Q&A at Earnings Investor Briefing for Q2 FY2023

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Date Wednesday, November 8, 2023 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 (Vice President, Head of Strategic Finance Division)
Yudai Sasaki (Deputy Head of Corporate Planning Division)
  • Please tell us about the progress of operating income for the first half of FY2023. Also, please provide an outlook on whether the strong performance in the first half will continue for the full year.

    All business segments have been performing strongly in the first half. In the Media & EC segment, there are opportunities for further growth through the re-organization of LY Corporation (“LY”) and the ID link with “PayPay”. In the Financial segment, we expect further growth as the environment for providing services such as credit cards becomes more established. As for the Consumer segment, we are strengthening campaign measures related to the new price plans “Pay-toku” (Pay with “PayPay” and get higher rewards). Even considering the impact of these measures, the segment is still performing strongly. In any case, we will make decisions on sales and promotion expenses while always considering the balance between lifetime value (LTV) and acquisition costs.

  • Please tell me about the relationship between “sales of goods and other” and “cost of goods sold”, mainly related to mobile devices in the Consumer segment, and the trend of profit.

    The cost of mobile devices has increased due to price hikes from mobile phone manufacturers, causing the retail prices to increase as well. This is a normal trend. As for revenue, we have implemented various promotions, including price revisions of mobile devices, which have had an impact.

  • Regarding acquisition-related costs, will there be any implementation of customer acquisition measures in the second half of FY2023, similar to the previous fiscal year (deducting from mobile revenue)? Also, please tell us about the impact on performance in next fiscal year and onward.

    Since the progress in the first half has been on track or even better than expected, implementing customer acquisition measures similar to the previous year will be one of the options for the second half. There are growth opportunities in all business segments, and we plan to strengthen sales activities in the second half, which is a demand season for LY, PayPay Corporation (“PayPay”), and mobile businesses. However, we will make decisions carefully to ensure that there is no burden on the profit in FY2024.

  • What are the reasons for the change in the forecasted year-on-year decline in total ARPU for mobile from ¥170 to ¥130 for the full year of FY2023? Also, what is the future outlook?

    The main reasons for the change are the contributions from voice, international roaming, and additional support services provided to customers. As we see positive impact due to changes in customer behavior after the COVID-19 pandemic, we expect further improvements, taking into account expectations for new price plans. Regarding the future trend of ARPU, we expect it to decline by approximately ¥130 for the current fiscal year and then total ARPU to stabilize at around the same level. However, we also want to assess the trends in new price plans.

  • Regarding the Electricity business in the Consumer segment, is the improvement in “cost of services” the main factor of the performance in the second quarter of this fiscal year? Also, how much improvement is seen compared to the previous quarter?

    It may seem that the cost improved while revenue decreased, but the reality is that the improvement in revenue is the major factor. The abolishment of the upper limit for fuel cost adjustments in November 2022 has had an impact from a year-on-year perspective. Additionally, a revision of rates based on actual market conditions was conducted in June 2023. Compared to the previous year, the improvement in the second quarter is around ¥8 billion, whereas the first quarter was a decrease of ¥2 billion. Therefore, there has been an improvement of around ¥6 billion for the first half. The Electricity business is well-positioned to contribute to profit for the full year and has become very stable.

  • Please tell us about the impact of transitions among different brands and price plan changes on ARPU trend, as well as the accounting treatment of “Pay-toku” and its contribution to ARPU.

    “Y!mobile” continues to perform strongly, while “SoftBank” shows signs of vitality. In the past, there were many customers transitioning from “SoftBank” to “Y!mobile”, but now we see an increase in customers who transition from “Y!mobile” to “SoftBank” and remain with “SoftBank”, leading to improved profitability. As for the accounting treatment of “Pay-toku”, the issuance of PayPay points is processed as a discount on mobile revenue and may not be included in ARPU. We plan to provide detailed explanations in the upcoming earnings report for the third quarter.

  • The smartphone churn rate has worsened compared to the same period last year. Is overlapping group service usage contributing to improvement in churn rates?

    It is undoubtedly true that overlapping group service usage leads to an improvement in churn rates, and we do see the actual contribution to improvements. On the other hand, there is increased liquidity in the market overall, which is a factor that causes the rise in churn rates. Overlapping group service usage serves as a mitigating factor, and as a result, churn rates are trending slightly higher rather than remaining flat. Going forward, we will continue to promote the expansion of group service usage and work towards improving churn rates.

  • Please tell us about the efforts and responses made by the parent company regarding LY's earnings results for the second quarter of FY2023, including capital allocation. Also, please provide information on future developments and support in terms of business related to ID integration.

    We have worked closely with LY as the parent company to support the decision-making process regarding management strategies and business integration. Regarding ID integration, IDs of SoftBank and Yahoo! JAPAN have been collaborating and implementing various initiatives. Moving forward, we will expand the LYP program, including PayPay, and strengthen cooperation within the SoftBank group to create synergies. This will help reduce churn rates, increase customer acquisition, and contribute to overall growth.

  • Regarding the announcement of LY's capital allocation policy for the next three years starting from FY2023, how does SoftBank Corp. view this? Specifically, regarding the share repurchase by LY, there may be benefits from the special tax treatment between the parent and subsidiary. What are your thoughts on this?

    The share repurchase by LY is one option to consider, but considering the connection between businesses, we believe that our current economic interest (approximately 32%) in LY is relatively small. On the other hand, we are aware of the issue of liquidity ratios for maintaining LY's Prime Market listing, and there is a possibility that share repurchasing could be used for this purpose. It is important to have multiple options available to us.

  • Regarding the performance of PayPay, it has achieved positive EBITDA for two consecutive quarters, but is there a possibility of it becoming negative in the future?

    Although there is a possibility of returning to negative in individual quarters, I believe there is also a determination to achieve positive EBITDA for the full year. However, if significant growth opportunities appear, there is a possibility of making decisions to steer in that direction, while maintaining a balance.

  • There was a profit of ¥5 billion due to the loss of control over a subsidiary in the second quarter. Which segment does this belong to?

    This profit of ¥5 billion belongs to the “Other”, and it is the result of SB Technology Corp. selling its shares in its subsidiary, Fontworks Inc. This profit was not forecasted at the beginning of the period.

  • What are the factors that lead to the forecasted loss of ¥25.2 billion in the “Other” for the full year of FY2023?

    The forecasted loss in the “Other” is due to a slightly conservative approach, considering the temporary losses experienced in both operating and non-operating aspects in the previous fiscal year. However, when compared to the initial forecast for the current fiscal year, there are unexpected positive factors that have provided some flexibility. The finalization of the forecast will also take into account factors such as the penetration of new price plans, including “Pay-toku”.