Q&A at Earnings Investor Briefing for FY2020

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Date Tuesday, May 11, 2021 6:00 pm – 7:15 pm
Speakers SoftBank Corp.:
Kazuhiko Fujihara (Board Director, Executive Vice President & CFO)
Takashi Naito (VP, Head of Finance and Accounting Division)
Osamu Akiyama (Head of Strategic Finance Division)
  • I'd like to ask you about your outlook for mobile communications service revenue. You noted that the impact of price reductions will be offset with net increases in main subscribers. Could you tell us the amounts of the net increases and provide a breakdown by brand? Also, how much of a positive rebound will be recorded in the current fiscal year from the accounting impact of discount on service fees (First year and Half year discount)?

    In the Consumer segment, we anticipate a decrease in revenue of around ¥70.0 billion due to the impact of new price plans, but we expect this decrease to be offset by subscriber increases. Based on this, the extent of the decrease in profit is projected at around ¥16.0 billion. Y!mobile has made a very strong start. LINEMO is also putting up a good fight. However, we believe it is easier to grasp the competitive environment if Y!mobile and LINEMO are seen together as a combined entity. The SoftBank brand will remain focused on achieving growth. The impact of the discount on service fees (First year and Half year discount) on business results in the previous fiscal year was about ¥34.7 billion. The impact will be almost completely removed in the current fiscal year, making this a positive factor year on year.

  • What are your assumptions for overall sales promotion expenses for the current fiscal year? In the previous fiscal year, sales promotion expenses decreased due to the policies of the Ministry of Internal Affairs and Communications (MIC). What are your thoughts on the future direction?

    While the outlook depends on competition in the future, we believe that improvements will continue in the current fiscal year, following on from the previous fiscal year. That said, we don't expect things to improve that much.

  • You noted that the impact from mobile service price reduction is at least ¥70.0 billion. What is the impact of service downgrades? Do you think recent performance trends are somewhat stronger than what you had expected?

    The initial activity in terms of users switching brands from SoftBank to Y!mobile is somewhat strong. Although it is still premature to make any conclusive statements about the annual impact, we expect it to strengthen considerably. Meanwhile, the Y!mobile brand has helped us to prevent churn and the switch of users to service providers outside the SoftBank group (SoftBank Corp. and its subsidiaries, “the Group”). Considering factors including those other than users switching brands, we expect performance to be largely in line with forecast relative to the annual revenue decrease of ¥70.0, and we will effectively manage this impact.

  • Regarding the churn rate, you said that both subscriber acquisitions and cancellations tend to emerge at the same time. How are competitive conditions evolving?

    As far as new subscriber acquisitions and cancellations are concerned, we are bracing ourselves for increased liquidity throughout the industry in the current fiscal year. Liquidity comes and goes in various phases. In March and April, the closing of applications for Rakuten Mobile, Inc. (“Rakuten Mobile”)'s campaign offering subscribers their first full year of service free of monthly fees resulted in extremely high liquidity. However, it looks like things have changed in May. There will be ups and downs throughout the year. In this environment, while engaging in a healthy rivalry with Rakuten, SoftBank Corp. (“SoftBank”) will remain diligently focused on what it seeks to accomplish.

  • I believe that SoftBank's sales promotion and marketing for Y!mobile is somewhat stronger than those of other companies' sub-brands and online-exclusive brands. Moreover, it seems likely that price reductions for the SoftBank brand's large-capacity plans will have a larger impact in the next fiscal year. Based on these considerations, how will the impact of decreased revenue carry over into the next fiscal year? Meanwhile, the increased revenue from enterprise mobile services from the previous to current fiscal year can be expected to run its course in the next fiscal year. For this reason, wouldn't it be difficult to absorb the decreased revenue? Could you also share your outlook for growth in enterprise mobile revenue?

    Although it is difficult to make any conclusive statements about the next fiscal year, it is inconceivable that all customers will migrate in one year as a cycle, so the impact will carry over to the next fiscal year. On the other hand, operating income in the Enterprise segment is expected to increase from ¥107.7 billion in the previous fiscal year to a forecast ¥128.0 billion in the current fiscal year and a forecast ¥150.0 billion in the next fiscal year. In this manner, we will be accelerating growth. In Japan, the adoption of smartphones by enterprises has fallen behind that of individuals, representing less than 60% of the overall market. With the trend toward digitalization, we expect that the smartphone adoption rate will increase toward 100%. There is a lot of room to drive growth in smartphones for enterprises.

  • I would like to know about the impact on business results and cash flows should PayPay Corporation (“PayPay”) become a consolidated subsidiary in the next fiscal year. With regard to the impact on shareholder returns, while I can understand the level of the three-year average total shareholder return ratio, shareholder returns and the dividend payout ratio are both low in comparison to the previous year. Along with revisions to the shareholder return policy, what is your policy and approach to distributing to shareholders the cash obtained when undertaking transactions with PayPay and when its shares are listed as a subsidiary?

    We have stated our intention to eventually make PayPay a consolidated subsidiary. This means we will conduct PayPay's operations as a core business. We will make efforts to materialize PayPay's value in a variety of ways. With regard to the three-year average total shareholder return ratio, we included share buybacks as an option, based on our belief that there are also supply-demand issues to consider. This approach will allow us to secure the flexibility we need to implement the most appropriate measures at the most appropriate time, rather than adhering to a fixed amount every year. While remaining committed to providing stable dividends and not reducing dividends, we will strive to make level-headed, flexible decisions on the shareholder return policy.

  • I would like to ask you about changes in operating income in the Consumer segment. You said that you will increase the number of subscribers. How did you factor measures to reduce and contain costs into your forecast?

    For the entire operation, including network-related operations, we are implementing cost reductions at the ten-billion-yen level. In the Consumer segment, revenue is under pressure, so we are reviewing various costs and are considering cost reductions in the order of tens of billion yen.

  • In the previous fiscal year, actual CAPEX amounted to ¥420.0 billion, as CAPEX was increased by around ¥20.0 billion, primarily for 5G-related expenditures. What are your thoughts on CAPEX in the current fiscal year?

    We anticipate CAPEX of around ¥400.0 billion. There has been no change in our approach.

  • You noted that cross-selling of solutions to enterprise mobile users has also been performing well. Could you tell us which solutions are selling strongly, as well as their growth potential going forward?

    First is the deployment of smartphones and network enhancement, followed by cloud solutions. SoftBank carries various cloud services, so it has been able to address a variety of customer needs. In this area, we have clearly captured synergies and are making progress on cross-selling. In addition, our business dealings with enterprise customers have successively become much deeper through the addition of various IT products and services, and compulsory security. Moreover, we are building relationships with enterprise customers that will allow us to propose measures to increase revenue, not just measures to streamline costs or operations through digitalization. Our sales force has built up successful experience in these ways and has gained increased self-confidence even as our competitors have been changing. The Enterprise segment is now at a prime time for growth, and we would like to realize its potential by delivering concrete quantitative results.

  • Could you tell us about the factors that differentiate SoftBank's enterprise mobile services from those of other companies, and the reasons why SoftBank can growth this business more than others?

    SoftBank's strength lies in its ability to propose total solutions to enterprise customers. For example, SoftBank's sales force can propose the products and services of Yahoo and LINE, in addition to its own products and services, as a single package. Moreover, SoftBank has long supplied devices on a rental basis. It can be entrusted with a full range of tasks that are often cumbersome for enterprise customers to perform, such as device management. SoftBank's ability to provide such total solutions has garnered the strong support of customers.

  • I believe that SoftBank must have faced pressure from Rakuten Mobile and other competitors in terms of the net increase in smartphone subscribers in the current fiscal year. Could you please share your thoughts on this issue? Also, could you please comment on the status of the acquisition of 5G customers and whether or not this will affect ARPU in the future?

    I'll refrain from disclosing specific numbers. We have a long-term target of reaching 30 million subscribers at the end of FY2023. We would like to achieve this target as early as possible ahead of schedule. In addition, the first steps for 5G have been accomplished largely as planned. We have been able to roll out 5G at the same targeted level as set forth by other companies. We have established a simple price-plan design shared by both 4G and 5G, and we are selling 5G devices. In a sense, we are currently in a phase of upfront investment. As the network becomes more well developed, an important theme will be to work to encourage greater use of 5G. We also believe that it will be essential to collaborate with Group companies such as Yahoo Japan Corporation (“Yahoo Japan”), LINE Corporation, and PayPay to create a world where people can use their smartphones even more.

  • Amid upward pressure on interest rates, dividend growth is crucially important. In the telecommunications sector, numerous investors view continuous dividend increases over several years as an important factor. For this reason, could you tell us what kinds of conditions would have to come together for SoftBank to increase its dividends? Moreover, under its existing policy, SoftBank implements its initial plan without changing it during the fiscal year. Have there been any changes to your position?

    We acknowledge that this sort of discussion arises when SoftBank is viewed simply as a telecommunications business. However, we would strongly encourage investors to consider evaluating SoftBank based on a Sum-of-the-Parts approach. The Enterprise segment posted growth in operating income of around 30% in the previous fiscal year and is projecting growth of nearly 20% in the current fiscal year. In addition, we are a diversified group of companies that includes Z Holdings Corporation and PayPay. Based on these factors, we would like investors to see this as our way of raising the issue of whether it is acceptable to categorize the whole Group as a telecommunications business. At the same time, we recognize that dividends are a crucially important factor. If earnings surpass our business forecasts, we will consider returning profits through share buybacks, while examining the quality of earnings, specifically in terms of factors such as whether earnings are based on valuations or are accompanied by cash flow. We will make a comprehensive judgment at the end of the fiscal year, considering the aforementioned matters along with the stability and continuity of dividends and our future growth prospects.

  • I believe that regulatory changes that will increase customer liquidity will continue in the next fiscal year. When do you expect the Consumer segment to return to an earnings growth path?

    We are considering a variety of scenarios as far as timing is concerned. In the Consumer segment, there will be considerable pressure and competition until the new service prices become widely adopted. SoftBank has various growth fields, such as the Enterprise segment. Therefore, our stance is to endure the challenging conditions in the Consumer segment, while creating opportunities in growth fields.

  • Can I assume that at this time, there are many service downgrades from the SoftBank brand but only a few service downgrades from the Y!mobile brand? I also assume that there are some moves to upgrade services based on the affordability of service prices. 5G will come to the fore in the current fiscal year. How have you factored service upgrades in the current fiscal year into your plans?

    At this time, Y!mobile is performing strongly. In addition, we will conduct various measures to address service upgrades. In the Consumer segment, we have not factored any large positive impacts into our business plans.

  • Could you please discuss cost reductions, specifically the amount of reductions in the previous fiscal year and the current fiscal year? Also, could you describe any significant changes in major cost items?

    In the previous fiscal year, costs increased due to redundant rent incurred in connection with the relocation of our corporate headquarters and the accrual of one-time disposal costs. The relocation has allowed us to use office space much more efficiently, leading to cost savings of several billion yen in the current fiscal year. On a Group-wide basis, we will implement cost reductions in the order of several ten billion yen every year. We intend to keep costs flat by using in-house cost reductions to offset the cost increases associated with business diversification to drive growth.

  • You said that you will maintain your target of holding the net leverage ratio at 2.4x or less in the next fiscal year. What is your target level for the net leverage ratio over the medium and long terms? Also, what is your target level for the shareholders' equity ratio over the medium and long terms?

    In the previous fiscal year, the net leverage ratio improved more than we had expected owing to growth in EBITDA and steady free cash flow. Based on the current status of our credit ratings, there has been no change in our approach of targeting a net leverage ratio in the lower 2x range. We believe that the shareholders' equity ratio is slightly low. First, we will work to improve the shareholders' equity ratio a little by little every year, and then pursue various opportunities.

  • The total shareholder return ratio for the three-year period from FY2020 to FY2022 is around 85%, and there is to be no reduction in dividends. Could you please share your dividend policy from FY2023 onward? Will you revise your current policy from scratch, or will you review the current policy while maintaining your commitment to no reduction in dividends?

    It is still premature to discuss the dividend policy from FY2023 onward. The least I can say is that we have never discussed reducing the dividend in-house. We fully understand what kind of impression would be imparted by dividend reductions in the Japanese market, so we will consider matters very carefully. The equity story at the time of SoftBank's public listing was that the Company was committed to the pursuit of both stable and high shareholder returns and growth. There has been no change in that position.

  • You said that the Y!mobile brand is performing favorably. With regard to the current net increase in subscribers, SoftBank is a comprehensive digital platformer, as explained by President & CEO Miyakawa, meaning that it possesses various brands such as Yahoo and LINE. Have these factors served as strengths?

    They have undoubtedly served as strengths. For example, Yahoo has harnessed SoftBank's customers as growth drivers for Commerce. SoftBank customers are able to use Yahoo's Commerce services at a discount. We have used this advantage to attract and acquire SoftBank brand subscribers, and to strengthen retention. The benefits have become tremendously large every year. We have expanded similar initiatives to PayPay and have reaped solid benefits. We will create arrangements that foster mutual win-win relationships. That said, we don't want to lock customers into an arrangement like a closed economic ecosystem, as it were. Rather, we would like to grow each service bigger and bigger in an open, universal manner. In this context, we would like to deliver further benefits to SoftBank's customers.

  • In its initiatives to address the SDGs, SoftBank has adopted the “Declaration of Carbon-neutral 2030.” I believe that this declaration is linked to global trends. How will the six materiality actions (priority issues) positively affect the financial aspects of SoftBank in the future? President & CEO Miyakawa explained that the benefits will come through new businesses. Could you tell us which areas you are focused on, including KPIs?

    SoftBank's vision is to become the corporate group needed most by people around the world. We are holding discussions based on the premise that initiatives to address carbon neutrality should be positioned at the core of our efforts to realize this vision. For each of the six materiality actions, we have established a considerable number of KPIs, and are making Group-wide efforts to achieve them. In the previous fiscal year, our ESG ratings evaluations advanced considerably in just one year. That said, the starting line begins here. We will build up individual KPIs going forward. Progress on ESG initiatives also has a positive effect on our financing activities, such as bond issuances.