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Dentsu sees slower growth, says industry changing

TOKYO, May 11 (Reuters) - Dentsu Inc. 4324.T posted a 7 percent rise in annual operating profit on Friday, but Japan's top advertising firm forecast growth to slow without the boost from last year's World Cup soccer tournament.

Dentsu, the world's fifth-biggest advertising company behind Omnicom Group OMC.N, WPP Group WPP.L, Interpublic Group IPG.N and Publicis PUBP.PA, said growth might also be held back by a wave of mergers among its client base.

The company, whose rivals in Japan include Hakuhodo DY Holdings Inc. 2433.T and Asatsu-DK Inc. 9747.T, forecast group operating profit to rise 1.6 percent to 63.8 billion yen

($532.2 million) in the current business year to March 2008 on sales of 2.107 trillion yen, up 0.6 percent.

The profit estimate is in line with the consensus of 64.2 billion yen from a poll of 13 analysts by Reuters Estimates, but the forecast for sales growth is decidedly below the expected growth rate of about 2 percent for the Japanese economy.

The seemingly conservative forecast also comes with Japanese corporate profits at a record high.

“We are always told that our forecasts are conservative, but one factor probably at play here is the fading correlation between corporate profits and the economy on one side and growth in advertising spending,” Dentsu Managing Director Setsuo Kamai told a news conference.

Kamai said the trend could be explained by a handful of factors including booming industry consolidation in Japan, which leads to fewer advertisers, and a move by an increasing number of companies to lower costs by combining their brands.

For 2007/08, Dentsu expects its revenues to get a boost from the IAAF World Championships in Athletics Osaka 2007, elections in Japan and the Tokyo Motor Show, but no event on schedule is likely to match last year’s soccer World Cup in Germany.

Dentsu’s operating profit for the year ended March 31 came to 62.8 billion yen on sales of 2.09 trillion yen, up 6.7 percent.

Dentsu logged strong revenue gains to the information and technology, food and retail sectors, which offset declines to makers of cosmetics and toiletries, producers of home appliances and electronics, and consumer finance firms.

Before the earnings announcement, shares of Dentsu closed up 0.3 percent at 335,000 yen, having lost about 4 percent since the start of 2007. During the same period, the benchmark Nikkei average .N225 has gained about 2 percent.

((Reporting by Nathan Layne; Editing by Louise Ireland; Reuters messaging: nathan.layne.reuters.com@reuters.net; email nathan.layne.@reuters.com; +81 3 3432-8231))

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