Good morning, and welcome to the Dentsu Group 2022 First Quarter Earnings Call. My name is Masaru Yokota from Dentsu Group Investor Relations team. Please be aware today's call is being recorded. This call is simultaneously held in Japanese and English. So you can choose the language you listen to by selecting the language from the interpretation key at the bottom of the Zoom screen as shown by choosing Japanese or English. Please make sure the original voice is always on, otherwise the sound could be disconnected. For those joining on the telephone line, you can listen to the original voice only. [Foreign Language] Today's presentation materials are provided on our website named 2022 Q1 earnings call presentation materials, and it will be displayed on the screen. Joining me today are from Tokyo, CEO, Dentsu Group, Hiroshi Igarashi.

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CFO, Dentsu Group, Yushin Soga.

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CEO, Dentsu Japan Network, Norihiro Kuretani.

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From Atlanta, CEO, Dentsu International, Wendy Clark.

Hello, everyone. This is Wendy Clark.

From London, CFO, Dentsu International, Nick Priday.

Hi, everyone. This is Nick Priday.

The agenda for today will start from Hiroshi Igarashi with a business update and from Yushin Soga with a financial update followed by a strategic update from Hiroshi Igarashi. After that we will invite you to ask questions. Mr. Igarashi, please go ahead.

This is Igarashi, Representative Director and CEO of Dentsu Group. Thank you for joining our first quarter earnings call. The situation in Ukraine remains at the forefront of our minds. We continue to support our colleagues in the region with the accommodation arrangements, border transfers and legal assistance. We have made donations and provided humanitarian assistance to Ukraine and we will continue to support Ukraine and the surrounding areas based on the guiding principles of we must be a force for good, which is a premise of the Dentsu Group code of conduct. With regards to our business in Russia, we continue to negotiate the transfer of the group's share of the local joint venture company to our local partners. To begin let me start with the headlines from our first quarter. We started our new fiscal year with a better than expected performance. The revenue in the first quarter marked the highest ever since the business listed. Dentsu Group reported 9.1% organic growth, Dentsu Japan Network 10% and Dentsu International 8.4% as clients continue to invest in brand experiences informed by data and analytics. Together, Japan and the Americas generated 72% of our net revenue. They are our two largest regions and continue to show very robust growth. Furthermore, our pitch pipeline remains active across the Group. Considering these trends today, we are upgrading the Group organic growth forecast to 4% to 5% from the 4% we announced in February. As a result of our group-wide effort to structurally reduce our cost base underlying operating profit in Q1 marked the highest since the business was listed with the first quarter operating margin reaching 21.2%. The proportion of customer transformation and technology over net revenue, our KPI for business transformation has reached 31.5% across the group. This slide reports our achievements in detail. In Dentsu International, we have won the new accounts of Santander, JCPenney and Lenovo plus many other local accounts and projects. Dentsu Japan Network has taken a majority stake in Ignition Point Inc. that offers consulting services that combine innovation, creativity and technology. Ignition Point will be a consolidated subsidiary from Q2 2022 onwards. The collaboration with DJN has already started with significant revenue synergy opportunities across both the business transformation domain and in the digital transformation domain. In addition, Fujitsu, Dentsu Inc. and ISID announced a collaboration. This will enable all the firms to leverage their capabilities and client base to solve client issues among the supply, demand and engineering chain. Moving on to sustainability and ESG. We are the first global agency to install and use Salesforce Net Zero Cloud to track our carbon footprint and accelerate our path to net zero. Dentsu by Merkle is one of the few salesforce partners with satisfied resources and implementation experience. I'd like to comment on our effort to share our professional knowledge around SDGs to promote social contribution. We published the Sustainability Communication Guide in Japan. Last but not least, it is my honor to report that Dentsu Group has won and were nominated to many awards across the service lines such as ADFEST, Spikes Asia, Grand awards and the Agency of the Australia and New Zealand by Google. Now, I would like to hand over to Soga san to go over the financial update.

Thank you, Igarashi san. I would now like to take you through the financial results for Q1 2022. The group had a stronger than expected start to the year, driven by continued client confidence across all areas of the business, and the recovery of advertising market, which continued from a year earlier. Net revenues reached ¥258.8 billion with organic growth over 9%, and margins improving by 140 basis points year-on-year to 21.1% on constant currency basis, driven by the transformation and the simplification the group has been undertaking over the past year. Operating margin of 21.2% is the highest Q1 group margin reported since listing. Please note, revenue less cost of sales is now referred to as net revenue throughout the presentation. Now continuing on the Q1 results. Net revenues increased over 12% on a constant currency basis in the first quarter, with underlying operating profit up over 20%. In Japan and internationally as well, the results demonstrate the continued growth in advertising and the strengths in the structural growth area of customer transformation and technology, with significant year-on-year growth. In particular, customer transformation and technology grew 22.5% on constant currency basis in the first quarter and reached 31.5% of group revenues, demonstrating progress against a stated strategy of reaching 50% of revenue over time. This slide shows the organic growth broken down across our four regions. Japan, the biggest region, with 46% of group net revenue reported 10% organic growth year-on-year, with strong demand for digital solutions as well as the recovery in advertising across both digital and TV. In the Americas, the second largest region with 26% group net revenue, organic growth was 13.4%. This region was particularly strong led by media and CXM across the U.S. and Canada. Japan and Americas generated – generate 72% of our net revenue. They are our two largest regions, and have continued to show very robust growth. In EMEA, organic revenue growth was 3.3% including challenged Russian businesses or 5.3% excluding Russia. CXM growth has double-digit across EMEA in the first quarter. The UK market, the largest market in EMEA, grew over 10%, Denmark 24%, Italy over 8% and Germany over 5%. In APAC, excluding Japan, organic revenue growth was 5.2%. The Australian market saw good growth across all three service lines, and EMEA returned to growth trajectory again. Dentsu Japan Network, Dentsu Inc. continued to benefit from the pick-up in advertising across the Japanese market, which has continued since last year. Dentsu Digital grew over 11% with a double-digit growth rate in the first quarter, against as high as 40% comparable of last fiscal year, demonstrating the strengths of demand for digital advertising and services. I am pleased to include Septeni as a consolidated company for the first time. Septeni grew almost 14% in Q1, cementing Dentsu's place as the number one player in digital advertising in the Japanese market. We continue to make progress as we shift our business towards the fast-growing customer transformation and technology area with the ratio of revenues in Japan reaching 25.9% In Q1, up 2.1 percentage points year-on-year. The pitch environment remains active. Next, overseas business by service lines. In Dentsu International, media reported a solid 6.4% growth driven by strengths in America's region. Creative also reported 1.4% growth over the last year. And in Creative in the first quarter – so momentum in the EMEA and Americas region with expanding remits from existing clients. The Creative business continues its transformation under new leadership. CXM, including Merkle, reported almost a 15% organic growth, maintaining a strong performance as our clients continue to invest in redefining their connection to consumers through technology and digital transformation, which we believe will be accelerated. We continue to focus the long runway across for Merkle and the CXM business with continued momentum throughout 2022 and beyond. This slide covers the movement of net revenue on a year-on-year basis. Organic growth is the main reason for the increase, but I'd like to add two additional points. The first is the impact of foreign exchange rate. The average rate used in Q1 was ¥116 to $1. But given the current rate is ¥129, we can expect some further benefit as we move through the year if the rate remains at this level. Adding to the currency effect, acquisitions also contributed. The acquisition of Septeni and LiveArea combined delivered a ¥6.6 billion positive impact. The next slide shows that the group operating margin has taken a continued upwards trend over the past three years, demonstrating the impact of our transformation efforts to lower our cost base as well as the operating leverage from strong top line performance. Dentsu Japan Network delivered the best ever quarter margin at 35.8%, as shown on the blue dotted line. Dentsu International's margin at 9.9%, shown as the grey dotted line, dipped 30 basis points on a constant currency basis including the impact from Russia. However, excluding Russia would have seen a 10 basis point improvement. The next slide shows the movement of underlying operating profit year-on-year, demonstrating revenues growing faster than cost in Japan although we do expect to see costs increase as we progress through the year, due to additional hiring required. Dentsu International costs grew largely in line with the revenues with the resulting underline operating profit being in line with our guidance given at the start of the year. Looking at underlying operating profit, the statutory operating profit, the major changes year-on-year are: gain on asset sales following the sale of property assets in Japan, which largely offset asset writedowns in Russia, seen in the first quarter. The next slide is on the reconciliation from underlying to net profit where we recorded ¥23.9 billion, post adjustments, up ¥19 billion year-on-year. Moving to our guidance for 2022. We are upgrading the expected organic growth rate for the group to 4% to 5% from the 4% previously announced, driven by better than expected growth at Dentsu International. We now look for 5% to 6% organic growth for Dentsu International this year instead of the originally announced 4% to 5%. We are making no changes to the operating margin guidance, nor the guidance on profit amounts. Now please allow me to summarize. The strong start of the year delivered better than expected organic growth and a 20% increase in underlying operating profit. This has prompted us to raise our group organic guidance to 4% to 5% for FY2022. Our acquisition pipeline remains very active as we look to grow our exposure to customer transformation and technology in line with our stated strategy of reaching 50% of revenues over time. We continue to improve shareholder returns with ¥30 billion of the ¥40 billion buybacks already completed as of the end of April. And we retain confidence in our mid-term FY2024 targets of 4% to 5% organic growth, 18% group operating margin and improving dividend payout ratio towards 35%. And thank you, and I’ll pass the microphone back to Igarashi san.

Thank you, Soga san. We recognize the uncertain macro environment and the remaining impacts from COVID. However, we are confident of a strong growth in the market following the first quarter, due to increased investment in marketing by our clients. As Soga explained, we have updated the guidance for 2022, upgrading the organic growth guidance to 4% to 5%, and maintained our margin forecast of 17.7%. Customer transformation and technology is the structural growth area of our industry and where we see the biggest opportunity for growth. In Q1, net revenue from customer transformation and technology reached 31.5% of group net revenue, 25.8% from group – Dentsu Japan Network and 36.4% from Dentsu International. This brings us closer to our stated target of reaching 50% of group revenues from this area over time. The growth will be driven organically and via M&A where we look for capability and geographical infill. We continue to grow our revenues in customer transformation and technology, reporting 22.5% growth on a constant currency basis in the first quarter. This means the group becomes more exposed to a faster growing area of our industry, allowing us to deliver a truly differentiated offer to our clients as we shift our business to a hybrid agency and consultancy model. As shown on this slide, Merkle and LiveArea respectively showed approximately 15% and 30% revenue growth in Q1. In Japan, ISID reached approximately 18% growth rate due to its strengths in digital transformation. We have further enhanced our capabilities within the business and digital transformation consultancy space by acquiring Ignition Point which is expected to continue to see top line growth of 30% year-on-year. By expanding our revenues in customer transformation and technology, we aim to achieve further growth by establishing relationships with our clients C suite beyond the CMO. We see greater opportunity for recurring revenues through ongoing managed services, and we can deliver these services through more cost-efficient models utilizing near and offshoring capabilities. Growing our exposure in this structure growth area also lowers the cyclicality of our revenues as the proportion of media revenue falls, with more stabler revenue. Our industry continues to evolve at an ever-increasing pace. We have our sights set on becoming the market leader in enabling and activating the total customer experience. The value we bring to society and our clients is by integrating our diverse capabilities across the customer journey. We see a long runway of growth in this space, awnd I believe we are well-positioned to capture it with the collective strength of Dentsu Group. Growing our exposure in customer transformation technology positions the group for growth not only in 2022, but in the years to come. We are confident in our ability to achieve our mid-term targets of 4% to 5% organic C-A-G-R, CAGR, in next three years, 18% operating margin, and 35% payout ratio by 2024. We will continue our journey through the business transformation. Finally, I would like to thank all 65,000 of our talented people within the group without whom today’s results would not have been possible. Thank you very much. This concludes my presentation. Now, we would like to move on to the Q&A session. A - Masaru Yokota: We’ll now start the Q&A session. [Operator Instructions] First question is from SMBC Nikko, Maeda san. Please unmute yourself. Please state your name, your company name and ask your question.

Thank you. Maeda from SMBC Nikko. I have two questions. And is that okay if I ask the two questions together.

Yes, please.

First in regards to organic growth that you have upgraded. And have you added a portion, the strong results from the first quarter, or do you have residues regarding second quarter onwards? You have the Ukraine-Russia, the lockdown in China, and also there is an increase in the fuel prices that is applying additional pressure to Japanese companies’ performance. Even if you take those into consideration, do you expect a strong performance second quarter onwards as well? This is my first question. In regards to the second question, not just for yourselves, but when we look at the ad agencies overseas, they tend to take quite aggressive outlook. But the driver of organic growth, is that due to expansion of the simple advertising market? In your case you have the CT&T, the technology area. In other words, we are seeing changes to the business structure of ad agencies. Is that the reason that is pushing up organic growth? When we try to look at the situation from the outside, we can’t really identify the factors. So not just for yourself, but is that something occurring to the industry across the board? These are my questions.

Thank you very much, Maeda san. We have received two questions. In regards to the first question, upgrading of organic digital growth. Is that purely because of the strong performance in the first quarter? Or is the company looking to see strong performance from second quarter onwards despite there being various factors? I will ask Soga san to respond to this question.

This is Soga speaking. Maeda san, thank you for your question. In February, we announced the guidance. Now, against that, we ended up with the result in the first quarter. And against the guidance we issued in February, the performance in first quarter was great, but there were a number of risks that wasn’t clear in February, that has kind of surfaced, which is the Russia-Ukraine issue, and raw material prices, the increasing infrastructure, supply chain issue. which is caused by the Ukraine-Russia issue. So that’s a plus factor in the first quarter. And there are also the upside from second to the fourth quarter above the expected level, but there is also a downside because of uncertain factors. But even if we actually put the two together, the new organic growth, the upgrade portion, we felt that that is undoable. So it’s not just purely based on the result from first quarter, but based on the first quarter we have expectation for the performance in the second, third and fourth quarter. But there are additional factors which are more negative in nature, in risk. But all these were put together to come up with updated group guidance on this occasion. Thank you.

And in regards to your second question. Inclusive of ad agencies overseas, there tend to be quite an aggressive outlook being expressed, is what is the driver, has the business model changed? It’s difficult to understand this from the outside. And so I’d like to respond to this question first of all in regards to Japanese business and international business. We will provide a response to both. So I will ask Kuretani san to respond first, and Kuretani san will be followed by Wendy.

Thank you very much for the question. In regards to Japan, as you may be aware, there are no agency group that has expanded, that include domains like CT&T. And so in regards to the situation in Japan domestically, as we’ve indicated, inclusive of the rival companies, we are not seeing a significant structure for the industry as yet. And that completes my response.

Next, Wendy Clark will provide a response for international business.

Yes, thank you for the question. And while it’s difficult for me to speak to competitor’s business, I can’t speak to our own. If you sort of take apart our performance for the first quarter, you’re going to see that Merkle had its strongest quarter over the past four years. And this was also the fourth consecutive quarter of double digit growth for Merkle. So we are starting to see the CT&T, CXM capabilities perform in line with our expectations. Of course, the CXM area is the area of structural growth. So we see cyclical response and resilience in media and creative forthcoming. But this is – as we think about the role of CXM, it is unquestionably the area of structural growth in the industry. And you can see that we are getting our fair share of that. CXM is now over a third of Dentsu International’s revenue, so 36% of our revenue sourcing now from that area. And we’ve just seen all the right indicators, our pipeline and both our pitch performance for Q1 this year versus Q1 last year is a stronger performance and showing steady and improved trajectory. And so we feel very positive about that. And if you just look at it on a compounded basis versus 2019, now CXM is up 18% versus pre-pandemic level. So you’re seeing the acceleration of that. I think if you look at a microcosm using our U.S. market, as Igarashi-san said, our second largest market you see double digit growth from CXM and you see strong mid digit performance from media and CXM and creative. And that really makes up the complexion and the blend moving forward that we believe gets us the right cyclical, resilience and structural growth delivery. So that sort of represents what we see in the market moving forward. Thank you.

Thank you very much.

Next question will come from Kishimoto-san from Mizuho Securities. Please unmute yourself and please mention your name and company name.

Thank you very much for your presentation. Kishimoto speaking, I am from Mizuho Securities. Do you hear me?

Yes, I do.

I have one question. According to the presentation material, there is an active M&A pipeline, and recently we haven’t check on M&As deals so far, and throughout this fiscal year 2022 what will be size of the entire acquisition and merger plan for this fiscal year? Could you please give us update? And M&A is becoming very competitive. And could you please explain what is your competitive advantage in getting the opportunity of the candidates of your targets, and the size of the M&A planned for this fiscal year as well as the cutting edge for Dentsu Group to acquire targets?

Kishimoto-san, thank you very much for asking the question. Regarding the M&A pipeline which seems to be very strong going forward, but it’s going to be the potential size of M&A planned. And in the M&A strategy, what is the competitive advantage in Dentsu Group? First, I would like to ask Soga san to respond. And then regarding the M&A overseas, Nick Priday is going to respond.

Yes. This is Soga speaking. Thank you for your question. In February this year, we came up with the update on our media management plan. We explained our concept behind capital allocation up until 2024 ¥250 billion to ¥300 billion will be invested. In order to expand the CT&T business, 50% got target will be achieved. And regarding the M&A pipeline which seems to be very strong and active – and as for today for each individual projects and deals which are in different stages of the pipeline. Because of the confidentiality, we are not able to give you specific numbers planned for this fiscal year. We would like to refrain from mentioning specific numbers now. But anyway, by 2024, as we explained, what we explained in February, CT&T business will be enhanced and strengthened in order to carry out our business transformation of ourselves. And we have not changed anything to what we explained in February. This is what I would like to say. Thank you.

Sorry, this is Nick Priday speaking. Can you hear me? So just to answer the question on the M&A pipeline and the competitive nature of that space. Yes, it is competitive as companies – both agencies and consultancies seek to expand capabilities beyond to our advertising into technology implementation and integration. That’s partly how we’ve been able to access the higher level of structural growth in CXM and CT&T over the last few years, particularly over the last 12 months, as Wendy just set out. We build our pipeline through a combination of inbound activities, but also outbound target identification across our three regions. And the track record is strong with our return on investment being significantly higher than our weighted average cost of capital. But I would say in terms of the competitive nature of the environment that we’re not afraid to walk away from deals when we think the price is too high, and we’ve done that on many occasions. We need to be disciplined in terms of our approach. And in terms of how we attract acquisitions and have a competitive advantage in that space, I think we have done a number of deals in the past. The focus our acquisition efforts on CXM means that we get to leverage the experience of the Merkle team who joined our business, and now big are our proponents of acquisitions joining Dentsu. And the instant scale that we get from acquisitions, brings benefits in terms of talent, reduce, cyclicality of the business, obviously faster growth. But the acquisitions have the ability to integrate into our common systems and platforms, and to really leverage their opportunity to access market-related growth and focus on what they’re good at, which is focused on their clients. And so I think if you look at the opportunities, we’re focused on now – as Soga Yushin [ph] said, we will go into detail in terms of the pipeline. We do think, it’s not only the ability to access CXM and better growth going forward, but also the ability to continue to transfer – sorry, to transform our operations for our offshore delivery centers, which many of our recent acquisitions have brought for us. Say for instance, Ugam, Paragon, [indiscernible] have all brought offshore delivery capabilities for us, which I think really does help in terms of the environment moving forward, both in terms of being efficient, but also accessing due to growth opportunities. Thank you.

Kuretani san, could you please give us your brief comment on Japanese business?

In Japan, our M&A pipeline, what competitive advantage we have? CARTA, Septeni, and Dream Incubator with only 20%, and recently we acquired Ignition Point. We have a client base of 6,000 companies. And I think this client base has been utilized. In addition, we are currently promoting Integrated Growth Partner, IGP, through which we are trying to enhance our quality of services where our customers – our clients are resonating with us. More specifically, we have a good understanding of demand side which we are able to utilize our expertise in consultation for businesses as well as the systems establishment as well. We believe that we are able to provide such expertise. And in Dentsu Group, actually there are many people switching from other companies to Dentsu. Of course, there is a vice versa. But anyway, overall, we are seeing increasing number of people leaving competitors and joining us, Dentsu Group, because of perhaps the new culture of the group. We are offering the place for learning. I think these are the motivations for people to decide to join our group. That is my understanding. Than you.

Thank you. Next question from Edison Investment Research, Ms. Fiona Orford-Williams. Please unmute yourself. State your name, your company name and ask your question. Fiona Orford-Williams: Thank you. Its Fiona Orford-Williams from Edison. First of all, can I ask about the outlook for margins in international business? You’re still guiding to flat for the year, but there was a slight dip in Q1. Perhaps you can take us through that in a bit more detail. And then my second question, I’d like to know about pitch activity levels and client reviews of profile of the rest of the year, please?

Thank you very much Ms. Fiona Williams. So you had two questions. First question is in regards to the margin outlook for the international business going forward. And I would like to ask Mr. Nick Priday to respond to that question. And in regards to the upcoming pitch activities, are you asking about the pitch situation overseas? And if that's the case, we'll Ms. Wendy Clark to respond to that question.

Hi, Fiona. It’s Nick Priday. [ph] Thank you for the question. So in terms of our operating margin, confidence in the outlook, given a small dip in Q1, I would say that by way of contacts that we achieved an historically high margin in the first quarter of last year. It was the first time we'd achieved a double-digit margin percentage in the first quarter for Dentsu International. And we came very close to that same level of margin in the first quarter of 2022, just being fractionally behind it. And if we do exclude the impact that our Russian business has suffered in the first quarter, our margin would have actually been up against the prior year by 10 basis points. I think as we shift more of our business to customer transformation and technology, we are certainly recognizing more profitability earlier in the year, and that structurally improves our margins in terms of the phasing of margins throughout the year. So it structurally improves the phasing of our operating margin going forward. I think the other thing I'd say by way of context is the ongoing transformation and de-duplication of the business. The simplification of the business definitely supports margins over the long term, the offshoring that we are really pursuing with some vigor, and the reduction in the number of brands. In the past two years, we allowed us to radically think about how we organize our business, how we deliver services to clients and what the right cost base is across the business, and the savings plans we put in place over the last two years have certainly paid dividends in that respect. So as we look forward on a full year basis, we are confident in the margin outlook for the business. I should also note that we did achieve a 15% margin target one year early in 2021, and we're some 90 basis points ahead of that target. And in 2022, we're confident that we will achieve flat margins as guided, and at the same time, reinvesting people and talent attraction and retention, too. So hopefully that gives you some confidence.

Thank you, Nick. It’s Wendy. I will just answer Fiona's second question, and that was in regards to the pitch pipeline that we see in the international business. The pipeline stands right around US$5 billion at the moment, and that's roughly 72% offensive for DI. So we like that mix and blend. I mentioned on my previous answer for CXM, both the pipeline and the value of pitches is up year-over-year versus this time last year, which again is positive. Perhaps some of the detail underneath this that would be helpful. We saw our top 20 clients grow by 15% in Q1. So we do very well on expanding our existing relationships with our biggest clients, clients like Microsoft, P&G, GM and others. We are actually just notified a very big one on Friday, which I can't talk about, but exciting news coming within the growth of our existing base, which, of course, is significantly cheaper and more efficient for us to expand our existing revenue with existing clients. As we also kind of look at the complexion of our wins, we have a 70% conversion rate locally. So again, these pitches rate locally. So again, these pitches don't tend to get some of the bigger headlines. But of course, for our business and the complexion of our business and dozens of countries around the world being able to convert local revenue, is core to our business proposition, and a 70% win rate feels good. So far this year, our media conversions stand at about US$600 million, and that's on track with our plan. So all in sort of looking at the pipeline, looking at the prospects, we feel very confident as we sit here at the end of Q1. Thank you. Fiona Orford-Williams: Thank you very much.

Are there any questions? [Operator Instructions] Next from Barclays, Julien Roch. Please have the floor. Please unmute yourself. Mention your company name and question please.

Yes, good morning. It’s Julien Roch with Barclays. Thank you very much for taking my question. The first one is, you've upgraded your organic guidance by one point like all the other agencies, and you already answered that based on the balance of what you were seeing, the beat in Q1, but also what you were seeing at the moment, despite the macro headwinds, you were comfortable upgrading guidance. So all the agencies have a greater guidance by one point. The stock market believes we're going into a recession. So someone's going to be wrong. Hopefully, it's going to be the stock market recession are never nice. But any color on client budget versus macro you can tell us, the discussion you're having with your clients, are some of them saying, this is my budget, but not I cut, I'm a bit worried. So any color on budget, macro – why are you so confident versus the market being not confident? Sorry for the long question. And the second one, much faster following up on Wendy’s [ph] answer – out of the 5 billion of pitches, if you could give us the public ones, the large public one. Thank you.

Julien, thank you very much for your first question. Regarding organic guidance upgraded, and considering the headwinds in the macro environment, and why are we able to be so bullish and confident considering the budgets of the client. But what is the rationale for us to be so confident? Regarding this question, I would like to respond. And regarding the second question regarding the pitch, public information, could you please disclose the public information regarding the pitches? To which Wendy Clark is going to respond. First Igarashi speaking. To your first question. Since last year or three years ago, we started our structural reforms. Out transformation started. Against the headwind in the macro environment, we believe that we have become very resilient in operational efficiency. And I believe that that has been already securely reflected in the numbers for the Q1. On the other hand, we are having very close communication with clients through hearing interviews and dialogue with them. Now we are expanding our numbers significantly. As we explained earlier, in this particular area of CT&T, so called marketing communication area which is exposed to cyclical changes – differently from that area, the CT&T is the area where we are focusing on the transformation of the business of clients. So indispensable reforms are need to be carried out. And that is evident from clients. That is the clear need of our clients. And our business is expanding in this particular area towards the second half of this fiscal year, although we will face a headwind in the macro environment. But even with that, we believe that we are able to continue to grow our business. This is the reason why we are confident in upgrading the guidance. Now Wendy, could you please up the floor?

Thank you, Igarashi san, and thank you, Julien for the questions. I'll just build a little bit further on what Igarashi san was saying and pull it down into the DI side of the business. As Igarashi san said, we are in constant conversation with our clients. And obviously, these are times where we need to be partnering and understanding the challenges they may be seeing. There has been increases in both tech and finance in CPG and pharma. We're seeing resilience in those categories. And I would also say, I think there's been some reporting on autos scaling back, but we have not seen that. In fact, in the U.S., our two largest auto clients are growing. And so I think we can only report to you what we see and hear from our clients. I think to the points that Igarashi san was just making around CXM, you do have that sort of more structural long -term investment coming from clients now as they seek to deliver those deep consumer experiences, build and grow loyalty, which has obviously lasting and long-term effects. And that's the acceleration we're seeing in the business now from our clients. So it does make us more defensive. Media will always naturally be more sensitive to upturns and downturns in particular markets. As you know, our clients can switch that on and off, and so we do see some sensitivity around that. And you saw a little bit of that in our EMEA numbers, from the impacts of the war, particularly. So look, taken together because we've got this now fourth quarter of double-digit performance from CXM, that does give us the sort of more foundational base from which to jump in terms of the structural growth. And it gives us a little bit more insulation from some of those short-term shifts and changes that we may see. The final comment I would make is that in gaming and health – those are two verticals that we've announced in the last year we've seen really strong uptake on those. Our health practice is now a top five network. I mean it just launched within the last two years. We're a top five global network with an extremely robust pipeline. So I think those verticals and the investment in those verticals are also helping our resilience. As to the pitch pipeline, you know that we are under lots of NDAs on those, so I can't actually validate, but you would know that we are participating in all of the usual suspects globally. And as I mentioned earlier, I mean, I think the majority of our growth does come locally and regionally, just given the complexion of our business. So while those get a little more press with a 70% conversion rate, they're very fundamental to our delivery. Thank you.

Thank you very much, Mr. Julien Roch. The next question is from JPMorgan, Mr. Panjwani Rajesh. Please un-mute yourself. State your name, state your company name and ask your question.

Panjwani-sama, onegai itashimasu. [ph]

Mr. Panjwani, please ask your question.

Hi. Thank you very much. First question is on – there seems to be a disconnect between the confidence you seem to have in the future outlook as well and the guidance for the full year. Wendy said that we should expect a double-digit growth in CXM and mid-single-digit growth in Creative and Media. However, for both domestic business as well as the international business, if I take out the growth achieved in the first quarter and then see what the full year guidance implies, it essentially suggests a flattish revenue on Y-o-Y basis for the remaining nine months for both the domestic and international businesses. And similarly, on margins, like if I see the margin guidance for the domestic business specifically, and look at the rest of the year, it essentially implies a decline in domestic margins for the remaining nine months. So can you please address this? Are you being overly conservative in your guidance because of the macro uncertainties? And my second question is on what Nick said that it is – I'm happy to hear that you are being disciplined in your acquisitions and happy to walk away if the price is too high. But I also hope the management balances between M&A and buybacks. When you're looking at some of the buying companies trading at 15 times EBITDA, it would be also good to look at your own company which is trading around 6 times EBITDA, has a net cash balance sheet, strong margins, and as you yourselves have said, very good growth outlook.

Hi Panjwani-san, I thank you very much. Panjwani-san. We have received two questions from you. First, in regards to the guidance, that is with strong confidence. But if we look at the revenue for second quarter onwards, it seems to be flat. And you suggest that there is a lot of conservative. So Yushin Soga would respond to that question. And the second question is related to M&A and share buyback. Disciplined M&A is good, but how would that relate to the buyback going forward? I will also ask Soga-san to respond to that question and ask Nick to add if there is anything that Nick would like to add.

This is Soga speaking. Thank you very much for your question. First of all, the guidance in February, we ended up with the performance in the fourth quarter. And for also – we have upgraded our guidance for DI and also for the group. And you said that this was somewhat conservative. Now for us in 2019 and 2022, we ended up with quite tough results, quite tough earnings results. And we were unable to engage in appropriate communication with the market in 2021. Thankfully, we were able to end up with a very good financial results. And in February, we announced – last year in February we announced the mid-term management plan. And so we are executing on that plan right now. Needless to say, the guidance that we issue is not just the guidance. It is something of a commitment in my view for the Japanese business and for the international business in regard of pay outlook. And we feel that we will be able to achieve the guidance that we've announced in February. We're quite confident of that. But at the same time, for the Japanese business and the international business, there are still risks associated with the macro factors that I have mentioned before. And so we still have the second, third and fourth quarter remaining within the year. And so at this point in time, to come up with further upgraded our guidance was something we decided against at the end of the second quarter, and in mid-August, we will be relooking at the outlook for the full year. And if necessary, we may make a further upgrade at that point in time. But in any case, when we look at our peer groups in the West against the guidance, our guidance upgrade on this occasion may look somewhat conservative. But in reflection of the communication with the market in the past, we want to come up with a guidance that we are fully committed to. And that is what we have issued on this occasion.

Thank you very much Soga-san. I'd like to ask Wendy to also add a comment to this question.

Yes. Thank you, Igarashi-san. Yes. I just wanted to clarify in your question. When I had mentioned the mix of double-digit growth from CXM and mid-single digit performance from Media and Creative. That is what we're seeing this quarter for Q1 from the U.S. but it is not where our other two regions are. So that has our focus, as you know we've had continued drag on the business from Creative. We are underway with our sort of Creative restoration with the joining of Fred Levron six months ago. And we will make announcements around that business in – can next month. So we have work to do, to have that same look of success we see in the U.S. replicated in the other regions. So I just wanted to clarify that point of our ambition versus where we sit today Thank you.

[Foreign Language]. Next in regards to the Japanese business, I would like to ask for Kuretani-san to simply make additional comments.

[Foreign Language] In regards to the Japanese domestic business. You've suggested that the margin will go down for the rest of the, now in that regard. As Mr. Igarashi has been explaining thus far, the CT&T domain is progressing very well and so we are trying to accelerate, hiring of employees and the costs associated with hiring and investment in that regard are taking into consideration with some conservatives. Thank you.

And now to the second part of your question in regards to M&A strategy and share buyback And I would like to ask Soga-san and also Nick to comment.

And this is Soga. So allow me to respond. In February this year, we have updated a midterm management plan at that point in time; we've also talked about the capital allocation plan. By 2024 in the three years that, we’ll spend between ¥250 billion and ¥300 billion for M&A. So that we can work towards increasing the proportion of CT&T business towards 50% and by doing this, we want to achieve structural change. We want to make growth, structural growth. We've only been doing this for several months thus far and the buyback that we've announced in February is still in progress right now. And we've already talked about the progress about that before and so at this point in time, I think it's too premature to talk about additional buyback what we have promised to the market and the medium-term [ph] management plan. We will look at the progress of that plan and we will continuously look flexibly about the shareholder return. It will always be part of the consideration but we are still midway through May. And so we feel that this is not the right time to think about additional buyback. That's all for me.

Nick, please make additional comment.

Thank you. Look I think the only thing to add to that is Soga-san implied investing for growth certainly remains the priority for now. And I think, if you look at the nature of acquisitions and how they have helped to transform our revenue profile, over the last few years it's really been quite transformative. So it's – it obviously we're very focused on providing returns to shareholders but it's not just the short term consideration on returns. We also need to make sure that we're focused to capture the highest growth we can on a go forward-basis. And that means that investing for growth and investing and scaling our CT&T capability will, I think be beneficial for the group in the longer term. Thank you.

Thank you very much. [Foreign Language]. We believe that the time is approaching to close the meeting. So with this we would like to close this earnings call. Thank you very much for taking time out of your busy schedule to participate in this meeting. Thank you. You may now leave. Thank you.