Dentsu plans 7% cost reduction as it reports 0.8% drop in organic revenue

As it reported a 0.4% decline in revenue and a 0.8% slip in organic revenue for the first quarter today, Dentsu Group announced that it plans to cut overall costs by 7% this year. The company also withdrew its financial guidance for fiscal 2020, announced in February, due to the level of uncertainty stemming from the COVID-19 pendemic.

The reported 0.4% decrease in revenue (less cost of sales) breaks down to a 2.1% increase in Japan and a 2.6% decrease for Dentsu Aegis Network. 

The 0.8% drop in organic revenue translates to a 2.1% increase in Japan and a 3.3% decrease for Dentsu Aegis. Dentsu said the Japan business grew due to an increase in digital solutions, marketing promotions and activations, while the international business suffered due to APAC performance, especially China and Australia following account losses in 2019, plus early impact from COVID-19.

Dentsu said it is targeting a 7% overall cost reduction against its planned consolidated costs for the fiscal year. A spokesperson told Campaign Asia-Pacific that there are no employee reductions as part of these cost-saving efforts. 

Starting in February, the company said, it has cut non-essential travel and discretionary spending, reviewed contractor arrangements, and paused all M&A activity until at least the end of Q2. It has also cut personnel costs with reduced working hours, temporary salary reductions and "acceleration of operational efficiency in line with respective market restrictions", according to its earnings release.

Executive officers will see their compensation reduced from the second quarter onward, Dentsu also announced.

The company released the following statement from Toshihiro Yamamoto, president and CEO of Dentsu Group Inc:

In the first quarter, Dentsu Group delivered organic growth of -0.8%. The Group saw a relatively solid start to the year, but the performance was impacted towards the end of the quarter due to COVID-19.

COVID-19 is causing a slowing in demand across our industry, and we are not immune. This has put pressure on our performance in Japan and the International business. We are therefore anticipating a material decline in revenues across our business in FY2020.

We have taken swift cost actions to mitigate this revenue decline, protect margin and safeguard our people’s jobs. Despite this, given the level of uncertainty caused by COVID-19 we are withdrawing our FY2020 guidance. Our priority throughout the COVID-19 crisis is the health, safety and well-being of our people and their families, as well as that of our clients, their customers, and our communities. This fundamental principle is shaping our response to COVID-19.

With the working life of our people disrupted, the business has reacted at speed. Our teams remain connected through our collaborative work platforms. Our new business teams have quickly adapted to hosting, and winning, pitches virtually. We are supporting our clients to ensure they can emerge even stronger post crisis by providing rich consumer insights and adapting our services to support their evolving needs.

As we look ahead, we continue our journey of transformation. In Japan, we remain focused on transitioning the Group to deliver sustainable, less cyclical revenue growth as we diversify our revenues and broaden client relationships across the Dentsu Japan Network. Strengthening the collaboration among our highly specialized brands, Dentsu Digital, ISID and CARTA HOLDINGS will lead to integrated solutions that allow us to support the digital transformation of our clients.

In the International business, our transformation will simplify our offer delivering world classservices and integrated solutions tailored around the client need. The restructuring announced in December 2019 is progressing as planned and will deliver the previously announced cost savings in 2020 and 2021. The accelerated buyout of the remaining Merkle shares, announced in March, will ensure key talent retention and deliver EPS accretion for 2020. Merkle is a key pillar in the delivery of DAN’s differentiated data-driven and tech-enabled client offering. We also announced the appointment of Wendy Clark as Global CEO of Dentsu Aegis Network and look forward to welcoming her to the Group from September.

The importance of working together, collaborating and integrating the Japan and International business is essential to respond to COVID-19 and support our clients’ transformation, particularly during this period of disruption. The concept of one dentsu has never felt more important, our employees are our greatest asset, and I am proud to lead the 66,000 diverse and talented people we have within the Dentsu Group.