Welcome to the Dentsu Group Inc. Full-Year 2022 Earnings Call. Please be aware, today's call is being recorded. The call is simultaneously held in Japanese and English. Please choose your preferred language from the bottom of the Zoom screen. For those joining on the telephone line, you can only listen to the original language. [Foreign Language] Today's presentation materials are available on the Dentsu Group website. Joining me today are, CEO Dentsu Group, Hiroshi Igarashi.

[Foreign Language]

CFO Dentsu Group, Nick Priday.

This is Nick Priday, hi everybody.

Dentsu Chief Global Client Officer and Dentsu Americas CEO, Jacki Kelley.

Hello, everyone.

CEO, Dante Japan, Norihiro Kuretani.

[Foreign Language]

The agenda for today will start with business update from CEO, Hiroshi Igarashi. Nick Priday will then present the financial update, followed by CEO, strategic update from Hiroshi Igarashi. After that, we will invite you to ask questions. Mr. Igarashi, please go ahead.

Hello and welcome to our 2022 results. This is Igarashi, CEO of Dentsu Group. Before I start with the presentation, I would like to express my condolences to the people, who suffer from the earthquake in the region of Turkey and Syria. Now I would like to start my presentation with a short video covering some of our highlights from 2022. [Video Presentation] In 2022, we delivered another year of record net revenues as clients continue to invest in transformations to deliver deeper relationship with their clients. We delivered record underlying operating profit with margins reaching 18.4%, 20 basis points higher than the previous fiscal year, and beating guidance by 40 basis points as the effects of our group wide business simplification continue to deliver savings. Our efforts delivered a record high underlying basic EPS, up almost 24% year-on-year and a record dividend per share at JPY155. The results of our efforts have been shared with our shareholders, and we continue investing in our people and capabilities as we continue to focus on generating future value for our shareholders. As we move on to the quarter highlights, I am pleased to announce a number of new client wins. NTT Docomo, Dentsu was appointed to manage planning, creative and media for a new service promotion. In Europe, iProspect, one online retailers Zalando's Global Business. In the United States, we won the global account of McCormick, consolidating a nearly decade-long relationship. Aside from new wins, we continue to expand our relationships with our largest clients, including Heinz, AmEx and General Motors across our client offer. We continue to expand our capabilities through Dentsu Gaming in our Web3 Metaverse offerings with clients such as Starbucks and Heineken. The globalization of our branded content capability is moving forward as well. We have recently announced the launch of branded content and entertainment leadership team and their initiatives to invest in this area at Dentsu Creative, our network outside the Japanese market. In sustainability, for the seventh consecutive year, we have been included within the Dow Jones Sustainability Indices. We achieved four star in Nikkei SDGs Management Survey 2022, and a gold rating in the Pride Index, recognizing our inclusions initiatives. In October, we partnered with Keidanren to bring together 100 clients and government leaders in Tokyo to discuss sustainable business as part of Dentsu’s commitment to the WBCSD. Finally, in terms of awards, we won various awards globally, including those in the customer transformation and technology area. Dentsu X and iProspect were awarded winner and runner-up of Media Network of the Year by Eurobest in December. I'm now pleased to hand over to Nick Priday, our new Global CFO, for the financial update for 2022.

Thank you, Igarashi-san, and hello, everybody. Before I take you through the financial results for 2022, I would like to just briefly say that it is an honor to take on the role of Group CFO for Dentsu. Having worked for the Group for 10-years, I'm excited to now lead the finance team as we enter our next phase of growth and development. And of course, I look forward to meeting many of our shareholders and analysts over the coming weeks and months. Next slide, please. So I'll start with the key metrics for the full-year 2022. We show all figures excluding the Russian business unless explicitly stated in this presentation, as we have signed a binding agreement to exit Russia, which is now subject only to local regulatory approval. Our organic revenue growth rate was 4.1%, driven by the structural growth of the customer transformation and technology business and continued strength in media. Underlying operating margin beat our upgraded guidance by 40 basis points and was 70 basis points above our original guidance for 2022, reaching 18.4%. We saw strong profitability in the fourth quarter in Japan in particular. Next slide, please. This slide shows the profit and loss for 2022, which does include the impact from Russia. Underlying results, first, our net revenue was JPY1.1 trillion. Underlying operating profit was up 13.5%, leading to an increase in underlying net profit of 19.1%, all of which were record highs. And these figures were supported by foreign exchange and the weak yen throughout 2022. On a constant currency basis, net revenue increased by 6.2% and underlying operating profit increased by 5.2%. Moving to our statutory figures on the bottom half of the page, operating profit and net profit were lower year-on-year due to the exceptionally high result in 2021 caused by the sale of assets, including our headquarter building in Tokyo. Next slide, please. Next, I would like to talk about the main driver of our growth, customer transformation and technology. As you can see from this slide, the revenues generated from CT&T were only 15% when we acquired Merkle in 2016. In 2022, as we have shifted our revenues into CT&T, it now represents 32% of Group revenue, growing 17.5% year-on-year on a constant currency basis. We continue to see progress towards our medium-term target of 50%. And we will reach this target through both organic and inorganic growth as we continue to execute against our strategy. Over the last 12 months, we have announced five acquisitions in this space and our M&A pipeline remains healthy and active, and I look forward to updating you on future deals over the coming months. Next slide, please. So this shows our regional view. And in summary, this is a solid performance across all four regions, including Japan, where we reported 17.9% organic revenue growth in the prior year. Our expansion beyond Japan since 2016 has seen our Americas business double its revenues, resulting in a truly global footprint. In 2022, 68% of our revenues were generated in Japan and the Americas. Quickly reviewing the markets, the countries which delivered double-digit organic revenue growth in 2022 were Denmark, India, Switzerland and the U.K. Next slide, please. Touching on performance by region in a bit more detail. Dentsu Japan, our largest region, achieved positive organic growth despite the very strong performance in the previous year, as just mentioned. Dentsu is now the largest digital advertising agency by billings in Japan, thanks to the consolidation of Septeni Holdings and its strong organic growth in 2022. CT&T performed well throughout the year with ISID growing over 16% and Dentsu Digital high single-digit growth. Next slide, please. In the Americas, CT&T reported high single-digit organic growth on strong prior year comparatives. Acquisitions such as LiveArea and Extentia also contributed to our net revenue growth. Media reported strong growth, benefiting from solid client expenditure and Creative also reported positive growth, partly due to new client wins, as well as an increase in projects for existing clients. Next slide, please. EMEA reported the highest organic revenue growth rate across all four regions at plus 9.7%. The region also saw a strong close for the year with Q4 organic revenue growth at 8.7%. CT&T reported double-digit growth in 2022, and we're seeing particularly strong momentum in Northern Europe and the U.K. market. Capabilities were boosted by the acquisition of Pexlify last year. Media reported high single-digit organic growth in 2022 with double-digit growth in Q4 as client optimism improved. In 2022, Dentsu Creative was launched in 13 European markets and as a result, Creative delivered a high single-digit organic growth rate for the full-year. Next slide, please. In Asia Pacific excluding Japan, organic growth was 2.5% in 2022 and 2.1% in the fourth quarter with a strong December finish. CT&T grew double-digit in 2022, and we saw continued investment in our capabilities through acquisition. There is further opportunity to scale our offer into new markets in the region. Media saw a number of local market wins and reported 6% growth for the full-year. Creative reported organic revenue decline, the only service line in the region to do so. Although Thailand, Taiwan and Vietnam, all saw a strong end to the year, the performance was impacted by weakness in China due to COVID-related lockdowns. Next slide, please. This slide shows the operating margin trend over the last five years. Our Group margin has shown an upward trend since 2020, following the launch of the comprehensive review to simplify our organization and reduce operating costs. Our margin beat of 40 basis points in 2022 was also supported by functional efficiencies and our property footprint rationalization. At 18.4%, this is the highest margin in our industry. Moving to cash flow and leverage, next slide. The efforts to improve the efficiency of our balance sheet in recent years have certainly yielded results. We ended the year with almost JPY55 billion in cash flow from operations despite the tax burden due to asset sales in the previous year. We also continued with the sale of our securities held, resulting in an additional JPY18 billion of inflow in 2022. This allowed for a record share buyback completed in 2022 and a record dividend payment showing our commitment to improving shareholder returns as a result of the more shareholder-friendly policies we have introduced in recent years. For the past two years, we have closed the year with net cash. And at the end of 2022, our net debt-to-EBITDA ratio was negative with net cash of 0.33 times EBITDA, below our medium-term target of 1 times to 1.5 times leverage, providing flexibility and capacity to invest for future growth. Next slide, please. And this slide looks at shareholder returns, and I'm delighted to confirm a record dividend payment of JPY155 based on our dividend payout ratio of 32% for 2022. We continue with our progressive dividend payout ratio, aiming for 35% by 2024. And I will come back to the 2023 dividend in a moment. Next slide, please. First, let me talk about capital allocation. One year ago, the former CFO, Yushin Soga, showed this slide and explained our capital allocation policy. The Group will continue with this policy and accelerate the strategy from now on, continuing to prioritize investment for growth. The restructuring of our balance sheet over the past 2 years has generated a very strong financial position from which we can now invest with confidence. Next slide, please. Moving to our full-year outlook for 2023. Organic revenue growth guidance is circa 4%. Our operating margin guidance is 17.5%. This reflects the above-trend margin we delivered in 2022 and the investment we are making in 2023 to support One Dentsu and our client and solutions platform. Despite the projected fall in earnings per share year-on-year due to the investments we will make to support future competitiveness, we will increase the dividend to JPY157 by increasing the payout ratio to 34% in 2023. So in conclusion, next slide, please. 2022 was a strong year for the Group. And despite the economic headwinds, we delivered a record year for shareholder returns, and I maintain confidence in our growth opportunities as we continue to shift our revenues to the structural growth area of our industry. One Dentsu and the investments we will make this year will position the Group well through the ability to deliver integrated solutions, creating real competitive differentiation. Finally, the Group has a strong and sound balance sheet, providing the flexibility to invest for growth as opportunities arise. Thank you. I will now hand back to Igarashi-san.

Thank you, Nick. In 2022, we continue to transform our Group. Our exposure to the structural growth area of customer transformation and technology shifts our revenues into the fast growth area of our industry. In 2022, we reached 32% of revenues, growing at 17.5% year-on-year on a constant currency basis. The simplification agenda we began three years ago continues to deliver results. I'm proud to announce our margins are 320 basis points higher than 2019, testament to the resilience and adaptability of our employees as we have undergone changes throughout the organization. And as Nick referenced, the strength of our cash position and balance sheet has allowed us to invest and continue to invest in growing new capabilities to meet and anticipate our client needs. In the past 12-months, we welcomed five new acquisitions, bringing an additional 1,800 plus talented individuals into our Group. This focused expansion of our capabilities – this focused expansion of our capabilities through acquisition shifts our revenue mix into the fastest growth areas of our industry. These acquisitions span Japan, Australia, U.K., Ireland, Spain and India, but all are supported by our expanding near and offshore teams. Growing our global delivery network, bringing an automation first mindset to drive operational excellence and value for our clients across the globe. Through Pexlify and Extentia, we continue to extend our industry-leading relationship with Salesforce. Our acquisitions bring a mix of consulting expertise, cloud engineering knowledge and customer experience capabilities. All of which allow us to expand our offer beyond advertising to deliver growth, driving solutions for our clients, as well as continued value creation for our shareholders. We continue to see a long runway of growth in the area of customer transformation and technology. The future of brand loyalty and competitive advantage is the customer experience, yet, there is a real and persistent gap between the experiences that brands believe they are delivering for their customers and experiences that customers believe that they are receiving from brands. The solution to closing this experience gap is to prioritize customer transformation across the clients' organization, yet almost half of consumers feel unseen by brands. The elevated and ever-growing level of consumer expectation means brands must invest in transformation of their data, technology and organizational capabilities to deliver differentiated customer experiences. It is through this blend of diverse capabilities that we find are true competitiveness, our differentiated position and unique client offer. Not only can we implement, integrate and activate technology platforms, we can bring them to life through our creativity, our content and entertainment offer. In other words, we become a growth partner for our clients through the integration of our capabilities. By converging marketing, technology and consultancy, it fits precisely with our competitive advantage as one of the very few global innovators, who offer end-to-end solutions. This remains a significant opportunity for the Group as we enter 2023. Our solutions are focused on growth, delivering business division of our clients. This requires orchestration of the full customer experience, not just touch points with products, but all the way from brand awareness, to consideration, to purchase, to service, to loyalty programs in order to deliver long-lasting, value-driven customer relationships. As we expand our offer, we become the partner of the CEOs, the CTOs and CIOs, the entire C-suite, all of whom own the total customer experience. Our solutions can address the technological and organizational components necessary to facilitate this transformation through client centricity. To demonstrate the depth of our capabilities, I'd like to showcase a piece of work recently completed for a multinational pharmaceutical company renowned for its R&D in innovative biotech medicine. Firstly, consultative approach. We took a highly consultative approach to partnership, starting with our customer strategy and technology strategy teams to design the customer experience transformation. Secondly, technical implementation of the Adobe customer data platform and customer journey analytics tools, which included the integration with the pre-existing systems, leveraged insight and delivered performance results. Lastly, activating the systems. Our creativity brought to life a cutting-edge solution with marketing activations and increased customer engagement and personalization. Our expert teams continue to partner with the client on the path towards experienced transformation. As introduced in the case study, our greatest strength is our creativity and ability to make ideas real. As we look ahead, we'll passionately focus on the craft it takes to help our clients and partners meet their business goals, while achieving good. This means connecting clients and consumers under a shared purpose to reach scalable impact that shape society. Dentsu has a unique role to play as a B2B2F company. We can raise awareness and challenge perceptions to inspire people everywhere towards a new way of living, to be at the forefront of people-centered transformations that shape society. As one team, we bring our ideas to life through purpose-driven collaboration. We know that it is people who have the power to lead, create and deliver ideas. That is why we will unleash each other’s potentials and connect diverse talents within and beyond our organization and across the East and West to drive culture defining change. This year, my focus is on extracting the potential from One Dentsu, unleashing true connectivity and collaboration across our entire organization. The strong delivery of margins in 2022 has given us the flexibility to invest in 2023. The investments we are making in 2023 will help support development of an enhanced focus on connected client relationships to ensure we are best orchestrating our capabilities for our clients such as vertical expertise, business transformation consulting and innovation. Through this, we can continue to deliver clients seamless access to the best of Dentsu, scaling deep long-term client partnerships and through our distinguished agile client relationship model nurtured in Japan and rolled out to approximately 100 of our leaders across the globe. There will also be some investment in enterprise architecture to enable One Dentsu, which will enable us to be at the forefront of people centered transformations that shape society. Ultimately, we work together with our clients to help them predict and plan for what's next and transform our clients' business through a shared purpose. Concluding thoughts. We will continue to position our business at the convergence of marketing, technology and consulting. As One Dentsu, we will integrate our diverse talent to contribute to the business growth of our clients. Yet the uncertainty remains with the outlook of world state and macro economy. We will take every move to achieve our guidance for FY ‘23 of 4% organic growth and 17.5% operating margins. We have entered the third year of the medium-term management plan from 2021. Our business transformation is progressing at faster pace than expected. In 2023, we will take steps to achieve the targets. Thank you for listening. Now back to MC.

We will now start the Q&A session. [Operator Instructions] We are confirming several hands being raised. Please keep your hands raised as we are confirming your names. Thank you for your patience. Mr. Maeda from SMBC Nikko Securities. Please mute and introduce yourself.

Thank you very much. I am Maeda from SMBC Nikko Securities. I have three questions, if I may.

Please go ahead.

Thank you. First question, in the new fiscal year, organic growth rates is 4.5%, Japan and international, what is your forecast for Japan and international? And what are the assumptions in terms of market environment as you forecast 4.5% growth, do you have a clear visibility in terms of your pipeline? What is your level of confidence in achieving 4.5%? That is the first question. And the second question, you've also mentioned investment for One Dentsu, what is the size of investment? What is the amount of investment? And impairment loss is increasing in the fourth quarter and the total amount, is a majority of the cost coming from the withdrawal from Russia? If there are other factors included in impairment losses, please share the information with us.

Thank you, Mr. Maeda for your question. This is Igarashi speaking. The first question, fiscal 2023 forecast of organic growth of 4.5% and what the breakdown is between Japan and international business, respectively, and the level of confidence in achieving 4.5%. First, I would like to answer your question myself and I would like to ask Nick to support. And regarding the second question on investment in One Dentsu and the expected size of investment, I would like to ask Nick to address that question. Regarding the third question, once again, could you repeat your question once again?

On a full-year basis, impairment loss is announced. And what is the breakdown? What is the impact from the withdrawal from the Russian business? And are there any other factors included in impairment losses?

My apologies and thank you. So for your impairment loss, does that include impact from Russian business withdrawal and other factors. First, about achieving a rather forecast of organic growth of 4.5%. As a result of fiscal 2022, last fiscal year, and given strong performance from fiscal 2022 based on that assumption, in this fiscal year, in 2023, we are forecasting 4.5% organic growth. And here, we have four regions Japan and Americas, EMEA and APAC. In all of these four regions, measures are being implemented to increase our organic growth, and we have confidence in achieving 4.5%. In particular, with regards to Japan, last year or rather we are able to achieve a level, which is higher than exceptionally high level from two years ago. And in this fiscal year, we are certain that Japan will be driving strong growth. For details, I would like to ask Nick to provide some more details. And as for international, Americas, EMEA, APAC, for each of these regions, in the beginning of the year, in the first quarter, I believe there is some impact from macroeconomic conditions, but we expect a recovery, smooth recovery hence forward, especially, we expect a strong recovery in APAC and in Americas as well. Through our customer transformation and technology recovery, we believe that there will be a stronger recovery in the latter part of the year. And likewise, for EMEA, we expect that including CT&T, CXM will be performing firmly, but I would like to ask Nick to supplement.

Thank you, Igarashi-san. So thank you, Maeda-san for the question. Just to be clear, in case there was an issue with the translation, the organic revenue growth guidance for 2023 is circa 4%. The 4% to 5% related to the mid-term plan expectation over a multi-year period. And as One Dentsu and a new One Management Team, we will report as one Group going forward and provide specific guidance as one Group also. So there's no specific numbers, which we're disclosing today in terms of guidance between Japan and international. But I would say that we will continue to provide the old-style disclosure for a limited period. But to build on Igarashi-san's comments and the color he provided, we do see growth across Japan and international has been reasonably equal in 2023. I would say the driver of growth across all four regions is CT&T, which grew 17.5% year-on-year in 2022 at constant currency and now represents 32% of Group revenue. Maybe I can ask Jacki just to comment on the client outlook and confidence in 2023 as well, please?

Yes, I'm happy to do that. Thank you, Nick, and thank you, Mr. Maeda for the question. I think that you can certainly feel confident when you look at our new business pipeline. Overall, we feel very good about the pipeline and let me give…

Jacki, you are on mute.

I'm not on mute. No, I'm not. Hello, there. Can you hear me now? I apologize. Okay, terrific. Thank you, I apologize. What I was sharing is that, I believe that you can find confidence in the pipeline, Mr. Maeda, and thank you for the question. When you look overall, we feel very good about the opportunities that we're seeing. In Media specifically, we secured 1.3 billion in billings, which includes the major client wins that Igarashi-san referenced at the top of the call. We have a pipeline of GBP4.7 billion in billings and of the media pipeline, 85% is offensive, which is stronger than a year ago at 80%. So we feel very good about the meaningful opportunities in the pipeline. In terms of the Creative pipeline, we've gained GBP388 million in revenue. Major wins include Electrolux in Spain, Orchard Health Care in India and then recently reported Apple+ work in the U.S. The pipeline in Creative is also strong at GBP372 million and 14% -- that is a 14% increase over where we were last year at this time. And again, a majority of that is offensive opportunities. Again, Nick referenced the win rate in PT&T at 50%, driving significant growth. So overall, we feel very confident at the intersection of marketing, technology and consultancy really driving our growth.

Mr. Kuretani, can you also discuss our Japan business?

In Japan business, I would like to touch upon advertisement and CT&T. First, advertisement, there are various forecast agencies announcing forecasts, and we expect a stable growth in Japan. As for our latest win rate, vis-a-vis our peers, we have been able to maintain a strong rate -- high rate. We are expecting to outperform the market growth. As for CT&T, this year, once again, we expect to continue double-digit growth. Recently, for example, as for orders backlog for systems development, even at this point in time of the year, we have seen much progress in comparison to our budget. So advertisement and CT&T combined in Japan, we believe that we are fully able to achieve budget for Japan. Thank you.

As for the second question, investment amount for this year and the direction and the full-year impairment loss, the second and the third question, Nick, could you address both?

Yes, of course. Thank you, Igarashi-san. So, Maeda-san, just getting back to you on the investment in One Dentsu. Obviously, our 2022 margin at 18.4% is very strong. We've ended the year with strong profitability in the fourth quarter, and that's given us the flexibility to invest in the business on One Dentsu, going into 2023. Just in terms of the context of our margin progression over the last few years, our margin in 2022 is over 300 basis points ahead of 2019. So it does demonstrate the real impact of the simplification agenda we have pursued over the last three years. Obviously, for 2023, we're guiding to a slightly lower margin at 17.5%, that is within the margin guidance range we outlined in our mid-term plan for 2023. But the majority of the reduction in margin between 2022 and 2023 is investment in One Dentsu, is investment in a client and solutions platform, to make sure we operate in a real client-centric way across our organization, as well as some investment in enterprise architecture and processes to really deliver on the One Dentsu agenda. So that's the investment which we're making in terms of the margin decline going into 2023. But I just wanted to say as a final comment on margin that we do also reiterate our guidance for 2024 that we do expect to return to the 18% margin guidance we have as a target for 2024. And we're confident that based upon the progress we've made on our simplification agenda, the progress we've made on offshoring, et cetera, over the last few years, the progress we've made on functional and property rationalization that, that should be achievable. If we then go on to the final question. Yes, we have recorded a loss on the exit from Russia in 2022. We have increased that loss a little bit in the fourth quarter to represent some further impairment. There is one final item which is not recorded in respect of Russia in 2022, which is foreign exchange gains, which will be recycled through the P&L on change of control. And as I said, that deal, we have signed a binding agreement, but it's subject to regulatory approval. When that happens, there will be a further non-cash charge in 2023. But you're right in saying that there are impairment losses or losses on exit relating to the Russian business in 2022. Thank you.

Thank you very much. For the next question, Ms. Mori from JPMorgan Securities. Please unmute and introduce yourself.

Thank you for this opportunity to ask this question. My name is Mori from JPMorgan Securities. I have large -- one large question. Now so looking at your international competitors and the agency or the holding company is performing quite well. And this was what we have been able to confirm based on the earnings announcement on this occasion. But IT platform is continuing to perform -- or have continued to struggle. And so the agencies structurally, do you have visibility in regards to more growth? You provide a forecast for international ad spend. And for the new year, I think the forecast was slightly less than 4%, but your organic growth rate is at a similar level. And if you look at the past number of years against the total advertising market, you have continued to kind of underperform. So what I wanted to ask here is that -- so the background why you are catching up to the market growth. And I think the key here is CT&T. And it seems that the other agencies are also in the same situation. And so the positioning of the agencies, do you feel that there is a definite change there? And for Japan and the international, could you explain the situation? And in regards to international, though the expression differs from -- between the agencies, but the agencies seem to be doing similar things. So in your case, what are the areas that you are showing greater competitiveness in particular, CT&T. So what are the special aspect in that regard?

Thank you very much Ms. Mori from JPMorgan Securities. And the competitive situation against our peer group overseas and each agency has shown strong performance, but the platform was kind of decelerated. Now on that external environment, what are the strengths that we are able to exert and asking for a comment from a comparison against the competitors. So I will start with a general comment and then after that, I will ask Kuretani-san to explain about Japan and for international, particularly in regards to CXM I'll ask Jacki to also follow-up with a comment. So, as you've indicated, the peer group, each of the group maybe targeting similar area that maybe is the case. But we have an asset called Merkle. And in Japan, we have ISID and Dentsu Digital. We have assets in these areas even before we started naming them CT&T, and we have been providing integrated solutions in this area from the past. And that time, the outcome, I think we have been able to lead others and we have been able to lead the benefits ahead of others in that regard. Now we are focused on people and have the ability to analyze that's our strength and creativity on top of that. They enable us to provide very sophisticated solutions and not just the CMOs of our clients, but we are able to link up with the C-suite of a multitude of companies that we have been able to establish a very strong relationship of cut. That is strong. That is our strength. And I feel that this continues to accelerate. Now on that basis for now, for the Japanese business, for the international business, I would like to ask -- comment from [Indiscernible] in regard to CT&T

Okay, so I would like to explain about be the Japanese business. Now, right now they need a market that we are trying to target, and is not just advertising market. And the advertising is extremely [Indiscernible] in size per annum. But in a broad sense, IT and consulting associated with that, they have also about JPY6 trillion in size, separate to the advertising market. And on their broader sense, the sales promotion market. And there is no accurate statistics are here, but it is said that this is about JPY15 trillion inside. So JPY6 trillion, JPY6 trillion and JPY15 trillion. These were mainly for us where we will provide a solution in advertising. But through the progress of digitalization, these are starting to change into a new market. And that is how we view the situation. And like you got a [Indiscernible], our uniqueness here is marketing, technology and consultancy. We are able to provide this on an end-to-end basis. And so when it comes to operation, we have our in-depth knowledge. And on that basis, we are able to design systems and we are able to provide consulting service, which is a basis of that. And these aspects are being highly assessed by our clients. In the case of CT&T domain, in Japan, whether it be sales force or Adobe in the market in [Indiscernible] area, we are the number one, the agency partner. We have been able to establish that kind of position. And that is my response. Thank you. Jackie, if you could follow-up, please.

Yes, I'm happy to do that, confirming you can hear me. Terrific. So a bit more context and thank you for the question, Ms. Mori. I think if you -- your point about other holding companies approaching the same trends. I think what is unique about Dentsu is, how we are structuring ourselves to deliver the end-to-end capability our clients require. And as you heard from Nick, this is a model built on the belief that clients want fewer partners solving much bigger problems. And we are aligning our people with the knowledge and the access to seamlessly and more importantly, proactively do that across our capability. I think there's a few proof points I would give you that give us confidence in our growth. One is when we do our annual CMO survey, CMOs consistently tell us that they want increased transparency, increased collaboration, increased agility and reduced complexity and we've really built our model to deliver on that. Secondly, you'll see our largest clients are the fastest growing, and they're doing that across our capability. Third, top talent is joining us because they're excited to work across this end-to-end capability. And then finally, the scale that we have in technology and consultancy gives us a real benefit in the marketplace as we're the number one partner of both Salesforce and Adobe, which gives us real strength.

So this is Igarashi. I would also like to add a little bit more comment. While the strength is our operational model utilized in offshore and nearshore, and we have some 9,400 employees, and that's 14% of employees in these offshore and nearshore locations, mainly centered around India and providing support for the various markets and engaged in various operations. And not just in pursuit of efficiency, but we have been developing many people with expertise. And these have certainly become a very strong point for us. And I feel that this is a unique position in comparison to our competitors as well. And that is all. Thank you.

[Foreign Language]

Thank you very much. For the next question, Mr. Kinoshita from Bank of America Securities. Please unmute and introduce yourself.

Hello, can you hear me? Hello?

Yes, we can hear you.

Thank you. This is Kinoshita from BofA Securities. I have two questions. First, margin for this year, you are making various investments and from the very high level from last year, it will decline for both Japan and international, do you expect margin to decline, mainly in international business, are you making more investments? That is my sense. So is it going to be a more international business that you expect to see a decline in margin? Or do you expect a similar level of decline in margin in terms of percentage for both Japan and international? That is my first question. And the second question, in the fourth quarter, you had a very strong profit, as I understand. And as a previous person asking question, your peers also reported strong results in the fourth quarter. And if I may say so, it seems that looking at your organic growth in comparison to the peers, it's not as strong. And shifting to One Dentsu structure, what will be the impact that you expect? And vis-a-vis international peers, do you expect to see increase in competitiveness? Could you once again elaborate on what you expect in terms of increasing competitiveness from One Dentsu?

Thank you, Mr. Kinoshita for your question. First question was about margin of 17.5% in fiscal 2023, which is a slight decline and where are we going to see more impact from Japan or international. I will address the first -- the question first before I ask Nick to follow-up. And the second question was the Q4 earnings. Dentsu's earnings was strong, but peers also reported strong results. And from One Dentsu, what will be the competitiveness gain for Dentsu. I will address that question. First about the decline in margin in this fiscal year. As Nick reported earlier, in 2022, we were able to achieve very high margin. And on a full-year, we have implemented business restructuring, and we believe this had a strong impact. And in top line, we were able to see contribution coming from our enhanced solutions. And margin, regarding how we control margin in medium term, in MTMP, we are very confident that we will be able to control the level of margin. And based on that assumption, this time, temporarily margin may decline a little, but this is so that we are able to increase competitiveness as a result of investments. And in 2024, we expect the margin to go back to 18%, but which we have a strong level of confidence. As for the details between Japan and international, Nick, please.

Thank you, Igarashi-san. And thank you, Kinoshita-san, for the question. In terms of the margin and the decline and how that might be placed across Japan and international. I will say, first and foremost, that as One Dentsu and one management team, we will report as one group going forward. And so we are investing in One Dentsu, which will have an impact across the entire Group, including the Japan region and the international regions. To give you an idea in terms of the direction, I think it's fair to say that the trend would be similar across the different component parts of the Group as you're looking at it. But from a One Dentsu perspective, this is investment in not only One Dentsu and enterprise platforms to enable that consistently across our business, but it's also about investing in a client and solutions platform to drive and enhance our competitiveness to better deliver for our clients on a go-forward basis. Just to explore the margin a little bit more. I would say that we've driven our efficiency significantly over the last few years. And as I said earlier, we've improved margins since 2019 by 300 basis points. So even though we've got the margin decline in 2023, just to reiterate, our guidance is for this to return to 18% in 2024. We will continue to expand our global delivery network, which is our network of near and offshore centers. We welcomed a new CEO to our Global Services Network last year, ex-Accenture, who will drive an automation first mindset to transform our processes and drive more value for our clients across the globe. We'll continue to drive efficiency across our business functions. And for instance, finance, which I'm responsible for, saw a reduction in the cost to serve as a percentage of revenue by about 40 basis points in 2022. And we're very focused on increasing centralization and standardization through uses of centers of excellence, et cetera, going forward. So these initiatives will benefit the entire Group, not international or Japan singly, and we're very focused as One Dentsu to returning the margin to 18% in 2024. Thank you.

Thank you. And now turning to your second question. Under One Dentsu structure, what have been the contribution to organic growth and what we are aiming to achieve to increase competitiveness? I would like to address that question. First of all, our major objective under One Dentsu structure is to once again become customer-centric, from customer-centric perspective to review our business and operations. We have started this strategic markets and strategic clients; we are focused on these as we review our businesses and operations. We will be qualifying potential and areas that we need to enhance further. And on top of that, we will be strengthening capabilities for our clients and we'll clarify priority of the capabilities that we have to strengthen. And based on that prioritization, we will also clarify where we need to make investments. And we will also increase the speed of decision-making, customer-centric operation and capabilities will be enhanced to enable that under One Dentsu, and we will be making investments to increase that capabilities. As a result, we will be able to achieve organic growth. Thank you.

This is Kinoshita speaking. I have a follow-up question for clarification. If I may, hello?

Yes, please go ahead.

Thanks. When we look at your company's margin, I think in Japan, you are enjoying high profitability, generating high margin. But outside of Japan, and it may depend on how you look at this, but it seems to me that in comparison to Japan, there is greater room for improvement of margin outside of Japan. Looking at this fiscal year and your guidance is that margin will be back up to 18% in 2024. Is this going to be driven by improvement in margin in international business? Is that what you envision as top management? Or for both Japan and international, I believe, as you suggested for this fiscal year that the improvement or level is similar between Japan and international. And will the degree of improvement be same for international in Japan?

Thank you, Mr. Kinoshita for that. Regarding improvement in 2024, in terms of margin, where are we going to be seeing a more certainty in terms of improved margin? Is it international or Japan? Nick, could you address this question?

Yes. Thank you for the question. Obviously, our Japan business has been very profitable and had a very strong end to 2022, very strong profitability in Q4. As we go into the New Year and embrace One Dentsu very meaningfully, we are not expecting that margin to necessarily continue at that same rate. But it's modest in terms of the change, because it's been a very highly profitable fourth quarter. But if we look at the overall international business, which are drawing a distinction to, across the international business, we operate across over 100 markets. And obviously, in Japan, we're operating from one market. The level of complexity in the international business is quite significant given the geographical diversity. And obviously, we have a very strong scale, market-leading position in Japan. So there's a difference in that regard. But I would say that the international business has improved its margin quite significantly over the last few years by about circa 400 basis points. And that's obviously part of the improvement that we've seen at the Group level, where the margins improved by 300 basis points since 2019. In terms of the international margin, the guidance for 2022 was 15.9%. The margin that was delivered was 16.1%, so 20 basis points ahead of guidance, and that's obviously contributed to the Group over delivery on margin guidance, but that was further complemented and supported by a very strong performance in Japan, as we've just called out. So on a go-forward basis, I see improvements coming from Group initiatives, which will apply across both Japan and the international regions. Thank you.

Thank you.

Thank you very much. For the next question, Ms. Fiona Orford-Williams from Edson Group. Please unmute and introduce yourself. Fiona Orford-Williams: Good morning, it’s Fiona Williams from Edson Group. I have three remaining questions, please. I know it's early days, but what progress has there been to-date on the One Dentsu approach? And what sort of reaction have you had from clients? The second thing I'd like to ask about, please is on costs, the impact of inflation, what's the situation in terms of pressure on staff recruitment, retention and training costs? And the third thing that I'd like to ask about, please is, where within the CT&T, you feel that you still have gaps that you need to fill? And what are the price expectations of vendors within those areas? Thank you very much.

Thank you, Fiona, for your question. The first question, the progress of One Dentsu, the reaction from the client. I will respond to that question. The second question, the cost impact of inflation. And that question will be answered by Nick. And CT&T, where is the gap that still needs to be filled and the price expectation from the vendors, what is your view right now? I will respond to that first. Then after me I will ask Jackie to also provide a follow-up comment. Now, first, the progress of One Dentsu. From September last year, the concept of One Dentsu has already started. And in November, we have announced the management structure, but specifically in mid-November, we actually gathered in Singapore and had discussion about this initiative with those members. And the businesses and the functions that we created different -- the meetings amongst the executives. And this -- the time frame for this transformation and the executives wanted to see this executed more quickly, more so than I had expected. And so in that regard, as far as the progress is concerned and as long as the engagement is concerned, I'm seeing a very strong progress even more so than I had expected in One Dentsu. And in regards to client, I went to New York in January, and I had meetings and I was also participating in meetings with clients. And the initiative towards One Dentsu is something that they have high expectations of in each of the markets. And the initiatives that we are trying to implement -- and they have been explained to the clients by executives in a far away, and I feel that there is definitely a high expectations in regards to these initiatives, I want to make sure that they are linked to achieving actual results. Now in regards to your second question, I will ask Nick to respond.

Hi, this is Nick speaking. Hello Fiona, and thank you for the question. So for the second question, I believe, is on the impact of inflation on costs, on retention and recruitment. So I would say that the -- we did experience a level of staff attrition in 2021, which was quite high and would have been experienced across the sector and other industries. And that really peaked at the end of Q3 of 2021. And as a result of that high level of attrition, wage inflation was high, and it continued to be high for the balance of 2021. And we really saw that the annualization of that wage inflation in 2021 as we went into 2022. That's originally why we had a forecast for the international margins to stay flat in 2022 versus 2021. But as previously mentioned, we managed to overdeliver on that margin guidance by 20 basis points. And I mean, there's still obviously pockets of inflation in particular capabilities. But I would say that the slowdown in U.S. tech over recent months has made hiring somewhat easier, particularly in data and analytics and capabilities like that. Thank you.

And the question regarding CT&T, your third question, in regards to this area, we have seen a definite progress, but we certainly intend to continue to invest in this area. And as Kuretani-san and Jacki-san has explained already in this meeting, a solution partner like Adobe and Salesforce. And global footprint in regards to these partners, we feel that there is still room for us to expand. And that would also be an area where we intend to continue investment from a global perspective. And also, because of the COVID situation, there is a acceleration in the e-commerce area. And there is also the digital promotion area. And we feel that there are areas that we can still make more commitment to vis-a-vis the size of the market. So we will certainly look at that to work on identifying areas of investment and identifying areas for us to increase the capabilities as well. And the vendor pricing, I did feel that the price did go up quite a lot, but it has started to settle somewhat. But when it comes to a valuable asset, the competitive situation remains to be quite severe still. And so we need to identify and ascertain the right pricing to work on obtaining the capabilities that is quite strong. So Jacki, could you also add a comment, please?

Yes. I'd be happy to. And thank you, Fiona, for the question. It is early days, but I think what I often talk about is how we have fundamentally changed the plumbing of how we operate. We don't rely on goodwill within our network or strong internal networks. We really are focused on structured solutions that deliver growth for our clients will stop versus bespoke solutions. And I think that, that's especially important. Again, as I mentioned earlier, when you look at our largest clients that are growing across our capability, that is probably the strongest proof point of our early days. I think the case study that you saw Igarashi-san present in the formal presentation is consistent with what we see across our client base. One data point that might be interesting is, Merkle created a survey of consumers tied to CX needs. And consumers said the end-to-end experience that they expect from a brand is critical. 32% were willing to leave a brand that they love based on a single core experience. But conversely, consumers are willing to pay 7% to 15% more in a price premium for an exceptional experience. And so it's really our job to help our clients regardless of what door they come through to ensure that they have the end-to-end capability to support this brand love and to earn this price premium. And that's really our commitment. You saw that in the pharmaceutical case study. And again, we're seeing that across our largest client.

Thank you very much. Due to lack of time, the next -- for the next question, Mr. Julien Roch from Barclays. Could we request to limit your questions to two. Thank you. Please go ahead.

Yes, good morning. So I'll limit myself to two questions. So your margin guidance is very clear, 18.2% last year, 17.5% this year because of investment back to 18% next year. After 2024, if organic continues to grow at 4%, what happens to margin? Do you have the normal operational gearing of an agency? Or you kind of reached a plateau about 18%? That's my first question. And then the second one is you said, CT&T bring you a competitive advantage, but you are guiding to 4% organic in ‘23, which is not too dissimilar to Publicis 3 to 5, Omnicom 3 to 5, and IPG 2 to 4. So when will you outperform peers and outgrow them? Thank you.

Thank you, Julien, for your questions. First, about margin guidance, was your question. Beyond 2024, what we expect to be the level of margin? I would like to ask Nick to address that question. And the second question was on CT&T. In comparison to peers, organic growth seems to be on a comparable level. And so how do we see our competitive advantage? I would like to address that question.

Thank you, Igarashi-san, this is Nick speaking. And thank you, Julien, for the question. Glad margin guidance is clear for 2023 and ‘24. But as per your question, what might happen after 2024? And I think I'd say that, firstly, that 18% is not the ceiling of our ambitions going forward. We're obviously not providing guidance for the period post 2024 yet. And it's important for us, as you've seen from the margin guidance, we've given for 2023 to invest in One Dentsu and to invest in our client and solutions platform across the business to really enhance and drive competitiveness and be able to deliver best-in-class services for our clients. So we want to make sure that we're delivering on both strong organic revenue growth going forward, as well as a very competitive margin. But to be clear, we don't see 18% as being the ceiling. And that's really because there was more opportunity in terms of offshoring as I was talking about earlier and functional efficiencies to -- as the business scales. Thank you.

Now turning to your second question. As for our competitiveness of CT&T, in the medium term, our target is 50% share. And currently, we have seen a strong progress. And currently, it is 32% of our revenue. And in a single year, as for organic growth rates in a single year basis, your question was that our level may not so differ from our peers. But in the medium term, we will be strengthening CT&T, and therefore, regarding organic growth, we believe that there will certainly be a strong contribution. And Nick mentioned for one thing, offshore and nearshoring model, and this has room to expand. And that is also within our expectations. So One Dentsu model and all of these initiatives combined, overall, we believe we will become more competitive. And as a result, our organic growth can outperform our peers.

Thank you.

Thank you very much. We'd like to make the next question the last Mr. Matthew Walker from Credit Suisse. Please unmute and introduce yourself.

Thank you. Can you hear me, okay?

Yes, we can.

Okay, thanks. I sort of got two questions as well. The first one is on in-housing. What is your view on what's happening with in-housing? Are you seeing mid-term creative fees come under pressure from in-housing? It is talked about a lot by large clients? And do you think the business transformation revenue is offsetting the money that you're potentially losing in in-housing? And the second question is on the tech companies. What are you expecting from the tech sector this year? There also have been a lot of layoffs and announcements about cost cutting, the big tech platforms. How are you expecting that to impact their sales and marketing investments?

Thank you very much, Matthew, for your question. First, the pressure from the in-housing, your first question. Allow me to respond to that question first. And the in-housing situation for international market, I would invite Jacki to comment on that as well. Now in regards to the trend for the tech companies, I will respond to that question first. Then I will also ask Jacki to support me and also Kuretani-san can also add a comment as well. So first in regards to in-housing, as we have indicated, our clients from various perspectives, certainly advancing the consideration for in-housing. That is true, particularly handling of data, so data of their own customers. In that regard, they are really trying to drive in-housing. And I have actually spoken with those clients as well. Of course, in that area, there is a strong desire for these companies who want to handle their own data. But using that data, how can they engage in the marketing in a scientific way, now Dentsu Group creativity, and also the people centered ability to analyze and to provide insight. And they have a very high expectations for Dentsu Group in that regard, and I have heard that on many occasions. So in-housing and our specialized solutions, they can connect strongly and to create new values together. And I feel that there is a high possibility in that regard. And Jacki, do you have any additional comment?

Yes. Thank you for the question, Matt. I think the in-housing initially was about cost savings, but our clients quickly realized that the short-term ROI honeymoon was offset by the need for continued investment in systems and platforms, which have little residual value as well as their difficulty in retaining and training staff. Now what we see is a much more flexible model where we partner with our clients to help them achieve their in-housing goals. We've done this very successfully with clients like P&G and Vodafone, where we take a very flexible approach to helping them achieve the suitable solution and the right level of in-housing. So we're really proud of how we've done that and are considered to be very flexible in how we're adapted to it. Your second question on the tech category specifically, we certainly have seen some pullback with the layoffs that you referenced in the sector. But that pullback has increased the focus on performance media, and increased focus on B&B and enterprise relationships and increased personalization, which are all very significant strengths of ours. So we have seen that to be a valuable area of growth, at the same time you're seeing some level of thoughts from them. Thank you.

So, Kuretani-san, could you also add a comment?

First, in the area of digital marketing, tech players are not just platforms, but there are also clients. And given the situation that you have indicated, in the second half of last year, the platform, as clients, they probably faced some difficult situation. But this situation coming into this year have improved quite significantly. And so platform as client, they are starting to recover. Now tech companies as our partner, now if we look at it in that way, the move was being cookieless and we need to certainly come to a conclusion on that this year. And in this regard, our Group has been responding quite quickly. And so we are quite confident in terms of competitiveness in this area. And apart from that, AI progress has been quite prominent in recent years. And not at the POC or experimental stage, we have entered into the execution stage. So this is an important tool to provide new experience for customers. So we have been working on this quite quickly as well. And say, for example, we have a joint research with University of Tokyo, where we saw engagement of the clients to work on various projects. And these are no longer at the POC stage, we are now starting to enter into a stage to generate proper revenue. And in regards to the joint initiative with the tech companies, this is not something we are doing only in Japan, we are also starting various initiatives internationally as well. So this type of joint initiatives over a medium term, ourselves and the tech companies, we will start to see the real outcome and we will certainly work towards enhancing our solutions together in that regard. Thank you.

With that, I would like to conclude today's earnings call. Thank you very much for participating today. You may now disconnect.

Thank you very much.