Dentsu has switched its focus from growth by acquisition to fixing internal issues in markets, including Australia, which have turned unprofitable.
The most “urgent action” is to deal with stagnation in the APAC region with a downturn in its businesses in Australia, China and India.
The plan is to prioritise core customers and services, focus on rebuilding businesses and review costs and management structure to return to profitability in the “short term”.
The Japan-based advertising group, with results well behind its global peers, reported organic growth in the December quarter at -6.6% and the full year -4.9%.
And growth will be sluggish while dentsu works on its problems. The company is aiming to nudge its fiscal nose above the line in 2024, aiming for organic growth of about 1%.
Dentsu has been announcing restructures for some years now. The current program, One dentsu, with a single point of contact for clients globally, was announced in 2022.
“While the market environment remains uncertain, we are constantly transforming our business to adapt to the new environment,” CEO Hiroshi Igarashi told analysts in a briefing.
“During this phase, we will focus on accelerating integrated growth solutions and returning to organic growth by re-strengthening our core businesses. We will also review our business portfolio and clarify areas of management focus.”
The company has started an in-depth review of medium-to-long-term strategy.
Dentsu expects the current March quarter to show organic revenue decline and performance in 2024 will be second half weighted.
“The reason why our organic growth rate and operating margin have not progressed as initially expected was due to the significant impact caused by sluggish business of our major customers mainly financial and tech companies,” says Igarashi.
“On the other hand, the intensifying competitive landscape and several internal factors that impeded our ability to respond quickly to change also had a compounding effect.
“In this difficult business climate, we believe that what we need to do especially in 2024 is to concentrate our resources on organic growth by strengthening our core businesses.”
This means shifting focus to internal investment from acquisitions. Since the start of 2022, the company has made 11 acquisitions, adding 6,500 staff and spending JY200 billion (AUD2.04 billion).
“We will invest more than ever in the underlying data technology that will support this integration,” says Igarashi.
“Along with strengthening the capability of our client-facing and integrated planning talents, we will actively invest in talents in key strategic areas such as consulting and technology development.
“We will also work to transform our business portfolio. Under the One Dentsu structure, we will implement a consistent strategy to restructure and review unprofitable businesses and markets.
“We will strengthen our competitiveness by clarifying the role of each of the more than 140 markets we currently operate and allocating resources to the markets of strategic focus.”
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