Q&A at Earnings Investor Briefing for FY2019 | About Us

Date	Monday, May 11, 2020 17:30 pm – 18:30 pm
Speakers	SoftBank Corp.: Kazuhiko Fujihara (Board Director, Executive Vice President & CFO) Takashi Naito (VP, Head of Finance and Accounting Division) Koichi Hirono (VP, Head of Strategic Finance Division)

Please let us know your policy on dividends for FY2020. While free cash flow forecast for FY2020 is ample, the dividend per share is expected to increase only 1 yen. Is there a possibility that dividends will be reviewed if profits exceed the guided forecast? If not, please explain why.: We remain committed to stable and high dividends. While we are considering the quality of profits and trends in the next fiscal year and beyond, I would like to avoid giving a conclusive answer at the beginning of the fiscal year. Despite uncertainties such as the impact from Coronavirus disease 2019 (COVID-19), we will steadily keep expected dividends.

Please let us know how profits will grow after FY2020 and factors that will increase or decrease profits.: Since the outbreak of COVID-19 will have an impact on FY2020 and beyond, we would like to avoid making a definitive reference, but rather give the direction moving forward. We will continue to grow our number of smartphone subscribers as we are not satisfied with it yet. The smartphone subscribers are also the foundation of 5G, and the value of smartphones is increasing as telework penetrates. Therefore, we believe it crucial to deliver profit increase at Consumer segment. Enterprise segment is also aiming to double FY2018 annual segment income within a few years. We will steadily grow toward that goal every year. As FY2023 target for Z Holdings Corporation (ZHD) remains unchanged at 225 billion yen, we have indicated the direction of growth and all three main businesses will aim for growth. Achieving operating income of 1 trillion yen as a milestone to our growth stays unchanged.

Please tell us about the trend of KPIs of FY2020. Regarding number of mobile subscribers, the impression is that both new subscribers and churn rate are trending down across the industry, and demand is being postponed. Do you think that it will recover in the 2H of this fiscal year? What is the impact on ARPU from first year discount in the 1H of FY2020?: As we are considering multiple scenarios, I would like to comment just as one case. In case that sales opportunities increase in the 2H, we will work on addressing 5G related activities since 5G will have progress at that time. Impact of first year discount over ARPU is more than 100 yen in 1H, and it will last until September. The situation will recover in 2H. As for sales commissions, the decrease due to the impact from amended Telecommunications Business Act and the outbreak of COVID-19 will be normalized, there will also be a negative impact for the 2H of the fiscal year. In FY18 and FY19, there was a background of cost control with the aim of increasing profits in the first half of the year. In this sense, the company's approach to spending was a little more distorted than it naturally would have been, but this will be corrected from FY20. In any case, we want to make sure that we achieve a profit increase on a fiscal year basis. We believe that it is our responsibility as a company to be prepared for every scenario.

What would be the impact of cost efficiency as result of cost reductions and structural reforms, given the uncertainty over telecom revenue in FY2020?: In the short term, marketing and promotional expenses will change largely. It is also important to maintain sales infrastructure such as sales agents. While keeping the necessary expenses, it is possible to reduce the overall costs. Structural reform is a longer term initiative that covers 3 to 5-year period rather than current period. We aim to keep overall costs flat, including depreciation.

Regarding the business integration of ZHD and LINE Corporation (hereafter “LINE”), can you achieve your earnings forecasts for FY2020 even if LINE has operational loss?: Please understand that our forecast guidance is prior to LINE consolidation. However, even after consolidation, the impact on net income is expected to be limited since ratio of ownership is approximately 33%. It is not assumed that there will be a significant impact on the Company's dividend policy or overall performance.

The net leverage ratio has declined. What is the tolerable range in the medium term? What is the impact from the outbreak of COVID-19 on access to capital markets?: The current ratio of 2.3 times is comfortable level, but we would like to gradually improve it every year when there are no special events such as large-scale M&A. The level of around 2.5 times is lower than the average for companies with the same credit rating, and we believe that it is a reasonable level. Regarding accessing capital markets, the credit risk is highly diversified for the securitization of installment receivables that we are operating as business as usual, therefore we can make stable funding. There was no impact during the Lehman crisis. Leases are also steadily accumulating. Regarding commercial paper and corporate bonds, we are watching market trends, and not in rush to raise funds. However, if possible, we would like to access it agilely and increase our on-hand liquidity.

Regarding new businesses under Beyond Carrier strategy, what will be the trend and details of equity-method profit and loss in FY2020?: With regard to PayPay, we believe that the capital investment peaked in FY2019, and is expected to improve from FY2020 onwards. Basically, losses in new businesses are passing their peaks.

I think that the effects of the outbreak of COVID-19 have been seen to some extent in terms of revenue and costs since this April. In telecommunications business, can you foresee positive effect in operating income structurally?: Impact on cash flow can be expected to be positive because the number of acquisitions is decreasing and cash outflows such as sales commissions are decreasing. However, since sales commissions are normalized, the total impact of the decline will not be recognized immediately, and there is also a change in accounting treatment for first year discount. As a result, operating income for Q1 and Q2 has pressure compared with previous fiscal year even without impact from COVID-19. Therefore, compared with the previous year, 1H is weak and 2H is strong in FY2020. There are many uncertain factors, such as how long the outbreak of COVID-19 will continue or whether it will recur or not. Therefore, the Company will work to reduce costs, and will firmly implement the 920 billion yen consolidated earnings forecasts as priority.

Will growth of mobile traffic lead to an increase in revenue?: Since we are offering flat-rate price plans for almost all customers, growth of mobile traffic will not directly lead to an increase in revenue, but it is possible to offset negative factors.