Dentsu reports record profits and 13% organic growth in full-year results
Dentsu, the Japanese parent company of agencies such as McGarryBowen, Carat and iProspect, has reported record net revenues, operating profits and share dividend for the 2021 financial year.
Japanese holding company Dentsu has reported its full year earnings for 2021
The results mark a significant recovery from its 2020 results when it recorded a $1.33bn loss.
What do the results show?
Dentsu saw a 16.9% increase in net revenue across the group; its domestic operations, as part of Dentsu Japan Network, experienced 19.2% growth, while Dentsu International recorded 15.4%.
In the fourth quarter of 2021, Dentsu recorded a 20.2% increase in net revenues. Organic growth began to slow in the final quarter (14.2%) relative to the second and third quarters, though the decline was less severe outside Japan.
Organic growth for the whole group was 13.1%, while its operating margin improved to 18.3%. In its statement to investors, Dentsu credited the margin increase to ”leverage from higher revenues and the continued focus on costs”.
Net profit for the entire group increased 56.2% to ¥109.2bn ($946m), against net revenue of ¥976.6bn ($8.4bn). Dentsu also offloaded assets equivalent to an additional ¥118.9bn, including the September sale of its Tokyo headquarters, bringing the total to ¥241.8bn – a company record.
The firm has announced a share buyback equal to ¥40bn throughout 2022 and estimates organic growth of between 4% and 5% this year.
What do the results reveal about Dentsu’s future??
Though president and chief executive Hiroshi Igarashi credited ”the cyclical recovery in advertising” with some of Dentsu’s performance, he also pointed to the reduction in its cost base and margin improvement.
In a statement, he said: ”This performance is testament to the return to growth in our industry, the cyclical recovery in advertising, as well as continued investment clients are making in commerce and experience. We remain confident in the long term growth outlook for the group and upgrade our medium term targets.”
The holding company signaled its return to the acquisition market by announcing a ¥250-300bn ($2.1bn-$2.6bn) war chest.
In its statement to investors, Dentsu said it was specifically aiming to invest in digital transformation companies, in line with its past goal of generating 50% of revenue from customer transformation and technology services. It derived 29.1% of its revenue from this area in 2021.
Igarashi said: ”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. The greatest opportunity for brands today, as they build strategies for re-emergence from the Covid-19-driven recession, is customer experience transformation. This is the transformation of a company into a market leader through the implementation of a customer centered strategy and infrastructure.
”In order to capture this opportunity, we announce a ¥250bn to ¥300bn investment fund for the years 2022 to 2024. This acquisition fund will be spent growing our exposure to customer transformation and technology – our aim is to reach 50% of our revenue (LCoS) from customer transformation and technology over time. This reflects our vision of where the future growth in the industry lies: data, technology integrated with creativity and innovation to deliver top line growth for our clients.”
Wendy Clark, global chief executive officer of Dentsu International 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.”
“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.”
Which areas of the business performed best?
Dentsu’s home market of Japan remains its strongest territory, accounting for 43% of its annual net revenue. It also grew the most, with organic growth of 17.9%. The remainder of the Asia Pacific region accounted for 10% of its net revenue; Europe, the Middle East and Africa made up 22% while the Americas accounted for 25%.
Canada saw particularly high growth of 29.5%, compared to 14.1% in the US. Media and CX services, such as those provided by Merkle, led Dentsu’s business.
Recent acquisition Livearea has already borne fruit, with organic growth of 30% in the final quarter.
According to Clark: “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.”