Gideon Spanier
May 29, 2020

Dentsu Aegis expects Q2 revenue to drop 15-20%

Forecast is better than worst predictions for global agency sector.

Dentsu Aegis expects Q2 revenue to drop 15-20%

Dentsu Aegis Network expects revenue to drop "15% to 20%" in the second quarter, but offered some hope because its forecast was not worse.

Trading conditions in June look to be "relatively consistent" with April and May, according to Nick Priday, the long-serving chief financial officer, who added that he expected the second quarter to be "the floor in terms of quarterly organic performance" because of the coronavirus slump.

His guidance about the second-quarter performance is the clearest indication yet from any of the big six agency groups about the impact of coronavirus in the April-June period.

Analysts at several leading investment banks, including Barclays and UBS, warned at the end of April that some of the big agency holding companies such as WPP could be facing a 25% revenue drop in the second quarter.

WPP disclosed in its annual report last month that it had modelled a "worst-case" scenario where revenues less pass-through costs would fall 35% from April, although it said it considered that as a "remote" possibility.

Priday’s comments suggest the second quarter might not be so bad. He cautioned that he was not expecting a big "bounceback" in revenue in the second half of 2020.

Dentsu's share price rose strongly on hopes that margins could improve next year.

Bigger cuts for international operation

Dentsu Aegis Network, which has its headquarters in London, also revealed for the first time the performance of its three lines of business—creative, media and CRM—after a restructuring to simplify the international operation in December.

CRM grew 3.9%, but media fell 5.9% and creative dropped 6.5%—an overall decline of 3.3% for Dentsu Aegis Network in the first quarter.

Merkle, the key part of the CRM division, had a "record" first quarter and Priday expects it to remain "pretty resilient" because it has a lot of stable, "multi-year" contracts.

Each of the lines of business has been impacted by the coronavirus crisis, but Merkle should continue to hold up better than creative and media, he added.

Dentsu Aegis Network’s decision to disclose the figures by discipline was notable because most of the other big global groups tend to report media and creative in a single, overall number.

The company is cutting 7% of costs globally because of the coronavirus slump and Priday revealed the cuts would be "slightly higher" for the international operation outside Japan—without disclosing a figure.

The restructuring in December is on track to make £45 million (US$55.5 million) in savings in 2020 and another £45 million in 2021.

Dentsu has recruited Wendy Clark, global chief executive of Omnicom's DDB, to be chief executive of Dentsu Aegis Network. She joins in September.

Source:
Campaign UK

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