Q&A at Earnings Results Briefing for FY2021 | About Us

Date	Wednesday, May 11, 2022 4:00 pm - 5:30 pm
Speakers	SoftBank Corp.: Junichi Miyakawa (President & CEO) Jun Shimba (Representative Director & COO) Yasuyuki Imai (Representative Director & COO) Kazuhiko Fujihara (Board Director, Executive Vice President & CFO)

You stated that SoftBank Corp. will make PayPay Corporation a consolidated subsidiary in FY2022. What are your thoughts on the stock ownership ratio in the future?: Looking at PayPay Corporation's current voting right composition, SoftBank Group Corp. holds a voting right of 50%, SoftBank Corp. holds 25% and Z Holdings Corporation, which is a subsidiary of SoftBank Corp., holds 25%. In addition, SoftBank Corp. and Z Holdings Corporation own preferred stocks in PayPay Corporation, and these preferred stocks became convertible to common stocks from April 2022. If all those preferred stocks are converted into common stocks, the voting right ratios of both companies would increase to 33% each. Considering that Z Holdings Corporation is a subsidiary of SoftBank Corp., SoftBank Corp. will have a controlling interest of 66% in PayPay Corporation. Our thinking is that this controlling interest will allow SoftBank Corp. to make PayPay Corporation a consolidated subsidiary. Currently, discussions on strategy, governance, and other matters are taking place among the shareholders of PayPay Corporation. If an agreement can be made, PayPay Corporation is scheduled to become a consolidated subsidiary of SoftBank Corp.

You stated that the impact of the mobile service price reduction on operating income is expected to be negative ¥90 billion in FY2022. What kinds of specific actions by users trigger this impact?: SoftBank Corp. offers three brands, specifically the SoftBank, Y!mobile and LINEMO brands. Among these brands, the one that currently enjoys the strongest support from customers is the inexpensive Y!mobile brand. Although the total number of mobile users is likely to increase favorably, the share of Y!mobile users has been gradually increasing, from a formerly large share of SoftBank users. Ultimately, this shift has led to the overall decline in operating income.

I have the impression that the negative impact on earnings from mobile service price reduction was very large. Could you please explain the background to this impact?: In simple terms, while the overall number of users has increased, the revenue per user has decreased, resulting in a decrease in earnings. The main reasons for the decrease in revenue per user are that many users have switched from the SoftBank brand to the inexpensive Y!mobile brand, and that users who switch from other carriers frequently tend to choose the Y!mobile brand. In addition, even users who do not want to switch carriers or brands are gradually shifting to inexpensive new price plans within the same brand.

The other day, Nippon Telegraph and Telephone Corporation (NTT) and SKY Perfect JSAT Corporation announced their plans to start providing High Altitude Platform Station (HAPS) services in Japan in 2025. What is the current status of SoftBank Corp.'s initiatives in Japan in this area?: Of course, SoftBank Corp. is also pushing ahead with measures to launch HAPS services in Japan. First, we have approached government bodies through multiple industry groups, with the aim of achieving international standardization of HAPS. We expect international standardization to be completed by around 2027. Meanwhile, we are making preparations with the intent to commence pre-commercial services by 2026. However, from a service provider standpoint, there is an extremely strong high-altitude jet stream in the skies above Japan, making the country a very difficult area to operate in. As we work toward commercialization, we believe that it might be better to commence services in areas with a more stable high-altitude air flow. Notably, Australia has strong needs for HAPS services, so we are planning to start services there.

Why did net additions of mobile subscribers recover sharply in the second half of FY2021?: The first factor is that we decided to spend slightly more on costs to acquire users from the second half of FY2021. We made various considerations internally about this matter. We made the final decision based on the belief that increasing the number of mobile users will ultimately lead to growth of the entire Group, including Yahoo! Japan and LINE. Moreover, the second factor is that restrictions on activities due to the COVID-19 pandemic have been gradually relaxed since the second half of FY2021, and this has enabled us to harness our in-person sales capabilities, which are one of SoftBank Corp.'s strengths, to acquire users.

Ultimately, what population coverage ratio will you target for your 5G network?: The current population coverage ratio of our 5G network has slightly surpassed 90%. Ultimately, we would like to raise the population coverage ratio to the same level as that of the current 4G network. We will strive to make efficient investments as we carefully assess the timing for when devices that make the most of the features of 5G will start to become widely used. These 5G features include ultra-high-speed, large-capacity, and ultra-low-latency communications with multiple simultaneous connections.

In mobile device sales, what factors were behind the increase in the composition ratio of high-end mobile devices in FY2021?: We believe that the main reasons for the higher composition ratio of high-end mobile devices were favorable sales of high-end iPhone models, and the fact that even high-end Android devices such as Google Pixel were able to meet the needs of users.

What are your thoughts on returning benefits to PayPay users?: Going forward, we would like to continue to actively return benefits to users. However, the final decision on this matter will be made by PayPay Corporation.

I believe that non-telecom businesses will be the main driver of growth moving forward. What is the approximate level of your targeted share for non-telecom businesses relative to the whole business?: I would like to properly explain what kind of a company SoftBank Corp. ought to be in the future as part of the medium-term plan we will announce in May next year. To share my current thoughts, I would like to target a business mix where the telecommunications business accounts for one-third of our portfolio and non-telecom businesses account for the rest. While driving growth both in the telecommunications and non-telecom businesses, I believe that the most desirable course of action is to enlarge the share of the non-telecom businesses.

When do you expect PayPay Corporation to become profitable?: Last year, PayPay Corporation began charging a payment system fee to small and medium-sized merchants. As a result, PayPay Corporation can now cover its fixed costs with its gross profit. Even now, PayPay Corporation could already be profitable by controlling its sales promotion expenses. Meanwhile, if I were asked whether PayPay Corporation should continue to play offense and make growth investments or stop investments at this point and start reaping returns, I would personally say that the former option would still be satisfactory. SoftBank Corp. is likely to eventually become the parent company of PayPay Corporation. From this standpoint, I would like PayPay Corporation to lay the groundwork for a period of bountiful returns, instead of settling for a small harvest.

What are your thoughts on segregating the financial services of PayPay Corporation and those of LINE Corporation?: SoftBank Corp. possesses multiple financial services within the Group and is now in the midst of advancing internal discussions on reorganizing those services. We would like to drive substantial growth in financial services around PayPay.

Following the realignment of the NTT group, how do you think the competitive environment will evolve in the future?: Speaking frankly, we feel that the integration of the NTT group is a threat. However, we have strengths that we have built up one by one through steadfast effort, so we would like to do our utmost to compete effectively. We have learned that the Ministry of Internal Affairs and Communications (MIC) will be strengthening oversight of prohibited activities and related matters. Therefore, we believe that things will be fine if the MIC properly supervises the appropriateness of those activities as part of their competition policy.

Does the consolidation of PayPay Corporation mean that you no longer intend to list its shares?: Nothing has been decided at this time. SoftBank Corp. has long wanted investors to value its stock using the sum-of-the-parts method. PayPay Corporation is an important asset of SoftBank Corp., so we have every intention of fully realizing the value of PayPay Corporation sometime in the future.

You stated that operating income will reach ¥1 trillion due to the impact of the consolidation of PayPay Corporation in FY2022. Can you be more specific about how much positive impact you are expecting?: The components of the impact of the consolidation of PayPay Corporation comprise the remeasurement gain upon consolidation, the amortization of intangible assets recognized in connection with the consolidation, and the profit/loss of PayPay Corporation after the consolidation. The sum of these components is expected to result in a positive impact in FY2022. The profit/loss of PayPay Corporation is still in the red at this time, but the remeasurement gain is expected to have a positive impact. Considering that PayPay Corporation has so far recorded losses due to upfront investments, its consolidated book value is as low as it can possibly be from SoftBank Corp.'s perspective. If PayPay Corporation obtains a certain amount of valuation when it becomes a consolidated subsidiary, we believe that we can confidently expect to record a remeasurement gain. Specific numbers related to PayPay Corporation will be disclosed at an appropriate time. We believe that operating income of ¥1 trillion is highly likely to be within reach.

In your forecast of operating income for FY2022, you are forecasting a combined decrease of approximately ¥140 billion year on year for the Consumer and Enterprise segments. How many years will it take to reverse this decrease?: We don't expect to reverse the decrease in a single year in FY2023. However, we believe that we can reverse the decrease over several years. On a basis excluding the impact of the consolidation of PayPay Corporation from group-wide operating income, we expect operating income to return to a growth trajectory in FY2023 and beyond.

Do you expect mobile service revenue to continue to decrease in FY2024 and beyond?: We expect the decrease to continue to a certain extent. However, over the next several years, we expect that there will be ample opportunities to reverse the decrease.

As mobile service revenue continues to decline from FY2023 onward, you noted that SoftBank Corp. will maintain free cash flow of ¥600 billion. What will support this free cash flow?: We believe that it will be possible to maintain free cash flow at the ¥600 billion level because our business performance is forecast to hit bottom in FY2022 and turn upwards from FY2023 onward. If the number of mobile subscribers continues to increase, we think that there may be opportunities within the next two or three years to restore growth in mobile service revenue even as revenue per user declines.

Assuming that SoftBank Corp. can continue to maintain free cash flow of ¥600 billion, can I correctly assume that it will maintain its policy on the current level of dividends and total shareholder return ratio?: Nothing has been decided at this time for the shareholder return policy for FY2023 and beyond. It will be decided following the necessary internal discussions going forward. My personal view is that while we are able to maintain free cash flow of ¥600 billion, I would like to maintain our current level of shareholder returns of just over ¥400 billion a year. Naturally, if free cash flow is even higher than anticipated, I believe it would be fine to strengthen the shareholder return as a matter of course. It is my belief that I have a strong understanding of the expectations of our shareholders, so I would like to provide management leadership that meets their expectations.