Dentsu Aktie

[Interpreted] Good morning, good afternoon, good evening. This is Takeshi Sano speaking. I took office as Global CEO at the end of March, and I'm delighted to welcome you to Dentsu Fiscal Year 2026 First Quarter Earnings Call. Today, Shigeki Endo, our Global CFO, and I will be giving presentations. Following our business and strategic update and Q1 financial update, we will move on to a Q&A session.

Before moving on to the financial results, I would first like to speak about the direction our group is aiming for. Our group's goal is to become a growth partner that realizes clients' medium- to long-term growth. The 3 pillars necessary to achieve this are strengthening client centricity, enhancing agility and accelerating collaboration. At the core of our business is client centricity, a customer-first mindset. The marketing expertise we provide in media, creative and the wider marketing services we offer are not the goal in themselves. They are the means.

The true objective is the sustained growth for our clients' businesses and brands. Therefore, it is critical that we go beyond responding only to today's clients' needs to proactively anticipating challenges they have not yet identified and delivering the most relevant solutions at the right time. To realize this client centricity, agility and collaboration are essential.

On agility, we are accelerating decision-making and reducing the distance between management, the front line and ultimately, our clients by streamlining management layers and moving to a more agile structure. Success depends on being the right scale, large enough to deliver impact yet agile enough to remain fast and flexible. In addition, we are accelerating collaboration to create distinctive value, bringing together the diverse capabilities of the group as well as those of our clients and partners. This enables us to deliver seamless end-to-end offerings from strategy through to execution. Together, these 3 pillars strengthen our ability to support sustained growth for our clients.

Let me now move on to the highlights. In the first quarter, we posted organic growth of 0.8% and operating margin of 12.8%, both slightly exceeding our expectations. Statutory net profit was JPY 40.2 billion, largely impacted by the recording of gains from the sale of Dentsu Ginza Building. While our full year guidance is reiterated, we will closely monitor our clients' business conditions, marketing demand and other factors amid increasing uncertainty in the global economy.

In our international business, both initiatives, rebuilding our business foundation and revaluation of underperforming businesses are progressing steadily. Later, I will elaborate on the optimized operating structure in EMEA and partial divestment of a certain business in the ANZ cluster.

Here are some of our recent client wins. Globally, we won the media pitch for Heineken, further expanding our partnership. In the Americas, we secured new business from Farmers Insurance for creative and were appointed as the integrated media and creative AOR for i-Health. In Japan, we were selected as the marketing strategy partner for a new project with MUFG. In EMEA, we won Samsung Electronics Europe's CRM transformation project across 16 markets.

In addition, Tapestry appointed us for media across EMEA, APAC and Japan.

In terms of industry awards and recognition, we continue to deliver strong results across multiple disciplines, including being named Network of the Year for the 10th time and the fifth consecutive year at ADFEST as well as earning recognition in creative, sports and entertainment and other categories.

Next, I would like to explain our progress in rebuilding our business foundation, focusing on the reorganization of our operating structure in EMEA. Effective July with the aim of optimizing our operating structure, we will review the role of EMEA headquarters and transition to a simpler and more efficient organization. At the same time, 7 clusters previously operating under EMEA will be consolidated into 3, improving the efficiency of regional headquarters function and accelerating decision-making.

An additional annual cost reduction of approximately JPY 1.7 billion is anticipated through these initiatives. Under the new structure, each cluster CEO will report directly to myself as Global CEO. This will strengthen alignment with our global strategy while also enabling faster decision-making across markets and clusters, ultimately enhancing the value we deliver to our clients. We are already seeing concrete results, including our success in winning Heineken's global pitch in which I was directly involved.

Next, I would like to explain the business transformation underway in Australia and New Zealand, also known as the ANZ cluster. As part of the business transformation in this cluster, we have decided to divest the CRM business, which is part of our CXM business. This divestiture will lead to a decline of approximately JPY 2.5 billion in annual costs. In addition, it will create room to further reduce function-related costs associated with the divested business by several hundred million yen annually going forward. The transaction with the prospective buyer is scheduled to close in the third quarter, after which these benefits are expected to materialize.

At the same time, within the CXM business, we continue to position the Experience, Commerce and Data and Technology domains as critical capabilities for future growth. Therefore, these areas are not included in the divestiture and will continue to be operated in an integrated manner alongside our Media and Creative businesses. We are also moving forward with the integration of our Media business brands, creating a structure that enables integrated service delivery by connecting media, creative and data capabilities across functions.

The ANZ region has experienced organic decline for 3 consecutive years. However, through business transformation initiatives, including the measures we announced today, we expect the region to return to low single-digit growth from fiscal year 2026.

Next, I would like to share the progress and key achievements of our International Media business. To further enhance our media services, we are particularly focused on 4 key areas. First, we are advancing AI-powered media planning. Second, we are strengthening our proprietary digital solutions. Third, we are enhancing our capabilities in retail media. And fourth, we are strengthening our capabilities in social media. Through these initiatives, we have already delivered tangible results, including wins in multiple client pitches as shown in the box section below.

Finally, let me touch upon our approach to AI. Our group's vision, AI for growth, combines human intelligence with AI capabilities to drive growth for both our clients and society. We do not see AI simply as a tool for improving efficiency. Rather, we position it as a driver and support for growth and innovation of both ourselves and our clients. What I feel in my conversations with client leaders is that they are not simply looking for advanced AI capabilities. What they are truly seeking is their business growth. They are looking for a true partner that goes beyond the boundaries of advertising to address their broader business challenges by integrating AI, data, creative and media to drive business transformation and growth.

To identify potential business issues as well as the countless challenges that may emerge in the future and to solve them quickly and effectively, AI alone is not enough. What is equally essential is humanity or what we call people intelligence. That is why rather than combining AI within a proprietary platform, we place importance on building a flexible and open system that can provide the optimal environment tailored to each client data systems and usability needs.

In this area, competitive advantage does not come simply from scale. It comes from being an organization with the right scale, one that combines the agility to move quickly with the expertise needed to create real impact. To give you some specific examples, let me first introduce the initiatives underway at Dentsu Japan. In Japan, some of the group's most advanced initiatives are already being implemented. Currently, within Dentsu Japan, more than 4,500 AI agents and over 1,300 AI applications are being used, supporting both the enhancement and efficiency of client operations.

In addition, Dentsu Digital solution, Mugen AI Ads, which optimizes the digital advertising production process has already been implemented in projects for more than 200 companies, delivering an average 1.5x improvement in advertising effectiveness. We are also rolling out a variety of solutions that combine humanity with AI intelligence. These include people research, which enables virtual quantitative research across personas, representing a population of 100 million people, AI for growth Canvas and AI agent platform and AI for growth creative lines, which incorporates the knowledge and skills of creatives directly into the production process.

Furthermore, later this month, we are planning to announce AI For Growth 3.0 as the next update to our AI strategy. As a representative example from our international business, I would like to introduce the progress of dentsu.Connect and Client IQ. Dentsu.Connect is scheduled for a further update in the fourth quarter this year. But even in this current version, more than 1,900 clients have already enrolled. Dentsu.Connect is our unified operating system that seamlessly connects every application across media, creative and our customer experience capabilities within our organization. By combining this platform with AI, we help clients enhance brand value and maximize business performance.

In addition, we have launched Client IQ, a chat-based AI agent tool that captures and shares our internal expertise and specialist knowledge. Our planners can use it in a conversational chat format, and it even supports the creation of client proposal materials. This strengthens our ability to deliver proposals to clients that are both faster and more insightful.

That concludes my update. As I promised in February, we are moving swiftly to address key management challenges and will continue to deliver steady results. We are currently reviewing our midterm management plan in which we have redefined certain objectives and associated targets, and I intend to provide an update in the coming months.

Now our CEO (sic) [ CFO ] Shigeki Endo, will give you an update of our financial results.

[Interpreted] This is Shigeki Endo. Please allow me to take you through the consolidated financial results for the first quarter of fiscal 2026. I'll start with the key metrics. For the first quarter, we posted organic growth of 0.8%, slightly exceeding our February expectations. This was due to the strong performance in Japan, which also exceeded expectations. The performance of the 3 international regions were in line with our expectations. Consequently, and due to the weaker yen against the major currencies, the group posted increases in both revenue and profit with consolidated net revenue increasing by 2.7% year-on-year to JPY 295.1 billion and underlying operating profit increasing by 11.5% to JPY 37.8 billion.

The double-digit profit growth was realized due to the increased profit in the Japan business as well as due to the controlled SG&A expenses in the 3 international regions. Benefits from our efforts to rebuild business foundation also contributed to a certain extent. As a result, we posted operating margin of 12.8%, 100 basis points higher than the same period last year, slightly exceeding our February expectations. Underlying basic EPS came to JPY 75.43, increasing by 18.4% year-on-year.

On a statutory basis, operating profit increased 155.5% year-on-year to JPY 65 billion and net profit increased 540.5% year-on-year to JPY 40.2 billion. These high year-on-year increases were largely due to the recording of gains on the sale of the Dentsu Ginza Building concerning which circa JPY 30 billion were recorded in operating profit and circa JPY 22 billion in net profit as well as due to the gain on the sale of shares in CARTA HOLDINGS and the fair value remeasurement gain recorded on retained interest.

I will now explain our performance by region. Our Japan business, which accounts for 44% of the group's net revenue performed well with organic growth of 4.7%. Of the 3 international regions, EMEA recorded organic growth, while the Americas and APAC showed organic declines. By market, the United Kingdom, Spain, Poland and India achieved organic growth, whilst U.S., Australia and China posted organic decline.

Next, I will explain the performance of each region. Starting this quarter, we will be showing year-on-year net revenue growth at the center of the pages that explain regional results. And Japan posted organic growth of 4.7% in the first quarter. This marks 12 consecutive quarters of positive growth and 6 consecutive quarters of high growth at mid-single digit. In February, we took a conservative view of the first quarter, factoring in the rebound effect from major events held during the same period last year. However, Japan exceeded expectations by successfully winning clients fiscal year-end demand for advertisements in TV and internet media.

Internet media posted double-digit turnover growth for the ninth consecutive quarter, and TV ads also showed strong mid-single-digit growth. Digital transformation also performed strongly, posting near double-digit growth, so as business transformation, which performed steadily as well. In January of this year, we changed the classification of CARTA HOLDINGS from a consolidated subsidiary to an equity method affiliate. This change caused net revenue to decline by 0.6% year-on-year.

However, lower SG&A expenses enabled profits to increase, which translated to improved operating margin of 30.8%, an increase of 180 basis points year-on-year. Although the first quarter was stronger than expected, we will maintain our full year forecast of 2% to 3% organic growth, given the limited visibility we have into clients' business operations or the conditions and marketing demands, amongst other factors in light of the increased uncertainty in the macro environment.

And starting this quarter, we'll also be showing organic growth rates by practice to provide more specific information about the performance of our international business. In the first quarter, the Americas region posted organic decline of 3%, which was in line with our expectations. By practice, Media remained stable with organic growth of 0.5%. While CXM remains slightly negative, its organic growth rate has continued to recover for 5 consecutive quarters. Meanwhile, Creative recorded a decline of 12.4% due to loss of projects last fiscal year and due to reduced client spending.

Operating margin came to 16.1%, 160 basis points lower than the same period last year. However, this was in line with our expectations, benefiting from suppressed staff costs resulting from various initiatives, including our efforts to rebuild business foundation. And despite some impact which is expected from the second half of the fiscal year resulting from lesser business from certain large clients in the Media domain, we will retain our full year forecast of circa 2% organic decline as we have already factored in risks and opportunities to a certain extent.

EMEA posted organic growth of 0.8% in the first quarter, in line with our expectations. The year-on-year increase of 15% in net revenue was mainly due to the weaker yen against the British pound and euro. By practice, Media posted organic growth of 5.3%. While this includes revenue from BMW and other clients that we won last year, there was also a large impact from earlier-than-expected recording of revenues in the United Kingdom. Despite performing well in Spain with double-digit growth, CXM posted a decline of 5.7%, continuing to face challenges in larger markets such as the United Kingdom and Switzerland. Creative also posted a decline of 5% due to experiencing revenue decreases mainly in Poland and Italy.

Operating margin came to 3.1%. Underlying operating profit turned positive due to increased revenue and reduced SG&A expenses that benefited from our initiatives that include our efforts to rebuild business foundation. While our full year forecast of circa 1% organic growth is reiterated, we need to remain vigilant given the uncertainties in the macro environment.

APAC region posted organic decline of 7.5% in the first quarter. Despite the challenging result, it was still in line with our expectations. By practice, Media recorded organic decline of 2.5%. This was because of the high growth rate of 5% recorded during the corresponding period last year, which was mainly due to the timing of revenue recognition in Australia.

Overall, Media is performing steadily, particularly in China and Taiwan. Meanwhile, CXM recorded a decline of 24.2%, continuing to struggle in several markets, including Australia due to client losses and reduced spending. Creative posted 9.5% decline due to lower revenues, mainly in China and Southeast Asia.

Due to suppressed SG&A expenses benefiting from initiatives that included efforts to rebuild business foundation, APAC was able to fully offset revenue decline to record underlying operating loss at the same level as the corresponding period last year, while our full year forecast of circa 1% organic growth is reiterated, we need to remain vigilant given the uncertainties in the macro environment.

Next, I'd like to explain the changes in underlying operating profit from the corresponding period last fiscal year. Underlying operating profit for the first quarter increased by JPY 3.9 billion year-on-year from JPY 33.9 billion to JPY 37.8 billion. On a constant currency basis, the group's net revenue declined by JPY 3.9 billion. This was due to a decrease of JPY 800 million in the Japan business resulting from reclassification of CARTA HOLDINGS as an equity method affiliate and a decrease in revenue of JPY 3.6 billion on a constant currency basis in the 3 international regions.

Staff costs were reduced by JPY 5.9 billion across the group, particularly in the 3 international regions. Operating expenses were also reduced by JPY 1.8 billion at the group level, with Japan contributing by JPY 1.1 billion and the 3 international regions by JPY 1.1 billion.

In conclusion, we are reiterating our full year guidance announced in February. Organic growth and operating margin for the first quarter slightly exceeded our February expectations. While we anticipate some revenue decline from certain large clients starting from second half of the fiscal year, particularly in the Americas, our current full year guidance already includes risks and opportunities to a certain extent. However, macro environment is becoming increasingly uncertain due to reasons such as prolonged geopolitical risks and soaring resource and energy prices. This limits our visibility into clients' business conditions and marketing demands, amongst other factors. And since it is too difficult to reasonably estimate the impact of these factors on our full year performance at this point in time, we will keep our guidance unchanged. Expected nonpayment of dividend for fiscal 2026 also remains unchanged.

With regards to the Middle East, direct impact is limited as the net revenue from the area accounts for less than 1% of the group's total on a consolidated basis and only about 3% of the EMEA region. Lastly, distributable profit, which stood at negative JPY 234.3 billion at the end of fiscal 2025 is expected to improve by JPY 70 billion to JPY 80 billion to circa negative JPY 160 billion by the end of this fiscal year. Net asset on a nonconsolidated basis is projected to turn positive at circa JPY 20 billion. We'll continue to make every effort towards resumption of dividends, such as by recovering our business performance and by selling nonoperating assets. Thank you for your attention.

[Interpreted] We will now begin the Q&A session. The first question is by Daiwa Securities, Abe-san.

[Interpreted] My name is Abe of Daiwa Securities. I have 2 questions. First of all is with regards to advertising demand. You said there is a rise in geopolitical risk. But by region, have you already begun to see impact to advertising demand?

My second question, newly in EMEA and Australia, initiatives will be launched. What were the challenges that you have identified? Can you elaborate? And also cost reduction impact was cited. Have they already been factored in the numbers that you have already disclosed?

[Interpreted] Thank you, Abe-san. This is Sano speaking, and I will respond to your questions. First of all, regarding the Middle East, regarding the geopolitical risk, more specifically in the Middle East, there is certain impact. But in the overall business, the Middle East region in itself occupies a very small proportion. So it does not have any significant impact to our business. And as far as other regions, including Japan, is concerned, there is moderate rise of concern. And we are sensing some signs of risk rising.

More specifically, oil prices are rising and manufacturers and companies in all sectors are psychologically being affected. So there is a mood of hesitancy. And in April, we began to sense such hesitation. It's not that significant, but on a worldwide basis, there seems to be such moves amongst advertisers.

Coming to your second question regarding EMEA and ANZ. First of all, on EMEA, it covers a wide region from the Nordic countries to Africa. There used to be 7 clusters and regional headquarters in each of those clusters, but there was redundancy. And in order to improve efficiency, we wanted to reduce the overlap of EMEA headquarters to improve efficiency. Of course, we at the headquarters, want to shorten the distance to EMEA clients to accelerate decision-making. And also it has the effect of cost reduction. We've been speaking about cost reduction initiatives. And this initiative of streamlining EMEA headquarters have not been included. So this will be an additional initiative.

And as far as Australia and New Zealand are concerned, the Media business is robust, but some of the CXM business, as I said, Salesforce-related business, the profitability wasn't high to begin with and the synergy with the Media business was not so significant, and that is why we decided on the divestiture. And for Australia and New Zealand, in last year's financial results, we talked about Australia and China turning to profitability from losses. And some of that had been factored in, but there would be additional cost reductions to be further factored into the future.

[Interpreted] Next question is from Harahata-san from Nomura Securities.

[Interpreted] This is Harahata from Nomura Securities. I have 2 questions. First question is when you talked about client centricity, agility and collaboration. And in the international business context, apart from the initiatives that you've announced, where are the challenges? And how -- what type of framework or schedule do you intend to undertake the restructuring? And the competitiveness of the international business, Big 3's competitiveness has become stronger. So based on what you have announced, are you going to continue to operate on an organic basis to strengthen your competitiveness rather than forming partnership?

[Interpreted] Thank you very much, Hara-san for your question. Yes. Your first question is regarding the agility, collaboration and so forth. But we're going to do this as a system. But there is also the activities or behavior of each and every employees. And so I am -- we are going to do what we can do as we have announced in February, until now, each of the region's CEO reported to the global COO who reported to me or the heads of each of the practices or the presidents and reported to the overall practices or the President, and reported to the overall practice President which reported to global CEO. So this was discontinued. Now all the reporting lines come directly to me.

And so we wanted to create a flat organization as much as possible. And also reducing functions and decision-making related functions did require time, and so that will also be reduced. And what the organization can do will be done at the organizational level. But on top of that, we want to have everyone act with greater agility. So that is what we have been talking about.

The other part, the collaboration. And a number of the items that we have explained today, and it does relate to your second question as well. But against those referred to as Big 3, we are slightly smaller in size, but we have been able to win in large global pitches. And the reason for that lies here. And so despite the fact we may be Media centered, but the technology of CXM or Creative, we do have sense in those areas. And we are able to make proposal in an integrated way as a group, which has led to us winning these presence, the pitches.

So breaking the silos internally and we are going to create KPIs as an organization, but we want to make sure that this also becomes part of our behavioral principles. And so organization structure, KPI and the code of conduct. So all of these areas will be subject to this initiative.

And how we're going to compete against the Big 3, your second question.

And there was an article in the Campaign was yesterday or today about this. But if we compete only on scale, then we will end up losing. But when you look at the result, we are still winning in the global pitches. And so this is a proof. And clients to a certain extent, may find meaning in size. But more than that, the value that we provide is what they make decision on and the value they provide and the solutions that we provide.

And when I actually talk with the clients, we often talk about teams. And when I ask why they chose us and they often say that they chose us as a team. And so the chemistry as a team with the client and if it is a 30 people, 30 people team, then the collaboration within that team, the ability of the team, the strength of the team becomes important. And I think that enables us to win.

And so as I've explained earlier, we are going to be on the offense, accelerate the speed and understand the challenges of the customers before the client realizes that and which will lead to win. So in that regard, agility is required. And also partners, partners are quite broad-based terminology. So what you're assuming and not thinking of partners like funds. But in regards to potential technology partners, this would be area that we will be more proactive in considering, say, for example, Adobe or Salesforce. There are our clients, but there are also our technology partners that we are working with. And so enhancement of partnership with these entities is something that we intend to strengthen going forward.

[Interpreted] The next question is by Maeda-san of SMBC Nikko Securities.

[Interpreted] I have 2 questions. You mentioned partnership in the area of technology, platforms could become potential partners. And these partners are using AI on their platforms and are engaged in new initiatives. So outside of the conventional advertising business, AI could be used. Do you have capability in such area? Can we expect that to be a new growth domain? How will you be leveraging such AI capability? That's my first question.

[Interpreted] This is Sano speaking. So should I answer to your first question first then. And the short answer is yes. Lately, we published a press release. But more specifically, through our partnership with Microsoft, Microsoft M365 installed companies' data will be leveraged, and we will discover silos within companies and enable the companies to better use human resources. This is coined as HR for growth. So this is one example, which is probably easy to an example. But this is an example of AI not just being used for the advertising area alone, but for all other areas to help our clients. And this kind of initiative has begun in Japan, but we're trying to replicate such initiative in other markets outside of Japan.

[Interpreted] Now going on to my second question. APAC organic growth is the subject of my second question. Your full year guidance remains unchanged. But in terms of appearance, you seem to be behind. But you're confident that you will be able to catch up? Are there specific grounds on which you are maintaining the guidance?

In comparison to other regions, it's small, so the variance may become large. So even if APAC is behind, the impact to the total business may be insignificant. So including the forecast and total business, do you have factors behind that make you confident to fulfill the guidance?

[Interpreted] This is Sano speaking. Let me respond. Just because the region is small, we're not attaching importance, no, that's not the case. I can't report to you now, but we have won a few competitive pitches. So to a certain extent, we have grounds to be confident to fulfill our target. Endo-san, do you have anything to add? No, he says.

Thank you very much. Mr. Maeda, and thank you to all of the people who have asked questions. This will conclude the earnings call. Once again, I thank all of the participants who have joined us despite their busy schedule. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Welcome to Dentsu FY 2025 Earnings Call, and thank you for joining us at this evening. My name is Morishima from the Group IR office, and I will be your conference operator today. This is a reminder that today's call is being recorded.

Furthermore, 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, Dentsu, Hiroshi Igarashi.

[Foreign Language]

Executive Officer, Executive Vice President and Global Chief Operating Officer, Dentsu and Chairman, and Dentsu Americas, Giulio Malegori.

It's Giulio Malegori, good evening, good morning.

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

[Foreign Language]

Global CFO, Dentsu, Shigeki Endo.

[Foreign Language]

Today's agenda will begin with FY 2025 business update from Hiroshi Igarashi. Shigeki Endo will then present FY 2025 financial update, followed by explanation of strategic update from Hiroshi Igarashi. We will invite you to ask questions after the presentations. Mr. Igarashi, please go ahead.

Good evening, everyone, and thank you for joining our fiscal 2025 earnings call tonight. The group's organic growth rate for fiscal 2025 slightly exceeded the guidance we announced in November last year, while our operating margins for both the Japan and international businesses outperformed the guidance, which was revised up in November.

Japan achieved organic growth rate of 6.2%, while at the same time, registering highest ever net revenue and operating profit. Despite our international business recording negative growth, we are seeing improved profitability due to the initiatives we outlined in our mid-term management plan, which we announced in February last year. As for international business, we revised the assumption for impairment test and consequently recorded an additional goodwill impairment loss of JPY 310.1 billion in the fourth quarter of fiscal 2025.

Following this accounting treatment, the balance sheet of goodwill on our consolidated balance sheet decreased approximately JPY 320.1 billion, which is less than half of the level registered at the end of fiscal 2024. Furthermore, we reached the decision not to pay a year-end dividend for fiscal 2025, which we previously communicated has been undetermined. The reason being the significant negative distributable amount on the balance sheet of the nonconsolidated financial statements for Dentsu Group Inc., which resulted from a loss on valuation of shares in affiliate companies, et cetera, which in turn resulted from the impairment of goodwill. Furthermore, we regret to announce that no dividend is forecasted for fiscal 2026 based on similar reason.

As for fiscal 2026, we are expecting the Japan business to continue its steady growth with an organic growth rate of 2% to 3%. For the international business, we are expecting CXM in the United States to return to growth, which was -- which has been recording negative growth since fiscal 2023. We will continue to work towards restoring our competitiveness and improving profitability. Additionally, we have filed a shelf registration for the issuance of bond-type class shares today in order to secure flexibility options for strengthening our financial position in preparation for future growth investments.

Now on recent highlights. Globally, our AI-driven advertising strategy was highly appreciated by Siemens and will result in our relationship being updated and expanded in more than 150 countries. In Japan, we were selected by Samsung Electronics Japan as its partner agency based on our comprehensive capabilities that include both our abilities to make annual proposals and to form teams for strong execution.

In the Americas, we were able to expand our relationship into the media domain with a major retailer, BJ's Wholesale Club, building upon the trust we have established in the CXM domain. Also in Italy, currently hosting the Winter Olympic Games, we won Esselunga, one of the country's leading food retail brands as well as Fastweb following our success in the Vodafone Group in EMEA and the U.K. we announced in the third quarter.

As for industry awards and recognition, Dentsu Creative New York won the Grand Prix Prize at The Drum Awards. Furthermore, Dentsu Taiwan demonstrated its overwhelming competitiveness in the region by winning some 200 awards across various areas. Our CXM division was recognized as a leader in Gartner's Magic Quadrant for Digital Experience services for the second consecutive year, reflecting the consistent strength of our technology and value we provide.

In addition, Dentsu Sports & Entertainment launched its operations in the Indian market, making an important step towards expanding our presence across Asia.

I'll now pass the microphone to our CFO, Shigeki Endo, to update you on our financial results.

This is Shigeki. Let me take you through the financial results for fiscal 2025. I will start with key metrics. The full year organic growth rate was 0.5%, slightly above our guidance of broadly flat announced on November 14. This was due to the strong performance of our Japan business, which widely exceeded expectations. Results in the Americas and APAC were generally in line, while EMEA was slightly below expectations.

The organic growth rate for the 3 months of the fourth quarter was 0.9%, maintaining positive growth following the third quarter. Consolidated full year net revenue increased 0.3% year-on-year to circa JPY 1.2 trillion, but underlying operating profit decreased 2.1% year-on-year to JPY 172.5 billion due to internal investments to restore our competitiveness as we explained last February.

As a result, the full year operating margin was 14.4%. It fell 40 basis points below the previous year, but exceeded the 13% range guidance upgraded in November. This was due to the strong performance of the Japan business in the fourth quarter and cost controls in the Americas as well as scrutiny of internal investments. Moreover, regrettably, following on from the second quarter, we recorded an additional goodwill impairment loss of JPY 310.1 billion in the Americas and EMEA in the fourth quarter.

As a result of the recording of goodwill impairment loss of JPY 396.1 billion for the full year on a statutory basis, we recorded an operating loss of JPY 289.2 billion and net loss of JPY 327.6 billion. The impairment was recorded with new assumption for impairment test, reflecting a revision to the level currently assumed to preclude further impairment losses. I will touch on this later at the end of my presentation.

Now let me explain our full year performance by region. Japan business, which accounts for 42% of the group's net revenue, performed well throughout the year, achieving a high full year organic growth rate of 6.2%. Meanwhile, our international business saw negative growth rates in all regions. By market, the United States, the United Kingdom, Australia and China recorded negative growth, while Spain, Poland, India, Thailand and Taiwan saw positive organic growth.

Next, detailed explanation of each region. In Japan, the full year organic growth rate was 6.2%, widely exceeding our expectations in November. Both net revenue and underlying operating profit reached record highs. As of November, we had anticipated a slight top line decline in the 3 months of the fourth quarter due to the high growth rate in the previous corresponding period. However, Japan recorded mid-single-digit positive growth with the marketing business exceeding expectations, driven by television, Internet media and marketing promotions and one-off content-related revenues.

For the full year, Internet Media, in particular, performed well throughout the period. Due to business expansion with existing clients and revenue recognition from new clients won through pitches, Internet has seen double-digit growth in turnover for 8 consecutive quarters. BX also achieved double-digit growth with DX also performing well.

In Japan, staff costs increased as we continue to implement talent expansion for future growth. But the increase in net revenue more than offset this, resulting in a full year operating margin of 24.4%, the same level as the previous year. I will come back on the guidance later, but we expect continued steady growth in Japan in fiscal 2026 with an organic growth rate of 2% to 3%.

In the Americas, which accounts for 26% of the group's net revenue, the full year organic growth rate was negative 3%, in line with our November expectations. By business domain, CXM, which has been struggling, continued its sequential growth throughout the year and is indicating signs of bottoming out. We believe that this was driven by more precise analysis and evaluation under the new management structure, which strengthened the pipeline and led to wins of multiple new clients.

Meanwhile, Creative saw a top line decline due to reduced client spending and losses during the year. Media continued to remain stable for the year. Furthermore, the full year operating margin was 22.9% 40 basis points higher than the previous year. While making internal investments, the Americas reduced its SG&A expense by approximately 3% on a constant currency basis through cost controlling efforts and maintained its operating margin level despite top line decline.

In the Americas, we expect an organic growth rate of circa negative 2% in fiscal 2026 because of the anticipated top line decline in creative due to factors such as client losses that occurred in fiscal 2025, as mentioned earlier. However, CXM anticipates a return to positive growth.

EMEA's full year organic growth was negative 1.8% slightly below our November expectations. This was due to delays in projects and change in scope for several clients in CXM. Our business domain for the full fiscal year, both CXM and Creative recorded high single-digit negative growth. It will take some time for CXM in EMEA to recover, whereas as mentioned earlier, CXM in the Americas is indicating signs of bottoming out.

Meanwhile, Media, which accounts for more than 60% of EMEA's net revenue remained stable. During the 3 months of the fourth quarter, the United Kingdom continued to face challenges in CXM, but Spain achieved positive growth in all of the domains. The full year operating margin was 12.4%. Despite efforts to control SG&A expenses in response to top line decline, the operating margin was slightly lower than the previous period due to factors, including internal investments. We expect an organic growth rate of circa 1% for fiscal year 2026.

APAC full year result was in line with our November expectations. However, the organic growth rate remained negative 6.8%. By business domain for the full fiscal year, Media remained stable, while CXM and Creative continued to face challenges, registering double-digit negative growth. However, the 3 months of the fourth quarter saw a slight turn to positive growth, the first since the fourth quarter of 2022.

In China, media, which accounts for a high proportion of the total net revenue is turning to positive growth for the full year with increased win rate. We'll continue to strive for improved performance. The full year operating margin was 2.5%, an improvement from the previous fiscal year, but still at a low level. However, we have implemented thorough cost control and SG&A expenses, including internal investments, decreased by approximately 8% year-on-year on a constant currency basis. This enabled underlying operating profit to increase despite the lower top line. For fiscal 2026, we are expecting organic growth rate of circa 1%.

Next, I will explain about the changes in underlying operating profit from the previous corresponding period. Full year underlying operating profit decreased by JPY 3.7 billion year-on-year from JPY 176.2 billion to JPY 172.5 billion. The group net revenue increased by JPY 3.3 billion from the previous fiscal year as the JPY 28.8 billion increase in Japan offset the JPY 24.8 billion decrease on a constant current basis in the 3 international regions.

Staff costs increased by JPY 2.6 billion from the previous fiscal year across the group. Although the 3 international regions realized a total reduction of JPY 13.5 billion, primarily in the Americas and APAC, Japan registered an increase of JPY 13.8 billion, mainly due to talent expansion and the additional bonus payments in the fourth quarter. Similarly, operating expenses increased by JPY 3.6 billion from the previous fiscal year across the group. This was due to Japan recording an increase of JPY 9.1 billion due to factors such as the rebounding effect of the gains booked on foreign exchange hedge in the fourth quarter last fiscal year, which was partially offset by the decrease of JPY 6.3 billion realized by the 3 international regions.

I'd now like to move on to our guidance for fiscal 2026. The organic growth rate is expected to be in the range of 0% to 1%. Japan business is expected to remain steady with positive growth of 2% to 3%, while the international business, which has recorded negative growth for consecutive years, is aiming to be broadly flat. In the Americas, despite the expectation of CXM returning to positive growth, organic growth rate is assumed at circa negative 2% due to factors such as client losses in Creative last year.

EMEA and APAC are both expected to achieve organic growth of circa 1%. Meanwhile, operating margin is expected to be in the 13% range, slightly lower than the level from the previous year. This is due to overall costs being higher than last year, driven by internal investments and the impact of inflation. However, some of these increases will be offset by the benefits gained from the initiatives to rebuild the foundation of our international business.

On a statutory basis, the group is expected to return to profitability in fiscal 2026, forecasting operating profit of JPY 152.6 billion and net profit of JPY 69.7 billion despite the continued recording of one-off expenses for rebuilding the business foundation during the fiscal year.

Now please allow me to explain in some detail about the goodwill impairment loss. First, I deeply apologize as management for having continuously recorded impairment losses on goodwill. To reiterate, the fiscal 2025 organic growth rate was slightly higher than our expectation and the operating margin exceeded expectations.

Americas CXM business, which had triggered the impairment, is gradually indicating signs of recovery and the medium-term outlook for international business has not deteriorated rapidly. However, we have reviewed the assumption for impairment test, as shown on the lower part of the slide in consultation with our auditors.

As a result, apologies for the figures -- apologies that the figures are presented on the next slide and a goodwill impairment loss of JPY 310.1 billion was recorded in the fourth quarter. Combined with the second quarter, the total impairment loss on goodwill recorded for the full year amounted to JPY 396.1 billion. The group's total goodwill balance now stands at JPY 320.1 billion, representing a decrease of more than half from circa JPY 700 billion at the end of fiscal 2024.

The assumption for this impairment test reflects a revision to the level currently assumed to preclude any additional goodwill impairment losses going forward and is entirely separate from the fiscal 2026 guidance explained earlier. For example, in the Americas, the full year 2026 organic growth rate in our guidance is circa negative 2%, while the impairment test projects negative 8.2%. This reflects a significantly more challenging view, especially considering that the Americas organic growth rate in fiscal 2025 was negative 3%. This severe view is based on 4 points.

First, the impairment test assumption excluded all projects with identified potential order losses and adopted a significantly more conservative order outlook than the normal budget. Second, margins were also conservatively assumed. While the fiscal 2025 actual margin in the Americas was circa 23%, the impairment test assumed circa 17% for fiscal 2026. And excluded any future benefits from the ongoing rebuilding the business foundation initiatives, which are already showing results.

Third, unlike the impairment recorded in the fourth quarter of fiscal 2024, we applied an extremely conservative assumption for the first year, which has the greatest impact on the impairment test. Finally, we also lowered the medium- to long-term growth rate for fiscal 2028 and onwards for the impairment test from circa 3% at the second quarter to circa 1%.

Next is about the dividends. As was the case in the second quarter, goodwill impairment led to a loss on valuation of shares in subsidiaries and affiliates on a nonconsolidated basis and this caused distributable profit to become negative by JPY 234.3 billion, which serves as the source of dividends under the Companies Act. For this reason, we regret to announce that we have resolved to pay no year-end dividend for fiscal 2025 and are forecasting to pay no dividend for fiscal 2026.

In response to this, we will endeavor to enhance EPS and maximize TSR by focusing on key areas where we are already making progress in achieving results and by thoroughly executing the initiatives to rebuild the business foundation and to reevaluate underperforming businesses. Additionally, we will make every effort possible to resume paying dividends in the future, including further acceleration of nonoperating asset sales.

Furthermore, we have filed a shelf registration for the issuance of bond-type class shares that do not result in dilution of common stock, subject to approval of the partial amendment to the articles of incorporation at the Ordinary General Meeting of Shareholders in order to secure options in advance for enhancing the financial foundation in preparation for future growth investment.

That is all from me. I would like to hand back to Igarashi san for the strategic update.

Thank you, Shigeki. As explained, we have revised the assumption for impairment test at this time to the level where no further impairment losses on goodwill are expected. We deeply regret to announce that no dividend payments will be made for fiscal 2025 nor forecast for 2026. We remain fully committed to enhancing shareholder value by executing the strategies outlined in our midterm management plan, improving profitability and working toward the resumption of dividend payments in the future.

Now I'd like to explain our strategic updates. As stated in our midterm management plan, the most urgent challenge for our group in returning to growth is restoring profitability in our underperforming international business. Our basic strategy is to improve profitability by reevaluating underperforming business and rebuilding our business foundation while restoring our competitiveness through internal investments and a focused business strategy.

First, on reevaluating our underperforming businesses, recognizing that markets with significant invested capital and consecutive net losses were the main causes of deterioration in our group's performance, we accelerated the reevaluation of these underperforming businesses and executed initiatives. In the last fiscal year, both China and Australia, which have been loss-making since fiscal 2023, returned to profit on an underlying operating profit basis. This turnaround was achieved through rigorous cost efficiency initiatives, including front office optimization and compensation revisions. Although both markets showed negative organic growth for the last fiscal year, China's organic growth turned positive in the third and fourth quarters, contributing to the improvement in profitability.

We will continue to review each market based on recent performance and steadily advance towards our goal to achieve no loss-making markets this fiscal year. In addition, for certain underperforming businesses, we have already begun process for downsizing, withdrawal or divestment. We will make an announcement as soon as possible for this fiscal year and beyond.

Next, let me address the rebuilding of the business foundation. In fiscal 2025, we utilized JPY 20 billion as one-off expense and realized cost saving effect of JPY 14 billion. This includes a portion of the savings generated through workforce reductions involving 2,100 employees as part of the broader headcount reduction plan of 3,400 employees announced last August. In addition, we continued initiatives for standardization and sophistication of operations through business transformation driven by AI and automation. As part of this rebuilding of the business foundation, we have established approximately 750 internal initiatives, more than 80% of which are either already completed or currently in progress.

The remaining headcount reductions will be implemented in fiscal 2026, adding JPY 28 billion in additional savings and bringing the total cost savings impact to JPY 42 billion. We expect the one-off expenses for this fiscal year to be JPY 26 billion. Our rebuilding the business foundation initiative also includes organizational restructuring such as continuing to integrate and reduce group companies.

The number of international entities has been reduced by more than half as of January 2026 compared to January 2021 when we operated over 1,000 entities. This initiative will continue through this fiscal year. By integrating and simplifying headquarter functions, we will reduce costs further while progressing towards creating an organization that can deliver value to clients more quickly.

Through the rebuilding of our business foundation, we now expect to achieve cost savings of approximately JPY 50 billion in annual operating costs in 2027 as announced in the midterm management plan. The cumulative efforts, including these initiatives of reevaluating underperforming businesses and rebuilding the business foundation have delivered results, enabling our international business to return to positive operating cash flow in fiscal 2025.

Next, I would like to talk about our business strategy to restore our competitiveness. In the midterm management plan disclosed in February 2025, our group sets a policy of achieving global growth by becoming a growth partner for clients in every market. Building on this approach, our aim is to maximize the value we deliver to clients by sharpening our strategic focus across markets, clients and capabilities.

I will now outline our progress in the United States, which we position as a focus market. As Shigeki explained, we expect negative organic growth for the Americas due to revenue declines in the creative domain. However, we are seeing 4 clear areas of growth momentum in the United States. First, we are advancing our transformation partner model through strong relationships with global clients.

With Adobe, we established a global production and operating model through Dentsu Creative, enabling large-scale marketing support across multiple regions, including North America. And in the second half of last year, the partnership further expanded through Merkle into strategic transformation. Second, we are driving integrated growth with U.S. rooted local clients through the combined strength of media and CXM. With clients such as Principal Financial Group and i-Health, we are deepening relationships at the C-suite level while delivering unified media and CXM solutions, leading to a broader cross-practice expansion.

Third, we are implementing and advancing an AI-powered content supply chain. Our capabilities to enhance creative production and automate content creation, activation and optimization through AI is being deployed to clients such as in the hospitality industry. Finally, in CXM, we are strengthening modern CRM using customer data as a core engine, connecting marketing execution with business operations. We are expanding initiatives that drive direct business impact by integrating loyalty and owned media capabilities into a data-driven operating model.

We have extensive expertise in the quick service restaurant sector with recent examples, including Dairy Queen and Domino's. These momentums are also supporting the recovery of our CXM business, which accounts for some 35% of the U.S. net revenue. Despite continuing significant negative growth since fiscal 2023, the CXM business is expected to return to growth starting fiscal 2026. We believe this turnaround reflects the new leadership team's strong commitment and their continuous initiatives in improving performance as demonstrated by the increased win rates, reduced customer churn and stronger roster.

In terms of capabilities, our CRM domain is driving growth, which among CXM has a strong affinity with media. We will continue to reinforce this area. In addition, we are seeing stronger client demand for new ways of utilizing AI, such as Agentic AI. We expect to generate revenue by combining our strength in commerce, analytics and data engineering within our CXM business.

Regarding our international business, we are continuing to execute a strategy that positions media at the core of our growth. Media is an important business for us as it represents more than half of our net revenue in the international business, and it has delivered positive organic growth for 2 consecutive years. In fiscal 2025, media registered a steady performance by maintaining positive growth, not only as the international business, but also in each of the regions.

Net wins for new media projects -- new media project also remained positive in both half of fiscal 2025, and we expect to maintain this momentum into the new fiscal year. Internal investments introduced under the current midterm management plan to strengthen core capabilities are also making a progress with a focus on further advancing our media-centered growth strategy.

In fiscal 2025, we invested JPY 8 billion in developing data and technology-driven tools such as dentsu.Connect and in accelerating AI implementation. In fiscal 2026, we are planning to utilize up to JPY 14 billion in investing in the data and technology domain with the emphasis on strengthening our media business as we did last year.

I would now like to share my concluding thoughts. In fiscal 2026, we will continue to realize a steady growth in our Japan business and achieve a turnaround in the U.S. CXM business so as to further restore our competitiveness and profitability. Given the extremely low likelihood of having to recognize further impairment losses on goodwill, we are confident that statutory profit will return to positive in fiscal 2026. However, considering the current performance and the changes in the business environment, we are withdrawing and will reset in due course some of the key financial targets for fiscal 2027 we disclosed in the midterm management plan.

Having said that, we are still targeting operating margin of 16% in fiscal 2027 based on the expected continued realization of outcomes from profitability improvement initiatives going forward. We are planning to announce early this fiscal year our strategy for accelerating the transformation we set out in our midterm management plan. In addition, we are still exploring potential partnerships to enhance our competitiveness, and we will make announcements without a delay should any situation arise that require disclosure.

Finally, we filed a shelf registration for the issuance of bond-type class shares today in order to secure flexibility options for strengthening our financial foundation in preparation for future growth investments.

And finally, as announced today, we have decided to move to a new management structure to further accelerate our transformation. At our group, the Nominating Committee has been carefully reviewing potential candidates for the next CEO based on our succession plan. Amongst those candidates, Mr. Sano was determined to be most qualified to lead the group going forward during this transitionary period based on his strong track record in improving the performance of the Japan business as well as the efforts that he has been making in business transformation and in maximizing corporate value at a global scale.

And so I would like to invite Mr. Sano to say a few words.

I'm Sano. Nice to meet you all. With this management structure, I will drive active discussions and mutual collaboration among the executive team so as to accelerate the execution of our strategies. I look forward to receiving your support. And I will certainly contribute to enhancing corporate value. Look forward to receiving your support. Thank you.

And thank you for your attention. I'll now hand back the microphone to the operator.

[Operator Instructions] The first question is Abe san from Daiwa Securities.

I am Abe from Daiwa Securities. I have 2 questions. My first question is regarding the impairment. So the equity ratio is down as a result of that. And as you said, you are filing shelf registration for the issuance of bond-type class shares. And I would like to ask about how you see the equity level. Do you think that you need further capital infusion from outside? Or do you -- are you simply preparing for further worsening of the financials? So I would like to ask your outlook regarding that.

And then next is the business outlook. So outside of the North America, you are forecasting an increase in net revenue. Do you think that this is a conservative figure? How certain are you regarding the growth next fiscal year?

Thank you very much, Mr. Abe. Regarding the first question, regarding the shareholder equity ratio from the impact of the impairment and what kind of options we are considering if there is further worsening of the shareholder equity. I would like to invite Endo-san, CFO, to respond.

And the second question was that outside of the Americas, each region is expecting an organic growth. And do you think that this is a conservative figure? I will respond to this question.

Thank you. This is Endo. First of all, the consolidated equity is JPY 370 billion after impairment. It is not that we will immediately need equity finance. On the other hand, growth investment and structural reforms will continue. Therefore, in terms of the financing, we will consider every option, including equity finance. And as part of this consideration, in order to strengthen the financial basis for making such an investment without diluting EPS, in order for us to issue bond type cash shares in a more agile manner, we are going to ask for the approval of the AGM for the shelf registration.

And second question, I will respond to the question. The increase in net revenue outside of the North America, is this a conservative outlook? And the response is, yes. We have -- for each market and for each region, been considering the budget formulation. Of course, we look at both risk and opportunity in detail. And we have incorporated the risks in our calculation for our budget. And we have issued the guidance as a result of that reflection. Therefore, we believe that this is an achievable budget.

The next question will be from Mr. Maeda from SMBC Nikko Securities.

This is Maeda from SMBC Nikko Securities. So to begin with, the thinking behind the impairment on this occasion. From our perspective, we feel that it is better to take the impairment as quickly as possible. That is the kind of the position we have spoken previously. But on this occasion, you have embedded an impairment loss that would lead to 2 consecutive years of nondividend payment. But if you look at the recent performance, one may think that you may not have been required to take the impairment. So I thought that there could be a significant message or a significant intent behind it.

So you didn't want to keep any negative legacy under the new management structure or did you want to kind of draw a line here to make significant improvement in international business versus that diminish? In order for you to engage in business structure reform, if you had goodwill still, then there was potential risk of having to take impairment in future. So did you actually dealt with that in advance? I think this was quite a bold recognition of goodwill on this occasion -- impairment on this occasion. So I wanted to understand the intent behind this. That's the first question.

And for second question, in regards to the international business, based on your explanation thus far, it seems that you can aim towards recovery on your own and the success example from Japan can be implemented for international business that could potentially lead to different results. But the structural reform for the international business and towards the new management structure, what are the views? And if possible, I would like to hear a comment from Mr. Sano in this regard as well.

Thank you, Mr. Maeda, for your question. First, in regards to our thinking behind the impairment, we should take the impairment as quickly as possible. And what was the situation on this occasion? It seems that we have recognized quite a significant impairment. Is there a significant message behind this? Have you kind of embedded the risk of the impairment in the future? So well, I would like to ask CFO, Mr. Sano, to respond and I will follow with my comments after him as well.

And the second question is in regards to the international business. It seems that we can achieve recovery by ourselves. So inclusive of the structural reform, you wanted to hear a comment from Mr. Sano, who will be leading the company going forward. So I'll ask Mr. Sano to respond to the second question.

So this is Sano is speaking. Thank you, Mr. Maeda, for your question. So in regards to the impairment, please allow me to give some detailed explanation. So in the fourth quarter of FY 2025, we registered the goodwill impairment of JPY 310.1 billion and this comprised JPY 230.8 billion in the Americas and JPY 79.3 billion in EMEA last year in FY '25 in the second quarter. If we put the 2 together, we've recognized JPY 396.1 billion of the impairment loss for the full year. And if we break that down, Americas accounted for JPY 299.7 billion, EMEA, JPY 96.4 billion. And as a reference, the full year 2025, the total impairment amount was JPY 402.6 billion.

And so apart from these that I have described, there were some impairment of intangible assets as well, which make up that number. And so the thinking behind this and our performance for FY '25, as we have explained, we were able to achieve a positive growth slightly above our expectations and our margin exceeded our expectations. And to say more, the Americas CXM, which triggered the impairment, is now steadily showing the recovery signs. And so it was not the case that we saw a rapid deterioration in the international business. But the assumption for the impairment test and we consulted with the accounting auditor and we have decided to revise the assumption.

And the business assumption for the impairment test was such that no additional impairment loss would be recognized in the future. And so we actually lowered the level to such a level. And for FY 2026 we have a guidance, but this is completely separate from the impairment issue. So from our perspective, and I'm kind of repeating myself, but impairment of goodwill; we don't want to recognize any further impairment of goodwill in the future so we revised the numbers to those level. And the guidance for FY '26, which is to achieve profitability, and we have been deeply focused on that and so that was the basis upon which, we recognized the impairment in FY '25.

And this is Igarashi speaking. It's exactly as Mr. Sano has explained. But from our perspective as a management, we have essentially caused negative surprise to yourselves and this is something that we regret significantly, the significant impairment loss on the goodwill on this occasion. And this came with the thinking that we do not -- no longer want to cause a negative surprise in the future. And so we took that in mind and discussed with the accounting auditor and made assumptions at that table.

It's really based on reflecting all of the risk factors. But as Mr. Maeda has indicated, together with the reform of international business going forward, would there be a potential risk in the future? Well, rather than assuming that for now, we have reflected all of the risk to the maximum level possible so that we no longer will have to come up with negative surprise in the future and we wanted to engage in the reform on that basis and that is the message I would like for you to take. So I would like to ask Mr. Sano to make comment in regards to the international business.

This is Sano speaking. Mr. Maeda, thank you for your question. Yes, as you have indicated, at a certain likelihood that we do expect to be able to achieve that growth. Market, as you know, has undergone quite significant changes. Many changes are taking place due to AI or in international markets, we are seeing mergers of mega agencies. So many things are happening right now. So in the era of many changes, as many people say, it's also an opportunity. And from 2025, we've already started to achieve certain results in regards to rebuilding of our business foundation. And as I explained already, we have achieved the outcome, but we need to accelerate that even further.

And so for that, revisiting the entities, improve transparency and to make the management structure more simple and they would enable a greater acceleration. The other is in regards to growth. So as you have indicated, many knowledge that we can utilize from Japan and for each of the markets not being completely uniform, but the markets have various strength or there are the client structures or the client -- the nature. So we need to identify how to win in each of the market and we feel that we can certainly do this. This completes my response.

Next question is Mr. Kishimoto of Mizuho Securities.

This is Kishimoto from Mizuho Securities. I also have 2 questions. My first question, For FY '26, I'd like to ask about the pitch size or pitch scale. What is the amount of pitch that you are seeing for this fiscal year and what is the ratio of offense and defense amongst the pitches? Next is the outlook for the Japan business. I believe that you have a really good pitch win rate. On the other hand, the organic growth rate is only expected to be 2% to 3%. Perhaps you are being conservative or last year there were some special market factors around TV. So perhaps last year was very strong and maybe as a rebound, the growth rate in FY '26 looks softer. Those are my 2 questions.

Thank you very much, Mr. Kishimoto for your question. FY '26, I think your first question was more about the international business, the size of the pitches in the FY '26. So I would like to respond to that question. And regarding your second question regarding Japan business, FY '26 organic growth rate, 2% to 3%. Is this conservative or not? Is there any special factor behind that? I believe that this was your second question.

So let me respond to your first question. FY '26 pitch size for Media pipeline, JPY 4.2 billion is the current size. Out of this pipeline, 80% is offensive. So 80% is offense and this pipeline is what we want to realize and also we would like to be winning new opportunities as well by approaching customers. And for Creative, there are some pitches that will be happening, but there is a lot of competitive pressure. Currently, GBP 701 million is the size and 73% is offense.

For CXM, the pipeline is different from the other domains, but the pipeline is actually growing for CXM and 14% growth year-on-year, about [ 106 million. ] CXM, we have been doing very detailed analysis since last year so the pitch win rate is very good for CXM. On the other hand, client retention is also very high. So with that considered, we believe that the recovery trend will strengthen. Regarding the second question, I'd like to ask Sano-san to respond.

Thank you, Mr. Kishimoto, for your question. To give you the conclusion first. Yes, slightly conservative outlook I would say. One is that 2025, 6.2% growth rate, which is a high growth rate and so there is some rebound from that. And also last year there was the World Expo and the World of FedEx and so there were some large-scale events in FY '25. On the other hand, looking at the very strong share price and -- the stock market and the new administration from the election, the market environment is not bad at all. And there is the WBC, FIFA World Cup, the current Olympics and there are many large-scale events as well as the Asian Games. And so we have a good win rate and the Internet business, which is a growing business, we are growing ahead of our competitors. So against the guidance, we would like to outperform.

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

This is Nagao from BofA Securities. My question is in regards to the balance sheet on a nonconsolidated basis. So I understand that the retained earnings is negative right now so we have the loss on retained earnings, but you have cash and you have the reserve capital. So the net asset overall is still positive. But in order to secure a buffer to enhance your capital so the capital policy on this occasion is essentially issuing a bond on this occasion. Is that the right understanding? So I wanted to ask and receive explanation about your capital policy going forward. So that's the first question.

The second question is in regards to the North American business. CXM business apparently has started to improve and the Media business has recorded 2 consecutive years of positive and I understand that you want to also add values in the D&T area. So it seems that the forecast is not that pessimistic. Well, going forward when you look at the organic growth for the U.S. going forward, what are some of the concerns? If you could elucidate on that, please? And is it 2 questions per person?

And the third question is the midterm management plan and you said that the operating margin target of 16% will be maintained. But you did take the impairment loss on the goodwill, but the ability to generate operating cash flow, I feel that, that has not been damaged. And so I think the operating cash flow target was JPY 140 billion. So do you have concerns about your ability to generate cash to that extent? It does relate to the first question on the balance sheet ability to generate cash flow. I don't feel that, that has been damaged. So could you give some comment on that, please? So those are the 3 questions.

Thank you very much, Mr. Nagao for your question. For the first and the third question, Mr. Endo will respond to those together. This is the balance sheet regarding the unconsolidated basis and so the retained earnings or the net asset position, it seems that we still have room. So was that to secure a buffer on the capital policy that we are considering the issuance of class shares. So you wanted opinions about the capital policy and also in regards to ability to generate cash. So Mr. Endo will respond to that together. And the second question in regards to the North American business, it seems that it is starting to show steadiness. Is there are any concerns? And for that question, we'll ask Mr. Giulio Malegori to respond.

So this is Endo. Thank you very much, Mr. Nagao, for your question. So the balance sheet on a nonconsolidated basis. Well, the consolidated, the impairment loss that we have taken on this occasion, the distributable amount which is the source of dividend, ended up being negative JPY 234.3 billion. And with that and so whether it be the equity ratio or other financial, the indicators are impacted due to the impairment. And so we want to be able to issue class shares by changing our Articles of Incorporation. But this is more from the perspective of preparing for future big investment and we want to also strengthen the financial position to have greater I suppose flexibility in able to engage in various initiatives. So that's the first point.

And the third question is the operating margin of 16% in the midterm management plan. This has been maintained. Well, as for cash, are there any concerns or not? I think that was the gist of your question. Well, in FY '25 and based on the track record, cash flow overseas, this is operating cash flow; this has been negative for several years, but this turned positive in FY '25. So in that regard, it's not the case that we have concerns about the cash. That is our view right now. But over medium to long-term growth going forward, we need to make investments. And so here under the new structure, we wanted to revisit the situation. And so in regards to the financial, the indicator of 16%, we have decided to maintain.

So Giulio, please respond to the question.

Thank you, Nagao-san, for the question on the outlook of North America and any concern specific to that. Well, as you heard, we are looking for organic growth minus 2% for the full year. Let me elaborate quickly and briefly on each practice and then will comment specifically on the concern. When we look at Media, the solid momentum should continue. We anticipate more demand in performance-oriented and data-driven channels. And so we will accelerate our investment in the Media ++ strategy and we also embed AI-enabled workforce with stronger data integration across planning, activation and analytics.

In CXM, I think you already heard about the progress and we intend to further accelerate the content supply chain and modern CRM. So to your specific point on the concern, this is really focused on the creative practice where we anticipate is an area that will face challenge. As Mr. Endo quoted, we've unfortunately seen significant client losses during '25 and they are impacting '26. There will be also -- we are anticipating some client spend reduction that we got in '25. So we hope to stabilize the business throughout services that combine Creative and Media production and social, but we need to factor in the impact of the losses that we got last year. So that's the outlook. It's just factor in the impact of last year, but we have a clear plan going forward. Thank you for your question.

We have passed the planned time, but we do have 1 more hand remaining. So I'd like to ask Mr. Harahata of Nomura Securities. This will be the last question.

This is Harahata from Nomura Securities. Sorry for going over time. I also have 2 questions, if I may. First question is regarding Gen AI and how that will impact the competitive environment for advertising agencies. For overseas ad agencies, there seems to be a headwind regarding the share price. How do you plan to differentiate yourself in the new Gen AI era? And my second question is to the next President, Sano. As a member of the new management, amongst the challenges that were discussed today, which challenge do you think is the most urgent that you need to address first? So I'd like to ask about your priorities. Also, as the new management member, why do you think that the new management will be better positioned to address these challenges? What has been strengthened through the change in management? That is my question to Mr. Sano.

Regarding your first question regarding GenAI and the impact on the competitive environment, how agencies will be impacted by GenAI and how Dentsu plans to formulate its strategy against this backdrop. So I would like to address this question. And the second question was addressed to Mr. Sano regarding the new management. What will be the priorities and how the new management structure will allow you to better address those challenges?

So in terms of the first question. Indeed, as Mr. Sano also mentioned earlier, our industry -- but not just our industry, AI is making waves across the different industries and we ourselves cannot think about our future business without use of AI either. In terms of rebuilding the business foundation, I mentioned that there are 750 initiatives and these are not just cost-cut measures, but standardization and automation are major themes. So in order to make the operation more efficient, being less labor dependent, using AI for higher efficiency. This is also necessary for building the business foundation.

And also we'd like to look at the upside for our business opportunities. This year AI for growth is a major objective. How by leveraging AI we can achieve higher growth? This is a group-wide initiative. And data and technology, dentsu.Connect is the center of our data and technology and so we would like to centralize the AI-related expertise here. There are over 700 clients that have already introduced dentsu.Connect and also many agencies are investing in this area. But for the clients rather than being locked into a closed platform of agencies, which many clients are concerned about, we focus on interoperability which is connected and open to other platformers and the clients themselves so that AI can be adapted and customized or improved to match the needs of the clients.

So I believe that the clients will understand this and work with us together to resolve their challenges. And so this is different from other agencies and is unique to Dentsu. And this is something that is now being understood amongst the clients and I believe that we can deliver results based on this policy. So Mr. Sano, please address the second question.

Thank you very much for your question, Harahata-san. There is so much that I'd like to say, but I'd like to keep it simple. First is the rebuilding of the business foundation, transparency, simplification, visualization to look at underperforming businesses to choose whether to exit or shrink or to improve the profitability. We need to execute with speed. That is the most important thing. And as the organization, there is going to be a Chief Transformation Officer, which is the first position to be in Dentsu, and to rebuild the business foundation and reevaluate the underperforming business. This is the executive management who will be in charge of that.

And second is regarding growth. Our growth is to identify the issues of the client ahead of the client and to help the client resolve those issues. This is how Japanese business grew and we have to expand this globally. And as an organization, we need to be more flat meaning that each head of the region reports directly to me. But also Jean Lin, practice head was in between the reporting to the President. But each Media, CXM, Creative; President will be reporting directly to me. So we will remove that layer so that we can identify the issues of the client and enhance our competitiveness in a more swift manner. So these 2 are what we would like to prioritize.

But there's one more thing I'd like to mention. There is a Chief Branding Officer. So there were some weakening of our brand last year with some speculative articles. So for the customers to understand the brand, the Dentsu brand and the Media brand, et cetera, in order to enhance our brand power; Jean Lin will be the Chief Brand Officer. So that is another initiative that I want to mention.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Welcome to Dentsu FY 2025 Third Quarter Earnings Call, and thank you for joining us today. My name is Morishima. I'm from the Group IR 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. Global CEO Dentsu, Hiroshi Igarashi.

[Foreign Language].

Global COO Dentsu and Chairman and Acting CEO Dentsu Americas, Giulio Malegori.

Hi, everybody. It's Giulio here. Hi.

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

[Foreign Language].

And Global CFO Dentsu, Shigeki Endo.

[Foreign Language].

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 a financial update from Shigeki Endo. We will invite you to ask questions after the presentation.

Mr. Igarashi, please start your presentation.

Thank you very much for joining the third quarter FY 2025 earnings call today. Let me start with the 9-month summary and outlook. The 9 months 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 9 months results and the outlook for the fourth quarter, we are upgrading our full year profit guidance. As for the year-end dividend forecast, which is currently undetermined, we will announce that 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 midterm 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 3-year media count for Vodafone across EMEA. And also won a new Vodafone 3 account in the United Kingdom. We also won Carlsberg Britvic 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 the fashion brand, COS, as our new clients.

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-pitch 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 midterm 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 have seen strong traction in major media pitches such as for the 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 U.S., 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 midterm management plan. First, the rebuilding of our business foundation. As of the end of the third quarter, we recorded a cost of approximately JPY 8.6 billion. For the fiscal year, we expect to record approximately JPY 28 billion. While we will continue to book costs from fiscal 2026 onward, 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 JPY 12 billion 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 9 months was 0.3%, which was in line with our guidance disclosed on August 14.

For the 3 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 JPY 851.3 billion, a 0.8% decrease year-on-year. Subsequently, underlying operating profit was JPY 111.0 billion, a 14.1% increase, and the operating margin increased 170 basis points year-on-year to 13.0%.

Operating margin for the 3 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 JPY 7.4 billion and a net loss of JPY 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 9 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 3 months of the third quarter and the first 9 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 9 months, with both net revenue and underlying operating profit reaching record highs. It marked the 10th consecutive quarter of positive growth and the 4th fourth consecutive quarter of growth of 5% or more. The 9.9% organic growth rate in the 3 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 7th 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 full year forecast for the Japan business.

In the Americas, which accounts for 28% of the group's net revenue, organic growth in the first 9 months was negative 3.4%, which was generally in line with our August expectations. By business domain, CXM is relatively stabilizing 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, creative saw reduced client spends and losses, resulting in a low single-digit decline in the first 9 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 9 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 9 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 3 months of the third quarter, the U.K. 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 9 months of the year, despite our efforts in controlling the SG&A expenses.

APAC's 9-month organic growth rate was negative 10.1%, below our August expectations. By business domain, CXM and creative continued to struggle with double-digit negative growth. Meanwhile, media remained stable. In the 3 months of the third quarter, India and Thailand showed solid performances, with Thailand in particular maintaining favorable momentum with a high market share. Meanwhile, Australia continued to face difficulties. Despite continued efforts to control SG&A expenses, APAC recorded underlying operating loss for the 9-month period, as was the case at the end of the first half-year period.

Next, I would like to explain the year-on-year changes in the underlying operating profit. Underlying operating profit for the 9 months increased from JPY 97.2 billion to JPY 111 billion at this fiscal year. Net revenue increased by JPY 22.8 billion in Japan, but decreased by JPY 22.3 billion in international business, excluding currency impact, resulting in a JPY 500 million net revenue increase for the group as a whole. Staff costs increased by JPY 9 billion in Japan, mainly due to talent expansion, but decreased by JPY 12.5 billion in total in the international business, primarily in the Americas and APAC, resulting in a group-wide cost reduction of JPY 2.6 billion for the period.

As for operating expenses, Japan recorded a reduction of JPY 1.8 billion and international business a reduction of JPY 9.3 billion. Consequently, the group as a whole registered a decrease of JPY 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 9-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 full 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 JPY 141.6 billion, to JPY 161.2 billion 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 JPY 3.5 billion, revised up to operating profit of JPY 17.6 billion. And a net loss attributable to owners or parent of JPY 75.4 billion, revised up to a net loss of JPY 52.9 billion.

While these revisions in our guidance primarily reflect improvements in profitability, our international business is still expected to post 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. [Operator Instructions] The first question is from Abe-san of Daiwa Securities. Please state your name and affiliation before asking questions, please.

My name is Abe. I'm from Daiwa Securities. 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. But of the JPY 52 billion cut target, how much will you achieve this fiscal year? And what would be the pace of achieving toward JPY 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.

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 JPY 52 billion 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.

Abe-san, thank you very much for your questions. Yes. 9.9% growth, which was very good this year. 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. 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, Q4 was 8.4%. So 5 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 mid-single-digit growth is something that we can expect -- we hope. Thank you.

Endo speaking. With the midterm management plan announced in February, JPY 50 billion of expenses to be spent on rebuilding management foundation. So investing that amount and 2027 and onward, a JPY 50 billion of cost reduction impact is to be achieved. This year, we're expecting to invest about JPY 28 billion. 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 JPY 50 billion. For the numbers this year, we're still examining them at this moment.

The next question is from Mr. Harahata from the Nomura Securities.

My name is Harahata from Nomura Securities. Also I'd like to ask two questions. The first is in regards to international business. I understand that you are considering various 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? In terms of your customers, what are 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. My question overlaps some of Abe-san'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 next fiscal year for the three years? And were there any changes in terms of internal investment amount? These are my questions. Thank you.

Thank you very much Mr. Mr. Harahata for your question -- two questions. So in terms of the partnership for the international business, was -- for your first question, we are considering various alternatives. 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? 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 have 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 so 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 been working on the various initiatives that 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 that. So 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? This is what we are currently looking into and reviewing right now.

From the clients' 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 to be partners, to be able to continue, that is probably something that the clients don't want to see changed the most. And the enhancement that we are doing for us to achieve growth and then to raise the expected level of the expectation from the client perspective, that's the kind of partnership that we want to realize.

So that's all from me. Endo-san will respond to the second question.

This is Endo speaking. And so as I said earlier, the amount of investment this fiscal year is JPY 28 billion, and majority of that is onetime expenses, retirement allowances related to people. So in this regard, now in the third quarter, we've invested about JPY 8.6 billion, and the remainder will occur in the fourth quarter. And as for the total amount, in the midterm management plan, we have already shared the number, and that's JPY 50 billion. And if we see the breakdown, about 80% will be onetime expenses, retirement allowances. The remaining 20% is essentially improving the efficiency, automation and also standardization of business or 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.

And just a follow up. So there were no -- the execution that has been delayed in comparison to the -- in comparison to the previous 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 onetime retirement allowance in Europe, we still need to get the acknowledgment 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 realize as a target, remains unchanged.

The next questions will come from Tokai Tokyo Intelligence Lab. Yamada-san, please.

Yes, Yamada from Tokai Tokyo. So 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 robust as well. It seems that Dentsu is doing better than your competitors. So internet media is growing 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? That's my first question.

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 this 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 we have recorded and remembered my answer that I gave previously. Thank you. As you mentioned, internet media is a means for clients. The purpose is to improve our marketing ROI. And various medias are combined in our proposals, and we're chosen. As a result, internet media business is outperforming our competition. So as you rightly mentioned, that is the factor behind our success. As I said, business transformation is ongoing, and that is broadening. As a result of that as well, we are performing well.

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. Is Dentsu 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.

The next question is from Barclays, Julian Roch-san, please. Mr. Roch, can you hear us?

Can you hear me?

We can hear you.

Thank you very much for letting me ask questions. Two, if I may. The first one is, if I put together your three regions outside of Japan, your organic in the first 9 months was a decline of 3.8%. How much of that decline was net new business loss versus how much was existing clients 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 very much, Mr. Roch, for your question. I have received two questions. The three regions other than Japan for the 9-month period, we ended up with a minus 3.8% organic growth. So the loss of the existing client? Or are we losing the new client? In terms of pitch I think you're asking about. 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, in regards to us looking at the partnership, what are the partnerships for accelerating growth or what area? I will respond to that question. So I would like to ask Giulio to respond to the first question.

Thank you. Thank you, guys. And thank you, Roch, 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? Well, when we look at the media practice, it's not 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, clearly this is a project-based business, so it's not that much losing, not the 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 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 are especially in the US. So for the creative practice area, probably I would say that 70% of the decline is lost clients. 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 this resulted in a negative. So I hope this answers your question, Roch. Thank you.

So this is Igarashi. 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 is it CXM? 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. 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.

But in regard -- so we are not limiting the partnership consideration to a certain area. We want to achieve a comprehensive growth, and we are looking for partners who will contribute to enabling overall growth. This completes my response.

The next question will come from SMBC Nikko Securities. Maeda-san, please go ahead.

Yes. Maeda from SMBC Nikko Securities. 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? And what is the timeline? Are you looking for a partner by the end of next year, for example?

My second question. The other day, Hakuhodo, their North America consulting business is recovering, they said. And AI transformation type of business is increasing for Hakuhodo. 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 Igarashi myself.

Your second question regarding North American consulting business is becoming active due to AI transformation need according to Hakuhodo. 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. For that, the Chair of Americas, Giulio, 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, in partnerships, there 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 very much, Maeda-san, for the question. In the North America business, you know, the DX offer is part of the offer that we ended, the work that we do at Merkle 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. I would say that there's been -- in the recent wins that Igarashi-san mentioned at the beginning of the call, there's 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, the acceleration that we are looking at in AI is once again referred to the deployment 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++ 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 the 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 Merkle, 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 an increase in the number of leads. We are also looking at reviewing the pipeline. 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, and the scale merit is very much focused upon. Our Media++ strategy is generating good results because it combines media and retail media and others, as we discussed. So in this area of media, we are 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.

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 BofA Securities.

This is Nagao from BofA Securities. I have two questions. First, in terms of internal investment, do you plan to invest JPY 12 billion this year? But AI is causing changes in clients and changing the behavior of consumers more than expected initially. So on that basis, is JPY 12 billion sufficient? And so what will 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 revision as to whether you will sell or not. And the plan that you've changed for this year, so the profit attributable to owner of parent still about minus JPY 40 billion. 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, Nagao-san, 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. So the JPY 12 billion 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 next fiscal year. 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 and 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 a course of direction and 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 JPY 20 billion initially. And so we scrutinize the internal investment for this fiscal year. So the amount has been reduced to JPY 12 billion, 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, 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 platforms, and we've been ahead of others in this area for quite many years, whether it be data, whether it be the area of content creation. We have been working with the various platforms, 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 AI 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 platform providers at the center. 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 a sufficient amount of customization with our clients. And for us to engage in this type of initiatives of others, and that is the unique element of our initiatives with the platform providers.

So that is my response. The second question will be answered by Mr. Endo.

This is Endo. 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 realize that. And we also have the dividend aspect. And also, we need thorough communication with the supply side. We want to engage in such 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 returned earnings from subsidiaries. We are also considering the disposal of some real estate 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 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 a 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 our 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 amounts.

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 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.

Next, Mr. Russell Pointon from Edison Group.

Good morning. I have two questions, if that's okay. 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 improvement through to 2027?

Mr. Russell Pointon, 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 our 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 Endo, 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? 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. The current pipeline, of course, 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 that. As a result, we're having this pretty good mix, as you pointed out. So first and foremost, that 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. I think we're in a pretty good situation in that regard right now.

For Japan, pitch wins 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. That is something that we would like to continue to ensure in the future.

Regarding restructuring, I would like to turn it to Endo-san for an answer.

Endo speaking. The status of restructuring, we announced our midterm 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 JPY 50 billion. And so that is the target. Well, achieving JPY 50 billion is not the goal per se. Our 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. JPY 50 billion, 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 there are to be paid considerably in December onwards. We will be seeing that impact next year.

So at this moment, we are progressing on plan. And of course, we would like to be speedy to work toward the 2027 target. With the target of achieving JPY 50 billion or more, we are taking actions, and we're on plan. That would be all.

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. Please disconnect. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Welcome to Dentsu FY 2025 First Half 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. [Operator Instructions]

Today's presentation materials are available on our website. Joining me today are Global CEO, Dentsu, Hiroshi Igarashi; Global COO, Dentsu, Chairman and Acting COO of Dentsu Americas, Giulio Malegori.

Hi, everybody. It's Giulio Malegori here. Thank you.

CEO, Dentsu Japan and Deputy Global COO, Dentsu, Takeshi Sano. Global CFO, Dentsu, Shigeki Endo. 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. The presentation will end with FY 2025 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 FY 2025 Q2 earnings call. Let me start with the highlights. In the first half of 2025, organic growth rate was negative 0.2%, slightly below our expectations, owing to the challenging conditions that our international business is facing in all 3 regions, although Japan performed well.

Meanwhile, operating margin was 12.0%, 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 to continue, our full year 2025 earnings guidance is revised.

Organic growth rate is revised down from the 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, goodwill impairment loss of JPY 86 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 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 the second quarter 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. And 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 the first half of the year, 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 FY 2027 by reducing annual operating costs by around JPY 50 billion.

We have now identified opportunities to reduce costs by around JPY 52 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 onetime cost of around JPY 50 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 JPY 27 billion. In addition, approximately JPY 6 billion will be recorded as a nonadjustment item, resulting in a total impact of JPY 33 billion on the P&L for this fiscal year. Approximately JPY 2.4 billion in costs have been recorded in the first half of 2025.

At the same time, strategic internal investment for growth is also important. The midterm management plan announced in February explained about the JPY 45 billion in internal investment over 3 years starting from 2025. Our original plan for 2025 was JPY 20 billion, but we are monitoring usage and results every 3 months and narrowing down investment targets to initiatives that can ensure appropriate return.

As a result, we are currently planning to spend approximately JPY 17 billion. We have identified 5 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 the second half of the year, 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 3 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 the first half of FY 2025. I will start with the key metrics. Organic growth for the first half of the year was a negative 0.2%, which was slightly below our February expectations. For the 3 months of the second quarter, it was negative 0.7%. Maintaining the momentum from the first quarter, the Japan business continued to perform strongly, exceeding our expectations for the first half. 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% year-on-year to JPY 562 billion. However, underlying operating profit increased 7.2% year-on-year to JPY 67.5 billion. This was due to the strong performance of Japan, which recorded JPY 9.2 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 12.0%, 100 basis points higher than the same period last year. Meanwhile, on a statutory basis, we posted an operating loss of JPY 36.5 billion and a net loss of JPY 73.6 billion. This was due to the JPY 86 billion of goodwill impairment loss we recognized in the international business in the second quarter. The JPY 86 billion of goodwill impairment loss is made up of JPY 68.9 billion in the Americas and JPY 17.1 billion in EMEA.

There are 3 main factors behind this impairment. Firstly, the impact of downgrading the FY 2025 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 FY 2026 onwards, which was in reflection of the downgrade of the FY 2025 guidance.

And thirdly, the impact of the U.S. dollar weakening against the British pound. Because some expenses in the Americas are recorded in British pound, the weaker U.S. 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 FY 2025, but also for FY 2026 to FY 2029.

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 international business for FY 2025 vis-a-vis the assumptions made in February, revision of the assumptions used in the impairment test from FY 2026 onwards and the impact of the U.S. dollar weakening against the British pound.

Even with the latest impairment, the balance of goodwill still stands at JPY 583.8 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 the first half of the year. Japan maintained a strong organic growth rate of over 5% in the 3 months of the second quarter, continuing the momentum of the first quarter 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 organic growth rate of 5.3% in the first half with both net revenue and underlying operating profit reaching record highs. This was the ninth consecutive quarter of positive growth for Japan and the third consecutive quarter of growing at more than 5%. During the 3 months of the second quarter, 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 6 consecutive quarters of double-digit turnover growth.

Furthermore, in addition to BX business transformation domain continue to achieve double-digit growth, 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. And as a consequence, we were able to record a strong operating margin of 24.6%, maintaining the momentum from the first quarter.

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 the first half. Despite improving from negative 5.1% recorded in the first quarter, the 6-month performance was slightly below our expectations. Organic growth rate of CXM in the second quarter recorded a Q-on-Q improvement, showing signs of stabilization. However, continuing uncertainties in the macro and business environment have partially impacted client marketing spend. And as a consequence, CXM recorded a high single-digit negative growth for the first half 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 6-month period. Despite the decline in net revenue, we were able to improve the half year operating margin by 150 basis points year-on-year to 21.7% as a result of controlled SG&A expenses, mainly in staff costs.

EMEA 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 6-month period. Media remained relatively stable with a slightly positive growth and creative recorded a low single-digit negative growth.

During the 3 months of the second quarter, CXM continued to struggle in the U.K. and Northern Europe with the U.K. recording high single-digit negative growth. In contrast, Spain and Poland posted mid-single-digit positive growth. 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 6-month period, both registering double-digit negative growth for the period. In contrast, media remained relatively stable. China and Australia faced challenges during the 3 months of the second quarter. 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 from the first quarter. Despite maintaining control of our SG&A expenses in APAC, we recorded underlying operating loss for the half year period, continuing from the trend of the first quarter.

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 the first half of the fiscal year increased from JPY 63 billion to JPY 67.5 billion. Net revenue increased by JPY 12 billion in Japan. However, decreased by JPY 15.2 billion in the international business. As such, the group recorded JPY 3.3 billion decrease in net revenue.

Staff costs increased by JPY 5.1 billion in Japan, mainly due to strengthening of its talent base, but decreased by JPY 8.9 billion in the international business, driven by the Americas and APAC, with a decrease of JPY 1.1 billion in central costs, staff costs for the group as a whole decreased by JPY 4.9 billion. Other operating expenses decreased by JPY 3.6 billion, driven by a review of outsourcing fees and traveling expenses -- travel expenses.

That is all for me. And I would like to hand back to Igarashi san to explain our FY 2025 consolidated guidance and dividend outlook.

Thank you, Shigeki. Finally, I would like to explain the revisions to our consolidated guidance. In the second half of the year, we expect our Japan business to continue to see positive growth. In our 3 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, FY 2025 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 fiscal 2025 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 the second quarter goodwill impairment loss of JPY 86 billion and a review of cost for rebuilding our business foundation, we have revised our statutory operating profit guidance from JPY 66 billion to a loss of JPY 3.5 billion and our guidance for net profit attributable to the owners of parent from JPY 10 billion to a net loss of JPY 75.4 billion.

Turning to dividends. Today, we announced the recording of a loss on valuation of shares of subsidiaries and associates of Dentsu Group Inc. 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 Group Inc.'s retained earnings have decreased significantly. Therefore, it is deeply regrettable that we have decided to suspend the interim dividend for and revise the forecast of the year-end dividend to currently undetermined.

Originally, the interim and year-end dividends were expected to be JPY 69.75 each to result in an annual dividend forecast of JPY 139.5 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 the first half of this fiscal year, achieving record high net revenue and underlying operating profit. Organic growth exceeded 5% for 3 consecutive quarters. As a result, group underlying operating profit also increased 7.2% year-on-year, 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 impairment loss, suspended 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 evaluating 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.

[Operator Instructions]

The first question will be from Abe-san of Daiwa Securities.

This is Abe from Daiwa Securities. I have two questions. One is about dividend. In the past, JPY 139 to be maintained. Basically, the direction was that you will not reduce the dividend level from next fiscal year. But what was your mindset change leading to this revision, your thinking? And dividend payment for this year. So net income, 35% payout ratio on an underlying basis, is that the idea you have in mind? That's my first question on dividend.

And my second question, so downward trend, I think, is being expressed in the international business, but including 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, that was the first question. So the dividend has been revised down. What is the thinking behind it? Give us some color. And 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. And if needed, I would like to also make some supplementary comments.

And as for the changes in the external environment, that was the second question. From the second half of the year, as risk, what kind of changes do you expect to anticipate and 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. So as I explained, for the reasons, the full year forecast has been revised down for FY '25. That's one reason. And because of that revision, 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 impairment has been conducted. And 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. And 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 a dividend. So 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. But this time around, with regards to 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 the first half, 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 the second half onwards, macroeconomic factors had to be factored in as a risk factor, and that was reflected in the guidance.

With regards to specific markets, the Americas, I would say, is quite big. For 90 countries, the tariff measures that were announced on the 7th of August 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 the second half of the year.

Apart from that, AI across various fields, it's becoming very prevalent. And needs from our clients have become very sophisticated with the advent of AI, and we have been facing the need to address that. And therefore, AI's impact in marketing is -- well, rather than seeing this as a risk, but this is something that we need to address. So that I hope responds to your question. Thank you very much Mr. Abe for your question.

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 partnership? 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 means? Does it include the 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 rebuilding of our international business. We have been working on enhancing our competitiveness.

Well, for this, we are going to rebuild our business foundation, and we are going to also reevaluate our underperforming business, and we are making a steady progress on this. Now on that basis, and 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. And so depending on the environment and the circumstance that we are facing, we need to consider bold effort.

So in that regard, we are continuing with the study by retaining external adviser who have expertise knowledge. So 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. And 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.

But 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. So 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.

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. But with this impairment, have you been able to conduct the impairment that will be required. 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 or foreign exchange, among others, are complex -- 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. But having said that, the guidance that we've revised this time, it's very critical that we achieve this revised guidance in Q2. And 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. And therefore, I will not deny the possibility that there could be additional impairment losses.

So the next question is from Mr. Maeda from SMBC Nikko Securities.

This is Maeda from SMBC Nikko Securities. I do have three questions. Is there a limit to the number of questions that I can ask?

You can ask the three questions.

Well, first question is related to the previous person's question. So in regards to thinking going forward. Well, the organic growth rate for this year has been lowered by some 2%. But next fiscal year onwards, the organic growth of the net revenue for international business next year onwards, so what was the number you have set for that in calculating the impairment on this occasion. So that is a hint for us to think in terms of the external environment. So that's the first question.

The second question is for the strong performing Japan business. 3 months ago, you were saying that the first quarter was good, but you were saying that there were some uncertainties in the second quarter, indicating some conservatism, but you have achieved strong result as you did in the first quarter in the end. So the background to that. And also the second half of the year onwards, can we expect sustainability of the strong performance for the rest of the year? And next year onwards, can you continue to structurally grow the business in Japan?

And the third question is regarding sports and entertainment. Recently, there's been a lot of news flow from your company and feel that you are putting a lot of emphasis in this area. So for this business, the value of this business, how much the earnings will it likely to generate? So when we are forecasting your performance, I think this is going to be a quite important factor. And so I wanted to get some clarity on that. So these are my 3 questions.

Thank you very much, Maeda for your question. So three questions in total you have asked. So for the international business going forward, and there was some explanation about impairment. But from next fiscal year onwards, what is the organic growth is the international business expected to achieve? And what's the assumption used in conducting the impairment test on this occasion? I think that was your question, if this can be disclosed. So for that question, Shigeki will respond.

And the second question is in regards to the Japan business, where we have maintained a strong performance in the second quarter and the reason for that and the forecast for next fiscal year onwards. And that was what you have asked. And for that, I will ask Mr. Sano from Dentsu Japan to respond.

And the third question is regarding sports and entertainment. So what is the value of business that we are assuming in this regard? So for that question, I will respond.

So Shigeki, please ask -- please respond to the first question.

So 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%. And so 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 P&L unit. So we consider the Americas as one cash-generating unit, EMEA as one cash-generating unit. And that is what we use in evaluating impairment. And so because of that, so I need to explain the forecast for each of the regions.

So for the Americas and for FY 2026, the organic growth is 1%. And for FY '27 onwards, 3% and for EMEA, for FY 2026 to FY 2029, 2.4%. So that is the assumptions that we have used. That's all.

So for the next question, Mr. Sano.

This is Sano, CEO of Dentsu Japan. Thank you, Mr. Maeda for your question. 3 months ago, we did give somewhat of a cautious explanation. Now at that point in time, the impact of tariff was somewhat unclear. And so I did respond with a bit of caution. But for the past 3 months, our integrated solution has been assessed highly. And so we have been able to capture new clients in competitive pitch, which has continued to perform well from last year.

And 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. And Internet advertisement media in the second quarter was 47% after a high growth rate. In 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 OOH Media too. OOH Media as well, we have been able to achieve double-digit growth. And also Business Solution area, we have continued to achieve double-digit growth, again, steady. So because of these, we have been able to achieve those growth.

In the third quarter onwards, based on what we can say at this point in time, we should be able to maintain certain level of strength. And as to whether we are able to achieve high growth that we have done for the first half of the year or not, that remains to be seen, but we do expect to be able to achieve the growth and we are still maintaining high pitch win rate.

And so next fiscal year onwards, we should be able to expect a certain level of growth. That completes my response.

And in regards to your third question regarding sports and entertainment, please allow me to respond. Well, expected size of this business. Well, in this area, we have -- we consider to be an area where we will be making reinvestment. And this is an area that we are going to focus on, and that is how we started the midterm management plan.

Conventionally, we have been working on the initiatives in this area. And as I've explained before, in terms of the conventional sport area, we have been able to execute various sports projects with very -- quite many clients.

Now on that backdrop, sports and entertainment, so we are needing to think about our growth strategy separately to an extent. And 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. And on that basis, we'll continue to roll out our investment strategy. And the important point here is that many clients in regards to this area, they would like to see clarity on ROI.

In other words, the impact or benefit realized. And so in that regard, as I've explained before, the area of the Sports Analytics, Sports Analytics is an area that is essential. And by that, we are able to accurately verify the -- as a benefit of the clients' investment appetite. And so utilizing something like this will enable us to achieve further acceleration.

In regards to entertainment, it's mainly to do with the Japanese IP holders. And so how to roll out from Japan to overseas. That will be the kind of focus area where we will be forming various alliances. So Southeast Asia or Middle East or Europe and also North America, we feel that there are possibilities in all sorts of different markets in this regard. And on this occasion, not just IP but the creators in the entertainment area, how can we organize these creators? How can we utilize and leverage these creators.

So that was the thinking behind the formation of Roblox together with the IP holder in Japan or KODANSHA. So 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 our earnings for our business. And by 2030, we want to grow this business to a sizable business. And I do apologize for not being able to share with you specific numbers, but that completes my response. Thank you very much.

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, Internet business, this is faring well compared to your peers, I think the growth rate is quite significant. So 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.

And my second question is impairment risk going forward. In the Americas, macroeconomic conditions have been taken into account in the second half of the year. But in terms of internal capabilities, when you compare your own capabilities with other companies, what difference is there? And to what extent that internal factor was 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. And regarding impairment risk, Americas macro situation was factored in. That was explained. But with regards to capabilities, would that be a factor for impairment? That was the second part of the question.

And our capabilities in the Americas, how do we see the current situation? I think that's how I can interpret your question. And 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. So 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. So why is that is your question. From last year, there has 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.

So if I could respond to your question, our comprehensive solutions have been valued highly. And therefore, we have been able to win the bids and be able to win big accounts, and that has led to the strong performance. I hope I answered your question. Next question, I pass the microphone over to Giulio.

Thank you. And thank you, Yamada-san, for the question on the capabilities and the outlook for '25. The way we see that is that when we look -- we need to look at the practice area. So 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. As I mentioned the last few months, we are still seeing organic decline for the full year, but the recent months are really showing stabilization. When we look at the -- to your specific question on the capability, we are accelerating within the Media Plus strategy, our effort in that area, and we are considering scale platform with direct client activation within and beyond media.

And 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, 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 clear contribution target to both organic growth and OP over the next -- not only in '25, but over the next 3 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. And this is another differentiated point in the content supply chain solution that is proving to be out of interest for our clients. So I hope this -- with this example also answer to 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. Through the exchange rate or the discount rate or the macro environment. One example of the reason of recognizing impairment. But the goodwill essentially is the result of the management judgment in the past. So it shouldn't be based 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 JPY 240 billion of impairment loss, but you're registering impairment once again. So as a 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, it is as a result of the business environment deteriorating 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.

And so to prevent the same from occurring again, valuation at the acquisition, the PMI process after acquisition, how are you going to think about how are you going to change that? Can you show a quantitative the target? So I would like to ask Mr. Igarashi to share with me your thoughts in this regard.So that was my first question.

So this is Igarashi speaking. Please allow me to respond. And as Mr. Nagao has pointed out, in regards to the impairment on this occasion, with the management take this seriously. So the judgment regarding risk may not have been strict enough. And I feel that, that is a claim that I should accept front home. So the judgment of the management in the past, so 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 well, 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 a discipline in making judgment regarding M&A. So we are more thorough in abiding by this type of internal rule. So in that regard, whether it be Board of Directors or the Finance committee, which is a committee under the data 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&A. So we are not -- well, I didn't have the intent of explaining that the impairment was due to external factors. So as a management, recognition may not have been strict enough. And in that regard, I do agree.

And the second question is that the impairment on this occasion does lead to the valuation loss of the shares that you have in the subsidiary and 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 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. And we have also been working on selling down some other assets. And we are going to step up further in terms of those initiatives going forward. And by doing so, we want to secure the funds required to pay dividend.

In other words, we want to be able to secure our retained earnings. And we will be enhancing our initiatives to be able to secure the retained earnings to enable us to pay dividend. But in terms of standard or timing for resuming the dividend, at this point in time, it remains to be undetermined. There are various reform that we are working on right now, particularly comprehensive and strategic partnership initiatives for international business. And depending on final progress related to that and various factors will certainly have impact there, and those need to be taken into consideration as well.

So with all that considered and looking at asset of capital allocation overall, and after looking into that, we need to make decision about final dividend. And once we have some visibility on this, we intend to certainly make disclosure. So I hope I understand.

Thank you very much for your thorough explanation. I very much appreciate your comment. And the final question is regarding Japan, which continued to perform well. From April to June, the domestic demand has -- I expect that to have been quite weak. And from your perspective, the second half of the fiscal year, what do you expect to be the domestic ad demand? And 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, that type of the efforts are limited? So together with your outlook for the domestic ad demand and the changes in Internet area in regards to utilization of agencies, if you could make a comment on that, please?

Thank you. So FY 2025 second half of the year forecast for the domestic business as well as what we are seeing recently, the larger retailers changing how they deal with some agencies. And under that kind of environment, the impact towards the Internet area, what is our view? Now in regards to those questions, I will ask Mr. Sano to respond.

Thank you very much, Nagao, 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 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 condition to the trends to have been retained in the second half of the year from our business perspective.

And some companies in-housing. And on this occasion, this was quite sizable, and so it was quite topical. But 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. And we expect something like this to continue in the future. But if you look at the employment environment in Japan, internalization or in-housing is not something we expect to take a 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 ourselves, they are able to freely choose the expert company rather than doing everything in-house, it's more beneficial to choose external the providers. So there are also companies who did go in-housing, but ended up using external company as well. So 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, Mr. Sano, thank you very much for your thorough explanations.

Mr. Nagao, thank you very much, and thank you to all the questions. And with that, I would like to conclude today's earnings call. Thank you very much for participating today.

Thank you very much.

You may now disconnect. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]