The major risks envisaged by the management of SoftBank Corp. (the “Company”) and its subsidiaries (the “Group”) that could significantly affect the financial position, results of operations, and cash flows of the Group are stated herein. Moreover, these risks do not include all of the risks that the Group could face in the course of carrying out its future business operations. Forward-looking statements in this text were determined by the Group as of March 31, 2023, unless otherwise stated. As of December 31, 2023, we have added additional information to “(1) Risks related to management strategies c. Leakage or inappropriate use of information and inappropriate use of products and services supplied by the Group”.
Refer to our Risk Management website for the Group's risk management structure and methods.
(1) Risks related to management strategies
The Group aims to achieve further growth in the telecommunications business by increasing the number of smartphone and broadband subscribers and undertaking 5G initiatives. To achieve this goal, the Group believes that it will be crucial, among other priorities, to build a highly secure and reliable telecommunications network and to continuously operate the network in a stable manner, and to advance a multi-brand strategy with three clearly differentiated brands. In addition, the Group aims to continuously expand non-telecom businesses through the launch of businesses that leverage cutting-edge technologies including AI, IoT and FinTech, notably internet services such as Yahoo! JAPAN and LINE, along with the cashless payment service PayPay.
In relation to those management strategies, the major risks that management believes could have a significant effect on the financial position, results of operations, and cash flows of the Group are outlined below.
a. Changes in economic conditions, regulatory environment,
market environment, and competition
With Japan's population trending downwards due to aging and a low birthrate, the outlook for continued growth in Japan's mobile communications, broadband, internet-related and financial business including cashless payments markets is uncertain in some respects.
In recent years, Japan's mobile communications market has seen major changes in the business environment, mainly driven by the strengthening of pro-competitive policies and new entrants from different industries, and users have also been increasingly seeking more inexpensive and varied services. In order to address the market environment described above, the Group deploys services, products and sales methods that fit consumer preferences. However, if the Group is unable to meet the expectations of consumers for price plans, voice and data communications quality and so forth, or if the service and products provided by the Group have significant defects, there are no assurances that the Group will be able to maintain its current number of subscribers. Moreover, the introduction, amendment, or change in interpretation or application of laws, regulations, systems, and so forth, could result in the effective restriction of services and products that the Group can deliver to its customers, or of sales methods and price plans, etc., causing the Group to experience a decline in revenue and to incur a larger financial burden. This could impact the Group's businesses, financial condition, and results of operations. In addition, the Group could incur rising costs due to unforeseeable changes in the market environment, or may be unable to streamline costs as planned.
Japan's internet-related markets could be impacted by factors such as overall internet usage, economic trends, the number of paid members and usage of paid services. The Group strives to retain and increase the number of users primarily by providing accurate and beneficial services for users, a secure and safe user experience, conducting activities to improve the value of its platform as an advertising medium, raising awareness, and providing attractive benefits and content to paid members. Unless these measures prove sufficiently effective, changes in the market environment and other factors could adversely affect the Group's businesses, financial condition, and results of operations.
In Japan's financial business markets including cashless payments, the shift to cashless payments has been driven by the progress of economic measures taken by the government and municipalities as well as the spread of COVID-19. In order to provide highly convenient services for users in this market environment, the Group is working to review and expand the functions of its cashless payment services, as well as to increase the number of merchants where the Group's cashless payment services can be used. However, if the Group is unable to respond to changes in the market environment or regulations in a timely and appropriate manner, or if for some reason the Group is unable to provide services or retain or acquire customers as expected, the Group's businesses, financial condition and results of operations could be adversely affected.
In certain instances, the Group's competitors may have a competitive advantage over the Group in terms of capital, services and products, technology development capabilities, price competitiveness, customer base, sales capability, brands, public recognition, or overall capability in all of these, for example. If these competitors were to sell services and products that harness these competitive advantages to a greater extent than at present, the Group may be placed at a disadvantage in sales competition, including price competition, may be unable to provide services and products, or acquire or retain customers, as anticipated, or may experience a decrease in ARPU*. Consequently, this could impact the Group's businesses, financial position, and results of operations.
Furthermore, in the telecommunications, internet and cashless payment related markets, newly emergent services and products offered by recently founded startup companies and new entrants can occasionally achieve widespread adoption by garnering the support of users. While the Group will strive to provide services and products that can garner user support by grasping the opinions and trends of users, the services and products of startup companies and new entrants could raise competition with the Group's services and products. Moreover, it may be costly for the Group to develop the newly emergent services and products needed to demonstrate competitiveness. This could impact the Group's businesses, financial position, and results of operations.
- *ARPU (Average Revenue Per User): Measures the average monthly revenue generated per subscriber.
b. Response to technology and business models
The Group's primary business domain is the information technology industry, which is subject to rapid changes in technology and business models. In the information technology industry, the use of AI, IoT, and big data has been advancing rapidly in recent years, and the digital transformation (DX) movement is accelerating at an increasing rate. There is an increasing need to supply more diverse and advanced services that cross industry boundaries. Notably, the field of generative AI, as exemplified by ChatGPT*, has been evolving rapidly, and is expected to have a significant impact on existing business models. The Group is constantly undertaking measures such as surveying the latest technology and market trends, conducting verification trials to introduce services with highly competitive technologies, and considering alliances with other companies. However, there are no assurances that the development of new technologies will proceed on time or results will be delivered as planned, or that common standards or specifications will be established and commercial viability will be achieved. Even if the aforementioned measures are undertaken, the Group may be unable to develop or introduce outstanding services, technologies and business models in keeping with market trends due to the inability to appropriately adapt to changes in the market environment in a timely manner, such as the emergence of new technologies and business models, or due to the inability to deploy equipment and facilities rapidly and efficiently. In this case, the Group's service offerings could lose competitiveness in the market, possibly curtailing the number of subscribers that the Group is able to maintain or obtain, or reducing ARPU. This could impact the Group's businesses, financial position, and results of operations.
- *An AI model provided by OpenAI that generates automated chat responses.
c. Leakage or inappropriate use of information and inappropriate use of products and services supplied by the Group
In its business operations, the Group handles customer information (including personal information) and other confidential information. Under the leadership of the Chief Technology Officer (CTO) and the Chief Information Security Officer (CISO), the Group implements strict physical security control measures such as restricting access to work areas that involve customer information and other confidential information, and establishing room access management rules specific to those restricted areas. In terms of technology-based management, the Group maintains and controls the level of information security through various measures. At the Security Operation Center (SOC) and so forth within the restricted areas, the Group has strengthened AI-based detection of signs of internal irregularities (behavior detection), and monitor matters such as the use of business PCs in the office, usage of the intranet, and the status of access to internal servers by officers and employees. The Group also conducts monitoring and defensive measures against unauthorized access via cyberattacks from outside the company. In accordance with the information security level, the Group implements separation and independence of the access rights, networks used, and other matters pertaining to such information. Moreover, under the leadership of the Chief Data Officer (CDO) and the CDO Office, the Group establishes policies and rules for management and strategic use of internal and external data, and strengthens the Company's internal management framework for handling confidential and personal information regarding communications. The Group also complies with laws and regulations in each country regarding protection of personal information, and so forth, as necessary for developing its business in Japan and overseas. In implementing these measures, the Group provides rigorous educational and training sessions on information security for officers and employees as it strives to build a framework that allows all SoftBank Corp. personnel involved in information assets to fulfill their duties with a high degree of information literacy, along with strengthening management of the office automation environment and business-use smartphone devices. Even with these measures in place, this information could be leaked, lost, or involved in a similar incident, either intentionally or accidentally by the Group (including officers and employees of the Group and people related to subcontractors), or through a malicious cyber-attack, hacking or other form of unauthorized access or other means by a third party.
Moreover, if the products and services supplied by the Group are used inappropriately for crimes and so forth such as fraud and the like, it could impair public trust in the Group and the Group's credibility.
Such an occurrence could reduce the Group's competitiveness, and give rise to significant costs to the Group for payment of damages and modification of security systems, in addition to having an adverse impact on the Group's credibility or corporate image and making it difficult to retain and acquire customers. These outcomes could impact the Group's businesses, financial position, and results of operations.
Furthermore, on October 1, 2023, Z Holdings Corporation completed an intra-group reorganization involving mainly itself as the surviving company and two of its core wholly owned subsidiaries, LINE Corporation and Yahoo Japan Corporation, and it changed its trade name to LY Corporation. LY Corporation is working to develop and strengthen a framework to ensure the efficient and proper functioning of its group companies' overall data governance. While such efforts will be continued, if the countermeasures and measures to strengthen governance fail to function effectively, this could lead to administrative sanctions on the Group from the authorities, impairment of public trust in the Group, a decrease in demand for the Group's services, the formulation and implementation of additional countermeasures, or the occurrence of data leaks or events that have the potential to be data leaks, and other consequences. Such outcomes could impact the Group's businesses, financial position, and results of operations.
d. Destabilization of international conditions
The Group procures telecommunications devices and equipment, products for customers, and development materials and other items from suppliers around the world. Additionally, in the course of providing telecommunications services, the Group uses large amounts of electricity through base stations, network equipment, data centers and so forth. In order to provide services and products in a stable manner, the Group strives to strengthen its supply chain through measures such as gathering information on international conditions and spreading out and diversifying its suppliers. The Group is also making efforts to minimize the effects of fluctuations in electricity prices on business management by working closely with the government and industry groups, in addition to conducting research and development focused on telecommunications infrastructure with a low environmental impact and commercialization of next-generation batteries from medium- and long-term perspectives. Even with these measures in place, supply chain disruptions or other such events could occur as a result of the stagnation or suspension of suppliers' business operations due to factors such as global shipping delays, shortages of semiconductors and other key materials, or cyberattacks caused by confrontation, regional conflicts, the use of armed force or other circumstances within the international community. Such occurrences could impact the Group's businesses, financial position, and results of operations. Moreover, the Group may incur costs to change suppliers of base stations, network equipment and related items and to replace such equipment, as a result of increased shipping costs and other factors caused by high crude oil prices and changes in national policies, laws, and regulations in response to shifting international conditions. Furthermore, if there are persistent increases in electricity prices, or if disruptions in the procurement of energy impede the stable supply of services and products, the Group's businesses, financial position, and results of operations may be affected.
e. Provision of stable networks
(a) Capacity enhancement in telecommunications networks
To maintain and enhance the quality of telecommunications services for the purpose of maintaining competitiveness and retaining and expanding the customer base, the Group needs to continuously increase the capacity of its telecommunications networks based on predictions of the amount of future network traffic. The Group's policy is to systematically increase network capacity in these ways. However, if the actual amount of network traffic were to drastically exceed the Group's predictions, or if the Group were not to carry out network capacity enhancement (including but not limited to securing the required spectrum) in a timely manner, service quality, along with the Group's credibility and corporate image, could be adversely affected, making it difficult to retain and acquire customers. In this case, the Group would also need to execute additional capital expenditure. These outcomes could impact the Group's businesses, financial position, and results of operations.
In addition, the Group's ability to provide telecommunications services depends on the performance of network systems and securing sufficient spectrum. In the future, if the Group is unable to secure the required spectrum, the Group's service quality will be reduced compared with competitors or it may be unable to expand its network as planned, making it difficult to retain and acquire customers.
Furthermore, the Group may be required to contribute large amounts of funds, if, for example, an auction system is introduced for the allocation of spectrum, or a certain cost burden must be borne as a requirement for spectrum allocation. This could impact the Group's businesses, financial position, and results of operations, along with facilitating the entry of new operators into the industry.
(b) Natural disasters, accidents and other unpredictable events
The Group constructs and maintains telecommunications networks, information systems and other systems necessary for the provision of various services, including Internet and telecommunications services. In recent years, due to the increased likelihood of an earthquake occurring in the Nankai Trough or directly under Tokyo, as well as the advance of climate change and other factors, the risk of suffering damage from a major natural disaster such as an earthquake or typhoon has increased. Natural disasters, such as earthquakes, typhoons, flooding, tsunamis, tornadoes, heavy rainfall, heavy snowfall, or volcanic activity, and the increase in scale of such disasters associated with climate change, as well as other unexpected disruptions such as fires, power outages or shortages, incidents such as terrorist attacks, or the spread of infectious diseases such as the Coronavirus disease 2019 could interfere with the normal operation of telecommunications networks and information systems and other infrastructure. This could hinder the provision of various services by the Group. In order to ensure that it can provide a stable telecommunications environment even in the aforementioned circumstances, the Group has introduced measures to build redundancy into networks, establish emergency restoration systems, and mitigate power outages at network centers and base stations. In addition, the Group has implemented measures such as spreading out network centers, data centers, and other key sites as well as IT monitoring system sites throughout Japan, as part of efforts to mitigate the impact of the aforementioned circumstances on the provision of various services. Even so, these and other related measures cannot avoid every possible type of disruption. If the provision of various services were actually hindered, and such disruptions of services or decline in quality were to become widespread or if significant time were required to restore services, the Group's credibility or corporate image could deteriorate, making it difficult to acquire and retain customers. The Group may also bear a substantial cost burden to restore and refurbish telecommunications networks, information systems and other infrastructure. This could impact the Group's businesses, financial position, and results of operations.
f. Acquisitions of other companies, business alliances, establishment of joint ventures, and internal group realignment, etc.
In the course of executing its strategies, the Group could acquire other companies and make other stock investments, through such means as establishing joint ventures and turning companies into subsidiaries.
In addition, the Group could acquire other assets believed to be strategically important to the Group's businesses, finances, and results of operations. Furthermore, if deemed strategically necessary, the Group could conduct an internal realignment involving the transfer of shares or assets.
When considering the execution of various investments, the Group conducts necessary and sufficient due diligence, and then makes investment decisions following a prescribed approval process. If the Group's portfolio companies are unable to generate the anticipated results, the Group overestimates corporate valuations when making investments, or the integration of new businesses into existing businesses or the development of internal control systems after integration do not succeed, these outcomes could negatively impact the Group's results of operations and financial position. In addition, if the Group borrows funds to make acquisitions or investments in the future, or if it is found that an acquired company has unpaid liabilities, the Group's liability burden will increase and this could lead to a deterioration in cash flows and a shortage of operating funds. The materialization of these risks could negatively impact the Group's businesses, financial position, and results of operations.
If the Group is to conduct joint businesses with business alliance or joint venture partners, these are generally premised upon the Group's acquisition of licenses and permits from the regulatory authorities and the Group's agreement with the business alliance and joint venture partners on the content of joint businesses. In addition, the Group will not necessarily have control over the business alliance and joint venture partners. These companies may drastically revise their business strategies without taking into account the Group's intentions. Furthermore, the Group's shareholding ratio in these companies could be reduced due to a third-party allotment of shares or the exercise of a call option by a shareholder other than the Group, or the results of operations and financial position of these companies could drastically deteriorate. In these situations, the business alliances, joint venture businesses and other arrangements may not generate the anticipated results, or they may find it difficult to continue their businesses. In addition, the Group may be restricted from undertaking business alliances, joint venture businesses and other such arrangements with other parties due to business alliances, joint venture businesses and other such arrangements formed with specific third parties. This could impact the Group's businesses, financial position, and results of operations.
If the Group is to conduct an internal realignment, it will be for purposes such as streamlining overlapping business resources, speeding up decision-making, and generating greater synergies among businesses. However, if the Group is unable to sufficiently capture the expected benefits of the realignment, problems such as trouble with and delays in services to be rolled out, adverse effects on strategies and synergies, and disruptions associated with the realignment could arise. These problems could have an impact on the Group's businesses, financial position, and results of operations.
g. Dependence on management resources of other companies
(a) Consignment of operations
The Group consigns in whole or part to subcontractors customer sales activities, retention and acquisition of customers, and telecommunications network construction and maintenance for various services and products, along with the execution of other related operations. In addition, the Group's information search services make use of other companies' search engines and paid search advertising distribution systems. When selecting suppliers, including subcontractors, the Group evaluates and selects suppliers in accordance with our purchasing rules. At the time of commencement of new business transactions, the Group concludes a basic transaction agreement that incorporates the supplier's compliance with our Supplier Ethics and Rules of Conduct. Even after commencement of business transactions, the Group strives to reduce risks in the supply chain by establishing a PDCA cycle that includes conducting risk assessments through the Sustainability Procurement Survey, evaluating suppliers and identifying issues, and conducting interviews with suppliers. If these subcontractors (including their directors and employees, or related parties) are unable to execute operations in line with the Group's expectations, or if a human rights infringement-related issue occurs, such as a case where the information of the Group or its customers is obtained without authorization or used outside of its purpose and so forth, it could have an impact on the Group's businesses.
Moreover, any damage to the credibility or corporate image of these subcontractors, to whom the Group consigns the services and products, as a result of the kind of incident described above would also have a negative impact on the Group's credibility or corporate image. This could hinder business development and the retention and acquisition of customers, which could impact the Group's businesses, financial position, and results of operations.
Furthermore, if these subcontractors should fail to comply with laws and regulations, the Group could receive a warning or administrative guidance from the regulatory authorities, or be investigated for non-fulfillment of its supervisory responsibility, and the Group's credibility or corporate image could deteriorate as a result, making it difficult to retain and acquire customers. These could impact the Group's businesses, financial position and results of operations.
(b) Use of facilities, etc., of other companies
The Group makes use of certain telecommunications lines and facilities owned by other operators when constructing the telecommunications networks required for providing telecommunications services. In principle, the Group has adopted a policy of using telecommunications lines and facilities of several operators. The Group's businesses, financial position, and results of operations could therefore be impacted if it becomes difficult to continue to use those facilities, or if the usage agreement is revised on disadvantageous terms for the Group, such as by increasing utilization or connection rates for those facilities.
(c) Procurement of various equipment
The Group procures telecommunications equipment, network devices and so forth (including but not limited to mobile devices and radio equipment for mobile phone base stations). The Group has adopted a policy of procuring equipment from multiple suppliers, in principle. Even under this policy, the Group can be expected to remain heavily reliant on specific suppliers for equipment. The Group may be unable to switch suppliers or equipment in a timely manner without incurring substantial costs should problems occur with the procurement of equipment for which the Group is heavily reliant on specific suppliers. Such problems could include supply interruptions, delivery delays, order volume shortfalls and defects. Suppliers may also cease to provide the maintenance and inspection services required for telecommunications equipment to maintain performance. Either of these situations could impede the Group's provision of services, making it difficult to retain and acquire customers or cause the Group to incur additional costs for changing a supplier, or cause a decline in sales of telecommunications equipment. This could impact the Group's businesses, financial position, and results of operations.
h. Usage and infringement of the SoftBank brand
Until fiscal year 2017, the Company had been paying a brand usage charge to SoftBank Group Corp. (the “Parent”), for using the SoftBank brand. The brand usage charge was calculated based on a certain formula in each fiscal year.
Subsequently, in March 2018, the Company and SoftBank Group Corp. concluded an agreement that grants indefinite brand usage and sub-licensing rights to the SoftBank brand, in principle, from March 31, 2018 through the payment of a lump-sum licensing charge. In accordance with this agreement, the Company may use the SoftBank brand in the Company's name, emblems, trademarks and domain name (exclusive use of trademarks related to mobile communications and telecommunications services and mobile phones, etc.). The Company may also sublicense the use of the SoftBank brand to its subsidiaries.
However, if the Company or its subsidiary that has received a sublicense continues to violate the agreement for a certain period of time, or act in a way that damages the credibility or interest of SoftBank Group Corp., SoftBank Group Corp. would have the right to cancel the contract. Consequently, the Company would no longer be able to use and sublicense the SoftBank brand and could recognize an impairment loss on trademarks.
If intellectual property held by SoftBank Group Corp., such as the SoftBank brand, were infringed upon by a third party, such an infringement could impair the Group's credibility or its corporate image.
i. Service disruptions or decline in quality due to faults in
related systems and other factors
In the provision of various services by the Group, including telecommunications networks, systems for customers, and the cashless payment service PayPay, there is a possibility that a major problem could occur if the Group were to become unable to continuously provide the services, or were to suffer a decline in the quality of the services, due to human error or serious problems with equipment or systems, or cyber-attack, hacking or other form of unauthorized access or other causes by a third party. Under the leadership of the CTO, Chief Network Officer (CNO) and Chief Information Officer (CIO), the Group has built redundancy into its networks, along with clearly defining restoration procedures in preparation for systems faults and other incidents. In the event of a system fault or other incident, the Group conducts restoration activities with appropriate capabilities in place, such as setting up an Incident Response Headquarters according to the scale of the incident. Even with these measures in place, the Group may be unable to avoid disruptions of services or declines in quality. If such disruptions of services or declines in quality were to become widespread or significant time were required to restore services, the Group's credibility or corporate image could deteriorate, making it difficult to retain and acquire customers. This could impact the Group's businesses, financial position and results of operations.
j. Securing and developing human resources
The Group is making a concerted effort to develop human resources in order to respond swiftly to trends in technological innovation. However, the Group may occasionally require a certain period of time to produce the desired effects in terms of human resources development. In addition, the cost of human resources investments may increase in the future.
Moreover, under the leadership of the Chief Human Resource Officer (CHRO) and the General Manager of the Human Resources Division, the Group is working to secure human resources by instituting a remuneration structure for high-market-worth personnel that recognizes their advanced expertise. In addition, the Group aims to retain high quality talent that can support sustainable business growth by conducting periodic interviews and surveys with each employee about their adaptation to the workplace and their future careers. If the Group is unable to secure engineers and other such personnel required in its business operations, despite these initiatives, this could impact the Group's businesses, financial position, and results of operations.
Furthermore, the Company is also making an effort to promote diversity, preparing environments where diverse personnel can participate, ensuring that understanding of diversity is promoted internally, and conducting training and so forth. However, if the Group is unable to meet social expectations regarding respect for diversity and participation of diverse personnel, it could impact public trust in the Group and the Group's corporate image, and the Group may be unable to secure human resources as planned, which could impact the Group's businesses, financial position, and results of operations.
k. Climate change
The Group conducts the telecommunications business, which uses large amounts of electricity in base station equipment, and so forth, and recognizes that the Group's businesses, financial position, and results of operations will be affected by climate change. The Company seeks to achieve “Net Zero” emissions by achieving virtually zero greenhouse gas emissions across its entire supply chain. To achieve this goal, the Company is striving to fulfill the “Carbon Neutral 2030 Declaration,” under which it is working to reduce its own greenhouse gas emissions from electricity used in its business operations and so forth to virtually zero by fiscal year 2030*1, in addition to working to reduce “supply chain emissions,” which encompasses greenhouse gas emissions from suppliers and other business partners, to virtually zero*2 by fiscal year 2050*3. In addition, in April 2020, the Company declared its agreement with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and has been conducting evaluations of climate change impacts, such as scenario analyses, in accordance with the TCFD recommendations. The results of these evaluations and environmental impact data such as greenhouse gas emissions are disclosed in the Company's sustainability report and on its website.
However, despite these countermeasures, if significant damage occurs due to natural disasters associated with the progression of climate change, or if new laws and regulations are introduced or strengthened to realize a carbon-free society, it could impact the Group's businesses, financial position, and results of operations, including an increase in the burden of expenses related to the Group's telecommunications network and information system equipment. Moreover, if the Group's initiatives and disclosures related to climate change are judged to be insufficient, or if the Group is unable to obtain sufficient understanding from customers, employees, suppliers, investors, local communities, and national and government organizations, among others, it may cause impediments to business operations.
- *1Covers SoftBank Corp.'s non-consolidated Scope 1 (direct greenhouse gas emissions from the company itself) and Scope 2 (indirect emissions associated with the use of electricity, heat and steam supplied by other companies) emissions.
- *2Covers Scope 1, Scope 2 and Scope 3 (other companies' emissions that are related to a business entity's activities) emissions.
- *3In June 2023, the Company announced that it will expand the scope of its “Carbon Neutral 2030” and “Net Zero” declarations from SoftBank Corp. (non-consolidated), which was covered until then, to the Group.
(2) Risks related to laws, regulations and compliance
a. Laws, regulations and systems
The Group is subject to laws and regulations pertaining to its businesses, such as the Telecommunications Business Act of Japan, the Radio Act of Japan, finance, electric power and digital platforms, as well as various laws, regulations and systems pertaining to general corporate business activities (including but not limited to laws, regulations and systems related to the environment, fair competition, transaction transparency, consumer protection, personal information and privacy protection, anti-bribery, labor affairs, intellectual property, taxation, foreign exchange, and import and export activities). Moreover, various conditions can be attached to many of the licenses and permits required to operate business, and the Group is required to comply with all of these conditions.
If the Group (including officers and employees) conducts activities in breach of those laws, regulations, systems and so forth, the Group may be subject to administrative guidance or sanctions by government agencies (including but not limited to deregistration, revocation of licenses and fines), or may face cancellation of business agreements by business partners, regardless of whether the violation was deliberate or not. Under the leadership of the Legal Division, the Group conducts monitoring of amendments to guidelines based on various laws and regulations. In parallel, if there are amendments, the Group undertakes measures such as changing how operations are implemented, as necessary. Additionally, the Group consults with external experts such as lawyers, as necessary. Even with these measures in place, the Group may be unable to prevent all activities in breach of laws and regulations. As a result, the Group's credibility and corporate image may be impaired, or its business development may be hindered. In addition, the Group may incur a financial burden and it could impact the Group's businesses, financial position, and results of operations. However, as of March 31, 2023, there were no grounds for revoking these licenses and registrations, or denying the renewal thereof.
Moreover, the Group is strengthening systems for reporting and communication from subsidiaries and associates and working to ascertain risks at its subsidiaries and associates by conducting risk assessments and so forth. However, if it is unable to prevent fraud or similar incident, it could impair public trust in the Group and cause a decrease in demand for the Group's services and other effects that could impact the Group's businesses, financial position, and results of operations.
In the future, laws, regulations and systems that have a disadvantageous impact on the Group's businesses could be introduced, or existing laws could be reformed with such a disadvantageous impact. In the mobile communications business undertaken by the Group, government agencies allocate wireless spectrum to the Group. Accordingly, this business is highly susceptible to the direct and indirect government influences based on the government's policy intentions. Going forward, it is difficult to accurately predict whether laws, regulations and systems that have a disadvantageous impact on the Group's businesses will be introduced and the impact of the introduction thereof on the Group's businesses. If such laws, regulations and systems are introduced, the services, products, and price plans, etc. that the Group can deliver to customers may be effectively restricted, causing the Group to experience a decline in revenue and to incur a larger financial burden. This could impact the Group's businesses, financial position and results of operations.
In the course of conducting business activities, the Group confirms the applicable laws, regulations, and systems, as well as contractual conditions stipulated in contracts and other agreements, and pays careful attention to ensure that it does not breach the foregoing. If it breaches the rights (including intellectual property) or legally protected benefits of third parties, the Group may be prevented from using the rights, or subjected to claims for compensatory damages, consideration or other matters. These third parties may include customers, business partners, shareholders (including shareholders of subsidiaries, affiliates, and portfolio companies) and employees. The Group may also be subject to investigations and other actions by government agencies. Such actions may impair the Group's corporate image as well as compel the Group to revise its services and products as well as business practices, and impose a burden on management resources, including financial resources, which could impact the Group's businesses, financial position, and results of operations.
(3) Risks related to finance and accounting
a. Fund procurement
The Group procures funds through such means as bank loans, bonds, the securitization of receivables and leasing. Therefore, if interest rates rise, or the creditworthiness of the Company and its subsidiaries decreases, the Group's fund procurement costs will increase, which could impact the Group's businesses, financial position and results of operations. In addition, under the leadership of the General Manager of its Finance Division, the Group has established a financial base that maintains sufficient cash and credit facilities through diverse means of fund procurement (including but not limited to bank loans, bonds, borrowings through the securitization of receivables and leasing), along with controlling fund procurement in consideration of the cash position. The Group may be unable to procure funds as envisioned by the Group depending on the status of financial market. This could impact the Group's businesses, financial position, and results of operations.
Additionally, restrictive financial covenants are attached to the Group's borrowings from financial institutions. For details, please see “23. Interest-bearing debt,” in “1. Consolidated Financial Statements, Notes to Consolidated Financial Statements,” in “Audited Consolidated Financial Statements for the Fiscal Year Ended March 31, 2023”.
To ensure that it does not infringe upon restrictive financial covenants, the Group has the Finance Division conduct across-the-board monitoring of the business plans of various business divisions. Concurrently, transactions that could infringe upon restrictive financial covenants such as credit guarantees and borrowings may only be executed with the prior approval of the Finance Division. Even with these measures in place, if the Group is unable to comply with the restrictive financial covenants, the Group may forfeit the benefit of term, which could require it to repay a portion or all of an outstanding debt, or impose restrictions on new borrowings.
b. Changes in accounting and taxation systems
The Group makes changes in accounting and taxation systems known to employees through training sessions and other means. The Group also consults with external experts such as tax advisors, as necessary. However, the introduction of new accounting standards or taxation systems, or changes to existing systems, and the occurrence of an additional tax burden due to differences of views with the tax authorities could impact the Group's businesses, financial position, and results of operations.
c. Impairment losses
In the course of doing business, the Group invests funds in various assets. As a result, the Group owns assets such as property, plant and equipment needed to build telecommunications networks, which include wireless equipment, switching equipment, towers, antennas, and other network equipment, and buildings and fixtures; intangible assets such as software, trademarks, spectrum-related costs and goodwill; and financial assets, such as shares of associates that the Group has invested in when forming business alliances with other companies and setting up joint ventures.
The Group has put a framework in place to conduct regular monitoring of these assets, and it assesses these assets appropriately to determine whether there is any impairment based on IFRS. As a result, if the Group determines that it does not expect the future economic benefits from an asset to be sufficient to recover the amount of investment in the asset, an impairment loss is recognized, and this could impact the Group's businesses, financial position, and results of operations. This determination relies heavily on estimates made by the Group. Additionally, it is not possible to accurately predict the timing of recognition or the amount of impairment losses.
(4) Matters other than the above that could have a significant impact on investors' decisions
a. Management team
In preparation for unforeseen situations concerning key members of senior management, the Group has established a system that enables other officers to take over their duties. However, if the other officers are unable to effectively discharge the duties they take over, the Group's businesses could be impeded.
b. Relationship with the Parent
(a) The Parent has control and significant influence over matters requiring approval at the General Meeting of Shareholders
As of March 31, 2023, SoftBank Group Corp., the Parent, effectively holds 40.47%* of the voting rights of the Company through SoftBank Group Japan Corporation and Moonlight Finance GK. The ratio of SoftBank Group Corp.'s ownership of the Company's shares and its voting interest in the Company vary with conditions such as the repurchase of own shares by the Company and the exercise of stock options by option holders. Accordingly, SoftBank Group Corp. has significant influence over matters requiring approval at the General Meeting of Shareholders, according to its voting interest in the Company at the time, including veto rights regarding matters requiring special resolutions. These include matters requiring special resolutions at the General Meeting of Shareholders (for example, such matters may include but are not limited to absorption-type mergers, business transfers, and changes in the Articles of Incorporation), and matters requiring ordinary resolutions of the General Meeting of Shareholders (for example, such matters may include but are not limited to the election and dismissal of directors, and the appropriation of surplus and dividends, etc.). The Company strives to ensure independence by voluntarily establishing three committees: the Special Committee, which comprises only independent external directors, and the Nominating Committee and the Remuneration Committee, both of which comprise independent external directors and the CEO, and are chaired by independent external directors. However, even with these measures in place, SoftBank Group Corp. may still have an impact on matters that require the approval of the General Meeting of Shareholders. There are no prior-approval matters or other such items.
Moreover, good relations with SoftBank Group Corp. lie at the core of the Group's business. If for some reason these relations deteriorate in practice or if they are perceived to have deteriorated, the Group's businesses, financial position, and results of operations could be impacted.
Details on the main relationship between the Company and SoftBank Group Corp., among related matters, are outlined in the sections titled “(b) Concurrent appointments of officers” to “(e) Business relationship with the SoftBank Group” below.
- *Excluding treasury stock
(b) Concurrent appointments of officers
Two directors of the Company, specifically Masayoshi Son and Ken Miyauchi, concurrently serve as officers of SoftBank Group Corp. Mr. Son concurrently serves as Representative Director, Corporate Officer, Chairman & CEO of SoftBank Group Corp., the Parent. These concurrent appointments have been made based on the belief that Mr. Son's extensive track record and experience in leading the SoftBank Group will contribute positively to strengthening the functions of the Company's Board of Directors. Mr. Miyauchi concurrently serves as Board Director of SoftBank Group Corp. This concurrent appointment is intended to put Mr. Miyauchi's knowledge of SoftBank Group Corp., which has a strong affinity with the Company's existing and new businesses, to good use in the management of the Company.
Kazuko Kimiwada, one of the Company's Audit & Supervisory Board Members, concurrently serves as Corporate Officer, Senior Vice President of SoftBank Group Corp. This concurrent appointment is intended to strengthen the Company's audit system.
(c) Assignment and concurrent appointments of employees
From the standpoint of forming career paths based on operating efficiency, business necessity, human resources development, and the future prospects of each employee, the SoftBank Group facilitates the interaction of personnel within the Group. The Company takes onboard employees on assignment from other group companies, including SoftBank Group Corp.
However, in order to ensure independence from the Parent and management stability, the Group does not plan to concurrently assign to other group companies employees holding the post of Line Manager or above. Line Managers manage organizational units responsible for business operations (leaders of organizations in each organizational unit). Moreover, with regard to the assignment of employees between SoftBank Group Corp., the Group has ended concurrent assignments of employees other than Line Managers, with the exception of assignments determined to be necessary to the Company's business.
Assignments of employees from the Company to other group companies, including SoftBank Group Corp., is conducted only when the Group determines that the assignment is necessary to the Company's business. Going forward, the policy is to continue to conduct such assignments of employees only within the scope of business necessity.
(d) Competition with other companies in the SoftBank Group
Currently, the Group makes decisions on its policies and business development independently and does not compete with other companies in the SoftBank Group. However, SoftBank Group Corp. and its subsidiaries are involved in the management of various businesses around the world and consider new businesses and investments on a daily basis. For this reason, it is possible that the Group might compete with other companies in the SoftBank Group in the course of seeking investment opportunities. While the Group will respond by considering partnerships with those companies and so forth, this competition could impact the Group's businesses to a certain extent.
(e) Business relationship with the SoftBank Group
The Group conducts transactions with various companies in the SoftBank Group.
From the perspective of ensuring independence, the Company has established Related Party Regulations and Related Party Transactions Management Manual for transactions with related parties, including SoftBank Group Corp. In accordance with these regulations and manuals, the Company seeks the approval of the Board of Directors on a case-by-case basis for transactions of particular importance with related parties, from the perspectives of whether or not those transactions are based on a sound management rationale, and whether the transaction conditions are appropriate in comparison with conditions for similar arm's length transactions, among other matters.