CEO Message

Finding Opportunities in Adversity

July 2016
Masayoshi Son
Chairman & CEO

In 2016, 35 years after our foundation, I find myself filled with a sense of excitement every day. Although we have been tackling the Herculean task of rebuilding Sprint since we acquired it in July 2013, my optimism is undaunted. My confidence was challenged at times by the sheer difficulty of the undertaking, but we have now reached a point where the view is bright and clear.

So even if the environment is an adverse one, by taking a different perspective we can see things in a completely different light. This has been my experience in the past. When the Internet bubble had burst back in 2000 and virtually everyone had retreated into a defensive position, I thought “now is the moment of greatest opportunity” and made an aggressive advance with the Yahoo! BB broadband service. From fiscal 2001 to fiscal 2004 we continued to post heavy losses, but it eventually led to a huge step forward for the Company, as many of you know.

The task of rebuilding Sprint has proved more challenging than we initially anticipated, but I have personally led our effort on this, working with Sprint's engineering team and drawing on all of our combined wisdom. Our efforts have finally begun to show measurable progress on the most challenging and important aspect — network improvement — and I am now certain that we will turn Sprint's performance around and see it contribute to the sustainable growth of the SoftBank Group.

Work remains to be done

Consolidated results for fiscal 2015

In consolidated results for fiscal 2015, net sales was 9,153.5 billion yen, up 7.6% year on year, adjusted EBITDA was 2,438.9 billion yen, up 19.5%, operating income was 999.5 billion yen, up 8.8%, and net income attributable to owners of the parent was 474.2 billion yen, down 29.1%.

The decline in net income attributable to owners of the parent is due to a one-time gain recorded in the previous fiscal year in association with the listing of Alibaba. Discounting the impact of that one-time gain reveals steady growth in earnings with net income attributable to owners of the parent increasing by 23%.

Telecommunications business in Japan and the U.S.

In the domestic telecommunications business, we spent the past few years making large-scale capital investments to improve our network to a level where it could hold its own against those of our competitors. Today, SoftBank Corp.'s network has caught up with and even overtaken rival networks. As a result, we have entered a phase in which we have finished the cycle of capital expenditure and are generating stable free cash flow.

In the Sprint business, I have taken command and we are steadily improving the telecommunications network. We are starting to see the effects in terms of a significant improvement in the churn rate. Our goal now is to continue using the know-how we have developed in Japan to build a telecommunications network that will outperform those of the two leading players while keeping a tight leash on investment.

On the financing front as well, we have dramatically improved liquidity by utilizing mobile handsets and network equipment to procure funds, with backup support from our team in Japan. Through these efforts we are transferring our passion and expertise overseas and propagating them to the people at Sprint. This is helping to drive a steady business turnaround.

It may not appear so to others, but when I compare the position of Vodafone K.K. at the time we acquired it in 2006 with that of Sprint today, I think that it was in a far more difficult situation. When we acquired it, Vodafone K.K. did not have a bandwidth allocation in the “platinum band” of frequencies that are the best for mobile phone services, its sales front line was depleted, and its brand had been severely damaged. Compared to that time, I am much more confident about our ability to turn Sprint around.

Internet-related company investment and investment monetization

Our Internet investment so far has been focused on investments in fields with a close affinity to the Group's business model, such as e-commerce and content, as well as investments in the growth field of transportation services and the growth markets of India and Southeast Asia. Examples include the operating companies for Snapdeal, India's largest online marketplace, Ola and Grab, two of the leading taxi-booking platforms in India and Southeast Asia, and the South Korean e-commerce service Coupang. In other areas, in September 2015 we gained a foothold in the new field of FinTech by investing in U.S. company Social Finance (SoFi).

On the other hand, in fiscal 2016, as part of our financial strategy, we decided to sell some of our shares in Alibaba, most of our shares in GungHo, and all of our shares in Supercell.

Leading the company for the next five to ten years

Our strength lies in being a group of innovative entrepreneurs leading the way in their respective businesses in countries around the world, guided by the shared corporate philosophy of “Information Revolution - Happiness for everyone.”

It is true that I have made a strong personal commitment to turning Sprint around, but the person really driving Sprint is its CEO, Marcelo Claure. Meanwhile, the domestic telecommunications business has a very strong leader in SoftBank Group Corp. representative director, president & COO and SoftBank Corp. president & CEO Ken Miyauchi. Furthermore, in the Internet-related companies where we have been investing intensively over the last few years, talented leaders have been driving the business forward.

In other areas, Nikesh Arora has worked with us and led our globalization since September 2014. He resigned as representative director, president & COO at the end of his appointment in June 2016; however, his extensive knowledge of Internet-related company business models and technology and his expansive network of relationships with the management teams of these companies have been an incredible asset for us.

These days there are a multitude of young, talented entrepreneurs active in countries all over the world. As I meet with them, I am aware that it is so important that I myself do not become a hindrance to the Company's future growth. I have been thinking that I need to hand over the business to the next generation without delay.

Specifically, I was planning to have Nikesh take over the helm on my 60th birthday (August 2017), but today as the information industry stands on the cusp of a full-scale global transformation, I have realized that there are still many things that I myself must achieve. So for the next five to ten years, I will continue to lead the Company personally.

As we move forward, we will continue to contribute to all of society by driving the Information Revolution, working to provide answers to many of the problems yet to be solved by humanity.

[Note]