-chairman Bob Shropshire (who has since left the company).
In this last six-month financial period, Dentsu generated 85.9% of net sales from its home market but will be less reliant on Japan after completing the Aegis deal. Net sales in yen grew 4.7% in Japan and were up 19.6% in markets outside Japan.
Business conditions were mixed in the six-month period, Dentsu said. Reconstruction following last year’s earthquake and tsunami spurred the Japanese economy as did government eco-car subsidies. But the European debt crisis, global economic slowdown and appreciation of the Japanese yen contributed to overall uncertainty, the company said.
The Dentsu-Aegis deal is expected to close by the end of February 2013. Dentsu’s financial results do not yet include figures from Aegis, which will report its latest quarterly results on Nov. 16.
This story originally appeared in Advertising Age.
