DENTSU GROUP INC. Q2 FY2026 earnings call

• Consolidated First Half 2026 Financial Results

  • Organic growth of 0.3% year-on-year, in line with February expectations
  • Consolidated net revenue of 583.1 billion yen (up 3.7% year-on-year, driven by yen depreciation against major currencies)
  • Underlying operating profit of 72 billion yen (up 6.6% year-on-year), operating margin of 12.3% (up 30bp year-on-year, slightly above expectations)
  • Statutory net profit of 46.3 billion yen, including one-off gains from asset and share sales
  • Q2 2026 statutory net profit of 6.1 billion yen, representing a solid profitability recovery from the prior-year goodwill impairment loss

• Recent Business Wins & Industry Recognition

  • Won multiple awards at Cannes Lions and the One Show; named Media Network of the Year at Cannes Lions, with iProspect earning multiple industry accolades
  • Notable recent wins include expanded CXM partnership with Adobe (Americas), expanded Netflix media network beyond the UK (EMEA), new Tata Group media assignment (India), strategic alliance with SBI Neo Media Holdings (Japan), and Global Media Agency of Record for Malaysia Aviation Group (APAC)

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

  • Business Foundation Rebuilding: 88% of the planned 3,400 workforce reductions through FY2027 are complete, with 1.24 billion yen spent on reductions in H1 FY2026. Targets 30% global headquarters cost reduction by FY2028 vs the FY2026 plan; plans to eliminate 70-80 international entities in FY2026, with an additional 50-80 eliminations targeted by FY2028
  • Underperforming Business Review: Extended the target to eliminate all loss-making markets by one year to FY2027; management will prioritize restructuring or exit regardless of prior capital invested
  • Investments & M&A: Internal investments will be integrated into ongoing operations from FY2027; cost savings from global headquarters reductions will be redirected to AI, data, and technology; maintains a selective, disciplined approach to M&A
  • AI Strategy: Core principle is an open ecosystem with external partner collaboration. Launched AI-for-Growth 3.0 and the AI-for-Growth Suite in Japan; 300 active AI transformation projects as of H1 FY2026, on track to hit the full-year target of 1,000 projects. Generated over 107,000 hours of internal capacity via AI in FY2025, targeting over 200,000 hours in FY2026. International AI updates include the AI-native relaunch of 360i (US), a Meta influencer marketing partnership (UK&I), and rollout of a Japanese consumer AI persona-based research tool starting in India (APAC)

• Regional Strategic Priorities

  • Japan: Strengthen the core global profit base; expand along the client value chain, grow the small/midsize client base, and expand global sports and entertainment business leveraging Japanese IP
  • Americas: Strengthen as a key global growth engine; improve go-to-market for high-growth sectors, expand commerce and social capabilities, and grow CXM-led AI transformation
  • EMEA: Prioritize restoring profitability; advance integrated media-focused proposals, invest in priority growth markets, and consolidate operations to improve efficiency
  • APAC: Build foundation for future growth; invest in growth markets (India) and priority areas (data, social), improve cross-market integrated offerings, and rationalize the business portfolio to fund growth

• Midterm Targets & Financial Policy

  • Targets 2-3% organic growth and 16% operating margin by FY2028; prioritizes restoring profitability and improving financial soundness
  • Financial policy prioritizes balance sheet improvement and cash flow management; management aims to resume dividend payments as early as possible, with prioritized investment in AI, data, technology, and structural transformation

By regional segments (revenue contribution % noted where available):

1. Japan: 40% of group net revenue. First half 2026 organic growth of 5%, underlying operating profit hit a record high, with operating margin improving 100bp year-on-year to 25.6%. Q2 organic growth of 5.4% (13th consecutive positive quarter), and Q2 net revenue reached 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%, operating margin of 18.8% in line with expectations. Media was broadly flat, Creative recorded an 18.2% organic decline driven by lingering impacts from 2025 client losses and the annualization of a prior-year large client expansion. CXM declined 1.5% (slightly below expectations). Q2 organic decline of 6.9% (slightly below overall expectations).
3. EMEA: First half 2026 organic growth was broadly flat (in line with expectations). Media maintained positive steady growth, while CXM and Creative both saw organic decline with narrowing rates of decline from Q1. First half operating margin improved 410bp year-on-year to 13.2%, driven by lower staff costs and expense control from business foundation restructuring. Q2 organic growth was flat (in line with expectations).
4. APAC: First half 2026 organic decline of 3.8% (in line with expectations). CXM faced a double-digit organic decline, but all segments improved from Q1 with narrower declines. Q2 organic growth improved to broadly flat from a 7.5% organic decline in Q1. Underlying operating loss improved significantly year-on-year, supported by lower staff costs and continued cost control measures.

• Full year FY2026 consolidated organic growth guidance is maintained at 0% to 1%, and consolidated operating margin guidance is maintained at 13% (as announced in February). The no-dividend forecast for FY2026 also remains unchanged.
• Regional organic growth forecast revisions:
  • Japan organic growth forecast revised upward from 2-3% to just over 3%, driven by stronger-than-expected H1 performance
  • Americas organic growth forecast revised downward from approximately -2% to approximately -4%, driven by continued macro uncertainty, lower media outlooks from project reductions/losses, and weaker-than-expected H1 CXM performance
  • No changes to guidance for EMEA and APAC
• Management expects CXM in the Americas to return to growth in H2 FY2026, and forecasts APAC to return to positive growth in the second half of the fiscal year.

• Persistent macroeconomic uncertainty across international markets remains a key headwind for advertising spend and revenue growth
• International business organic growth lags market levels, with persistent challenges in key markets including the US, Australia, and China, and multiple markets still operating at a loss
• The current operating model is overly complex, with fragmented investments across markets and capabilities that limit competitiveness
• Intensifying competition in international advertising markets, particularly as larger peers accelerate AI investment, creates competitive pressure
• Dentsu experienced the loss of some major client projects in the Americas in H1 FY2026, contributing to the downward revision of the region's full-year outlook
• Uncertainty related to global geopolitical issues (such as the Middle East conflict) creates potential downside risk for client advertising spend in Japan's H2 FY2026

Q: The 16% operating margin target was shifted from FY2027 to FY2028. Is the FY2027 target withdrawn, and what is the reasoning behind this shift? What is the balance of upside vs downside factors for full-year organic growth? / A: Management explicitly shifted the 16% target to FY2028. The change was made to avoid overstretching to hit the 2027 target at the cost of required investments in AI, data, and technology; investments will be made in FY2027, with the margin target achieved the following year. For full-year organic growth, the net balance of factors is flat, matching the maintained consolidated guidance after offsetting upward Japan revision and downward Americas revision.

Q: What share of total Japanese employee working hours do the 107,000 (FY2025) and 200,000 (FY2026) AI-related hours saved represent? International regions saw 3% organic decline in H1; what will drive improvement in H2? / A: Dentsu has 23,000-24,000 total employees in Japan, so the hours saved amount to just a few percentage of total working hours. Management will continue tracking and disclosing hours saved as a measurable AI impact. For H2 improvement, management expects CXM recovery in the Americas, steady progress in EMEA, and positive growth in APAC, bringing improvement across all three international regions.

Q: What is the biggest bottleneck to achieving profitability in international markets, and what explains the large negative new net wins in Americas media? / A: Management's current top priority is to become lean and fit to hit the 16% operating margin target, rather than rushing for faster growth. The negative new net win figure in Americas media stems from the loss of a small number of specific projects from alliance realignment, not a weakening of Dentsu's core competitiveness; major recent wins like Netflix expansion demonstrate ongoing competitive strength.

Q: How has Dentsu's relative competitiveness changed over the past year, and what is the core keyword for growth in the updated midterm plan? / A: Competitiveness has improved in Japan, driven by a persistent client-first focus and integrated offering across TV, internet, BX and DX. Internationally, a flatter, more collaborative, client-focused structure is driving improved integrated competitiveness, as seen in the 22-market expansion of the Netflix win. Dentsu has the right organizational structure for execution now, with priority on lean restructuring that avoids unnecessary talent loss in this people-focused business.

Q: What is the balance between turning around loss-making entities vs selling them, and what are the specific conditions for resuming dividend payments? / A: Turnaround to restore profitability is the first priority for loss-making markets; exit or sale is only pursued if turnaround is not feasible after 2-3 years of effort. Management does not disclose the current number of loss-making entities, but has a clear visible plan to hit the FY2027 zero-loss-making target. The 30% global headquarters cost cut includes process automation and simplification, not just generic cuts; the 12 billion yen in expected savings contributes to regional margin targets. Management prioritizes improving the balance sheet and maximizing profits to enable early dividend resumption, and uses debt-to-equity ratio as a key benchmark, but does not disclose full details of specific resumption thresholds.