In a recent earnings call, Dentsu Group Inc. (TYO: 4324) reported modest organic growth of 0.3% in the third quarter of fiscal year 2024, while also revising its full-year guidance due to slower-than-expected recovery in certain segments. President and Global CEO Hiroshi Igarashi highlighted the company's highest net revenue in Japan for the first nine months, alongside strategic client wins such as eBay (NASDAQ:EBAY) and Adobe (NASDAQ:ADBE).
However, challenges in the Customer Experience Management (CXM) business, particularly in the APAC region and delayed recoveries in EMEA and the Americas, prompted a revision in the full-year organic growth guidance from approximately 1.0% to around 0%. The operating margin guidance was also adjusted from around 15% to approximately 14%. Despite these headwinds, Dentsu remains focused on strategic markets and is set to release a new midterm management plan in February 2025.
Key Takeaways
- Dentsu achieved a 0.3% organic growth in Q3, continuing positive trends since Q4 FY 2023.
- The company reported its highest 9-month net revenue to date in Japan.
- Full-year guidance was revised due to challenges in the CXM business and delayed recovery in EMEA and the Americas.
- Consolidated operating margin decreased to 12.0%, with underlying basic EPS at JPY 68.4.
- Dentsu aims to outpace global market growth by 2027 and will release a new midterm management plan in February 2025.
- The company highlighted recent client wins with eBay and Adobe, emphasizing their global operating model and innovative approaches.
Company Outlook
- Dentsu plans to concentrate on strategic markets and strengthen its structure for strategic clients.
- The company is redefining investment areas with a focus on data and technology to bolster competitiveness.
- A midterm management plan is expected to be announced in February 2025, with an aim to outperform the global market by 2027.
Bearish Highlights
- Full-year organic growth guidance was revised from circa 1.0% to circa 0%.
- Operating margin guidance was adjusted from circa 15% to circa 14%.
- Challenges in the CXM business, particularly in the APAC region, have affected performance.
- Increased expenses were partly due to one-off costs from exiting Russia.
Bullish Highlights
- Japan achieved its highest 9-month net revenue to date.
- The company reported an increasing pipeline, especially in Japan and the U.S.
- Dentsu secured key client wins with eBay and Adobe.
Misses
- Organic growth rates in Creative, Media, and CXM were mixed, with CXM underperforming.
- The net win situation showed stability in North American media, but overall performance did not meet expectations.
- The expected recovery in CXM has been slower than anticipated, particularly in international markets.
Q&A Highlights
- Concerns about rising expenses were addressed, noting the one-off withdrawal expense from Russia.
- Optimism for a turnaround in the APAC region's performance by Q4, with steady performance in Taiwan, India, and Thailand.
- Synergies from the acquisition of Tag were discussed, highlighting its impact on personalized content creation and vertical knowledge.
Dentsu Group Inc. is navigating mixed results in the third quarter of fiscal year 2024, with modest organic growth and strategic client wins counterbalanced by revisions in full-year guidance and challenges in the CXM business. The company's focus on strategic markets, investment in data and technology, and the upcoming midterm management plan indicate a commitment to long-term growth and market competitiveness. As Dentsu continues to monitor its performance and implement improvements, the market awaits further updates in February.
InvestingPro Insights
Dentsu Group Inc.'s recent earnings call and financial performance can be further contextualized with insights from InvestingPro. Despite the challenges highlighted in the earnings report, InvestingPro data reveals some positive aspects of the company's financial health.
One of the most notable InvestingPro Tips is that Dentsu has maintained dividend payments for 23 consecutive years. This consistent dividend history suggests a strong commitment to shareholder returns, even in the face of current headwinds. This could be particularly reassuring for investors given the company's recent guidance revisions.
Another relevant InvestingPro Tip indicates that Dentsu operates with a moderate level of debt. This financial prudence may provide the company with flexibility as it navigates the slower-than-expected recovery in certain segments and implements its strategic plans.
The InvestingPro data shows that Dentsu's revenue for the last twelve months as of Q2 2024 was 8,592.0 million USD, with a revenue growth of 8.73% over the same period. This aligns with the company's report of modest growth and highest 9-month net revenue in Japan. Additionally, the gross profit margin for this period stands at an impressive 86.42%, which supports the InvestingPro Tip highlighting Dentsu's impressive gross profit margins.
It's worth noting that InvestingPro offers 7 additional tips for Dentsu Group Inc., providing a more comprehensive analysis for investors looking to delve deeper into the company's prospects.
While the article mentions challenges in certain business segments, the InvestingPro data suggests that Dentsu maintains strong fundamentals in key areas. This balanced view can help investors better understand the company's position as it works towards its goal of outpacing global market growth by 2027.
Full transcript - Dentsu Gr Inc (DNTUF) Q3 2024:
Operator: Welcome to the Dentsu Q3 FY 2024 Earnings Call. Today's presentation materials are available on the Dentsu Group website. Joining me today are President and Global CEO, Dentsu Hiroshi Igarashi.
Yushin Soga: Global CGO and Global CFO, Dentsu Yushin Soga.
Takeshi Sano: CEO, Dentsu Japan, Takeshi Sano.
Yushin Soga: CEO Dentsu Americas and Global President, Data and Technology Dentsu, Michael Komasinski.
Michael Komasinski: Good day, everyone. Happy to be with you.
Operator: The agenda for today, we'll start with business update from Hiroshi Igarashi. Yushin Soga will then present the financial update followed by strategic update from Hiroshi Igarashi. We will invite you to ask questions after the presentations. Mr. Igarashi, please go ahead.
Hiroshi Igarashi: Good evening, and thank you for joining our Q3 FY 2024 earnings announcement today. Organic growth was positive 0.3% in the third quarter, continuing the improvement from the fourth quarter last year and maintaining positive growth. Japan recorded the highest 9-month net revenue to date and is expected to continue its solid growth. . With the ongoing severe situation in APAC and the delayed recovery of the CXM business in EMEA and the Americas, we have revised our full year guidance and we’ll focus on achieving it. We would like to release our next midterm management plan in February next year, which will be carefully reviewed based on the full year’s results. Next (LON:NXT), these are the highlights of the third quarter. We won global media work for eBay and global creative work for Adobe and regional media work in the EU and China for Pernod Ricard (EPA:PERP). In Japan, we won Domino’s Pizza and AGC accounts by offering integrated solutions across strategy, creative and media. In the United States, Merkle became the CRM partner for Haleon and the data platform partner for Amica. In terms of sustainability, our group’s targets of near- and long-term science-based greenhouse gas emissions reduction is validated by SBTI. Also, we launched the house of creators, a project to support the next generation of content creators with the partnership of Roblox. In terms of industry recognition, one of our group employees won an Emmy Award for casting. Now I will hand over to our Global CFO, Yushin Soga to update our financial results.
Yushin Soga: Thank you, Igarashi-san. Hello, everyone. This is Yushin Soga. I will now give an overview of the financial results for the third quarter of FY 2024. First, I would like to explain our performance in the 3 months of the third quarter from July to September. Organic growth rate was positive 0.3% with growth continuing from the second quarter. Although the results have continued to improve since bottoming out in the fourth quarter of the prior year, they stayed lower than expected, mainly due to challenges in CXM. The group's consolidated operating margin for the 3 months of the third quarter was 12.0%, a decrease of 140 basis points from the prior year. This was due to higher staff cost of increased head count in Japan, allowances of trade receivables in the international markets and others. These impacts, however, are partially mitigated by cost management initiatives. As a result, the underlying basic EPS for the 3 months of the third quarter was JPY 68.4. I will now explain the 9 months results. The key items in profit and loss. Organic growth rate was negative 1.1%, but net revenue increased by 6.3% year-on-year to JPY 858.3 billion due to the impact of currency and M&A. Underlying operating profit decreased by 1.0% to JPY 97.2 billion due to higher SG&A expenses. On a statutory basis, operating profit decreased 40.2% year-on-year to JPY 28.9 billion, and net profit decreased 93.1% to JPY 1.5 billion. This is mainly due to the expenses related to the completion of the transfer of all of the group's holdings of the Russian operations in July, which we announced previously. Next, I would like to talk about Customer Transformation and Technology, or CT&T. The group has positioned CT&T as an important area of business. As of the end of FY 2016, net revenue ratio was 15%, but it has increased to 32% approximately as of the end of fiscal year 2023. However, the ratio for the 9 months of FY 2024 is approximately 29%, which is a drop of around 3 percentage points compared to the same period of the previous year. As explained in the second quarter, this is mainly due to the view of the net revenue realignment for CT&T in line with organizational simplification. In addition to that, reduced client spend in the international business and strong performance in the media business in Japan also influenced the CT&T ratio decline. We continue to see successful growth in areas that will be increasingly important in the future. Examples include double-digit growth in Business Transformation, BX, in Japan, as a 7.5% year-on-year growth in data and technology in the Americas. Next, I will move on to the regional side. On a 9-month basis, in Japan, organic growth rate was positive 2.3% and steady growth continued. In the Americas, organic growth rates stayed negative, but continue to improve on a quarterly basis. EMEA returned to positive organic growth. APAC remained in organic decline. Among the key markets, the U.S. and the U.K. reported a continued negative organic growth decline, but positive organic growth was achieved in Spain, Poland, India and Thailand. Japan, the largest region, accounting for around 40% of group net revenue continues to show steady growth with 9-month net revenue reaching a record high. CT&T was largely flat with BX maintaining double-digit growth led by robust client demand. In the advertising business, in addition to a strong performance in TV advertising, Internet Media also achieved double-digit growth. Continuing from the first and second quarters due to the increased client spend from existing clients and new client wins. Performance in Japan is generally in line with the initial full year forecast, and we expect continued solid growth in the 3 months of the fourth quarter as well. In the Americas, the region accounting for around 30% of group net revenue the year-to-date organic growth rate has continued to show recovery after reaching a trough in Q4 of 2023. However, it remains lower than expected. This is primarily due to reduced client spend against the backdrop of challenging conditions in the CXM business. Meanwhile, media has remained relatively stable with good contribution across major clients. The organic growth rate continues to improve with growth in the 3 months of both the second and third quarters. In addition creative is beginning to show results due to synergies with Tag. Among the clients win -- among the client wins that Igarashi-san mentioned earlier, Adobe's global pitch was won by Tag's high creativity and efficient operations. The 3 months of the fourth quarter are expected to continue being a negative organic growth rate given the slow recovery in CXM and the overall volatility of the market. EMEA returned to a positive organic growth rate in the 9 months. However, like the last quarter, this is partly due to the low comparative due to the one-off financial impact in the DACH cluster last year. Excluding this onetime financial impact, organic decline in the 9 months in EMEA would be 3.4% -- negative 3.4%. CXM continues to be impacted by slower recovery across the region, specifically in the U.K. On the other hand, in Spain, where we acquired Omega last year, we have achieved a double-digit organic growth rate in the third quarter, the same as the last quarter. Media continues to remain stable at levels above expectations with some new competitive opportunities. Creative returned to positive organic growth in the 3 months of the third quarter, led by an increase in client spend. Continued positive momentum is expected across media and creative in the 3 months of the fourth quarter, but full year forecast has been downgraded due to the weak CXM business. In APAC, the cumulative organic growth rate for the 9 months remained negative. In particular, CXM continues to face challenging conditions including in Australia due to factors such as a decrease in local client spend. Media performed well with major clients, although it remains soft in the business environment. On the other hand, creative continues to be affected by client budget cuts. Furthermore, improved business performance is expected in the 3 months of the fourth quarter, in line with earlier forecast. Moving on to profitability. This slide shows the breakdown of the change in the group's underlying operating profit from the prior year. On a year-to-date basis, underlying operating profit decreased from JPY 98.3 billion in the prior year to JPY 97.2 billion. This was due to higher other operating expenses than the increase in net revenue. Staff costs remain at the same level as in the prior year. Let me explain in detail. Net revenue has increased JPY 9.1 billion, but this includes a reversal of the onetime financial impact of TAG last year as well as a net increase from TAG and other subsidiaries acquired last year. On the other hand, other operating expenses increased by JPY 10.9 billion. This was due to the net increase of TAG, which started to be consolidated in July 2023, the internal investments and allowances of trade receivables in the international markets and others in the third quarter. Staff cost was decreased by JPY 0.7 billion with cost management initiatives. For the 3 months of the fourth quarter, cost management will continue to be implemented, ensuring our cost base is at an appropriate level. Finally, I would like to share with you our revised guidance. As I have said, the recovery in the third quarter was lower than expected, especially in CXM. We are confident in our medium-term direction of making internal investments, strengthening our integrated growth solutions and restoring organic growth. However, considering the 9 months results and forecast for the 3 months of the fourth quarter, we have revised our organic growth rate guidance downward from circa 1.0% to circa 0% and an operating margin guidance from circa 15% to circa 14%, and underlying operating profit guidance from JPY 180 billion to JPY 167.7 billion, as shown in the slide. As a result, underlying net profit will be revised downward to JPY 91.6 billion; statutory operating profit to JPY 92.2 billion; net profit attributable to the parent company to JPY 23.5 billion. However, the annual dividend per share forecast will be maintained at the fiscal year 2023 level at JPY 139.5 as expected at the beginning of the fiscal year. I will now hand back over to Igarashi-san. Thank you.
Hiroshi Igarashi: Thank you, Yushin. Let me now explain our group's strategy. Our organic growth rate are improving. However, our recovery of performance is low due to the weak CXM business in the international markets. Under these circumstances, the integrated growth solutions we provide contribute to the high pitch win rate in Japan and the steady accumulation of net wins mainly in the media business in the international markets. We will also continue our internal investments in areas such as data and technology and AI. By further strengthening our specialized areas and promoting cross-selling as well as providing integrated solutions across media, creative and CXM, we will achieve our revised full year guidance. The key to the recovery of our group's performance is the strengthening of internal investments, which we have started this year. In data and technology, we officially launched Merkury for Media, as we have explained in the first quarter. We are also developing solutions at leverage data assets and analytical capabilities in areas outside media. Amongst our capabilities, in terms of investing in our people and culture, a new program has been launched. It is designed to support the development of global leaders who embody our One Dentsu concept, and we continue to strengthen our talent pipeline. In business operations, we are working to embed the One Dentsu operating model across the group. To maximize the benefits of this model, a core platform has been developed to provide business insights based on data such as the individual clients' performance and the revenue generated by each service. Moreover, to further accelerate our growth momentum, we have embarked on 3 initiatives over the medium term. First is focusing our resources on strategic markets. We will narrow down the markets on which we focus, concentrating our management resources mainly on Japan and the United States, which account for more than half of the group's revenue establishing and reinforcing a competitive service model as a strategic market is our priority. Next is strengthening of our structure for strategic clients. With the focus on global accelerator clients, we will continue to strengthen our organizational structure that enables to deliver integrated services for strategic clients. In particular, our approach to Japanese clients, we will actively promote our group's integrated growth solutions overseas based on the trusted relationships we have established in Japan with intensive collaboration between Japan and international markets. Finally, redefining our strategic investment areas. We will continue internal investment with a strong focus on data and technology, AI and our people. Our people are key to integrated growth solutions, the foundation for integrating capabilities across the group. So far, our group has acquired new capabilities through investments in CT&T. Going forward, we will continue to improve our initiatives that will strengthen the competitiveness of the entire group. While continuing internal investment and focusing on intensive resource allocation, we are also working to improve cost efficiency by reviewing our organizational structure and business processes. Specifically, through the introduction of the One Dentsu operating model, we are focusing on readjusting the cost structure of the middle and back offices and securing investment capacity for innovation in the front office and product development. Eliminating internal duplication and redundancy will improve our cost structure allow us to develop unique products and strengthen our client-focused organization. This will accelerate our growth through reinvestment. To present our journey to growth, the next midterm management plan will be announced in February next year. Under One Dentsu, we aim to achieve growth that outperforms the global market by 2027. Next month, we will explain our specific business strategies to achieve medium-term targets and to recover our competitiveness. To conclude, recovery is lower than what we have expected. However, we believe that the strategies we have been working on under One Dentsu will continue to be effective. With our mission to recover our competitiveness, we will continue medium-term initiatives through the internal investments while improving our cost efficiency. Our midterm management plan, including these initiatives will be presented with the full year results in February next year. Thank you. I will now hand back to the moderator, and we welcome questions.
Operator: [Operator Instructions] First question, Daiwa Securities. Mr. Abe, please.
Masayuki Abe: Daiwa Securities, Abe speaking. I have 2 questions. First, CXM decline in performance, the background thereof and the -- what do you think will be the timing of recovery, I would like to confirm this point once again. And the second point is organic growth in next fiscal year onwards. Would it be possible to achieve organic -- positive organic growth? I want know the situation by region. These are the 2 questions I have.
Hiroshi Igarashi: Thank you for your questions. This is Igarashi. I will respond to your first question. The background behind decline performance in CXM and when we expect recovery. I will explain the overview. And after that, I would like to call upon Michael Komasinski to support. And about your second question, growth prospect next fiscal year, you want to know by region. Igarashi will respond to the second question. First, CXM, the reason for declining a challenging performance in CXM, the performance is declining, but we we'd like to mention that this business is on a recovery trend. Recovery is slow, but we are on a recovery trend. I would like to mention that point. And if you take a look at peer groups in the industry as well as tech companies, the industry as a whole is in a challenging situation, whereby recovery is slow. The main trend we are seeing is on the client side, client spend is becoming very prudent. Clients are very careful in their spending. And before the -- compared with before, there's a decline in large client spend. These are the main trends that we are observing. And specific projects and deals. Up until they close, it is taking more time. And that's another reason for the delayed recovery. And under such circumstances, we are thoroughly revisiting our assets. Where do we have our strengths, we are revisiting and client needs, where are they at the moment, we are trying to have an accurate understanding of this point specifically by client, we take a look at specific and detailed needs by clients. And we try to best utilize our strengths when we give our proposals to our clients. And IGS initiative we are working on, and in that sense, media and creative as well as Tag, as we mentioned before. These kinds of executions, we try to conduct to cross-sell amongst these strong cost execution, and we are starting to see specific results. This is bearing fruit. That is the current situation. Therefore, this is taking time. But towards the end of next year, we think we will be able to confirm recovery. That is our prospect and the outcome of specific initiatives and the future outlook, I would like to call upon Michael to add some points here as well.
Michael Komasinski: Thank you, Igarashi-san. Yes. As Igarashi-san mentioned, the CXM business has been down, really, from clients pulling back on large transformational investments and projects. We're just not seeing the same kind of deal flow for that type of work that we saw in 2021 and 2022 off the back of the pandemic. The business has been stabilizing. We expect that progress to continue into next year. And where we're starting to see demand come back into the business, really around the areas where there's some kind of AI-related innovation taking place. So areas like data platforms or data strategy where clients need to understand what disparate data sets they have to train models on or to be able to power large knowledge networks for various use cases across the enterprise. AI-driven sort of in the enterprise content supply chain using sort of products like, say, from one of our partners like Adobe where there are real innovations and enhancements in how enterprise content is managed and developed. And I would say generally, in our analytics area, where there's just a continued need for better understanding of attribution, incrementality and just a more comprehensive way of measuring marketing effectiveness. So I think those are some of the areas where we see those kind of green shoots, albeit more in sort of a point solution or a siloed sort of way as opposed to the broad transformational projects that we were seeing. So that's -- we'll go to where the demand is. And that's basically what we're doing is re-pivoting the business to where we see demand pockets and continuing to follow what our clients are asking us for. And we'd like to see that, that stabilization and recovery continues into next year.
Hiroshi Igarashi: About your second question, our outlook for next fiscal year. First, in May of this year, we announced our global outspend report we announced. And according to this report, 2025 ad spend will grow by positive 4.2%. And by main market, Japan, positive 2.5% U.S., a positive 4.4% and the U.K. positive 4.5% according to this report. This is the outlook that we announced and we want to make sure we can commit to this. And as for specific prospects and outlook, we want to bear in mind the situation in Q4 and in February of next year, we would like to explain once again about our future outlook.
Operator: We would like to take the next question from Edison Group, Ms. Fiona Orford-Williams.
Fiona Orford-Williams: It's Fiona Orford-Williams of Edison Group. My 2 questions, first of all, on the pipeline and the pitch conversion on the new business front, particularly, could you tell us a bit of background on the wins of eBay and Adobe more on that? Whether Merkury has had any particular successes to date. And when you refer to recovering competitiveness, did that imply that you were missing out to some plum pitches on in terms of price? So that's my first question. And then my second question is when you say increase the emphasis on the Japanese and U.S. markets, what does that actually mean in practical terms? Does it imply disinvestment elsewhere?
Hiroshi Igarashi: Ms. Fiona, thank you very much for your question. Regarding the first question of the pipeline situation, and also regarding the -- including the new businesses, the win rate and the pitch rate situation is what you like to know. And also regarding the ones that we won, eBay and Adobe, what was the reason for winning those is what you also wanted to know. And did Merkury type of a new product contribute? And as or the ones that we lost, the pricing have the major factor in losing those deals was your question. And from my side, I would like to explain about the outline. And from Michael, especially regarding the eBay and Adobe situation, I would like him to support. And also focusing on the U.S. and Japan, does that mean that are we going to limit investments to these 2 regions? Regarding the second question, Igarashi, myself, would like to answer that question. First of all, regarding the pipeline, to now to this point, we have an increase in the pipeline very much. And this is for us a very happy situation, especially Japan and U.S. our pipeline is increasing. That is the current situation. Media's pipeline, slightly in weight-wise is larger than others, but including creative, various integrated type of pipeline is increasing. Therefore, as we would like to surely realize these pipelines and acquire these accounts. Regarding the winning of the pitches or winning rate. Well, Japan, we have quite a high winning ratio. Looking at each quarter of this fiscal year, this third quarter pitch winning rate is higher than the usual. And regarding the other regions, they are putting their utmost efforts. However, it's not that we are not losing. So we would like to further increase the winning rate in the other regions as well. Overall, we consider it is a good winning rate. And next, regarding eBay and Adobe, Michael will be responding.
Michael Komasinski: Yes. Thank you, Igarashi-san, and hello Fiona. Just some specifics on those 2 wins. They're actually very good examples of how we're winning in the marketplace in those respective areas. So eBay is a media win and I think a handful of the reasons that we were selected were the strength of our global operating model. I think it was clear to them that we could provide service in their key markets and that we could bring that model together globally and keep it coordinated and tight. We definitely demonstrated a level of innovation in our approach to media and our ability to capitalize on some of the trends and new opportunities across the media landscape, a focus on business outcomes and our ability to drive their marketing KPIs and the outcomes that those support. And then lastly, to your question specifically, Fiona, Merkury definitely played a role in that win. It demonstrated our ability to take identity-driven audiences, plan against them, activate against them and measure holistically. And although we do that with different levels of fidelity across markets, given regulatory environments, I think the ability to showcase that and codify that into a system that they can participate in via the Dentsu Connect portal, I definitely think is helpful when clients are making those decisions. On Adobe, more in the sort of creative and scaled production set of services, a couple of similar things and then a couple of unique things. I think similarly, the global operating model was part of our selection. We were able to really show strength and the depth of team resource in key regions like EMEA and APAC as well as the Americas, of course, and really, I think we demonstrated that we were best-in-class on their stack and their set of tools. So our understanding of how to use the new Firefly solution in conjunction with more established solutions like Adobe, Asset Manager, Workfront and some of the other tools and bring those together for clients in kind of a content supply chain concept, really, I think, resonated. And so we always think of Adobe as kind of client 0 in terms of our approach to how we use their tools, how we're going to help them talk to prospective clients in the market about the efficacy of them. And I think Dentsu's just really uniquely positioned because of our expertise to be sort of the best marketing partner to help them drive demand and sales for their products. So that's -- I think that's the summary I'd have for those 2 wins.
Unidentified Company Representative: In the question, I think there was a question regarding the pricing and the purchase. The bold pricing drug within the competition situation that may be seek to us, but that depends. But in such a situation, we will consider a price strategy and increase our winning rate. And next, regarding the focus shift to Japan and the U.S. First of all, for us, our foundation or the data and tech, Japan and U.S. is leading the group in those 2 areas. And that foundation, our platform is something that we can expand to the overall group. Therefore, in U.S. and Japan, the data and technology, we would like to make a thorough investment and secure that first. And before I mentioned about the Japanese companies, the global companies so to speak, that have their base in the United States and there are companies that go from Japan to overseas, we're also going to approach them too. So in the U.S. and Japan perspective, how are we going to gain additional global business is also the reason why we're focusing on Japan and U.S. However, in other markets, we are considering in detail what deals are a priority. And also at the same time, we are reviewing which investments are priority as well. So within that process, we will be making investments in other markets as well to make that decision from the overall perspective. That concludes my answer.
Operator: Next question, SMBC Nikko Securities, Maeda-san.
Eiji Maeda: SMBC Nikko Securities, Maeda speaking. First, I want to confirm some numbers. CXM and media creative for each businesses Q4. What would be the organic growth rate in Q3 for these 3 businesses? That's the first question. And once again, confirmation of numbers, you always comment on account net win and net loss. I want quantitative information on this topic. And at the same time, in the next midterm management plan, by 2027, you say you want to aim to achieve growth at performance global market. When you announced your Q2 results, the impression we have is next year, you are doing well with regards to new accounts. So in terms of you may be able to exceed average. That was the impression I had that compared with that time, Q2, it seems as you're turning down. Is that the correct understanding? Or you do have a target. And next year, do you think you'll be able to outperform the market in terms of organic growth? These are the points I want to confirm.
Hiroshi Igarashi: Mr. Maeda, thank you for your questions. Your questions for CXM media and creative. The organic growth situation of these 3 businesses this fiscal year. You want numbers for each of the 3 businesses, and I will call upon Soga-san to respond to that question. And account net win situation, you want a quantitative response.
Unidentified Company Representative: Igarashi, I would like to respond to that question. And in 2027, by 2027, we aim to outperform the market we mentioned. What would be the situation like in 2025, bearing in mind the current situation and maybe the company is turning down has a lower tone. That was your next question, and I would like to get you a response. And first, Soga-san will respond to your first question.
Yushin Soga: This is Soga. Thank you for your questions. About your first question, Media, Creative and CXM. How much organic growth for these 3 businesses and depends by region as well. Unfortunately, though, CXM main market is Americas and APAC, and they have negative performance, and we did touch upon CXM briefly before and EMEA, positive organic growth. And with regards to media, Americas, EMEA, relatively strong, but unfortunately, APAC overall is in a challenging situation for media as well in APAC growth is negative. And creative, APAC negative and EMEA positive Americas slightly negative. So overall, Creative, Media, CXM what was the situation like in the international market overall? Unfortunately, on a year-on-year basis compared with the previous year, Media, Creative, CXM, there are some slight negatives particularly CXM is declining more substantially than the other businesses. That is the response to your first question. And your second question, net win situation. Thank you for your cooperation and support in the group as a whole, particularly for North American media, we've been accumulating net wins. Q4 of last year, we were slightly positive or about JPY 300 million positive. We started from there. And in Q1 of this year, about JPY 200 million. And Q2, about JPY 400 million and in Q3, a bit less than JPY 300 million, which means relatively stably we are progressing this fiscal year, particularly media net wins we are able to accumulate quite successfully. But overall, compared with our expectations, not only for media, but for the group business as a whole, the actual performance is not catching up with our expectations. And as a result, we came up with a forecast, as we mentioned in our presentation. But our main markets of North America, particularly media net win is a very important KPI. And here, we have been able to grow our numbers stably which will serve as a very robust bridge towards the next fiscal year. That's how we perceive the situation. This concludes my response.
Hiroshi Igarashi: 2027 midterm management plan. There was a question about that, if I may respond. When it comes to recovery, recovery is moderate but we are engaged in internal investments, and we are taking the right steps with the right direction of organic growth we understand and 2027, as we mentioned before, we want to, in a consistent manner, continue these initiatives towards 2027. And then we think we will be able to outperform the market. Details we will explain in February when we announced our new midterm management plan. Our goal towards 2027. It’s not that we will definitely perform in 2025. We want to continue these right steps and try with the goal of 2027. This concludes my response. Thank you very much.
Operator: We would like to take the next question from Nomura Securities. Mr. Harahata, please go ahead.
Ryohei Harahata: This is Harahata from Nomura Securities. I have 2 questions. You have explained about this from July to September, other expenses seems quite high. I would like to know the breakdown of that. That's my first question. And the second question is from October to December, APAC is going to turn around is your explanation. And is that turnaround going to continue is what I would like to know. Those are my 2 questions.
Unidentified Company Representative: Mr. Harahata, thank you very much for your questions. First of all, regarding your first question, July, September, the other expenses, it seems that it is becoming larger and the content and breakdown is what you'd like to know. And also your second question was regarding October to December, APAC is going to turn around is what has been explained. Therefore, specifically speaking, with what it is going to turn around and also next fiscal year, is that trend going to continue. So regarding the first question myself -- excuse me, Soga will answer the second part. Igarashi will answer.
Yushin Soga: Thank you very much for your question. This is Soga speaking. Regarding other expenses, probably what you’re looking at is the flash report. And sorry, I don’t have that flash report with me, so I don’t have the specific numbers in my mind, but probably what’s included in that is the withdrawal expense from Russia. Either way, it is a one-off expense, and this is not going to recur continuously. That is all. And regarding your second question, APAC, this term, it is facing a very difficult situation. And then the main markets in there, China and Australia, these 2 markets have a large portion within the APAC region. And these 2 markets are struggling. However, regarding the fourth quarter, including these markets, at the end of term media’s perspective, we can seek the turnaround. And for other areas, Taiwan, India, Thailand for now, they are performing steadily. Regarding the next term, next fiscal year. Given the fourth quarter situation, I would like to share the more details in February. It is a difficult situation, but we are going to put our efforts to progress the market situation thoroughly and improve the performance of APAC. By the way, from November the headquarter’s Chief Strategy Officer, is going to thoroughly watch this region so that we directly will see the process of the improvement and be able to respond. And the structure now is established. So we would like to continue to put our efforts into this.
Operator: Next question, Mizuho (NYSE:MFG) Securities, Kishimoto-san.
Akitomo Kishimoto: Mizuho Securities, Kishimoto. I have just one question. The background behind revising your guidance. After second quarter, you mentioned that on a quarterly basis, there's going to be a recovery quarter after quarter, but the actual situation seems quite challenging and when you announced your Q2 results, you have no clear outlook of Q4, and you made announcement based on tentative numbers or you didn't expect this kind of a situation. And the actual situation is much more tough and clients are postponing their ad placements more. What is the background behind the revision of your guidance?
Unidentified Company Representative: Mr. Kishimoto, thank you for your question. I would like to explain that what we expected. CXM recovery is slow. That is, indeed, a fact. And the CXM recovery is slower than what we are expected in Q2 for other domains, media and creative. And considering the very robust performance in Japan, in other parts of our businesses, they are progressing as we expected. It's above all CXM in international market that the recovery is lower than we expected. And this is the background behind revising our guidance.
Hiroshi Igarashi: Thank you for explanation. Revenue was prolonged and the postpone, but you are seeing much more postponements. For CXM, we think this kind of situation will continue for a while.
Operator: So the next question will be the last question from Tokai Tokyo Intelligence Lab, Mr. [Yamada], please go ahead.
Unidentified Analyst: I'm [Yamada] from the [Tokai Tokyo Intelligence Lab]. I have one question. With the synergy from Tag, you are able to win large-scale deals. Specifically speaking, what kind of synergy was generated? And moving forward, what kind of synergies can you expect? That's all.
Unidentified Company Representative: Thank you very much, Mr. [Yamada], for your question. Igarashi would like to answer that question.
Hiroshi Igarashi: Regarding Tag, last year, we conducted M&A and acquired this asset into the group. This company mainly does the final execution output of creative that is the content of this asset. And they, including the AI domain, they do a personalized content creation, and they are -- have the excellent capability as an asset for them. And in addition, the vertical knowledge. They have a high level of vertical knowledge and rich knowledge. It was an independent organization to the acquisition. Therefore, heightening the vertical knowledge and that has been highly received. And that actually further heightened their knowledge of the verticals. And this time, like Adobe, the capability of proposing a creative solution. That solution can contribute a lot to Adobe and to our clients and the potential of being able to do that and the visibility that they can do that was highly and is highly received. Therefore, from this area, including the vertical knowledge and experience we can contribute to the client. Therefore, in order for the clients to be able to understand that, we are conducting various approaches. And we believe that there will be a great progress in this area and have high expectations. This concludes my answer.
Operator: Mr. Yamada and all other people who raise questions, thank you very much indeed. We now conclude the earnings call. Thank you very much for participating today amongst your busy schedules.
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