One of the world’s largest ad holding companies, Dentsu, reported an organic revenue decline of 9.1 percent in Asia Pacific “due client losses and reduced project scope in Customer Transformation and Technology,” in the third quarter ended September 30, 2023.
In its Q3 FY2023 financial results, the company stated that macroeconomic conditions continue to impact the China business, with clients cutting back spend, while India continues to experience the impact of slower client spend in the media business and a weak pipeline.
Customer Transformation & Technology (CT&T) revenues reached 33 percent of Group revenues. In Japan, 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.
The company that employs 72,000 people worldwide reported group net revenue JPY 279 bn (YoY 1.6 percent). On a constant currency basis Japan reported +2.9 percent growth in net revenue in the third quarter, the Americas recorded a decline of -2.0 percent, EMEA a decline of -11.9 percent and APAC growth of +0.5 percent. Reported net revenue increased +1.6 percent with currency positively impacting by JPY 11.0 bn and M&A contributing JPY 11.1 bn.
Group underlying operating profit declined 10.4 percent yoy to JPY 37.5bn. Operating margin declined by 180bp yoy to 13.5 percent.
Third quarter margins in Japan were higher yoy, driven by stronger revenue growth and the timing of incentive recognition, which was weighted towards H1 2023, as highlighted in the first quarter. Third quarter margins in the Americas were significantly higher yoy as a result of swift cost mitigation that began in the first quarter, with costs managed in line with revenue expectations. In EMEA and APAC margins were lower yoy as a result of weaker than expected trading.
Continued cost management remains in place for 2023 with measures such as hiring freezes, lower external spending and reduced travel and entertainment costs. Additional charges are expected to be incurred in the fourth quarter relating to business simplification
to streamline the cost base as the Group enters 2024. The Group has an increased focus on driving improved profitability in 2024 by maintaining cost discipline and improving utilisation rates.
Hiroshi Igarashi, President and CEO, Dentsu Group Inc., said: “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 and Technology. I and the wider Executive team remain focused on returning the Group to growth. Through One dentsu we are creating a unified global network that combines client centricity with speed, agility and scale ensuring we deliver against our clients’ need for growth. To achieve this vision, we have aligned our leadership structure and talent around our core capabilities and strategic priorities.”
Read More: We now have stability: Harsha Razdan, CEO South Asia, Dentsu