Dentsu to reduce costs by 7% amid falling revenues

Dentsu is looking to make a 7% cut in global costs as the revenues decline for the company. One of the world’s biggest media, sports agency has also decided to withdraw its earning guidance for fiscal 2020 announced in the month of February.

Dentsu’s results this year are expected to be heavily hit by the postponement of the Tokyo 2020 Olympics. The company was conducting a large amount of work around the Games, including managing a record-breaking domestic sponsorship sales round.

The pandemic is also hitting Dentsu’s core advertising business, with economic activity slumping in Japan and around the world.

Reuters reported that Japan’s second-biggest advertising firm, Hakuhodo DY Holdings, last week announced advertising sales fell 20 per cent in April year-on-year. March sales had been down 8 per cent.

The company, which owns agencies including Carat and Dentsu X, reported a 0.4% decline in global revenue and a 0.8% dip in organic revenue.

It said that it is targeting a 7% overall cost reduction against its planned consolidated costs for the fiscal year.

The company said Covid-19 started to impact results towards the end of the first quarter, and it expects its second quarter, April to June, to be the weakest of the year.

Starting in February, the company said, it has cut non-essential travel and discretionary spending, reviewed contractor arrangements and paused all merger and acquisition activity until at least the end of the second quarter.

It has also cut personnel costs with reduced working hours, temporary salary reductions and “acceleration of operational efficiency in line with respective market restrictions”, according to the earnings release.

Executive officers will see their compensation reduced from the second quarter onwards, Dentsu also announced.

In the UK, Dentsu noted that the region had previously reported four quarters of decline in organic revenue but has returned to growth in the first quarter, although it did not specify the level of growth.

Toshihiro Yamamoto, president and chief executive of Dentsu, said: “As we look ahead, we continue our journey of transformation.

“In the international business, our transformation will simplify our offer delivering world-class services and integrated solutions tailored around the client need. The restructuring announced in December 2019 is progressing as planned and will deliver the previously announced cost savings in 2020 and 2021.

“The importance of working together, collaborating and integrating the Japan and international business is essential to respond to Covid-19 and support our clients’ transformation, particularly during this period of disruption.

“The concept of ‘One Dentsu’ has never felt more important – our employees are our greatest asset and I am proud to lead the 66,000 diverse and talented people we have within the Dentsu group.”