Despite decline, Dentsu Group Q3 organic revenue improves against last quarter

The Group has said it is tracking ahead of the targeted 7% cost reduction announced in May 2020

e4m by exchange4media Staff
Updated: Nov 12, 2020 10:06 AM  | 4 min read

Dentsu Group’s Q3 organic revenue decline lessened vs Q2 FY2020 as clients’ business confidence started to return. Despite the revenue decline, continued cost reductions have offset the revenue decline, allowing Group operating margin for the first nine months to rise by 120 bps yoy.

The Group is tracking ahead of the targeted 7% cost reduction announced in May 2020, although many of these savings are temporary at this stage.

In August this year, the Group announced a comprehensive review and accelerated transformation program. Involving every region, it will support the focused strategy of integrated solutions, aimed at simplifying the business for both clients and operations, structurally and permanently lowering operating expenses, enhancing the efficiency of our balance sheet and maximizing long-term shareholder value.

The final outcome of the review will be presented, as planned, as part of Dentsu Group’s mid-term plan, in February 2021. However, initiatives already commenced include simplifying the Japanese business into four operating pillars and focusing the international business from having over 160 agency brands, to a portfolio of six global leadership brands. A review of non-trading assets is underway to enhance shareholder value by challenging whether we are the natural owner for these assets.

An announcement about expected savings and implementation costs is anticipated before the end of the year, along with full FY2020 forecast guidance. However, the board has confirmed that the year-end dividend per share forecast is JPY 23.75.

Group has seen a number of new client wins in the quarter, but the COVID-19 pandemic continues to cause uncertainty and weak market conditions across the globe. Accordingly, the Group remains cautious on Q4 performance and expects FY2020 organic revenue decline to be within the range of -12.5% to -12.0% with operating margin around 13.0% to 13.5%.

The Group remains well-capitalized, with a strong balance sheet, JPY 545.1 bn of unused credit lines and JPY 288.4 bn of cash. The Group credit rating is “AA-” from Japan’s Rating and Investment Information, Inc. (R&I).

Toshihiro Yamamoto, President and CEO, Dentsu Group Inc., said: “Client confidence has steadily returned through Q3, with a pickup in new pitch activity in both Japan & internationally. We have won a number of new clients and significantly expanded many of our existing relationships, including KraftHeinz, American Express and Heineken. We are beginning to see the benefit from combining our talent, process, and technology in integrated solutions for our clients. However, we remain cautious on the short-term outlook, given the uncertainty surrounding the impact from COVID-19 as restrictions have now been increasing in many countries across the globe.

We are making real progress on the comprehensive review announced in August. The review is aimed at simplifying the business, permanently reducing operating costs and enhancing the efficiency of the balance sheet. We simply have too many brands, almost 300 across both Japan and internationally. We have already decided to simplify the Japan business into four pillars and internationally to have only six global leadership brands. This radical new structure will be more logical and transparent for our clients, enabling us to serve them better. It will also enable us to reduce costs significantly as our operations become simpler with more common systems and processes, increasing our use of shared service centers, rationalizing office space and reviewing property ownership globally. In Japan we announced an early retirement program, in pursuit of a leaner organization with better cost efficiency. The business is now well through a rigorous review of our non-trading assets to enhance shareholder value by challenging whether we are the natural owner for these assets.

Our objective is to deliver world class services tailored to our client’s needs, and in doing so create value for our stakeholders. Our strategy of Integrated Growth Solutions remains the centerpoint of our vision, with particular focus on the strongest growing sectors, digital solutions and customer experience management. Internationally, we have Merkle, a world leading digital agency and in Japan Dentsu Digital and ISID drive our digital transformation capabilities.”

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