Japan's Dentsu Lowers Forecast for 2016

Rise of the Japanese Yen Forced the Group to Change Its Forecast

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Dentsu's head office in Tokyo
Dentsu's head office in Tokyo Credit: Junko Kimura/Bloomberg

Tokyo-based Dentsu Inc. lowered its forecast for 2016 growth to take into account the sharp rise of the yen, which has forced Japanese companies to readjust their earnings targets.

Dentsu, the world's fifth largest agency company, forecast annual gross profits of 768.7 billion yen ($7.1 billion), up 0.9% in yen terms from 2015. Taking out exchange rate fluctuations, growth would be 8.4%, the company said.

Dentsu had previously forecast that gross profits -- a proxy for revenue -- would hit 817.1 billion yen in 2016. Other major Japanese companies including Toyota and Suzuki have lately warned that the yen's surge would affect coming earnings reports. The yen's gains follow a period of weakness for the yen and other major currencies against the dollar.

Despite the adjustment, Dentsu said it "remains confident about its prospects for the remainder of the year and continues to expect to deliver a performance ahead of the market in FY 2016."

Dentsu, which owns agencies including Carat, Isobar, McGarryBowen and 360i, said gross profits in the first quarter were up 3.2% from the same period last year, reaching 187 billion yen ($1.7 billion).

Organic gross profit growth -- adjusting the numbers to account for acquisitions, divestitures and exchange rates -- was 5.1% for the company overall in the first quarter. Business in Japan was up 5.6%, fueled by sponsorship deals associated with the Tokyo 2020 Olympics and Paralympic Games.

The Dentsu Aegis Network, the company's agency businesses outside Japan, had organic gross profit growth of 4.5%. That represented slower growth for the network, which had reported organic gross profit growth of 13.7% in the year-earlier period.

Organic gross profit growth was strong in Europe, the Middle East and Africa, up 10.7%. But the Americas were a weak spot, with a decline of 2% in the quarter and Dentsu noting that McGarryBowen's 2015 account losses had impacted performance. (McGarry parted ways with Sears and Chase last year, and McCann Erickson picked up a significant part of McGarry's work for Verizon Wireless.) Dentsu said the impact of those losses would lessen after the second quarter.

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