Dentsu posts stronger 2021 earnings than expected

Dentsu Group recorded stronger than expected fourth quarter earnings to close its fiscal year on a positive note with signs of recovery taking hold across its global business.

Organic growth at Dentsu Japan Network rose 17.3% in Q4 and by 12.1% at Dentsu International as existing clients across the group once again opened up spending. Cloud solutions, commerce and customer transformation were the fastest growth areas led by Dentsu Digital in Japan and Merkle in the International business. 

The strong quarter helped the Group close FY2021 with a strong rebound in performance that was ahead of expectations, including a 13.1% organic growth rate and underlying profit rising 44% assisted by higher operating margins that rose to 18.3%.  Group revenue of JPY 976.5 billion (US$8.5 billion) for the year came in 16.9% higher YoY and beat 2019 levels, with underlying operating profit 27% above 2019 levels. While the progress against pre-pandemic earnings is a positive sign, it should be noted 2019 was not one of Dentsu's best financial years. 

Dentsu shareholders were rewarded with a record dividend payment for the stronger FY2021 results, and in a sign of confidence, the Group announced it would buy back up to JPY 40 billion (US$350 million) in stock.  The holding company further raised its guidance for organic growth to a range of 4%-5% for the next three years, up from a 3%-4% range previously. 

Dentsu also signalled a return to more acquisitions in future, setting aside a new JPY 250-300 billion (US$2.2-$3 billion) investment fund for the next three years to grow its exposure in areas related to customer transformation  and technology. Dentsu wants this space to eventually produce 50% of its revenues.

"In the structural growth area of customer transformation and technology we see a long period of investment as our clients look to understand their customers better than ever," said Dentsu Group  Inc. CEO Hiroshi Igarashi in announcing the fund. "The greatest opportunity for brands today, as they build strategies for re-emergence from the Covid-19 driven  recession, is customer experience transformation."

Regional breakdown

On a regional level, Japan accounted for 43% of Group revenues (less cost of sales) in FY2021 and had the highest organic growth rate of 17.9% with strong spending across all advertising media. The Americas brought in 25% of revenue with and organic growth rate of 10.6% as strong gains in Canada and the US were partially offset by declines in Brazil. 

EMEA contributed 22% with a 11.1% organic growth rate as the UK market grew 8.2% with five of  the largest European markets reporting double digit organic growth. CXM and the Merkle grew at +12.1% with Media reporting 10.5% and Creative  6.2%.  

APAC excluding Japan was the weakest region with a mere 4.7% organic growth rate as revenue declined by -2% in China and was held back in India and Thailand. Australia's refreshed management team was singled out for affecting a strong rebound with 20% growth in Q4 and 12.1% for the year. Singapore (24%) and Indonesia (20.8%) had the strongest organic growth rates for the year. 

Wendy Clark, global chief executive of Dentsu International, the business outside Japan, said: “2021 has been a defining year for Dentsu International, with positive performance and restoration of growth across all regions and all service lines, as well as achievement of our long-held operating profit margin target of 15%, one year ahead of plan.

“This performance is testament to the talent, focus and resilience of our people who delivered our topline growth through more than 4,000 new business wins and expanded assignments with our largest clients. Today, 83 of our top 100 clients are now working with us across 2 or more service lines. At the same time our transformation and cost restructuring efforts have delivered a 30% YOY improvement in our underlying profit.

“We look ahead with humble confidence and deep appreciation for our people and our clients who are foundational to our success. There is still much to do and in 2022 we’ll build on our positive momentum by continuing to focus on our people, our clients and our work, while maintaining disciplined cost delivery. Done well we are convinced that 2022 will be our best year yet.”