Japanese Tech Giants SoftBank and NTT Report Mixed Q1 2024 Results Amid Economic Challenges

SoftBank Corp. (SOBKY) Q2 2024 Earnings Call Transcript

Junichi Miyakawa - President & Chief Executive Officer Kazuhiko Fujihara - Executive Vice President & Chief Financial Officer Thank you so much for waiting. We will now begin the presentation of the Earnings Results of SoftBank Corp. for the 3 months ended June 30, 2024. We'd like to introduce today's attendees, SoftBank Corp. President and CEO, Miyakawa; Board Director, Executive Vice President and CFO, Fujihara. Today's presentation will be broadcast via the Internet. President and CEO, Miyakawa, will give an overview of SoftBank's consolidated financial results and business overview. Junichi Miyakawa Hello. This is Miyakawa. Thank you for your attending. So as the first quarter results have been closed, I would like to explain them. Revenue was ¥1,535.7 billion, up 7%. This is a record high for the first quarter on the stand-alone basis. By business segment, revenues increased in all businesses. In particular, Enterprise, Distribution and Financial businesses, three of them posted double-digit growth. Operating income was ¥303.9 billion, up 23%. Operating income exceeded the level before the impact of price reductions and achieved a record high in the first quarter on a stand-alone basis. By segment, all of our business segments recorded profit growth. Especially, the Financial business which had been loss-making since the consolidation of PayPay, has finally become profitable and we have high expectations for this business as a pillar of our earnings going forward. Net income was ¥162.5 billion, up 11%. As you can see in the consolidated results summary here, revenue and operating income were record highs with operating income and net income growing at double-digit rates. Both operating income and net income exceeded 30%. We are pleased with a smoother start to the current fiscal year than we had expected. The progress rate by segment is as shown here. In addition to the strong performance of the Consumer business and the Media & EC business, the Financial business has already achieved 189% progress with PayPay achieving profitability earlier than expected. The current Medium-term Management Plan is the second phase of a road map to realize our long-term vision and thankfully, we are making progress toward all of our goals ahead of schedule. I will now explain our performance by business segment. First, let's look at the Consumer business. Revenue was ¥681.7 billion, up 2%. mobile revenue increased by 2% to ¥7.6 billion. Mobile revenues were able to overcome the impact of price reductions, so sales have continued to increase since the second half of last fiscal year. Operating income was ¥156.4 billion, up 6%. The number of smartphone subscribers grew at a steady pace with an increase of 4%. We announced a strategic alliance with Perplexity, a provider of a conversational AI search engine on June 17. So this is an AI search platform with multiple compatible AI models. To give you a taste what an AI search engine is all about, we decided to offer a free 1-year trial of the paid version which is worth ¥30,000 per year. The number of searches has grown rapidly by 1,000% in 1 year and we feel that this is one of the ways in which AI will be used in the future. Next, I'll explain the Enterprise business. Revenue was ¥215.6 billion, up 10% from the previous year. Revenues of solutions and others were strong with a 27% increase. Operating income was ¥41.5 billion, up 3%. The solutions business is growing strongly and we are determined to focus on its gross profit margin. To achieve this, we are looking to expand our in-house development services. Therefore, we are in the process of rapidly reinforcing the necessary human resources and building systems. We would like to build a stronger management base by absorbing such upfront investments. Now, Media & EC business segment. Revenue was up by 6% to ¥408.3 billion. Operating income was up by 74%, driven by steady growth of Media and one-off valuation gain. Even excluding this onetime factor, operating income was up 20%. As the LINE Yahoo management team explained at their earnings announcement, the report on preventative actions against data breach was submitted to MIC on July 1. SoftBank will continue to support them to make sure the security measures are in place. There was an announcement of TOB to stay traded on prime market and A Holding decided to apply for the TOB. The ratio of voting rights in A Holdings held by NAVER and SoftBank will remain unchanged. As we have been saying, it is hard to come to a conclusion for short term as to the capital structure. We will continue discussion until we make decisions based on future business strategy of NAVER and SoftBank and LINE Yahoo's future. Next, Finance business. Revenue was up by 20% to ¥63.1 billion. It posted operating income of ¥5.7 billion. PayPay finally became profitable, showing a strong improvement. PayPay's consolidated revenue was up by 19% to ¥57.2 billion. PayPay posted ¥9.3 billion of consolidated EBITDA, positive for 2 quarters in a row. GMV of SB Payment Service was ¥2.3 trillion, 21% increase year-on-year. Next, let me share with you progress around our efforts to build next-generation social infrastructure. As we explained, we plan to build AI data centers in a distributed manner across Japan. We have made progress around building the brain data center. We announced on June 7 that MOU was signed with Sharp Corporation for our construction of AI data center inside Sharp's Sakai plant. We can take advantage of not only the plant's already available buildings and land but also power supply and cooling equipment which are essential for running data centers. It should accelerate construction of our AI data center. We will see how things progress in details and make necessary decisions along the way. By actively making investments for growth, we aim to become the market leader in the era of generative AI. To solidify our financial position that allows us such investment for growth, we filed with shelf registration for the issuance of Series 2 bond-type class share with a plan to issue about ¥200 billion. To summary, we posted record high revenue and operating income for the first quarter and revenues and profit increased in all segments. And next, Mobile revenue continued to increase. And PayPay achieved a positive operating income for the first time on a quarterly basis. Last but not the least, next-generation social infrastructure initiatives are in progress. We continue to strive for Information Revolution - Happiness for everyone. Thank you very much for your kind focus on my presentation. We will now open up to Q&A session. We'll take questions first from the floor then from the Zoom media followed by Zoom analysts, institutional investors. [Operator Instructions] Please raise your hand if you have a question. In the right side of the area, the very front. Ono from Yomiuri Newspapers [ph]. Unidentified Analyst This is not related to the earnings results presentation. So the Bank of Japan announced to raise the interest rate. So do you see any impact due to that? And related to that, even to date, the share prices are dipping. So can you share what's your thought on this impact? The second question is that the other day, Ministry of Internal Affairs and Communications announced the rules related to the NTT Law. So moving forward, there will be the decisions to be made. So do you have any opinions on the further discussion around NTT Law? Junichi Miyakawa Thank you for your questions. As you said, the share prices are going up and down. So today, so only SoftBank has not been up and I was very disappointed to see the share price chart just before coming here. So I made up my mind to report the first quarter's earnings results here on the stage with my new determination. So the zero interest rate is going to end, I was thinking in that way. So our loan has been fixed and -- nearly 90% has been fixed. So even with the interest rate hike, we will have no impact in the short term. However, if it continues for a long period of time, because we have a large amount of liabilities, we may have to review our business strategies. However, in the meantime, we should be okay. We are under control. And so I cannot tell you the root cause of this share price dip. So this drastic fluctuation so causing a lot of people's confusion. So I wish it wouldn't happen. However, in a small range it's always going up and down. So the trend should be going towards the other way to the certain direction. So since I took this position as CEO, I was focusing on the actual power to earn -- earnings power which will lead to the growth of our company in the future. So we would like to continuously pursue. The second question about the Ministry of Internal Affairs and Communications about -- related to the NTT Law, now they are compiling that. And since this is a very special, unique company holding public asset, so therefore, some special treatment needs to be acquired. So right now, 5G or beyond 5G we are really busy dealing with all these things. So if we had time, spare time, to discuss on such NTT Law matter, we should be focusing on discussing other things for expanding and improving infrastructure for the entire communication network. So the discussion on the ministry is not really to abolish the NTT Law, that's how we see. Of course, we should continue discussions and I would not change my position. Matsuda [ph] from Nikkei Shimbun. One question about the Mobile business. Rakuten has been growing in terms of the subscriber number. What's your view on that? And SoftBank, you have LINEMO introducing new price plans, so I don't know if you have any plan to compete against Rakuten. Junichi Miyakawa Thank you for your question. Looking at the Rakuten's move recently, especially the number of subscribers, of course, on daily basis I have an update on MNP between those 4 carriers and also net adds of other carriers. And since the beginning of spring, I feel that Rakuten has been doing very well and I am impressed with Mikitani-san's capability. The founder, like Mikitani-san, should have such a strong potential. And SoftBank went through the same route and journey and every day and night we tried to figure out how we can grow net adds. And I believe that Mikitani-san has been so focused and put his energy in increasing the net adds. And do I feel a threat? Yes, I do. Having said that, from SoftBank's perspective, is there any impact on our business? Very few. To be very honest with you, maybe there is a market where I didn't pay attention to and that market is where Rakuten is getting a lot of our customers. So my view is there are a lot of opportunities for anybody to gain business and I welcome their effort. And hopefully, Rakuten will be the fourth most powerful carrier in Japan. That should lead to a healthy competition in the Japanese market. About LINEMO's best plan that we announced, we often hear is that the competitive plan against Rakuten and the answer is yes. And from my experience, unlimited is something that we should be very careful about. But for users who prefer a mid-range of volume as opposed to high data volume, we decided to introduce the plan to gain traction of those users and it's been running well, better than we anticipated. And we are running a lot of advertisements, I think that's one of the reasons why it's been performing well. So that's the current status. Thank you so much. Next question from the left side of the floor. Unidentified Analyst Nagoshi from NHK [ph]. I have two questions. First, SoftBank, you had some network failure this month and the last month. Can you tell us the root cause of that? And also this kind of network failure has been happening worldwide. Is it because of the increase of traffic? I would like to hear your opinion. The second question is about the total energy committee. You've also had the opportunity to mention your opinions and what is your opinions regarding the data center constructions nationwide? Junichi Miyakawa First about the network failure, we deeply apologize for the inconvenience caused to all the users. There were 3 incidents continuously started on this July 23, 28 and most recently, the 2nd of August. So each one we recovered from the failure. These 3 were not connected in terms of the system. However, telecommunications industry, one failure happens, it leads to one after another. So there are some causes. The first one in July and the most recent one on the 2nd of August is due to the vault switchers seem to be the problem. However, they were completely different switchers and also in the switchers in MME in the West Japan and so the different causes were discussed. So I think it was due to the summer heat fatigue. So if we had ourselves tightened more, then we could have dealt with this incident much faster. So we were -- we are now reviewing to find out the root cause and make sure that we prevent it from the recurrence. And about the energy sources, so right now in Japan we do not have sufficient -- or we do not have abundant electric power. However, in this advancement of AI, we cannot avoid facing the vast volume of energy consumption. So when AI is learning, it consumes a lot of energy. Once it goes to the inference phase, it doesn't consume as much. So right now, in the phase of learning. So we -- now Japan wants to create the sufficient and strong brain as the other countries are doing. So then the even larger energy consumption is expected. So therefore, we would like to construct data centers in the regional areas. However, the computing infrastructure built overseas. If we are trying to build the same scale as what overseas companies are doing, then we need to secure enough energy sources. So that's why I attended the committee and made my speeches. Of course, we cannot really been opposed from here and now on, so we would like to construct the data center in a harmless way. So we are coming up with different ideas so that we can sustain ourselves in terms of energy sources and AI itself would become national power. So therefore, if we were to contribute to enhance our power as a nation, then we would like to do so in different ways. So I think there are many different ways by different Japanese companies and we would like to become one of those to contribute to the further enhancement. Thank you. Seki [ph], freelance writer. I have a question about PayPay. PayPay became profitable earlier than we thought, you mentioned. As you keep saying IPO, I don't know what's your view on PayPay's potential IPO. Now that PayPay became profitable, what are your expectation from PayPay going forward? Junichi Miyakawa Of course, I expect PayPay to be profitable this fiscal year but it became profitable earlier than I thought in terms of a quarter. So I am happy. I was hoping PayPay to become -- performing well last half of the fiscal year. But again, they became profitable earlier. Once PayPay or somebody has a certain amount of users, the company should not lose momentum pretty soon. So I believe that PayPay will play the leading role for us to perform even better and grow even further. And I keep saying that PayPay should not go public until PayPay becomes profitable. And Fujihara-san kept warning me that question about IPO should come once PayPay became profitable. So again, that's up to PayPay to decide when and how PayPay wants to be in terms of IPO but I believe there is an opportunity for them to grow further and they don't have to be in a hurry in terms of financing. Once they feel more comfortable about the future, then PayPay might start thinking about IPO more seriously. So we will see how it goes, to be very honest with you. I'm Asono [ph], freelancer. Two questions. First, the NTT started new plan, just like to PayPay's Pay-toku plan and what do you think about that? And the second is that the churn rate is pretty high in the first quarter, so that is because see the fierce competition of the same contract? What do you see as the cause of the churn rate hike? Junichi Miyakawa So first question is about poikatsu. So eximo poikatsu of DOCOMO is very similar to Pay-toku unlimited plan. So now we are all in the phase to compete. In terms of expandability of ecosystem of each carrier, so there a certain percentage of PayPay point used to be returned, so that's what we started as Pay-toku. I have a feeling that Pay-toku is easier to use. So each carrier within their own ecosystem would be providing their plan. So we, at SoftBank, also want to pursue and explore like the second Pay-toku plan. And the second question is about churn rate. So a certain volume of users would swap in the short term, so that is true. And the layer does not get affected by the different plans. So when we look at a certain layer which tends to have shorter period of contract and -- but we believe that it does not affect our business result as a whole. So it does not affect in terms of the business figure. However, structure-wise, some users who make a contract just for same. And after 3, 4 months they cancel the contract and have another contract. So there is a certain number of users like that. Honestly speaking, we also like to deal with such things. So like the incentives have a certain limit. And what we need to do is that we should stop providing SIM alone. However, it's really challenging for a single carrier to start such initiative. So we would like to see how it goes and then find out a right way and timing to deal with that. Thank you. Ishino [ph], freelance writer. About Pay-toku you mentioned, looking at the Mobile business, operating income and revenue, you see growth in those areas. So again, that kind of price plan, high-end price plan, how much positive impact that kind of price plan has had on the better performance? And second, Rakuten's Platinum Band, they launched a Platinum Band-based service. Maybe they had only one cell site that runs on the Platinum Band, so I wonder what's your view on the Rakuten's Platinum Band effort? Junichi Miyakawa First, Pay-toku's impact on ARPU, is that -- was that the first question? Of course, Pay-toku is a high ARPU service offering and we offer points or loyalty for those users. But still, that's a high ARPU users or high ARPU plan. There are different brands, LINEMO. Our performance is based on the mixture of those offerings. ARPU times the number of users is the source of our revenue. Fixed expense should not be impacted so much with 1 million users more. We need more users and we need to maintain ARPU, so we have to figure out the best mixture of different offerings, including Y!mobile and Pay-toku. So it's not a Pay-toku stand-alone that has had an impact on ARPU. The second question is about the Platinum Band. Yes, that's a competitor's effort, so I don't want to make a strong comment. But just one thing, like I keep saying for a long time, as an MNO that it was given a spectrum which is limited resource by the government. That MNO should be responsible. And at the moment, maybe they have not fulfilled their obligation and responsibility as MNO to fully leverage the spectrum that was given to MNO. Any other questions from the floor? From the left side of the venue. Unidentified Analyst Sugiyama [ph] from Nikkei Business. Two questions related to AI. First question, recently Gen-AX led, what sort of potential deals are available right now? The CEO Takahashi of KDDI also mentioned about AI as a new pillar and a major pillar of the business growth. So what do you think about that? The second question is about what do you think about the risks of AI-related investment? So due to the share prices dipped recently, so your CapEx will be also used for telecommunications area. It's not limited to AI investment but GPU is extremely expensive. So I believe that majority of the CapEx will be spent for AI-related things. So what do you think about that? Junichi Miyakawa So the first question is about to Gen-AX. Yes, we have a lot of inquiries. You also mentioned but yes, there are a number of inquiries around Gen-AX. So now GPT for all is available which is very similar to human response even more than before which will be appropriate for call centers. So due to the advent of 4o, it could be used for call centers. There is a number of inquiries related to that. So our project is also to automate call center. I believe this is one of the most difficult areas. Of course, it is possible to respond. But the content of the response is really important and that is critical. And if the content of the response is too long, the user would cut off the call. And it's very difficult to cut in the conversation or the questions being asked. So it cannot be easily replaced by computers. How we can make it as close as human being's response, that's what we have been working on seriously. So sometimes there is an incoming call just to let us know that when the payment has been done through ATM. So that kind of things. Internal systems, we do have like 400 different systems and this has to be also linked with all the systems and the backyard system has to be dealt first. So there are some hurdles to overcome. The corporate manuals have to be first digitalized, then AI can understand. So a digital transformation has to be done first internally, then AI would be fully promoted. So it has to take each step by step. So for that, Gen-AX, so each company's task's to be automated -- or sorry, digitized and that should be the first step. And the annotation will be the next step. So this team is not to build AI algorithm but this is to support to connect internal tasks and AI. One more question about the risk of investment and AI-related. I am not certain about that either because I know -- I'm sure that AI is going to be penetrated more and more. So the question is that the direction of AI we are investing on is right or wrong. So first, data center construction, so the cooling system, rack and all these facilities for a data center, this is not a risk because the volume of AI would be more and more and means that data centers will be in higher competition. So now electricity is in high demand, high competition, so next is data centers. If there was a risk, then GPU performance -- the performance of GPU is advancing really fast. So the GPU chips that we purchased 2 years ago is already obsolete. So when we compete performance with what we purchased 2 years ago with the most recent one by NVIDIA, then it's 10x more in terms of performance of GPU. So now in the phase of GPU growth and how much investment should be made on GPU, we have to carefully watch the balance between demand and supply of GPU because in only a few years what we have bought now will be obsolete. So we need to see the right direction on which area of AI we are investing on. Sekiguchi from Katai Waach [ph]. I have 2 questions. First, for the first quarter, Mobile had a 10-year anniversary in the first quarter, so could you let us know the latest number of the users. Like Mobile is affordable and -- while Mobile has been performing well and switching from Y!mobile to SoftBank brand is also going. So I wonder if do you have any plan to stimulate switching from LINEMO or Y!mobile to SoftBank brand? Second question, looking at KDDI's earnings result, President Takahashi mentioned that on device AI and cloud, hybrid of them would be very important. On device AI is area where chip-makers and the device makers have been focusing on for some time. And on demand -- on device AI or edge AI, do you have any plan with regards to service offering, whether it's for Consumers or Enterprises? Junichi Miyakawa The first question is about the number of users of Y!mobile, is it disclosable or not? Fujihara-san? 12 million, just roughly. I will follow up. Again, 10-year anniversary, Y!mobile and Willcom were merged and they have been growing since. In the same network, there is a SoftBank brand and a Y!mobile brand and they are using the same network resources but they have different price plans. So we try to identify differentiation between Y!mobile and SoftBank. And Y!mobile brand and SoftBank brand, we have been focusing both in the last 10 years to figure out the best way for those 2 brands and their positioning. For Y!mobile, the target users are low -- mid-ARPU users. So for high-ARPU users, that's a SoftBank brand. So the volume that we offer or service content that we offer are something that we use as a differentiation. From Y!mobile to SoftBank and vice versa, from SoftBank to Y!mobile, like in-house MNP, if you will, is happening -- has been happening. And in the last quarter, it was about half and half. Of course, it depends on quarterly -- quarter by quarter but for the first quarter, it was almost half and half. So SoftBank has been solidifying its position. So it takes 10 years but we have been handling different brands better than before. And now we have PayPay and LINE, different brands in our group and we are trying to develop products and services by utilizing those different brands. So next 10 years will be easier for us to come up with new plans. In the cloud, AI is generated in the cloud, that's the traditional AI. But also AI will be implemented in the edge like devices. Like, for example, Samsung's smartphones have implemented AI. And maybe, of course, AI will be implemented in cars and also our consumer electronics. So on the more and more edge side, AI will be incorporated to make people's life even better. What I want to do is as follows. So I casually mentioned that I wanted to build AI smartphone, that was my first personal thought. But I want to build a vertical AI platform. So we have been building data centers and we want to have cell sites powered by AI. So we are looking at AI-RAN to design, AI-RAN and cell site powered by AI. And then we can build a vertical integration from cloud to edge, that will be our unique position in terms of AI offering different from GAFA. So from edge to core, even to build AI and implement AI in different areas, that's our strategy. Thank you for your answer. You mentioned from edge core. Edge, you are talking about edge devices included? Thank you so much. Due to the interest of time, we would like to take questions from 2 more persons from the floor. Unidentified Analyst Nagata from Nikkei xTech [ph]. In April, a Thuraya incident -- related to the Thuraya incident happened in April this year. So why at the end of this month, why you are going to stop that service? Related to some warranty to the users, so what will be the impact to your business? Junichi Miyakawa Yes, we need to, first of all, apologize to the users due to the Thuraya satellite failure. So it's not only linked down, there are some Thuraya satellites and above Japan is the communication satellite and it -- that communication was cut. So the Thuraya told us to wait for a little longer so that they would fix the issue. So there may be some cases that sometimes pass and not; so we could not continue discussions. Therefore, we decided to stop providing the service any longer. So the monthly fee and also the discount rate and all these things, we have been working around that. So as of end of August, why we decided to do so at this timing is that we wanted to reset this and so that we could provide something in a different manner. So the satellite failure is happening far and 36,000 kilometers far, so which we sometimes have no control over it but we sincerely apologize for the inconvenience caused to the users. So I believe that this was very helpful to the Noto Peninsula earthquake. This was not used by the Ministry of Internal Affairs and Communications. Yes but in case of natural disasters, yes, we lend it out in case of the natural disasters. But I believe that we have done so but we are looking for alternatives. Ishikawa [ph], freelance writer again. Sharp Sakai plant is going to be utilized for your data center. At the same timing, KDDI made a similar announcement. What's the difference between KDDI plan and your plan? The next SoftBank network is highly recognized by Opensignal but also KDDI Sub6 -- KDDI announced to use Sub6 to make it 2 blocks for speeding up. So I wonder what's your plan on that? Junichi Miyakawa About the Sakai's data center. I was actually surprised. Actually, sometime around January, we wanted to kick off to make a data center into AI data center. We started a study in January and March we made a preliminary agreement. We signed a nonbinding preliminary agreement in March and we had continued discussion. And then before we knew it, KDDI made an announcement. And we called Sharp immediately and started a discussion with Sharp again and we switched from nonbinding to binding agreement before we made an announcement. The Sakai plant is a vast land and LCD plant was a plant that we wanted to take advantage of. They've got vast land and big buildings and KDDI utilized the other buildings and other pieces of the land. And maybe many carriers will start building in Sakai pant. And Sakai site can be concentrated data centers for carriers. And it seems that Sharp -- we are checking with Sharp and others if we could continuously utilizing their resources and we will figure out the best decision based upon that study. Then next question is about network connectivity. We ran a very impactful advertisement, as you may know. And our sales team suggested such a provocative advertisement and I gave green light to them. We have plenty of the sites. Capacity-wise, in Tokyo, it's been helping us, so we don't suffer from the lack of capacity. So that's why we can offer or deliver good coverage and capacity which is highly appreciated, I believe. But when a killer app is launched or when a new use case emerges, then not only downlink but also uplink capacity may be needed going forward. Maybe in the future, we may need more capacity for uplink than the downlink, then we may need to review the network design. So at the moment, we are enjoying a great review. But we are not complacent and we stay vigilant. And whatever KDDI tries to do for you -- their better performance, we want to learn from them. And likewise, DOCOMO and NTT we want to learn from them. And I think a healthy competition is good for all of us. So we want to proudly compete in such a competitive market. Thank you so much. Now we would like to take questions from Zoom analysts and institutional investors. [Operator Instructions] Masuno-san from Nomura Securities. Daisaku Masuno This is Masuno. I have 2 questions. One is about PayPay. So the ¥10 billion of operating income was what we predicted this year, so it's coming closer. In the next 5 years, I believe that ¥10 billion of operating income will be possible for achieving. When the PayPay had a re-measurement, so I believe that adjusted their earnings, PayPay could achieve ¥10 billion of operating income. But what is your expectation on that? Junichi Miyakawa Let me answer one by one. Thank you so much for your question, Masuno-san. So this fiscal year, so ¥10 billion but I also believe that only PayPay payment transactions business I think it could achieve ¥10 billion -- close to ¥10 billion or so with payment transaction business alone. But as you mentioned, our payment business, the companies which are doing only payment business, their market capitalization is going down. So that's why we need to leverage our strong customer foundation to strengthen our business foundation. So different kinds of businesses will be accumulated so that we could achieve some ¥10 billion scale of business. So to that, we would like to nurture this business. Daisaku Masuno My second question is about AI-related investments. So this time, ¥43 billion of operating income is added which was not included in the initial forecast. So by accelerating the AI investment, I think it's still operationable. So ¥43.9 billion of investments and if you multiply by 3x or 4x, how fast you are thinking about doing this growth investment? Is it only for growth investment or -- so you are making investments and getting some burden on at this moment? So you cannot keep just loss-making? Junichi Miyakawa So originally, under others category, mostly R&D cost is it. On top of the R&D, investment on AI infrastructures, so total about ¥60 billion we wanted to do so. Whether we are going to consume all or not, we may not consume all as we see the result of first quarter. But we see that we would be consuming close to ¥60 billion, so it actually depends on what we would do with the Sakai data center. So it would be close to ¥60 billion. It depends when we would start the construction of Sakai data center. And we are not saying that we would like to keep loss-making by doing this spending on CapEx. But if we spend more on the investment related to AI, then it would be profitable in the near future. Thank you so much for your questions. And any more questions from Zoom participants. [Operator Instructions] If not, that concludes question-and-answer session. Thank you very much for joining the earning results for the 3 months ended June 30, 2024, announcement by the SoftBank. This session will be available on demand on our corporate website. Again, thank you very much for joining us, our earnings results announcement for the 3 months ended June 30, 2024. Thank you.

SoftBank Group Corp. (SFTBY) Q1 2024 Earnings Call Transcript

SoftBank Group Corp. (OTCPK:SFTBY) Q1 2024 Earnings Conference Call August 7, 2024 3:30 AM ET Company Participants Yoshimitsu Goto - Board Director & CFO Conference Call Participants Minoru Satake - Nikkei Newspaper Daisaku Masuno - Nomura Securities Operator Thank you very much for waiting, everyone. Now we would like to start SoftBank Group Corp. Earnings Results Announcement for the three-month period ended June 30, 2024. First of all, I would like to introduce today's participants. From left, we have Yoshimitsu Goto, Board Director and CFO; Kazuko Kimiwada, Corporate Officer, Senior Vice President and Head of Accounting Unit; Navneet Govil, CFO, SB Investment Advisors and SB Global Advisors; and last but not least, Jason Child, Executive Vice President, CFO, Arm. Thank you very much for your understanding that Jason is attending over Zoom. Today's announcement is live broadcast over the Internet. Now, I would like to invite Yoshimitsu Goto to present you the earnings results and business overview. Mr. Goto, please. Yoshimitsu Goto Well, good afternoon, everyone. Thank you very much for joining our earnings results announcement today. Let me start our explanation on the earnings results for the first three months period for 2024. This is the first page. The first quarter, so this is the end of June number that we are sharing with you. So you see that this is a market status. Up until the end of June, that was the market. However, after this, we had a big volatility in the market, and this is the current situation. So, you can see on your far left, at the end of September last year, which was the timing of Arm IPO, so starting as then in share price and the SPG share price and also some KPI -- indexes that we try to compare those movements, you can see that the day before yesterday there was a big declines in Nikkei, since the Black Monday and yesterday was the biggest record high increase in share price of Nikkei. So Black Monday, if you recall, 1987, October 20th. On 1987, I graduated from college. And starting April, I start working at Yasuda Trust Bank. And then, I'm one of the survivor from Black Monday, and I believe people here may not have the business circumstance. Many of the media's related people, those young generations, if you see those three days in the past, I understand those are the headlines for the newspaper. But for me, because I experienced Black Monday, I have a bit different angle because in the past 40 years market structure or instruments, products that are traded in the market or the payment speed, settlement speed or the size of the payments or size of the settlement has dramatically changed since then, along with the technology development. Financial engineering has also developed over the time. So, if you only see the numbers of the decline, then you may be very surprised, but it's not only that, I believe there are many reasons for the decline, and I think that we do need to analyze the marketing environment and based on that, I believe that, that was the reason why for the declines on the day before yesterday and the increase in the yesterday so that we'll be able to see the future. Under such circumstance, what kind of framework each respective company should be prepared and what the SoftBank have been preparing for? Our business model, I believe, is one of the most unique business model. We are investment company. We are a strategic investment company, but at the same time, we are also exploring the challenges in the aim of the AI era to come and we do need to see the both sides. Our business model itself does have a very affluent assets and those assets in principle are businesses or companies who will be able to take an advantage of the AI era or ASI era to come as our Chairman, CEO, Masa-son, mentioned at the AGM in June this year. Also, those companies with many new ideas, that is going to be in our group. Sometimes that we raised them from the scratch. So, there are a variety of the angles that we are looking at. So, while we're monetizing and also raising those assets, grow the business, but also we have shareholders' returns, financial improvements, those are very strong financial status and as a result, we will be able to improve our balance sheet. And those, as a result, be able to provide us the room for leveraging debt capacity so that can be utilized for the bridge of that -- for it to fill, the time lag between investment and divestments. And the important thing is -- so ons and offs or the gas and break those are something that we can completely manageable by the company. So more simply put, investment, if we invest, we need money; if we don't invest, we don't need money. So, we can manage to do investment or do not do the investments. And also, we can decide how far we would like to utilize our balance sheet and our credits and also financing possibilities with partners of the concerned parties. There are many experience that we have. And most important thing is that we can be flexible based on the changes of the market and the environment and that's our kind of uniqueness of our company. Page 6, key indicators. This is to remind you once again that the net asset value, of course, varies based on the market status, it goes up and goes down. Six months ago, at the end of December, our net asset value was JPY19 trillion. In six months, it became doubled to JPY35 trillion. In the past few weeks, what's happening here actually pushing our net asset value down to JPY25 trillion. So, in several months, that the value is varies, which is big volatility, but at the same time, if you put it into our loan to value as a key performance indicator for our balance sheet, even now, it's still about 10.9% level, which is extremely safe level. So, from the end of June to today JPY10 trillion net asset value decrease, but still the safetiness unchanged in material way. Of course, cash position, if you don't spend it, we can maintain so that we are having the same level, there from JPY4.6 trillion to JPY4.3 trillion, this is only from the foreign currency changes. So, I understand that there are kind of possibility of moving around the figures based on the volatilities and every time of the earnings, what I am keep telling is that we are not focused on the short-term volatilities, but the important thing is that what we are convinced in business models and the target is going to be consistent and be prepared for that. So here, once again, that I wanted to communicate to you that the safetiness of our balance sheet. So, we do have a very robust stability and based on the very -- this such stability, we would like to strive for the ASI realization. So such a robust stability is something that we prepare. Indeed Masa and also our teams is exploring the best way for the ASI to come. And this is a three months highlights for the first quarter period, as I mentioned earlier, or that you may be seeing -- sorry, from the news flash that the net loss, net loss, that's the kind of words that I've been seeing on the news flash, but we do have an investment gain of JPY559.7 billion, despite -- as of the end of June this year, net asset value achieved a record high. We will continuously pursuing the realization of ASI through the strategic AI investments. And for that Arm is very important. And fortunately, Arm performance continues very well. And Vision Fund has also turned positive from the performance point of view. And loan-to-value and the cash positions, the financial policy, we will be keeping this policy. And also we do keep the good balance sheet to be able to be agile in terms of the new opportunities. Consolidated results. Quarter-on-quarter, you see the positive numbers here. Net income is negative JPY174 billion, but quarter-on-quarter, it has increased by JPY303 billion, mainly contributed by the foreign exchange. In positive point-wise, investment gain, JPY559 billion of the positive figure recorded. So quarter-on-quarter, JPY1.2 trillion of the increase. Investment and net income gain or loss. Orange lines gain or loss on investment, you see the steady increase. Net income, of course, this has ups and downs because of the variety of the reasons, especially net income negative and positive investment. This is the first quarter, which has the biggest discrepancy and I think that the mainly this is also coming from the foreign exchange. Gain and loss on investments from which investments that we are seeing the gain. And here, as a holding company, we do have our investments and also investments from Vision Fund, both of them are in positive this quarter. In the past, one side is positive, the other side is negative, but this quarter, finally, we see both positive. Now let me share with you key indicators: NAV, LTV and cash position as of end of June. Net asset value, JPY35 trillion most lately about JPY25 trillion, JPY10 trillion down, but we will see how it goes in the market. LTV, very safe level. As I mentioned at the last earnings call, less than 10%. From investment company perspective, may mean we don't do a good job. But again, LTV is a very safe level and we have plenty of cash. With regards to the net asset value, recently, we saw a JPY10 trillion down. If you go down deeper, I mentioned that it was in 1987 when I joined the bank. After graduation, I majored in history in Industry and maybe I didn't know why ended up working in financial business. But again, as you can see, since 2000, what happened? In the era of 2000, there was a so-called net bubble or dotcom bubble. Back then, far left in this chart, you see a small hill, but back then, we thought the hill looked like a mountain. But now we are seeing similar ups and downs. I think there are similarities in the year of 2000 and now. So, what drove the increase and decrease in the year of 2000? How much powerful the Internet was? And how much value that Internet could create? People are watching the upside of the Internet and the capability of the Internet and then the value went up. But now looking at AI, I think investors and people are looking at the trends in a similar angle. I sometimes mentioned technology advances and once technology advances, technology would not go back. So, technology advancement would lead to added value. We don't know how long it takes before the added value is delivered. But definitely, advancement of technology should create added value. Looking at the far right of the chart, if 2024 was on the far left of the chart and in 20 years' time, I think that we will see the similar picture. I experienced a tough time since the Black Monday and also I experienced the so-called Lehman shock. And the reasons were clear back then, the valuation was long and the valuation was created artificially. That was when Black Monday happened, and when Lehman shock happened. So, compared to those two big events, the Internet dotcom bubble in the year 2000 and historic decline of the market that we are looking at recently, the situation is not bad actually from the history perspective. On Black Monday, traders were using fingers and hands for transaction and trading, but now it's a completely different picture. Anyway, my message is our market moves in a very short period of time, and we have to take into account when we see the market. ForEx. JPY10 move was seen in the last three months. What impact this could have on our value? Is it positive or negative? Weaker yen actually is a positive. Why? Because as an investment company, asset or asset value is centered around the dollar, so weaker yen had a positive impact on net NAV JPY2.1 trillion. From accounting perspective, positive impact on equity but negative impact on consolidated net income. By the way, if you look at a very gray number, JPY144.98, which was as of yesterday, so yen got strengthened as much as JPY15 in very short of a time. If you have plus JPY15, it could mean JPY600 billion of a positive. So anyway, so ForEx move has an impact on PL and equity and NAV. Loan-to-value, lowest leverage ever or the safety level is the highest. So maybe we have to do more doing our job. Cash position maintained high level, about JPY4.3 trillion. This chart shows a change in composition of assets held. We have been decreasing Alibaba's position for some time. And we had over 51% of Alibaba four years ago, but now we have over 50% of Arm as of June end. So that shows how we are positioned against AI. And change in regional composition is shown here. Four years ago, we were concentrated on China, namely Alibaba, but now we are looking at Europe more than any other region. So, we mitigated risk of China-centric position. And liquidity is shown or presented as a percentage of listed shares in our portfolio as of end of June, over 80%. Every year, share of listed share had been going down for three years. But in the meantime, we sold down Alibaba's position, and we have gained cash, which is safe. But for investors who are concerned about percentage of listed share, I believe that they are happier now looking at the current percentage. And here on, we would like to explain you about our initiative to realize ASI. Back in June, Masa shared his thoughts at the General Shareholders' Meeting. And here, once again, to confirm, this is his kind of comments, not me, at quite a big mission as a group that we are driving evolutions of humanity. And that's why we would like to realize ASI to fulfill our mission. And to realize that, we would like to drive forward with group-wide efforts. In these efforts, especially, we would like to focus on those three areas: AI Chip, which is going to be even more developing, AI Arm to be leading that; AI Datacenter is also essential to develop AI; and how the AI can be helpful in people's life and probably the most easiest to see is robots. So those are the main focus for -- as an group for the AI. In SoftBank Group, as I mentioned in the very beginning of this presentation, I believe it's very unique company. This is really difficult to find the peers or the similar company. When we have a dialogue with investors, I believe this is one of the agenda because I often asked the questions like how can we compare with -- if you would like to compare with somebody who will be the company that you pick up? But really, I cannot really think of any company that's comparable to our business or the business model, which makes us very unique. And the cluster of #1 strategy is something that Masa have been explaining to you. And in this current status, this group strategy still applied. So not -- we are not the group only with the capital or partnership, but we have business partnerships or the sharing the visions or the missions. So, there are many relationships, partnerships that we try to grasp for our efforts so that we can create the organical connections with those people. If you look into one by one for the more specific companies, these are the companies that we start -- we've been investing with this ASI aim. Graphcore is one of the company. They are specialists at designing, developing and commercializing chip for AI and machine learning, especially engineers resources are very much rich in this company. So, we are very happy to be able to have them in our group to have several potential collaborations and partnership with such company. In SB Energy, in United States, mainly in the United States, they are pursuing renewable energy platforms. And they are already in operations, which is 2 gigawatts, and in construction of 1 gigawatt, and also they are expanding. So currently, it's only solar power but also exploring the optionalities of the energy source. In Japan, our energy business has been sold last year. But in United States, we would like to maintain this agenda with this company. And for SoftBank Corp., this is one of the good examples for our efforts for ASI. SoftBank Corp. as a telecommunication operator is mainly leading this data center business. Hokkaido and also Osaka-Sakai plant by Sharp has already been announced and utilizing those in a variety of the places in Japan or the focus area AI base is allocated. And we also like to be the lead for the AI data center business and so that we'll be able to accumulate our know-how and expertise. Robots: There are several investments that we have done and being announced and shared with you at the earnings results announcement occasion. If you look back 10 years ago, 2014, Pepper was launched. Pepper is now not only in Japan, but also in the worldwide. He is -- he or she, the Pepper is working hard. And I sometimes surprise to bump into Pepper in a very unexpected place. And Pepper is also evolving. But not only that, we have some areas such as cleaning robots or serving robots being also the area that the SoftBank robotics are working on. And I think that you've been seeing these robots these days. If I go golf course that happened to see the serving robots at the restaurants or cleaning robots and I start seeing them more often. When the time is ready, that I also like to share the market shares of those products and so on when -- but I think they are doing pretty good in shares as well. And now that we've been seeing logistics automations or AI robots or the autonomous driving, those are the kind of a path that we are looking at from the SoftBank Group's robotics business. More specifically, these are the investees for the robotics business, Balyo, Symbotics, GreenBox GB, AutoStore, Berkshire Grey, so distribution solutions, warehouse solutions that we are partnering, working together to develop the business further. We made an announcement on TEMPUS and press conference was led by Mr. Son. Please take a look at the video first. [Video Presentation] Yoshimitsu Goto As you can see on the slide, in the United States, TEMPUS as a partner network of 2,000 hospitals and they've got 7.7 million number of cancer records in the U.S. Imaging data, sample sequences and DNA and RNA data, they've got plenty of data. And of course, they expanded data set so that they can build a leading AI-enabled diagnostic platform in the world. It's still progressing. And there are opportunities for them to play a key role. They have three product offerings: Genomic Testing, Medical Data Aggregation & Analysis, and AI Insights and Therapy Selection. And people in the medical field are working so hard and I believe that this kind of technology help them to reduce the workload and work time and the TEMPUS business should play a key role in that process. And we established a joint company, SB TEMPUS. SoftBank Group, while investing in TEMPUS AI also invested in SB TEMPUS, likewise, TEMPUS invested in SB TEMPUS. And they will start in full operation as of August 1 -- they started full scale operations as of August 1. And looking at the numbers, invested amount for the first quarter was about JPY1.9 trillion, significant increase from the past two quarters. Looking back to history, usually, Q1 had a heavy investment quarter because some deals were done earlier than planned until the March and numbers were revealed in April and onwards. In any case, we have been building investments in a steady manner. Talking about the divestment and monetization, we continued capital recycling. For T-Mobile shares, 6.7 million of T-Mobile shares sold to Deutsche Telekom for monetization. And also all interest in Fortress sales were sold to Mubadala Group. And also, likewise, SoftBank Vision Fund sold investments, including SenseTime and Paytm, for the purpose of monetization. So all in all, about JPY400 billion was monetized in FY '24, quarter one. Let me talk about Arm now. First, our revenue continues a record high. In fact, above analyst consensus of $903 million. Operating income up 65% year-on-year at $448 million. The other day, when Arm announced their financial results, they shared a guidance. Revenue for the second quarter guidance is $780 million to $830 million. For the full year, our guidance stayed the same from a conservative perspective. Arm is growing steadily and in healthy manner. And Mr. Son has been figuring out growth strategy for Arm and he places Arm at the center of the group strategy. And going forward, we want to make sure that we grow Arm as a business to deliver specific cash flow and at right timing, I believe that Arm will be appreciated and evaluated accordingly. In the last quarter, Microsoft announced in May, Copilot+PCs for high AI performance integrating Arm-based chips was announced. And on this chart, if you take a look at the far left, Armv9 contribution. Royalty revenue is very predictable, steady revenue that can be expected and Armv9-based chips contributed 25% to the revenue. And also 20 million developers accelerating software development on Arm. It was 15 million the last time we shared with you the number, now nearly 20 million developers are helping Arm's growth. And major hyperscalers, the mega companies in the IT sector, 10 hyperscalers adopt Arm chip for their data center building and implementation. I believe that Arm will further grow for a long time. Next is Vision Fund. So gain or loss on investment in a quarterly basis, it turned to positive this time. And gaining those cumulative gain and loss on investments you see either almost flat, and I believe we are on the path to the improvements. Vision Fund 1 and 2, if you breakdown, Vision Fund 1 for this quarter was very good, JPY2.8 trillion. Vision Fund 2, because the timing of the investment was relatively high in book value and also, we still haven't spent enough time since the investments, so I believe that the Vision Fund 2 -- Vision Fund 1 has recovered over time. So I believe that the Vision Fund 2 will also take some time, including some new investments that we would like to follow or the good path to the improvements. And the cumulative investment return, $89.5 billion other investment cost and now it's cumulative investment return $109.1 billion. Vision Fund 2 investment cost, $53 billion. Cumulative investment returned $31.1 billion. So, we would like to make sure to fulfill the discrepancy here. In the investees or the portfolio companies status, this quarter, we had one, XtalPi went public this quarter. And other than that, mainly late-stage the portfolio companies are good in terms of possibilities in becoming a public company, and we are very excited to see those. And these are the good examples of the investments that the Vision Fund made recently -- Vision Fund 2 made. Since that very tough time last year that we have shifted to the offense mode again. And we are back to the investment mode. But at the same time, we are very selective and also very careful in discussion at the investment committee to make sure that we are carefully selecting the investees from the Vision Fund 2. Last, but not least, our financial strategy. Past three months rating has been very positive for our companies. Of course, we took some time to come this way, but JCR first upgrade in 12 years, S&P. There are some discussions that I also shared with you in our earnings result announcement, but a year ago because of the listed shares -- listed asset shares was the reason to downgrade it, but this were recovered and back upgraded in just one year. Many changes happening, but our financial policy never change. So, this is the most highest priority. And while keeping this financial policy, then that we'll be able to keep investments amount and our strategy, too. And equity markets, credit market, wholesale, retail, in the varieties of the aspects, we also like to make sure that we can build and keep the good relationship with those investors. And for that, Investor Relations will be also -- we will make an effort in investment relation activities. So once again, no change in our financial policy, financial strategy for fiscal 2024. Today, we also announced our share buyback. Of course, there are many agenda to discuss for this matter, but at our Board, there are enough discussion made and we believe this is the time to and we were able to choose the best timing to decide this. This time, we decided JPY500 billion or by one year to execute. In what way and how we -- to purchase is our discretion. Once again, the first quarter summary. As you can see from the number one to number six, I believe I were able to cover this agenda in our presentation. Of course, market is tough, but our financial status is very robust and stable and our aim ASI that we would like to bring it happen as early as possible so that we'll be able to provide, we would like to support providing ASI services and at the same time, we would like to lead such a movement as a SoftBank Group. That concludes my presentation for today. Thank you very much. Question-and-Answer Session Operator Now, we'd like to take questions. First, we'd like to take questions from the floor. [Operator Instructions] First, from the floor. Unidentified Analyst [indiscernible]. Two questions. Looking at the latest market condition, you mentioned that your financial policy remains the same. But I wonder if it could have an impact on your investment policy? NAV goes down a little bit, are you going to be more cautious or careful? And the share price go down, and that could be an opportunity for you to make an investment. Would you like to accelerate the pace of the investment? What's your view in terms of the market condition versus the impact on your policy? And the second question, Goto-san mentioned that the IT bubble in 2000 and recent situation are similar and you mentioned that the situation is not bad. Could you elaborate on that compared to the Lehman shock and Black Monday? Because you have high expectations to AI, for example, that is more real, is that why you mentioned that this situation is not bad? So again, if you could elaborate on your view, when you mentioned the situation right now is not bad? Yoshimitsu Goto Thank you very much for your question. The first question, well, the day before yesterday, the biggest dip in history and the yesterday biggest rise in history, the market is so volatile, and we are, of course, cautious. How the market reacts could lead to valuation when it comes to new investment. I think, in a sense, maybe we should be protective and conservative. But in general, I think, it's a good opportunity for investment, in general. For example, we have JPY4.3 trillion of cash position, people asking, how are you going to use the cash position? We have JPY4.3 trillion on our balance sheet, which means we have a very healthy financial position. So we already have such a financial healthiness. When you make investment, the healthiness gets worsened, but we need to figure out the best balance. We want to make a new investment. And also, we want to focus on return to our shareholders. We made announcement of the share buyback, for example, because we thought now is a good time. When the market trend is downward that could have -- that could pose an opportunity for investment. But again, since the market is so volatile, we have to be careful. But in general, a good opportunity for new investment in general term. To your next question. So, I don't want to elaborate too much on what I said, but when the dotcom bubble was bursted, the leading companies back then were Amazon, Microsoft and Google that emerged later. In fact, those companies are the top 10 in terms of market cap. Now back then, we didn't really appreciate their value in the year 2000. Something was unclear, but we had a high expectation to the Internet, but we didn't know exactly how much added value the Internet could create. Let's say, we have property and how much the property cost. There was a truly bubble. And when it comes to speculative investment, there is a value for sure, but in the era of bubble and in the era of evaluation for the future opportunity, there might be differences between those days. Operator Well, next question long-sleeve white-shirt person, please. Minoru Satake My name is Minoru Satake from Nikkei Newspaper. I have two questions, please. First, current equity and credit volatility globally, what do you think is happening? That's something I would like to ask you. And also your financing, does it going to be impacted? I believe that you are raising in yen and investing in overseas. But the rates, loan or refinancing, bond issuance will you continuously address those? My second question is about buyback. Is this -- I believe that Masa referred to [indiscernible] discount, but is this because of the too much discount? Is this something that triggers to come to this end? And also share price sharp decline, was that the main reason for your buyback execution? Yoshimitsu Goto So market volatility, the reason I believe there are many scholars in the world. So maybe I can only see those, read those academic people also explaining analyzing. But sometimes I may not sure that those are -- that, for example, the employments carry trade, there are many aspects can be a reason for that. But in the past two days, volatility, may not be only the reasons. We cannot really calculate that. And there are speculations or -- in the past six months of the market movements and investors, what kind of activity they should be doing. And that judgment has been amplified, and that's somehow that I see the current situation. For financing, at this moment, we don't really see any big change. We've been following the credit market and looking at the secondary market and the CDS, but I haven't seen any material issues or material situations for those market. If you see credit point of view, our healthiness or soundness of the balance sheet is the most important and that actually hasn't really changed. Our soundness of balance sheet has not really changed, even we see such a market volatility. And for the credit investors or analysts and myself, I believe we are on the same page from that understanding. What was your second question, once again, sorry? Buyback. For the decision on buyback, there are many agendas when it comes to buyback. Like you said, net asset value discount is one aspect. Share price itself is also one agenda. Environment, when it moves dramatically, how it goes, it can be -- in the past few weeks ago, our share price was like JPY10,000 and all of the sudden, went down to JPY6,000. And how they're going to move? It's not a logical figures for our share price, but market itself is actually overshooting or down shooting and goes ups and downs. Sometimes it declines continuously, sometimes, it's not. So whenever we have such a worst-case scenario, then we decide what can we do for the stakeholders. And we do -- I believe that, that needs to be communicated to the market. What is the preparations? What is the framework that we are preparing for? But at the same time in the previous question, that can be a good opportunity for investment as well. And if this confusion even goes further, then the even more important thing is our balance sheet soundness. So, we would like to take a good balance in between those two and decide on this JPY500 billion of the buyback. Of course, return to shareholders is one agenda for us as well. So the answer is not one answer. There are many kind of agenda and come to this conclusion of announcing this buyback program. Minoru Satake And it was Elliott, come to your thoughts on the buyback decision? Yoshimitsu Goto Investor, Elliott, you mean? I don't discuss any specific communication with specific investors. Important thing is our decision is made by ourselves. That's all. Operator And the next question from the floor. Unidentified Analyst [MJ] (ph) from The Bloomberg. Again, about the buyback. So communication with Elliott or opinion of Elliott did not have an impact on your decision of the share buyback, again? Just to ask you again. Yoshimitsu Goto Like I said, I don't discuss with you about a specific dialogue with a specific investor. And let me reiterate. For this decision of share buyback, we have made our own decision after discussion at the Board level. So, we are not a company that has made a decision after impact from somebody else. Unidentified Analyst And then the question, the first quarter's investment went up so much compared to the previous fiscal year -- sorry, first quarter. So again, for the full year, the Group and Vision Fund, could you have a comment from the Group Goto-san and Vision Fund from Navneet maybe, how much investment are you planning for the full year? Yoshimitsu Goto We don't have budget for full year when it comes to investment. When we discover a new opportunity, we make investment. That's how simple it is. Unidentified Analyst And how much what makes -- what decides the amount of investment? Yoshimitsu Goto We have a finance position, of course, our loan to value, our cash position. Those are key indicators need to be maintained. First, that's the highest priority, then that could lead to investment capacity that have. In 2022-2023, about JPY3 billion investment was made, respectively. From our experience perspective, this kind of a speed of investment could be the base. But if we find more opportunities, we have a good capacity for investment. So, we will see whether those good opportunities will emerge. Unidentified Analyst Thank you. Operator Any other questions? The person in the front row. Unidentified Analyst [Narabe from Asahi Newspaper] (ph). So the previous question -- may be similar to the earlier question, few days ago, Intel was shocked, was called in U.S. equity market, Intel share price declined by 20%-or-so. That was -- that came along with the headcount reduction and also the delay in the semiconductor. Those are the kind of people's expectations, not only Intel, but other semiconductor names are declining same as Arm. Under such an environment, I mean, how do you see such a situation? Is it AI bubble or semiconductor investment or the NVIDIA itself, may be bubble? Those -- there are people saying that, too. And how do you see that situation and would that be impacting to your investment strategy? Would you please answer those? Yoshimitsu Goto Intel shock. There are many people saying about the reasons why or what. I read those, too. And also in the past few weeks NVIDIA and many names, semiconductor names. In Japan in overseas, showing some declines, and there are many insights and each irrespective insights has good reason, but the movement was large and sudden. And in the past six months, I believe they have increased so that there are room to decline as well. And the increase was probably because of positive valuation accumulated in the past six months that built such a movement in share price. And maybe right now is a kind of a timing to revisit the valuations of those. Of course, in the past six months, the market judges those valuations, and now that the people start revisiting a little bit critical ways or checking whether that's real variations. Of course, we are supporting AI, and we are believe for AI to be changing people's lifestyles and we are very much believe that too that the AI is going to be changed. Of course, that the timelines are a bit different. We -- timeline may be needed longer than we expected. And in the meantime market, like a Internet bubble to year 2000 has some kind of volatility there and the same good things could happen. So, we have kind of a very sound balance sheet and company so that we can take time to look at those movements, we don't want to do any extreme things when the situation is volatile. Operator Thank you. Any other questions from the floor? Unidentified Analyst Thank you. [indiscernible] I have one question about the share buyback. Sorry to ask you again about the share buyback. Going forward, do you have a plan to increase the volume? And what kind of discussion was made at the Board level? Yoshimitsu Goto So this amount or the size was also discussed at the Board of Directors meeting. That was the main -- one of the main agenda, and we have a good discussion there, and we come to the conclusion to come to this size. Not increasing from here, but we may consider a new program when necessary. This time, we come to this conclusion. But in the Board of Directors meeting, we always are keeping return to shareholders as a very important agenda to discuss. We've been continuously discussing that. And this time, although this happens while last time was a bit a while ago, but still that every Board of Directors meeting, we always have in this discussion. Operator Thank you very much. Any other questions from the floor? If not, now we'd like to take questions from the Zoom participants. [Operator Instructions] First, [Nagoshi-san] (ph) from NHK. Unidentified Analyst Can you hear me? Yoshimitsu Goto Yes, we can. Unidentified Analyst Again, my name is Nagoshi from NHK. I have two questions, maybe similar questions. In 2017, SoftBank Vision Fund was established and you transferred from a mobile business to investment business it's been several years. You have been focusing on investment in AI. And what's the performance? Where should I look if you want to see the performance of your investment in AI sector? That's the first question. And second, ASI. You often talk about ASI. ASI is not materialized yet. And also, you mentioned Internet bubble in 2000, and there were Google and Microsoft back then as well as now. Now NVIDIA, OpenAI, Google are leading the ASI or AI sector, so what kind of role that SoftBank Group wants to play in the era of ASI? If you could elaborate on that, please? Thank you. Yoshimitsu Goto Yes, Vision Fund started in 2017, and you asked about the performance, investment and performance, of course, you want to see the performance because it's a fund business. At the time of 2017, the AI world back then and the AI world that we are seeing now is very different. Vision Fund, Arm in 2024 and SoftBank Group in 2024. Through the Vision Fund, we have been trying to future markets. We have been working hard to make investments for the future, and we have been building our expertise through the course. In that journey, we had seen ups and downs. But the investment in AI has just started and failure investment isn't a good experience. So we want to take it as an asset so that we can leverage the expertise that we have built for our future investment. And the expertise that we have built is the biggest asset that we have. And what was the second question, again, sorry? Unidentified Analyst ASI. Yoshimitsu Goto Yes, ASI. The concept of ASI -- of course, Mr. Son and us have been talking about the concept of ASI, I'm not an engineer background and I a finance guy, so I am learning ASI. In fact, we are all in the learning process. Who could be the leader of ASI? Nobody knows. Some potential leaders are there including the names that you mentioned, those companies should be able to lead ASI and communication with the management team of those companies should help us to learn more. And Masa, in fact, mentioned at the AGM, he talks with Sam of OpenAI and leaders of the hyperscalers. He has been talking with those leaders. And again, we're still in the learning process. But at the same time, we have a chance, we had opportunity for try and error. We can accept some risks because we are still at an early stage. So in that process, we'll see what we should do to capture the potential of ASI? Unidentified Analyst If I may ask you a follow-up question. You talked about Graphcore in your presentation and I'm sure that you have Arm leading your business. You acquired Graphcore, but for ASI, you put semiconductor at the center? Yoshimitsu Goto For ASI or AI itself, when you think about AI, the heart of AI definitely is the chip and the semiconductor and chip and Arm is the leader, absolute leader of the market in terms of chipset and the brain of the AI. So naturally, Arm plays a key role in our AI strategy. Operator Thank you. Now next question from Mr. Masuno from Nomura Securities, please. Daisaku Masuno Yes, this is Masuno speaking. One question. On Graphcore acquisition. Objective of this acquisition, I have only read the newspaper article and the Microsoft who didn't use, so that has to reduce the headcount and so on. And I believe securing the headcounts because do have an engineer, but excluding Arm, SoftBank side does not have enough engineer. So I thought that you tried to lock-in those number of engineers by -- through the acquisition of Graphcore. Only reading the articles, those employees of Graphcore lost stock options. And I wonder that can you retain those employees. So retentions of the employees, how you collaborate with engineer that I wanted to hear your objective of the acquisition of Graphcore, investment in Graphcore? Yoshimitsu Goto So as I mentioned earlier, Graphcore in AI development we do require lots of resources with expertise on this area. But not only the Graphcore, but we do a lot of M&A transactions with many companies in the past, people is the most important thing. So, when we acquire or we invest in any company, having such resources, having such people is the main reasons for the investments. You mentioned about some articles, but that's there and we would like to make sure we have a good technology and also people who support this technology. That was the main objective for such transaction. Daisaku Masuno So at the AGM, Masa said, he found the missing piece. Is this Graphcore -- does he refer to Graphcore? Yoshimitsu Goto That we have to ask Masa. Daisaku Masuno Okay. Understood. Thank you very much. Operator Thank you. The next question is from [Mr. Hyuga] (ph), Bloomberg. Unidentified Analyst Can you hear me? Yoshimitsu Goto Yes. Unidentified Analyst Thank you. The earnings result of the first quarter bottom-line was negative. But for the full year, negative numbers for three consecutive quarters. But you posted a net loss for the first quarter. I understand your explanation of NAV, but for general investors, whether a company makes a loss or gain are very important for general investors, including retail investors. So, what's your view on the net loss you posted for the first quarter? And second quarter, can we expect gain as opposed to loss? Yoshimitsu Goto Thank you for your question. We communicate with investors and how I feel -- how we feel by communicating with investors is as follows: Investors view net asset value as the most important KPI. Of course, profit is important and ups and downs of profit is the measurement for decision for the investment. I think, they are looking at a net asset value as a tool for the making a judgment of the investment as opposed to net gain. For the current quarter, I cannot make any comment on our expectation of the net income. Of course, there is something that we can control and there's something we cannot control, for example, ForEx. We know that there are different opinions, but again, I cannot make any comment on the expected income or loss for the quarter. Unidentified Analyst Related question, when you turn a positive, would you -- do you want to emphasize the positive number? But when it comes to negative numbers, you may want to -- you may touch upon share buyback, for example. You mentioned net asset value is very important KPI, but without share buyback, I assume that you might make a different move for investment without a share buyback. It's difficult for us to understand your performance. So, in order for us to -- or help us to understand your performance positive or negative as the bottom-line is, I think, very important. So again, for the outlook for the current quarter, there are other uncertainties, so you may not be able to say in exact numbers, but direction-wise, I understand your quality is good, there are investors with different asset classes. So again, could you show us direction about our expected earnings results? Yoshimitsu Goto Like I said earlier, I cannot make any comment on expected bottom-line outlook. We don't disclose outlook because we know that our bottom line changes depending on the market condition and other conditions. That's why we don't disclose the guidance. And whether positive or negative, I'm sure that there are people in terms of in positive or negative, but again, our investors, I believe when you see success as an investment company, I believe that our investors are looking at NAV to see whether we are successful or not. And I hope that I answered to your question. Unidentified Analyst Thank you. Just to follow up. Looking at the IPO market, the market is very volatile and turmoil and very difficult to go IPO. In fact, IPO numbers are going down. So from the recoup of investment perspective or monetization of investment or exit from the investment perspective, what's your outlook for this quarter? Yoshimitsu Goto Again, outlook, I cannot make a comment on the outlook. Sorry about that. Operator Thank you. For the interest of time, this was the last question for this meeting. Thank you very much. This concludes the SoftBank Group Corp. earnings results announcement for three months period ended June 30, 2024. Thank you. Thank you, again. The video footage of this meeting will be distributed on demand from our corporate website. Thank you very much once again for joining SoftBank Group Corporate earnings results announcement for three months period ended June 30, 2024.

Nippon Telegraph and Telephone Corporation (NTTYY) Q1 2025 Earnings Call Transcript

Takuro Hanaki - Head of IR Takashi Hiroi - Representative Member of the Board and Senior Executive Vice President Toshihiko Nakamura - Executive Officer, Head of Finance and Accounting Thank you very much for attending today despite your busy schedules. We would like to start the briefing session on NTT's fiscal year 2024 first quarter financial results. I am Hanaki from the IR Office and will be facilitating today's session. First, I would like to introduce today's attending members. Hiroi, Representative Member of the Board, Senior Executive Vice President; Nakamura, Executive Officer, Head of Finance and Accounting; Hattori, Executive Officer, Head of Corporate Strategy and Planning. The audio of today's briefing is streamed live. We are planning to have on-demand streaming on our website at a later date, so we seek your understanding on this matter. As for today's materials, please refer to presentation materials on our IR website. On the first page of the material, points to be noted are listed, so we kindly ask you to please go through them. Today, Senior Executive Vice President, Hiroi, will explain the overview of our financial results, followed by Q&A. Thank you very much, Hiroi is my name. Thank you for joining us despite your busy schedule. We appreciate your attendance at the presentation of the financial results. So allow me to present to you the financial results for the first quarter of fiscal year 2024. As far as the financial results are concerned, operating revenue increased, but operating profit decreased. As for operating revenue, this increased ¥129 billion and reached up to ¥3.240 trillion due to gains in operating revenue in the Integrated ICT Business and the Global Solutions Business. There was positive foreign exchange impact of roughly ¥80 billion. As for operating profit, there was drop in telecommunication service revenue for fixed and mobile. Also, there is cost to reinforce customer base and for removal of unnecessary assets in order to reduce maintenance costs at NTT East and West. There is also cost pertaining to disaster recovery. So operating profit decreased by ¥38.8 billion and went down to ¥435.8 billion. Although operating profit declined, I believe the performance is very much in line with the guidance we have given at the outset. We will continue to reinforce customer base through sales reinforcement and network quality improvement. And also on top of steadfast cost reduction and expansion of enterprise business as we work to achieve consolidated profit plan. Profit decreased by ¥101.6 billion and went down to ¥274.1 billion due to the drop in operating profit and rebound from the proceeds from the sales of shares last year. EBITDA decreased ¥23.1 billion year-on-year and went down to ¥815.3 billion due to the drop in operating profit. Please turn to the following page. Please turn to Page 5. I'd like to talk about the contributing factors by segment. Let me start with the Integrated ICT Business segment. Even though mobile communication service revenue continues, growth in finance payment, especially in the Smart Life business sector helped to drive increase in operating revenue. Although operating profit increased in Smart Life business, overall operating profit decreased year-on-year due to increase in cost to reinforce customer base. We will work to reduce costs and reinforce customer base in order to deliver the annual plan. As for Regional Communications segment, operating revenue and operating profit decreased year-on-year due to drop in network revenue as well as the removal of unnecessary assets to reduce maintenance cost and also replace aging facilities. We also saw cost increase due to disaster recovery cost. So therefore, both operating revenue and operating profit declined for the Regional Communications segment. Both revenue and profit are in line with the plan, and we will work to pursue selection and focus of business and actively tackle fundamental cost reduction as well as operational efficiency improvement. Let me now turn to Global Solutions Business segment. NTT DATA provided details when they made their financial presentations yesterday. But on top of increased revenue in public sector finance and enterprise sector here in Japan, foreign exchange impact led to increase in both operating revenue, while operating profit was flat. As well as the other segment, we recorded an increase in operating revenue and operating profit driven by expansion of sales of housing at NTT Urban Solutions. So that is the outline of the financial results rather. Please turn to Page 6. I would now like to talk about shareholder return. We will carry out share buyback of up to ¥200 billion in order to improve capital efficiency. And the period will be roughly from August 8 of fiscal year 2024 up until March 31, 2025. This is done to improve capital efficiency and to enhance shareholder return, especially you see the market volatility in the last few days. Speaking Japanese, stocks are struggling, but it's important that we provide strong shareholder return. We will continue to work hard so that we'll be able to support the overall share price in the marketplace. Next, let me talk about some of the topics, starting from Page 8 and onwards. Page 9, first is established NTT AI-CIX to promote linked AI is what I would like to explain. To realize the shift from conventional individual AI that optimizes each business and industry to a linked AI that links in a cross-business cross-industry way, NTT AI-CIX will be established in August this year. By utilizing cross-business cross-industry data and realizing the optimization of the entire supply chain, we aim to solve social issues such as labor shortages. Next, Page 10, please, promoting the further development of tsuzumi. NTT version LLM tsuzumi's situation. Since the commercialization in March 2024, customers from a variety of fields showed interest, and we are now making over 400 proposals for implementation. We have received orders from companies such as Yamato Transport Company and [Fukui Prefecture] and others. In addition, we have started that tsuzumi partner program, and Transcosmos is participating in it, and we will start providing tsuzumi on Microsoft Azure. Going forward, we will collaborate with our partners to accelerate the expansion of tsuzumi, both domestically and overseas. And Page 11. This is nwm ONE, we call it nwm ONE. You see this graphics here and photograph, we will be selling the device and headphone. Conventionally, in the name of nwm we've already sold a product. But in addition to the existing lineup utilizing NTT's proprietary technologies, PSZ and Magic Focus Voice. We have made this in a double-equipped for the first time and launched the nwm ONE, which is an open ear flagship model. And this is sold on Amazon, so I would like you to make the purchase of it. I myself is actually using this. And it is very -- it's providing a very good sound quality is what I feel. If you download the app, you will able to adjust various levels of the sounds. And even though you're doing a remote working, you can listen to the content of the meeting itself. And because it's open ear, you'll be able to hear outside sounds as well. So I think it's a good product for remote working. The price is ¥39,600. So I would like you to make a purchase of this. And next, Page 12, it is the current status and future of renewable energy business. We, in 2023, we have acquired Green Power Investment, a leading domestic renewable energy company. And added wind power generation to solar power generation capabilities and anticipates achieving a renewal energy acquisition forecast of 8 billion kilowatt per hour per year by 2030. NTT will strengthen the support for customers by green transformation by leveraging the group's renewable energy-related assets, technologies and solutions. And next, Page 13 is showing the status of the number of shareholders, the number of shareholders' trend since becoming listed. After the stock split announcement, the number of shareholders continues to increase. And as of the end of June of this year, compared to before the stock split announcement, the number of shareholders increased by 2.5x to 2.26 million, and this is setting a new record high. As shown on the right-hand pie chart, the age composition of shareholders has become quite diverse and various age groups shareholders own our shares. And for us, this shareholders composition, we take it as a positive situation. Lastly, Page 14. Here, we are showing the progress under the medium-term management strategy. For this part, we are showing the progress since this May, and it is as shown here. So I'd like you to read through them. This concludes my explanation. Thank you very much, Mr. Hiroi. I would now like to go on to the Q&A session at this juncture. We'll take questions from those of you who have registered in advance and who are connected to the web conference system at this moment. You have any questions, please use the raise-hand button of the web conference system. If you wish to cancel your question, please press the raise-hand button once again. When we designate you, we will call out your name and affiliation. We ask you to unmute your microphone. Please make sure that you're able to unmute the microphone over the web conference system. When your question is over, please make sure that your microphone is unmuted until we complete the response. So we'll now take questions. So from Nomura Securities, Mr. Nomura -- Mr. Masuno, correction, please. Go ahead with your question. Daisaku Masuno Thank you. My name is Masuno from Nomura Securities. Can you hear me? Thank you. I'd like to ask two questions. My first question is in regard to Regional Communication Business. For this period, you promoted cost reform in this sector. Can you elaborate more on the cost transformation and cost reduction plan that you're pursuing at this moment? What are you specifically doing in order to reduce cost? Also for this fiscal year, I think you would be addressing duplicate costs. So this should have negative impact on your profit and loss. But what about the next fiscal year? Will the cost transformation efforts turn, bring about positive effects next fiscal year? That's what you've been doing. How much positive impact do you see? Can you talk about cost structural reform? What type of structural reform you are queuing at? And what we can expect as a way of benefit for the next fiscal year? That is our question. Thank you very much. Takashi Hiroi My name is Hiroi, let me respond to your question. I'd like to explain in relation to your question, sir. So with regard to NTT East and West, we try to reinforce through cost competitiveness. And there are major four pillars that we're working on in order to improve the cost structure. First, we want to improve the operational efficiency. So we're actively pursuing GX. We want to leverage GX and also transform the fundamental business process overall. We have various call centers that are now being turned into the automatic technology. And we're now shifting to web system in order to respond to customer inquiries. So we want to transform and improve our operational efficiency in these works. Also the other is to simplify our service delivery. With regard to unprofitable businesses, we want to scrutinize and consider possible elevation of those services. We could consider, carry out and accelerate service migration to other forms so we can transform from traditional service delivery to more advanced and more efficient service delivery. So if that is possible, we want to migrate to this type of new type of service delivery. That is the second pillar. The third is to improve efficiency in the utilization of facilities. So we want to pursue efficiency improvement in network as well as non-network facilities as well. Also with regard to idle facilities, utilization is not high, we're trying to remove those facilities as well. That will translate to reduction of maintenance costs. And we'll be able to reduce waste in operational activities. The fourth pillar, NTT East and West is pursuing outsourcing of various activities. So we want to reduce those costs pertaining to outsourcing. This is not easy to do, of course. In actuality, we need to simplify the way in which we place orders. We also need to internalize some of these operations internally. And we also need to improve the skills of the people and the talent at NTT East and West. Through those activities, we hope to reduce the outsourcing cost at NTT East and West. So these are the major pillars based on which we're trying to pursue structural reform. Now how much impact will this have in fiscal year 2025 and 2026, as far as that is concerned, we're trying to scrutinize the possible benefit. So if you could please bear with us before we can talk about the actual benefit. That is all. Daisaku Masuno Based on our presentation on your website, we see bar graph, you're talking about duplicate cost. This will have negative impact on P&L, but that negative impact will eliminate, evaporate next fiscal year. So you get the impression in that you see recovery in the regional communication business from next fiscal year. If we can see those positive impact in actual numbers, I think the people in the market will be -- seek more secure. So can you give us some numbers pertaining to the bar graph you indicate in your -- on your website? Takashi Hiroi Yes. I take your point. We know that we are causing various concerns on your part. As far as we're concerned, we're taking large-scale measures and the substance of these measures are complicated. So we want to work. And we would appreciate your patience as we can work out the benefit of those activities. But the trend is out there. After fiscal 2025, certainly the benefits and outcome can be seen. So we would appreciate your understanding at this juncture. Daisaku Masuno Thank you very much. If I can change to my second question. It's about the Integrated ICT Business. That's my second question. Based on your disclosure, we've got the fixed telephone business, as you explained earlier, even during the press conference. With regard to migration to IP network, you see a decline in the fixed line telephone business revenue. And also mobile side you see decline in voice service revenue. And overall voice service revenue is on a downward trend. So there is some negative impact from that. So we see a significant down trend in the revenue. What will happen to the trend going forward? We realize that first quarter is the most difficult one for you. But with regard to migration of fixed line telephone service, the negative impact of migration with regard to fixed line telephone service will become much smaller. So can you talk about what will happen from the first quarter up until the second quarter and the third quarter? Will the impact become smaller as we go through the next few quarters? I would appreciate your explanation, sir. Thank you. Takashi Hiroi Okay, thank you. Hiroi again. Let me respond to your question. With regard to impact from PSTN migration, that will be recorded in NTT Communications, and NTT Communications will be experiencing some downward decline in their operating profit as a result. But as you pointed out, on a quarterly basis, the impact from this migration will become smaller as we go on to future quarters. Right now, customers who are using PSTN services are now being switched to -- are now being asked to switch to a new IP-based network service. So going forward, we want to make sure that we'll be able to pursue this in a manner which will not have a negative impact on the performance going forward. So throughout the fiscal year 2024, there will be some impact from the migration, and there'll be some impact on a quarterly basis as well. But we hope that throughout this fiscal year, we'll be able to more or less control the negative impact from this migration. And hopefully, the impact will be much controllable, starting for next fiscal year. You also talked about mobile communication impact. This might be the repetition of our former response. With regard to ARPU and subscriber base, yes, we are struggling somewhat in both ARPU and in terms of the subscriber base. With regard to ARPU, there's impact from the introduction of [e-NMO] program. So there's impact of structural decline in the ARPU as a result of e-NMO. But then gradually, as we introduce new billing plans, there'll be some migration of people trading down their data plans. But eventually, there will be people who will switch to XMO, the new program. So there will be some impact that will lessen the impact of our trend in the ARPU. But structurally, there will be some continuation of downward trend in the ARPU for a little while. But then on the other hand, there's the impact from announcement of the strategic new billing plan. As seen from the previous quarter, we've been reinforcing our sales, especially at the large electronic retailers. But when we take a look at the first quarter, we will yet to see major impact from such activities at this moment. We're not yet able to demonstrate the positive impact. We're beginning to see positive impact, positive signs rather. And we believe that we'll see some improvements from the second quarter onwards going forward. So as a result of that, with regard to mobile service revenue, we will be able to lighten the downward trend in this mobile service revenue. We want to absorb the negative impact through cost reduction and achieve the annual profit plan at the end of the day. We are also doing POINT CLUB program as well. And these POINT CLUB programs are very beneficial for existing customers for DOCOMO. We're expecting positive impact from those elements as well. Thank you very much. We would like to take the next question. SMBC Nikko Securities. Mr. Kikuchi, please unmute and then ask your question. Satoru Kikuchi This is Kikuchi speaking. I have two questions. This may be a bit of a qualitative question. When you made DOCOMO wholly owned subsidiary, and it's been four to five years since then, was there something good of that that came about? If there's something you felt, please share that. From the outside, if we look at it in the stock market and DOCOMO facing each other directly and we had a direct discussions and regarding the KPI, everybody was looking at them in detail. But we keep looking at and the ARPU continue to decline, and that's going to continue unless you correct this brand strategy they have right now. It seems like it is worsening. And your company, the holding company, you wholly owned DOCOMO. I'm just wondering if there was something good that happened. If you can give us the summary. I would like to hear it this time. If there is such thoughts and if it's difficult to share today, you can share at different opportunity. But Hiroi-san, if there's something that you can share as the good point of wholly owning DOCOMO, I would like to know about it. That's my first question. Takashi Hiroi Well, in fact DOCOMO, we bought out DOCOMO. And while we were doing that, Communications was made into a subsidiary company, and they are proceeding in their businesses. The effect of this, especially in the enterprise business area, towards our customers, it is being positively received is how we are looking at it. Well, we have spread of strong matters such as PSTN and since the last fiscal year. But excluding these special factors, overall, the mobile and the fixed line communications, there is a need from the customers of those being bundled as I said. And in addition to that, we're able to propose the network and the system side as well. So I think in this sense, we were able to generate a positive effect. And furthermore, in the consumer telecommunications, DOCOMO, we're conducting this business alone. And right now promoting it as a business being wholly owned. This is not the area that's going to show any immediate changes. And the DOCOMO's strategy they have right now is not showing the positive effect yet in acquiring new subs or improving the ARPU. However, you have expectations of them fully executing what they're planning to execute and improve the ARPU in the subs. Satoru Kikuchi Thank you very much. My second question is something that I always discuss with you. It's regarding group finance. NTT directly conducts the data center business overseas and you're making investments and NTT DATA is currently listed. So your place underneath NTT DATA or within DATA group. And the interest expense. You've been saying that your direction is to suppress that. And Nakamura-san is saying that as well. But in fact, that is increasing. And in order for that -- you're saying that you're not increasing it, but you are increasing it. Is there means through group finance to solve this situation, making the data centers into the REIT is what was mentioned. However, will that in fact solve the situation? And doing the calculation on my own, it's not clear to me either. So is it really going to have a positive impact on the EBITDA is my question as well. Therefore, don't you have any other measures that you can implement is what I would like to know. Toshihiko Nakamura Thank you. I would like to answer to that question. Currently, we are expanding the data center business. And basically, we subtract the debt -- excuse me, we are taking the debt and expanding the business. So the more the debt increases, then the payment interest will increase. There is that mainstream trend. If there's that structure that exists is what I'd like you to understand. And within that given situation, how much are we -- how were we going to suppress this increasing trend. The first is in the yen-dominated way. We've been executing yen carry as well. And regarding this last year, around the same timing, I did mention it, and we executed around the fall season of last year. And for us, we have to refrain from taking foreign exchange rates blindly. The Fed's direction and the BOJ's direction since last year, we are tracking that. And there were risks that it was going to be a stronger yen. So depending on the situation, we press the gas pedal or press the brake pedal. And this is just looking at the result, but if looking at the situation that happened the last several days, if we put too much -- if we press on too much of the gas pedal, then the risk will increase. And we can lower the interest expenses, but foreign exchange risk will occur. So there was a possibility of that happening and cause trouble to the shareholders and also utilizing some REITs and transferring some of the data centers over there. Reducing the overall volume of the debt is one measures that we're looking into and considering. So it depends on a certain level of volume. And depending on the volume of debt, the interest rate cost can be suppressed, and we can expect that is how we think. And also structurally speaking, the major trend that's occurring right now, do the asset builds up to a certain level and once it become that they will generate a cash flow. And when that scale becomes large, if the investment amount required to further expansion, then it will reverse and then the debt will start to go down. That will be the new flow. But currently, we are at the stage of expanding and increasing investments. So the debt is increasing. So we're at the stage where the debt is increasing as well. So regarding the situation for the growth strategy, we are causing some worries, but I would like you to understand our stance. Satoru Kikuchi Exceeding the ROIC interest rate, you are financing at that level. And the investment period is at five to 10 years and having the reverse situation probably will be 10 years or 15 years from now because you are managing the business. And while we are studying your company, whether we will be able to see that fruit or not, it's not clear. I'm just thinking having too much advanced investment. Is it really correct or not? So I would like to learn more from you moving forward. That's all. Toshihiko Nakamura It's not been that long, but at an early stage possible we would like to increase the margin and would like to be able to show you a certain level of return and we'd like to implement initiatives to realize that. So I would seek your understanding. Thank you. Takuro Hanaki Thank you very much. We'll go on to the next question from Daiwa Securities, Tokunaga-san. Please unmute your microphone and then go on to your question. Please go ahead, sir. Thank you. My name is Tokunaga from Daiwa Securities. Thank you for this opportunity. Thank you. I'd like to ask two questions. My first question relates to the first quarter evaluation and your outlook for the full year. You had proceeds for sales of assets in the previous year. So we thought that the first quarter profits will be much higher. But because of DOCOMO and DATA, they have invested and cost much earlier. And we have the positive impact from these other companies are helped, are there to offset the deficit from NTT East and West. So please, can you give us your valuation of the first quarter results? And can you share with us your thoughts for the full year? That's my first question. Thank you. Takashi Hiroi Yes. Thank you for your question. Hiroi here. Let me respond to your question. As I mentioned at the outset of my presentation, the profit for the first quarter is in line with the overall annual plan. When we take a look at various segments by segment, there are of course variances from segment to segment. In the case of NTT East and West, they are faced with difficulties. But we had already envisioned the difficulties that they would have faced. So this was already envisioned. Also we're going to reinforce activities with regard to cost reduction as well as in terms of reinforcing our marketing efficiency. With regard to NTT Data, in totality, again their performance is in line with their projection. Now there's increase in operating revenue, but the operating profit is not that robust in certain cases. But still, we're only in the first quarter. As we move toward the fourth quarter, I'm sure that their operating profit will be expanding. When you take a look at the order placement, we're not concerned about the data performance at all. With regard to the Integrated ICT Business in totality, again, this is in line with your projection and with your plan. But it is true that the situation is somewhat challenging, especially on the consumer side. We are reinforcing our sales. But the reinforcement has not yet indicated major outcome at this moment. Perhaps this is one area where we need to work on. And as this was not unexpected, but the environment is somewhat challenging. So we need to make sure that we record as we head toward the end of the full year. So that is our valuation. I hope that was sufficient as a response. Kazuki Tokunaga Yes. Thank you. I take your point. So although the timeline may be different from segment to segment, at the end of the year you said that you'll be able to meet the plan. Okay, I take your point. Thank you for the response. Let me turn to my second question. It's about your data center operation. With the overseas data center, you're showing very strong progress. But what about the domestic data center business? We're not able to catch up on the progress of your domestic data center business. So can you share with us your future strategies as well as the current opportunities available for the domestic data center business? Toshihiko Nakamura Yes, thank you. With regard to the domestic data center business, the demand is very, very strong. The appetite is out there. So we're in a steadfast manner rather we're expanding our business scale. So over the next year or 2, the scale of new data centers will be rather compact. So in 2025, as we move toward 2025 and 2026, we'll be expanding our data center operations. So the expansion of data center operations will they translate into actual revenue, that will take at least two or three years before they could translate into concrete contribution to revenue. But we see demand for DX as well as the expansion of cloud service. We're also beginning to see demand for AI-based services as well. So the inquiries are increasing. Naturally, we need to secure power, those need to secure sites that these are the challenges as we try to pursue data center operations. But again, on these areas as well, we're working to secure land as well as necessary power supply. And so we're also expanding our abilities in this area as well. So if after 2025 we believe that the data center service will further be expanding their size at the time. That's my response. Thank you. What about group companies? Which company? Which group operating company will benefit most from your data center operations right now? Toshihiko Nakamura Well, when we take a look at the structure and the formation of our group companies at this moment, the global data center Japan, we have that business. Within NTT Group, in particular, when it comes to domestic new data center business, this company will be responsible for this business. To look at the new development, this company that I mentioned earlier will be handling the business. Kazuki Tokunaga Thank you. That is all for my question. Thank you for your response. Takuro Hanaki Thank you very much. We will take the next question, Okasan Securities. Mr. Okumura, please go ahead and please unmute. Excuse me. Mr. Okumura has canceled his question. We'd like to take the next question. From Citi Securities, Mr. Tsuruo, please unmute and ask your question. Mitsunobu Tsuruo I have two questions. First question. This is a very small segment, but Urban Solutions group performance situation and the outlook moving forward is I would like to know, they had a solid increase in revenue last year. And in the past, with the asset side, they have been generating a certain level of revenue new. So moving forward, are they going to generate profit in line with the plan? And in the pipeline, is there any additional asset sales or not, please share that with us. Toshihiko Nakamura Urban Solutions is conducting a real estate and properties business. And comparatively speaking, they are performing well. Last fiscal year, they had one-time income selling the assets. And their profit level throughout the year was at a high level. But this year, there's no such plan. So as a level of profit, it is going to slightly drop. However, looking at the first quarter situation, the condominium sales or for the renting and leasing business, they are performing strongly. Therefore, for us, afterwards achieving the annual plan, we do have high expectations. Mitsunobu Tsuruo Thank you very much. My second question is regarding share buyback. ¥200 billion share buyback decision. I think at this timing is a very good decision. Within the uncertain market situation, you set the period of share buy back towards the next March. That is the base of my question. If the market becomes dislocated, how should we think about the additional room for additional share buyback? I believe that you have advanced investment for capital investment and you do have increasing our cash flow, free cash flow level. So I want to just know about the flexibility that you are considering. Toshihiko Nakamura Thank you very much for your question. Well, in fact how is the market going to crumble, it will depend on -- or become dislocated, I believe it depends on the scenario. See, our shares are quite strong against the downside, meaning that compared to the price dropping level of the market, we have a lower degree of dropping. But in fact how much of volatility that the market is going to have, it will depend on that situation, if the volatility is too large, we'll have to think about it. But regarding the size or the scale that trying to predict that from this point is slightly difficult is what I think. But for us, the stance, putting importance on our shareholders and the responsibility to our share price, we are quite aware of that. Therefore, if the situation deteriorates, we will take necessary measures. That is one of the choices that we are considering. I hope that you understand. Thank you very much. Next question? Are there any other questions? If not -- sorry, Okumura-san from Okasan Securities, please unmute your microphone and please go ahead with your question. Okumura from Okasan Securities. Thank you. I apologize. I have two questions. The first question is with regard to the new mini-management strategy. EBITDA plan, if you want to achieve the EBITDA plan, it's important that starting for next fiscal year you realize 20% growth starting from third year in the plan. Right now, it's 6% or 7%. So it does not seem realistic. So therefore, how much organic growth? And also how much impact from M&A do you see when you try to attain the target under the medium-term plan? Has the situation changed from the start of the plan compared with right now? Also, EBITDA, if EBITDA target seems difficult to obtain. Will the same trend apply to EPS? Or are you going to use shareholder returns? Are you going to still remain committed to the shareholder return? That's my question. Thank you so much. Takashi Hiroi Yes, thank you. Hiroi here. Let me respond to your question. As you pointed out in your question, the midterm plan target for EBITDA, if we want to achieve the target, we consider the performance for the fiscal year or previous fiscal year and this fiscal year, yes, achieving the target seems challenging, we cannot deny that view. Now are we going to use acquisition, what about the organic growth, what is the balance between acquisitions and organic growth? If we are to meet our plan, then the percentage of acquisition will have to become somewhat larger. That possibility, again, we cannot deny at this juncture. So as far as we're concerned at this moment is concerned, we want to maintain the plans and the targets going forward. So at this moment, we're going to continue to advance with the current plan and aim to achieve the targets contained under the current plan in the current format. We would appreciate your understanding on this point. Now you asked about EPS. If EPS target becomes difficult to achieve, what will happen. That was your question, I believe. As far as this point is concerned, in line with the EBITDA growth, we also saw -- we also were considering growth of EPS. So if we were to realize further medium-term growth, what type of cash allocation can we do? If the growth is slow, are we going to also relax and are we going to translate that to increase shareholder return and try to improve EPS? Or are we going to continue to make investments in a robust fashion. Again, the curve for EBITDA growth, how much can we go for -- how can we go as far as the curve for EBITDA growth is can go? So that will involve major management decision at that juncture. We need to monitor the decision carefully and then take a look at the situation. Of course, you need to take a look at the recent performance vis-Ã -vis take a look at EPS, and so the process for medium-term growth. We need to make sure that we take into consideration all these aspects to make sure that we can provide ample shareholder return. And based on that, we want to make a management decision. So we want to monitor the situation for a little while longer. Thank you. Thank you for a careful explanation. I'd like to turn to my second question. It's with regard to NTT East and West. MIC now has a working group. And the working group is now discussing the possibility of allowing integration of East and West as one possibility. Now there are -- what are your views to people who oppose the integration of NTT East and West? And maybe I'm being a bit premature. But if integration of NTT East and West becomes one possibility going forward, what would be the advantage to the shareholder? What about the impact on PL as a result of cost efficiency improvement? What will be the impact of balance sheet? If you can give us a rough image of the potential benefit of the integration between NTT East and West I would appreciate your thoughts. Thank you. That's my question. Toshihiko Nakamura Thank you, sir. Yes. Thank you for your question. As far as we're concerned, we have consistently maintained that we have -- we've consistently talked about the possibility of integration between NTT East and West. At the same time, yes, there are people who voice concerns over such plans, we are aware of those oppositions. Right now they're trying to work out the various views at the working group. But ultimately, I'm sure they will come out with an official recommendation. So in that process, there will be conclusions that will be discussed, I'm sure. Now if NTT East and West could be integrated, then this will have major benefits as far as we're concerned. Naturally, they're involved in providing similar services. They have similar networks as well. So NTT East and West can provide one identical operation. And this will improve efficiency of the operations because this will entail economy of scale. So economy of scale as a result of integration will be quite significant. Also, as far as services are concerned, we'll be able to offer consistent services across Japan nationwide. That will be in the interest of the company, there will be interests for the consumers and will also offer a benefit for the consumers as a result, but they can be of better convenience. So that is why we are making those proposals and arguments. Thank you. Yusuke Okumura Thank you. Thank you for your explanation. That's all for my question. Thank you very much. Takuro Hanaki Thank you very much. Are there any other questions? No further questions? If so, since there are no further questions therefore, with this, we would like to end this briefing session. NTT DOCOMO's briefing session will follow. Therefore, for those of you will who participate in that, please remain connected. Thank you very much for today.