Dentsu reports $1.3 billion annual operating loss after tough Q4

Japanese holding company Dentsu has reported an annual operating loss of JPY 140.6 billion ($1.3 billion) – the second year in a row of losses.

Dentsu International, which houses its businesses operating outside of Japan, had another tough quarter as revenues saw little improvement, declining 13.2% in the final three months of the year because of Covid-19.

Dentsu has taken an impairment charge of JPY 140.3 billion on the value of the international business.

The group's annual revenues fell 11.1% on an organic basis, with declines of 13% at Dentsu International and 8.3% at Dentsu Japan.

Dentsu International's customer experience management arm, which included Merkle, was a bright spot last year as its revenue fell only 3.2%, while media dropped 15.6% and creative plunged 18% over the 12-month period.

Dentsu blamed the pandemic for causing “a slowdown in demand across our industry” but its results were significantly weaker than some of its rivals.

Earlier this month, Interpublic reported a 4.8% annual organic revenue decline in 2020 and Publicis Groupe had 6.3% organic revenue decline in the same period.

Dentsu said there was a pattern of improvement between Q2, the worst of the pandemic, and Q4 but it still suffered double-digit declines in all three key regions, the Americas (down 13%), EMEA (down 14.4%) and APAC (10.9%) in Q4.

Dentsu International had already warned in December that it plans to cut 6,000 jobs outside Japan and to reduce its number of global agency brands from about 160 to six.

Dentsu International was struggling before Covid-19 and recruited Wendy Clark, global chief executive of DDB, from Omnicom to be its global chief executive last year; she started in September.

Dentsu on Monday unveiled a new, four-year “mid-term” management plan, running until the end of 2024, with four pillars:

Transformation and growth: Includes a focus on more integrated solutions that span a range of capabilities, especially customer transformation and technology; greater emphasis on global clients; and a compound annual growth rate of 3-4% a year.

Operations and margin: Greater simplification, including reducing duplication and complexity; rationalising property; and a greater use of near-shore and off-shore capabilities in cheaper locations.

Capital allocation priorities and shareholder returns: Includes disciplined financial management and a progressive dividend policy.

Social impact: Includes creation of Dentsu Sustainable Business Board; improvement in employee engagement scores; and a more diverse and inclusive workforce.

Toshihiro Yamamoto, President and CEO, Dentsu Group Inc, said: “Our strategy of integrated growth solutions remains the centrepoint of our vision with particular focus on the strongest growing sectors, customer transformation & technology, which we expect to reach 50% of Group revenue over time.

“With 95 of the world’s top 100 advertisers already our clients, our opportunity as a Group is to deepen our existing client relationships. The long-term effect of the pandemic will be to further boost digital use and innovation across the world.

“This fits precisely with our competitive advantage as one of the very few integrated global communication, data and marketing innovators.”