Print Published 9th Aug 2017, 16:11

Currencies and amortisation held back Dentsu’s growth

Dentsu’s purposeful expansion overseas has had a short-term detrimental financial impact as its profit fell by 14.2% to ¥30,712 million ($268 million) for the half year to 30 June.

Revenue grew by 11.8%, the best growth rate recorded by the global groups to date.  Gross income – the result of deducting bought in direct costs from revenue, and a measure preferred by Dentsu and WPP – grew by 12.5%. The growth would have been even better if adverse exchange movements had not lopped ¥2 billion ($17.5 million) off gross income in the period.  Instead its operating profit margins was eroded.

Dentsu results H1 2017

Adverse currency movements were not the only negative impact arising from Dentsu’s overseas expansion.  Acquisitions had also generated intangible assets that are subject to annual amortisation charges and these amounted to $142 million in the half year, an increase of 51% on the corresponding period last year.  In addition, Dentsu was hit by the cost of performance related acquisition payments of $12.9 million that are required to be charged as remuneration.

The group’s operating profit margin declined from 15.9% to 10.9%, but that margin would have been 16.4% if amortisation, acquisition related payments and the revaluation of earnout obligations were to be excluded (see table).

Organic revenue growth went into decline in Japan and managed only a 0.1% increase abroad.  In part the Japanese decline was attributed to the absence of specific business like TV advertising for the qualifying games for the 2016 Summer Olympics and Paralympic Games in Rio de Janeiro, and large-scale marketing and promotional events.

Global revenues H1 2017v3

As a consequence, the underlying operating profit derived from Japan fell by 9.2%, but was offset by a 3.6% improvement elsewhere.