Earnings Call: Q1 2021

May 14, 2021

Companies at this point. As an integrated growth partner to our clients, we will contribute to their top line growth as well as our own. Dentsu International. Dentsu International, we announced a number of new client wins. LaxoSmithKline selected 360i for creative and digital agency of record duty for a portfolio of their consumer brands in the U. S. LinkedIn chose iProspect in the U. S. As its paid media partner, Hilton, B&B Paribas and Kroger are additional clients we welcome to our roster. The quarter also saw us expand our existing relationships with a number of our key clients, including P&G and Kraft Heinz. Our media net new businesses wins in Dentsu International for the Q1 was $800,000,000 with the pipeline for the rest of the year very strong. The media pipeline for Dentsu International is currently the highest we have ever seen at $10,000,000,000 with over 80% of those opportunities offensive. It is and will continue to be a very busy year for our pitch teams. Bensu International also launched Bensu Health, formally bringing together our 2,000 health marketing experts across 85 markets to combine our specialists in health, wellness and pharmaceutical marketing. Our industry recognition continues. Merkle was recognized as a leader in the Forrester Wave for loyalty solutions in Q2, receiving the highest possible score against all 13 criteria. ISOBAR was named a leader in Gartner's 2020 Magic Quadrant for Global Marketing Agencies for 7 consecutive years. Dentsu Group was named the most creative network at the Spikes Asia Awards. Finally, the drum announced Dentsu Tokyo topped the worldwide ad agencies ranking at the World Creative Rankings 2021. The breadth of these awards demonstrate the wide range of capabilities the group offers. And I would like to offer my thanks and many congratulations to all our teams involved. With our continued focus on sustainability at the heart of our business, we have a number of announcements. Wendy Clark, CEO of Dentsu International, became a member of the World Economic Forum's Alliance of CEO Climate Leaders. We became founding members of the WEF's Partnering for Racial Justice Initiative. We also launched the pilot of DIMPACT, a pioneering tool to manage the media industry's digital carbon footprint. Other corporates involved include Netflix, BT, the BBC and Sky. And we became a signatory to the Biden letter calling for the highest level of climate ambition as part of the We Mean Business Coalition. I would now like to hand over to Sowa san, who will talk us through the financials for the quarter. Thank you, Yamamoto san. I would now like to take you through the financial results for Q1 2021. Next page, please. The group reported organic revenue decline of 2.4% for the Q1. The negative organic revenue decline in January February was due to the pre COVID comparators in 2020. However, client confidence and spend increased throughout the quarter with March showing positive organic growth of +2.5 percent for the group. In Japan, we saw recovery in demand in the TV market and the digital advertising and digital solutions business. Telecom and technology clients were very active throughout the quarter. Demand for digital and other media was also strong in our international business. The group expect to continue to benefit from the post pandemic recovery throughout 2021. Underlying operating profit and operating margin improved significantly, benefiting from cost management through daily business operations and from the structurally lowered cost base due to the accelerated transformation plan announced last year. Net profit was down year on year, mainly due to the earn out revaluation resulting from the improving outlook projection for our acquisitions that are still under earn out. Total revenue and organic growth by region. The regional organic growth performance reflects the different speed of impact of the pandemic across the globe with earlier recovery we observed across Japan and APAC in Q1. Japan, which represents 46% of the group revenues in the Q1, maintained the same level of revenue less cost of sales as the previous year with organic growth rate of minus 0.9%. The peso recovery increased every month with an organic growth rate of +5.2% for March. The recovery reflects the improvement of TV sports ad@dentsuinc and the strong performance of our digital assets across Dentsu Japan network. In the Americas, which reflects 24% of group revenue, organic revenue decline was 4.1% for the quarter, given the stronger comparable from Q1 2020, primarily driven by a stellar performance from Merkle in the U. S. Market. EMEA, which reflects 21% of group revenues, saw organic revenue decline of 2.9%. Germany and Switzerland posted positive organic growth for the quarter, but many markets still face restrictions due to the pandemic. APAC, which reflects 9% of group revenues, saw organic revenue decline of 3.1% with positive growth for the quarter recorded in India, Indonesia, Singapore and Taiwan. Next page, please. From the group basis, the organic growth rate has been on an uptrend since the Q2 of last year, and we expect to see a continued improving trend as we start to lap the COVID related comparators in the Q2. Moving to the performance of main DJ and Group companies. Sensu Inc. Experienced a reactionary decline in the marketing and promotional domain, which was strong in Q1 2020 before the impact of the COVID-nineteen crisis. However, Dentsu Inc. Reported organic decline of just minus 1.9% due to the recovery of TV spot advertising through the second half of the quarter. The pitch environment remains very active, and our win rate has improved year on year. The revenue less cost of sales of Dentsu Digital, ISID and Carta Holdings increased supported by growth in both digital advertising and digital solution. It is to be highlighted that Dentsu Digital and Carta were able to show double digit growth by capturing demand from telecommunications and other clients. ISIB faced strong comparable from Q1 2020, yet still reported over 6% organic growth in the quarter. As a result, CT and T ratio, which is one of the KPIs of the medium term management plan, was 24.0 percent for Japan, an increase of 210 basis points year on year. Dentsu Live, which provides events and Dentsu Tech Group, which has strength in marketing promotions, reported double digit decline due to the continued impact of the COVID-nineteen crisis. DJIEN's underlying operating profit showed significant growth, and operating margin improved significantly as a result of the efforts to reduce operating costs and our shift towards the high margin solutions business. However, operating costs are expected to rise as we proceed through the year. The next slide explains the performance of Dentsy International. The pre COVID comparators impacted the Q1 performance across DI Group and the resulted in negative organic growth. The media service line benefited from the post pandemic recovery, with the U. S. Media business recording a strong performance in Q1 FY 2021, up mid single digit, benefiting from a combination of new client wins in FY 2020, scope expansion from existing clients and an overall improvement in client spend. The creative service line showed negative growth due to a reduction in revenue associated with our events business and client losses in FY 2020 in the U. S. And APAC. CXM service line showed negative organic growth, reflecting the high hurdles from Merkle's double digit percentage growth in the U. S. Market in the Q1 of last year. CXM is expected to return to growth in Q1 and record positive growth for the full year. Customer transformation and technology accounted for 33.5 percent of the total revenue less cost of sales, up from the previous year. Underlying operating profit increased 49.9% due to lower base costs. Operating margin improved by 3.30 basis points. And this is on a constant current basis, a 3 60 basis points improvement. The operating margin comparable become more challenging from the Q2 onwards, but Dentsu International still expects to deliver margin improvements on a year on year basis. It is the first time for the international business operation margins to exceed 10% in Q1 since the establishment of Dentsu Aegis Network. This slide covers the movement of revenue less cost of sales. After the negative impact of the COVID-nineteen crisis materializing last year, we have continued to put M and A activities on hold. As a result, the effect from M and A activities are limited. Organic growth was negative group wide due to the effect of COVID-nineteen crisis and revenue less cost of sales decreased by JPY 4,600,000,000 from JPY 227,100,000,000 in the same period previous year to JPY 222,400,000,000. Next, this slide shows the movement of the underlying operating profit at year on year basis. Although DJN's revenue less cost of sales was same level as the same quarter last year and VI's revenue less cost of sales was negative, the reduction in operating expenses for both segments contributed to an increase in underlying operating profit of approximately JPY 7,760,000,000. Next, reconciliation of operating profit from underlying to statutory. Compared with the same quarter last year, underlying operating profit was JPY 7,700,000,000 plus, while adjusted items totaled minus JPY 3,600,000,000, resulting in statutory operating profit of plus JPY 4,100,000,000. One of the main adjustments were amortization of purchased intangible assets at minus JPY 7,400,000,000 which was a similar level of impact as last year. Next is one off items. Previously announced business transformation costs amounted to approximately JPY 7,000,000,000 which is in line with the plan announced last year. Impairment losses include impairment losses on tangible and intangible assets and goodwill of group companies in Japan. The next slide is on the reconciliation from underlying to net profit. Adjustments in total of JPY 22,300,000,000 was reported, including adjustments made to the operating profit explained in the previous slide. The largest adjustments was gain and loss on revaluation of earn out liabilities and M and A related put option liabilities of approximately JPY 6,800,000,000. This was due to an increase in the corporate value of subsidiaries that are expected to improve as a result of reviewing the future performance of overseas subsidiaries in line with the improvement in economic conditions. As a result, statutory net profit for the quarter was approximately JPY 4,900,000,000 against underlying net profit, which was approximately JPY 27,200,000,000. The 5th slide shows cash flow movement for the quarter. Cash out on business transformation cost spend is JPY 24,100,000,000. Working capital improved by about JPY 82,300,000,000 year on year, although it normally has negative impact in the Q1 due to seasonality. Improvements in overseas operations contributed significantly. Together with and regarding other cash flows from operating activities, it is to be noted that income taxes paid to increased year on year, mainly due to extraordinary income from the sale of Recruit Holdings shares, which was announced last year. In summary, We expect to continue to benefit from the post pandemic recovery in 2021 as well as the structural growth in customer transformation and technology. The group has had better than expected start of the year, and we are confident that we have, over the fiscal year, positive organic growth and broadly flat margin from 2020, as I commented in February. And I am pleased to report the execution of business transformation is showing good progress, and we expect to deliver full year forecast in August. We still expect to achieve the group wide cost reduction of JPY 50,000,000,000 in 2021 and annualized reduction of JPY 75,000,000,000 from 2022 onwards. The transformation will accelerate. Thank you. I will now hand over the microphone to Yamamoto san. Back to you, Yamamoto san. Thank you, Sogou san. I will now give an update against our strategy. And this is Yamamoto speaking. And please turn to Page 17. The pace of transformation within the group continues at speed. As a reminder, we launched the comprehensive review in August last year and continue to execute against the clear objectives we set ourselves. Simplification. BJN, Dentsu Japan Network, has announced the mergers of Dentsu Digital and Dentsu Isova as well as Dentsu Direct Marketing and Dentsu Search and Linked to strengthen the capabilities of CX and DX. Dentsu International, the brand optimization continues with the successful launch of Iprospects after the merger with Avizium, the largest agency merger we have planned. The rationalization of 160 to 6 brands continues ahead of schedule with over 50 brands already consolidated. This process is mostly small and specialized brands being integrated into leadership brands, therefore, there is a low risk of disruption across the group. This is because this process has been a long time in planning. Over the past 2 years, we have created a master service set. The firm wide agreement determines which capabilities are within each service line, ensuring no duplication of services and no competition between our own agencies, a model many of our peers still have. This allows us to optimize the brand portfolio, integrate more effectively and collaborate across the group. The groundwork has been done for improved connectivity among the service sets of 3 service lines and, ultimately, will result in a truly simplified and integrated organization. Lowering operating expenses. We remain committed to the JPY 75,000,000,000 cost saving target we announced to support our future margin delivery, we expect to deliver around JPY 50,000,000,000 cost saving for this year as we previously announced. At DJN, we are beginning to see the cost impact from the transformation announced last year. As the I, over 50 property leases have been renegotiated and well over 50% of our targeted cost savings planned for 2021 have already been achieved. 3, the review of our non trading assets continues to improve our balance sheet efficiency. In Q1, we announced the sale of 2 property assets in Tokyo, generating a gain on sales of fixed assets of around JPY 30,000,000,000. And we announced a further reduction in our investment in securities with the sale of our Macromill shares. The review of the headquarters buildings in Shodome continues. All of the previous three objectives will contribute towards our final objective of improving shareholder value. Number 4, simplification of our business will drive top line. Margin is improving through lowering our cost, and the balance sheet review gives us the flexibility to invest for growth whilst balancing that need with improving shareholder returns. Page 18, please. As we committed to at the FY 'twenty results in February, we see Customer Transformation and Technology, CT and T, rising to 50% of the group's Q1, customer transformation and technology had reached 29% of group revenues, with 24% at DJN and 33% at Dentsu International. As a reminder, the major brands that contribute to these revenues are Merkle, ISID and Dentsu Digital. As a result, the revenue ratio at CAT and T is increasing both in DJ and TI. Increasing our exposure to customer transformation and technology brings a number of benefits to the firm. First, the structural growth area. This is an area where corporates will need to continue to invest given the increasing importance of first party data to develop and maintain direct customer relationships, particularly in light of changing privacy regulations and the removal of 3rd party cookies. 2nd, a deeper client relationship. Partnering with clients on projects such as data transformation and data solutions embeds us within their business, resulting in a long multiyear relationships, leading to a greater percentage of revenues that are recurring. It will bring transformation to our existing services. Customer transformation and technology will enhance media and creative. It will be a new platform of all service lines. PCEN today announced collaboration with Dream Incubator Inc. To strengthen business in the business transformation domain. Dream Incubator will become an equity method affiliate of Lentsu Group Inc. And please go to Page 19. As we look forward through 2021 to 2022 and the demand for our services in the coming years, the Dentsu Group remains well positioned. The group is and will continue to benefit from the cyclical recovery in advertising in 2021. We saw early investment in media and advertising from clients in the Q1 as they look to reinvest in their brands. The quickest and easiest way to reengage your customer base is through media, and that is where we have seen the fastest increase in spend, both in Japan and internationally. But the pandemic has also brought a number of changes to consumer trends that will remain: increased digital adoption and the D2C direct to consumer channel combined with the increased focus on customer experience across every touch point as consumer engages with Affirm. All of this requires an enterprise wise identity and management solution, particularly as brands face and adapt to a cookie less future. This is where our strength in customer transformation and technology can support our clients as we look forward. This is where we see the fastest growth in our firm and where we see structural growth opportunities for the business in the years to come. Page 20, please. In February, when Dentsu Group reported its FY 2020 result, we also announced new midterm target for the group for 2021 to 2024. This publicly stated targets aligned to 4 pillars that remain central to our vision for the business: 1, transformation and growth 2, operations and margin and 3, capital allocation and shareholder returns and 4, social impact and ESG. Our midterm investment case remains intact. We have committed to organic growth of 3% to 4% from 2022 to 2024, an annual improvement in operating margins reaching 17% by 2024 and the progressive dividend policy reaching 35 percent payout ratio on basic EPS. And our commitment to social impact and ESG remains at the core of our group. And last Page 21, our purpose as Zetsu Group remains to realize a better society by contributing to the growth of our clients, partners and all consumers. By realizing our purpose, we will create value for our employees, our shareholders and all stakeholders. As always, I would like to thank our employees as we look forward to a year of growth and recovery across the business. Thank you very much. Now we will start the Q and A session. We expect your questions using Zoom's raise your hand function. As shown on Zoom, please click the raise hand button. For those of you joining from the telephone line, please press asterisk 9. I will confirm who are in the queue, then call the name to invite each person to the microphone. When I call your name, I will request you to unmute your microphone. For those participating from the telephone line and did not register your names in advance, I will ask you to unmute without calling your name. As the voice guidance instructs you, please unmute and introduce yourself. When asking your questions, please tell us your name and your company name and ask your question. I may need to ask you to say your name again in case the voice was not clear. In order to receive questions from as many participants as possible, I need to limit to 2 questions per person. Please state your 2 questions at one time. So the first question is Nomura Securities. Mr. Nagao, please unmute yourself and state your name and your company name and ask your question, please. Can you hear me? Yes. Thank you. My first question is operating margin. So in the January March quarter, operating margin improved significantly in April, June quarter and onward. How do you foresee the operating margin trend in Japan and Dentsu International? What is your forecast? Thank you. That is my first question. Next, second question. At the outset, President Yamamoto said the establishment of the joint venture, and these initiatives are now underway. Mitsui Sumitomo Financial Group and Toyota Motors and last year, Kirin Holdings, you've been taking these steps. So this format, this joint investment, co investment, the positive impact, what kind of positive impact do you think this has on Bentsu? And what was the history or the background that led to these moves? Thank you very much, Mr. Nagao. So the first question, operating margin and the future forecast, Mr. Soga will explain. This is Soga speaking. Thank you very much, Nagao san, for your question. As you correctly mentioned, operating margin in the Q1 improved significantly. DJN and DI, there are different factors. First, starting from DJN, the variable cost control was successful, and this proved to be successful. As you remember, last year, the work style reform, new style workings was implemented among the staff. New Horizon was the system that was introduced, and I think we are seeing the positive impact from that. On the other hand, DI, our overseas international business, starting from 2 years ago, cost reduction plan started, which we call ATP, and this is now coming to fruition. From Q2 onward, with the improvement in the economy, the variable cost will increase. As you mentioned, the variable cost will increase, we think. On the other hand, DJN, Q1 variable cost was reduced. And in addition, going forward, on the like the international side, APP will be implemented at the same level as the international side. And on the DI side, the operating margin improvement that we're seeing this time, if you could remember last year, to counter the pandemic, the personnel costs and the variable costs was largely controlled, and the result came out in Q2 and onward. So the hurdle is higher. The comparator is tough. As you remember, on the VI side, on a full year basis, operating margin under even under COVID-nineteen, 1.5%, 150 basis point improvement was achieved. So there's this comparator factor. On a group wide basis, the business environment is favorable. And ATP under ATP, we are pursuing restructuring, and this result will come out. So taking all this into account on a group wide basis, operating margin improvement is expected year on year, but some key countries' performance still has some uncertainty. So the overall business and the operating margin, we will clarify when we announce the 2nd quarter results. I hope this answers your question. Thank you. Thank you. And your second question was the Japan business, the collaboration with the new customers, new clients and how we are collaborating and the co investment and the strategic intent. Mr. Igarashi will answer. Yes. Nagao san, thank you very much for your question. This is Igarashi speaking. So this joint investment and our relationship evolution of our relationship with our clients, the purpose is, first of all, our client customers are now pursuing the business transformation and business growth. They're trying to accelerate the growth, and we are fully committed to that. So first of all, on a CXO level, including CEOs, with CXOs, we are sharing the goal of this to customers' marketing overall. So it's not just a simple communication area, but overall marketing is where we want to commit ourselves to. Furthermore, this commitment will we commit to customers' medium to long term growth. And so we are trying to strengthen our medium to long term relationship, and that is the intent behind these moves. Other than the capital and business alliance, we are sickening asking to sickhand our personnel to important positions on client side. So including all these, we are trying to reinforce our relationship with our clients. Thank you. I hope I answered your question. Thank you very much. Just quickly on the second question, could I ask a follow-up question? Yes, if you could do this quickly. Sorry about that. So these joint investment formats may face the competition with the consulting firms. But do you think this will lead to the differentiation? You can differentiate yourselves by doing this? Yes. We are committing to customers' growth, growth above anything else. Thank you very much. Thank you very much, Nagao san, for your question. Next, the question is from Mr. Julian Roche. Please unmute yourself and start by stating your company's name and your name. Yes. Good morning. Can you hear me? It's Julian Roche with Barclays. Hi, it's great early math. Yes. We can hear you. My first question is for Wendy. You did minus 1% in media for international, while WP did 5.8%. And Publicis did up mid single digit in the U. S. So why did you underperform in Q1? Is it account losses or something else? If account losses, who are they and can you quantify them? And my second question for everybody, impact of the end of cookies on Dentsu, bad, good, neutral and why? Thank you. Hi, Julian. It's Wendy. Thank you for the question. Yes, as you noted, we ended the quarter slightly down on media. I think you have to take a bit of a broader view on looking at our trajectory and our recovery based on where we ended Q4 last year and the sequential improvement we have made into Q1. It is not something that's down to any particular loss. We have higher exposures, as you know, into some of the sectors that were more impacted and lower exposure into some of the sectors that were more protected, as we've mentioned before in our previous discussions, particularly around health. And so I think we've just seen a slower recovery. That said, as we look outward, our confidence is quite high. As we already mentioned that in April, we've seen positive growth at a holistic level for DI of over 17% organic revenue growth. So while we're a beat or 2 behind our peers, we are just coming out of a tougher starting point. I think the other thing I would mention, Julien, is that I think we always have to keep in mind, yes, we are restoring growth from a pandemic, but we're also leading this transformation of the business. And I think that that's it's a twofold restructuring of the business. We stand to be, as we sort of go through this process, the most integrated agency group network in the world. And so it's we're doing a twofold action here that will be in front of our peers on the 2nd piece on this integration front. We're doing it now. And so I'm mindful of that when I talk to our people, particularly. We are very confident in our outlook for the year for Odonto International. And as I said, we've already seen ourselves swing into growth in April. So we're just a beat behind. It's not anything in particular. It's not one account. But we are doing additional and incremental hard work in this transformation. And I think that you're just going to see that start to ease as we come into, obviously, better comparables and feel the benefits of this integration. We heard Yamamoto san mention that we've already optimized 53 brands of the 160. So we feel very positive about where we are, and our endpoint will be seismically different and differentiated in the marketplace. If I could ask a really quick follow-up before we move to cookies. Thank you very much for giving April. Will it be possible to have April year on year last year so we can have a sense of the 2 year run rate? I think we'll just stick to the Q1 discussion right now, Julian, but I just I wanted to mention that from a confidence perspective. And we can follow-up with anything in particular, if that can be helpful. I don't want to get us off track on the Q1 results. I am happy to kind of bridge into your next question around 3rd party cookies. Obviously, this brings to bear the significant investment we've made around Merkle and the fact that we've been preparing for the removal of the 3rd party cookie for some time. And so we've got the underlying data and identity platform already in Mercury. You've heard us talk about it endlessly probably. And so this is a conversation we've been having with our clients for a long time. So our cookie less platform is already running for our clients. Every conversation I can say I'm a part of, it includes first party data now and the need, quite frankly, for brands to own this relationship, not platforms, to own the data and the relationship with the consumer. And we see our progressive clients moving into this space and feel like we have the capabilities and platforms to help them accelerate their programs here. So again, not a surprise to us, something we've been planning for, something we feel very well positioned for. And I think, frankly, a positive step in marketing overall. Next, this is Igarashi from DJM. For DJM, this type of development is considered positive. We have been making a thorough plan for preparation with our clients and platformers. We are able to respond with our unique solutions. So we have been able to prepare ourselves quite well, and there is a definite progress there as well. And also, DJN and Tetsu International, this type of solution will lead to greater collaboration. So it would be positive for group overall. Thank you very much for your question. Question. Next question comes from SMBC Nikko Securities. Mr. Miyada, please. Please state your name and your affiliation and your question, please. SMBC Nikko Maida speaking. I have two questions. Earlier, you said that your key focus is CT and T, and the ratio is improving. Merkle and ISID, Dentsu Digital are the core of this movement. Merkle has been strong in this area. But once again, ISID and BINSU Digital, how are you are you accumulating know how already there? And you are off to a good start. As a background, you are deepening, exploring customers and increasing the number of customers. Or are there any key information that you could share with us that is driving this forward? And my second question, Merkle program is underway. As of the end of February, you are not holding any share. The buyback, so the share buyback, you have not done it yet as of April. So, Maira san, thank you very much. It's the initiative of CT and T. This is Yigara speaking. So CT and T initiatives in Japan, let me explain ISID and Dentsu Digital, what they are doing? From the past, ISID and Dentsu Digital had been independently offering client service in digital solution and building track record independently. But now we are trying to do this in a cross functional manner and there are many initiatives that are now cross functional in nature. Dentsu Digital, ISID, Dentsu Inc. And ISOBAR, all these Dentsu Group companies are working together to make inroads into clients. We have this formation now, and this is accelerating this year. Of course, in the communication domain, we have worked with clients' business divisions. We've approached our clients' divisions. But now ISID and Dentsu Digital, the division now. So we are working with these different divisions to drive business transformation and building new businesses. And we're seeing more and more examples now. So we're using that as a breakthrough to add more solutions and commit to the entire marketing activities, and this activity is expanding. So let me share with you some concrete examples. 1 platformer's cloud service domain approach is now accelerating. So this is CT and T and DX. We're seeing more successes in CT and T and DX. So I hope this answers your question. This is Soga speaking. So I will talk about the second question. As you rightly mentioned, our share buyback has not progressed. And the background to that is, as mentioned earlier, in January, we announced Shiodome Headquarter Building Sales. We are still discussing examining this. And this fact is important fact, privileged information. Based on the advice from the law firm that it is privileged information, we take that possibility into account. And so we decided not to do share buyback. Once this becomes clear Once this becomes clear and once it becomes possible for buyback, we will do so. We plan to do so. At any rate, following the plan we announced in February, JPY 30,000,000,000 will be bought back, repurchased, and this plan remains unchanged. So next, the person would be Ms. Fiona Orford Williams. Please state your name, your company name before you ask your question. Thank you very much. It's Fiona Orford Williams from Edison Group. My first question is around margins but into FY FY 'twenty two. Are you still confident that you can achieve your intended cost reductions? And what additional levers do you have to achieve them over the ones that you're using in FY 'twenty one? And then my second question is around the brand rationalization progress. You talked about how you'd prepared for that internally, but it's a huge shift. So how do you communicate that with your clients' stock client churn? And why does having fewer brands inherently boost the growth potential? This is Sogou speaking. Thank you very much for your question. I will respond to your first question. And jumping to the conclusion for 2022, this accelerated transformation program, as a result of this program for the group overall, Sosaku we are going to reduce cost by JPY 75,000,000,000. And this the schedule or target remains unchanged. And this fiscal year, around JPY 56,000,000,000 of cost will be spent. And ATP for the Japanese business, next year, we do intend to book some costs, but for this fiscal year, about JPY 50,000,000,000 JPY 35,000,000,000 for next fiscal year. These were the levels of cost reduction that we intend to achieve. And this plan remains unchanged at this point in time. And additional levers that you spoke of as to whether we need to have those? Well, even if we don't have additional levers, we will still execute on this plan. And business transformation or structural reform. And these are not just limited to this fiscal year. We will continue this, and I think this is necessary. We're fully aware of that. And so the current plan remains unchanged. And in order to make ourselves into a more efficient organization, we'll continue to make effort, and that completes my response. This is Yamamoto speaking, and Nick will also add a comment. Nick, please go ahead. Hi, everybody. It's Nick Bradley speaking. So in terms of the question, are we confident around delivering our margin goals for 2022, which is a reminder for everybody was a 15% margin goal for 2022 for the international business. The answer to that is a clear yes. We are confident we can deliver that margin given the line of sight we have to margin delivery in 2021 and the return to growth. And in terms of the other levers, just to complement and add to what Soak San said, we're obviously looking at our office portfolio across the business. We're obviously also looking at near shoring and off shoring models, which benefit not only us in our efficiency, but also our clients in terms of lowering the cost of delivery, making us more competitive. We're looking at a number of automation techniques, accelerating deployment of automation across our business. We have deployed something like 300 plus software robots in the last 3 years, saving a significant amount of manual work. And that does really deliver a strong return on provides us not only with improvement in margin, but with our clients with the more effective agency partners. So the answer to your question is a clear yes on the margin goal for 2022. Thank you. Fiona, it's Wendy. I think I'll jump in on your second question, which was around our brand optimization. As we've already announced, we're going to go from about 160 brands to 6 brands by the end of 2022. It's a thoughtful plan. And I think at the heart of your question is, well, it cannot be disruptive to clients and therefore revenue. As we mentioned, you heard in Yamamoto san's opening comments, we've already optimized 53 of those brands so far. That's ahead of actually 56. It's ahead of our target. So we're on track. He also mentioned that those tend to be smaller and more specialized. And so there's less risk in that. But he also mentioned our most visible optimization, which came between Iprospect and Visium earlier this year is the largest agency integration that we've done ever. And I'm quite pleased to tell you, and I'm touching wood, you can't see me, but we have had no client attrition from that. I mean, the client attrition is not something that we can project or forecast, as you all know and understand, but there was nothing that came outwardly from that integration at this point. And so again, as Yamamoto san said, these are very well planned and thoughtful transitions. We include our clients in those transitions. We listen to them. And I think ultimately, I cannot underscore enough the number of clients that I talk to. As we talk about this integrated future, it's exactly what they want. They most need these new and incremental sources of growth, which they know don't come from singular or finite thinking. It comes from expansive and integrated capabilities. They need agility and speed in their business more than ever. And so having a patchwork of agencies, it just slows everything down. And of course, they need efficiency, right? They've got to reinvest in their top line of their marketing. And so they're looking for efficient models. And this is how we're going to get there, is having truly integrated capabilities with radical collaboration of our network. And you see it again and again, and I guess I have the benefit of seeing up close in our clients' work, where you just see the unlocks come very quickly now. And we just couldn't feel more confident about the plan. We'll be the most integrated agency group at the end of this heading into 2022. And I think that, that also answers your first question, gives us some assurances around the growth and the profitability of our business. Next question is from Daiwa Securities, Mr. Ishihara, please. Please state your name and your affiliation. This is Ishihara from Daiwa Securities. Can you hear me? Yes. Two questions. They are both on CT and T. First, CT and T gross margin proportion will be 50%. So 50% of revenue will come from CT and T in the future. What shortfalls do you think you have in terms of resource? What do you need to capture? People, organization, collaboration or software? What is still in short now? What do you need to achieve 50%? And second question is on CP and T, too. So once again, in your headquarter group, Who will which group company drives CP and T in Japan and overseas? Which companies are they? Which companies are the drivers? Thank you very much. Yes. Thank you very much, Ishihara san. So first, Igarashi will answer your question from DJN side. So what we still lack are not are many. Of course, we set a very ambitious target. So people capability, of course, we have to reinforce, strengthen this going forward. And whether we can do this with the internal resource or utilize outsource in external resource, we have to examine both. In CT and T, AX, BX, CX and DX, CX and BX and DX, customer experience and business transformation and digital. So we have set these, especially in BX, business development our development format and manpower and talent is still lacking. And we have the Dream Incubation Capital Alliance. We announced this today. This is significant in terms of boosting our capability in this area. So we want to quickly enhance this capability going forward. And let me also answer your second question from DJN, ISID and Dentsu Digital. These two companies are the strong compelling driver that will take initiative. And Dentsu Digital as Dentsu Isobar, they merged within Dentsu Isobar and e commerce companies are also merged, so we will make them stronger going forward. So that was from DJ Yen point of view from Igarashi. Thank you very much. Thank you very much. This is Wendy. Just to build on Igarashi san's answer for Dentsu Japan, I'll speak to Dentsu International. Look, this is the fastest and most rapidly growing sector of the industry right now. Your projections, if we read all of your analyses, point to the fact that this we're going to have double digit growth in this area before long. And in some cases, we've already experienced that, in particular capabilities. So yes, to your point, there is a war on talent here. It's a prized capability set. We have to do everything in our power to retain our critical people and we take that focus very seriously. That's one thing and of course are always in the marketplace looking to recruit the talent we need and new leaders in this space. So talent is crucial to the plan. And then I would say M and A is going to be important. We announced, as you know, that we are returning to M and A. We have a very focused M and A strategy specifically to what we call on the international side of the business, CXM, the CT and T space. And that is going to be a crucial part of it. The type of capabilities that we're looking for in M and A are commerce, obviously, more advanced technology, customer transformation. We also have geographic needs. So we're going to be looking very specifically to fill in some geographic areas that need this capability. And so I think that would be crucial to the delivery too. But I can reiterate our confidence on the DI side of reaching that 50% revenue target in our midterm plan as we announced before by mid 2024, 2025, by the mid-20s, we feel very confident that we've got exactly what we need. And the final piece of your question was that is delivered through Merkel on the DI side. So we've got what we need. We need to execute the plan as noted. Shihara san, Yamamoto would like to start answering your second question. So CP and T is driven by which company? That was your question. On the international side, Merkle and DJN side, ISID and Dentsu Digital. But in Japan, the 2 companies are not working independently. Those 2 are the center. And we have a group cross functional group wide organization centering on these 2 companies. That is the feature in Japan. And Merkle is not just international, but including Japan. It's also a group wide fee P and T driver. It's a big driver. Thank you. I hope this answers your question. Mr. Rajesh, please unmute yourself and state your name and your company before starting your question. Thanks a lot for this opportunity. My name is Rajesh Panjwani. I'm from JPMorgan Asset Management. One of my questions was on the share of CT and T, which that has already been answered. The other question is on the use of the proceeds from sale of Shodome building. The news report suggested that it is around JPY 300,000,000,000 which is almost 30% of the market cap. So it's very sizable sum. How do you plan to use it in terms of shareholder returns, investment and further growth, etcetera? Can you give us a rough idea about that? Sogawa sanonogosumami. Sogawa speaking. Thank you for your question. In regards to sale of the Shiodome building, we are considering this right now, and the objective of this is as part of the comprehensive review. So non business assets are to be disposed so that we can make investment towards our business. That is the key objective. So cash after the sale irrespective of how much this will be, but the cash flow generated by the asset sale will be spent on a business investment as part of a medium term management plan. We will work on business transformation, and we will achieve the CT and T will be brought to 50% of the group's revenue, as we explained before. So for that, we need people, we need technology and business, which is the multiplication of our people and the business. And so we intend to spend the proceeds for M and A. And you also asked about shareholder returns. In regards to shareholder return, we will look at business environment at that time, and we'll take that into consideration. So the deposit from the sale of the building certainly has not been realized yet. But of the cash that's generated, how much portion of that will be used for shareholder return? In this regard, nothing has been decided at this point in time. Thank you very much, Rajesh Sanyo, for your question. Thank you very much for asking many questions. Time has come, so we would like to conclude the Q1 2021 earnings announcement call of Dentsu Group. Thank you very much for your participation today. Thank you very much. Thank you. You may now disconnect from the Zoom or from the telephone line. We will close this webinar shortly. Thank you very much again for today.