SoftBank Corp.
Q4 2022 Earnings Call Transcript

Published: 12 May 2022

[Operator:]

Thank you very much for waiting. We will now begin SoftBank's Investor Briefing for the Fiscal Year Ending March 31, 2022. We would like to begin by introducing today's attendees

[Kazuhiko Fujihara:]

This is Fujihara. Thank you very much for participating in this presentation. We've just completed the earnings result of – earnings results. And we would like to explain – I would like to explain a little bit further on that. Here is the executive summary. I would like you to follow. First, fiscal year 2021, I would like to explain. And following that, we would like to talk about fiscal year 2022 forecast. And third, we would like to talk about fiscal year 2023 and beyond. Let me deep dive. First, consolidated results. Here is the summary. We were able to increase revenue and income both in the fourth consecutive years. As you can see on the very right side, it's the year-on-year achievement against the forecast. We are able to achieve the target. This is the revenue the breakdown as follows

[Operator:]

[Operator Instructions] The first from Daiwa Securities. Mr. Ando, please unmute and ask your questions.

[Yoshio Ando:]

This is Ando. Can you hear me?

[Kazuhiko Fujihara:]

Yes.

[Yoshio Ando:]

I have two questions. One is about consumer, consumer’s income forecast. So as you explained, but I’d like to have a different angle questions. So a 3% decrease in income. And you said a 25% decrease in income this year, which is impacted by the mobile service price reduction, which I understand partly. However, from the previous year result and this fiscal year’s result, why the results look differently? Can you elaborate on that, please?

[Kazuhiko Fujihara:]

I will go one by one, and one is about acquisition costs. As for fiscal year 2021, we were active in acquisition – active. And so therefore, 2021 we had increase in cost. However, due to the COVID situation, acquisition cost was lower. And in that time, depreciation was lower and which has been accrued. And what’s used was accrued in the following the year, which is the ordinary case. Therefore, for fiscal year 2021, there was the benefit of this accrued. That’s why fiscal year 2021 did not have much impact. However, if we say that we spend almost the same amount for the acquisition cost, we are going to see the full year impact for the acquisition costs due to the accrued from the previous fiscal year, and we are getting on top. And for fiscal year 2021 compared to fiscal year 2020, and that time, we were not able to acquire handsets – the income from handsets. But in fiscal year 2021, for handset income, we were able to get some merits. So from 2021 to 2022, we were able to maintain the speed. So we were – so this ¥60 billion is still noncash. As for the impact of the price reduction, yes, it has increased. So as for 2021, against the demand of the electricity, supply was less. So there was a loss-making, that’s why it was negative. But this year, we successfully managed and – due to the market situation. So therefore, a couple of double-digit billion yen, we have some merit. And we are going to have some benefit of ¥15 billion. So last year, we tried to cover with other costs and – but this year, we had to admit some negative – negative results.

[Yoshio Ando:]

So regarding 3G, is there any impact of 3G? And are you – are you having any accelerating factor for that?

[Kazuhiko Fujihara:]

Well, as for 3G, we are not expecting much about 3G. However, there will be some plus and minus position towards 3G, but we should be able to deal with the 3G situation.

[Yoshio Ando:]

And my second question is about the income from mobile and your forecast for subscribers. As for subscribers from the latter half of the previous fiscal year, it increased. Are you expecting the increase this year as well? Or do you have any guidance on that?

[Kazuhiko Fujihara:]

Yes. For net additions, of course, we need to pay attention to the same level this year. We are not optimistic too much. However, we have regained our confidence. So increasing the number of smartphone subscribers is a core driver for our business growth as SoftBank Corporation. So therefore, we would like to further reinforce this.

[Yoshio Ando:]

So assuming that you’re expecting the significant growth in subscribers, which is estimated in this number?

[Kazuhiko Fujihara:]

Yes, largely.

[Yoshio Ando:]

Thank you so much.

[Operator:]

Next, Mr. Masuno from Nomura Securities. Please unmute.

[Daisaku Masuno:]

Hello, this is Masuno from Nomura Securities. One question. First question about understanding ARPU. So among the minus ¥ 220 million in FY 2021, the service price reduction is ¥170, I think that’s what it says. So FY 2021 is minus ¥170, among – what is the amount and the impact of mobile service price reduction? We always see price reduction. That’s how you express it. But that’s because there’s a lot of things, items that are migrated to Y!mobile. That’s not really a price reduction. So maybe there’s a true sense of tariff reduction and also the differences changes in brand mix. So would you be able to really give us a breakdown on that, of the ¥170.

[Kazuhiko Fujihara:]

So when you say service price reduction, I think in reality, it’s different, the nature is different. I apologize, I think the way we express it is inappropriate so – which is the impact of the prices. So brand migration is actually, in reality, more like an upgrade, but it does have a significant management impact. And this is all affected by the series of events. So, we take this as an impact on our management. Among the impact, the majority is migration, brand switch. I think that’s how you can understand that.

[Daisaku Masuno:]

So how much is it among ¥270 billion?

[Kazuhiko Fujihara:]

So, we can assume a certain number of subscribers and then you can divide it by ¥90 billion. So you should probably get like ¥170 billion, ¥190 billion and or so. So that’s the situation. And this year, the benefit of half price discount is reflected. But next year, it will not be. So, I think you expected ¥270 level in terms of total ARPU year-on-year. Q4, ¥280 billion. I think if we give you this number, you will be able to see what this ¥280 billion means. So Q4 this year, FY 2021 is minus ¥280 billion. But next year, we’re looking on an average in minus ¥270 billion. I think you can get a message from that.

[Daisaku Masuno:]

And secondly, about – the impact on the 30-year profit and losses as a result of sales expenses. In Q3, you do not give such a stringent tone on it. But in the President’s presentation earlier, you said – decided that you will actually book a large amount of sales-related expenses. That’s because you have done a lot of sales promotions. In January margin, you have decided that and you decided that you will continue to do sales and promotions. Is that why there’s such a large impact?

[Kazuhiko Fujihara:]

Well, it wasn’t necessarily January, March period. However, we want to track – go after net additions. So, we are planning to spend substantial amount of acquisition costs. But in the previous quarter, with regards to PayPay, we were not able to give you details. And even today, there’s points which we are not able to speak with certainty. So, I think maybe the tone was slightly different in that sense. But it’s not that there’s been a sudden change.

[Daisaku Masuno:]

I see. However, but if you look at full year March 2023, you have decided that you will do significant sales promotion. Is this something that you had decided six months?

[Kazuhiko Fujihara:]

Yes. In the first half when we struggled, we discussed what we need to do in the future. So we need to really leverage on the sales capabilities of SoftBank, and we should – that we need to really be our consensus, whether we need to focus on net additions. So that's sort of the process that we went through, which was explained by Mr. Miyakawa. And we thought that there will be substantial amount of expenses, but in light of this COVID situation, starting to calm down and we’re starting to recover, we have been able to really exercise our sales capabilities. And I think this is now being able to reflect more in the numbers, and I think the reality is that we're able to speak more in terms of solid numbers.

[Daisaku Masuno:]

Thank you very much.

[Operator:]

Next from Citigroup Securities, Mr. Tsuruo, please unmute and ask your questions.

[Mitsunobu Tsuruo:]

I am muted. Thank you so much for this opportunity to ask a question. My first question is the CapEx investment for the midterm. So I would like to confirm once again. So I understand that this fiscal year increase ¥430 billion, but the current base –the number of base station and the future number of base station can I have the number? And I understand that you’re expanding the coverage, but what about the investment for a standalone and death can be covered by this ¥430 billion. This is my first question.

[Kazuhiko Fujihara:]

Yes. Now we have covered 90%. So the number of base station is not clear as far as I understand yet, but we will like to achieve that as for standalone. Yes, amongst ¥330 billion, we are able to manage it and which is included.

[Mitsunobu Tsuruo:]

Okay. Thank you so much. And my second question is about dividend and many carriers are aiming to increase the dividends. And they’re trying to actually achieve the increasing the dividends. So your company is not going to increase the dividend this time. Maybe you’re not motivated to do so, or there is some reasons behind. So I would like to hear what your plan for that. And you have no plan to increase the shareholders’ equity this time. So please explain what you think?

[Kazuhiko Fujihara:]

Yes. Regarding we were able to provide dividend by 80% or so. And I think our number is second highest next to Toyota. We would like you to understand that we are proactive in the providing dividend. We are proactive in providing dividend. I appreciate your understanding. As for increasing the number of buyback of 85% over three years is I think our standard is higher than the others. So therefore we would like to maintain this. And moving forward, yes, we understand your expectations. So we are determined to further discuss, and we would like to have a proactive communication around that.

[Mitsunobu Tsuruo:]

Thank you so much.

[Operator:]

Okumura Yusuke from Okasan Securities. Please unmute. Okumura from Okasan Securities.

[Okumura Yusuke:]

Can you hear me?

[Kazuhiko Fujihara:]

Yes. We can hear you.

[Okumura Yusuke:]

I have two questions. First question, just a clarification. If you look at the segment income forecast, you’re planning to increase by 150 billion year-on-year in Yahoo! and LINE segment. In QA, in first session, you say PayPay consolidation impact is little or minimal. I don’t know this maybe for the holdings EBITDA basis, they are planning to increase. So I’m assuming that PayPay consolidation was significant – made a significant contribution. Is this difference in understanding?

[Kazuhiko Fujihara:]

I apologize. We need to make a correction. It’s a significant contribution.

[Okumura Yusuke:]

Yes. Thank you. Then the second question about PayPay. I'm looking at take rate. The year before, because of accounting treatment changes, I think there was maybe 1% or so. But if you look at PayPay potential going forward, you talk about first layer – second layer and third layer, if you want to monetize that. What is the take rate improvement you're looking at on a GMV basis? What is your guidance on that or target? And along with that, in order to break even in the future, what is the GMV target you have in mind? If you're able to share, please share. Thank you. That's all from me.

[Kazuhiko Fujihara:]

With regards to specific take rate, unless PayPay makes a specific disclosure, we're not able to make a specific comment. But 1% is not satisfactory; we're looking at 2% or 3% increase. I mean, as we continue to expand our services, we need to keep that in mind. So potential is quite significant, and they have many things that they need to challenge on, an initiative that they need to endeavor on. With regards to breaking even, at this point in time, in terms of – if you step on a brake on customer acquisition, they have room to design breakeven. I think that's the far they have come, but they want to continue to build customer base, furthermore. So if they can do that, they will be able to naturally breakeven. So when I say naturally, even if they spend acquisition costs, they can break even, and that will be in horizon. So we need to make – that's what they are trying to do right now and they're trying to build a company size. And the blueprint is becoming very clear. So with additional services and the proxy's they make, we will be able to update you. And I'm sure PayPay will continue to communicate different information to you. But as a parent company or as a shareholder, I am not able to make a unilateral comment about PayPay, so I hope you will accept that.

[Okumura Yusuke:]

Well, thank you very much for your through explanation. I appreciate it.

[Operator:]

Thank you very much. Next, BofA Securities.

[Yoshiyuki Kinoshita:]

This is Kinoshita. Can you hear me?

[Kazuhiko Fujihara:]

Yes.

[Yoshiyuki Kinoshita:]

I have two questions. One is – you mentioned about 85% over three years. In terms of buyback it may include incentives for your employees and management. This is also considered – or it's not included in terms of buyback. And – so how much would be – how much would be the return ratio?

[Kazuhiko Fujihara:]

Well 85% is times in over three years and ¥8 billion. So that will be subtracted from the ¥400 billion. So this time, I mentioned 85%, so which includes ¥80 billion or close to that. So we would like to have the – we would like to communicate having depreciation in mind either we depreciate or maintain and which contributes to IFRS.

[Yoshiyuki Kinoshita:]

So just to confirm, once again, at this time, ¥100 billion is considered to be return?

[Kazuhiko Fujihara:]

Yes, that we considered that.

[Yoshiyuki Kinoshita:]

Thank you so much. The next question is about income. So this time, onetime income due to the PayPay. So PayPay is onetime income, including like Yahoo! and LINE. So even though there is a Yahoo! increase in income, but PayPay is minus. So purely, there is no onetime income factor. But you are – I'm sure you said that you're planning to recover in the next fiscal year. Or you might think that it will take even a little more than that to recover.

[Kazuhiko Fujihara:]

[Foreign Language] As soon as possible is what I can say here over some years is what we expect for recovery. [Foreign Language] In the earnings results presentation earlier, fiscal year 2023 will be difficult to realize. [Foreign Language]

[Operator:]

Thank you. Next is Mr. Moriyuki from SBI Securities. Please unmute.

[Shinji Moriyuki:]

This is Moriyuki from SBI Securities. Can you hear me?

[Kazuhiko Fujihara:]

Yes, we can hear you.

[Shinji Moriyuki:]

So I have two questions. I want to confirm about us revenue. So you said it will be minus 60. And I can see that there will be deferral of about 40. But 20 is cost of increased device sales. Would this be reflected in net additions, or is this increase in unit price in order to promote upgrades? Or – if number of devices increase, it seems like you would have an item for device sales, but you do not have that. So could you be able to explain that?

[Kazuhiko Fujihara:]

Well, FY 2021 was too good. So it will be normalize. So there will be a slight decrease. So that's our sort of overall view.

[Shinji Moriyuki:]

I see. Also related to the earlier question, so you said it's difficult to recover next year. So ¥1 trillion that you have achieved at one point, it's actually – you will have a step back and it will be below ¥1 trillion next year. Is that the right image?

[Kazuhiko Fujihara:]

Well, the base line thinking will be just that that will be correct. But because we have set ¥1 trillion as a target make sure we will achieve that. And we – one of the reasons why we're concerned about cash of ¥600 billion is in order to realize next growth. It's also an element of buying time. So we will do what we need to do and lead that to next growth. And during that time, we need to make sure we will generate cash and respond to the expectations and meet our target. So that's a show of our intention or will.

[Shinji Moriyuki:]

So with regards to PayPay, which you were incorporating this fiscal year, how are you incorporating in that? In terms of, I think, valuation, it's quite conservative. So can we see a lot of upside, or is it a possibility that it might not be realized this year? Maybe is that why you're conservative?

[Kazuhiko Fujihara:]

Well, with regards to amount and we have said more than because there's – it's subject to a market situation. But one thing I want to make is that we have invested in PayPay, and PayPay has been losing money. So our book value is nearly zero, very close to zero. But if it is evaluated, there's no – appropriately, then there's no doubt that it will be positive

[Shinji Moriyuki:]

Okay, well I understand. Thank you.

[Operator:]

Thank you very much. We would like to conclude the Q&A session. We would like to conclude SoftBank's investor briefing for the fiscal year ending March 31, 2022.