SoftBank Corp. (9434) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you very much for waiting. We would like to start the Investor Briefing for Earnings Results for the 9 Months Ended December 31, 2020, of the SoftBank Corp. I would like to introduce to you the attendees: Board Director, Executive Vice President and CFO of SoftBank Corp., Fujihara; Vice President and Head of Finance and Accounting Division, Naito; Vice President, Head of Strategic Finance Division of the Finance Unit, [ Akiyama ]. Today's briefing is streamed live on the Internet. Without further ado, Mr. Fujihara will give a briefing on the consolidated results.

My name is Fujihara, in charge of finance. The briefing for the financial performance presented in the previous session. And then I will be explaining about the results today, and then it would be followed by a question-and-answer session. First is the results for the third quarter. At the time we have made a briefing in May, we were still under state of emergency and we have given you a guidance for this fiscal year. We have said that even though the situation was unstable, we would like to grow in terms of our results and we wanted to get to the record-high profit. It has been 9 months since then, and we are now revising upward our forecast for the performance, and we are very happy about that. All segments have done very good, and all of the segments have worked as one team in performing well. As you can see in this graph, in terms of the operating income, we -- for revenue, we had forecasted JPY 4.9 trillion, but we decided to add on JPY 200 billion. And the new forecast is JPY 5.1 trillion for revenue. As for operating income, the forecast -- original forecast was JPY 920 billion. And now we have progress rate of 91% at JPY 841.6 billion, and we are making the upward forecast of JPY 970 billion. And as for the net income, we are revising the forecast upward to JPY 490 billion, whereas we already have achieved JPY 433.8 billion. I would like to talk about the revenue first. It has grown JPY 189.1 billion. All segments have contributed in the increase of the revenue. The biggest came from Yahoo, growing by 15%, and also Enterprise of -- growing by 7.8%. We believe that the momentum can be maintained for the next fiscal year to come. Distribution is plus JPY 16 billion. Up to second quarter, it was in the negative. So in the third quarter, we had reversed the situation. The Consumer business is where you're eyeing on. It has grown by JPY 8.4 billion, so it's in the positive. You see the breakdown of the Consumer segment on the right. Sales of goods and others. It has gone down by JPY 24.5 billion. So up to the second quarter, it was JPY 50 billion in the negative, so it has recovered. And as for the service, it was plus JPY 32.9 billion. So we were able to grow stably. Next is mobile, a -- which was a negative JPY 8 billion. The -- so the -- there was a JPY 30 billion impact of the accounting change for the first year and half year discount. But overall, the movement was stable. Broadband and electricity, it is -- those are contributing significantly also. Next is Enterprise. Business solution and others has grown by 17%. The characteristic of this quarter was that mobile had grown by JPY 21 billion, double-digit growth. The fixed-line negative used to be bigger than the positive coming from mobile, but that has been reversed. As for Yahoo, Commerce had increased significantly by 21.1%. As for media, in the first quarter, it started negatively. However, in the third quarter, it has come to the positive in the cumulative basis. Let's look at the profit. First of all, in terms of EBITDA, it was JPY 89.7 billion, which was plus 6.9%, significant growth. And we have depreciation of financing holdings and we have retirement of assets. And also from SBKK, we have been able to book valuation gains. And so if you take all those things into account, operating income was plus JPY 46.5 billion, which is plus 5.8% year-on-year. And you can see the segment breakdown on the right-hand side. Everything is positive, as you can see in blue print. So this segment is positive. All of these segments are positive. The biggest contributor is Yahoo and Enterprise. As for Enterprise, plus JPY 16 billion, this is more than 20% increase year-on-year. So we think we can do 20%, plus 20% on a full year basis. Last year was plus -- less than little 10%. So this is more than plus 20%. So the fact that it's growing like this is something that we hope to achieve next year as well. As for Yahoo, was JPY 18.7 billion-plus. This is plus 5.5% (sic) [ 15.1% ]. So we have great expectations for Yahoo. And as for Distribution, which is our founding business, it's more than growing by 20%. And so for 3 years in a row, we have been able to realize double-digit growth. And I want to introduce that fact as well. Now let's look at the breakdown of operating income. As for Consumer, plus JPY 7.5 billion, we have to pay attention to the plus JPY 32.9 billion in service revenues. Broadband is basically plus 10.4% (sic) [ JPY 10.4 billion ]. But mobile, we have half-price support. This is after 2 years in handsets, you have the half-price support. Now estimation has been changed in Q2. From the start of the program, the 2 years passes, we have been able to build upon track record. So we have a positive change, plus JPY 11 billion in Q2. As for first and half year discount, it has always been negative, and it's still minus JPY 32.2 billion. But Q2 was our peak, and we're now beginning to see decrease in the negative. We believe that it will be less than minus JPY 5 billion. So we believe that this number will start to diminish. And we believe that in this -- for the year, we should have nearly 0. And so if you exclude that, it's plus JPY 32.9 billion. So that's a very good number. And as for Distribution, this is minus JPY 8 billion on a net basis. In Q2, we are beginning to see improvement. And if you look at expenses, cost of goods is -- excuse me, expenses, it's all related to electric. And in terms of sales acquisition cost, we're doing write-offs. So as a result of that, impact of that, we're now beginning to see decreases in acquisition costs. So every quarter, this number is starting to build up so -- at -- to plus JPY 34.3 billion. Telecom network charges, this is increase in BB. And that's the biggest impact. Others is because of expansion in network and we have COVID measures. These are onetime offs. So that's minus JPY 13.6 billion. And depreciate and amortization were on a slightly increasing trend. As for Enterprises, this is as we have explained, we have increase in sales, which is contributing much. And please confirm rest of the numbers. So altogether, the contribution is plus JPY 46.5 billion. So let's look at net income. So you can see operating income of plus JPY 46.5 billion. And we deduct impairment and interest increase. This is events such as WeWork and Loon, so we deduct that. And as for equity method, we have seen improvements in PayPay, so there's a positive contribution. And this year, we had 3 holdings which has contributed significantly, but it's also -- has also contributed significantly. So noncontrolling interest is slightly large. But on overall, this is minus JPY 2.9 billion overall. And this as onetime factors which have really dragged our performance. But in terms of end of the year, we should be able to exceed last year. So we have an upward revision. And let's look at CapEx and free cash flows. We're progressing steadily. If you include the holdings, it's -- this is JPY 317 billion. We have about JPY 400 billion in CapEx each year. This year, because our business is very steady, we're trying to accelerate 5G. So this year, we've begun to finish about by additional JPY 20 billion or so. And we're about 60% in progress rate. And we believe that we should finish the end of the year with this number. And let's look at the free cash flows. Again, against the JPY 670 billion in full year target, we're progressing very steadily. We think we should be able to hit the target, so that's our assumption. Next is interest-bearing debt. Interest-bearing debt, due to the issuance of bonds, it has increased slightly. On the other hand, we are increasing the cash at hand. If we look at ratio, in the first quarter and the third quarter, there is the dividend payment. In the third quarter, we had share buybacks. So because of that, the net leverage ratio slightly increased, but that would not have too much negative impact. On the right, you see net leverage ratio. The first and the third quarter would deteriorate, and the second and fourth quarter tends to improve. So basically speaking, we're on track. If we look at it in a longer term, we would like to get it to the improvement momentum. I would like to talk about the cumulative subscribers. So now we have 25.41 million smartphone subscribers. So there has been an increase of 1.93 million. From the fourth quarter, there would be new price plan, and there is a change in the competitive environment. So we would like to closely watch the situation. And in year '23, we would like to get to 30 million in the smartphone subscribers, and we would like to get to that point as quickly as possible. What is contributing a lot is Y!mobile. You see that the growth is the biggest in Y!mobile, and it's contributing a lot. And it has reached 20% of the total smartphone subscribers. We are managing 3 brands, and we now have the experience of that. We would like to capitalize on the strength of having this experience of managing 3 brands in the new competitive environment. Next is the churn rate. First of all, for smartphones, 0.68%. It's slightly higher than the previous year. Last year, there was consumption tax hike as well as the amendment in the Telecommunications Business Law, which resulted in the lower customer liquidity. If you compare to that, there was a rebound. And because of that, there is a higher churn increase. But overall, the churn rate is on the trend of improvement. Under the new competitive environment, we would like to continue to have good churn rate, good and low churn rate. Next is ARPU. On a year-on-year basis, it has gone down by JPY 140. In number two, there's discount. After the introduction of bundling plan, we have lower monthly discount. And because of that, there was an improvement in the discount ARPU by JPY 240. Now we have the penetration of the unbundling plan as well as family discounts and smartphone debut plan. And also, there is an impact from the accounting change for the first and half year discounts, and also there is an increase in the contribution from Y!mobile. The first year and half year discounts will be eliminated in the future. So that would be what will be happening going forward. So going forward, we believe that there would be a price pressure. So we would like to work on the recovery going forward in this area. Next is broadband. So there are 6.84 million users for Hikari subscribers, which increased to 0.59 million year-on-year. So overall, we have Hikari users in the amount of 20.38 million (sic) [ 10.38 million ], and that has contributed to higher retention. Next is e-commerce and payment services. These are both strategic, important segments. So with regards to e-commerce transaction valuation, it was plus 33% year-on-year. This is a significant growth from the past, and we will be adding LINE business as well. So we hope that we can become #1 in this service, this business. That's our determination, and we want to continue to grow. And with regards to SoftBank Payment Service, this is also growing very nicely. Competitors -- among even all the competition, we're perceived to be a very good business here. Now we have continued to be strong following Q2 due to recovery in travel and entertainment-related business. The growth rate is plus 18%, so we hope that this business will continue to grow and contribute to our overall business. Let's look at PayPay. If you look at the end of the year, it's 35 million. We have been able to grow -- this is increase 1.6x from a year ago. And also, number of payments are growing even more than that. It's actually 1.8x year-on-year. So this is 5x per subscriber or user. So this is a service that's being used quite a bit by the users. We have about 1 million stores added each year. And we will continue to polish our strength, and we will realize synergies next year, and we would like to leverage this business furthermore. Let us look at our full year forecast. So as we have introduced at the beginning, revenue, operating income, net income, you can see the increase by JPY 200 billion, JPY 50 billion, JPY 5 billion. These are all upward revisions. We will remain our annual dividend unchanged at JPY 86 per share. And where are the factors for this upward revision? First of all, the forecast itself, as I have said at the beginning, in the midst of May, during the emergency, we have taken risk into consideration. So we are conservative. Now we have seen digitization, work-from-home demand, and that's why the Enterprise and Distribution have grown significantly, and Yahoo and Internet business subsidiaries have been able to grow their businesses, thanks to the cocooning consumption increase. So this is why it has contributed. And because of this growth, all the contingencies do not longer need to be considered. So that is why we have been able to -- we believe we can finish at JPY 970 billion. With regards to net income, now we hold losses on valuation shares, impairment losses which we now expect at the beginning of the year, so this has offset some of increase in operating income. Therefore, we are planning to finish this at JPY 490 billion. This is our last slide. The rates environment are changing. Competitive environment, this landscape is changing. And there's different changes in the business. It's a little over than 2 years since we went public. But if you could compare us when we went in an IPO, we have called -- set out this policy or strategy of Beyond Carrier. We want to increase telecom steadily, but at the same time, we wanted to continue to grow our new businesses, and that was our determination. And at that time, we received a lot of question about what are specifics that we had in mind, and we shared our thoughts and our desires. But after 2 years, you can see that its image has become more specific, and I'm very happy to share this with you. So telecom, we have 5G, and we're seeing increase in telecom business. We can now speak about it in a more specific manner. And more than anything else, because Yahoo has become part of our company and it will become integrated with LINE, OTT layer, I think, has been strengthened quite significantly and it's become very solid. And on top of that, we have PayPay and many other business areas, which have planted seeds. And this is the timing which we announced the change in the President. But Mr. Miyauchi, his strategy, Beyond Carrier, I think, has been ready, has almost come to completion. So now we want -- our job is now to really deepen we he has done in the environment in which is expected to change going forward. In the future, we want to really refine our Beyond Carrier strategy and realize further growth. And when we say deepen or expand, I think that term is often used for existing business. But now we're ready to really deepen it and we're prepared for it. We will believe that this will become our key to growth in the future. So this is the end of our presentation, and I would like to take questions from the listeners. Thank you very much.

[Operator Instructions] Thank you very much for waiting. We are ready to take questions now. [Operator Instructions] From Nomura Securities, Mr. Daisaku Masuno.

Can you hear me?

Yes.

My first question with regards to performance. Mobile telecommunication services, it's JPY 422 billion. It seems weak, but is there any supplementary comments that you would like to add? Maybe the ARPU has come down, and also temporary items that had impacted this. But could you talk about the breakdown and the background?

ARPU, of course, had impacted this. But the primary reason is that last October, we have revised a long-term discount. So the point processing rate is higher. And if you look at the 9 months, we have changed the cancellation fee and there was more than JPY 10 billion impact from that. But it has been a year since then, so on a year-on-year basis, from the fourth quarter, the impact of this will be smaller. Outside of our group, there is JPY 10 billion impact. So that may be characteristic of this quarter.

So this JPY 10 billion, is it JPY 10 billion just for the third quarter?

No, it's a cumulative basis.

Understood. So if you look at the third quarter, it seems that this portion is weak. So is that coming straight from the ARPU?

The first and half year discount had impacted on a full year basis. So compared to last year, there is that impact. But comparing second quarter to the third quarter, the trend is similar.

So if we exclude the onetime factor, so there was the increase of around JPY 11 billion. So in the actual performance, the improvement in the revenue is coming.

So that's correct. I think that we have been able to go very steadily in this business.

My second question is with regards to net adds. It seems that the net adds have been impacted through the various announcements from the other companies. And Y!mobile had been attracting the student discount and also KDDI and NTT Docomo have announced their plans. And so do you think that going forward, you would be able to grow all of the 3 brands? I think that consumers are waiting and seeing what they are going to do. But how do you see the situation?

In terms of SoftBank, student discount is doing very well, so inclusive of the smartphone debut plan. So MNP is, of course, important. But including the new contracts, it is doing well. Docomo users were waiting and seeing what they were going to do. But in terms of February and March, we are waiting and seeing what will happen. In February, there is a new price plan from Y!mobile.

And in terms of LINE's new plan, I don't think that there is a specific announcement that you have made so far. So how do you view Y!mobile and LINE?

So Y!mobile, we have already announced the price plan, so we would like to implement it thoroughly. In terms of LINE plan, we are making preparations now. At some timing, we will be announcing the launch. I think that we would be able capitalize on our existing assets in creating LINE's price plan. Of course, we need to differentiate, but we would like to make preparation so that everyone can feel comfort in using the new plan.

The next questioner is Mr. Kinoshita of BofA.

I have 2 questions. One is a very straightforward question. Last time, or I should say when you announced the rates, immediately afterwards, your operating income level for next year is higher than JPY 920 billion. I think that's what you said. But maybe depending on how you finish this year, you said you may be below this year's target or this forecast. I think that's what you have hinted. But in the meeting before this, the new President, Mr. Miyauchi, also said that you expect to increase in revenue and profit. Now we do not see the user's trend yet, but the message that you are displaying, what -- can you share us the background as to why your message has changed? So that's my first question.

Mr. Miyauchi and Mr. Miyakawa both wanted to say that they will be committed to increasing profit. As for the specifics, of course, we will be announcing the official integration of -- with LINE. And we have PPA as well, so these will be the impact of integration as well as users' behavior and how that will -- has been affected by rates. So there's uncertainties which we need to -- still yet to determine. So hopefully, in May, we will be able to disclose more specifics. And I think in December -- however, our competitors also announced their rates. We also announced ours, and we gave a direction. Compared to that time, we believe that we can really leverage the strength of Enterprise business more and maybe there's more room for cost reductions as well. We have been a company that's been committed to increasing profit each year, and we still want to be committed to that. So I think that's the message that we wanted to send out today.

Okay. I understand. My second question, the positioning of SoftBank online. So in principle, you want to increase number of users despite the fact that this condition is not growing by population, so which means that you have to take away share from the competitors. And your weapon for that will be Y!mobile. And SoftBank online is probably more or less flat. I suppose you will be spending most of your efforts on retention. Or do you think you will be aggressive in taking away shares from -- or customers from competitors in SoftBank online as well? To be honest, your plan for online seems unchanged or flat. Are you going to focus your target on MVNO? So can you tell us a little bit more on that?

Yes, I understand. At this point in time, we believe that we have many options that are available to us. So we want this to be something that we want to manage on our own as an MNO. We also want to secure network quality as well. So Y!mobile and online are very similar in the sense that they are the same, under the same operation. So that's different from before. And the way we compete is we believe that appropriate people in the appropriate place. So it's not just one strategy, but more to be flexible. So if we can grow in online, then we will grow. If it's Y!mobile, then we will grow Y!mobile. But each of the brands have each characteristics and strength. So we want to be greedy and we want all the brands to grow. And if I may comment about next year, we have LINE, which is the platform. It's easy to use. And I hope that, that will be the characteristic. We hope that we can really display the strength and characteristics of each of the brands. And I believe that what we can do, what we want to do will continue to increase. I mean with regards to the uses, we have young people and the elderly citizens as well. And if you take into account this COVID and also different disasters that we may face, I think if you look at in terms of 100% penetration, I think this is a good strategy. And I think LINE has a role to play and the same as online as well.

From SMBC Nikko Securities, Mr. Satoru Kikuchi.

This is Kikuchi. There are 2 questions. The first question, the COVID impact, I think that it contributed to the positive to your performance. And how much of it was temporary? And what would disappear next fiscal year? For example, in Distribution, in the briefing session prior to this, there was the participation in the GIGA School Program. I don't think it would be there next year. And also the -- in the Y!mobile, the subscriber did not increase as much as the ARPU. And I was wondering why the revenue had increased so much and whether that increase will remain for the next fiscal year. As for the Consumer, sales of goods, I think there was some onetime factor and I was wondering how that onetime factor had impacted the profitability. So I was wondering whether there were onetime factor and how much onetime factor.

So the onetime factors are very limited. It would be in the -- in about JPY 1 billion level. But we have a lot of subscription model, so most of our businesses is more cumulative, especially in the mobile of Enterprise. So in the case of the Japanese users, compared to the individuals, the enterprises have lower penetration rate of smartphones, maybe 50% or so. It has not reached 60%. There are still feature phone usage on the Enterprise side. However, as they try to increase the amount of remote work, smartphones is absolutely necessary and tablet devices would also be necessary for remote work. So the volume increase is seen in Enterprise in that area. And it's accumulating, and that would be the foundation of our revenue next fiscal year. So the growth of Enterprise, I think, is very solid. In terms of the revenue, the mix of the handsets has given a lot of impact. The unit price, because as it had increased, the revenue had stagnated. But with the new iPhone and the volume is quite good due to the iPhone, thus in the third quarter, we have seen a recovery. Last year, there was a consumption tax hike. And also, the last-minute demand before the consumption tax hike, there was a decline. But in terms of LINE MOBILE this fiscal year, the performance was quite solid.

In terms of the Distribution, is PC increasing?

Yes. PC, the other -- and also tablet, those are the different triggers of growth.

My second question. So you are investing in 5G, and JPY 400 billion is the baseline, and the investment amount is higher than JPY 400 billion. And how long would that continue? When you are able to cover a certain amount of the 5G area? And once you get to the stand-alone, would that over JPY 400 billion CapEx would continue? Or would the CapEx be decreasing next fiscal year, how long -- considering the revenue that you're making?

So basically, we are sticking to the JPY 400 billion in CapEx. So it is not that -- the continuation of the of more than JPY 400 billion would continue. So this JPY 20 billion increase was something that's specific to this year.

Next is Mr. -- is Ms. Chikai Tanaka from Goldman Sachs.

This is Tanaka from Goldman Sachs. Can you hear me?

Yes, please.

First question, related to the earlier question. But you have additional 5G investment of plus JPY 20 billion, what were the breakdown? And also with regards to Enterprise business, it continues to grow. But what are differentiating factors? So that's my first question.