Q&A at Earnings Investor Briefing for FY2018

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Date Wednesday, May 8, 2019 6:00 pm - 7:00 pm
Speakers Kazuhiko Fujihara (Board Director, Executive Vice President & CFO), Takashi Naito (VP, Head of Finance & Accounting Division), Koichi Hirono (VP, Head of Strategic Finance Division)
  • What measures do you plan to implement to deal with NTT Docomo's new price plan and the amendment of Telecommunications Business Act?

    We don't need to respond immediately. We plan to implement appropriate measures while monitoring the competitive environment. Starting with the recently announced Smartphone Debut Plan, we aim to achieve our “100% smartphone penetration *” goal by further promoting the use of/switch to smartphones. In addition, Y!mobile is scheduled to announce a plan that separates handset payment and service fees in the first half of FY2019. Further out, we aim to achieve the profit and the per-share dividend of 85 yen that we announced by rolling out new price plans corresponding to changes in the market environment and by growing as a business overall.

    • *
      SoftBank slogan advocating one smartphone per citizen
  • Please give us your five-year cash flow outlook and dividend policy for the period after consolidating Yahoo Japan Corporation (“Yahoo Japan”). I interpret your policy “maintain or increase dividends” to mean that you will not decrease your dividend. Do you plan to stick with this policy after the consolidation of Yahoo Japan?

    Our dividend policy will not change after the consolidation of Yahoo Japan. I am not a position to discuss Yahoo Japan's individual dividend policy, but we have a stake of roughly 45% in Yahoo Japan's net income, which is around 80 billion yen (*Net income impacts the dividend amount). Yahoo Japan has a relatively low dividend payout ratio, since we will maintain our overall payout ratio of around 85%, on a SoftBank stand-alone basis our dividend payout will increase. However, we believe that the synergistic benefits and value from the consolidation of Yahoo Japan outweigh this impact. Adjusted free cash flow at SoftBank is trending stably. In FY2017, we posted adjusted free cash flow of roughly 508 billion yen and in FY2018 we secured 513.1 billion yen. In FY2019, we expected adjusted free cash flow of 520 billion yen. Given the increase in net income, we believe we can anticipate a certain degree of growth in our adjusted free cash flow.

  • I believe your goal to maintain and expand annual dividends is a new message that we have not heard before. Is my understanding correct that this policy indicates that SoftBank will not reduce its dividend payout?

    Basically, the understanding is correct. This supplements the explanation given by CEO Miyauchi at the Q3 FY2018 earnings results briefing.

  • The entry of Rakuten into the market and the introduction of a separated handset payment and service fee plan at Y!mobile are upcoming events. What is your forecast for sales promotion costs to secure ARPU and subscribers in the Consumer Segment for mobile communications?

    ARPU bottomed out and started to recover in Q3 FY2018 on year on year basis. In Q1 and Q2 of FY2019, ARPU trends are expected to trend firmly. Sales promotion costs in Q4 FY2018 has increased, and roughly 17 billion yen is due to the contract amendment in broadband service sales commission. By this amendment, we have incurred 17 billion yen prepaid cost as one-time expense.

  • What is your policy for upgrading to 5G? In your announcement at the time SoftBank acquired its spectrum license in April, in contrast with the competitors, your plans comprise fewer base stations. Is it your policy to upgrade your TD-LTE spectrum, including 3.5GHz and 3.4GHz, to 5G, by leveraging existing spectrum while emphasizing speed?

    It is my understanding that the number of base stations to be constructed is based on the assumption that the base stations for existing spectrum will be utilized as soon as available. We plan to build out our base stations sufficiently, as the number of base stations written in the application for the new spectrum was the minimum number in our plan and we will invest and deliver the base stations committed . We plan to build 5G network, not only to achieve our 90% coverage goal but also to provide services in regions where use is concentrated locally.

  • I assume PayPay Corporation will be an associate accounted for using the equity method even after investment from SBG. How much losses are forecasted for profit before tax in FY2019?

    We do not disclose the figures. I can say that certain degree of growth and business enhancement are planned.

  • Please explain the synergies you expect to see from consolidating Yahoo Japan.

    In the past, SoftBank and Yahoo Japan designed and implemented measures to mutually send customers to each other, so that SoftBank could acquire mobile communications subscribers and Yahoo Japan could secure users for its e-commerce business. Both companies have their own areas of specialty; SoftBank has the telecommunications domain and Yahoo Japan the Internet domain. There was a clear-cut division where both companies respect the position of the other while collaborating with one another. However, when it came to FinTech business, which has potential for substantial market growth, SoftBank and Yahoo Japan were working on this individually, each involving various stakeholders when developing new businesses related to Fintech. From this perspective, after consolidation, we could build stronger ties to further supplement each other's operations in various new domains, including Fintech. In addition, making Yahoo Japan a consolidated subsidiary would facilitate further aggressive allocation of resources by reflecting synergies from collaborations with Yahoo Japan into SoftBank's earnings. In specific, SoftBank has few software engineers though there are many telecommunications engineers. Having access to Yahoo Japan's 3,000 or more highly talented engineers would be very powerful and SoftBank could expect large returns. In addition, SoftBank could more actively support Yahoo Japan's sales, as this is an area of expertise for us. We plan to showcase these results going forward. These conditions would also generate cost benefits that could only be reaped by a subsidiary, such as through central and joint purchasing. We plan to undertake these issues going forward.

  • In FY2019, on a consolidated basis excluding Yahoo Japan, you expect a growth in and profit of around 20 billion to 30 billion yen. Can you give a breakdown of growth drivers by segment?

    In FY2018, we achieved sales and profit growth in all segments. In FY2019, we also estimate sales and profit growth in all segment. We plan to secure growth while monitoring the competitive environment.

  • What business at SoftBank will see an impact to earnings from the consolidation of Yahoo Japan?

    The impact of synergies with Yahoo Japan to our consolidated earnings forecast for FY2019 are all reflected as the upside potential, therefore this will not impact the achievement of our plans. We announced our goal to achieve consolidated operating income of 1 trillion yen. We are determined to fill the gap with current conditions by leveraging this upside impact. Yahoo Japan offers universal services. It is our opinion that the stronger these services are, the stronger the synergies will be with SoftBank.

  • What is the background behind acquiring 45% of Yahoo Japan share, and not 100%?

    The cost to purchase all of Yahoo Japan's shares would have exceeded 1 trillion yen. The issuance of new shares involves premiums and dilution, which would make the acquisition scheme more complex. In addition, SoftBank has just recently listed its own shares, Yahoo also has brand system issues. Given these factors, the acquisition of 100% was not a realistic option.

  • There was mention that migration from SoftBank to Y!mobile is surpassing the migration of the opposite direction. What are the factors behind this?

    The upgrade and downgrade migration between brands is balancing, This does not mean that this upgrade trend will continue going forward. At our shops, to prevent migration of users outside of the group, we are undertaking various measures at each shop.

  • How about the progress with regard to utilizing RPA to position personnel?

    We are already steadily transferring part of the 17,000 employees to new domains by boosting the efficiency of the existing telecommunications domain.

  • At the earnings results briefing, CEO Miyauchi commented that SoftBank aims to achieve operating income of 1 trillion yen in 3-5 years. Is it correct to assume that FY2019 is the first year? What level of growth do you expect by the current business segments at SoftBank and Yahoo Japan? Also, do you anticipate particularly large growth at any specific segment or business?

    Your understanding is correct. Yahoo Japan announced that it aims to achieve operating income of 225 billion yen in FY2023, which is equivalent to the fifth year. In the Consumer Segment at SoftBank, we are taking a cautious outlook mainly given changes in the competitive and regulatory environments. In the Enterprise Segment, we feel the large potential for growth given the recent performance. In particular, the business related to 5G and IoT in the Enterprise Segment are likely to exhibit substantial growth. I will refrain from disclosing a breakdown.

  • Are SoftBank and Yahoo Japan additionally investing in PayPay Corporation in this capital increase?

    Only SoftBank Group Corp. will acquire an additional stake in the company.