SoftBank Corp. (9434) Earnings Call Transcript & Summary

Thank you so much for waiting. We would like to begin the investor briefing of SoftBank Corporation. The consolidated results for the third quarter fiscal year 2022. We would like to present today's attendees. SoftBank Corporation, Board Director, Executive Vice President and CFO, Fujihara; Finance unit, Finance and Accounting division, Vice President and Head, Naito; Finance unit, Strategy Finance division, Vice President and Head, Akiyama. Today's briefing will be broadcast live via the Internet. CFO Fujihara will explain SoftBank's consolidated financial results.

This is Fujihara. Thank you so much for your participation in your busy schedule. Let me begin. Just before the earnings results presentation was made. So here is the executive summary. In fiscal year '22, quarter 1 to quarter 3 revenue and profit increased, making steady progress toward full year forecast. As announced earlier, the PayPay remeasurement gain was recognized as planned. As for the mobile subscriber net additions, it's growing steadily. As for the PayPay, its GMV continues to grow and its operating loss decreased. Let me move on to each section. First, based on the summary of the earnings results, very right shows progress rate, which you can see as it's going well and PayPay consolidation completed on October 1 and -- so the figure which was from the last fiscal year, and it's been adjusted, and it was adjusted to the retrospective adjustment. And here is the breakdown of each segment. As for the revenue, up JPY 171.6 billion year-on-year and up 4.1%. So the revenue increased in all segments. As for full year forecast, JPY 5.9 trillion, which remains the same. And year-on-year, 4% increase. As for progress toward full year forecast is 73.7%, which includes PayPay and the second half of the year. So it's growing well. And now adjusted EBITDA the comments here are the same as sales profit. So please look at Enterprise. As for EBITDA, there is a onetime factor. So therefore, in terms of EBITDA, it looks -- it shows negative, but this is due to onetime factors. Now operating income by segment. The progress rate is going well and toward full year forecast at 93.5%. Consumer decreased due mainly to mobile service price reduction, which I will touch upon in details later, but this is as we planned. As for Yahoo! JAPAN/LINE decreased due to absence of gain on sale of YJFX and of JPY 16.8 billion in the same period last year and increase in personnel expenses. As for the financial segment, it looks negative. However, this decreased due to PayPay consolidation and strategic investments. However, as the business, it's going well. And remeasurement gain of PayPay due to the consolidation was recognized. And this is the overview of the operating income. Now by segment. First, consumer segment. The revenue of consumer segment, JPY 19.3 billion up and 0.9% up. Looking at sales of goods and others shows minus JPY 39.9 billion due to the migration of mobile. So also, there is the impact of the price increase in the previous quarter. So it -- so we had some measurement of the each mobile. And so there is some main factors is mobile, mobile service price reduction and the customer rewards programs was some factors, which shows minus. As for electricity, as you can see, it's JPY 122.1 billion plus and 98.7% up. So this revenue increased due to increase in subscribers and transaction volume and price in the electricity market. As for broadband, there is no major change from the previous quarter, while subscribers increased revenue decreased due to campaigns. And compared to the previous year, we are recovering. And in the fourth quarter, we should be able to minimize. As for the increase in the contract -- and the major revenue comes from the mobiles and this is the comparison -- apple-to-apple comparison. And -- so we had the measurement to actually return to the customers. And that is the onetime reduction factor, we need to make a treatment and that has some impact on the negative figure. So this shows a different flow from the previous results. As for the profit of consumer segment it's minus JPY 87.5 billion and minus 16.9%. As for the progress rate toward full year forecast is 89.8%, which looks good. And sales of goods and others and the cost of goods sold shows minus JPY 12.9 billion, which is impacted by the acquisition cost. As for the electricity, as you can see here, and -- so this is the result of the past 9 months. We have taken several measures compared to the previous fiscal year. We can see a slight positive result. So this electricity business have absorbed different waves of the market change and then come to this stage, and sales commissions and sales promotion expenses shows plus JPY 2.1 billion. And -- so customer acquisition-related costs increased due mainly to deferred expenses in the past years. As for the advertising and the promotion costs showed some decrease and we were accelerating sunset. So therefore, the cost due to the sunset shows a little more. However, at the end, it tends to increase in profit. Enterprise segment. Profit increased, shows 4.2% up compared to the first and second quarter. It is due to the mobile growth. There are some things that we had to take care, but the cycle has being stable right now, and we are able to now show the positive turnaround. And -- so excluding this one factor, overall, we can see 9% of growth. So as for the enterprise business up to the second quarter, we announced that the negative profit, but now you can see that it is growing well. And as for solution, recurring revenues showed a continuous growth, especially cloud and securities are contributing to the double-digit growth. Yahoo LINE segment. Although revenue grew steadily, profit decreased due to slowdown in media growth. That's a challenge like Z Holdings mentioned yesterday's announcement. On the right-hand side, segment income includes two big onetime factors, YJFX and LINE MUSIC totaled JPY 7.6 billion and others included a big increase in personal expenses. That's another challenge. So they have to address this challenge by consolidating their businesses going forward. Financial segment. Revenue increased steadily. Each segment showed growth and PayPay was consolidated in third quarter, contributing to JPY 33.8 billion. On the right-hand side, you can see segment income, which was already explained by CEO Miyakawa earlier. And that reflects a PayPay consolidation and growth of user is provided by PayPay consolidation. And all in all, JPY 2.4 billion, it shows sign of growth. Even though on a year-on-year basis, it decreased. Revenue and profit increased in Distribution due to steady growth of ICT, it's 12 consecutive year of growth, and we have expectation in the next year onwards. And please refer to the chart later. In FY'22 forecast of operating income by segment, about JPY 40 billion is appropriate for Other, which we mentioned before, depending on how it goes. The fund from this JPY 40 billion will be allocated as a strategic investment to Consumer and Enterprise segments. And that should put our position better for the next year. Next year, we are expecting a Y-shaped growth for Consumer and Enterprise. We want to see continuous growth like we saw Distribution, Yahoo. In terms of operating income, we expect significant growth of Yahoo. Financial business, that includes half year result of PayPay. In terms of contribution to consolidation, we will see how it goes. So at this moment, we are looking at positive numbers anyway. But like CEO Miyakawa mentioned, details will be communicated to you in May. Net income, which showed good progress towards the goal of five consecutive year-on-year increase, especially financial income, even though it's non-cash, we recorded expenses even though it's non-cash because of valuation loss. We had valuation gain last year and also some delay damage we have to pay with regards to litigation and also Z Holdings impairment loss of Demae-can was included. But again, PayPay is included as consolidated business. And that is reflected in net income. CapEx. Current progress rate against JPY 430 billion of full year goal is 64.5%. Next year, the CapEx plan is JPY 330 billion, which remains the same. Cash flow. Up until second quarter, about JPY 7 billion decrease year-on-year. But in the third quarter, we see increase year-on-year. EBITDA goes down and CapEx goes up for the full year, but we remain seen in terms of our goal of increasing free cash flow. We are making steady growth. Going forward, we also want to make sure that we can deliver to the goal of JPY 600 billion, and we will do our best to make it happen. Now next is net interest-bearing debt and net leverage ratio. The net interest bearing debt shows 3.19%, excluding Z Holdings and PayPay. So that's been achieved in a year and net leverage ratio shows 2.5, which is flattish from the previous fiscal year. And due to PayPay consolidation, we have larger receivables. And this shows the approach to adjusted free cash flow. Since Z Holdings is listed, we consider separately. And centering on the 100% owned subsidiaries, we utilize this as our scope, defining the base of company's cash flow and financial leverage measurement. So based on this, we are managing our free cash flow and here shows the balance sheet. Now we have PayPay with the asset of JPY 1 trillion. So as for the total assets, it shows JPY 14,703 billion as of December 31. And -- so as you can see, we have 24.5% as the ratio of total equity to total assets and -- so which has recovered compared to the previous year. So this shows PPA related to PayPay and Z Holdings. So this shows looking at customer relationship, which is affected by the [ PL ] and we are going to amortize compared to the before accounting treatment. And annually, we have JPY 23.3 billion. It's shown as annual amortization. So annually, PayPay's amortization will start at JPY 5.1 billion level annually moving forward. And this page shows a telecom operating data, and we have 1.76 million of smartphone cumulative subscribers and year-on-year and which shows 6.6% plus. So we have more acquisition, and we also have the high churn rate that was the trend. So as you can see -- so the cumulative subscriber is flattish. And this page shows telecom operating data, especially the mobile net additions and it shows minus 50,000 compared to the previous year. And let me talk about ARPU, which I'm sure you're interested in compared to last year same time, JPY 60 (sic) [ JPY 260 ] decline. Of that, JPY 190 is due to service price reduction impact. If you take a look at bottom right, total ARPU year-on-year, in the last quarter of FY '21, JPY 128 (sic) [ JPY 280 ]. Last year, there were some onetime impacts, which have about JPY 30. Then you can see we are improving compared to last quarter. We are expecting JPY 220 negative for full year compared to JPY 230 negative that we communicated earlier, but we will continue our efforts to improve ARPU. But in terms of Y-o-Y, due to some campaign and others, we may see some ups and downs, but trend-wise, we believe that this momentum will continue. Broadband and Electricity. Broadband increased by [ JPY 260 million ]. And electricity, we are managing a new acquisition. Therefore, the number of users decreased slightly, but we have taken some measures since November. We will keep watching how the market goes, but we have in a position of delivering positive results in terms of electricity business. Yahoo and LINE e-commerce, up by 4.4% year-on-year, but the business performance slows down, especially challenging area is advertising, which is looking at a negative trend. So I believe that Yahoo's management takes it a big challenge. And as a parent company, we will help them to address the challenge as much as possible in PayPay. Year-on-year, 21.2% increase in terms of transaction users. There are still opportunities for growth. MTU's growth rate is actually better than the rate of growth of registered users. And the number of payment transaction, which is one of the most important PayPay's KPIs is up by 42.7%, GMV, up by 46.4% year-on-year. So as you can see, PayPay is going well. In terms of revenue of PayPay, JPY 51.5 billion increase compared to the same term last year. And also, you can see EBITDA is improving. And with this momentum, we are confident that PayPay can make profit sooner or later. Payment Service, which is going well. GMV increase by JPY 1 trillion year-on-year or 26.3% increase. And as CEO, Miyakawa mentioned in the earnings call, non-telecom GMV is driving our growth, and we have high expectations in those areas. Last but not the least, ESG. Please refer to this chart when you have time later. Thank you very much. That's all for my presentation and go into Q&A session. Thank you.

[Operator Instructions] Masuno-san from Nomura Securities.

Can you hear me?

Yes, we can hear you now.

I have a question about the segment. Consumer and Enterprise will look JPY 14 billion and then the rest is JPY 10 billion from other and so -- as much as possible, what kind of measurements you have to achieve this number? Here you mentioned and others. So if you could share the breakdown to be great.

As for the consumer -- I'm sorry, I cannot hear you. Can you hear me?

Yes, I can hear you now.

Yes, about Consumer acquisition related would be the majority. As for Enterprise, there may be some areas that we need to concern we would like to take actions. And the sunset is accelerating. So part of -- partly, it will be related to sunset. Once this breakdown is fixed we will announce. And for the fourth quarter, we will have more opportunities to increase the acquisitions for both -- for mobiles. And as for PayPay, we would like to also acquire more in the fourth quarter. So coming quarter will be the important stage for us as well. And you mentioned for other, there will be minus JPY 10 billion or so. So is it because of the card, the PayPay in the fourth quarter compared to the previous fiscal year, it will be negative compared to the previous year. Overall, it still shows negative. However, PayPay spend most -- spend most in the first quarter. So this number hasn't changed. So JPY 10 billion -- below JPY 10 billion, I just said that if you could understand as 2-digit range will be appreciated.

Next question is Tsuruo-san from Citigroup Securities.

I have two. First, about PayPay's performance. Looks like better performance than I thought. What's happening? And next year, if possible, could you share with us any target in terms of revenue? Because that's something to do with your strategic decision-making. So I think your view on that would be very appreciated.

PayPay is currently focusing on the card business. Our mobile business and Z Holdings commerce business and PayPay's card business have potential -- high potential for growth. And going forward, of course, we want to see growth of card business. And PayPay, we need to make sure that PayPay keeps on the growth trend. And also we need to implement some strategic plans. So we need to do the work for future growth. So we are not in hurry for making it profitable. But again, it's early to tell you detail plan. And I believe that at the next timing of such announcement, we can share with you more in detail.

The second question, looking at the Nikkei article this morning, there was a comment from Kawabe-san. He thought about 100% subsidiary of ZOZO and ASCO. If that was truth, could you have any comment from SoftBank's prospective?

So in fact, I was surprised to see the article of Nikkei. I have not heard anything about that as a truth or fact. And I think that's true to be [indiscernible] as well. Ikyu, ZOZO and ASCO Z Holdings thought about having them consolidated, but they realized -- and we realized that more core businesses have more challenges than Other business. And I think the approach that they have decided to take is good approach.

Next, BoFA Securities, Kinoshita-san.

My question is, first, about Financial segment for the next fiscal year, PayPay [indiscernible] June -- in the consolidation. So -- one -- I just had a feeling that promotion will be strengthened even further. So -- but the focus is on card business. So this promotion would be more towards the card?

Yes, PayPay will be consolidated with -- PayPay card will be consolidated with PayPay. And so the next year, PayPay and the PayPay card as one. And we see that PayPay should be leading the business of both. So it depends how far, how deep we are going to take a number of measurements. If we are to focus on only make the business profitable, then we may -- rather than that, we will like to make sure that the PayPay card will be accepted by more users.

So another question is about enterprise business. So it depends on how you're going to take measures in the fourth quarter. But still, I see the progress rate is slow. So before allocating for the advanced investments. So this number -- based on this number, do you also include some profit from the sales from the previous quarter. And -- so depending on how you allocate the cost, so I just get a feeling that the progress rate had slowed down in the first half of the fiscal year. So how you are going to take measures against this situation?

Yes, as for the progress, yes, it's a bit weaker than we had also expected. So especially in the fourth quarter would be the selling season. So as for the consolidated result, this segment has also contributed to achieve the full year forecast. So we like to make sure to -- make sure that Enterprise business can contribute to the entire business growth and the results.

Next, Ando-san from Daiwa Securities.

I have two questions. First, Page 24, ARPU, top bottom shows total ARPU year-on-year by the quarter. Looking at the next year, 270 minus, 200 minus, 210 minus, so that kind of trend is expected next year or not? That's the first question. And also JPY 50 billion for next year, even though ARPU is going well recently. So I wonder if the momentum continues or not?

Yes, we expect the momentum stay the same. About JPY 50 billion, I don't think it's far away from where we are, but JPY 50 billion, I think can stay the same.

The second question about PayPay's balance sheet. Page 40, that's something that I have seen for the first time such in detail. So if you could elaborate on PayPay's business from this balance sheet perspective?