Welcome to the Dentsu FY 2024 earnings call. My name is Morishima. I'm from the Group IR office, and I'll be your conference operator today. This is a reminder that today's call is being recorded. This call will be held in Japanese and English, with simultaneous translation for those joining online. Please choose your preferred language from the bottom on the Zoom screen. For those joining the telephone line, you will only be able to hear the original language spoken. 恐れ入りますが、電話回線からご参加の方は通訳機能がご利用いただけません。オリジナル音声が流れますのでご留意ください。 Please refer to our English website for today's presentation materials in English. The slides on the screen for the new Midterm Management Plan will be presented only in Japanese. Joining me today are President and Global CEO of Dentsu, Hiroshi Igarashi. 伊賀でございます。よろしくお願いいたします。 Global CGO and Global CFO, Dentsu, Yushin Soga. そうでございます。よろしくお願いいたします。 Global COO and Chairman and Acting CEO Dentsu Americas. CEO代行、ジュリオ・マレグリ。 はい。 I'm Giulio Malegori. Dentsu Japan. CEO Japan Dentsu, Dentsu Japan, and Deputy Global COO Dentsu, Takeshi Sano. 佐野です。よろしくお願いいたします。 They will be responding to your questions today. The agenda for today will start with business update from Hiroshi Igarashi. Yushin Soga will then present the financial update, followed by explanation of the new midterm management plan from Hiroshi Igarashi. We will invite you to ask questions after the presentation. So, Mr. Igarashi, over to you. Good evening, and thank you for joining our Fiscal 2024 earnings announcement today. In Fiscal 2024, organic growth rate and operating margins were mostly in line with the November guidance. In addition, all of the underlying profit items exceeded previous year's results. However, we ended up recording a significant statutory loss, mainly due to goodwill impairment loss recorded in the fourth quarter, mostly in EMEA and the Americas. By region, Japan business performed very well. However, the international business results were challenged overall, and we are taking this quite seriously. Our Japan business continues to evolve as integrated growth partner for many clients based on the trust we have built over our 120-year history. At the same time, we are updating our wide variety of capabilities, mainly in the marketing field, including consulting and DX. In Fiscal 2024, our pitch win rate improved even further, and we believe that the strong momentum will continue in 2025 against the backdrop of various international events. Today, we announced our three-year Midterm Management Plan toward 2027. I will explain this in more detail later on in this presentation. In 2025, the first year of our plan, we are focusing on improving profitability through reevaluating underperforming businesses and rebuilding our business foundation. In Fiscal 2024, in addition to the approximately JPY 20 billion share buyback that we have completed, we set the annual dividend per share at JPY 139.5, the same amount as the previous year. In our new Midterm Management Plan, we will also aim to achieve stable returns to shareholders. Globally, we expanded our role for the global brand Pandora as a partner and integrated the global media accounts into our group. In Japan, integrated proposals that combine traditional and digital advertising were highly valued, and we won a project from Samsung Electronics Japan. Additionally, we won media projects such as Principal Financial Group in the Americas, and other projects in EMEA. In the area of sustainability, we were selected as a component of the DJSI World for the second consecutive year. In terms of industry evaluations, we were named as a leader in the Forrester Wave Media Management Services. I will now hand over to our Global CFO, Yushin Soga, to explain our financial results. Thank you, Igarashi. Hello everyone, this is Yushin. I'll now explain our financial results for FY 2024. I will start with our key metrics. Organic growth rate for FY 2024 was -0.1% in line with the November guidance. The three-month organic growth rate in the fourth quarter was plus 2.6%, showing continuous improvement since bottoming out in the fourth quarter of the previous year. Net revenue increased 5.7% year on year to JPY 1.1941 trillion, while underlying operating profit increased 7.8% year on year to JPY 176.2 billion. The group's consolidated four-year operating margin improved by 30 basis points year on year and resulted at 14.8%, exceeding the November guidance by 80 basis points. This increase in the operating margin is mainly driven by Japan, where we saw top-line growth, G&A expenses reduction, and a one-off effect due to changes in hedge accounting for sports content. Throughout the year, our overall strategy has been to focus on internal investments and to continue to strengthen our Integrated Growth Solutions as our growth driver. As a consequence, we were able to enhance our capability and created a number of global success stories. Accordingly, our underlying basic EPS increased by 4.5% from FY 2023 to JPY 355.24. Dividend per share for FY 2024 is JPY 139.5, the same amount as the previous year, in line with the guidance we gave at the beginning of the fiscal year. Meanwhile, on a statutory basis, profit items resulted in significant losses, with an operating loss of JPY 125 billion and a net loss of JPY 192.2 billion, due to the recording of a goodwill impairment loss of JPY 210.1 billion in the international business in the fourth quarter. The goodwill impairment loss was mainly related to EMEA, but Americas was also a factor despite being on a recovery trend. There are two main factors behind the impairment loss on goodwill of this scale. Firstly, application of a higher discount rate than previously used based on recent market interest rates. Secondly, conservative reflection of various risks in the international business. The goodwill impairment this time has resulted in a large impairment loss being recorded for FY 2024. However, this also has the aspect of reducing future uncertainties and contributing to a healthy balance sheet for the start of our new Midterm Management Plan. The initiatives for the international business will be explained as part of the Midterm Management Plan. Next, I would like to explain the FY 2024 full-year results by region. While Japan and EMEA posted growth, the Americas and APAC remained negative. More specifically, the U.K. and the U.S. reported negative organic growth, while positive organic growth was achieved in countries such as Spain, Poland, Taiwan, and Thailand. Japan, the largest region accounting for around 40% of the group's net revenue, continued to show steady growth in the fourth quarter, with FY 2024 net revenue reaching a record high for the fourth consecutive year. In addition, underlying operating profit also reached a record high. In FY 2024, business transformation domain continued to grow, resulting in double-digit growth following the year-to-date third quarter. Digital transformation domain is also performing well. Moreover, our advertising business grew for the full year. In addition to TV's turnover, returning to growth for the first time in three years, internet media in particular contributed to growth throughout the year, with the group's strength in integrated proposals that combine traditional and digital advertising being adopted mainly by major clients. In FY 2024, our internet media turnover was number one in Japan. Internet media exceeded expectations during the three months of the fourth quarter, with double-digit turnover growth continuing from the previous quarter despite the high year-on-year comparator. The Americas, which accounts for around 30% of group net revenue, remained negative for the full year, but results were generally in line with our expectations at the point of the November guidance. The organic growth rate has continued to show sequential improvement by quarter from the low of Q4 FY 23, but the slow recovery in CXM is still weighing on our performance. In FY 2024, CXM continued to face challenging business conditions, resulting in double-digit decline. This is due to a reduction in budgets by existing clients, new projects not being able to offset the reduction, and the negative impact of sales cycle delays due to persistently high interest rates. Meanwhile, in FY 2024, media stayed broadly flat year on year. The first half was still affected by the client losses in FY 2023, but in the second half, that impact subsided and the business remained relatively stable with good results across major clients. On the other hand, creative remained negative for the full year despite the fact that synergies with Tag are beginning to produce results, including the Adobe Global Pitch Win, as stated in our previous financial announcements. The three months of the fourth quarter showed a negative growth rate, mainly due to the slow recovery in CXM. Media, however, reported improvement year on year. EMEA had a positive organic growth rate for the full year. This included the one-off financial impact in the DACH cluster that occurred in the second and third quarters of FY 2023, which resulted in a lower comparator. Excluding this one-off financial impact, the EMEA organic decline was -1.5%. CXM had a slower recovery than expected throughout the year. Key markets such as the UK and Germany experienced continued client spend reduction against the backdrop of economic uncertainty. Media in FY 2024 stayed positive. Led by Spain and Poland, it remained steady across the region. Meanwhile, creative was negative for the full year. In the three months of the fourth quarter, although creative continued to be soft, media grew at a middle single-digit rate. APAC remained negative for the full year, below expectations despite implementation of intensive measures to achieve regrowth. Although the full-year organic growth rate improved from the year-to-date third quarter, the business environment remains challenging. CXM, in particular, continues to face difficult conditions, especially in Australia, which is suffering a decrease in local client spends. CXM resulted in double-digit organic decline for the full year. Media in FY 2024 was slightly lower than the previous year. Although the performance continued to be soft, Taiwan and Thailand are showing solid organic growth rates in the mid-single digits. Creative in FY 2024 stayed negative, impacted by lower client spend in China. In the three months of the fourth quarter, CXM continued to face challenges, but media was flat year on year. Next, I will explain the changes in the group's underlying operating profit from the previous year. Full-year underlying operating profit increased from JPY 163.5 billion in FY 2023 to JPY 176.2 billion. This was primarily due to an increase in net revenue. Let me explain in detail. Net revenue increased by JPY 16.4 billion, which includes a good performance in Japan, a reversal of the one-off financial impact of the DACH cluster in FY 2023, as well as a net increase from Tag and other subsidiaries acquired in FY 2023. The decrease in personal costs of JPY 2.8 billion is mainly due to the cost management initiatives in the international markets, partially offset by internal investments and talent. Operating expenses increased JPY 6.2 billion. Although cost controls have been implemented, the net increase of Tag, which started to be consolidated in July 2023, appeared as a net increase until the end of the second quarter. In addition, there were internal investments and the allowance of the trade receivables in the international markets. I would summarize our FY 2024 in four key points. Firstly, the Japan business performed very well, and the Americas are also on a recovery trend. But overall, the international business has had a challenging year. Secondly, the full-year impairment loss of JPY 235.3 billion resulted in a net loss of JPY 192.2 billion for the year. Most of the impairment is a goodwill impairment recognized in EMEA and Americas. Thirdly, we were able to start building the foundations for medium to long-term growth with our focus on internal investments in talent and technology. And fourthly, we decided to keep the dividend per share for FY 2024 to be JPY 139.5, the same amount as the prior year as announced at the beginning of the fiscal year. Finally, today is the last day I will be presenting to you as Global CFO. From tomorrow, I will focus on enhancing our governance as Director, Representative Executive Officer, Executive Vice President, and Global Chief Governance Officer. As announced in the release today, my successor will be Shigeki Endo, who has led the finance area together with me since July 2024. He will be one of the key members to implement this new medium-term plan. That's all from me. Now I will hand it back over to Igarashi. Thank you. Thank you, Yushin. Let me now explain our Midterm Management Plan at 2025 to 2027. Today, I will cover the points shown on the slide. Let me start by outlining our thinking for the new Midterm Management Plan. We failed to achieve both the business growth and profitability targets set out in the previous Midterm Management Plan, and we are taking this challenging situation very seriously. Reflecting on the past M&A-focused growth strategies that led to these results, we have formulated this midterm management plan to return to strong organic growth. Considering changes in the industry environment, we have reviewed our business portfolio, and we are focusing our capital and talent in these areas while formulating a strategy to regain our competitiveness. At the same time, in 2025, we will focus on restoring profitability by re-examining underperforming businesses and rebuilding our business foundation. Our progress towards One Dentsu will not stop as we return our international business to growth trajectory and strengthen shareholder value. What lies ahead in this midterm management plan, which covers the period up to fiscal 2027, is the realization of our group's vision to be at the forefront of people-centered transformations that shape society. This vision remains unchanged in the new midterm management plan. However, as Yushin mentioned earlier, our current business performance is in a challenging situation, and we believe that we must return to a growth trajectory over the next three years. Therefore, in fiscal 2025, we will take initiatives to restore profitability by reviewing underperforming businesses and rebuilding our business foundation. And from fiscal 2026 onward, we will focus on our activities for growth. As a result, we aim to have no markets operating at a loss by fiscal 2026 and to make ROIC of international business exceed WACC, contributing to the improvement of shareholder value by fiscal 2026 and in all four regions by fiscal 2027 as well. Through these initiatives, we are aiming for an organic growth rate of 4%, operating margin of 16%-17%, operating cash flow of JPY 140 billion, and ROE in the mid-teens range as our key financial targets for fiscal 2027, the final year of the midterm management plan. Now, I'd like to explain our direction and challenges behind the formulation of this midterm management plan. As I mentioned earlier, we failed to achieve the organic growth and operating margin targets of the previous midterm management plan. The primary reason is our underperforming international business. Underlying this issue are the adverse effects of our previous international business growth model that excessively emphasized M&A. Specifically, lack of integration within our organization following M&A led to increased complexity and silos, and we struggled to generate sufficient synergies, resulting in a high-cost structure. We also recognize that one of our challenges was not having made enough progress in realigning our business portfolio. As I have explained in previous financial results announcements, we have already begun taking countermeasures to address these issues. However, we will accelerate these efforts under the new midterm management plan. Around the world, huge players are emerging both inside and outside our industry, and their movements are becoming even more active. Technology and consulting companies are investing vast amounts of money in areas such as AI, and this is also affecting adjacent industries, leading to major changes in the competitive and business environment. Under these circumstances, the most urgent task for our group is to restore profitability and competitiveness of our underperforming international business with the aim of returning to a growth trajectory in 2027. Based on lessons learned from the past, we are taking countermeasures to address this issue in an environment of intensifying competition, such as by thoroughly eliminating inefficiencies, rebuilding our business foundation, closely re-examining underperforming businesses, and promoting a business strategy based on a model of building trust with clients that Dentsu has cultivated in Japan over the years. First, we are focusing on two initiatives to improve profitability, re-evaluating underperforming businesses, and rebuilding our business foundation. Regarding the re-evaluation of underperforming businesses, we are implementing thorough and swift measures, having considered all options for businesses that are not enhancing shareholder value. In terms of rebuilding the business foundation, we will record one-off expenses in 2025 and promote simplification of the organization as well as standardization and advancement of operations. We expect to see the effects of these changes in the form of reducing operating costs from 2026 onwards. With regards to re-evaluating underperforming businesses, we will review them from a market and entity perspective and implement respective measures. We have a set of goals of no markets operating at a loss and international business contributing to enhance shareholder value by fiscal 2026, and in fiscal 2027, the final year of the midterm management plan, we aim to contribute to enhancing shareholder value in all four regions. Next, by rebuilding our business foundation, we aim to achieve operating cost reduction of up to JPY 50 billion as at 2027. Specifically, we aim to simplify operations by integrating the Tokyo and London headquarters functions and by redefining the role of regional headquarters, in addition to implementing cost control measures in the market. By promoting these efforts in conjunction with the streamlining of operations through AI and systems, we will systematically carry out sustainable cost reductions. Next, I will explain our business strategy for restoring our competitiveness. Our group's offerings to clients will continue to be the integrated growth solutions, which integrate our unique and wide variety of capabilities to achieve sustainable growth for our clients. On that basis, our new midterm management plan has adopted a policy, a network that wins globally by growing locally. Through this policy, we aim to become our client's growth partner in each of the markets and grow globally together with our clients. This policy is supported by our unique strengths and associated know-how. Firstly, how we build long-term relationships with our client in each market based on deep understanding of client businesses by leveraging our experience in Japan. Secondly, our continuous supply of innovation that addresses market-specific needs. Lastly, our talent, who work side by side with our clients and enable us to have a significant impact on society. To realize this strategy, we are investing capital and talent in priority areas and markets that will enhance our competitiveness. First, our market strategy will focus on Japan and the United States, which are large markets with a wide variety of business assets. At the same time, we will selectively strengthen markets where we already have a strong position. Regarding our client strategy, we will strengthen business expansion with existing clients and acquire new clients based on a sales strategy that further deepens relationships with large and medium-sized clients in each market. To remedy the fact that our capabilities have not been updated, we will focus on improving the added value of our core media business in the international business with the aim of recovering business performance. Meanwhile, in Japan, as an advanced market for Integrated Growth Solutions, we will strengthen our capabilities in areas such as consulting, technology, and sports and entertainment, which will lead to further differentiation. To strengthen the capabilities of our international business, we will focus on the media business and areas that lead to added value, which is the starting point for IGS Integrated Growth Solutions. In particular, we will be focusing on strengthening partnerships with media and platform companies in areas of modern media that are projected to experience significant growth in the future, such as programmatic and retail media. In addition, by proactively strengthening solutions and with collaboration in the creative and CXM domains, we will improve the value of media services and, at the same time, enhance our ability to provide solutions to client issues. In particular, we have a number of solutions that strengthen media capabilities in the U.S. Adobe Gen Studio Dentsu is one such solution that we recently released. Combining our capability of production by Tag with Adobe's tools and AI, it enables us to quickly create and verify high-quality advertising materials, further increasing our competitiveness of media. These initiatives will be led by Giulio Malegori, Chairman and Acting CEO of Dentsu Americas, Beth Ann Kaminkow, who will take up the post of the CEO of Dentsu North America. Beth Ann has extensive client experience in our industry, and I am confident that she will establish trusted relationships with our clients in the U.S. In our Japan business, which continued to achieve growth and high profits in fiscal year 2024, we will further deepen our Integrated Growth Solutions. This will be achieved by continuous improvement of marketing services that utilize data, strengthening initiatives that lead to differentiation, further growth in the consulting business, strengthening synergies with marketing in the technology business, and expanding growth in the sports and entertainment business. In addition, we will expand our global business, starting from Japan, by strengthening support through our group's global network for the overseas expansion and business of our Japanese clients. We will also continue to consider alliances and partnerships that strengthen these capabilities while we accelerate our Integrated Growth Solutions and firmly establish our position as a growth partner for our clients. Regarding our financial policy, through initiatives to recover profitability and competitiveness, as well as conducting disciplined financial activities, we will prioritize restoring a healthy and efficient balance sheet over the next three years. As part of these efforts, we will continue to proactively engage in selling non-operating assets such as strategic shareholdings. Furthermore, we will carefully conduct all investment activities under investment principles that have been updated based on past reflections in cooperation with the Finance Committee established last fiscal year. Our approach to capital allocation is to prioritize one-off costs related to rebuilding the business foundation and internal investments for growth. In terms of shareholder returns, we will maintain the same policy of 35% dividend payout ratio of underlying basic EPS as in the previous midterm management plan and keep dividends at the previous year's level in fiscal 2025, when investment will take precedence, thus aiming to maintain stable dividends throughout the period as a midterm management plan. M&A, which was suppressed in fiscal year 2024, will be executed selectively in accordance with the progress and outlook of business performance recovery consistent with our business strategy. We will make decisions and manage with tighter discipline than before. To improve shareholder value and capital efficiency through these initiatives, we have newly set ROE as one of the key financial targets of this midterm management plan. We will restore ROE, which had been on a downward trend during the previous midterm management plan period, and aim to achieve a target in the mid-teens range by fiscal year 2027. In parallel with promoting our business, we will continue our commitment to a sustainable society, integrity, and good governance. Our sustainability initiatives, which we communicate through our integrated reports and other means, have received high praise from external evaluators in recent years. We are making steady progress towards the goals set in our 2030 sustainability strategy. We will continue to invest in acquiring and developing talent to support the efforts and will continue to promote human capital management. Finally, I would like to introduce initiatives in the sports and entertainment field that are poised to grow from 2027 onward and which will be carried out in parallel with the initiatives of the new midterm management plan. In Japan, we have been involved in a dual-pronged business that involves both our own rights investment and our client-oriented solutions business. By deploying this unique business model in major markets, we aim to strengthen synergies with Integrated Growth Solutions in our international business. Furthermore, through initiatives such as building a business portfolio that spans across the IP value chain, we will focus on contributing to the global growth of IP and establish new businesses to strengthen our uniqueness. This is the guidance for fiscal year 2025. The organic growth rate is expected to be around 1%. The Japan business is expected to grow around 3%, while the international business is expected to return to positive growth. We aim to achieve the same level of net revenue as in fiscal year 2024. The operating margin is expected to be around 12%. The decline from fiscal year 2024 is primarily due to upfront spending of internal investments to restore our competitiveness. On a statutory basis, we aim to turn positive. However, we are expecting that operating profit will remain at 66 billion JPY and net profit at 10 billion JPY due to the planned recording of one-off expenses to rebuild our business foundation. In 2025, although we aim to return to growth, we expect this year to be a challenging year from a profit perspective as we will implement the initiatives to achieve the goals of the new Midterm Management Plan. Regarding shareholder returns in fiscal year 2025, we will maintain a stable dividend. This year will be a transitional year for the recovery of profitability. We expect the annual dividend per share to be 139.5 JPY, the same as in fiscal year 2024. To summarize, we have formulated a midterm management plan and will return to a competitive business with organic growth of 4% and an operating margin of 16%-17% by 2027. In 2025, we are focusing on recovering profitability through rebuilding the business foundation and reevaluating underperforming businesses. We will maintain the shareholder return policy of dividend payout ratio of 35%. Importance will be placed on stable dividend in fiscal year 2025 despite the temporary profit deterioration and plan to pay an annual dividend of JPY 139.5, which is the same as fiscal year 2024. We have set a target of achieving ROE in the mid-teens range by 2027 and will strive to manage our business to enhance corporate value and improve shareholder value. Thank you. I will now hand this back to the moderator as we welcome your questions. We will now begin the Q&A session. For questions, please use the raise hand function on Zoom or press star 9 on your telephone. I'll ask you to unmute. Then please introduce yourself. We are confirming several hands being raised. Please keep your hands raised as we are confirming your names. Thank you for your patience. The first question is from Nagao-san from the BofA Securities. Please unmute yourself. Mention your company name, your name, and ask your question. Thank you for selecting me. This is Nagao from BofA Securities. I would like to ask two questions. And quite a significant loss or the impairment loss that you've booked on this occasion. And as we enter into a new midterm management plan, you wanted to essentially clean away unprofitable assets. Is that what you have done? That's the first question that I wanted to ask. In regards to my second question, when we look at the performance for the next three years, and as Mr. Igarashi has explained, that this year is likely to be a year of a slow start, but when we look at 2026 and 2027, how are you assessing those two years? Maybe the trajectory of the profit that you intend to achieve. These are the two questions that I want to ask. Thank you very much, Nagao-san, for your questions. Thank you for your two questions. Large impairment loss this fiscal year. As we start the new midterm management plan, have we been able to essentially clean away all of the unprofitable assets? I'll respond to that question, and I'll ask Soga-san to add any additional comment. The second question was in regards to the new three-year midterm management plan. The 2025 may be a slow start and more tougher start, but what is the expectation for 2026 and 2027, particularly in regards to assumptions on profit. And I will also respond to that question as well. Now, the first question, the large impairment charge that we've recognized on this occasion, I take this very seriously, particularly in regards to international business, where we saw underperformance, and that certainly has been the cause. However, as Mr. Soga Yushin has explained before, in registering this impairment charge, we did actually assume quite a conservative stance in coming up with the projections for the future in recognizing this impairment charge on this occasion. It is a large amount that we have recognized, and this has actually included quite a large portion of our risk. But as I've explained, we are certainly doing a re-examination of underperforming business, and we will certainly address this with a sense of speed. And so throughout 2025, we intend to certainly address those situations, and I do like to state this quite strongly to you all. This is Yushin Soga speaking. Thank you, Nagao-san, for your question. And your question was that they took a large impairment charge on this occasion. Have we been able to essentially clean away our profitable business? And well, to this question, it's probably not needed to mention to you, but the background to recording the impairment loss of a goodwill. Now, as Igarashi-san has explained, for the midterm management plan, we use the rationale, the business plan that the management thinks. But the assessment of the goodwill, we need to achieve an agreement with some external auditing firm. And so, the rational business plan that the management is thinking. Sometimes on this occasion, we had to use more conservative stance than what the management has expected. And so, that was behind the impairment charge on this occasion. So, it was a conservative business plan that did actually reflect the risk on a conservative basis. However, in the MTMP, the Midterm Management Plan, the business plan included is something that the management or the company is established based on the rational assumptions. And so, the management will execute this steadily so that we are able to regain back this impairment loss as quickly as possible. But when you ask as to whether we have been able to clean away, well, this is an accounting practice. And so, to completely clean away the underperforming business is the most important challenge for us. Rebuilding of the business foundation is the most important thing that we are going to address as part of this midterm management plan, as Igarashi explained before. Now, for us to do this, we need to lower the cost base, and we also need to, I suppose, discontinue unprofitable business. And by doing this, we are going to rebuild the business foundation. So in regards to profitable business, have we been able to completely clean away? Well, that is what we're going to address as the most important challenge for us in our initiative going forward. Now, your second question was that for our three-year performance going forward, what is the profit expectations for FY26 and FY27? Well, for 2027, we are aiming for the levels that you can see. These are the goals that we've set. As I explained in my Midterm Management Plan presentation before, what we will do is first do a thorough review of the unprofitable market, unprofitable business. By doing this, we will stop the loss bleeding, and so that should enable us to secure a certain level of profit base as a consequence. In the end, by 2027, but during 2026, we are going to make these loss-making markets to zero and transform international business into an operation that can contribute to enhancing shareholder value. That is what we intend to do in 2026. And so in that regard, we do expect to forward the progress in regards to the profit base. That is what we are going to aim for. That is all. Thank you. Thank you. Mr. Nagao, thank you very much. Next, the question is from Ms. Fiona Orford-Williams from the Edison Group. Please go ahead. Please unmute. Name your company name and your name. Thank you. Thank you very much. Fiona Orford-Williams from Edison. I mean, obviously, there's a lot to take on board this morning, but in terms of the CXM, and that does seem to be the main issue in the non-Japanese markets. I know I hear what you've said, but is it still, do you think, the right offering to be putting out in those markets, or does it actually need a more fundamental rethink? That's the first question. The second one is the concentration on shifting in order to grow globally by growing locally, so concentrating on growing the local clients. Does that mean you're actually withdrawing from the large global pitch arena and leaving that to the behemoths of the industry? Thank you. Hi, Fiona-san, thank you very much for your question. Regarding your first question, it is related to CXM, meaning that in the markets other than the Japanese market, it has challenges. But towards each market, is the offering appropriate or not, and whether we need to fundamentally rethink about it, I believe, was your first question. And regarding this question, I would like to answer, but after my answer, I would have to ask Giulio, the COO, to support the answer. And the second question, are we going to concentrate on the low end of business? I believe that you have understood my explanation that way, and whether that's going to lead us to withdraw from the global pitches, I, myself, Igarashi, would like to respond. First, related to the CXM. As you have pointed out, the FY24 performance from that result at each market globally, it shows that that CXM is struggling in each market. As you have pointed out, the assets that we have, whether the offering is appropriate, the market itself, as explained before, it's not just for us, but for our peers and competitors. They're all struggling because of the market condition. Because compared to the previous years, the sales cycle itself is getting longer, and as Mr. Soga said, the interest rate has hiked, and so the advertising spend has also decreased. Apart from these external factors and environment, for us, regarding CXM, which domain can respond to the client's needs, and which domain should we focus on, and how can we enhance our solution capabilities together with the Integrated Growth Solutions? One good case is that we did win the global pitch of Adobe, and together with their product, around the creative and content domain, we are going to strengthen our supply chain. This is extremely close domain and close collaboration with the CXM domain, and we are starting to see solid results from that. We would like to determine these fields, meaning that fields that can win against CXM, and also we would like to focus in areas where we can win more. Giulio, if you have any additional comments, please go ahead. Thank you, Igarashi-san, and thank you, Fiona, for the question. To be honest, Igarashi-san's comment, yes, there's been definitely pressure from the market condition in both the U.S. and the other international market, but it's also on our side internally. How we reacted and how we are reacting, we almost complete the growth transformation mainly on two directions. The one direction is on the offering. Therefore, we will focus on the highest growing segment and specifically double down on CX and commerce, especially on the content supply chain. Igarashi just mentioned about GenStudio Dentsu Plus as an example, experience design, and commerce itself. To that regard, also the new chief exec that we identified for the North American market comes from a broad experience on that angle. The second area is, of course, on data analytics, as we could expect. Data analytics are important in itself, the data platform, but also the analytics to feed the connected media offer. And the third area where we are accelerating our offer is on our core, there was the CRM and loyalty. That would be promotion or loyalty program in itself. So that's as far as the offering and the product development is concerned. The other move, referring, for instance, to the U.S. market, is that we really nearly completed the transformation of our leadership team. We had proven sought-after market-leading talent, and I would say change agents. We have a new CTO. We have a new leader for CRM. We doubled down on data platform analytics with a new leader, and last but not least, a new CEO for the Merkle operation. So we believe that the combination of renewing the offering and transforming the leadership would permit us to accelerate the return to grow in spite of the market condition. Thank you. Thank you very much. And regarding the second question that we will concentrate on local goal, and are we going to withdraw from the global pitches? No, not at all. Even currently, we have about 40 accelerator clients globally, and with them, in a thorough manner, we are sharing the growth solutions and working together with them as their partner, and globally, we are continuing to increase our footprint. However, in this midterm management plan, within the integrated growth solution, the focus will be on IGS, and when we do that, more than a one-stop service globally, but it will be rather something that will be a better match to each client's needs or the strategy for each client. We believe that this IGS will become that way, meaning that we will grasp the situation of each client, and each market will be the partner of that client, and each partner or client being able to globally grow is what we're aiming for. So our IGS strategy, meaning that responding in detail to the client needs, we have stated the strategy to achieve that in this midterm management plan. So walking together with our global client, we will strengthen that part. But it's not that we will be decreasing that or withdrawing from that. Fiona-san, question audio? Thank you, Fiona, for your question. The next question is from Mr. Maeda of SMBC Nikko Securities. Please unmute yourself, state your name, as well as your company name. Thank you. My name is Maeda from SMBC Nikko Securities. I have two questions and somewhat of a detailed question as well. But first question is in regards to the expected focus for the new fiscal year, underlying operating profit and the net revenue, the difference between the two. On a year-on-year basis, JPY 43.6 billion of an increase, and net revenue is going to increase by 1.4%, but the profit 4.2% increase. I think that's the plan, so what's the organic growth, and what is the cost reduction gains, and more strategic aspect that is going to increase from a long-term perspective? So JPY 43.6 billion. SG&A is expected to increase more than the net revenue, so if you could give the breakdown, and between operating profit and underlying operating profit, the gap between the two is JPY 80 billion on this occasion, and so one-time, the impairment or the structural reform cost, if we don't have that, the gap should normally be between JPY 30 billion to JPY 40 billion, but why are you expecting JPY 80 billion? Are you still trying to restructure some of the non-profitable business, which is expected to book some expenses? I'm sure you have some of those, and if you could explain some details numerically, that would be my first question. And the second question, and how to think about the numbers for the final year of the Midterm Management Plan, ROE 10% or around 10% range, operating cash flow of JPY 140 billion. And maybe intentional, but underlying operating profit, that would be around JPY 180 billion, I would assume. But if you have some ballpark numbers there, if you could share that with me. And the thinking behind coming up with these numbers, and based on the rational estimation, these were the numbers you were able to announce, or when you think about improving shareholder value, and when you think based on cost of capital, then the mid-term 10% range or mid-teens must be achieved. And so, is it more the market perspective that you came up with the numbers? So, for the final year of the midterm management plan, what is the message that you wanted to communicate to the market based on these numbers you have set to achieve for the final year of the midterm management plan? So, these are the two questions. Thank you very much, Mr. Maeda, for your question. So, for the new year, underlying operating profit, JPY 43.6 billion. You wanted the breakdown of this inclusive of SG&A, this JPY 43.6 billion, how this was calculated. You wanted to understand the breakdown details. And also, between operating profit and the underlying operating profit, the gap between the two is JPY 80 billion. And what does this comprise? I will ask Soga-san to respond to that question. For the second question, I'd like to talk about the basis upon which coming up with the numbers of final year of the midterm management plan. What are some of the perspectives that I have assumed? I will try to explain that first. Then, in coming up with underlying operating profit, you said JPY 180 billion is the probable amount, but is that amount appropriate or not? I will ask Soga-san to respond to that question. I will respond to the second question first, and I will ask Soga-san to supplement. This is Soga speaking. Thank you, Maeda-san, for your question. I was trying to understand your question. I may not have been able to understand your question fully, but if my response is insufficient, please ask again. First of all, in coming up with the budget for this fiscal year in the P&L this year, we do have JPY 50 billion of the structural reform, the cost, which is part of the non-underlying item. But the underlying items from last year, we have been making internal investment. As Mr. Igarashi has explained, we will work on integration that was not fully sufficient. So it does include things like IT investment, or to create a group synergy, there are investment required, and also investment for other people as well. These are investment for growth in the future. That's about JPY 20 billion that we are assuming. On a year-on-year basis, as explained in the presentation before, Japan in the fourth quarter achieved a very strong result and made significant profit contribution. As a consequence for the group overall, the guidance was 14%, but we ended up at 14.8% for the group. I won't say this was just one-time factor, but as to whether we can expect this again in 2025, well, the frank view is that it may not be as easy. And same applies to part of the U.S. business as well. So when we announced our result at the third quarter, well, in comparison to the level that we assumed at the announcement of the third quarter, we have been able to control costs, particularly the personnel costs, and that has enabled the profit to be increased. And so in addition to JPY 20 billion of internal investment, Japan and U.S., the fourth quarter positive impact, it may be difficult to assume that in FY 2025. So we have assumed some conservative outlook for this year in that regard. So these were probably the major items. Now, non-underlying statutory expenses, so JPY 50 billion of cost. So in addition to that cost, around JPY 20 billion is the depreciation of tangible fixed assets or the depreciation of the office lease. And that's probably about JPY 20 billion in total. So when you add all those, that's JPY 70 billion. You said JPY 80 billion, but of that, you can actually account for JPY 70 billion. Now, if my response was insufficient, please ask your question again. Thank you. Thank you. And please allow me to respond to your second question. And if our responses are insufficient, please ask again. Now, for your second question, in 2027, in addition to the target numbers for that year, well, what do we need to aim for as part of the new midterm management plan in terms of the corporate value? We need to look at the shareholder value and to think about what we can realize. And in the process of getting there, what are we to make improvement? What do I need to enhance? And that is what we have looked at thoroughly from the financial perspective, not only from the management perspective, but together with outside directors. We've been thinking about this, and we've been working on this as part of the Finance Committee. And what are the KPIs that we should adopt as we run our business? And so this was a theme that was discussed in quite detail. And as part of that, in the end, we came up with ROE in the mid-teens range, and that is in alignment with the corporate value that we should aim for. And it should be a goal that should align with the shareholder value in that regard. And for us to realize that, what are the improvements that we need to work on right now? And you talk about the loss-making markets and talked about re-examining non-profitable business. We need to go through those steps. And by doing so, what type of growth and profit can we secure? And we wanted to reorganize the process and work on that so that we are able to reach the mid-teens range for ROE. And this is to respond to the expectations of the market participants. It's a goal for management. And so that was the basis upon which we have identified this as being the number for the final year of our midterm management plan. Now, on that basis, Maeda-san, in assuming an underlying operating profit, you've kind of asked as to whether this is JPY 180 billion or so. On that part, I will ask Soga-san to respond. This is Yushin Soga speaking. In 2025, so we are going to execute large structural reform to lower the cost base and achieving growth on top of that, we will achieve the midterm KPI that Igarashi-san has explained earlier. JPY 180 billion, I do feel that that is a rational level in 2027. In all of the regions, we want to exceed the competitors in terms of growth rate. That is what we set out to achieve. As to whether it's going to be JPY 180 billion or not, we would like to refrain from providing a direct response to that. But the target in 2024 for underlying operating profit was JPY 180 billion. So we need to certainly aim for a level that was higher than that. Thank you. Maybe my question was not too clear in my first question. And from net revenue to underlying operating profit, if you actually subtract that, you end up with the expenses. And so that is going to increase by JPY 43.6 billion next year. And the JPY 20 billion for. So it's going to be expensed, this JPY 20 billion. And also, the personnel cost reduction in the U.S., the rebound from that should see some increase in cost. And there is also organic growth. And all in all, the cost against underlying operating profit will increase by JPY 43.6 billion. So is that the right understanding? Thank you very much, Maeda-san. In terms of internal investment, it's about JPY 20 billion. It's not just related to IT. And as we have been explaining from last year, it could be on people talent. It could be on data. So investment towards those items are also included. So it's not always CapEx. It's not 100% CapEx either. On a budget, we have booked JPY 20 billion of cost on the P&L, and we will allocate this to the various regions, and we'll use that as and when necessary. That's the thinking adopted. You talked about the U.S., and this is not too large. It's about JPY 2 billion. Rebound in Japan is larger vis-à-vis the rebound in the U.S. in the fourth quarter. It's kind of temporary, or it's a JPY 7 billion that we are able to book, fortunately. When we look at the fourth quarter last year, the operating margin increase was about JPY 10 billion in terms of personnel expenses. As to whether we can expect this again this year, I think it's a little too early to expect this again this fiscal year. We subtracted that amount. As to whether the cost is going to increase or not, I don't know. But as to whether we are able to retain the lower level, there are some uncertainties. So we actually calculated that back. Thank you very much. Thank you very much. That was very clear. Mr. Maeda, thank you very much for your question. I'd like to take the next question from Nomura Securities. Mr. Harahata, please unmute and name your company and your name, please. This is Harahata from Nomura Securities. This will be a follow-up question to the previously asked questions. So I have two questions. The first question is related to page seven regarding the impairment that you recognize at this time. This was an opinion by the outside audit firm. And the reason you said the market condition changes and the risks overseas, specifically speaking, what are they? The growth rate of the net revenue and the operating margin, can you actually explain about it for EMEA? And the second question is on page 38, JPY 50 billion with the rebuilding the business foundation. And for internal investment, JPY 45 billion. Can you elaborate on that? And what is my concern is JPY 35 billion-JPY 50 billion cost reduction on page 35. With this, is there any concern that the SG&A will increase by this? So I just want to confirm that. Mr. Harahata, thank you very much. Your first question is related to page seven related to impairment loss. The outside auditing firm, you said that it was agreed with them. And you wanted to know what were the risks. You wanted to confirm the assumed risks and also the level of net revenue. EMEA and Americas, what is assumed in what way, and why did that lead to an impairment loss? Soga will be explaining that. And the second question, JPY 50 billion for internal investment. And as on page 38, the JPY 45 billion is clearly stated. And on page 30, this JPY 35 billion to JPY 50 billion yen, positive effect or positive outcome, will there be any other additional expenses that may incur? Soga will explain that as well. Mr. Harahata, thank you very much for your question. First of all, I just want to explain for you to not misunderstand. Our outside auditor is KPMG and us. And under constructive discussion with them, we do reach the financial results, and we process the financial items. This time, we created the new midterm management plan. And within the process, we had discussions with the auditing firm. Within that discussion, in the overall industry, for example, the IT rapid rise in the market, and recently what was announced, Omnicom IPG merger. Due to that, there's the economic scale shifting over to economies of scale. If we include all that, the industry environment is very difficult or tough. Compared to that, KPMG understood the content very well. Regarding the content, KPMG is not placed to say anything. But looking at the past track record and looking at the current industry environment, reflecting this to the goodwill valuation, whether we should do that or not, we had various discussions with them. Therefore, as for in the Midterm Management Plan, they have the reasonable business plan that the management thinks is set. But as we have explained the potential risk, we have conservatively reflected that in the business plan. Based on that, we have recognized the impairment loss. The valuation of the impairment is based on the midterm management plan. From 2025 to 2029, how are we going to look at this business? Based on that, we evaluated the impairment. I wanted to say this as your reference. The second question was, what was that? First of all, regarding the 50 billion JPY of the internal investment. The second question? Excuse me. The first question was EMEAs and Americas net revenue and the operating side. Excuse me for that. This is Soga speaking once again. The budget for 2025 for the international business is almost flat this term. The utmost challenge that we have to overcome is to build the business foundation that should have been there from the beginning. We have all the efforts put in that. There are impacts to the business due to that. So Americas is at the center. Basically, we want the international business to land as flat. If your question is regarding the three regions excluding Japan for this fiscal year, it will almost be flat. Regarding the second question, Igarashi, I would like to answer. Regarding the internal investment in 2025, JPY 50 billion is what we are expecting. As I have been explaining, we are going to simplify the organization. The global headquarters function, we are going to thoroughly re-examine that. In line with that function, there are things that will be simplified. The region headquarters will be re-examined from the perspective of simplification. Also the organization, simplifying the organization is from the perspective of cost reduction. Within that, personnel expenses will also be re-examined. And so the cost control will be done there utilizing AI and various systems. Also will be organized so that the business process can be standardized within the simplifying the organization. And also regarding the JPY 45 billion of internal investment, as Soga explained, this is something we've been continuing from last year. The assets that we have acquired up to this time, how can we connect them or connect them in an effective way and make it more of an efficient one? And to do so, we are expecting JPY 45 billion, and in total, there will be JPY 95 billion. And as you see on page 30, the JPY 35 billion-JPY 50 billion, the JPY 50 billion cost will be spent to standardize or sophisticate the business process that will lead to the simplification of the organization, which will lead to a cost reduction. Regarding this, we will be recognizing the expenses this fiscal year so that this cost reduction effective can be continuously enjoyed. And to do so, are there additional investments necessary? We are not thinking that at this point. Thank you very much for your thorough explanation. ハラハタ様、ご質問ありがとうございます。 Thank you very much, Mr. Harahata, for your question. Next question is from Abe from Daiwa Securities. Please unmute yourself and state your name and company before asking your question. This is Abe from Daiwa Securities. Thank you for the opportunity. I have two questions. First question is what you have identified as a challenge: insufficient integration. And I do believe that you've been working on integration quite proactively, but was there a bottleneck or something like that which has prevented that integration to proceed well? So that's the first question. And the second is to improve the additional value in the media field. Specifically, what can we assume in this area? And also, what are the lacking capabilities vis-à-vis competitors right now? If you could also give that information as part of your response. Thank you, Abe-san, for your question. Your first question was the insufficient integration or non-thorough integration. Despite us working on the integration thus far, the fact that it wasn't sufficient, was there any bottleneck? That was your first question. I will respond to that. And we are going to focus on the media domain. And in focusing on this area, what are the capabilities that we lack right now, if there is any? And together with the focus area, so we would like to give some information. And for that part, I would like to ask Giulio to respond. Now, to answer your first question, so insufficient or non-thorough integration, as you have indicated, we have been working on One Dentsu based on one operating model. And we have been pursuing a new integrated model thus far. However, what the previous model that we have used for operation on a global basis, now that was a matrix between the service lines and the regions. It was a matrix approach. Now, in that full service line, we were looking at the individual and the P&L. And so this has caused quite a strong silo effect. And of course, we are heading towards a new operating model. But to fully remove the silos and to reorganize the capabilities in reflection of this situation and to reshuffle our portfolio to respond to the issues, this has taken more time than we wanted. What we need to work on has been made clear. And so in that regard, we can accelerate our initiative to address that going forward. In regards to your second question, could I ask Giulio to respond, please, in regards to how we are going to strengthen our media domain? Thank you. Thank you, Igarashi. And thank you for the question. This is Giulio Malegori speaking on the media one. I think to ask for the question where we're focusing and on any venture lack of capability or insufficient capability. As Igarashi said in the overall introduction of the strategy, we are going to put the media business at the center of the delivery of IGS. And in doing that, there will be a specific focus area on media strengthening on modern media. This means that will include programmatic and retail media. Our retail media offer is quite advanced indeed. When we look at overall on the media management service, recently, Forrester named Dentsu Media as a leader by saying that Dentsu places media marketing innovation at the center of its client audience and brand activation. We will accelerate that with the use of technology and AI. A few months ago, we launched the Merkury AI-powered audience builder that has really helped to offer integrated advanced capability to be able to turn insights on consumer interaction into activation. We are all aware of why media is at the center because there is a convergence on that. It's not just media activation. It's data. It's CRM. Ultimately, it's commerce. So we are putting our focus on that and investing on technology and artificial intelligence to develop that. So I believe I don't want to sound too confident, but I believe that we have all the capability that are needed to succeed and compete in media. And last but not least, a strong coverage across all, if not most, of the geographies around the world. Thank you. ありがとうございました。 Thank you very much. 回答聞こえておりましたでしょうか。 はい、聞こえておりました。ありがとうございました。 Abe-san, did you hear the answer? Yes, I did hear the answer. Thank you very much. それでは、終了予定時刻が近づいてまいりましたので、次の質問です。 We are getting close to the scheduled ending time. So the next question will be the last question. BofA Securities, Mr. Nagao, thank you very much for asking your question again. Please unmute the microphone and introduce yourself. Thank you very much. Regarding the capital allocation, I wanted to ask you. You are going to prioritize internal investment. Therefore, the shareholder return and payout ratio, you have maintained it. But moving forward, as the profit level increases and as your competitiveness recovers, share buyback or further increase of the payout ratio, these types of topics basically will come about from 2027 and onwards. So internal investment, or if necessary, I believe there will be M&A and shareholder returns. The balance among these three. In the next three years, more than shareholder return, you're going to focus more on internal investment. I just wanted to hear your thoughts regarding the capital allocation and shareholder return. Mr. Nagao, thank you very much for your question. And first, I would like to provide the answer. And if Mr. Soga, you have a follow-up comment, please go ahead. Regarding the capital allocation, M&A, internal investment, and shareholder return, how do we think about these three, I believe was your question. Well, this term, we have to conduct very tough transformations. Based on the thinking, though it is a special year, we want to maintain the shareholder return and maintain the dividend as JPY 139.5. Of course, as the business performance recovers, our payout ratio is 35%, and we have been maintaining that policy. Therefore, money amount-wise, we would like to bring it to a level that we will be able to return to our shareholders. Furthermore, currently, regarding the share buyback, we cannot place priority on it. We will have to say that. But having said that, of course, once the business performance recovers and once we have a surplus in terms of the capitals that we can allocate, of course, we will consider that. Regarding M&A, as I explained in the midterm management plan explanation, we would like to focus on a solid growth, not dependent on M&A. We're at that timing, is how we think. Having said that, regarding the new domains or fields, within various considerations, there may be situations where M&A is unnecessary. And when that time comes, within our M&A Committee, we have a solid discipline. And we will be sharing what we want to do with the board and how the M&A should be done, and also maintaining the responsible future discipline are topics that have been discussed within the board as well. Therefore, even though we do decide to M&A, we would like to place importance on the discipline of that. We would like to focus on the growth and also provide steady shareholder returns. This is Soga speaking. Thank you very much for your question. Up to now, or so far, I have been talking about capital allocation. Simply put, we will make a growth investment for continuous growth and, in parallel, provide a stable dividend to our shareholders. And next, in a flexible manner, conduct additional returns. In a short-term perspective and looking at the business situation right in front of us, the utmost challenge is that, of course, it's our performance of this term. We have the net revenue of JPY 1.2 trillion, but we're not able to increase the profit. We need to fundamentally rebuild the business foundation. And to do that, we're going to spend JPY 50 billion for the structural reform. And that's 2025's capital allocation. And if we're thoroughly able to do that 2026 onwards, we believe that the situation will improve. Having said that, you asked the question about things that are actually going to happen from 2027 onwards. Well, first of all, in 2025, we will be focusing on the structural reforms. And once we complete that, then the JPY 1.2 trillion of net revenue will create a lean organization that will support that JPY 1.2 trillion yen appropriately. And in addition to that, as what was explained in Igarashi's explanations and the midterm management plan, we will invest in growth, data, talent. And also, in order to conduct appropriate business transformation, M&A is also necessary. So structural reform and growth, when these both wheels will turn, then we'll start turning. Then we would like to think about the shareholder returns or additional shareholder returns. Whether that's going to be from 2027 onwards or not, well, we would like to create a situation where we will be able to do this as soon as possible. Thank you very much for your thorough explanation. 長尾様、並びにご質問いただきました。 Thank you very much, Mr. Nagao, and others for asking questions. With that, I would like to conclude today's earnings call. Thank you very much for participating today. 接続をお切りください。 You may now disconnect. Thank you.