Dentsu feels impact of Russia-Ukraine war in its Q3 financials

A slower quarter compared to year ago at Dentsu Japan Network also contributed to drops in net revenue, while operating profit fell nearly a third from a year ago. On the bright side, Dentsu's customer transformation business remains strong

Nov 15, 2022 09:46:00 AM | Article | Shawn Lim

Japanese-based advertising holding company Dentsu Group felt the impact of the Russia-Ukraine war on its business as it reported third quarter results.  

Dentsu’s organic revenue dropped 4.7% in Q3 from a year ago, as it felt a 15.1% decline from Dentsu Japan Network's stellar quarter a year ago. Operating profits globally fell by nearly a third  (32.8%) compared to the same quarter a year ago while net profits dropped 27.6%.

Dentsu International, meanwhile saw demand for digital experience and customer focused transformation services contribute to a 5.4% gain in organic revenue this quarter (when excluding Russia). In fact, the group’s business that is focused on customer transformation and technology has grown over 20% in the first nine months of this fiscal year, forming 32.6% of its total revenue. This is an increase of 380 basis points year-on-year. 

However, when factoring in the impact of Dentsu's Russian business, Dentsu International's organic revenue gain was shaved down to 3.4%.

With the war showing no sign of ending soon, Dentsu will sell its Russian business to local partners after reviewing its operations at the start of the year. An agreement was reached in August which will see Dentsu sell the equity to its local partners who will operate independently going forward. 

Should the sale be approved by Russian authorities within the 2022 financial year, the estimated total loss of facing Dentsu after letting go of its Russian business is approximately JPY 37.0 bn (US$265 million). 

“We see a multi-year runway of growth as data proliferation accelerates, supported by growth in data channels, a digitally native population and the increased need for corporates to build direct-to-consumer relationships. We help our clients transform their data, technology, and organizational capabilities to deliver differentiated customer experiences, building loyal customers over time,” said Hiroshi Igarashi, president and chief executive officer of Dentsu. 

Results by regional level

Bucking global trends, Dentsu International saw the highest third quarter organic revenue growth in EMEA (9.2%), with parts of Europe gaining as much as 15%. The region’s nine-month organic growth is 5.6%. Excluding Russia it is 10.1%.  

The Americas remained flat (0.7%) in Q3, though over the past 9 months Dentsu has seen organic growth of 7.6% in the Americas as the US market grew over 7%. The third-quarter growth decline was mainly due to a slowdown in the creative business. Higher growth in Canada and Mexico helped to soften the impact of declines in Brazil. 

In APAC excluding Japan, organic growth slipped (-1.1%), though still up 2.7% on a 9-month basis. The continued impact of the Covid-19 pandemic in China contributed to the third-quarter decline, though Southeast Asia continued to perform well for Dentsu, with Indonesia growing high single digits. India reported over 10% organic growth driven by new client wins and increased scope from existing media clients. 

Japan, the largest region accounting for 40% of the Group's total net revenue, has seen revenues remain flat (-0.1%) in the nine-month period, as strength in customer transformation and technology mitigates the impact of overall declines from last year's strong results. 

(This article first appeared on CampaignAsia.com)