SoftBank Corp. (9434) Earnings Call Transcript & Summary

Good morning. I am Junichi Miyakawa, President and CEO of SoftBank Corp. I'd like to thank you all for joining the meeting today. I would also like to take this opportunity to express my gratitude for your constant support to the company. With your permission, I will chair this meeting pursuant to the provision of Article 13 of the Article of Incorporation. Now I will call the 35th Annual General Meeting of Shareholders of SoftBank Corp. to order. Today, we hold this meeting with appropriate measures in place to prevent the spread of COVID-19 and to minimize risks of infection. While asking our shareholders to kindly refraining from coming to the venue of the meeting, we have set up a dedicated web page where they can exercise their voting rights or posting questions online. We are thankful that many of them are indeed joining us remotely today. All directors, including myself, are participating through web conferencing system, too. You can see them all on the screen. Thank you again for your cooperation. Please note that all questions, motions or statements you may wish to make should be posted on the web page, whether you participate remotely or in person. If you have one, please access to the page. Questions or comments should be about nothing other than the matters on today's agenda. You can begin posting notes and exercising your votes now, but please be aware that we will stop receiving your notes after 5 minutes past the question-and-answer session start. You may not change your vote once you cast it. With a lot of shareholders joining the meeting today, we'd like to limit the number of questions or motion to one per one shareholder. Please be concise in making your statement by keeping to the point. Due to the limited time, we may primarily address what many shareholders are interested in. We are truly appreciative of your understanding. The agenda today is just as set out on Page 2 of the convocation notice of this Annual General Meeting of Shareholders. The number of voting rights held by the shareholders participating today constitute the forum. Now I will report on the reporting matter as shown on the screen. Details are set out on pages from 29 to 67 and on 69 and also available on the company website. I'd like to present your summary video on the reporting matter. [Presentation]

Thank you for your kind attention. Now I would like to present the matters for approval. Before moving forward, I would like you to take note that after the presentation on the matters for approval and our growth strategy, we will address your questions regarding the matters for reporting and approval. After the Q&A session is finished, we will take votes on matters for approval only. The meeting shall proceed in such a way as described. If you agree with the approach, please click clapping hands emoji on the screen. Please wait for a moment. We are confirming the result. Thank you very much. With the majority of shareholders agreed, we shall follow this approach. Proposal 1 is partial amendment of the Articles of Incorporation. It is proposed Clause 2 Article 11 be added to allow for online-only shareholder meetings when it is inappropriate to hold a shareholder meeting at a specific physical location due to spread of an infectious disease or a natural disaster. According to the amended Industrial Competitiveness Enhancement Act, which took effect on June 9, 2021, online-only meetings should contribute to strengthening industrial competitiveness with consideration for securing the interest of shareholders. We have received confirmation from the Minister of Economy, Trade and Industry and the Minister of Justice that the requirements are met as provided for in the ministerial orders. This proposal does not assume we hold an online-only General Meeting of Shareholders in normal times, but we may do so in an emergency when it is difficult for shareholders to gather at the physical location due to spread of infection diseases or natural disaster. It is proposed from perspectives of emergency response and business continuity. Details are set out on the Page 8 of the convocation notice. Proposal 2 is election of 13 Board directors. The terms of office of the present 11 Board directors will expire at the conclusion of this Annual General Meeting of Shareholders. It is proposed that the number of Board directors be increased by 2 in order to strengthen corporate governance and 13 Board directors be elected. Details are set out on the pages from 9 to 18 of the convocation notice. Proposal 3 is revision of remuneration paid to directors. It is proposed that the amount and components of cash and stock compensation paid to the directors be revised and stock option be granted to them for the fiscal year 2021 so that they shall be given an incentive to continuously improve the corporate value, share values with shareholders even more and be committed further to improve the corporate value by aligning the interest of the directors and shareholders. Details are set out on the pages from 20 to 24 of the convocation notice. Now I would like to present you our growth strategy. First, I'd like to talk about mountains to climb for mid and long term, how high those mountains are and how we plan to climb those mountains. Before we talk about our vision for mid and long term, I think that our shareholders want to know or want us to address the immediate concerns or interest. As a shareholder, I share your concerns and interests. And let me first address your concerns in front of you. Let me start with our shareholder return policy. I believe most shareholders are interested in that policy. For fiscal year 2021, we plan a dividend at JPY 86 per share. We don't plan decreased dividend. In fact, when our profits are better than expected, we plan share buyback flexibly. We are committed to achieving growth -- both growth and shareholder return. As we promised last year, we want to keep achieving the goal of payout ratio at around 85% for 2020 and 2022. We would like to take every opportunity for growth because our digitalization will bring sort of growth opportunities. So we want to make sure that we grow and invest and improve our shareholders. Now price reduction. The telecom industry is very challenging because of price reduction, tighter regulation and new entrants like Rakuten and MVNO operators. Earlier this year, we implemented a drastic price reduction to meet users' expectations. As a result, we expect about JPY 70 billion of negative impact on operating profit this year. However, we want to overcome the challenge, and we are committed to hit the record high of profit. We will continue reducing cost. And also we want to strengthen our efforts in areas of Enterprise business, Yahoo business and in new businesses, so that we stay adamant about achieving growth, both in revenue and profits. The question is why are we confident that we can increase our profit. The simple answer is we are not a traditional telecom operator anymore. In the past, our target market towards telecom market, which is about JPY 19 trillion. But digitalization will drastically change every market. Under the circumstances, we want to be a provider of digital platform for services and industries. In other words, we want to implement digitalization in the society. Then our target market will be Japan as a whole, which is JPY 1,000 trillion. In Japan, investment in IT is about 1% of the revenue, whereas in Western countries, it's about 3.6% of the revenue when it comes to investment in IT. In order for Japan to be really a leader of digitalization, we think that we need 5% of revenue to be invested in IT. So there are a lot of business opportunities for us. And the next question is why are we confident to be a winner in this JPY 1 trillion market? We have advantage in holding platforms powered by AI and also telecom business, strong business base of 5G. And also, we have great number of customer touch points. This is a unique asset or structure that we have in our company. With regards to customer touch points, we have 55 million touch points in SoftBank, 18 million in Yahoo and 40 million in PayPay and 88 million of LINE. Those are great number of user touch points. And also, we have 15,000 people in our sales force, and 95% of Japanese large enterprises have business with us. And also, we have a retail network of over 6,000 shops around Japan. And also, we have 10,000 engineers and 80% of them are in IT areas. By leveraging this strong business foundation, we believe that we can become a company that connects users that want to receive great services with applications, with companies and local governments that want to provide great services to many people. One successful example is PayPay and 7-Eleven. By partnering with PayPay, 7-Eleven was able to increase the number of the app users, and the users can enjoy easy payment with PayPay function. In fact, in only 1 month, the number of 7-Eleven app users that have PayPay embedded in their app exceeded 3.5 million. Another successful example is LINE and Yamato Transport. You can make delivery requests with LINE, which is very comfortable and convenient. In fact, this service is very popular. And now 4.47 million are enjoying this service. In order for Japan to drive digitalization, companies need to start digitalization and digitalization needs to expand across the society. And so the wave of the digitalization is going to lead to the expansion of the corporate business and then on to consumer business. So we would like to create such a wave of digitalization so that we'll be able to grow in both corporate sales as well as the consumer sales. So from now on, I would like to discuss the vision for mid- to long-term period of growth. I believe to solve the social issues will also lead us to the further growth of the business in the future. One of the biggest social issue is the aging society with less number of children. In the proportion of people above age of 65, Japan is the biggest. And in 10 years, We are looking at the situation where the 1 out of 3 is going to be the elders. This aged society is also creating several issues along with it, especially in transportation. More than 55% who died in traffic accident is above 65 years old. At the same time, about 40% of the people are feeling inconvenience in transportation. Under such circumstance, we believe and we focus the technology called digital twin as a solution for such social issues. Digital twin, which is to create the real space as well as the virtual space and simulate using an AI, so that we will be able to optimize the real space. It may sound a bit difficult, but actually, this is already existing in the current world, for example, car navigation system, one of the example. You can see the location information of the vehicles on the map of the virtual map, which will be reflected in real time by simulating so that they will be able to show you the optimal route or time required to get there. Such a digital twin technology will optimize the society overall. In some 10 years, we believe that the autonomous driving and traditional driving is going to coexist. In such situation, to create a safety transportation system we believe is going to be important to optimize the traffic transportation overall by linking the data of signal lines, traffic information or the road information. These are the things that we would like to address going forward. Not only the digital twin but to also utilize a variety of digital technology in the most appropriate way so that we will be able to provide such technology to the society. The social issues, including aged society, held by Japan is also going to be the challenge for the world as well going forward. That is why that we call our -- we have a slogan of Beyond Japan. So that once we have set business model services which will solve the social issues in Japan, can also utilize and develop the world so that we will be able to pursue the further growth of our business. With the power of digital technology, we would like to put every effort to become the company needed most by the people around the world, and we will appreciate your continued support by you, shareholders. And at the same time, I would like to share the video which explain you the vision which I just presented. Please take a look at it. [Presentation]

Now I'd like to address questions posted on the matters for reporting and approval. May I remind you that we will stop receiving your notes after 5 minutes past question-and-answer session start. If you wish to make any question or comment, please access to the web page and send them in time. Now let me address questions posted. The secretariat will read aloud the questions.

The first question, executive compensation is too high. Is it reasonable level? When or if an executive is engaged in misconduct, shouldn't he or she return the compensation they have received?

Thank you very much for your questions. About the level, as the company with the highest market capitalization and operating income in Japan, the level of executive compensation is set with reference to the level of external surveys. As such, we believe it is reasonable. With regards to competition, the ratio of the performance-linked portion is larger than the fixed basic remuneration portion. If the company's performance is poor, it will decrease significantly. And the performance-linked portion for fiscal year 2020, the cash bonus was 50% and stock compensation was 50%. For this year, it is 100% stock compensation with no cash bonus so that they commit to long-term value sharing with our shareholders. As for return of compensation or so-called clawback clause, refund may be requested if the Board of Directors of the company finds that an executive has violated rules and regulations, the internal rules of the company or the contract concluded between the company and them. Thank you very much for your question again.

Next question. Proposal 1, partial amendment of the Articles of Incorporation that I would like to ask you the question. If this proposal is approved, in any case, are you going to hold online-only meeting in normal time going forward? Please answer this question.

If there is -- this is to aim to increase the available option for the venue of the meeting if it's emergency or unexpected situation. At this moment, we do not plan to hold the meeting online-only. That's the answer for you.

Next question is around proposal #2, election of 13 Board of Directors. We'd like to know selection criteria of independent director and if there is a candidate for future director in your female workforce.

With regards to the selection criteria for candidates for outside director, the selection was made in consideration of the balance of the entire Board of Directors based on the qualities and abilities that contribute to improvement of corporate value and deep expertise of each specialized field. We are considering to appoint female director within the company. Traditionally, the telecom industry has an extremely high proportion of male. But in order to break through this norm, we will develop our talent over a mid to long term, so there will be a female director coming out of our organization in the future. Thank you.

Next question is about the information leak incident. So there was a Russian incident. And after that, there was information leaked to Rakuten Mobile. You may not consider the information security seriously. I would like how you think or how you regard such an issue and the responsibility on security issues.

First of all, we are taking this situation very seriously. We have been actually recognizing information security as a very important issue for us, and we have been focusing on our security measurements. But with this incident, we have further enhanced once again for information asset management and also introduced a system to monitor the log of employees' PCs. By doing such measurement, we are trying to address the -- prevent the reoccurrence. Of course, the information security measurement never ends. We will continuously address the measure and enhance the situation. That's for your answer. Thank you.

Next question is about stock price. The current stock price is lower than the publicly offering price of the IPO. I think that shareholder return should be enhanced. So what do you think about that?

Thank you for your question. Regarding the current stock price, we take it very seriously that it is below the public offered price. I am a shareholder myself, so I'd like to do my best to address this issue. As I mentioned in the financial result announcement, we'd like to make every possible effort to improve corporate value. As a company, we want to focus on increasing sales and profit and also we aim to -- we want to aim for growth. On top of that, as Japan is behind in digitalization, we will do our utmost efforts to help Japan to become a leader of digitalization, and we want to grow together with the country. Also, we want to address issue of aging society. And we want to carry out the vision of becoming the most needed company by the people in the world with aim to increase the society -- sorry, create a society where not only the elderly but also everyone can live happily. As a result, the value of our company should be recognized, and I believe that our corporate value will be reflected in the share price. With regards to shareholder return or enhancement of shareholder return, we'd like to return to shareholders as much as possible. And we, as a publicly traded company, we want to do that. In fact, we'd like to continue actively return dividends. And unless there is a significant change, we don't have an intention to reduce the dividend for some time. And about share buyback, whenever opportunity comes up, we'd like to be flexible in terms of share buyback.

Next question is about the smartphone pricing. How do you look at the pricing for smartphone going forward?

So smartphone pricing, I believe your question is about whether we're going to see the decline -- continuous decline of pricing for smartphone. The price down plus reduction, I believe, has been focused by the market quite largely. At this moment, we provide 3 brands, which is SoftBank, Y!mobile and LINEMO so that we will be able to match to your usage or the behaviors. And we would like to continuously provide a variety of the plans which matches to your work lifestyle and your requests. But at the same time, this telecommunication infrastructure becoming more and more important and now becoming the fourth social infrastructure followed -- following the electricity, water, gas. Especially, the 5G infrastructure is becoming the base for the industry and the importance of such infrastructure is becoming higher and higher. So managing such infrastructure, and at the same time, we would like to provide the good telecommunication service, and we need to set the most appropriate pricing, which balance in between those 2. Thank you for your question.

Next question. I'd like to know what you do to promote female employees and help them to play more active roles in the workplace.

Thank you. In order to do that, we have a committee of promotion of women's participation and advancement in workplace. We believe that we made a press release earlier today, and our effort is to have more female managers. In fact, we have a target, we'd like to double the number of female managers by 2030. And by 2035, we want to have 20% of managers to be female. Also we want to promote diversity and inclusion so that we, as a company, to grow further. Thank you for your question.

Next question is about how you're going to address post-COVID.

Yes. As for COVID situation, first of all, I deeply wish that we'll be able to see the end of this COVID pandemic. And for that, we believe it is important to increase the spread of vaccination. And actually, we respond first from the request from the government regarding the workplace vaccination. So first of all, we would like to start the vaccination to employees and their families of SoftBank Group overall with the size of 250,000, and that has already been announced. And starting from yesterday, we have launched the official workplace vaccination process. For the sales shop, call centers, network operation center, these are the area with more opportunities to -- in touch with the other people or easy to get clustered occurrence that they will be prioritized to be vaccinated this time. And going forward, we are expecting to process -- administer the 250,000 vaccination in 15 locations nationwide. But after our work office vaccination complete, we would like to utilize our established know-how so that this venue or the process can be utilized as many people as possible. So we would like to support that way to the society. Thank you for your question.

Next question. What's your outlook for your business after COVID-19?

We expect that demand for digitalization continues to increase even after the COVID-19. By addressing lot of the challenges and issues that companies and societies have, we believe that we can grow our Enterprise business even further. And also online shopping is becoming more common. And we believe that e-commerce business like Yahoo! and ZOZO will continue to grow. Even after the COVID-19, remote working will become more and more common and also online education and online medical consultation should grow going forward. That kind of digitalization brings us a great business opportunity and for us to grow further. Thank you.

Thank you. So next question is about the business outlook for MONET.

First of all, we established joint venture MONET together with Toyota Corporation. And after then, we have received support by other Japanese automobile makers standards, such as Honda and Hino, and they have also joined us investing in MONET. So going forward, we would like to build this company aiming to solve -- using MaaS to solve the Japanese important agenda, including concentrations in specific municipalities or the aged society. And we are trying hard to grow this business as a company to manage the MaaS platform. Under the current Japanese law, complete autonomous vehicle cannot be driving in public road. So right now, we are doing the experiments of MaaS with driver. What we're doing is to analyze and check the functions for autonomous driving society, including the mobilized medical stations or mobilized convenience stores. So such platform system has already been completed. And once the autonomous driving is allowed, then I believe that the autonomous driving car is going to create the new Japan. So I hope you expect on this. Thank you for your question.

Next question. You said that PayPay will contribute to your bottom line going forward. And I wonder if there's any plan for you to integrate PayPay with LINE Pay.

Thank you for your question. For QR-based and barcode-based payment, in Japan, we plan to fold LINE Pay into PayPay app targeting in April 2022. For overseas, we plan to continue LINE Pay. Thank you for your question again.

Next is the voting rights or exercising voting rights. And why don't we abolish the stickers for the exercising voting for the environment friendly perspective?

So for those who are not used to PC usage or smartphones, so those people are still there to some extent in market, and we would like to address such a project to make sure that we'll be able to provide as many options as possible. But thank you very much for your questions or opinions, and we would like to take it seriously.

Next question. You want to -- you said that you want to achieve both growth and high shareholder return. What specifically you plan to do?

Thank you. Like I mentioned in my presentation earlier, we have Beyond Carrier strategy, and we want to achieve both growth and shareholder return. So again, we want to implement our Beyond strategies to make that happen. Thank you very much.

Next question is about the amendment of the Articles of Incorporation. So we hope that we'll be able to be in the -- are you proposing that we're going to rather have a meeting in-person going forward?

So online meeting does not -- does has an advantage for many of the shareholders avoiding any restrictions to specific physical location. So we would like to see a good balance in between the online meeting and the physical meeting. Thank you very much for your question.

Next question. We don't have any independent female director. So how much percentage of your managers are female?

Our female managers, we have 338 female managers at the moment in our organization, which is about 7.1% of the total management, and we want to increase the percentage going forward. We have a plan to do that. Thank you again for your question.

Next question is about, how do -- can I cast our vote by selecting each agenda just for the for or against?

So traditionally, whenever we ask for your voting, we are taking the votes of all the proposals at the same time. So we have no change from the time we -- when we had a meeting in -- at physical location. So this is the approach that we've been using. It's not the system failures or anything like that. Of course, we would look into a more convenient way for system structure. Thank you for your question.

Next question. Well, I have a trouble with sound. I have been watching your shareholder meeting at the moment with optical fiber connection. So I'm concerned about online shareholders meeting going forward from communication environment perspective.

At the moment, our plan is to have online-only AGM in case of emergency. Of course, in different places, maybe quality of telecom line may be different. But going forward, when it comes to online AGM, we will continue to try to figure out the best way possible going forward. So now we spent quite time for Q&A. So I will take 2 more questions.

So next question about your strategy on overseas. What -- do you have any midterm target for your overseas strategy?

Yes, right now, I do have a target in my head, but I'm not -- we are not yet ready to discuss publicly for such midterm target. But whenever you see 10 years ahead of our company, I believe that is also a very important agenda for us. And to even further grow, I believe that overseas strategy is one of the important driver for us. So we will continuously look into that so that some time when we are ready, we would like to discuss and communicate with you our midterm target. Thank you for your question.

We will address one last question. The last question is about Z Holdings. So was the reason and rationale for you to list the Z Holdings in the market?

SoftBank Corp. and Z Holdings have sometimes different customer target and different businesses. In fact, we have different business models while disclosing our business and business strategy as a publicly listed company, I think it's very important for us to disclose as much as possible. And I have often had a lot of discussion with Kawabe-san, leader of the Z Holdings, and figure out what SoftBank Corp. can do and what Z Holdings can do. And what Z Holdings should do, it's better for Z Holdings should do and it's better for SoftBank should do. So we have a lot of discussion and try to figure out the best way for us to grow both in the future. I hope that answers to your question. Now I would like to close the Q&A session and move on to taking votes on matters for approval. I will -- for exercising your vote, please, after selecting, you just click Exercise button on the screen. I will take a vote on proposal 1, partial amendment of Articles of Incorporation. All those in favor, please select yes on the screen. We will report results of the votes later. [Voting]

Now I will take a vote on proposal 2, election of 13 Board Directors. All those in favor, please select yes on the screen. [Voting]

Next, I will take a vote on proposal 3, revision of remuneration paid to directors. All those in favor, please select yes on the screen. After selecting your choice, please click Exercise button on the screen. [Voting]

Please wait for a moment. We are confirming the result. Thank you for your patience. I report the confirmed results. Proposal 1 has received 2/3 of affirmative votes, and both 2 and 3 have received a majority of affirmative votes. Thereby, they have all been approved in the form proposed. This concludes today's agenda. I hereby declare the 35th Annual General Meeting of Shareholders of SoftBank Corp. closed. Let me take this opportunity to introduce the newly elected independent directors. Ms. Hishiyama?

My name is Hishiyama. Thank you very much.

Ms. Koshi?

My name is Koshi. Nice to meet you all.

Please join us to welcome the new Board members. That is all for today. Thank you once again for taking time to join us today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]