Dentsu Cuts Forecast, Sees Lower Profits as Ad Market Slows

Japanese Giant Reports Revenue Up 8.9% for First Half Ending Sept. 30

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Dentsu has issued a grim forecast for the current financial year, joining other agency companies in warning of lackluster results amid weak demand for advertising.

The Tokyo-based agency 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. 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.

Dentsu also reported today 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.

Ad Age is initiating 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. Ad Age already reports on the quarterly earnings for those companies.

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.

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