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Edited Transcript of 9434.T^H05 earnings conference call or presentation 6-Nov-19 2:00am GMT

Q2 2020 SoftBank Corp Earnings Call

Nov 7, 2019 (Thomson StreetEvents) -- Edited Transcript of SoftBank Corp earnings conference call or presentation Wednesday, November 6, 2019 at 2:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Kazuhiko Fujihara

SoftBank Corp. - CFO, Executive VP & Director

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Conference Call Participants

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* Daisaku Masuno

Nomura Securities Co. Ltd., Research Division - Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan

* Hideaki Tanaka

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst

* Jun Tanabe

JP Morgan Chase & Co, Research Division - Analyst

* Mitsunobu Tsuruo

Citigroup Inc, Research Division - VP and Analyst

* Satoru Kikuchi

SMBC Nikko Securities Inc., Research Division - Senior Analyst

* Shinji Moriyuki

SBI Securities Co., Ltd., Research Division - Analyst

* Yoshio Ando

Daiwa Securities Co. Ltd., Research Division - Research Analyst

* Yoshiyuki Kinoshita

BofA Merrill Lynch, Research Division - Research Analyst

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Presentation

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Unidentified Company Representative, [1]

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Ladies and gentlemen, thank you very much for waiting. We would like to start SoftBank Corporation's investor briefing for earning results for the 6 months ended September 30, 2019. We would like to introduce to you the presenters. From your left, SoftBank Corporation Board Director, Executive Vice President and CFO, Mr. Fujihara; Vice President, Head of Strategic Finance Division, Finance Unit, Mr. Hirono; Vice President, Head of Finance and Accounting Division, Mr. Naito.

Today's briefing is streamed live on the Internet. Without further ado, I would like to hand over the microphone to Mr. Fujihara, to talk about the earnings results for 6 months ended September 30, 2019.

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [2]

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Good morning, ladies and gentlemen. Thank you very much for your attendance. It's the third time that we hold this briefing. The first occasion, we said a lot of things. And in May, the -- there was consolidation of Yahoo and in August, there was retrospective adjustment of Yahoo as well as IFRS 16 application, so it was more of explanation of various events.

So this is the fourth time, and I would like to talk more deeply about the business as well as about the company. So I would like to begin. Please turn to Page 3. So this is the same thing as we have shown yesterday. This is the forecast for this year, and revenue progression rate is 49% at JPY 2.3731 billion. And the operating income, the progression rate is 62% at JPY 552 billion and net income, the progression rate is 68% at JPY 327.4 billion. So in the first half, we generate a lot of revenue, and then in the second half, we tend to invest on a lot of projects.

And because last year was right after IPO, we had conducted various initiatives, and we are glad that we were able to go above the first half of last year. So this year's profit and the future growth, we would like to balance those 2 for the second half.

On Page 4, you see the details of revenue. We have talked about this last -- yesterday. In all segments, we have seen increase in the revenue and I would like to go one by one. As for consumer business, as you can see on the right-hand side of this chart, mobile was plus JPY 42.9 billion, which was growth of 5.3%. So the unit price has gone up as well as the number of units. And broadband, it was -- grew by 8.4% so the ratio was higher here in the amount of JPY 14.7 billion.

As for sales of goods, it was negative JPY 10.6 billion, but I would like to explain a bit further on this. We don't disclose this in a focused manner but the -- in terms of the sales because the electronics have could gone up. And so overall, there is more than JPY 30 billion of sales. I will be talking about Enterprise and Yahoo. And at the end, I would like to explain about the distribution business.

On the next page, on Page 5, there is a mention of Enterprise business. Fixed line and mobile, those stayed flat. Business solutions and others have grown significantly. So overall, this was good. Cloud and IoT, security, various items are included in business solutions and all are contributing to the growth. We would like to double the other profit in the Enterprise business.

The Yahoo business, it was already disclosed at the Yahoo's briefing, but it is growing as a growth driver. And in commerce, it is growing. And within commerce, there are various positives.

As for media, we have been able to exceed last year's figures. In SoftBank's Yahoo collaboration, media was one of the first points that we have worked on. So we would like to focus on this and support this business.

Page 6. Operating income. Operating income was JPY 552 billion and it grew by JPY 33.8 billion and EBITDA grew by JPY 104 billion. This was due to a reclassification of IFRS 16. So overall, it was JPY 31.2 billion after adjustment, so the biggest impact came from IFRS.

If you look segment by segment, if you look at the right, consumer business, it grew by JPY 18.1 billion. So our consumer business continued to support the overall business. So the profit increase was not as much as the revenue growth, but the sales is growing steadily. And also the acquisition cost, in terms of that, it was good. So in the enterprises, there was a change in Q2 so I would like to talk about that later on. As for the Yahoo business, it was a negative JPY 2.3 billion, but in the second quarter, it was in the positive.

Please turn to Page 7. There is a deeper explanation about the second quarter. On the left, you see the figure for the second quarter. If you look at the consumer, it grew by JPY 2.6 billion, and the sales is growing very steadily. So far, there are many activities going on in marketing. So because of that, there was accumulation in the cost. The others was -- grew by JPY 18.5 billion.

As we have explained at the bottom, the Cybereason was reclassified. Cybereason wanted to be consolidated too. And it became the equity method company and the loss of control profit was JPY 11.9 billion. So the subsidiary-related items are contributing now.

The -- in the middle is the Enterprise segment. If you look at the second quarter, it decreased in the profit. However, for fiscal year '14, '15 and '16, so there was the allowance for losses on orders received. And last year, there was a reversal by JPY 3.5 billion. It was a onetime profit. So if you look at the business momentum, there was increase of the business by 13.4%. So the profit in the enterprise business is growing very robustly.

Yahoo business, increase in the profit, if you look at it in the bar graph. In the second quarter, it was plus JPY 4 billion, so it was in the positive after a long time. And we have consolidated in June, and so on a consolidated basis, we have retrospectively adjusted it. And so in actuality, we have started the consolidation from the second quarter. So starting out positive was very good. So Yahoo bottomed out, and it has reversed into the positive so we would like to support their activities.

Turning to now Page 8, the reasons for the increase in profit. From the left, I'd like to talk in detail, first about the revenue. Well, as was disclosed earlier, the -- each of the segment has added profit. As for the largest is the distribution although small margin, the sales and profit, you can see JPY 51.8 billion is -- and JPY 53.5 billion minus is cost of goods so because of the cost. The telecom network, we would have to make purchases and that has reduced. I hope you would understand.

As for the costs, it was JPY 15.5 billion minus, but this was related to the commissions and contracts in order to acquire businesses. IFRS 15, we had depreciation of 24 months, but this depreciation is accumulated. Especially fourth quarter and third quarter last year, I think, [where we stand] this year. And ordinary cases, first quarter and second quarter, we had spent a lot. So those are the reasons for the increase here. But I think from November, this turned around so it has peaked out in September and it will reduce further cost.

As for the advertisement, we had added additional costs here. And as for the second is depreciation and amortization. This is because of IFRS 16. And if you exclude that, it is going to be minus JPY 67 billion. Depreciation is a bit an increase now, but for next year, it will increase. But this is going to be a momentum. But because it will have an end-to-end amortization, we will do so. From 2021, the big ones that we had done in the past, depreciation will be over in '21.

As for the outsourced service fees, minus 37 -- it is Cybereason, minus JPY 3.7 billion, excuse me. And this is about JPY 1.5 billion if exclude Cybereason's. And sales is very good. So of course, we are outsourcing various things so I think that is the reason why we have additional here fees. Adding Yahoo here will be JPY 33.8 billion plus.

Next is about KPI. I'd like to talk about the subscribers, main subscribers. As for the main subscribers is 1.61 million; smartphone, 1.94 million. I think it was 1.7 million in the previous quarter so I think the first quarter was good and second quarter as well. Miyauchi said that we want to have 2 million, and then we will be close to 3 million next year. So I think 2 million, we would -- that would be the target that we would be heading for. The growth, I think, will continue for this portion of business.

Smartphone businesses, on the right-hand side, the 3 brands are each increasing their subscribers, and that is a good trend. And the roles that are to be played and the 3 brand uniqueness is going to, I think, drive this growth.

On 10 -- Page 10 is the churn rate. As for churn rate, it is deteriorating: 0.07% in smartphone; 0.04% of the subscribers. Because of the sales liquidity we're increasing, we had a lot of rope pulling. Some of them are leaving, but many of them are coming in. So I think this is balanced. But on the other hand, October, we have improved the churn rate because of the revision in the low-end incentives and because of the consumption tax hike. I think this month is unique, but I've been looking at this from CFO viewpoint from 2006. But I think that was the lowest end.

But on the other hand, we are acquiring small -- that is slowdown. So that is a gap that we see from there, the 2 trends. So in any case, towards the spring sales, we will be having many promotions. In the new competition arena, we would like to do our best effort to reduce this churn rate.

Next is ARPU, Page 11. For ARPU, it is increase of JPY 112 (sic) [JPY 120] because of the smartphones and ARPU has bottomed up and 112 -- JPY 120 surplus, and that is supporting the sales and their profit. That is their important KPI. Overwhelmingly, this is because of discount ARP (sic) [ARPU]. Because of that, the rate had decreased. And while mobile went up and LINE MOBILE went up, it's a mixture of everything. It is all added together, JPY 120. So because of the -- there are 2 things that is looking at discount to ARPU. One is the unbundled plan, so separate handset payment and service fees. We would reduce the discount, but we will have this more. And we had extended 4-year installments from 2 to 4 so it is going to be 4 year. So those 2 -- from 2-year to 2 -- 4 years, 2 years have already passed since this change. I think it has peaked out now, and those are the contributors. So the installment changes will be reduced in the future. So from next quarter, I hope we would be able to show new figures for this.

And turning to 12, about BB broadband service is -- Hikari increased by 61.6 million, is plus 67 million and all of them is 7.76 million. We want to reach this to 7.8 million. And I think for the profit and sales, it is 8% contributor. And 9.84 million is mobile, broadband is 4.61 million. We will be going into 7 million. The broadband is 2.1 million and it is going to be 2.3 million. It was 2.1 million a year ago so it is gradually increasing.

Turning to Page 13. This is net income. As for net income, because of increase of profit, operating profit of JPY 33.8 billion, we were able to contribute by advancing incoming costs. But because of IFRS changes, it is JPY 5.7 billion. So you can see the interest is on the verge of improvement. As for the JPY 15.9 billion minus figure in the b, is because of PayPay. We have WeWork and so forth started, they are making contribution here. But I think PayPay is the reason for the losses here. And I think for the shares equity method holding, there was minus JPY 18.5 billion was income taxes, [but] 1/3 or more or 2/3 or more.

Last year, we were able to use deferred tax of loss carryforwards. But that is not happening this year, but the other things are profit increase. By the way, tax in the first half, we have paid JPY 120 billion in the first half. Sometimes, there are reports that we're not paying taxes, but more than JPY 200 billion, we're paying taxes so I would confirm on this point.

Page 14, CapEx and the free cash flow. Excluding Yahoo, the CapEx, and also excluding IFRS 16, it was JPY 116 billion and the full year target is JPY 380 billion. So it is slow but the plan remains unchanged. As for the adjusted free cash flow, it was around JPY 510 billion last year and this year, it was JPY 331.3 billion, so on track towards the full year forecast of JPY 520 billion.

On Page 15, you see the interest-bearing debt. In the first quarter, there was acquisition of Yahoo and it was increased by JPY 450 billion. And with IFRS 16 and consolidation of Yahoo, it seems that it is going up. But overall, it's JPY 3.76 trillion. EBITDA is increasing due to Yahoo consolidation. And as for net leverage ratio, it's 2.2 multiple so it's improving. And also, there would be JPY 400 billion from the acquisition of ZOZO and also dividend payment. And the payment of the corporate taxes will occur, so we believe that there will be a deterioration from 2.2x, and it would be close to 2.6. But it is in line with what we expect.

Please turn to Page 16. Once again, I would like you to see our policy. At the time of the IPO, as [I put history], we have said that we want to balance growth and shareholder returns, and we have been working on this initiative since then. The EPS is around JPY 100, dividend is JPY 85. So we would like to continue to steadily maintain this policy.

I would like to now -- about group companies. First is number of group companies. There are 186 for subsidiaries, 63 affiliates and 249 of the total of group companies. So this is due to addition of Yahoo. So in fiscal year '15, it was 51, and that was when telecommunication companies were being aggregated. So you can tell from then, there has been growth of number.

So major companies introduction being written here. I hope you would read by yourselves. So I think the importance of our subsidiaries is becoming higher. So going on for 2 pages, those are for your references, the names of the subsidiaries, which I would like to explain more in detail. I've mentioned in the segment about the SB C&S. This is a founding business. This is sales-wise, profit-wise, very favorable, good. This is, every year, making new record high profits and sales. The revenue is JPY 245 billion. So this is -- I think this is half year, so we will be seeing JPY 500 billion for throughout the year.

So we are doing various products and services toward the enterprises. It was JPY 111 billion for the first half with our operating income, so this is going to be a record for the whole year as well. So we would want to grow this business. This company will create synergy with other subsidiaries and would like to grow more and having lots of projects and plans.

Another company that we would like to introduce is the payment service. Payment processing, I think, is now center of focus now. Last year, the trade action transaction was about JPY 3 trillion, close, JPY 2.9 trillion. And I think we are forecasting more than that this year, so maybe in the midst of JPY 3 trillion for this fiscal year. So we are looking forward to this company. And also with the profit in the first half this year was JPY 3.4 billion for this first half. Throughout the year, I think every year, this is making a record high profit. So for this company within the group, it is creating synergy and we expect a lot to this company.

PayPay with Yahoo. So this is going to bear the fruit in the future and then we will be able to grow more. So we are having -- and this is, I think, visible now. That is the reason why I have introduced to you those 2 companies. That was the introduction.

In any case, as was mentioned earlier, as for the second half, we are thinking and planning various things and we would like to go into the question-and-answer session. Thank you very much, indeed.

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Questions and Answers

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Unidentified Company Representative, [1]

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We would like to move on to the question-and-answer session. Those of you with questions, the staff will be bringing you the microphone. Please state your affiliations as well as your name before posing the question. We would like to solicit as many questions from as many people as possible. We would like to limit to 2 questions per person. Please raise your hand if you have questions.

The first row of -- the person sitting in the first row in the right-hand block.

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Daisaku Masuno, Nomura Securities Co. Ltd., Research Division - Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan [2]

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My name is Masuno from Nomura Securities. First, the revenue increase in the mobile and it's grown 4.9%. It's a great growth. So in the second half, it would be the other 6 months contribution. And next year, it will be a 12-month contribution.

And as for sales promotion. The promotion is included in the P&L expenses. So IFRS U.S. GAAP in those -- the handset from sales, this will be deducted? Inclusive of that, in the first half, I think that it would have been more sales promotion. And in the second half, I think there would be a significant decrease. So could you show us the overview of the sales promotion for the first half?

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [3]

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In terms of the contract cost, so that is JPY 15.5 billion so there was an accumulation addition of that. So in terms of the handset, there is slight margin so it will be a multiple with that.

So in terms of the handset upgrade -- and it has decreased. So in terms of the handset, I don't think that it would be much different. In the new acquisition, there is an increase in the units so we -- I needed to put more resources for sales promotion, but there was a decrease in the upgrade. So I don't think that there's much impact.

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Daisaku Masuno, Nomura Securities Co. Ltd., Research Division - Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan [4]

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If that's the case, in the consumer business, if we look solely at second quarter, there's only increase by 1.9% in operating profit. So what were the elements for this?

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [5]

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Last year, in the second quarter? Well, usually, in first and second quarter is we tend to have more revenue and profit. And last year, in second quarter, there was less promotion cost. So this fiscal year, there was an increase in the advertising cost. Inclusive of in-store event, the activities have increased for the second quarter.

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Daisaku Masuno, Nomura Securities Co. Ltd., Research Division - Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan [6]

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The next question, about 5G service, CapEx and the building of the network impact to your performance. So within fiscal year 2021, you said that you would be covering nationwide. So in terms of the coverage, even compared to competitors, I think that you will be having vast coverage. And I was wondering how you would do that and how the CapEx would look like.

In terms of depreciation, you said that it would be -- naturally be decreasing. But I was wondering if there was -- there would be any impact to that scenario. And how would you be able to make coverage of 5G within 2 years? And how much investment would that incur?

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [7]

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JPY 380 billion is the expectation for the CapEx, and the 5G allocation amount will increase. So starting from second half of this year, this will be more prominent. Inclusive of the usage of the spectrums, we need to make preparations. And once the environment is ready, we would like to go with the switch on, and we would like to continue preparation. And once the environment is ready, we would like to expand the coverage drastically.

So in terms of the spectrums, we would like to utilize the new spectrums where it is appropriate. And starting from the latter half of 2020 towards 2021, that would be a turning point for us.

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Daisaku Masuno, Nomura Securities Co. Ltd., Research Division - Head of Information & Telecommunication Team, Japan & Analyst, Telecommunications Research, Japan [8]

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So the CapEx and the depreciation, what kind of impact would we see?

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [9]

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If we go with the pace of JPY 380 billion in CapEx, there was a year when we went over JPY 700 billion. If we consider that this is the peak out, so we believe that the decrease cycle will be stronger for '21, '22 period. So decreasing, meaning -- so we will be going to the phase of decrease in the depreciation. So even with the investment in 5G,

that's correct. It would be in the decreasing phase.

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Unidentified Company Representative, [10]

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Thank you very much. So please raise your hand if you have any questions. Yes, on the right-hand side, very end, yes?

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Hideaki Tanaka, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [11]

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Thank you for the explanation. Mitsubishi UFJ Morgan Stanley, my name is Tanaka. On Page 4 in your slide, consumer sales or revenue, you mentioned that the sales from the handset and the electricity, you have mentioned. Electricity sales revenue, you mean this is throughout JPY 20 billion a year? Can you explain about the electricity sales that you're mentioning here? What -- and the outlook for the future, how can you grow for the future and profitability as well?

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Unidentified Company Representative, [12]

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Yes. The competitors were hit there, and they made their comments so I did not comment more. So compared to the first half, compared to the previous year, this is JPY 20 billion surplus. So reduced handset, increased electricity is minus JPY 10.6 billion. So this is a negative of JPY 30 billion for the handset as a whole.

I mentioned -- I wanted to talk about the handset. So I think electricity sales is contributing by JPY 20 billion.

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Hideaki Tanaka, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [13]

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JPY 20 billion means that what profit?

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Unidentified Company Representative, [14]

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It's not so much although maybe it's about JPY 300 billion or so.

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Hideaki Tanaka, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [15]

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So in the future, how would it grow? And when will be able to achieve profit?

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [16]

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Depends on how we do this business. I cannot be deterministic, but of course, we have a promotional period longer. So I think this increase trend will continue. But this is not a big profit maker. So the consumer market size as a whole, this is not going to be a big business. We're not expecting much but it will contribute to surplus.

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Hideaki Tanaka, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [17]

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And second question is on Page 7 of the slide. You mentioned about -- no, others it says here -- other segments, it was increasing in revenue. You mentioned Cybereason. Excluding that, you have an increase in the revenue. What are the companies in others that is contributing here? So like payment services is included in this other. So in others, what are the business and companies that is growing? Can you comment on this?

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Unidentified Company Representative, [18]

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Yes. There are so many companies that we had acquired. So payment service that I've mentioned to (inaudible) and (inaudible) and technology companies and cloud companies. So gradually it's accumulating. We have so many companies and businesses. So if you add them all up, it is a contributor.

This time, I haven't mentioned earlier but PayPay, last year, is not in consolidated this year. So I think for the past, it is included, but I think is excluded. So others is the accumulation of excluding that.

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Unidentified Company Representative, [19]

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Thank you very much, indeed. Next question, please, on the left block, on the first row.

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Satoru Kikuchi, SMBC Nikko Securities Inc., Research Division - Senior Analyst [20]

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SMBC Nikko, my name is Kikuchi. There are 2 questions I would like to ask you. The first question, next fiscal year, the profit growth is not really foreseeable so that's why the stock prices are hovering low.

And I would like to check the elements for the driver of growth for next fiscal year. The telecommunications revenue is growing steadily, but I would like to know what kind of impact, of discount would give for next fiscal year.

Another point, the subsidiaries for telecommunications, we are able to make forecast for that. But as for the other subsidiaries and equity method companies, we don't have clear visibility. So I would like to know about -- what the driver of growth would be for next fiscal year.

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [21]

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Overall, for enterprise business, we would like to robustly grow. As for broadband, we believe that there is opportunity for steady growth.

As for individual mobile business, I think we can expect a certain contribution. So we believe that it would contribute to the profit.

As for Yahoo, we would have ZOZO on board, and we would like to have high expectation for Yahoo. For other subsidiaries for distribution and the payment services, they are growing on a record level each year. So if we aggregate everything, as we have seen this time, it's in several billions of yen. So when we look at the aggregation of our subsidiaries, they would have a good contribution so we would like to support their growth for next fiscal year.

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Satoru Kikuchi, SMBC Nikko Securities Inc., Research Division - Senior Analyst [22]

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So if all grows, I would think that it will have a significant performance. But I would like to have more specific information. What would be the specific figures of growth for these companies?

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [23]

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Compared with consumer, the size is smaller for these companies. So even if it grows 10%, it will be quite small. So overall, the figure will not be so big. But we would like to accumulate the numbers by getting them profitable. In this fiscal year, they were doing very good. So we're taking various initiatives towards next fiscal year. We believe that it's important to discuss about how we build the profit for next fiscal year.

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Satoru Kikuchi, SMBC Nikko Securities Inc., Research Division - Senior Analyst [24]

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Another follow-up question that I would like to ask you. So as for the mobile telecommunication revenue trend, could you elaborate on the directionality of the mobile communications revenue?

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [25]

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As for the acquisition, the environment will be changing. So we cannot go with only optimistic scenario. As for ARPU, it would be declining. So for mobile revenue, it may be more severe than this fiscal year. However, on the other hand, in terms of expenses, it would be better than the situation this fiscal year so we will see tailwind blowing for us.

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Satoru Kikuchi, SMBC Nikko Securities Inc., Research Division - Senior Analyst [26]

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I would like to ask the second question. You conducted share buyback in a small amount. And is there any trigger that you specifically have for conducting share buyback? And towards that trigger, how is the situation now?

In addition to that question, even though we don't have a clear visibility to the situation now, but even if the profit goes downward, you would be paying the dividend as you have committed? And when there is the uplifting factor for the other profit, you said that you would be thinking about that then. But how is the situation now?

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [27]

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In terms of the share buyback due to the impact from the past dividends, we have high ROE and the equity ratio, we have been impacted by the accounting method and it has gone down. So the dividend is high. So share buyback will be an exceptional method at this point in time. The reason why we conducted our share buyback was for having a stock option program. We will be issuing the stock option to all of the company employees, and we are making preparation for that.

So next fiscal year, there would be a continuation of the impact, but the size will not be as big.

In terms of the dividend, we would like to eye on stable dividend, the profit standard and also the profit quality. We have to think of many factors. So it's too early to make clear comment on that. But what I can clearly say is that dividend of JPY 85 is committed and we will pay that. So the rest, it's wait and see.

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Unidentified Company Representative, [28]

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Thank you very much. Next person, the second row, the third block, gentleman.

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Yoshiyuki Kinoshita, BofA Merrill Lynch, Research Division - Research Analyst [29]

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My name is Kinoshita from Merrill Lynch. I have 2 questions. One, in the first half, Mr. Masuno had also questioned earlier. From your answer, I assume that in the first half, you had directly discounted handsets and deducted from the sales. And this is close to markup from an accounting viewpoint. In the first half compared to last year, this has not changed, I believe. The cost or commission you had spent, I guess, that's the image that I have. That's my interpretation. Is this all right, is this interpretation correct?

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [30]

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In the first half, yes, yes, that is the case.

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Yoshiyuki Kinoshita, BofA Merrill Lynch, Research Division - Research Analyst [31]

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And another question I have in regards to this is the judgment that you made here. By directly deducting from the revenue means -- is that a cost, but regarded as a cost for that period of time? But on the other hand, if we regard that as commission that you have to think about clearing, I think that is going to be forwarded. So I think this is going to be minus -- negative impact in the latter period. How do you just make this judgment?

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [32]

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Well, we don't want to have volatility here. So we want to have a stable policy here. It is not a special thing that we're thinking about. Of course, there are something that we -- but that's exceptional.

So starting from October, so the amount that we were able to use had a limit, so I think this will be reduced. And the handset prices is going to be in a phase where we need to compare with others.

As you had mentioned, what you had mentioned, the focus of that point is going to be reduced.

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Yoshiyuki Kinoshita, BofA Merrill Lynch, Research Division - Research Analyst [33]

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And the second question, second half. I think support that is advantageous for only your company, very unique. You have some conditions but basically, other than a SoftBank user, you're going to provide that support.

In addition to that, so to speak JPY 20,000 discount -- minus discount is going to be provided. So for this, are you going to use fully this framework? So at this current stage, can you comment on this? What is your position here?

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [34]

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Currently, we have not yet decided anything, but that's one option as a strategy. Yes, we made it a 4-year installment or else the users, I think, will be suffering. Some would have to pay JPY 5,000 per month if it's 2 years. So we had extended to 4 years, and that's a very user-friendly program. And -- but we want -- I think there are some users that want to change to the new handset but handset is valuable. So we want them to fully utilize this value. So this is JPY 310, JPY 390 each that is going to be a deposit. And utilizing this, they can change the handsets if they want to change it earlier to a new one.

So user claims or user satisfaction, I think, are very good. The system changes, I think we have to synchronize it well. So for the program, what to be in the future for best for us, we want to focus and be careful about this. So we're thinking various things. We want to combine various measures in this new system. We want to develop the system. Thank you very much.

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Unidentified Company Representative, [35]

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Thank you very much. We would like to go to the next question in the front block, the third row from the front.

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Jun Tanabe, JP Morgan Chase & Co, Research Division - Analyst [36]

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JPMorgan, my name is Tanabe. There are 2 questions. First is ARPU. You explained about this, but I would like to follow up on what you have said. The comprehensive -- the total ARPU, the growth reduction, can you explain it just with the mix?

In all of the brands, is it -- are you still in the growth phase?

As for the discount ARPU, you said that you would see decline. So as a net growth of JPY 120 year-on-year, will that be slowing down going forward?

Incidental to that question, so you talked about earlier that there was upgrading from Y!mobile to SoftBank. And I was wondering how it was now. I think that the change in the mix may be impacting this. So if you could elaborate on this, I would appreciate it.

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Unidentified Company Representative, [37]

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As for SoftBank, there's not much change. Y!mobile brand, not much change either. So rather than the individual brand movement, there is more impact from the mix.

As for a monthly discount, as I have said, there would be slowing down. Even though it's growing, the growth will be slowing down. This is natural structurally.

In terms of the relation with SoftBank, in the spring, there was a lot of upgrade from Y!mobile. But it seems that there is a stronger trend from moving from SoftBank to Yahoo mobile -- Y!mobile.

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Jun Tanabe, JP Morgan Chase & Co, Research Division - Analyst [38]

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I will ask my second question. So enterprise, the business solutions. It is strongly growing, but I think that this includes hardware sales, so there may be last-minute purchasing right before the consumption tax hike. So maybe there is a temporary increase. So did you see this temporary increase? So towards second half, what is the kind of trend that you expect?

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [39]

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As for the distribution, there was a switching from the -- in windows and also consumption tax hike. So first half, we have seen stronger-than-usual growth.

And second half for the distribution, it would not be as much as the first half, but we would like to focus on our growth for second half also. As for enterprise, there is not much impact from the sales of goods, so I don't think that we should care too much about that.

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Unidentified Company Representative, [40]

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Thank you very much. Yes, the second row, on the very right-hand block, yes?

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Shinji Moriyuki, SBI Securities Co., Ltd., Research Division - Analyst [41]

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My name is Moriyuki from SBI. Y!mobile and SoftBank, double branding, I think in the storefront, you had seen integration of the stores. In the future, what are the things that could be expected if they were bundled or combined? What would be the expectation that we can think of? You mentioned that there will be less shift. But within the store, maybe upgrade shifting may occur amongst the brand. How about the cost reduction? What are the things that we can expect?

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [42]

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Well, SB -- we should not think about just SBs. Like SB customers, when they go upside, where do they go? When thinking about price, Y!mobile could be their first choice. So I think we can block a customer going out of this SB Group. So I think we can stop the outflow of the business. I think similar the case, the vice versa from Y!mobile, if a customer want to upgrade, of course, there are other MNOs as a choice but I think they are likely to choose SB. So I think it is not in between the 2. But if it's in the same store, then we can protect customer going outside of the store.

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Shinji Moriyuki, SBI Securities Co., Ltd., Research Division - Analyst [43]

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And so far, SoftBank, you would introduce Y!mobile, then I think the customer who are going outside, that means you can deter customer going outside?

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [44]

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Yes. If you have the same store selling 2 different brands, if you want to upgrade, I think the shopper people can recommend SB and so forth. So I think we have 2 brands now, and we do -- can provide 2 different brands to the customer. So I think we can fully utilize this.

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Shinji Moriyuki, SBI Securities Co., Ltd., Research Division - Analyst [45]

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So deter and cost reduction, can you provide us some quantitative figures?

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [46]

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Well, Y!mobile itself, when network around Japan and welcome access started with this business. So with less than 1,000 stores around Japan. But if we have more of a dual shop, then we have more than 2,000 stores. So in that sense, I think we have more opportunity to meet with our customers. And with the store, they are having in same location. I think this is good effectively -- efficiency. And so I think this can provide various surpluses.

Of course, we do have to care or else, we will be seeing some problems as well. So the brand management, together with the sales, we are enhancing. And I think currently, we are doing a good job in this area.

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Shinji Moriyuki, SBI Securities Co., Ltd., Research Division - Analyst [47]

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And in addition to that, I think we want to confirm one point that was raised earlier. You had mentioned that ARPU-wise, because of the mix, it is going down, the -- each brand, you mentioned that has not changed different brands. But I think there are more users using. What is the situation of you saying, "staying with us?"

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [48]

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Well, we have various discount, SB, for example, family discount. There are many users using this family discount. But on the other hand, in case of SB, 5 50 giga ultra plus, people are shifting to this. So 50 giga, that is surplus. Those who are leaving than those users demanding for less capacity so we have more discount, more capacity users. And this is a phase where we have a different movement.

So each of the brands, we are taking responsibility fully. And I think they have been operated well. That's what I view.

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Unidentified Company Representative, [49]

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So due to restraint in time, we would like to take questions from 2 last people. So please raise your hand. In the left block, on the front row, please?

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Mitsunobu Tsuruo, Citigroup Inc, Research Division - VP and Analyst [50]

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My name is Tsuruo, and I would like to ask about PayPay. So you have maintained the forecast for PayPay. And I was wondering how you view PayPay going forward in terms of loss and profit. As it was explained yesterday, there is a strong momentum for PayPay. So going forward, so promotion, the profit and losses, how would you be viewing this going forward? That's my first question.

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [51]

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PayPay is now growing steadily. It's in the phase of growth. So even if we conduct the same initiative, the size tends to be bigger. So the expenditure is bigger. Because it's growing, there is a discussion that it -- we should help it grow. So the users and the number of stores are growing, and the salespeople are working with the other stores who would like to utilize PayPay newly. So we are putting in a lot of cost, and we would like -- PayPay is utilizing the government initiative up until June, so it has been a good tailwind for us. And we would like to work on this fully. I hope that we can go in line with the guidance.

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Mitsunobu Tsuruo, Citigroup Inc, Research Division - VP and Analyst [52]

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Would you not be talking about the P&L numbers?

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [53]

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At this point, it's too early to talk about the specific figures. In terms of the upfront investment, it will be spent -- PayPay will be spending tens of billions.

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Mitsunobu Tsuruo, Citigroup Inc, Research Division - VP and Analyst [54]

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Next, I would like to ask about Yahoo. So there is Yahoo service promotion department established. So in what kind of time line would Yahoo be contributing to the profit? So where is the area where you're focusing on? So we are creating the model so we would like to know what you envision.

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [55]

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The impact for this fiscal year will be very limited, but there are a lot of best practices coming out. So this -- our enterprise sales department have a lot of contact points with companies. So this can be passed on to Yahoo, and Yahoo would be able to provide more specific proposals to the companies. So we will not be able to do that overnight. So starting from next fiscal year, we hope that this initiative will contribute to the positive impact for our business.

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Unidentified Company Representative, [56]

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Thank you very much. So this is going to be the last question. The gentleman, third row in the right block?

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Yoshio Ando, Daiwa Securities Co. Ltd., Research Division - Research Analyst [57]

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My name is Ando of Daiwa. After October, the new method of sales, can you just summarize on what was it all like? Acquisition and churn rate and you had a net increase, what was the October figure?

And also in the future, in order to grow as a bottom line, yes, maybe not top line, but for the bottom line, is this going to be a growth factor? Or is it going to be a negative growth factor? Can you elaborate?

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [58]

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Yes. Well, as for acquisition, it is declining and churn rate is declining. That is a definite trend, SB for brand definitely. SB brand, in September, yes, we had demand -- Russian demand before the tax hike. So I think SB has been influenced a lot, but we do have 2 brands. So for 2 brands, it is well balanced.

Y!mobile, on the other hand, it is less affected by that Russian demand in September. But expectation is that we want to have more Y!mobile. But as overall mobile, I think SB's doing a good job. Maybe change -- so October, we had consumption tax hike. And so far, it's very unique month.

But for the coming years, I think the industry, as a whole, is competing on equal footing. So in that, we would have to find a way to win this competition.

In this change, for example, we are not paying the violation fee or cancellation fee. So we're not asking them, the users to pay that and so forth. So in this sense, this is a chance driver for growth, we thought. That's what we told to our sales personnel. So we want to make it more specific. And for example, PayPay, Yahoo, inclusive, those businesses are growing.

SoftBank, how we can differentiate from others, we need to think more. So from now on, it is not going to be a simple mobile competition. We may be having a different access to compete with other companies.

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Yoshio Ando, Daiwa Securities Co. Ltd., Research Division - Research Analyst [59]

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And the second question, you mentioned about PayPay. In the new business field, as a whole, you mentioned -- well, you have not touched upon today for the new business area. Miyauchi-san, I understand that he is active in going in various fields. But from the financial aspect, in the past 3 months in the new field, what is the development as for the mid- and long-term viewpoint for the -- what would be the subsidiaries and equity method companies? So what do you see? And summarize them for the past 3 months.

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Kazuhiko Fujihara, SoftBank Corp. - CFO, Executive VP & Director [60]

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So basically speaking, dividend, we will be paying. And the CapEx, they're doing. The cash management is very important for investment. This JPY 50 billion or JPY 70 billion a year, that is the investment budget that we have annually. And we need to prioritize and we are providing that to the different businesses in that investment and new business area we're doing under that policy or strategy. WeWork and PayPay, we may say the same thing. But we are seeing a winning road, and we're going through that.

It is not that we're going after everything. In case of WeWork, we are disciplined doing the business in Japan. And for PayPay, we have our own scenario. And based on that, we, along the way, each individual businesses, we've been taking care. DiDi and OYO is from now on. So each year, we want to grow the business.

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Unidentified Company Representative, [61]

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Thank you very much. Now we would like to conclude the SoftBank Corporation's investor briefing for earnings results for the 6 months ended September 30, 2019. The investor briefing video will be streamed on demand on our website. Thank you very much for coming to today's investor briefing for the second quarter.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]