Dentsu Group Inc

Welcome to Dentsu FA 2025 Third Quarter Earnings Call and thank you for joining us today. My name is Morishima from the Group II office and I will be your conference operator today. Please be reminded that today's call is being recorded. This call will be held in Japanese and English with simultaneous translation for those joining online. Please choose your preferred language from the bottom of the Zoom screen. For those joining on the telephone line, you will only be able to hear the original language spoken. Today's presentation material is available on our website. Joining me today are Global CEO Dentsu, Hiroshi Igarashi. Igarashi de gozaimasu.

Yoroshiku onegai itashimasu.

Global CEO Dentsu and Chairman and Acting CEO Dentsu Americas, Julio Malegri. Hi, everybody. It's Julio here.

Hi.

CEO of Dentsu Japan and Deputy Global CEO of Dentsu, Takeshi Sano. Sano desu. Yoroshiku onegai shimasu. And Global CFO of Dentsu, Shigeki Endo.

Endo desu. Yoroshiku onegai tashimasu.

They will be responding to your questions after the presentation. Today's agenda will begin with business and strategic update from Hiroshi Igarashi, followed by financial update from Shigeki Endo. We will invite you to ask questions after the presentations. Mr. Igarashi, please start your presentation.

Thank you very much for joining the third quarter FI 2025 earnings call today. Let me start with the nine-month summary and outlook. The nine-month organic growth rate was 0.3%, in line with our expectations. while the operating margin reached 13.0%, exceeding both the previous corresponding period and our expectations. Based on these nine months' results and the outlook for the fourth quarter, we are upgrading our four-year profit guidance. As for the year-end dividend forecast, which is currently undetermined, We will announce it once it is determined based on profits from business, progress on asset sales, and future capital allocation. As we announced in August, to achieve fundamental improvements in our international business, we will continue to explore and implement strategic alternatives, including forming comprehensive and strategic partnerships. Lastly, we will review the current mid-term management plan as necessary with the aim of achieving sustainable improvement in corporate value to maximize shareholder value. Let me move on to the highlights of the third quarter and the recent period. We secured a three-year media account for Vodafone across EMEA and also won a new Vodafone 3 account in the United Kingdom. We also won Carlsberg Breivik in the United Kingdom while we continue our global relationship with Carlsberg. In Japan, we have a new client, Zurich Insurance, to which we will offer the integrated solution of media and creative. In the United States, Hy-Vee, a leading supermarket chain, has appointed us as their media agency. This expands upon our existing retail media partnership. In APAC, we have welcomed a fashion brand, COS, as our new client. In addition, in the creative domain, we have been recognized at various advertising awards this year, including being named Mad Stars Agency of the Year. Additionally, at the Minsky Awards, one of India's largest AI festivals, Dentsu Global Services was selected as a leading global capability center in the AI innovation category. Next, a business update. The Japan business is performing strongly, driven by growth from existing clients and revenue recognition from new clients. The key to this success is our integrated growth solutions. For example, even when a project starts as a simple media assignment, we identify the core challenge and go beyond addressing it directly. We explore and propose solutions across a broad range of domains that truly support our clients' growth.

Our strengths lie not only in advanced marketing powered by AI, data and technology, but also in our broad capabilities spanning BX and DX, combined with our proven execution capabilities. Our track record of accurately capturing clients' needs, proposing optimal solutions and delivering them to completion builds trust. This contributes to our competitiveness that drives high-pitched win rates. Looking ahead, We will continue to expand our integrated growth solutions to ensure stable growth for our Japan business. As outlined in our mid-term management plan, Dentsu is working on advancing our Media++ strategy in our international business. Media++ is a strategy designed to drive clients' business growth by integrating media with CXM, creative and data and technology, while elevating the core value of media services by harnessing the power of AI, data and new insights to deliver greater added value. By incorporating new media, such as retail media and social commerce, Media++ aims to deliver a more integrated and performance-driven approach that maximizes clients' marketing return on investment. Media++ has already contributed to a new business win with Dollar General. one of the largest discount retail chains in the United States in the retail media category. In EMEA, we are seeing a strong traction in major media pitches, such as for Vodafone and BMW, enabling us to secure wins in those pitches. The positive impact is becoming increasingly evident across regions. Looking ahead, We will further accelerate its expansion across markets, including the US, the UK, Germany and China. Media++ will be positioned as a key growth driver of our international business, and we will be focusing our internal investments more intensely in this area going forward. Next, I would like to talk about the progress of our mid-term management plan. First, the rebuilding of our business foundation. As of the end of the third quarter, we recorded a cost of approximately 8.6 billion yen. For the fiscal year, we expect to record approximately 28 billion yen. While we will continue to book costs from fiscal 2026 onwards, we remain on track to achieve the anticipated annual cost reduction in fiscal 2027 that will be needed for us to achieve an operating margin of 16% to 17% in that fiscal year. Next is about our internal investment. After a thorough review, We are now allocating approximately 12 billion yen this year to internal investment with a strong focus on enhancing our AI as well as data and technology capabilities. Moreover, we will further sharpen our focus on the Media++ strategy in order to restore our competitive advantage. Now, I'll hand over to our global CFO, Shigeki, to give you an update on our financial results.

This is Shigeki Endo. Let me take you through the financial results for the third quarter of fiscal 2025. I will start with our key metrics. The organic growth rate in the first nine months was 0.3%, which was in line with our guidance disclosed on August 14th. For the three months of the third quarter, it turned positive at 1.4% year-on-year. Following on from the first and the second quarters, the Japan business continued to perform well in the third quarter, exceeding our August expectations. Meanwhile, the international business showed mixed results by region. The Americas and EMEA were generally in line with expectations, but APAC fell short. While organic growth was positive, The negative impact of exchange rates and other factors led to the group net revenue to 851.3 billion yen, a 0.8% decrease year-on-year. Subsequently, underlying operating profit was 111.0 billion yen, a 14.1% increase, and the operating margin increased 170 basis points year-on-year to 13.0%. Operating margin for the three months of the third quarter was 15%, higher than 12% for the same quarter the previous year and our August expectations. The year-on-year increase is mainly due to the strong performance of the Japan business. On a statutory basis, an operating loss of ¥7.4 billion and a net loss of ¥61.5 billion were recorded. The difference between the underlying operating profit and the statutory operating loss was mainly due to the goodwill impairment loss recorded in the international business in the second quarter. I will now explain the results by region for the first nine months. Japan, the largest region accounting for 42% of the group's net revenue, continued to perform well in the third quarter, with high organic growth exceeding 5%, as it did in the first and the second quarters. Meanwhile, all regions of the international business recorded negative organic growth rate for both the three months of the third quarter and the first nine months. by market year to date. The United States, the United Kingdom, China, and Australia reported negative organic growth, while Spain, Poland, Taiwan, and Thailand saw positive organic growth. Moving on to the detailed explanation of each region, Japan saw organic growth of 6.8% in the first nine months, with both net revenue and underlying operating profit reaching record highs. It marked the 10th consecutive quarter of positive growth and the fourth consecutive quarter of growth of 5% or more. The 9.9% organic growth rate in the three months of the third quarter was due to strong growth in all of the domains, including BX and DX. In particular, Internet media led the Japan business, achieving double-digit growth and turnover for the seventh consecutive quarter, driven by business expansion with existing clients and revenue recognition from new clients won through pitches. Events such as sports events and turnover of TV media increasing year-on-year for the first time this fiscal year also contributed to Japan's performance. In Japan, we have increased staff costs as we continue to enforce talent expansion for future growth. But the increase in net revenue more than offset this, resulting in a high operating margin level of 24.6%, continuing the trend from the first and the second quarters. I will explain in more detail later, but based on the strong performance, we are raising our four-year forecast for the Japan business. In the Americas, which accounts for 28% of the group's net revenue, organic growth in the first nine months was negative 3.4%, which was generally in line with our August expectations. By business domain, CXM is relatively stabilising as we confirm the sequential improvement by quarter in the organic growth rate. However, given the ongoing uncertainty in the macro and industry environments, we will continue to carefully monitor the situation. on the other hand as mentioned at the time of second quarter earnings announcement creatives saw reduced client spends and losses resulting in a low single-digit decline in the first nine months media continued to remain stable with results broadly at the same level as the previous year Hence the top-line decline. As a result of the SG&A expenses control, the operating margin for the first nine months improved 220 basis points year-on-year to 22.7%. However, as mentioned earlier, this also included the impact of the allowance of trade receivables recorded in the third quarter of the previous year.

EMEA's organic growth in the first nine months was negative 1.9%, broadly in line with our August expectations. By business domain, CXM and Creative were weak, while Media remained stable. For the three months of the third quarter, the UK continued to face challenges in CXM, while Italy showed weakness due to client losses in the previous year. In contrast, Spain recorded positive growth in all domains, maintaining its mid-single-digit organic growth. As for operating margin, it remained at 7.9% for the first nine months of the year, despite our efforts in controlling the SG&A expenses. APEC's nine-month organic growth rate was negative 10.1% below our August expectations. By business domain, CXM and creative continue to struggle with double digit negative growth. Meanwhile, media remain stable stability. In the three months of the third quarter, India and Thailand showed solid performances, with Thailand in particular maintaining favourable momentum with a high market share. Meanwhile, Australia continued to face difficulties. Despite continued efforts to control SG&A expenses, APEC recorded underlying operating loss for the nine-month period, as was the case at the end of the first half-year period. Next, I'd like to explain the year-on-year changes in the underlying operating profit. Underlying operating profit for the nine months increased from ¥97.2 billion to ¥111 billion at this fiscal year. Net revenue increased by ¥22.8 billion in Japan but decreased by ¥22.3 billion in the international business excluding currency impact resulting in a ¥500 million net revenue increase for the group as a whole. Staff costs increased by ¥9 billion in Japan mainly due to talent expansion but decreased by ¥12.5 billion in total in the international business primarily in the Americas and APEC resulting in a group-wide cost reduction of ¥2.6 billion for the period. As for operating expenses, Japan recorded a reduction of ¥1.8 billion and international business a reduction of ¥9.3 billion. Consequently, the Group as a whole registered a decrease of ¥11.7 billion during the period. This decrease in the international business does include the impact of the allowance for trade receivables recorded last year, as I mentioned earlier, in the Americas part. However, even if we exclude this impact, we were still able to reduce operating expenses. Lastly, I would like to go through our guidance for the fiscal year. As explained earlier, consolidated organic growth rate for the nine-month period was in line with the guidance announced in August. and with the international business falling short and the Japan business exceeding our expectations. In light of these factors, we have maintained our four-year guidance for consolidated organic growth rate at broadly flat. However, we will update our regional forecasts with Japan business revised up from circa 3% to circa 4% and the international business revised down from circa negative 2% to circa negative 3%. As for the Americas and EMEA, forecasts remain unchanged. As for underlying operating profit, we will upgrade our August guidance of 141.6 billion yen to 161.2 billion yen in reflection of the strong performance of the Japan business, scrutiny of internal investments, and the anticipated realization of some cost reduction effects from our initiative in rebuilding our business foundation. As a consequence, we will upgrade our consolidated operating margin guidance from circa 12% to in the 13% range. With the upgrade of underlying operating profit guidance, we will also upgrade our guidance for statutory numbers with operating loss of ¥3.5 billion revised up to operating profit of ¥17.6 billion and a net loss attributable to owners or parent of ¥75.4 billion revised up to a net loss of ¥52.9 billion. While these revisions in our guidance primarily reflect improvements in profitability, our international business is still expected to pose negative growth for the full fiscal year. As such, we acknowledge that the situation remains to be uncertain. In concluding my presentation, I would like to stress that rebuilding our business foundation that we have been focusing on this year is making steady progress. With a month and a half remaining this fiscal year, we as the management remain fully committed to driving the reform and in achieving the guidance presented today. Thank you for your attention. I will now hand back to the operator.

We will now begin the Q&A session at this moment. For questions, please use the raise hand function on Zoom or press star nine on your telephone. I will ask you to mute and then please introduce yourself once your name is called upon. We are now confirming the names of those of you who are raising hand. Bear with us for another moment, please. The first question is from Abe-san of Daiwa Securities. Please unmute, state your name and affiliation before asking questions, please. Thank you. My name is Abe from Daiwa Securities. Thank you for the presentation. I have two questions. One is about Japan business. 10% increase in profit given the TV media business is very difficult. Well, CXM need a good change. And in the next year, can we expect the same level of profitability? My second question has to do with the impact of cost reduction initiative. I think the probability of success is rising. That's my impression. Of the 52 billion target, how much will we achieve this fiscal year? And what will be the pace of achieving toward 52 billion next year. So the intention must be to achieve upside through cost reduction next year, but I would like to ask about that. Thank you. Abe-san, thank you for your question. Thank you for your questions. Two questions. So your first question regarding Japan business, 10% profit increase in TV media. Given the CXM business, further growth can be expected next fiscal year. So what is the kind of situation we are envisioning for this business next year? Sano-san will respond. So cost reduction of 52 billion. Much must be achieved. It is assumed. And so what is the amount that's achieved this fiscal year and how much is expected next year? Endo-san will respond to that. Okay, first over to Sano-san. Sano-san, thank you very much for your questions. Yes. 9.9% growth, which was very good this year and what's going to happen next year. Of course, we will see some impact from Fuji TV, but it's not just TV media, but internet media is also growing at a very high level. And as I mentioned earlier, business transformation, digital transformation and AI, these areas are growing, we are receiving lots of orders. So to a certain extent, I think we will be able to achieve a robust growth. However, As was explained earlier, last fiscal year's Q4 was 8.4%. So, five consecutive quarters, we've been achieving above 5%. So, there's pressure to achieve more year-on-year. We cannot promise anything at this moment, but a mid-single-digit growth is something that we can expect, we hope. Thank you.

Endo speaking.

So with the midterm management plan announced in February, 50 billion yen of expenses to be spent on rebuilding management foundation. So investing that amount of amount and 2027 and onward, 50 billion yen of cost reduction impact is to be achieved this year we're expecting to invest about 28 billion yen and in december mainly staff we will see impact in terms of staff in december so in terms of the effect or the impact next year and onward i think We are likely to see an impact of over 50 billion yen for the numbers this year. We're still examining them at this moment. Thank you very much for your answers.

Thank you, Mr. Abe, for your question. The next question is from Mr. Harahata from the Normal Securities. hello my name is harahata from nomura securities thank you very much for this opportunity to ask a question i also like to ask two questions the first is in regards to international business i understand that you are considering various um the alternatives i think you said that previously and this time as well what is the most important thing things that you don't want to change and in terms of your customers um what um things that they don't want to see changes in you. So if you could share that as a hint to understand your course of direction going forward. Second is in regards to cost. And my question overlaps some of Abesan's question, that the cost is the key point. That's what I wanted to ask about. And so what is the cost to be achieved the next fiscal year for the three years? And were there any changes in terms of internal investment amount? So these are my questions. Thank you. thank you very much mr harahata for your question two questions so in terms of the partnership for the international business um i was for your first question we are considering various alternatives and what are things that we don't want to change or from the perspective of the clients what are things that they don't want to see changed and i think that was your question and i will answer that question and the second question was to do with cost now this fiscal year. So what are some of the costs that has been kind of delayed in terms of being realized and how much will there be in the next fiscal year onwards? And Mr. Endo will respond to that question. So please allow me to answer the first question, partnership for the international business. And this is something that we communicated in August. So in many ways, We have been working on comprehensive and strategic partnership. We've been considering to look into this. Now, we have have been working on the various initiatives. We are trying to rebuild our business foundation. We are focusing on internal investment as well. And so to ensure strong growth is something that we are focusing on. And in that regard, we want to work with partners who are able to contribute to be able to Secure that element is an absolute necessity. So in what areas are we going to enhance and where are we able to secure growth? So this is what we are currently looking into and reviewing right now. From the client's perspective, I think they are quite varied and the clients have entrusted us for many years and the value that we provide And they have assessed this favorably. And for those customers who have continued to work with us and continued partners, to be able to continue, that is probably something that the clients don't want to see changed the most. And so the enhancement that we are doing for us to achieve growth and that to raise the expected level of the expectation from the client's perspective. That's the kind of partnership that we want to realise. So that's all from me, Endo-san. I will respond to the second question. This is Endo speaking. And so, as I said earlier, the amount of investment this fiscal year is 28 billion yen, and the majority of that is one-time expenses, retirement allowances related to people. So in this regard, as of now, in the third quarter, we've invested about 8.6 billion yen and the remainder will occur in the fourth quarter. And as for the total amount in the mid-term management plan, we have already shared the number, and that's 50 billion yen. And if we see the breakdown, about 80% will be one-time expenses, retirement allowances. The remaining 20% is essentially improving the efficiency, automation, and also standardization of business. So the expenses related to that. So for that part, the amount of investment has not changed in a significant way. It essentially remains the same. That is all for my response. Thank you.

Thank you.

Just a follow up. So there were no the execution that has been delayed in comparison to the previous the announcement. The amount has changed, but there is nothing that has been delayed. That's what I wanted to ask. This is Endo speaking. We are making progress in accordance with the plan, but partially for Europe in particular, in regards to one-time retirement allowance in Europe, we still need to get the acknowledgement of the person in scope. So in that portion, that could potentially be pushed back into the next year, but the amount of reduction, amount that we will realise as a target remains unchanged. Thank you very much for the thorough explanation.

Harahata-san, thank you very much for your questions. The next questions will come from Tokai Tokyo Intelligence Lab. Yamada-san, please. Yes, Yamada from Tokai Tokyo. Thank you very much for this opportunity to ask questions. I would also like to ask two questions first. I would like to ask about the details of the background to Japan business, which is performing very well. Internet media is growing fast. TV media is as well. It seems that Dentsu is doing better than your competitors. so internet media is growing uh very robustly what is the background to that if you could please elaborate as you said integrated solutions are being increasingly appreciated by your clients is that the case as a result you are getting more orders and expanding business so that's my first question and second question is as follows this is also about the japan business Next fiscal year. Internet media growth expectation. How much growth are you expecting next year? Well, this year you are performing very well, so the hurdle must be higher for next year. Do you think you will be able to outperform the market's average growth next year? Yamada-san, thank you very much for your questions. Two questions regarding Japan business. So the background of Japan's well-performing business, it seems that one of the factors behind is strong growth in internet media. Why? So before we were talking about proposals for integrated solutions that had a positive impact, but Is that the answer today as well? And second, again, on internet media business, what is the expectation next fiscal year? Do you expect to outperform the market next year? Both questions will be answered by Mr. Sano. Sano speaking. Thank you very much for your questions. And have recorded and remembered my answer that i gave previously thank you as you mentioned Internet media is a means for clients. So the purpose is to improve marketing ROI. And various medias are combined in our proposals and were chosen. As a result, internet media business is up performing our competition. So as you rightly mentioned, that is the factor behind our success. As I said, business transformation is ongoing. And that is a broadening. And as a result of that as well, we are performing well. Now, there are some market forecasts that are put out compared to this fiscal year 2025. Next year's market growth will be somewhat slower, but it will continue to grow. and is then going to be able to outperform the market. Sorry for being conservative, but so that we can outperform the market, we would like to further strengthen our integrated solutions, make proposals based on that, so that we will be able to outperform the market next year as well. That's all for my answer. Thank you very much for your answers.

Thank you very much, Mr. Mather, for your question. The next question is from Barclays. Julian Roche, please.

Mr. Roche, can you hear us?

Can you hear me?

We can hear you. Please go ahead.

Good morning. Thank you very much for letting me ask questions, too, if I may. The first one is, if I put together your three regions outside of Japan, your organic in the first nine months was a decline of 3.8%. How much of that decline was net new business loss versus how much was existing client spend declining? And the second question is following up on the strategic review of the international business. In your previous answer this morning, you said you were looking for partners that could help you accelerate growth while continuing to service your existing clients. Can you give us any idea in what areas you believe you would need partners? Media, creative, Merkle, somewhere else? Thank you.

thank you very much mr rosh for your question i have received two questions then the three regions other than japan for the nine month period we ended up with a minor 3.8 percent organic growth now so the loss of the existing client, or are we losing the new client? In terms of pitch, I think you're asking about. And so asking as to whether these were the factors behind the minus 3.8%. I would like to ask our global CEO of Dentsu Group, Giulio, to respond. And for the second question, And in regards to us looking at the partnership, what are the partnership for accelerating growth or what area? And I will respond to that question. So I would like to ask Julio to respond to the first question.

Thank you. Thank you, Ross, for the question. It depends on the practices, I would say. So your question is how much is existing client and how much is lost client. When we look at the media practice, there are some losses, but most of it is also decline on spend from existing client, I would say, which is probably 60-40 in that regard. When we look at the Merkle, the CXM business, you know, clearly this is a project-based business, so it's not that much losing, not loss of client, but it's more the variation on the number of projects for existing clients. So I would say that on the CXM area, there are no major changes. losses of clients, it's just a number of projects by clients that diminished. On the contrary, when we look at the creative practice, which, as you probably know, is the smallest of the international business, there has been a component of lost clients, these especially in the US. So for the creative practice area, probably I would say that 70% of the decline is lost client. And the net wins have not been able to compensate the loss. There is variability, of course, on the client portfolio, especially in project based business like creative. But the issue has been that we didn't compensate some of the losses with enough win and these resulted in a negative. So I hope this answered your question, Ross. Thank you.

So this is Garashi. Please allow me to respond to your second question in regards to partnership. So partnership for accelerating growth. And so your question was what we refer to as our practice, our business domain, whether it be media or creative or ZCXM, in which area are we going to seek partnership to enable acceleration in growth? I understand that was your question. So my response is that we are considering all types of different possibilities in looking at partnership. It's not the case that we are focusing on one particular area. And so we are not just looking at a single area. Of course, there are various processes and we are looking at whether we can make contribution to enabling growth in certain areas. Of course, we will look at all that. We are not limiting this partnership consideration to a certain area, so we want to achieve a comprehensive growth and we are looking for partners who will contribute to enabling overall growth. This completes my response.

Thank you very much. Mr. Julian Roche, thank you for your answers. The next questions will come from SMBC NICO Securities Madison. Please go ahead. Yes, Maeda from SMBC. I also have two questions. First, comprehensive partnerships that you are examining to pursue them. Unless you have the specifics, you will not be able to announce, I would assume, but partner selection, partner negotiations, In terms of those, do you think you are making progress successfully in terms of seeking partnerships, or do you think that the hurdle is pretty high for identifying a partnership? What is the timeline? Are you looking for a partner by the end of next year, for example? My second question. The other day, Hakodo Their North America consulting business is recovering, they said. And AI transformation type of business is increasing for Hakodo. Well, in your case, DX demand has run its circle. It's deteriorating. But with respect to AI transformation, do you think that the business environment is improving for you as well? Going forward, do you think that AI transformation type of business will be a tailwind for you? So, global consulting business, especially centering around North America and other adjacent areas. What are your thoughts? Maeda-san, thank you very much for your questions. To address your first question regarding partnerships that we are studying and is the process of considering partnerships going well? And when are we going to have a conclusion? Is it a plan for next year? That will be answered by Igarwashi and myself. And your second question regarding North American consulting business is becoming active due to AI transformation need, according to Hakodo. Well, at one point in the past, it was not very good, but consulting business in North America is now on a recovery track. What is the prospect? That was your question. And for that? The chair of AMANKA, Julio, will be answering that question. So to address your first question, partnerships, without restricting ourselves to constraints as i said we will consider various types of partnerships so on a broad-ranging basis we are considering a variety of potential partnerships the process that we envision is it moving well i would say that we are moving through the process as planned however partnerships in partnerships that are counterparties that we have to work with. So, frankly speaking, I will not be able to suggest a timeline at this moment. However, this is something that requires speed, given the severity of the external environment and the changes happening in the environment. We need to respond to such changes and we must enhance the value of our proposals to our clients. So in that regard, at the earliest possible stage, we would like to come to a conclusion on a partnership that we're going to have. So I would like to turn to Giulio for the second question. Giulio, please.

Thank you. Thank you very much. Thank you for the question. In the North America business, you know, the DX offer is part of the offer that we ended the war that we do at at the market level in CXM. and therefore is developing and is recovering slightly. When we look at the AI impact on that as an acceleration, this is more centered on the Media++ strategy. And I would say that there's been in the recent wins that Iglesias mentioned, At the beginning of the call, there has been clearly a component of the element of the digital transformation for our clients in terms of integration and delivery of different capabilities within the digital offer and more specifically, And the acceleration that we are looking at in AI is once again refer to the deployment on on the Media++ strategy. A good example of that is clearly the AI platform of Dentsu Connect, which is helping our client by using generative audiences and enabling AI-driven target setting, consumer profiling, and last but not least, communication planning. And the same is for generative audience. where, again, this helps within the Media++ strategy in the development of the digital transformation. Thank you.

May I ask a follow-up question, just one, please? So media plus plus that you talked about and acceleration through the use of AI at this moment in the stock market, your international business is having difficulty on its own. And it seems that the views are pessimistic about your international business next year as well. But through such initiatives that you talked about, do you believe that you will be able to bring the business back to organic growth? excluding the media environment because of the factors that you have on your own, do you think that you will be able to come to a turnaround point? Thank you for the question. Igarashi speaking. This is a follow-up question for North America. So let me focus on North America. Regarding North America, as Giulio answered, in the area of CXM, just to explain, we have an asset called Merkle there. And the portion of North America in that business is very large for many years. The area of CXM has had challenges, and I think that is understood by Maeda-san and other people. Earlier, Endo reported on our Q3 performance. As he said, CXM in North America, the area covered by Merkel, continues to be tough. But negative growth is becoming better and better quarter after quarter. It's improving rather than the whole market improving overall. The new management system that we have put in place since February this year has been conducive in addressing client challenges, and that is leading to increase in the number of leads. And we are also looking at reviewing the pipeline. And so month after month, we are seeing recovery, I think, and next year, I'm sure that we will be able to head toward a more positive direction. Now, another point regarding media. One of the topics is the consolidation of the agencies. The scale merit is very much focused on our media plus plus strategy is generating good results because it combines media and retail media and others, as we discussed. So in this area of media, we're expecting strong growth. the value of international business, especially the United States, which commands a high portion. It is essential that we achieve a turnaround in that business, and that is something that we're looking to achieve so that our corporate value will be acknowledged. Thank you. Thank you very much.

Thank you, Mr. Maeda, for your question. We are nearing the conclusion time, but we still have many hands up, so we'd like to extend and respond to your questions. The next question is from Mr. Nagao from BOA Securities. Go ahead. This is Nagao from BOA Securities. I have two questions. First, in terms of internal investment, you plan to invest 12 billion yen this year, but AI is causing changes in clients and changing the behavior of consumers more than expected initially. So on that basis, is 12 billion yen sufficient? And so what would be the size of internal investment that you're thinking of next fiscal year? The second question is in regards to the dividend. And the year-end dividend remains to be undetermined at this point in time. But you have the plans. You should be able to anticipate the profit from business in terms of asset sales. I think this will be management's vision as to whether you will sell or not. And the plan that you changed for this year, so the profit attributable to all of our parent is still about minus 40 billion yen. So I don't know whether you're in an environment of having to make a dividend, given the fact that you have investment for AI as well. I think in terms of capital allocation, you have more important areas of spending money. But if you could explain as to why you have continued to remain undetermined for the year-end dividend. Thank you very much, Nagosan, for your question. I received two questions. The first question is in regards to internal investment and for AI. whether it be customers or the consumers, we are seeing significant changes. And so in that regard, you feel that there is a need to make investment into the AI. And so the 12 billion yen of internal investment for this fiscal year is sufficient, particularly given the fact that you need to invest in AI. And also, you wanted to ask about the thinking for this fiscal year, and this will be responded by myself, Igarashi, and Endo-san will respond if there is addition to make. And in terms of dividend, the business state, asset sales, and looking at the net profit level, if you take all these into consideration, and also the capital allocation perspective as to whether to pay dividend or not, you should be able to come up with, of course, a direction of what needs to be focused upon, given the fact that you have the investment for AI and that you have referred to earlier. Now, that question will be responded by Endo-san. So I'd like to respond to your first question. In terms of internal investment, we are assuming about 20 billion yen initially. And so we scrutinize the internal investment for this fiscal year. And so the amount has been reduced to 12 billion yen, as I have explained, in particular for AI. Is it sufficient or not? So that was your point. Now, in that regard, our thinking regarding AI is that So, of course, we will be making investment on AI on a standalone basis ourselves, but a unique initiative that we have is that we have initiatives with various platformers, and we've been ahead of others in this area for quite many years, whether it be data. whether it be the area of contents creation. We have been working with the various platformers and we have moved in this area ahead of others. So how can we use that in responding to the clients' issues? Now, we have many options to choose from, and we are able to combine those to provide the appropriate solution. We are in an environment to be able to enhance that. So it's not just the amount of internal investment as to whether our investment is sufficient or not. Is that sufficient in strengthening our solution? That is not only the perspective that should be used as a basis to make your decision, And for next fiscal year as well, I suppose leading initiatives with the platformers at the centre. And we have various unique capabilities that we have, which we will work on enhancing. So that's the major course of direction for us going forward. And here we want to do sufficient amount of customisation with our clients. And for us to engage in this type of initiative with others, And that is the unique element of our initiatives with the platformers. So that is my response. And the second question will be answered by Ms. Zendul. This is Zendul. And please allow me to explain from a few perspectives. First, in terms of the capital allocation and how we think about that. Now, from our perspective, what we are working on right now, we are working on rebuilding our business foundation and over a medium to long term perspective, we are focusing on achieving growth and we're making internal investment to realise that. And we also have the dividend aspect and also we need thorough communication with the supply side. We want to engage in such a communication with the market too. And on that basis, right now, when it comes to dividend, the securing profit that is distributable, and we are focusing on that. So we've been selling the strategic shareholding And so dividend of retained earnings from subsidiaries that we are also considering the disposal of some real estates as well. But at the year end forecast in that regard. At this point in time, as of the third quarter, we have not registered an impairment as yet, but the situation overseas remains uncertain. And so I am unable to say that we are completely free of the possibility of having to take impairment this fiscal year. And as I've explained at the previous occasion in regards to impairment, when we look at the forecast for this year, whether it be net revenue or whether it be for revenue. But the medium to long-term growth of net revenue from next fiscal year onwards, that will be used in calculating the impairment possibilities, interest rate, the foreign exchange rate. These factors also need to be taken into consideration in discussing with the accounting auditor in the end. So at this point in time, as for dividend, So we want to secure a distributable profit as much as possible, and whether it be strategic shareholding sales, but we will do our utmost to be able to secure those amount. May I ask a follow-up question? So you're going to make maximum effort in terms of management to secure the profit for distribution, but there could be plus or negative of international impairment. international business impairment so that is the reason as to why the dividend remains to be undetermined at this point in time am i right yes your understanding is correct thank you for your questions next uh mr russell appointed from edison group please go ahead

Good morning. I have two questions, if that's OK. First of all, there's been a good mix in the account wins of extending existing relationships and new business wins. So are you able to talk about what you think has helped to contribute to those wins from what you've done in your business? And my second question is, I think there's a slower rate of restructuring spend. So does that mean there's a slightly slower rate of profit improvements through to 2027? Thank you.

Mr. Russell Poynton, thank you for your questions.

So account wins regarding that. Existing customers as well as new customer acquisitions. The pitch wins. The mix is pretty good and you asked about that. The status of current accounts for existing customers and new client acquisitions. What is our assessment? How do we view that? Well, I would like to respond to that. If there are any additional comments from Mendo, I will ask for them later. And the second question that you asked is about the slow speed of restructuring or the slow spend of restructuring. 2027, toward that. the restructuring spend cost? Is it progressing as planned? Do we think that we will be able to hit the goal? And that will be answered by Endo-san. First, regarding the status of accounts, we have various pitches we're making and the circumstances surrounding that. while talking in particular about our international business media creative and cxm in all practices net wins are accumulating that is where we are overseas and the current pipeline of course uh We have different projects. And 83% of media pitches are offensive. Creative, 74% is offensive pitches. So maintaining existing customers, that is our overriding assumption. Plus, how many new customers can we acquire we are looking at? So as a result, we're having this pretty good mix, as you pointed out. So first and foremost, we're focusing on maintaining existing clients and that will continue into the future. With respect to CXM, this is a long-range business. We have a new business pipeline and the pipeline is increasing and growing. Therefore, for CXM as well, inclusive of cross-selling to existing clients and acquiring new clients. How to go about doing that is something that we always focus on. And I think we're in a pretty good situation in that regard right now. For Japan, pitch winds are pretty high in different areas. Frankly, here in Japan, we're not having losses of existing clients. So the fact that we're having increasing pitch wins of new customers is contributing greatly to our good performance. And so we have to make sure to achieve pitch wins in all practice areas. And that is something that we would like to continue to ensure in the future. Regarding restructuring, I would like to turn to Endo-san for an answer. Endo speaking. So the status of restructuring We announced our mid-term management plan in February targeting 2027. We have set several KPIs. One of such KPIs is operating margin percentage. That is to be 16 to 17%. That is the target toward 2027. Based on that, the cost base right now With that as a baseline, we would like to achieve a cost reduction of 50 billion. And so that is the target. Well, achieving 50 billion is not the goal per se. ultimate goal is to achieve operating margin of 16% to 17%. As a result, vis-a-vis our competition, we would like to ensure good competitiveness on our part. And 50 billion yen, we are confirming where we are every month as to how much progress is being made. And we're spending part of that for retirement allowances. And they are to be paid considerably in December onwards. And we will be seeing that impact next year. So at this moment, we are progressing on plan. And of course, so we would like to be speedy to work toward the 2027 target with the target of achieving 50 billion or more. We are taking actions and we're on plan. That would be all. Mr. Poynton and other people, thank you very much for asking questions. With that, we would like to conclude the earnings call. Once again, thank you very much for taking time out of your busy schedules to join us today. Thank you.