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Strategic & Business Updates

• Dentsu won multiple major industry awards: multiple Cannes Lions and One Show awards for Creative, Media Network of the Year at Cannes Lions, and numerous accolades for global media brand iProspect.
• Notable recent client wins:
  • Expanded strategic partnership with Adobe to deliver CXM industry-specific solutions for Adobe's Agentic go-to-market platform
  • Expanded Netflix media network beyond the U.K. across EMEA
  • Secured a new media assignment with Tata Group in India
  • Selected for a strategic business alliance with SBI Neo Media Holdings in Japan
  • Named Global Media Agency of Record for Malaysia Aviation Group in APAC

Midterm Management Plan (Updated to cover FY2026-FY2028, core 2025 policies retained)

• Business Foundation Rebuilding: ~88% of the planned 3,400 workforce reductions (targeted through FY2027) are already complete, with 12.4 billion yen spent on workforce reduction in the first half. The firm targets 70-80 international entity reductions in FY2026, with an additional 50-80 reductions possible by FY2028, and a 30% global headquarters cost reduction by FY2028 versus the 2026 plan.
• Underperforming Business Review: The target to eliminate all loss-making markets is extended one year to FY2027. Management will prioritize clear cost estimates for restructuring or exit, regardless of prior capital invested.
• Investment & M&A: Internal investments will be integrated into ongoing operations from FY2027 onward. Savings from global headquarters cost cuts will be redirected to strengthen AI, data, and technology capabilities. M&A will remain selective and disciplined.
• AI Strategy: Open ecosystem collaboration with external partners is the core strategic principle. Dentsu pursues AI-driven innovation via co-creation with clients and partners, rather than focusing solely on in-house proprietary products. Key updates include:
  • Launched AI-for-Growth 3.0 strategy and AI-for-Growth Suite in Japan, with ~300 AI transformation projects completed toward a 2026 full-year target of 1,000 projects
  • Generated over 107,000 hours of internal capacity via AI productivity improvements in FY2025, targeting over 200,000 hours in FY2026
  • Relaunched 360i (U.S.) as an AI-native brand; Dentsu UK&I built an end-to-end influencer marketing platform via Meta partnership; APAC began rolling out a Japanese People Model-based AI consumer research tool starting in India

Regional Strategic Priorities

• Japan: Strengthen the group's core largest profit base, expand across the client value chain, grow into new areas and small/midsized clients, and expand global sports/entertainment business leveraging Japanese IP.
• Americas: Solidify as the group's key global growth engine via proactive consultative sales in high-growth sectors, expand commerce and social capabilities, and grow CXM-led AI transformation with standardized service offerings.
• EMEA: Prioritize restoring profitability via integrated Media-focused proposals, focused investment in priority growth markets, and operational consolidation to improve efficiency.
• APAC: Build the foundation for future growth via focused investment in growth markets (e.g. India) and priority areas (data, social), cross-market/practice collaboration, and portfolio rationalization to fund growth investments.

Financial & Sustainability Updates

• Top medium-term priorities are restoring profitability and improving financial soundness, targeting 16% operating margin and 2-3% organic growth by FY2028. All regions are targeted to contribute to shareholder value by FY2028.
• Financial policy prioritizes balance sheet strengthening and cash flow management to secure future investment capacity, with a goal of early dividend resumption. AI and data technology are the top investment priorities.
• Dentsu maintains improved ESG ratings and remains included in leading global ESG indices.

• Full Year FY2026 Consolidated Guidance: The full-year guidance for organic growth (0% to 1%) and operating margin (13% range) is maintained, matching the original February forecast. Dividend guidance remains unchanged at no dividend for FY2026.
• Regional FY2026 Organic Growth Revisions: Japan's organic growth forecast is revised upward from 2-3% to just over 3%, while Americas' organic growth forecast is revised downward from ~-2% to ~-4%. Guidance for EMEA and APAC remains unchanged.
• The downward Americas revision reflects continued macro uncertainty, lowered new business expectations for H2, reduced media spend from existing projects, and a slight CXM outlook downgrade based on H1 performance. Management still expects CXM to return to growth in H2.
• The updated midterm plan targets 2-3% annual organic growth and 16% consolidated operating margin by FY2028, with the 16% operating margin target shifted from the original FY2027 target to avoid cutting required AI investments to meet an earlier deadline.

By geographic segment (the firm's reporting structure):

1. Japan: Accounts for ~40% of consolidated net revenue. First half 2026 organic growth hit 5%, matching 5% year-over-year from the prior year first half, with underlying operating profit reaching a record high and operating margin improving 100bps year-on-year to 25.6%. Q2 organic growth reached 5.4% (13th consecutive quarter of positive growth), with Q2 net revenue at a record high. Internet Media, TV advertising, and Digital Transformation all outperformed expectations, with TV delivering high single-digit growth and Digital Transformation delivering double-digit growth.
2. Americas: First half 2026 organic decline of 5%, slightly below expectations, with operating margin meeting expectations at 18.8%. Media was broadly flat, Creative recorded an 18.2% organic decline (driven by prior year client losses and annualization of a large 2025 Q2 client expansion), and CXM saw a 1.5% organic decline (slightly below expectations). Q2 organic decline was 6.9%, but SG&A expense control kept operating margin in line with forecasts.
3. EMEA: First half 2026 organic growth was broadly flat, in line with expectations. Media maintained positive growth, while CXM and Creative saw organic declines that narrowed from Q1. Operating margin improved 410bps year-on-year to 13.2% in H1, driven by lower staff costs from restructuring and controlled operating expenses. Q2 organic growth was flat, matching expectations.
4. APAC: Q2 organic growth improved to broadly flat from a 7.5% organic decline in Q1, bringing H1 organic decline to 3.8%, in line with expectations. CXM still saw a double-digit organic decline, but all segments saw narrower declines than Q1. Underlying operating loss improved significantly year-on-year, supported by lower staff costs from restructuring and ongoing expense control.

Consolidated H1 results: Consolidated net revenue was 583.1 billion yen (up 3.7% year-on-year, driven by yen depreciation), underlying operating profit was 72 billion yen (up 6.6% year-on-year), operating margin was 12.3% (up 30bps year-on-year), and statutory net profit was 46.3 billion yen (including one-off gains from asset sales). Q2 statutory net profit was 6.1 billion yen, a strong profitability recovery from the prior year's goodwill impairment loss.

• Continued macroeconomic uncertainty remains, with weak organic performance in the Americas and ongoing challenges in key EMEA and APAC markets.
• International business organic growth remains below market levels, with a highly complex operating model and fragmented investments across capabilities and markets.
• Key markets including the U.S., Australia, and China are still experiencing organic declines, with CXM facing ongoing challenges across multiple international regions.
• Some markets are expected to remain loss-making in FY2026, requiring extended restructuring timelines.
• Intensifying competition in the AI era in international markets, with larger competitors growing stronger via increased AI investment.
• Uncertainty from geopolitical risks such as the Middle East situation could impact client advertising spend in Japan's H2.

Q: The original 16% operating margin target was set for FY2027, but the new target is 16% by FY2028. Was the FY2027 target withdrawn, and what is the reasoning for the shift? Also, are there more upside or downside risks to full-year organic growth after the regional revisions?

A: The target year is formally shifted from 2027 to 2028. Management chose to delay the target to avoid cutting required AI and data technology investments to hit an earlier 16% margin goal, opting to invest in 2027 and hit the target in 2028. After upward revision to Japan and downward revision to the Americas, overall risks to full-year growth are balanced, with no net skew to upside or downside.

Q: What is the total context for the 107,000 hours of AI productivity savings in Japan in FY2025 and 200,000 hour target for FY2026, and what will drive improvement in international regions' performance in H2 after a weak H1?

A: Dentsu has ~23,000 to 24,000 employees in Japan, so the hourly savings equal just a few percentage of total work hours on average. The firm will continue expanding AI use across collaborative work, tracking and disclosing measurable hour savings as a key metric. Management expects improvement across all three international regions in H2: CXM recovery will materialize in the Americas, EMEA performance is already progressing well, and APAC will return to positive growth in the second half.

Q: What is the biggest bottleneck to achieving profitability in international markets, and what explains the major negative new net wins in media in Americas in H1?

A: Management's current top priority is becoming lean and fit to hit operating margin targets, rather than rushing for faster growth. There is no weakening of core competitiveness in the Americas: the negative net win figure comes from lost projects tied to a small number of prior alliances, not broader competitive weakness, and the firm continues to win major accounts like Netflix expansion, matching historical win rates.

Q: What is the breakdown between turning around loss-making markets versus selling unprofitable operations, how many current entities are loss-making, how much will 30% global headquarters cost cuts alone improve regional profitability, and why are there no specific financial conditions for dividend reinstatement?

A: Turnaround to restore profitability is the first priority for loss-making markets; exit or sale will only be used for businesses that cannot be turned around after 2-3 years. The number of current loss-making entities is not disclosed, but there is a clear visible plan to eliminate loss-making markets by FY2027. The 30% headquarters cut is not just raw cost reduction: it will re-evaluate core headquarters tasks to maximize automation and simplification, expected to deliver 12 billion yen in total savings that will contribute to the 16% FY2028 margin target. For dividends, management prioritizes improving profitability, right-sizing the balance sheet, and hitting stated KPIs to enable early dividend resumption, and keeps specific debt-to-equity benchmark details non-disclosed.