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Digital Transformation Financial Results Agencies

Dentsu takes more than 30% of revenue from digital transformation for first time

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By Sam Bradley, Senior Reporter

August 12, 2022 | 4 min read

Japanese holding company Dentsu has drawn over 30% of its revenue from digital transformation services for the first time.

Dentsu corporate graphic by The Drum

Dentsu has released its financial results for the first half of 2022 / The Drum

The group, which published its financial results for the first half of 2022 today (August 11), revealed the share of its revenues taken from commerce, data, consulting and other digital services had grown almost 3% since last year.

But analysis by The Drum shows the group is still years away from achieving long-held targets of deriving 50% of its revenues from the sector.

2022 H1 highlights include:

  • Organic revenue growth across the group was 8.2%, with 7.9% in Japan and 8.4% from its international agencies

  • Operating margins increased 13.9% on the back of cost savings

  • Net revenue grew 11.5%, while net profits increased 17.7%

  • Japan accounted for 42% of group revenues, with the Americas accounting for 28%, Europe 21% and Asia Pacific 9%

  • Media accounted for 47.4% of the group’s net revenues, while creative made up 16.9% and customer experience management services 35.6%

Transformation ambitions

‘Customer transformation and technology’ accounted for 32.3% of Dentsu’s overall revenue from the first half of the year, compared to 29.4% in the same period last year (the figure for the year overall was 29.1%).

Though the overall share of revenue increased only 2.9%, that service area saw organic growth of 22.5% in H1, according to Dentsu’s latest statement. The share for Dentsu International, the company's network of agencies outside Japan, is a little higher, at 35.7%.

Dentsu’s publicly stated goal is for that share of revenue to reach 50%. Toshihiro Yamamoto, the former president and chief executive officer of Dentsu Group, made the ambition the linchpin of his reorganization efforts, while his successor Hiroshi Igarashi is also committed to the milestone. He noted today that it could “bring a number of benefits to the group – transforming our client offer, our revenue profile and our cost structure.”

But Dentsu has never set a deadline or estimated a timeframe for that transition and only began tracking the share of revenue taken from the service area following its 2020 acquisition of Merkle. If the company doesn’t manage to speed up the growth of its transformation services, it could take seven years to hit its target.

The recent acquisitions of SalesForce specialist Pexlify and consultancy Extentia, some of the first moves made with a billions-strong acquisition war chest, were made in service of this plan to achieve a “hybrid agency/consultancy” model, as Igarashi put it.

His wording is a clue to the underlying assumptions behind the numbers. E-commerce, data and tech services are a growing market for agencies dealing with brand advertisers, and demand for those services spiked during the pandemic. The chief exec told investors that “clients continue to invest in their brands, supported by hyper-personalized customer experiences, driven by insights, data and technology.”

But agencies have had to compete with integrated consultancy groups such as Accenture Song and Deloitte Digital to make sure they get their slice of the pie. Dentsu’s efforts to grow its own consultancy expertise, as well as capitalizing on this growing sector, are key to improving its “competitive differentiation,” as Igarashi said, as well as its clients’.

Digital Transformation Financial Results Agencies

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