Strength in Japan and restructuring

The key financial headlines from Dentsu’s Q126 results are organic and total revenue growth of 0.8% and 2.7%, respectively. Japan remains the driver with organic growth of 4.7% surpassing Q425’s 4.5% and compounding Q125’s 5.5%, indicating good momentum. International markets overall remain challenging, more notably APAC ex-Japan. The combination of Japan’s revenue outperformance, control of opex, including the benefits from restructuring, and forex benefits led to a 1pps improvement in underlying operating margin to 12.8%.

FY26 guidance reiterated

For the individual geographic regions, Japan’s Q126 organic growth is tracking ahead of FY26 guidance of 2–3%. EMEA’s is broadly in line with 1% guidance, the Americas is modestly behind guidance for a 2% decline and APAC ex-Japan remains well below guidance for 1% growth. The announcement that regional headquarters will be streamlined and the number of multi-country clusters will be reduced in EMEA is expected to enhance client interaction and decision-making as well as deliver cost savings from support functions. In APAC ex-Japan, management is divesting certain parts of its poorly-performing CXM business in Australia and New Zealand and restructuring others. Both will provide incremental cost reductions versus the initial FY26 guidance; however, increasing macroeconomic uncertainty means these do not carry through to changes in FY26 guidance.

Valuation

Dentsu is trading a at discount using EV/EBITDA multiples and at a premium using P/E multiples.

Early signs of change from new CEO

Before we look in more detail at Denstu’s Q126 results, we focus on the key points from the new CEO’s, Takeshi Sano’s, first results presentation following him assuming the role at the end of March 2026. As a reminder, the prior, FY25 results, which were ahead of guidance, included a number of items of less positive news including: a further write-down of goodwill that eliminated the company’s ability to pay dividends in FY25 and FY26; a cautious outlook for FY26; and the departure of the prior CEO.

Broadly, the new CEO is aiming for a simpler, faster and more integrated version of Dentsu that will enable it to compete more effectively against the much larger global holding companies in its international markets. At the centre of his strategy are three core ideas or pillars:

• Client centricity. Dentsu should act less like a collection of agency services and more like a long-term growth partner for its clients. Here, the goal is not simply to sell services but to help clients solve their broader business problems and drive growth.
• Agility. He believes Dentsu’s competitive advantage should come from being the right scale rather than being the largest. To achieve this he wants fewer management layers, less regional bureaucracy, faster decision-making and more direct involvement from global leadership.
• Collaboration. He wants to break down siloes between disciplines and create more unified client solutions.

The core pillars are what we should expect from a services business, therefore, so far the strategy looks like a pragmatic turnaround agenda rather than a grand reinvention. Essentially, he is employing a similar strategy to the whole group as he did while CEO of dentsu Japan, which has continued to drive good revenue growth and enjoys high levels of profitability. The mid-term management plan is still being reviewed, and the CEO expects to provide further strategic updates later this year. With less than three months in charge, it was likely too soon for the new CEO to formulate the strategy and quantify financial guidance completely.

Importantly, as we will show in the next section, there are early signs of the strategy being enacted with the divesting of underperforming assets in APAC ex-Japan and simplifying reporting lines in EMEA. The Q126 results show there is much to do with Creative and Customer Experience Management (CXM) being weak in most of Dentsu’s international markets.

Q126 revenue growth and profit above management’s expectations

Dentsu has started the year well with revenue and underlying operating profit marginally ahead of its own expectations. Net revenue increased by 2.7% to ¥295.1bn and underlying operating income increased by 11.5% to ¥37.8bn, which represented a good increase in the operating margin to 12.8% from 11.8% in Q125.

All the geographic regions except the Americas saw an improvement in operating margin, with a common message of lower opex, including the benefits from the restructuring helping to grow operating margin or mitigate the decline in the case of the Americas.

Although not shown in Exhibit 1, we highlight one-off gains provided a significant boost to statutory net income, which increased by c 540% to ¥40.2bn, and therefore represents a positive for rebuilding distributable reserves. The one-off gains included a profit on the sale of a building in Tokyo and a profit on the sale of a partial holding of a subsidiary, CARTA HOLDINGS, that became an associate holding, as well as the fair value measurement gain on the retained shareholding.

Despite the external and internal challenges, Dentsu has a fairly consistent record of low-single-digit organic revenue in the past two years, with positive overall growth in seven of the last eight financial quarters. This has been driven by the performance in its domestic market with growth in the other markets much more variable and volatile. Japan’s growth of 4.7% growth in Q126 compounds good growth from Q125 of 5.5%. EMEA’s 0.8% growth in Q126 had a relatively easy comparative from Q125 of a decline of 0.9%, so there is no apparent underlying improvement on a two-year basis overall. Both the Americas and APAC are compounding declines from Q125 of -5.1% and -4.6%, which were compounding negative growth in Q123 and Q124, with further falls of 3.0% and 7.5%, respectively, in Q126 indicating there is much to do to stabilise performance in these regions.

To aid investor understanding of the progress in each of the international regions, Dentsu has re-commenced disclosure of organic net growth by business discipline within those regions.

Japan

As already highlighted, Japan enjoyed another strong quarter of organic net revenue growth. Indeed, it was the 12th consecutive quarter of growth and the sixth consecutive quarter of mid-to-high-single-digit growth. Q126’s organic growth of 4.7% reflects ongoing strength in internet media with double-digit growth and television with mid-single-digit growth. In other non-media verticals, growth was strong in Digital Transformation, which increased by almost double digits, and Business Transformation’s performance was described as steady. Growth would have been stronger by 0.6% without the reclassification of CARTA HOLDINGS from a subsidiary to an equity-accounted affiliate.

Americas

The net revenue trends by discipline have been mainly negative since the start of FY24, with Media performing better than the weaker trends in Creative and CXM. There is a clear pattern of sequential improvement in CXM such that it was only marginally negative in Q126. However, Creative remains firmly negative as a result of the known client losses and lower client spend.

EMEA

EMEA’s Media organic net revenue growth has been mainly positive since the start of FY24; however, Creative and CXM have been firmly negative since the start of FY25, and both are compounding easy negative comparatives from Q125 with further declines in Q126.

In Q126, Media’s growth was helped by some phasing benefits of revenue in the UK, which will normalise through the remainder of FY26. CXM’s decline in Q126 reflects a combination of strong growth in Spain, offset by weakness in the larger markets, Switzerland and the UK. Management highlights Italy and Poland as the main drivers of the weak Creative performance in Q126.

Management announced a streamlining of EMEA with the headquarters of the previous seven multi-country clusters reducing to three new clusters. The CEO of each cluster will report directly to the new global CEO, which will strengthen alignment with the corporate centre. The new structure will enable quicker decision-making within the region and make it more efficient, enabling cost savings. The cost savings are focused on support functions etc, so it will be interesting to see if other changes follow in coming quarters given the ongoing weakness in CXM and Creative.

APAC ex-Japan

In APAC ex-Japan there has been a similar trend as the Americas in recent years with better growth rates in Media versus significant rates of decline for both Creative and CXM.

Media’s performance in Q126 is described as steady with the decline being more reflective of the strong Q125 comparative. Client losses and lower spending continue to hit CXM severely. The new CEO is taking decisive action here with the divestment of the customer relationship management (CRM) business, reported in CXM, in Australia and New Zealand, and the individual brands in Media will be integrated. These, along with client wins, provide management with confidence the region will return to growth in FY26.

The divestments and restructuring should deliver cost savings, which should be considered as most welcome given the region’s underlying operating loss remains a drag on overall group profitability.

Valuation

The share prices of the agency holding groups have been weak in FY26 as a result of fears of slowing economic growth and ongoing uncertainty about the sustainability of their business models with the wider adoption of AI. Dentsu is trading a at discount using EV/EBITDA multiples and at a premium using P/E multiples.