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SOFTBANK GROUP CORP.

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SoftBank : Q&A at Earnings Results Briefing for FY2020

05/19/2021 | 04:48am EDT
Q&A at Earnings Results Briefing for FY2020

Date Tuesday, May 11, 2021 4:00 pm - 5:30 pm
Speakers SoftBank Corp.:
Junichi Miyakawa (President & CEO)
Jun Shimba (Representative Director & COO)
Yasuyuki Imai (Representative Director & COO)
Kazuhiko Fujihara (Board Director, Executive Vice President & CFO)
  • You emphasized the importance of speed in new businesses. In which specific sectors and fields do you intend to start up new businesses?

    First, we will focus on the enhancement of PayPay, the smartphone payment service. We intend to accelerate the development of the business assets we currently hold in areas such as banking and securities. We will also strive to expand our business model, already established to a certain extent in Japan, to Asia. For example, LINE Corporation ('LINE') recently joined the SoftBank group (SoftBank Corp. and its subsidiaries, 'the Group'). In Asian countries where LINE holds existing business, we aspire to develop business together with LINE and collaborate with local telecommunications carriers, enterprises and other partners that have strong sales capabilities, while leveraging LINE's knowledge. Over the medium and long terms, we would also like to play a role in the field of autonomous driving. We look forward to presenting our initiatives once we finalize the specific details.

  • With regard to carbon neutrality, I believe that the information and communications industry consumes massive amounts of electricity at its base stations and data centers. Could you once again explain the significance of your goal to 'achieve virtually zero greenhouse gas emissions by 2030'?

    In the course of making this Carbon Neutral Declaration, we held extensive discussions internally. As a result, we decided to declare 2030 as the target year and make a strong commitment to accomplishing the target. We would like to achieve the target ahead of schedule if that is possible. I believe power consumption can be held down as technology evolves. By harnessing technology, we would like to pursue priorities such as streamlining the power consumption of base stations and data centers and deploying energy-efficient hardware for the relay connecting base stations and data centers.

  • Could you provide a breakdown of the factors that cause ¥100.0 billion negative impact for operating income in the FY2021 forecast?

    Roughly speaking, around ¥70.0 billion annual impact from mobile service price reduction, and the remaining ¥30.0 billion is from factors such as amortization of intangible assets associated with LINE business integration. We believe that we can cover the impact of these negative impacts with profit increases from other business segments. We believe that the negative impacts can be offset on a consolidated basis.

  • Last month, it was announced that President & CEO Miyakawa borrowed ¥20.0 billion from SoftBank Corp. to acquire the Company's own shares. I don't think such a measure is very common. What was the objective?

    The purchases commenced on April 2 and ended on April 23. Nearly 14 million shares were acquired at an average acquisition price per share of approximately ¥1,435. From a short-term perspective, if the stock price goes down, I (President & CEO Miyakawa) will feel some financial pain. However, when assuming the post of President & CEO, I knew I needed to accept the post with the determination to persevere for 10 years. Over the span of 10 years, I'm fully confident in my ability to grow this company, despite some ups and downs along the way. Personally, I am not overly concerned about the risk of ¥20.0 billion.

  • How much of the ¥70.0 billion impact of mobile service price reduction impact of in FY2021 is from LINEMO, a new online-exclusive brand that was launched in March? More than one month has passed since its launch. What is the initial performance of the new plan?

    It is true that some users of the SoftBank and Y!mobile brands have switched to the LINEMO brand. Since this trend will push down the price per user, it is a factor that could worsen revenue. However, we had already expected a certain amount of users to switch to LINEMO from the beginning, and the actual numbers have stayed within the range we had anticipated.

  • When do you aim to achieve the monetization of PayPay Corporation ('PayPay')?

    Sometime in the future, we will start charging merchants a commission fee for the use of PayPay. It is still not the right time to announce when that will happen. However, we definitely intend to charge merchants a commission fee. In the future, we would like PayPay to stand on its own as an independent business. Monetization is imperative to achieving this goal. These developments could happen in the not-so-distant future.

  • Why did you decide to enhance your disclosure at this time? Could you please tell us the current fair stock price and market capitalization, and the target stock price and market capitalization in the near future, if such data is available?

    Personally, SoftBank currently seems somewhat undervalued to me, so I decided to provide more specific individual disclosure. SoftBank originally achieved growth as a telecommunications carrier, so it is still seen by many people as a telecommunications carrier. However, its business portfolio contains businesses with different business models than telecommunications carriers, and they have grown into solid businesses. Based on this, I decided to clearly disclose individual business including non-telecom business. When it is growing, we show it is growing. When it has hard time, we show it is having a hard time. As for the target stock price, I personally would like to increase the stock price by several-fold over the next ten years. I have no intention of selling the ¥20.0 billion in SoftBank shares that I recently acquired until I finish serving as President & CEO. For the next 10 years, I will devote my whole life to serving as President & CEO. I have been working as CEO for only a month, I already feel it is a very intensive job. If this situation lasts for the next 10 years, its rather worrisome, though when I work in earnest for 10 years and find that the stock price has only increased by several percent or several ten percent, that would be too disappointing. I may have overstated things a little, but I am aiming to increase the current stock price by several-fold, if possible.

  • You made reference to financial businesses, describing them as an area of focus for your new businesses. I think it is fairly difficult to monetize financial businesses. How will you drive growth in companies such as PayPay Bank Corporation and PayPay Securities Corporation?

    Let's take a look at the Ant Group of China as an example. As with PayPay, the Ant Group has adopted payment services as its foundation and has launched and monetized financial businesses from this foundation. The Ant Group has succeeded in launching each of those financial businesses, and making them profitable, in a short space of time. With PayPay too, I believe that this business model of placing monetizable businesses on top of the foundation of payment services will take shape within several years.

  • You noted that the ratio of non-mobile communications charge revenues to consolidated revenue has been increasing. What were these ratios in your actual results for FY2020 and your forecasts for FY2021?

    The ratio of mobile communications charge revenue to consolidated revenue for FY2020 was in the upper 20 percent range. In FY2021, mobile communications charge revenue will experience sluggish growth because of mobile service price reduction. Meanwhile, revenues from sources other than mobile communications charges, such as the Enterprise segment and the Yahoo segment, will grow. Therefore, the ratio of non-mobile communications charge revenues to consolidated revenue is likely to increase.

  • What impact did the recent mobile service price reduction have on business results in FY2020?

    We rolled out the new price plans in February and March, so there was almost no impact on actual results for FY2020.

  • What is your response to the scandal involving the dinner of Nippon Telegraph and Telephone Corporation (NTT) management with the Ministry of Internal Affairs and Communications officials?

    A third-party panel is currently looking into the incident. We intend to discuss the incident after we review the findings of the panel.

  • SoftBank is making a claim for compensation for loss or damage of ¥100.0 billion from Rakuten Mobile, Inc. ('Rakuten Mobile'). What is the basis for the calculation of the ¥100.0 billion claim?

    It represents the maximum value of profit that SoftBank believes Rakuten Mobile has obtained through the recent incident of unfair competition. In other words, it is the benefit derived from gaining the ability to accelerate the construction of base stations. Specifically, we calculated the claim by taking into account the acquisition of new subscribers, the retention and the reduction in roaming costs paid to KDDI Corporation.

  • SoftBank today announced that it will invest in Axiata Digital Advertising Sdn. Bhd. ('ADA'). Could you please describe SoftBank's strategic direction and approach to overseas business going forward?

    Looking first at our approach, SoftBank's overseas investment is completely different from the overseas investment undertaken by SoftBank Group Corp., a strategic investment holding company. SoftBank, as an operating company, makes investments to form alliances with overseas companies and expand its own business. With ADA, the company we invested in, we intend to send personnel to the company and grow business together. A budget of ¥40.0 billion to ¥50.0 billion per year has been established for these sorts of investments. We are investing in projects that will contribute to the growth of SoftBank's businesses within the scope of this budget.

  • In this deal, SoftBank formed an alliance with ADA in the digital marketing domain. Axiata Group Berhad ('Axiata Group'), the parent company of ADA, also conducts a payment business. Is there any possibility of an alliance with PayPay in the future?

    Naturally, we are considering overseas expansion possibilities for PayPay. We will hold discussions on whether to undertake overseas expansion independently, or to search for companies that we can partner with in the local market.

  • You said that the impact of the mobile service price reduction will be ¥70.0 billion in FY2021. Assuming that the annual revenue per subscriber is around ¥50,000, if the net increase in subscribers in FY2021 is around 1.4 million, then a simple calculation shows that an increase in revenue of ¥70.0 billion can be expected. Can I assume that when these two factors are added together, the impact on business results will not be too large?

    We intend to cover the mobile service price reduction with an increase in subscribers. We believe that we can cover the extent of this reduction if we manage to accumulate a sufficient number of subscribers.

  • What amount of Gross Merchandise Volume (GMV) is needed for PayPay to become profitable? I believe that PayPay's current loss amount to around ¥80.0 billion to ¥90.0 billion per year. Assuming that the commission fee rate for merchants is around 1.0-1.5%, if GMV reaches around ¥5 trillion to ¥8 trillion, wouldn't the merchant fees offset the losses, enabling PayPay to become profitable?

    The GMV of PayPay will naturally continue to grow in FY2021. We do not know whether GMV will increase to twice the level of ¥3.2 trillion recorded in FY2020. However, we expect GMV to increase close to the level you mentioned. For details on the timing and fee rate for merchants, we kindly ask you to await future disclosures.

  • You reported that PayPay's GMV was ¥3.2 trillion for the year. In comparison with Japan's consumer spending of ¥300 trillion a year, PayPay's GMV is still small at only 1% of Japan's consumer spending. As you work to raise this percentage in the future, how much additional investment in PayPay do you think will be needed?

    Investment in PayPay has decreased slightly from FY2019 to FY2020. The number of users has increased substantially, so investment efficiency has greatly improved. As we continue to expand the scale of PayPay, we intend to constantly review and consider the best possible investment design.

  • I believe that a lot of merchants, primarily small merchants, have joined PayPay because of its free-of-charge campaign. What steps are you taking to deal with merchants leaving PayPay after the free-of-charge campaign ends? Also, what impact will the amended Payments Services Act, which came into force on May 1, have on PayPay?

    I'd like to refrain from commenting on PayPay's specific strategy. In several years since its launch, PayPay has garnered the support of 39 million users, and it has merchants in more than 3 million locations across Japan. Expanding this infrastructure further will lead to further advantages for merchants and member companies and motivate them to continue to deploy PayPay. It will be important to effectively promote and communicate these strengths.

Disclaimer

SoftBank Group Corporation published this content on 19 May 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 19 May 2021 08:47:00 UTC.


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