Summary of Earnings Results Briefing
for Q3 FY2019
|Date||Friday, February 7, 2020 4:00 pm – 5:30 pm|
|Speakers||SoftBank Corp.: Ken Miyauchi (President & CEO), Junichi Miyakawa (Representative Director & CTO), Kazuhiko Fujihara (Board Director, Executive Vice President & CFO)|
Mr. Ken Miyauchi, President & CEO of SoftBank Corp., discussed three themes at the earnings results briefing: (1) consolidated results for Q3 FY2019, (2) revisions to consolidated financial results forecasts for FY2019, and (3) progress on growth strategy.
1. Consolidated Results for Q3 FY2019
In the nine months ended December 31, 2019 (April-December 2019), revenue increased by 30% year on year to 3,618.0 billion yen. SoftBank Corp. made Z Holdings Corporation a subsidiary in June 2019, and has retrospectively adjusted its results for the fiscal year ended March 31, 2019 (FY2018) under the assumption that Z Holdings Corporation was made a subsidiary at the beginning of FY2018. When compared with the retrospectively adjusted results for the previous fiscal year, revenue increased 5% year on year. Looking at segment performance, revenue increased year on year across all segments after retrospective adjustment.
Operating income rose by 25% year on year to 795.1 billion yen. The increase was 9% year on year after retrospective adjustment. In terms of segment performance, operating income increased year on year across all segments after retrospective adjustment. In the Consumer segment, operating income rose by 20.0 billion yen year on year, mainly due to the increase of smartphone subscribers. In the Enterprise segment, operating income was up by 3.3 billion yen, supported by growth in Business solution and others. In the Distribution segment, operating income increased by 2.6 billion yen due to the strong sales of ICT related products. In the Yahoo segment, operating income increased by 7.4 billion yen, owing to growth in the Commerce Business. In Others, operating income rose by more than 30.0 billion yen. This increase was mainly due to the impact of the reclassification of PayPay Corporation from a subsidiary to an equity method affiliate in Q1 FY2019.
Net income attributable to owners of the Company was 436.6 billion yen, an increase of 10% year on year. This was an increase of 3% year on year after retrospective adjustment.
2. Revisions to consolidated financial results forecasts for FY2019
SoftBank Corp. upwardly revised its consolidated financial results forecasts for FY2019 backed by an increase of smartphone subscribers and an increase in Business solution and others revenue in the Enterprise segment. Revenue was revised upwardly by 20.0 billion yen to 4,820.0 billion yen and operating income was revised upwardly by 10.0 billion yen to 900.0 billion yen from the initial forecast. Net income attributable to owners of the Company remains unchanged from the initial forecast at 480.0 billion yen. This is due to the recording of 19.5 billion yen in income tax in FY19 Q3 related to the gain on the intergroup transfer of shares of Z Holdings Corporation, following the conclusion of a definitive agreement relating to the business integration between Z Holdings Corporation and LINE Corporation.
3. Progress on Growth Strategy
SoftBank's growth strategy stands on three pillars: drive further growth in the telecommunications business, drive growth of Yahoo business and expand new business fields.
Drive further growth in the telecommunications business
The telecommunications business, including Consumer and Enterprise, has achieved solid growth in its business performance.
In the Consumer segment, revenue in the nine months ended December 31, 2019 increased year on year, as revenue growth in mobile and broadband services outweighed a decline from handset sales.
In mobile communications services, our company supports a wide range of customer needs through three differentiated brands: SoftBank, Y!mobile and LINE MOBILE. Despite changes in the business environment following the amended Telecommunications Business Act becoming effective in October 2019, cumulative smartphone subscribers increased by 9% year on year to 23.48 million as of December 31, 2019, with increases across all three brands compared with December 31, 2018. Moreover, the average monthly churn rate for smartphones achieved a record low at 0.53% in Q3 FY2019. Going forward, SoftBank Corp. will continue striving to build brands that continue to be chosen by customers.
In broadband services, cumulative subscribers for our main service SoftBank Hikari increased by 9% year on year.
We have accelerated initiatives on 5G (fifth generation mobile communication) technology. The arrival of 5G technology, which features ultra-high speed, large capacity, ultra-low latency, and massive machine to machine connections, will significantly transform entertainment experiences, such as watching sports, live concerts, and gaming. In the upcoming launch of 5G commercial services in late March 2020, SoftBank Corp. has been carrying out various verification trials and providing 5G pre-services. Moreover, in December 2019, SoftBank Corp. announced that it would discontinue 3G services in late January 2024. This decision will help us to concentrate even more business resources on 5G technology going forward.
In the Enterprise segment, revenue increased by 3% year on year, with performance driven by growth in Business solution and others, which includes cloud services, digital marketing, IoT, robotics, security and others. In the digital marketing field, SoftBank Corp. announced the formation of a joint venture with Hakuhodo Inc. and Arm Limited in September 2019, thereby launching a data utilization consulting business that will support companies with one-stop services ranging from data integration to marketing. In the IoT field, SoftBank Corp. provides a variety of IoT solutions, such as automated gas meter readings through the use of IoT-enabled smart gas meters. It is believed that the arrival of 5G technology will fundamentally transform existing industries. We believe this represents a major business opportunity for the Enterprise segment. In December 2019, SoftBank Corp., together with Wireless City Planning Inc. and TAISEI CORPORATION, started conducting 5G verification trials, including trials of the remote operation of unmanned construction machinery at tunnel construction sites and remote surveillance based on IoT sensors. SoftBank Corp. will work to solve a wide range of social issues by accelerating the digital transformation of industry.
Drive growth of Yahoo business
SoftBank Corp. added the Yahoo segment due to consolidation of Z Holdings Corporation in current fiscal year. In the Yahoo segment, revenue increased by 7% year on year. Notably, since Z Holdings Corporation became a subsidiary of SoftBank Corp., operating income has reversed a declining trend and returned to growth in Q2 FY2019. Additionally, Z Holdings Corporation made ZOZO, Inc., which operates the online fashion shopping website “ZOZOTOWN,” a subsidiary in November 2019.
In the Commerce Business, which provides e-commerce-related services, membership services, and payment-related services, e-commerce transaction value rose 15% year on year, due partly to the impact of making ZOZO, Inc. a subsidiary. In the Media Business, which offers media-related services and advertising-related services, the number of monthly logged-in user IDs for Yahoo! JAPAN increased by 6% year on year, indicating steady business expansion.
Moreover, in November 2019, SoftBank Corp. announced the business integration of Z Holdings Corporation and LINE Corporation. This business integration is scheduled to be completed in October 2020. Both companies have strengths in the fields of media such as news and others, e-commerce, payment and FinTech, and are expected to generate significant synergies. Adding LINE, Japan's largest social networking app with 83 million monthly active users, the Group will expand into the field of social networking services. After the business integration, as a unique player, the Group will create a future that others cannot repeat, by having the strength in a broad range of technology fields covering telecommunications, AI, IoT, media and advertising, commerce, payment and FinTech, and SNS.
Expand new business fields
Our new businesses have also been growing steadily.
Total cumulative registrations for PayPay, a smartphone payment service, exceeded 24 million as of February 2, 2020. The number of payments made with PayPay has been increasing substantially since October 2019. This increase has been underpinned in part by support from the Point Reward Project for Consumers using Cashless Payment, a project initiated by the Ministry of Economy, Trade and Industry (METI) in October 2019. PayPay seeks to become a “Super App” that makes various aspects of daily life more convenient with smartphones. As the first step of the “Mini App”, PayPay launched a function that enables users to hail taxis directly from the PayPay app. In 2020, PayPay will commence full-scale entry into financial services, such as loans, post-pay and investment, as it strives to establish a revenue model.
DiDi, a taxi-hailing platform that uses AI to forecast demand, expanded its service area significantly in 2019, and as of the end of January 2020, it offers services in 23 prefectures nationwide. More than 500 taxi companies have contracted to use DiDi platform. We will continue to focus on expanding our services.
WeWork, a provider of comfortable workspaces using cutting-edge technology and data analysis, has been rapidly expanding business in Japan. In less than two years since the start of services in Japan, the number of memberships has exceeded 22,000. As of December 2019, WeWork has opened 26 locations in 6 cities nationwide.
MONET Technologies Inc. is working to develop next-generation mobility services that will resolve a variety of social issues. MONET Technologies Inc. was established with Toyota Motor Corporation and has subsequently concluded capital and business agreements with several automakers, including Hino Motors, Ltd. and Honda Motor Co., Ltd. As of the end of January 2020, MONET Technologies Inc. has formed partnerships with 31 municipalities and 5 prefectures across Japan.
We are also focused on the launch of new businesses.
In April 2019, SoftBank Corp. announced the establishment of OYO Hotels Japan G.K. as a joint venture with OYO Hotels & Homes, a global hotel chain operator. OYO Hotels Japan G.K. has steadily increased the number of its member hotels throughout Japan. As of December 2019, over 5,700 guest rooms were in service. OYO Hotels Japan G.K. is working to strengthen governance as it expands its business. While facing individual issues at each hotel with integrity, OYO Hotels Japan G.K. aims to achieve solid growth.
In other areas, SoftBank Corp. commenced several new businesses in 2019, such as the aforementioned data utilization consulting business, and a facial recognition solution business based on AI image recognition technology.
Meanwhile, SoftBank Corp. has carried out well-timed sales of shareholdings. In FY2019, a gain on sales of shares of more than 10 billion yen is expected to be recorded on a full-year basis.
In these ways, SoftBank Corp. will accelerate the growth of its new businesses by rapidly executing optimal management decisions in each business.
- *The business integration of Z Holdings Corporation and LINE Corporation is subject to receipt of required competition law and foreign exchange law and other clearances and permits required by applicable law and regulation in each country as well as the satisfaction of the other preconditions specified in the definitive agreement among four companies including SoftBank Corp. and NAVER Corporation.