Dentsu, despite economic clouds ahead, is sticking to its forecast for 4% to 5% organic growth for the full year to the end of December.
The global advertising group, like its holding company competitors which also have strong full year forecasts, has a couple of key pieces of the business puzzle on its side.
The first is a strong US dollar, kept high by central bank interest rate hikes. If you have a big chunk of business in the US, then bringing the money back home will create a bigger pile of local currency.
The Japan-based dentsu gets 29% of its revenue from the Americas, the second biggest after Japan itself.
And if the current year-to-date foreign exchange rates stay until the year-end, dentsu analysts say that will mean a 10% benefit to earnings.
The second piece of the puzzle is that dentsu, like its peers, has been changing its business over the last few years. Advertising is still a big game but earnings have diversified.
CEO Hiroshi Igarashi told analysts in a briefing that the group’s strategy, as always, is to lift revenue in the fastest growth area of business.
This means moving beyond traditional marketing and offering capabilities and services across technology consulting.
“We continue to see a multiyear runway of growth as data proliferation accelerates and growth in digital channels and the digitally native population,” he says.
“We will continue to focus on expanding revenue in the customer transformation & technology area.
“This raises the value of our service offer to clients away from merely execution, but more towards high value-added solutions through consulting services.”
Igarashi says the group expects macroeconomic uncertainties to persist but that dentsu is sticking to its 2022 full year guidance.
In its September quarter trading update, dentsu said its nine-month performance was solid, led by the growth in customer transformation & technology division.
Dentsu reported a 3.7% fall in organic revenue for the September quarter. The results, described as "strong," was impacted by the exceptional prior year one-off comparable in Japan.
The company's Japan Network reported -15.1%, with the third quarter growth rate vs 2019 improving against the second quarter - demonstrating the underlying demand in the Japanese market.
Dentsu International reported 5.4% organic growth, led by continued demand for digital experience and customer focused transformation services.
Dentsu says 36% of revenue is now in CT&T (customer transformation & technology) in US.
CFO Nick Priday: “I would say that our business is more resilient than it has been across the sector than previous downturns.
“Obviously, we don't have a crystal ball in terms of what might happen next year, but we read the same headlines and we understand the dynamics which are ongoing in the marketplace, not just in the US but the rest of the world.
“But we do think we're much more positively exposed to structural growth and the more resilient business models than we were in the past.
“In the US, our margins have been flat this year as we continue to invest in talent to make sure we're well equipped to drive our clients' businesses with them going forward.
“And in terms of our operating margin and our profitability, I think we've done a lot of work to transform our business, to simplify.”
The company also has a new management structure, One Dentsu, dividing the world into four: Dentsu Japan, Dentsu Americas, Dentsu EMEA and Dentsu APAC.
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