Q&A at Earnings Investor Briefing for Q1 FY2022

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Date Thursday, August 4, 2022 6:00 pm - 7:00 pm
Speakers SoftBank Corp.:
Kazuhiko Fujihara (Board Director, Executive Vice President & CFO)
Takashi Naito (Vice President, Head of Finance and Accounting Division)
Osamu Akiyama (Head of Strategic Finance Division)
  • Total ARPU in Q4 FY2021 was JPY -280 year-on-year while the forecast for this fiscal year is JPY -270 year-on-year. Looking ahead, what is the outlook of the ARPU year-on-year decline? What factors impacted the year-on-year decline to pass the peak?

    There will be no big change for Q2 from Q1. However, we expect the impact of the price reductions to be lower in Q3 and Q4. Brand migration is calming down and we expect the impact of mobile service price reduction to be narrowed. However, other than price reductions, factors such as SoftBank's smartphone debut plan and strong user acquisition of Y!mobile also impact ARPU. Therefore, the shrink of ARPU decline will not follow same exact curve of price reduction impact. We will make effort to increase revenue from both the growth of subscribers and ARPU recovery.

  • What are your initiatives to increase ARPU over the medium term?

    In addition to improving the ARPU of the Y!mobile brand, which is currently driving acquisitions, we look at how to encourage Y!mobile customers to switch to the SoftBank brand. For the SoftBank brand, we are considering value-added services to enhance its value. We also work with group companies to provide customers with an experience that makes them happy to use the SoftBank brand.

  • What is the reason for the JPY 7.4 billion year-on-year profit decrease in sales of goods and others in the Consumer segment?

    The main reason is a year-on-year decline in the number of mobile phone upgrades, which also affected the number of mobile phones sold. Since the dynamics in mobile device products and services depend on the market environment, please do not take the current decrease in profit as an ongoing trend.

  • In the Consumer segment, will contract costs decrease in the future? Also, what is the forecast for acquisition-related expenses in FY2023?

    As the acquisition-related expenses are deferred over three years, the structure for Q1 FY2022 result is such that the expenses deferred from Q1 FY2018 disappeared and the expenses in Q1 FY2022 were added. From FY2018 to FY2020, acquisition-related expenses (payment before deferral) were small due to the Amendment of the Telecommunications Business Law, the consumption tax hike, and the impact of COVID-19 pandemic. However, from FY2021, liquidity increased and acquisition-related expenses (payment before deferral) increased. Therefore, the deferred acquisition-related expenses in FY2023 will also be on an upward trend compared to the previous year, as acquisition-related expenses (payment before deferral) will be greatly affected from FY2021 onwards. However, it will change depending on future sales measures and the composition of sales products.

  • In the Consumer segment, you were able to offset the increase in acquisition-related expenses by reducing advertising and sales promotion expenses in Q1 FY2022. Is there room for further reductions going forward?

    Advertising expenses in Q1 FY2022 were significantly reduced year-on-year. We don't anticipate such large cuts in other quarters. Future reductions in advertising and sales promotion expenses will depend on decisions we will make. We would like to make management decisions based on cost-effectiveness while keeping an eye on the full-year guidance.

  • How much did the inflow from Rakuten Mobile contribute to the net addition of 340,000 smartphones in Q1 FY2022? What is your outlook for the net increase in smartphone from Q2 onwards?

    I would like to refrain from mentioning the individual impact on net additions in Q1 FY2022. Until now, there were port out to Rakuten Mobile, but net port turned to be positive. We are not optimistic about Q2 and beyond, but we have regained our confidence in sales and we would like to maintain the current momentum.

  • Please tell us about the status of upgrades among the mobile brands.

    There is a slight upward trend in the number of customers switching from the Y!mobile brand to the SoftBank brand.

  • Do factors such as the ratio of mobile phone upgrades and the mix of mobile phones sold have an impact on the gross profit margin? Or does the gross profit margin remain the same?

    Rather than unit price, quantity of sales has a big impact. The impact of mobile phone mix on gross profit margin is not very large. As mobile phone prices were raised, unit prices are expected to improve from Q2 FY2022 onwards, and overall improvements are expected.

  • When will the SA (Stand Alone) 5G services for consumers be fully rolled out?

    Sales of SA-compatible mobile devices are still limited, and full-scale service deployment will take a little longer.

  • Broadband revenue in the Consumer segment decreased by JPY 1.8 billion year-on-year. What is your outlook for the future?

    The sales model of SoftBank Air has been switched from 4G to 5G, and the fact that we are implementing discount measures for communication charges mainly for models that support only 4G had an impact. SoftBank Air's sales increased year-on-year, but we were unable to absorb the negative impact of the decline in ADSL, etc. In addition, the discounts on communication charges for SoftBank Air is a limited period offer, and it does not mean that the business is not profitable.

  • What actions are you considering in the current situation where the cost of electricity is soaring?

    While we would like to make decisions on future electricity rates based on industry trends, the negative factor for profit is likely to increase. The electricity business is expected to remain profitable even if the profit may decline year-on-year.

  • Although there was a one-time factor in the same period last fiscal year, the growth in Enterprise segment income looks low. Are you making good progress toward your full-year plan?

    Enterprise progress was slightly weaker than planned. There was no extreme change in sales momentum, but personnel expenses, including recruiting, have increased considerably in order to strengthen specialized areas. Expansion of business to small and medium-sized companies is expected to start in Q2. Overall, profit for the first half of the year is expected to increase year-on-year.

  • How will you maintain the JPY 600 billion level of free cash flow?

    We plan to make various efforts such as increasing the securitization of installment receivables and improving working capital. We made a large-scale investment in PayPay Corporation (“PayPay”) in FY2021, but we do not expect to make such a large investment in FY2022. Regarding investments such as M&A, if there is an opportunity, we will step in, but our stance is a little cautious. We are committed to JPY 600 billion level of free cash flow, of which excluding approximately JPY 125 billion of impact of IFRS16, there will be approximately JPY 475 billion remained. Since the total amount of dividends is about JPY 400 billion, we would like to maintain this level of margin even in the current situation when profit and loss is the most severe compared to the last fiscal year.

  • You previously explained that the dividends would be maintained on the assumption that free cash flow could be maintained at JPY 600 billion. Is there a link between free cash flow and dividends?

    We believe that it is sound management to pay dividends based on the assumption that the company is generating free cash flow. We would like to communicate our dividend policy for FY2023 and beyond when we announce our financial results in May 2023.

  • Is it correct to assume at this time that the free cash flow for FY2023 will be maintained, which means that the dividends for FY2023 will also be maintained?

    We would like to give you our final conclusion when we announce our financial results in May 2023, but we are thinking in that direction.

  • How will the net leverage ratio change with the consolidation of PayPay?

    The newly disclosed definition of net leverage ratio excludes Z Holdings Corporation (“ZHD”) and will exclude PayPay as well, so the consolidation of PayPay will have no impact. In terms of the net leverage ratio on the consolidated basis, we expect that the consolidation of PayPay will be a positive factor in the short term, as it is turning cash well. We would like to clarify and discuss the definition for the future.

  • When considering dividends, will consideration be based on the new definition of net leverage ratio? Also, how much deterioration do you think is acceptable?

    The newly defined net leverage ratio represents our company's actual value, and we consider it an important indicator. As for the level of the net leverage ratio, we want to be in the 2x range, and if possible, in the mid-2x range. If there is any special growth opportunity, another discussion is required, but that is the way we usually think.

  • Since ZHD's performance is centered on advertising, there is a possibility that the overall consolidated leverage will deteriorate in the event of a recession. However, is it correct to assume that SoftBank Corp. communicates with rating agencies and considers dividends based on the newly defined net leverage ratio excluding ZHD?

    ZHD is a listed company and handles cash flow independently from SoftBank Corp. So I think we'll be talking to rating agencies looking at the new definition of net leverage ratio. In addition, compared to when we were listed, our borrowing period has been extended, and in many ways our financial stability has increased. The newly defined net leverage ratio is a good representation of our position.

  • Which companies will you include in the new “Financial Business” (tentative name) segment?

    The scope of the “Financial Business” (tentative name) will be announced as soon as it is decided. We would like to further accelerate the “Beyond Carrier” strategy through “Financial Business” (tentative name) centered on PayPay and SB Payment Service Corp.