SoftBank : Q&A at Earnings Investor Briefing for Q2 FY2020

Q&A at Earnings Investor Briefing for Q2 FY2020

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Date	Wednesday, November 4, 2020 6:00 pm - 7:00 pm
Speakers	SoftBank Corp.: Kazuhiko Fujihara (Board Director, Executive Vice President & CFO) Takashi Naito (VP, Head of Finance and Accounting Division) Koichi Hirono (VP, Head of Strategic Finance Division)

• Could the reversal of contract liabilities related to Half-Price Support have an impact in the second half?

  The reversal of contract liabilities involved a correction of all estimates, including past estimates. It was a one-time procedure and will not continue in the second half.

• Mobile service costs decreased in the first half. Will this trend continue in the second half?

  Regarding cost of sales, in the first quarter of FY2019 there was a temporary gain from a reversal of allowances for handsets, which became a factor for lower year-on-year profits in the first quarter of this year. We do not anticipate any more special factors like this in the second half.

• In net profit by segment, where does the profit from other affiliates appear? Also, is WeWork contributing?

  First, SB Payment Corp. has continued to grow favorably. In addition, there are many other growing subsidiaries, such as SB Players Corp. and SB Technology Corp. The equity-method affiliate WeWork Japan is also included in this category, but since our equity stake is one quarter, the impact on earnings is not large.

• Regarding the medium-term plan, has there been any change in the market environment with regard to downward pressure on prices and so forth? Is the operating income target still 1 trillion yen?

  There is no change to the forecast for the medium term. In fact, our progress in FY2020 is better than initially anticipated when the medium-term management plan was formulated. The situation has been uncertain, but even with the COVID-19 pandemic, we are increasingly confident that we can comfortably achieve the target, mainly through the Enterprise segment. In the 2Q financial results, the Enterprise segment and Yahoo segment both performed strongly, and the Consumer segment has also seen steady growth in subscribers, despite pressure on prices. We therefore have a positive view of the situation in terms of achieving the medium-term plan.

• Regarding price plans, with the recent release of the new 20GB plan for Y!Mobile, it now offers large-, medium-, and small-data volume plans. Meanwhile, the SoftBank brand has a large data volume 50GB plan and a low-cost 1GB plan including voice call charges. For the remaining medium-data volume plan, I wonder if you plan to increase the capacity of the Mini Fit Plan to make the line-up of large-, medium-, and small-data volume plans? Could you tell us about the pricing policy for the SoftBank brand going forward?

  We are currently having in internal discussions, including the positioning of the 5G plans. I think we will be able to make an announcement soon, so I would ask you to wait a little longer. In any case, the SoftBank brand will offer a full-line of 5G plans.

• What is you forecast for ARPU after discounts? Is the impact of Half Price Support factored into ARPU?

  First, the impact of reversal of contract liabilities pertaining to Half Price Support is not included in ARPU. Of the 150 yen year-on-year decrease in ARPU after discounts, over 100 yen is the impact of a change in accounting treatment of the First-year Discount from October 2019. In October this year, one year has passed since the change, so from the third quarter onward the size of the year-on-year decrease due to First-year Discount should diminish.

• Could you tell us your stance on the accounting treatment for the management integration of LINE Corporation and Z Holdings Corporation.?

  The integration of the two companies is scheduled to be completed in March 2021, so I am not able to talk about it in detail at this point. Generally, we will conduct purchase price allocation (PPA), but we do not anticipate any surprising impacts on earnings.

• What is the number of 5G subscribers at this point, and what is the outlook for them? Also, have you received any requests from the Ministry of Internal Affairs and Communications and so forth to lower the pricing on 5G plans?

  Regarding 5G, we have only just started and there are only a few base stations, so I will refrain from presenting numbers at this stage. However, the iPhone is also moving to 5G, and we have strengthened the lineup of Android 5G handsets as well. For SoftBank brand, a large portion of overall sales will likely shift to 5G. We are currently examining pricing plans and other aspects of 5G, and I will be able to talk in more detail about 5G at some point in the future.

• At the presentation just before, Vice President Miyakawa explained that 5G telecommunication network would have 200,000 base stations by 2025, increasing by a further 150,000 by 2030, for a total of 350,000 5G base stations. Of these 350,000 base stations, how many will be repurposed from 4G? Also, how many will be joint base stations built by your joint company with KDDI Corporation, 5G JAPAN Corporation?

  The 350,000 base stations include base stations repurposed from 4G. However, although we will certainly start initially from a non-standalone type using 4G LTE lines, we think it is essential to move to a standalone type in order to spread 5G broadly throughout Japan. In five years, most of the 5G base stations will be 5G standalone type, and in 10 years' time, we expect that standalone base stations will be dominant. Regarding our joint venture with KDDI Corporation, it is currently in the start-up phases, and we are now formulating plans. At this stage I cannot give you any specific figures, but we are working with strong expectations.

• Youhave said you will invest 2.2 trillion yen in 5G and 6G over the next 10 years. When do you expect this capital investment to peak?

  Basically, we will maintain investment at around 400.0 billion yen per year. We will carefully examine the amount of this to be allocated to 5G.

• In the solution business for enterprises, your competitors NTT DOCOMO and KDDI both appear also to have been given a boost by digitalization. What is your strength in this area?

  Our strength is in our ability to provide optimal solutions to enterprise customers by cooperating with leading partner companies around the world. We have deepened our collaboration with various partner companies from the days of our original software distribution business. We have partnerships with leading global companies such as Microsoft, Google,. IBM, and Zoom, while in Japan we are working in the security field through a joint venture with Cybereason. It is our ability to propose total solutions that are not possible for a telecommunication company to provide alone through these relationships that makes us a preferred choice.

• Your progress rate on the full-year forecast for profits is extremely high. Is this because business has been better than you anticipated? Or is it because business itself has been as expected and reflects a reason such as expenses planned for the first half being moved into the second half?

  First, the full-year plan for this fiscal year was formulated in around March and April of this year, when the COVID-19 pandemic was just starting. It was a very uncertain period, with expectations that people would be refraining from going out and that corporate advertising would be slashed. To achieve growth in revenue and profits even under these conditions, we had very serious internal discussions at the time, including cost reduction measures, and announced our plan. However, in fact the impact on business has not emerged as strongly as initially expected. Sales growth feels like it has accelerated. There are still uncertainties in play, and we are therefore continuing to carefully examine the final results forecast for the year. However, we do not have any major concerns regarding business in the second half. Expenses certainly reflect cost reductions in the first half to a degree, and we intend to gradually return sales promotion and marketing expenditures in particular to previous levels in the second half. However, this will not have a major impact on earnings.

• Mobile sales in the Enterprise segment accelerated in the second quarter. Is this due to a temporary factor, or can we expect further growth going forward?

  Mobile business for enterprise has been strong, and we see this as a market where further growth can be expected. The majority of Japanese companies are using feature phones, and demand for a switch to smartphones is forecast to expand amid a wave of corporate digitalization. On the other hand, in terms of profit, the unit price of mobile handsets for corporations is lower than for consumers, and it is therefore important that we do not stop by simply introducing smartphones and tablets to corporations, but also growth the solutions field in the Enterprise segment by adding various services based on these mobile handsets.

• This is the first time that a breakdown of segment income has been presented in the Consumer segment. The operating income for consumer services is particularly large. Which of the services have made the largest contribution, from broadband, sales of goods, electricity, and value-added services, etc.?

  The warranty services and security services within value-added services have made a contribution. On the other hand, the profit margin on electricity is low, and it does not make a large contribution to earnings.

• Regarding your shareholder return policy, on a weighted average over the three years from the current fiscal year to FY2022, you have presented a target of a total shareholder return ratio of around 85% including share buybacks. In August 2020, you also announced a share buyback with an upper limit of 100.0 billion yen. I assume this was a measure to tighten share supply and demand in response to the sale of SoftBank Corp. shares conducted by SoftBank Group Corp. in the same month. Is this 100.0 billion yen share buyback undertaken for a special reason included in the calculation of the total shareholder return ratio of 85%, or is it separate?

  We do not necessarily consider the entire amount of 100.0 billion yen to be included in the total shareholder return ratio calculation. The treasury shares that we acquired through this share buyback will be used to prepare for the exercise of stock options (share acquisition rights), and if the stock options are exercised, then the shares will return to the market. Broadly speaking, when considering shareholder returns, the share buyback of 100.0 billion yen should be considered with the deduction of shares for the exercised stock options.