Dentsu Group Inc.

Welcome to Dentsu Group Inc.’ s FY2025 H1 earnings call, and thank you for joining us today.

My name is Morishima from the Group IR office, and I will be your moderator for the call today. This is a reminder 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 materials are available on our website.

Joining me today are Global CEO of Dentsu, Hiroshi Igarashi.

[speaks Japanese]

Global COO of Dentsu, Chairman, and acting CEO of Dentsu Americas, Giulio Malegori.

Hi, everybody. It's Giulio Malegori here.

Thank you.

CEO of Dentsu Japan and Deputy Global COO, Dentsu, Takeshi Sano.

[speaks Japanese]

Global CFO of Dentsu, Shigeki Endo.

[speaks Japanese]

They will be responding to your questions after the presentation. Today's agenda will begin with a business and strategic update from Hiroshi Igarashi, followed by a financial update from Shigeki Endo.

The presentation will end with FY2025 consolidated guidance and dividends by Hiroshi Igarashi. We will invite you to ask questions after the presentations.

Mr. Igarashi, please go ahead.

Thank you very much for joining us today for the FY2025 Q2 earnings call.Let me start with the highlights. In H1 of 2025, the organic growth rate was negative 0.2%, slightly below our expectations, owing to the challenging conditions that our international business is facing in all three regions, although Japan performed well.

Meanwhile, operating margin was 12%, exceeding our expectations and the previous year. Efforts to rebuild the business foundation and internal investments are making steady progress, and we have begun to restore profitability and competitive advantage.

However, assuming the challenging business environment of our international business continues, our FY2025 earnings guidance is revised. The organic growth rate is revised down from circa 1% to broadly flat, while operating margin guidance of circa 12% will be maintained.

In addition, mainly due to the underperformance of our international business, a goodwill impairment loss of JPY86 billion was recorded in the Americas and EMEA. To focus on capital enhancement, I very much regret to say that the interim dividend will be suspended, and the forecast of the year- end dividend is undetermined.

To make fundamental improvements in our international business, early implementation of measures such as comprehensive and strategic partnership will be sought. Now, here are the highlights of Q2 and the recent period.

With regard to new clients, we won the Mizkan pitch in Japan, ServiceNow globally, Dollar General in the United States, and BMW in EMEA, where we won media pitches. In CXM, we won Arrow Electronics in multiple markets.

In creative, we won Chery Automobile in APAC. In terms of industry recognition, we won 26 Lions at Cannes Lions as well as numerous advertising awards from The One Show and D&AD.

We are also enhancing our recognition in the field of sustainability.Next, a business update, in H1, we began rebuilding our business foundation with the aim to restore profitability in our international business. Our goal is to achieve an operating margin of 16% to 17% in FY2027 by reducing annual operating costs by around JPY50 billion.

We have now identified opportunities to reduce costs by around JPY52 billion annually and are moving into the implementation phase. Headcount will be reduced by approximately 3,400 employees, which account for approximately 8% of our international business.

This reduction will target headquarters and back offices with the aim of creating a lean corporate structure. It will be carried out so as not to impair our growth potential or competitiveness.

The expenditure for rebuilding the business foundation, originally planned as a one-time cost of around JPY50 billion in 2025 as an adjustment item, will be partially deferred to 2026 or later, but the effects are expected to be realized in 2027 as planned. The onetime cost in 2025 has been revised to JPY27 billion.

In addition, approximately JPY6 billion will be recorded as a non-adjustment item, resulting in a total impact of JPY33 billion on the P&L for this fiscal year. Approximately JPY2.4 billion in costs have been recorded in H1 of 2025.

At the same time, strategic internal investment for growth is also important. The midterm management plan announced in February explained about the JPY45 billion in internal investment over three years starting from 2025.

Our original plan for 2025 was JPY20 billion, but we are monitoring usage and results every three months and narrowing down investment targets to initiatives that can ensure appropriate return. As a result, we are currently planning to spend approximately JPY17 billion.We have identified five priority areas for internal investment, first, data and technology, investing in products and platforms that seamlessly integrate market research and media planning powered by data; second, IGS talent, our specialized talent are delivering integrated solutions; third, enhancing capabilities, especially in emerging areas such as new media and leveraging AI to connect teams across the entire group; and finally, building a robust delivery operations organization centered on Dentsu Global Services.

By steadily implementing these investments in achieving results, we will regain our competitive advantage. Although expenditures will be backloaded to H2, we have growing confidence in the return on investment, and we'll continue to update you on an ongoing basis.Next, I would like to talk about the progress in sports and entertainment.

We have been promoting value creation in this field with approximately 1,200 industry insiders and supported nearly 1,300 clients in 21 markets worldwide. Going forward, we will expand globally as a single network by connecting bases in major regions.

I would like to introduce three specific initiatives. First, we are expanding our sports data service, Dentsu Sports Analytics, to the Middle East and North Africa, building on its success in 20 locations worldwide.

Second, we have globally expanded our Dentsu Anime Solutions brand to North America, China, and Southeast Asia. We will provide integrated business solutions to content owners and optimize IP licensing and marketing strategies with anime content as the core.

The overseas launch of Japanese IP and product merchandising will be conducted. Third, as our new business domain, we are promoting the House of Creators initiative, supporting creators in partnership with Roblox, and have launched ROBMIX as a collaborative business label in partnership with Kodansha Creators Lab.

Now, I will hand over to Shigeki to update our financial results.

This is Shigeki. Let me take you through the financial results for H1 of FY2025.

I will start with the key metrics. Organic growth for H1 of the year was a negative 0.2%, which was slightly below our February expectations.

For the three months of Q2, it was negative 0.7%. Maintaining the momentum from Q1, the Japan business continued to perform strongly, exceeding our expectations for H1.

However, the international business continued to face challenges with all three regions performing slightly below our expectations. This was due to the continued slower recovery of CXM in the Americas and in some EMEA markets, and due to creative performing slightly below expectations, mainly in APAC.

As a result, consolidated net revenue of the Group decreased 2.1% YoY to JPY562 billion. However, underlying operating profit increased 7.2% YoY to JPY67.5 billion.

This was due to the strong performance of Japan, which recorded a JPY9.2 billion increase in underlying operating profit, and the international business partially offsetting the net revenue decline by controlling SG&A expenses, including staff costs, with the start of our effort in rebuilding the business foundation. In addition to the controlled SG&A expenses, phasing of internal investments also contributed to this higher-than-expected profit level.

Operating margin was 12%, 100 basis points higher than the same period last year. Meanwhile, on a statutory basis, we posted an operating loss of JPY36.5 billion and a net loss of JPY73.6 billion.

This was due to the JPY86 billion of goodwill impairment loss we recognized in the international business in Q2.The JPY86 billion of goodwill impairment loss is made up of JPY68.9 billion in the Americas and JPY17.1 billion in EMEA. There are three main factors behind this impairment.

Firstly, the impact of downgrading the FY2025 forecast for the international business, while we included a level of conservatism in this year's full-year forecast at the February timing, the deterioration in the international business was worse than expected; secondly, the impact of reducing the growth rate used in the impairment test for the Americas from FY2026 onwards, which was in reflection of the downgrade of the FY2025 guidance; and thirdly, the impact of the US dollar weakening against the British pound. Because some expenses in the Americas are recorded in British pound, the weaker US dollar caused the value of our business in the Americas to decrease.

When we recorded impairment in February this year, it was due to the conservative estimate we assumed and used for the growth rates in the impairment test, not only for FY2025, but also for FY2026 to FY2029. However, on this occasion, the impairment was driven by a complex combination of various factors that resulted in the value of goodwill being lowered, including the greater-than- expected deterioration forecasted in the international business for FY2025 vis-a-vis the assumptions made in February, revision of the assumptions used in the impairment test from FY2026 onwards, and the impact of the US dollar weakening against the British pound.

Even with the latest impairment, the balance of goodwill still stands at JPY583.8 billion across the Group, mainly in the Americas. Since the goodwill is exposed to external factors, we cannot completely rule out the risk of impairment in the future.

However, we remain committed to achieving the revised guidance.I will now explain the results by region for H1. Japan maintained a strong organic growth rate of over 5% in the three months of Q2, continuing the momentum of Q1 to post strong performance for the half-year period.

However, all international regions recorded negative organic growth. By market, the United States, the United Kingdom, China, and Australia reported negative organic growth, while Spain, Poland, Taiwan, and Thailand recorded positive organic growth.Japan, the largest region, accounting for around 42% of the Group's net revenue, posted an organic growth rate of 5.3% in H1 with both net revenue and underlying operating profit reaching record highs.

This was the 9th consecutive quarter of positive growth for Japan and the third consecutive quarter of growing at more than 5%. During the three months of Q2, internet media continued to support the strong performance of the marketing business, driven by business expansion with existing clients and revenue recognition from new clients won through pitches.

In fact, internet media recorded six consecutive quarters of double-digit turnover growth. Furthermore, in addition, the BX, business transformation, domain continued to achieve double-digit growth.

The DX, digital transformation domain, also recorded strong growth. Staff costs in Japan increased somewhat as we worked on strengthening our talent base.

However, the increase in net revenue was much greater. As a consequence, we were able to record a strong operating margin of 24.6%, maintaining the momentum from Q1.

Having said that, this does include one-off effects such as a bonus provision being reduced at a certain subsidiary.The Americas, which accounts for around 28% of the Group's net revenue, recorded negative organic growth of 3.4% in H1. Despite improving from negative 5.1% recorded in Q1, the six-month performance was slightly below our expectations.

The organic growth rate of CXM in Q2 recorded a QoQ improvement, showing signs of stabilization. However, continuing uncertainties in the macro and business environments have partially impacted client marketing spend.

As a consequence, CXM recorded a high single-digit negative growth for H1 of the fiscal year. Media continued to remain relatively stable with the half-year result more or less being equivalent to what we achieved during the corresponding period last year.

Creative recorded a slightly negative growth in the six-month period. Despite the decline in net revenue, we were able to improve the half-year operating margin by 150 basis points YoY to 21.7% as a result of controlled SG&A expenses, mainly in staff costs.EMEA's half-year organic growth rate was negative 2.4%, slightly below our expectations.

CXM continued to face challenging business conditions, recording high single-digit negative growth for the six-month period. Media remained relatively stable with a slightly positive growth, and creative recorded a low single-digit negative growth.

During the three months of Q2, CXM continued to struggle in the UK and Northern Europe, with the UK recording high single-digit negative growth. In contrast, Spain and Poland posted mid-single-digit positive growth.

The operating margin remained at 4.7% despite controlled SG&A expenses.APAC's half-year organic growth rate was negative 8.9%, slightly below our expectations. CXM and creative struggled during the six-month period, both registering double-digit negative growth for the period.

In contrast, media remained relatively stable. China and Australia faced challenges during the three months of Q2.

A slowdown in creative in China, in particular, due to reduced spending by Japanese clients, weighed heavily on the results. Meanwhile, Taiwan and Thailand continued to post solid performances, maintaining the momentum Q1.

Despite maintaining control of our SG&A expenses in APAC, we recorded an underlying operating loss for the half-year period, continuing from the trend of Q1.Next, I would like to explain the changes in the Group's underlying operating profit from the corresponding period last year. Underlying operating profit for H1 of the fiscal year increased from JPY63 billion to JPY67.5 billion.

Net revenue increased by JPY12 billion in Japan; however decreased by JPY15.2 billion in the international business. As such, the Group recorded a JPY3.3 billion decrease in net revenue.

Staff costs increased by JPY5.1 billion in Japan, mainly due to strengthening of its talent base, but decreased by JPY8.9 billion in the international business, driven by the Americas and APAC. With a decrease of JPY1.1 billion in central costs, staff costs for the Group as a whole decreased by JPY4.9 billion.

Other operating expenses decreased by JPY3.6 billion, driven by a review of outsourcing fees and travel expenses. That is all for me.

I would like to hand back to Igara-san to explain our FY2025 consolidated guidance and our dividend outlook.

Thank you, Shigeki. Finally, I would like to explain the revisions to our consolidated guidance.

In H2, we expect our Japan business to continue to see positive growth. In our three international business regions, however, while the media business is relatively stable with new client wins, the challenging business environment is expected to continue due to the slower recovery in CXM, as well as project losses and budget reductions from existing clients in creative.

Furthermore, the uncertain macro environment is expected to continue. Therefore, FY2025 group organic growth guidance will be revised from circa 1% to broadly flat.

Organic growth of circa 3% for Japan will be maintained. The International business organic growth guidance is revised down from aiming at positive growth to negative, circa 2%.

On the other hand, operating margin of circa 12% for FY2025 will be maintained, taking into account swift cost control initiatives in response to the business environment and the partial realization of the effects of the rebuilding our business foundation initiative that we have been promoting since the beginning of the year. Reflecting Q2 goodwill impairment loss of JPY86 billion and a review of cost for rebuilding our business foundation, we have revised our statutory operating profit guidance from JPY66 billion to a loss of JPY3.5 billion, and our guidance for net profit attributable to the owners of parent from JPY10 billion to a net loss of JPY75.4 billion.Turning to dividends, today, we announced the recording of a loss on valuation of shares of subsidiaries and associates of Dentsu on a nonconsolidated basis.

This valuation loss is only for accounting purposes and does not affect cash. However, as a result of this valuation loss, on a nonconsolidated basis, Dentsu's retained earnings have decreased significantly.

Therefore, it is deeply regrettable that we have decided to suspend the interim dividend and revise the forecast of the year-end dividend to currently undetermined. Originally, the interim and year-end dividends were expected to be JPY69.75 each to result in an annual dividend forecast of JPY139.5 for 2025.

Let us announce the year-end dividend forecast once we have decided its appropriate level based on profits from business, the progress of asset sales, which we have been consistently working on, and future capital allocation from a medium-term management perspective. We will strive to stabilize dividends as soon as possible from 2026 onwards.The Japan business performed well in H1 of this fiscal year, achieving record high net revenue and underlying operating profit.

Organic growth exceeded 5% for three consecutive quarters. As a result, group underlying operating profit also increased 7.2% YoY, demonstrating solid performance.

On the other hand, due to the challenging business environment in the international business, we regret that we have revised down our full-year guidance, recorded an impairment loss, suspended an interim dividend, and remain the year-end dividend forecast undetermined. In order to restore our recovery in profitability at an early stage, we will further focus on rebuilding our business foundation and reevaluating underperforming businesses.

Furthermore, for international business, we will explore and implement strategic alternatives, including comprehensive and strategic partnerships. As we consider more fundamental measures, we will review our current midterm management plan as needed with the aim of achieving sustainable improvements in corporate value to maximize shareholder value.

That is all for me. Thank you for your kind attention.

I'll hand it back to the moderator.

We will now begin the Q&A session. The first question will be from Abe-san of Daiwa Securities.

Please state your name and affiliation before asking your question.

This is Abe from Daiwa Securities. Thank you very much for your presentation.

I have two questions. One is about dividend.

In the past, JPY139 was to be maintained. Basically, the direction was that you will not reduce the dividend level from next fiscal year.

What was your mindset change leading to this revision, you’re thinking, on dividend payment for this year? So, net income, a 35% payout ratio on an underlying basis, is that the idea you have in mind?

That's my first question on dividend. My second question, a downward trend, I think, is being expressed in the international business.

Including the foreign exchange environment, do we still need to expect some downside impact going forward? Your view on that, please.

Mr. Abe, thank you very much for your questions, two questions.

With regards to dividend was the first question. So the dividend has been revised down.

What is the thinking behind it? Give us some color.

With regards to the dividend payout level, 35% had been the guideline in the past, but is this still maintained? So I will ask Shigeki to respond to this part of the question.

If needed, I would like to also make some supplementary comments. As for the changes in the external environment, that was the second question.

From H2, as risk, what kind of changes do you expect or anticipate? Give us some color in terms of the market environment, the external environment by market.

So, I would like to give a response to that, but I would like to, first of all, ask Shigeki to respond to the first part of the question.

This is Shigeki speaking. Thank you for your questions.

As I explained for the reasons, the full-year forecast has been revised down for FY2025. That's one reason.

Because of that revision, the 2026 and beyond growth rate, especially in the Americas, we had to revise that. So, those two are the main contributing factors.

In terms of value, Americas has had the biggest impact. As of February, we had quite a conservative number in mind, and yet the impairment has been conducted.

Then, taking into account further growth beyond 2026, according to the impairment model, at least for the Americas, there was a need to further revise down. Therefore, in order to seek further growth, we have decided to change the capital allocation in order to ensure stability, and that has led to us cutting our dividend.

In terms of payout ratio, 35% is in our mind.

Yes, this is Igarashi speaking. With regards to payout ratio, stably keeping 35%, this has been our policy in the past.

This time around, with regards to the year-end dividend, it is undetermined at this moment, so I would appreciate if you could bear that in mind. Now, with regards to risk factors, the second part of your question, for H1, risks in the external environment basically had little impact.

We were not under any kind of pressure from the changes in the external environment, but from H2 onwards, macroeconomic factors had to be factored in as a risk factor, and that was reflected in the guidance. With regard to specific markets, the Americas, I would say, is quite big.

For 90 countries, for the tariff measures that were announced on August 7 in all these respective markets, I expect there will be some impact one way or the other, but risk factor-wise, inflation in the Americas had to be taken into account for H2. Apart from that, AI across various fields is becoming very prevalent.

Needs from our clients have become very sophisticated with the advent of AI, and we have been facing the need to address that. Therefore, AI's impact in marketing, rather than seeing this as a risk, this is something that we need to address.

That, I hope, responds to your question.

Thank you very much.

The next question is from Mr. Julien Roch from Barclays.

My question is, in the presentation, you say you aim to expedite the implementation of comprehensive and strategic partnership for your international business. What do you mean by that?

What are those comprehensive and strategic partnerships? Would you be open to selling emerging international with another company?

Thank you very much, Julien, for your question. So, what does the comprehensive and strategic partnership mean?

Does it include a potential sale of our international business? I think that was your question.

Well, as we have explained in this earnings announcement, in our midterm management plan, we have been talking about the rebuilding of our international business. We have been working on enhancing our competitiveness.

Well, for this, we are going to rebuild our business foundation. We are going to also reevaluate our underperforming business, and we are making a steady progress on this.

Now, on that basis, when we look at the current situation, the current structure of the organization, or the capital structure of what we have right now, we are not going to take those as a given. Depending on the environment and the circumstance that we are facing, we need to consider a bold effort.

In that regard, we are continuing with the study by retaining external advisers who have expertise knowledge. If it is to achieve rebuilding of the business in the early timing, there is an option for us to accelerate business rebuilding through partnership with a third party.

In regards to divestiture of the international business, we are not at a stage of being able to give any clear response at this point in time, and I'm not in a state of being able to talk about anything specific right now. To give you an example of a partnership, in regards to some of the underperforming business, we may accept external capital, or what we are considering right now, the corporate function.

This could potentially be subject to quite a bold outsourcing. These are the things that are included in the study right now.

At this point in time, nothing has been decided as yet, but once we reach a decision, we intend to make disclosure and communication quickly, so I hope you understand.

Thank you very much for that question. The next question is from Nomura Securities, Mr.

Harahata.

I am Harahata from Nomura Securities. I have just one question about impairment risk going forward.

For international business, you will be scrutinizing for the year, and you will decide on the region and the size. With this impairment, have you been able to conduct the impairment that will be required, so therefore, there will be no impairment required in the future?

I would like to hear your views on that.

Mr. Harahata, thank you very much for your question.

In terms of impairment risk, what is the view of the management is the question. I will ask Global CFO Shigeki to respond to this question.

This is Shigeki speaking. Thank you very much for the question.

Regarding impairment, in the impairment test, 2025 net revenue growth rate, not only that but also medium-term gross profit margin and also external factors are also factored in. Foreign exchange, among others, are complex and are involved in a complex manner in the impairment test, and it's discussed with the accounting firm.

So, 2025 sales growth, revenue growth alone will not determine the outcome. Having said that, the guidance that we've revised this time, it's very critical that we achieve this revised guidance in Q2.

If we do not revise the forecast of impairment risk for next fiscal year, we are not expecting any further impairment losses, but there are other external factors that will have an impact. Therefore, I will not deny the possibility that there could be additional impairment losses.

The next question is from Mr. Maeda from SMBC Nikko Securities.

This is Maeda from SMBC Nikko Securities. I do have three questions.

The first question is related to the previous person's question. In regards to thinking going forward, the organic growth rate for this year has been lowered by some 2%.

Next fiscal year onwards, the organic growth of the net revenue for international business next year onwards, what was the number you have set for that in calculating the impairment on this occasion? That is a hint for us to think in terms of the external environment.

That's the first question. The second question is for the strong-performing Japan business.

Three months ago, you were saying that Q1 was good, but you were saying that there were some uncertainties in Q2, indicating some conservatism, but you have achieved a strong result as you did in Q1 in the end, so the background to that. Also, H2 onwards, can we expect sustainability of the strong performance for the rest of the year?

For next year onwards, can you continue to structurally grow the business in Japan? The third question is regarding sports and entertainment.

Recently, there's been a lot of news flow from your company, and I feel that you are putting a lot of emphasis on this area. For this business, the value of this business, how much earnings is it likely to generate?

When we are forecasting your performance, I think this is going to be a quite important factor, so I wanted to get some clarity on that. These are my three questions.

Thank you very much, Maeda-san, for your questions. Three questions in total you have asked.

For the international business going forward, there was explanation about impairment, but for next fiscal year onwards, what is the organic growth is the international business expected to achieve? What's the assumption used in conducting the impairment test on this occasion?

I think that was your question. This can now be disclosed.

For that question, Shigeki will respond. The second question is in regards to the Japan business, where we have maintained a strong performance in Q2, the reason for that, and the forecast for next fiscal year onwards.

That was what you had asked. For that, I will ask Mr.

Sano from Dentsu Japan to respond. The third question is regarding sports and entertainment.

What is the value of business that we are assuming in this regard? On that question, I will respond.

So, Shigeki, please respond to the first question.

This is Shigeki speaking. Well, from January to June, the organic growth rate was minus 0.2%, but for the full-year, we are expecting 0%.

Impairment next year onwards, well, for impairment, impairment is not for the international business overall, but what we refer to as the cash-generating unit, which is essentially the P&L unit. We consider the Americas as one cash-generating unit, and EMEA as one cash-generating unit.

That is what we use in evaluating impairment. Because of that, I need to explain the forecast for each of the regions.

For the Americas for FY2026, the organic growth is 1%, and for FY2027 onwards, 3%, and for EMEA, for FY2026 to FY2029, 2.4%. That is the assumptions that we have used.

That's all.

This is Sano, CEO of Dentsu Japan. Thank you, Mr.

Maeda, for your question. Three months ago, we did give somewhat of a cautious explanation.

Now, at that point in time, the impact of tariffs was somewhat unclear, and so I did respond with a bit of caution. For the past three months, our integrated solution has been assessed highly, and so we have been able to capture new clients in a competitive pitch, which have continued to perform well from last year.

The [restaurant], the large services, HR-related clients, or automotive-related or the government offices, in many of these areas, we have been able to acquire the handling of new clients. In internet, the advertisement media in Q2 was 14.7%, a very high growth rate.

This year, too, we have been able to achieve double- digit growth again. Also, in creative, we have been able to obtain double-digit growth for OH Media as well.

We have been able to achieve double-digit growth. In the business solution area, we have continued to achieve double-digit growth, again steady.

Because of these, we have been able to achieve that growth. In Q3 onwards, based on what we can say at this point in time, we should be able to maintain a certain level of strength.

As to whether we are able to achieve high growth like we have done for H1 or not, that remains to be seen, but we do expect to be able to achieve the growth, and we are still maintaining a high pitch win rate, so next fiscal year onwards, we should be able to expect certain level of growth. That completes my response.

In regards to your third question regarding sports and entertainment, please allow me to respond. The expected size of this business, in this area, we consider it to be an area where we will be making reinvestment.

This is an area that we were going to focus on, and that is how we started our midterm management plan. Conventionally, we have been working on the initiatives in this area.

As I've explained before, in terms of the conventional sports area, we have been able to execute various sports projects with quite many clients. Now, on that backdrop, in sports and entertainment, we are needing to think about our growth strategy separately to an extent, so it's difficult to communicate the business size for these put together, but by 2030, we want to make this business one of the main pillars of our business going forward.

On that basis, we'll continue to roll out our investment strategy. The important point here is that many clients in regards to this area would like to see clarity on ROI, in other words, the impact or benefit realized.

In that regard, as I've explained before, in the area of the sports analytics, sports analytics is an area that is essential. By that, we are able to accurately verify the benefit of the clients' investment appetite.

Utilizing something like this will enable us to achieve further acceleration. In regards to entertainment, it's mainly to do with some Japanese IP holders.

How to roll out from Japan to overseas will be the kind of focus area where we will be forming various alliances. So, in Southeast Asia, Middle East, or Europe, and also North America, we feel that there are possibilities in all sorts of different markets in this regard.

On this occasion, not just IP, but the creators in the [main] entertainment area, how can we organize these creators? How can we utilize and leverage these creators?

That was the thinking behind the formation of Roblox, together with the IP holder in Japan, Kodansha. With various IP holders in Japan, we are looking at what we can do in the games area, so not just a trial, but we have started practical business.

I have explained in some detail, but this will become a new pillar of earnings for our business. By 2030, we want to grow this business to a sizable business.

I do apologize for not being able to share with you specific numbers, but that completes my response.

The next question is from Tokai Tokyo Intelligence Lab, Mr. Yamada.

Yamada from Tokai Tokyo Intelligence Lab. I have two questions.

My first question is for Japan business. The internet business is faring well compared to your peers.

I think the growth rate is quite significant. What is the background?

Why is it that you're able to demonstrate such a strong growth? Please give us some color.

That's my first question. My second question is impairment risk going forward.

In the Americas, macroeconomic conditions have been taken into account in H2. In terms of internal capabilities, when you compare your own capabilities with other companies, what difference is there?

To what extent was that internal factor factored in, if you could give us some sense of that? Those are my two questions.

Mr. Yamada, thank you very much for your questions.

We have received two questions. One is with regards to Japan business, why the Internet business is faring well.

I will ask Mr. Sano to respond to this part of the question.

Regarding impairment risk, Americas’ macro situation was factored in. That was explained.

With regards to capabilities, would that be a factor for impairment? That was the second part of the question.

Our capabilities in the Americas, how do we see the current situation? I think that's how I can interpret your question.

Therefore, I will ask Giulio, our CEO in Americas, to respond to this part of the question. How do we view our capabilities in Americas?

What is the current situation, and whether there are any risks associated to internal capabilities that we need to take into account? Starting with Sano-san, Mr.

Sano, over to you.

Mr. Yamada, thank you very much for your question.

Compared to industry average or compared to our peers, we are demonstrating strong Internet growth. Why is that is your question?

From last year, there have been a number of big presentations where we have been able to gain big wins. That has had a big impact.

It's not just for internet. Our comprehensive solution has been valued highly, and that has led to wins, and so Internet was part of the package solution.

If I could respond to your question, our comprehensive solutions have been valued highly. Therefore, we have been able to win the bids and been able to win big accounts, and that has led to the strong performance.

I hope I answered your question.

Thank you. Thank you, Yamada-san, for the question on the capabilities and the outlook for 2025.

The way we see that is that, when we look, we need to look at the practice area. When we look at the media practice area, we remain cautious because of the macro scenario that we quoted before, but we look at that as relatively stable, unless, of course, there will be the external environment accelerating in a negative way.

When looking at CXM, we start seeing the business stabilizing. Igara-san mentioned, the last few months, we are still seeing organic decline for the full-year, but the recent months are really showing stabilization.

To your specific question on the capability, we are accelerating within the [Media Plus Pass] strategy, our effort in that area and we are a considering scaled platform with direct client activation within and beyond media. So, stuff like retail media, social, or content supply chain, together with integrated enablers on analytics, will permit us to continue our journey.

You asked specifically on comparing to our peers. I think that these areas are linked, and especially with the client-centric position, will allow us to differentiate from our competitors.

We continue to invest in these capabilities, and we are having a clear contribution target to both organic growth and OP over not only 2025, but over the next three years. We quoted, for instance, in the last call, and we are continuing that, the launch of GenStudio dentsu+.

That is the industry-first AI-powered marketing ecosystem, which is really AI-powered integrated marketing ecosystem for brands. This is another differentiated point in the content supply chain solution that is proving to be of interest for our clients.

I hope this, with this example, answers your question. Thank you.

We are nearing the scheduled time to end the session. However, since we have other hands still raised, we would like to extend the session slightly to answer more questions.

The next question is from Mr. Nagao from the BofA Securities.

This is Nagao from BofA Securities. I have three questions.

Now, the first question is about impairment, true, the exchange rate, or the discount rate, or the macro environment, one example of the reason of recognizing impairment. The goodwill essentially is the result of the management judgment in the past, so it shouldn't be placed on the external factors, the business plan, or evaluation process.

There was a structural issue, which essentially lead to the impairment of goodwill. So, as of February 2025, you did make quite a conservative outlook, and you came up with JPY240 billion of impairment loss, but you're registering impairment once again.

So, as management, the additional impairment loss that you have registered on this occasion, how have you assessed that? And so, together with that, the impairment on this occasion, in one sense, is as a result of the business environment deteriorating [more] than what you have assumed originally, but that could be because of the management scenario or risk assessment.

This may have been not strict enough. To prevent the same from occurring again, valuation at the acquisition, the PMI process after acquisition, how are we going to think about it?

How are we going to change that? Can you show a quantitative target?

I would like to ask Mr. Igarashi to share with me your thoughts in this regard.

This is Igara speaking. Please allow me to respond.

As Mr. Nagao has pointed out, in regards to the impairment on this occasion, we, the management, take this seriously.

The judgment regarding risk may not have been strict enough. I feel that is a claim that I should accept front row, the judgment of the management in the past.

Determining the amount in acquisition, this may not have been right, or PMI has not been thorough enough; in other words, not being able to sufficiently generate synergies. These are certainly factors that led to the impairment being recognized again on this occasion, and the management do feel that we are responsible.

Now, on that basis, right now, when it comes to M&A, we are now in a state of focusing on internal investment. Regarding PMI as well, we have more strict rules regarding discipline in making judgment regarding M&A, so we are more thorough in abiding by this type of internal rule.

In that regard, whether it be Board of Directors, or the Finance Committee, which is a committee under the Board, and M&A strategy and PMI afterwards, generation of synergies thereafter, we now have a structure of being able to monitor this more closely. Not just by the management side, but inclusive of the Board of Directors, the total management is working on minimizing the risks associated with M&As.

I didn't have the intent of explaining that the impairment was due to external factors, so as a management, our recognition may not have been strict enough. In that regard, I do agree.

The second question is that the impairment on this occasion did lead to the valuation loss of the shares that you have in the subsidiary, the shareholder equity was damaged as a result, and you are not paying dividend on this occasion. I think this is the first time you are not paying dividend.

And so the progress in asset sales, inclusive of the profit level from the perspective of the shareholders, so resumption of the dividend going forward, what is the standard to be utilized, the timing, and the nuance? What are your thoughts in that regard?

That's my second question.

Thank you for your question. As I have explained before, we have been working on asset sales, particularly the strategic shareholdings.

We have been working on that thus far. We have also been working on selling down some other assets.

We are going to step up further in terms of those initiatives going forward. By doing so, we want to secure the funds required to pay a dividend.

In other words, we want to be able to secure our retained earnings. We will be enhancing our initiatives to be able to secure the retained earnings to enable us to pay dividend.

In terms of standard or timing for resuming the dividend, at this point in time, it remains to be undetermined. There are various reforms that we are working on right now, particularly comprehensive and strategic partnership initiatives for international business.

Depending on final progress related to that, various factors will certainly have impact there, and those need to be taken into consideration as well. With all that considered, and looking at [assets] of capital allocation overall, after looking into that, we need to make a decision about final dividend.

Once we have some visibility on this, we intend to certainly make disclosure, so I hope you understand.

Thank you very much for your thorough explanation. I very much appreciate your comment.

The final question is regarding Japan, which continued to perform well. From April to June, the domestic demand, I expect that to have been quite weak.

From your perspective, in H2 of the fiscal year, what do you expect to be the domestic ad demand? Together with that, recently, larger retailers mainly have been holding back the utilization of agencies, or they sometimes are responding themselves.

Now, from your perspective, do you expect this type of movement to expand going forward, or do you feel that type of efforts are limited? Together with your outlook for the domestic ad demand and the changes in the internet area in regards to utilization of agencies, if you could make a comment on that, please?

Thank you. FY2025 H2 forecast for the domestic business, as well as what we are seeing recently, the larger retailers are changing how they deal with some agencies.

In that kind of environment, the impact towards the Internet area, what is our view? Now, in regards to those questions, I'll ask Mr.

Sano to respond.

Thank you very much, Nagao-san, for your question. This is Sano speaking.

In regards to the business condition, as I touched upon before, the impact of the tariff is having an impact on the Japanese companies because of the unclarity, but I think that has settled to a certain extent. Of course, we cannot rule out the uncertainties completely, but it has settled down somewhat, and we expect the strong trends to be retained in H2 from our business perspective.

Some companies are in-housing. On this occasion, this was quite sizable, and so it was quite topical.

In-housing is something that has been talked about from quite a while ago. This has been the case overseas as well.

It surfaces and it disappears, and it surfaces and disappears. We expect something like this to continue in the future.

If you look at the employment environment in Japan, internalization, or in-housing, is not something we expect to take deep root or expand going forward in any large ways. So, in the end, it is more efficient to use the professional companies or, inclusive of ourselves, they are able to freely choose the expert company.

Rather than doing everything in-house, it's more beneficial to choose externally the providers. There are also companies who did go in-housing, but ended up using an external company as well.

What happened on this occasion with a certain company, we are not really expecting to see that expand to other companies all that much. That completes my response.

Mr. Igarashi and Mr.

Sano, thank you very much for your thorough explanations.

Mr. Nagao, thank you very much, and thank you for all the questions.

With that, I would like to conclude today's earnings call. Thank you very much for participating today.

You may now disconnect. Thank you.

[END]