Dentsu Q3 results: Organic revenue declines by 6%

Dentsu's Q3 results have revealed a continuing organic revenue dip, the third quarter has seen a 6.0% decline, continuing the trend of -4.7% for Q2 and -1.6% for Q1.

The Group's underlying operating profit declined 10.4% year-on-year to JPY 37.5 billion, which the Group says was adversely affected by charges relating to severance and charges within the DACH cluster of Germany, Austria and Switzerland. 

However, reported net revenue increased by 1.6% in the third quarter, with currency positively impacting by JPY 11.0 billion and M&A contributing JPY 11.1 billion. 

 

In Japan, Customer Transformation and Technology (CT&T) continued to report double-digit growth driven by strong performances in Dentsu Digital and Dentsu Consulting. Internationally, the lengthening of the sales cycle impacted the EMEA and APAC regions, while the US CT&T market saw revenue stabilization.

Dentsu's recent acquisition of Tag, the digital production company, is yielding early results and has resulted in a number of client wins across sectors, including health and beverages.

"Our third quarter performance continued to show the impact of the reduced spend from clients in the technology and finance sectors, as well as project delays within Customer Transformation & Technology," said Hiroshi Igarashi, president and CEO Dentsu Group Inc. "We have seen progress in the US market with the accelerated roll-out of One dentsu. Revenues have stabilised and we have a number of account wins that demonstrates what we can achieve when we drive collaboration and empower our people to thrive."

Regional breakdown

Japan reported 3.0% organic growth in the third quarter, supported by strength in Customer Transformation and Technology.

The Americas reported a 6.6% organic revenue decline, and APAC (excluding Japan) declined 9.1%.

Meanwhile, EMEA saw the biggest organic revenue decline of 17.2%, brought on by a weakness in the CT&T business due to client losses seen in the first half of 2023, plus slower pipeline conversion as the lengthening of the sales cycle impacted the region.

Japan contributed the most to net revenues at 41%, followed by the Americas at 29%, EMEA at 20%, and rest of APAC at 10%.

33% of net revenues were driven by Dentsu's Customer Transformation and Technology business, and Dentsu says it continues to make progress toward the stated strategy of reaching 50% of net revenues generated by its CT&T business.

 

33% of net revenues were driven by Dentsu's Customer Transformation and Technology business, and Dentsu says it continues to make progress towards the stated strategy of reaching 50% of net revenues generated by its CT&T business.

 

Outlook

 

With no change expected to client spending in the fourth quarter, Dentsu is now forecasting organic growth for 2023 to be -5% (from zero and -2% previously).

The agency has also announced a new management structure for 2024 in line with their “One Dentsu” operating model". Highlights include: 

• Takeshi Sano becomes CEO of Dentsu Japan, and Andre Andrade, as recently announced, becomes CEO of Dentsu EMEA.

• Sano and Andrade join Michael Komasinski, CEO, Dentsu Americas and Rob Gilby, CEO Dentsu APAC, to oversee and lead Dentsu’s regional growth strategies.

• Meanwhile, Yuichi Toyoda is the global practice president, Business Transformation, Dentsu

• Jeff Greenspoon is the global practice president for Integrated Solutions, Dentsu

• Yoshiki Ishihara is newly appointed as global chief strategy officer and chief of staff.

Further, four executives will step down from the Group Management Team: Soichi Takahashi, Norihiro Kuretani, Dominic Shine, and Nnenna Ilomechina. They will leave the agency as of December 31, 2023.

The new leadership structure will be effective from January 1, 2024, some members already assumed the new positions in October 2023.

For the remainder of 2023, cost control measures like employment freezes, decreased external spending, and fewer travel and entertainment expenses will still be in effect. In order to streamline the cost base as the Group moves into 2024, more charges related to business simplification are anticipated in the fourth quarter. The Group is placing more of an emphasis on increasing profitability in 2024 through better utilisation rates and cost control.