SoftBank Corp
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SoftBank Corp
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Ladies and gentlemen, thank you very much for waiting. We would like to start SoftBank Corporation's investor briefing on earnings results for the 3-months ended June 30, 2019.
First of all, I would like to introduce to you the attendees. From your right, SoftBank Corporation, Board Director, Executive Vice President and CFO, Kazuhiko Fujihara; Vice President, Head of Strategic Finance Division, Finance Unit, Hirono; Vice President, Head of High Finance and Accounting Division, Naito. This presentation will be live streamed on the Internet.
Without further ado, I would like to ask Mr. Fujihara to talk about the consolidated results for SoftBank Corporation.
My name is Fujihara. Thank you very much for coming. Our [ present reality ], that talks about the consolidated earnings results, we are doing very steadily. This is the third earnings results announcement since IPO, and there are a lot of new initiatives going on. And I would like to talk today about what is going on more in details.
First of all, because Yahoo! has become our consolidated subsidiary, I would like to talk about the impact from consolidation of that through retrospective adjustment, and also, I would like to briefly mention application of IFRS 16 and then to talk about results for the first quarter.
First, is the retrospective adjustments related to Yahoo! Japan becoming a consolidated subsidiary. On June 27, we have made Yahoo! Japan a subsidiary, and we now hold 44.6% stake. So Yahoo is under the common control, so we have conducted retrospective adjustment from the last fiscal year. So we have as a consolidated subsidiary with having 48.2% stake.
And this impacts PayPay as well, because Yahoo has become a subsidiary. But last year, it was -- last year, it would be treated as a 100% subsidiary. And this fiscal year, in April, PayPay was consolidated subsidiary. And in May, because our parent company has made an investment, PayPay will be treated as equity-method company. So please understand that this is a situation. And we now have additional segment called Yahoo segment. Number of subsidiaries and affiliated companies have increased also, so there are 252 affiliated group companies. Last year, it was 142 group companies. So there was an increase by 110 companies.
Another change is IFRS 16 application, lease accounting. Up until last year, the rent for base stations was considered as a rent and it was put into the operating expenses. However, it would be now included in the right-of-use assets. So it would be included in balance sheet. So that is a little over JPY 480 billion. On the other hand, we will be recognizing lease liabilities about JPY 500 billion. So there was a change in the balance sheet. The impact to -- the impact is that there is a decrease in the rent, but there would be an increase in the depreciation. So if you look at EBITDA, there would be a impact of JPY 150 billion. In terms of the OI, there is not much difference. In terms of the liabilities, rent was paid as operating expense. So because of this, it was included in the operating cash flow. But now it would be a repayment of the lease liability. So that would be included in the financial cash flow, so that would be an impact in the free cash flow in the amount of JPY 150 billion.
So let me give you specific numbers. Let's look at the P&L on a full year basis. Page 8, please. This slide. So if you look at the revenue, it was JPY 3.7 trillion. You had add Yahoo JPY 754 billion, and then you consolidate adjustments. And this is Yahoo and SoftBank's revenue, so you basically eliminate that revenue as a result. Last year's full year result is JPY 4.6 trillion. And this year's number -- and this number and this year's number will be compared. Operating income was JPY 719 billion. Yahoo's JPY 140 billion will be added. And again, we will do consolidation adjustments. And on our operating income side, the big impact is the changes in the subsidiaries, the biggest is PayPay. Last year, it was in the red ink. So now this is included. And so Yahoo has disclosed this by IDC, has been transferred from Yahoo to SoftBank, and there's a profit on Yahoo's side. So that has been eliminated. So this is internal transactions and changes in subsidiaries, which is reflected in the operating income, which is JPY 818 billion.
So let's look at the net income. JPY 430 billion, this was the FY '18 disclosed figures. You add JPY 78 billion of Yahoo disclosed figures. And again, there's an adjustment from there. Naturally, Yahoo, we had 48% holding. So we had a minor interest and that will be eliminated. So that's the minus 47. And then you have the IDC, and also you have nonoperating items like YJ card. This has -- the equity method has been transferred from Yahoo to SoftBank. So that all inclusive is minus 47, and that's JPY 462 billion after Yahoo consolidation. So this is the number for the full year if you got the data comparison.
Let's look at Q1. Let me briefly explain. So you have revenue of JPY 179.9 billion fiscal figures. You had JPY 231 million from Yahoo and Yahoo consolidation adjustments and elimination, so you have JPY 1.1 trillion. That's a starting point. OI is JPY 220 billion. You add JPY 47 billion at Yahoo. And from there, you which is -- you deduct the JPY 8 billion of IDC frontiered shares at the consolidation adjustments, and you have now after consolidation, JPY 259 million. As for net income, JPY 155 billion FY '18 quarter 1. You add JPY 32.7 billion of Yahoo, and you have minus JPY 26.2 billion in adjustments, and you have JPY 161 billion after consolidation. So again, you have the noncontrolling interest, then you have YJ card, IDC. Those transactions are reflected in the adjustments.
Let's look at the balance sheet. So last year, that's Page 9, we disclosed -- on the left-hand side, you see SoftBank disclosed the month and you had Yahoo disclosed. And then you have the consolidation adjustments, and you have the after consolidation number in the middle. And in the consolidation adjustments, we have increasing cash, and you might be surprised by that. That's because of the transfer of the subsidiaries. So it's mostly PayPay. So that's an increase in cash and cash equivalents. So you have cancellation and you have subsidiaries changes, and that's reflected in the consolidation adjustment.
On the very right-hand side, in green, here we have reflected the impact of IFRS 16 adoption. Main change is the property, plant, equipment, intangible assets, rights of use, and that's included in here and then others. So for example, you have short-term payables and -- which is an adjustment amount, and that is in here. In any case, Yahoo has been added, you have IFRS adoption. So your total asset is JPY 8.5 trillion. Last year was JPY 5.7 trillion. So you can see that balance sheet has gotten bigger. So if you could just keep note of that.
And then adjusting to that, let me introduce these cash flows. This is Page 10. Our free cash flow last year's track record was JPY 292.1 billion Before Yahoo, was more than JPY 500 billion. So after consolidation is JPY 512 billion. So you have JPY 292 billion starting figure, then you have minus 62.2 that's Yahoo's disclosed number that's reflected, then you have the consolidation adjustment. And of course, you have who shares, whatever that is there, then there's a reversal of JPY 219.9 billion. So after Yahoo consolidation, free cash flow is JPY 449.7 billion. The reason why we discloses this is because we want to show you where the source of dividend is. So Yahoo's number, if you remove that, then you have the JPY 512 billion, which is the Yahoo -- after Yahoo consolidation, excluding Yahoo. So JPY 512 billion, we will be paying out in cash dividends of JPY 380 billion. So if you could take note of that, that was last year's number.
If you look at Q1, we start with FY '18, that's JPY 150.6 billion, and you have the similar Yahoo disclosed figure and consolidated adjustments similarly year-over-year. And you have JPY 112.5 billion after Yahoo consolidation, and you have exclusion of Yahoo of plus JPY 23.7 billion, so you have JPY 136.2 billion. So JPY 136.2 billion on an apple-to-apple comparison will be done later on so that we can show you how we have been trending year on -- over year. So I wanted to give us a supplemental explanation because of the changes this year.
So if you add -- you look at that as a comparison, if you look at the Q1 result for FY 2019, here's the Page 12. So revenue last year -- compared to last year, this is plus 5.8% increase to JPY 1.164 trillion. That's a track record for Q1. For full year, we're at about 24% in progress against our full year forecast. So generally, business is more active in the second half. So 24% progress is actually extremely good. Look at OI, operating income, again, after adjustment, is plus 3.7% increase. So JPY 268.9 billion for Q1. Our forecast is JPY 890 billion. So progress is 30%. So Q1 progress of 30% is, again, extremely good.
Last year, Q1 was also good. So that is why this is a number that you have seen. And as for net income, similarly, you have increased of plus 2.1%. It's JPY 164.8 billion. But for net income in terms of progress, it's 34%. To be honest, last year was probably too good. So 34% in progress for this year, which is actually a very good start.
So this is the overall view. I would like to explain segment by segment. Please turn to Page 13. As Miyauchi has explained, compared with last fiscal year, in all segments, there was growth. So we were able to get to the positives with -- in a balanced manner. Consumer segment is written on the right-hand side, the break down. Mobile is JPY 22.9 billion increase or 5.7%. Broadband, JPY 7.2 billion, a growth of 8.2%. In terms of the revenue from sales of goods and others, it's a negative JPY 7.3 billion. So this -- and there was a decrease in the upgrading of smartphones. That was the biggest impact for this decrease. In terms of the revenue, consumer mobile as a contribution is 36%. So if you look at JPY 423.3 billion, if you divided by the first quarter figures -- first half figures, you will see the results.
So on the next page, the fixed and mobile. For enterprises, it's about flat, but solution is drastically increasing. We would like to increase new initiatives here. So there was an increase by 23.7%. So the Enterprise segment grew because of the Solution business. In terms of Yahoo segment, in terms of the commerce, it was plus JPY 7.6 billion increase or plus 4.8%. Media is slight increase. And from the third quarter of last year, there was countermeasures for ad fraud. So there was an impact from it, and it's still remaining, but we would like to see more synergy from this area going forward.
Next, I would like to talk about the operating income on Page 15. Operating income, there was increase by JPY 9.7 billion or 3.7%. EBITDA was plus JPY 49.5 billion, significant increase. JPY 36.5 billion came from IFRS change. On the right, you see the breakdown of the slide by segment. Consumer is -- consumer contributed greatly by JPY 14.5 billion increase, but enterprise and distribution have increased as well. And you see negative 90 at the very bottom, this is coming from PayPay. So PayPay was consolidated before the parent company invested. And the up and from -- so there was upfront investment loss. But from May, it has become an equity method company, so that resulted in the negative JPY 9 billion.
I would like to break down the operating income to speak more in details. So revenue has increased by JPY 55.9 billion. This excludes Yahoo. Existing businesses have grown JPY 55.9 billion. The cost of goods sold and telecommunication network charges increased due to that, so it was a negative JPY 15.8 billion. So expenses have increased to JPY 27.2 billion. There was JPY 8.9 billion increase in the sales commissions and sales promotion expenses. There are 3 elements. So it was commission for sales had increased. So in the application of IFRS 15, within 24 months, it would be depreciated. So for this period, the impact was limited, but it is still -- there were still some impacts. The sales promotion cost has increased, and also advertisement cost was increased as well. So the sales was growing very steadily. And because of that, sales activity had increased as well.
And next is depreciation cost, you need to be very careful. It was -- it seems like it has increased by JPY 34.4 billion, but there is IFRS 16 application impact. So if we exclude JPY 31 billion, it was increased by JPY 3.4 billion. So it is quite different. So if we exclude IFRS 16, it's JPY 3.4 billion increase. So please understand it that way.
Next is expenses. It seems like it has improved, but the expenses are accumulating, so JPY 15.8 billion. The rent had been moved to depreciation. So if we exclude that IFRS impact, it is JPY 15.8 billion. There is an increase in subsidiaries. And also, there is investment in R&D. So because of that, expenses have increased. Yahoo has been disclosed separately. So the -- so Yahoo's figure was negative JPY 3.2 billion.
Next, I would like to talk about subscribers on Page 17. Main subscribers have increased by 1.4 million. Smartphones has increased by 1.74 million. So LED has decreased and feature phone has decreased, and thus, this number.
On the right, you see brand-by-brand figures. So 3 brands have played its role and increased subscribers. As Mr. Miyauchi has mentioned, Y!mobile has driven the growth. The red area growth was the biggest, as you can see on the slide.
Next is the churn rate. For main subscribers, it is almost flat. For smartphones, 0.04% deterioration. The biggest factor was cancellation of large-lot enterprise contracts. And also, if you compare Y!mobile and SoftBank, Y!mobile's churn rate is higher, and the transaction period is shorter for Y!mobile. So because Y!mobile's composition is increasing, this has become a pressure. SoftBank brand is almost flat.
Page 19, please. Let's talk about ARPU. With regards to ARPU, overall, it's plus JPY 120. So as we have just introduced earlier in the briefing, so a number -- parenthesis a, ARPU before discount is minus JPY 220. Y!mobile, LINE MOBILE, the mix have increased. So the percentage of Y!mobile and LINE MOBILE have used, so that's a pressure on ARPU. And also, we have introduced the unbundling plan. So the more this portion increases, the ARPU before discount becomes negative. So that is why this declining trend will probably continue on going forward. Meanwhile, there's changes on the discount side as well with 2 factors. One is that we are continuing with 4-year installments. So it's only been 2 years since we introduced the 4-year installments. So the impact of 4-year installments will continue for the time being. In September this year, it will be our second year. And that impact be reflected in Q2, but then we will begin to see soon after that. Meanwhile, we have been introducing a monthly plan, so the impact of monthly discounts will continue. So again, this will also continue. So if you could take note of that, I appreciate it.
So let's introduce DiDi services. With regards to DiDi broadband services, ADSL includes -- inclusive that of JPY 7.7 million. Again, Hikari cumulative subscribers have been increasing year-on-year. And this is where the -- in terms of growth rate, this is the biggest contributor in Consumer segment. And again, this is also a driver for mobiles because there if you look at Hikari Set, it's 9.64 million so far. But the cumulative subscribers churn rate is very low, so this is a big contribution from mobile. So with Hikari Set, it's 2.1x. And if we go with one more digit, I think you can see that it's gradually increasing.
So let's look at the net income. Page 21, please. With regards to net income, so again, there's an increase of plus JPY 9.7 billion operating income. As you can see in parenthesis a, financing cost is plus JPY 6 billion, improvement in JPY 6 billion. Interest has decreased from last year and also IFRS 16, maybe only about JPY 600 million, but there's an increase of income. But we have been able to absorb that, so there's a decrease in interest payment. And also, there's a valuation gain of financial instruments. So for this quarter, this portion is positive.
The second part, parenthesis b, this is losses from upfront investment to new business increase. This is from PayPay. They have become, in the middle of the year, become our equity method company, and that's an impact over here. And then again, we have these detailed numbers. Again, we build up on that, and you have this negative here. And some of the portfolio has been replaced. So that is a positive of JPY 5.5 billion on the gains of sales of the method investment. Corporate taxes, minus JPY 17.8 billion. So this is a very big negative because there's a big increase in profit as well. But last year's post business has been merged with SoftBank KK, and that was a deferred tax of loss carryforwards, which have been able to leverage last year. And there's an impact from that this year. So that is why compared to last year, there's a big drop. And again, on controlling interest, this is plus JPY 5.4 billion net income. That's because of Yahoo as well. And as a result, we have JPY 164.8 billion.
Let's look at the CapEx and free cash flow. As for CapEx, JPY 76.1 billion was the result. This is inclusive of Yahoo. If you exclude Yahoo, it's JPY 50.5 billion. JPY 50.5 billion is the progress compared to JPY 380 billion in target. So for a while, whether it be free cash flow or CapEx, we will also continue to compare with their conventional previous disclosure numbers.
And adjusted free cash flow, if you exclude Yahoo, was 120 -- JPY 136.2 billion. And again, there's an impact of IFRS as well. So for long term, this has a long-term impact. This has accounting impact as well. So if you exclude that, it's JPY 128 billion. So it's better to look at it apple-to-apple if you want to understand the business. So compared to that, last year, there's a slight decrease. And again, big impact is consumption tax. In 2017, we migrated the brand. There was JPY 380 billion in the consumption tax deduction. And there's a refund of that, and there's an impact over the full year. So there's a decrease because of the consumption tax. So we are aiming JPY 420 billion (sic) [ JPY 520 billion ] in target, and that has not changed. And the progress is good.
Let's look at interest-bearing debts. As for interest-bearing debt, there's a slight increase, Yahoo consolidation, IFRS 16 that has been built up on top. And we are acquiring shares of Yahoo, and we have spent about JPY 150 billion. So we have an increase in banking loan because of the bridge loan, that's 1.6, and we have a securitization with sales receivable that increased again. And so that's really the Yahoo that's really impacting us and IFRS 16, and that's the reason for the increase in interest-bearing debt. After consolidating Yahoo consolidation, if you look at the net leverage ratio, it's 2.4x. And of course, adoption of IFRS 16 is not retrospective. So we have removed it on the apple-to-apple business, but the 2.4x is basically is flat, remains unchanged. And in terms of the covenants, the bank we use has securitization. So adjusted net debt leverage ratio is 1.7x. This is excluding the effective expectation of sales receivables, which we use in borrowings from the banks.
So let's look at the ratings. Miyauji actually talked about this earlier. From R&I, we have received a rating of A+. From JCR, AA-. Very good ratings. For Yahoo Japan, we -- have they have also been revised. And at JCR, they have been upgraded 2 notches to AA-. So Yahoo has been able to get a good start. We have not issued corporate bonds, so we have not been able to leverage those credit ratings, but this will give us more options in the future. So if you have an opinion about this, we would appreciate it if you give it to us, the actual feedback.
Last slide, again, we will achieve both growth and shareholder returns. This is the equity story at IPO. And again, so growth means that increase in revenue and profit is restated. In terms of EPS, our actual was JPY 90 for FY '18. We are aiming for JPY 100 in FY '19, and progress is good. Shareholder return, this is defined as payout ratio of around 85%. Again, on a DPS basis, JPY 75 last year. And FY 2019 is JPY 85, and progress is good.
So that is all our Q1 earnings results. Thank you very much for your kind attention. We would like to take questions from you. Thank you very much.
[Operator Instructions] Right block on the -- in the very front row.
From SMBC Nikko, my name is Kikuchi. On Page 19, you talk about discount. The discount ARPU has decreased. So it's JPY 800. So you said that it would continue. So if it decreases at the same pace, then there would be an impact some time in the next fiscal year. So what will be the other factors for increase in the profit that you are expecting? New businesses, enterprise business and PayPay? 5G? Is there anything that you can give us with numbers that would guide us to expect what will happen? So your payout ratio is quite high, and this means that the growth is sluggish and the -- and if there is anything that you're considering that would impact the profit inclusive of the Yahoo impact, I would like to know. That's the first question.
The consumer mobile, this is the basics -- this is the basis of our business. So ARPU and number of subscribers, we would like to increase both. In terms of ARPU, I believe we'll continue to be robust. And also the subscriber number is very stable, so I think it would continue this way. And the operation is now becoming more efficient, and we are hoping that all of this combined will lead to better performance.
And in terms of DiDi, I think that it would continue to be the driver of growth. Enterprise segment is growing, and I hope that people can feel that going forward.
In terms of Yahoo synergy, we need to generate it. So Yahoo's media is struggling at the moment. There are many large-scale corporations for media account, so we are hoping that there would be collaboration with our enterprise segment to generate synergies.
In ARM-related areas, we are trying to strengthen the collaboration. So we're hoping that there would be more synergies coming out so that we can have an upward impact. And we are -- in the 3 to 5 years, we would like to get to JPY 1 trillion, and we are hoping that this will be realized within a year's time, so we are considering various initiatives that would realize that.
So is there any breakdown that you can give us? Would you be announcing that some time soon? We would like to know your strategy.
The situation will be shared with you. But rather than being fixed, we have been showing our strength through flexibility. So the directionality, as I have explained, and the strength that we have now is that all of the segments are growing. So internally, our target is to grow everything. And if we can realize that, then we would be able to get to the target figures that I have mentioned.
Now to my second question, PayPay business, which can be the driver of growth. So in the others, the profit is decreasing. And going forward, PayPay will be included in the equity method, and I believe that it would be in a negative for the second and the third quarter as well. I don't know exactly what will happen in the third quarter. But the effect of PayPay, Mr. Miyauchi mentioned that you're doing very well. But when can we see this steady growth becoming materialized? Is there any figures that we should focus on the SoftBank users? So what -- how are they using PayPay? So to us, it is hard to see what's happening, and I think that you are in a stage where you are feeding the fish in the sea and -- so those fish are all of the -- they will go away if you stop feeding. So if there is any concrete efficacy that you can show us, I would like to know.
I believe that the positioning is very important. We want to, first of all, get to the #1 position in order to increase our customer base. 10 million is the target that we have, but we already have 9.8 million. So we're almost there. So in order to get to a more prominent level, we want to get to 20 million, 30 million in the future. So Yahoo has audio business. It has advertisement business. And SoftBank Corporation has smartphone business. So around PayPay, I think that we can accumulate various kinds of businesses, and we would like to create an ecosystem around PayPay. Alipay, Paytm, they have case studies that we can look on, and we would like to follow on what they have been doing in order to see what we can do.
Gentleman in the very front row over here.
Thank you for the explanation. [ Tanaka ],Mitsubishi UFJ, Morgan Stanley Securities. I have 2 questions, one by one. So first question, in enterprise business, your business solutions segment is growing. I think it's like 24% in the increase in revenue. What sort of business is it specifically? And what's driving it? Sometimes it's difficult to understand because you lump together in -- with a theme, so if you could be a little more specific about what's the business and what's driving how much.
Well, each and every one of the businesses is very small. So it include [indiscernible] the IoT, digital art, robotics, all these are starting to really sprout and is starting to contribute. In the business solutions, there's a lot of onetime things as well. So when the trend becomes clear, and again, we're planting a lot of seeds in this business. So please give us an eye to -- before we can introduce specific business. But just in general, we're planting a lot of seeds right now, and we're in the beginning. Some are sprouting, and this will continue to begin to grow, and I think it will be an opportunity in the near future that we can tell you specific business categories.
Just for your reference, what is the size of the onetime sales, like revenue and profit? Many of the -- some of them are goods sold, and sometimes we need to know the yen range.
The second point, [ in the earlier briefing ] present, talk us about cost [ and business progressing the ] telecom business. Do you have any updates on reallocating, reassigning resources?
The current situation. So overall, SoftBank KK's headcounts will be kept, we'll have to, and then we're shifting people into new areas. So we're engaged in all these new businesses, and we have not been increasing the overall headcount. That's the main point. So some people have gone to affiliate companies, and they're engaged in new businesses. Some people are staying within KK to engage in new businesses. I would say maybe more than 3,000 people plus have been shifted in terms of businesses. But again, we need to build up revenue. So in terms of balance sheet, we have cost flat, and we have a lot of new seeds planted in new businesses. There's efficiency in place.
And 3,000 plus, these are the people who are in the affiliate companies and they're excluded from operating expenses?
No, in fact, many are within SBKK. They're less in the affiliates. Many stay in the company as SBKK employees and are working on new businesses. So the people who are running the existing business is reducing. So I think that's a better way to interpret it. So if you look at it from the financial perspective, overall, where it's maintaining the overall cost, but we are shifting people to new businesses. So that's probably the better way to understand it. Thank you very much.
In the central block, the third row from the front.
JPMorgan, my name is Tanabe. I have detailed questions. In terms of the balance of the handset sales, so sales of goods. If you look at that, the profit has decreased. And I understand that it is not directly linked with each other, but I want to know how the movement looks like. And from June, Docomo has unbundled plan. Is there any changes due to their new plan? So from July to September, how would that change?
So in terms of sales of goods, well, this deals with selling of handsets, but also there are sales of SIM, Y!mobile and LINE MOBILE. There are sales of in itself. So sales itself is doing very well. In terms of handsets, especially in the area of upgrades, it is lower than last year. So the impact -- it negatively impacted the results.
If you could, if you could talk about the year-on-year figures for the Y!mobile. So we do have some margin. So it is impacting negatively in the revenue. So is it possible to get the quantitative figures?
So for sales of goods, it's JPY 7.3 billion. So overall, it is not a surprising figure.
Moving on to the second question. Enterprise segment solution, I would like to make a confirmation on what you have said. So how much is that contributing to the profitability? My understanding is that you are in the phase of increasing the top line. So in terms of the profitability, it's not contributing so much. But is my understanding correct?
Overall, that's correct. We are still growing in that area. So of course, there are upfront investments in terms of expenses. So overall, it is impacting positively. But profit wise, compared with revenue, the growth is not as big.
So on a year-on-year basis, it is contributing to the increase in the profitability?
Yes.
The gentleman in the second row from the front and the central block.
Tsuruo from Citigroup. PayPay, first question. So in terms of the method losses, how should we view PayPay? Can you give us some sort of guidance on how we should be viewing PayPay? And you talked about PayPay Mall as a new topic. So this is a PayPay business because there's a PayPay name? So this is independent from Yahoo? It will not be booked on your revenue? How would that effect on revenue and profit? I believe that, that impact will not be much in the short term. But what about next year onward, what would be the impact?
So PayPay, from last fall, the activities have started on a full-scale basis. So in first half last year, there was so much activities. So this year first half, the impact is negative. Second half depends on our initiatives going forward, but we did a JPY 10 billion campaign. That's a lot of things. This year, our burden including Yahoo, it's only 50%. So because it's a larger in size, so leaving the campaign is smaller and multiplication, there's a little bit slightly bigger. But on overall basis, it will not have as much impact on management. So the second half, the impact of -- were off a little bit.
PayPay Mall, Yahoo will put PayPay in the center, and this is like a Tmall, it's like a direct sales kind of a mall. So basically, this is Yahoo business. But because it has PayPay brand or the name on it, so they will carry out different measures and campaigns with PayPay. So there will be collaboration opportunity. So depending on the collaboration, the initiative, it will have impact on our finance. But basically, this is Yahoo's business.
Second question about Yahoo. So as you have seen in the share prices today, Yahoo's performance is a very difficult situation. It was a negative surprise for us. So when you look at the last 3 quarters, because the 2 companies were consolidated in June. So next 9 months, what sort of synergies can you begin to realize? And which areas would you see that realized?
So again, this is probably the easiest example to see in terms of synergy effect. And probably, you will see early effect of synergy. You have the enterprise and Yahoo's relationship. So that's probably where the quickest, the -- earliest synergy will be realized. So in that sense, SoftBank is almost like a sales agency distributor. That's the role we will play. And from our side, from our perspective, because the profitability is good, incremental revenue and profit can be realized, then there will be -- we would like to receive a nice return on our side as well. So this is a win-win business model which we are pursuing.
Enterprises are faced with the challenge of digitization. Mr. Miyauchi in SoftBank World said he wanted to deposit JPY 10 billion with us. So in that way, enterprises are using in the -- for example, leaflets, they can now digitize that. So if you can offer a good solution with Yahoo to these enterprise customers, then we can build a model that is win-win with the customers as well. So that's why we are collaborating together from a different perspective. This fiscal year, we hope we can demonstrate different initiatives.
In the central block, the second on the second row.
From Daiwa Securities, my name is Ando. In the presentation material, on Page 16, you talk about the waterfall chart of operating income, and this goes back to Mr. Tanabe's question. So we saw JPY 7.3 billion minus for goods sold, and the cost of goods sold was increased by JPY 13.8 billion. So because of that, the handset profitability may have fallen drastically, and I was wondering what kind of dynamics led to this result.
So cost of goods sold is deteriorating. Well, this has been impacted by distribution. Distribution's margin is quite small, so when the distribution is going up. Well, the PC, for example, has high cost of goods. And costs -- so if we exclude the goods sold, there is nothing surprising. So when there is a diversification in the business, the consolidation of that -- well, distribution and the enterprise, both have contributed to this figure.
So the handset profitability, it is not deteriorating so much? The handset revenue, is that not deteriorating so much?
Well, if you look at the gross profit, there is not much difference. There's not much change. So there is a decrease in the volume. So there is impact in the gross margin, but it is very limited.
So moving on to my second question. So increase in sales commissions and sales promotion expenses. In the past several months, you have seen increase in the sales promotion. Is that what has happened here?
Yes, sales promotion cost is included here. Advertisement cost, contract cost, that is included as part of depreciation.
If that's the case, the fee had been carried over, deferred. So you are actually using more?
That's correct. So depreciation will continue. So your understanding is correct.
So in a ballpark figure, how much have you used? Can you elaborate that?
I would like to refrain from mentioning the specifics, but it is not in 3 digits. So that would be an aggregation of billions. Does that answer your question?
Thank you very much.
Then the gentleman in the very front row on the left block.
[ Goldman Sachs, Masahashi ]. Two questions. First question about -- is about upgrades. Your number compared to the competitors seems low. This is maybe because strategically, you implemented measures. For example, you did not take any measures to increase upgrades. Can you explain about that? So was it strategic or not? And do you think that's good? Is this your stance that you'll continue to take?
So 4 years installments, that's probably most of our sales. So in that sense, 2 years have passed, and we're providing 50% support, and there's an upgrade that will be launched. So the 2-year move has been somewhat subdued. But from September, 2 years will pass. So then we will may begin to seize more upgrades, and that might have an impact. But if you look at churn and sales, it's pretty relatively stale -- stable, excuse me. So we don't really have any urgency to take new actions or move, but we would like to monitor the situation carefully.
So second question somewhat related to my earlier question, about the unbundling plan. What about -- what's the percentage of people who opts for unbundling plan? Compared to end of March and this quarter in SoftBank brand, how is it trending? Maybe if it's difficult to give us a level, give us direction.
As for new sales, basically, most of them go with unbundling plan. That situation has not changed. When we implemented unbundling plan, it's been shipped. So with the new handset purchases, that's the situation.
As for upgrades, sometimes they want to continue with the bundling plan. So there's some luck. But as a company, we are promoting unbundling plan. So my impression is increasing slowly, but gradually, but I'll have the number with me, but that's a trend.
Because of the time constraints, we would like to take last 2 questions from 2 people. So any other questions? In the central block, I see a hand.
From SBI Securities, my name is Moriyuki. The transition within the group in terms of the brand. So transition or upgrade from Y!mobile to SoftBank was increasing, but maybe that was one time factor. But how is the movement now?
Compared with the fourth quarter, Y!mobile is doing better. So SoftBank and Y!mobile, of course, both are increasing. But Y!mobile was stronger in the first quarter. This is due to change in the policy somewhat. So -- but compared with the fourth quarter, Y!mobile is growing more, the revenue. So from the SoftBank side, it was negative.
But compared with competitors, competitors have new price plans. But after the introduction of new price plans, was there any impact to Y!mobile or SoftBank? Or there are any different movements?
We don't feel a big impact. So high-end competitiveness is still very high, and Y!mobile is strong also. We need to closely watch how it will go. But at this moment, the momentum is strong. Smartphone debut plan is doing very well, and so we have been able to capture a lot of subscribers from it, and the churn rate is decreasing.
The next question is with regards to cost reduction. And without increasing the costs, you have been able to conduct new initiatives. I think that's what I have heard in the presentation. So how far will you go? So how far have you gone at this point?
So it is accumulation of the effort of various departments. So we would like to utilize various technologies, for example, AI. We are promoting various projects internally. So in the future, we would like to be able to talk about the fruits that we have borne from -- we have gotten from these technologies.
So there is a high possibility that we will see reduction in the cost from these initiatives?
Well, at this moment, there is a reduction of the -- so what we need to do is to shift towards a new field, and the young employees needs to be more motivated. So we want to materialize this in the future.
Then this will be the last question. Any question? Then on the right block, the gentleman in the back.
Tsusaka from Morgan Stanley. One question about ARPU and another question on Yahoo! segment. So with regards to ARPU, the net ARPU is increasing. But again, on a gross level, it's decreasing, which means that -- I forgot it's a monthly discount, I forgot the name. But that decrease will ultimately come down somewhere, so the gross ARPU has to increase. But if you go with the existing situation, smartphone debut plan, the low end is increasing. So if you mix it to get -- it's hard to imagine that if you mix it, you can increase it, gross ARPU. So monthly discount, once it comes down, can you continue to expect ARPU to increase? So please provide us with your ARPU strategy.
Yes. We want to increase shift to smartphones. So it's not so much ARPU, but I think the seed and assets for the future business is smartphones. And I think the penetration rate is only about 60%, 70% only, but we have about JPY 30 million is still left in feature phone, and we need to shift that to smartphones, and that will be the business foundation for us in the future. So we need to build that solidly, and then we want to let the flower bloom on top of that.
So this year from October, because of the consumption tax increase, there will be different kind of refunds that will take in place. And those people who are using feature phones, we would like to have them enjoy smartphones. So with debut discounts every first 6 months, they will -- we will give us JPY 6,000 in PayPay bonus for 6 months. So in that sense, we can increase smartphones in the future.
If that is the case in 5G, what sort of business can we picture, imagine.
So for example, in South Korea and United States, there will be changes in operating in 5G. We do not know about Japan yen, and that's something for us to continue to think about very carefully and as we will collaborate with Yahoo. For example, OTT layer, that's the case. So we have different business opportunities, which -- and in order to do that, smartphone is essential. And at that time, PayPay should have grown. So we want to build business in a total. So we're not looking at telecom charge ARPU, definitely status quo, and that's an extension of what we're doing. And so we need to do things that are game changers, and I think the era is coming where we need to put in a lot of efforts there.
Okay. Then the second question is about Yahoo! profitability. As you know, of course, we have our external environment, but Yahoo has not been able to realize -- they are not able to respond to the changes in external and because of the profitability structure. So for the parent company in order to make them generate profit -- so in SBKK, so for example, you have many different challenges, but you have a corporate structure where you can generate profit on the bottom line. So can you build a structure like that for Yahoo? And something like this happens, share prices will be impacted significantly. And of course, you're the largest shareholders. So this is your own problem in itself. It will have a big damage on you as well. So Yahoo's share price, and I'm not -- I know you can't comment on the share price, corporate, about enterprise value and profitability. What sort of leadership you're going to take in order to improve those 2 elements of Yahoo?
In that sense, Yahoo does have potential. And that potential, we believe in, and that is why we invested in the company. Mr. Miyauchi is sitting on the Board, and I am also on the management. So the realization of Yahoo is my own problem. It's my team. So Yahoo -- we would like to lead Yahoo into a situation, become a company that we could be sure about. So in 2020 -- 2023, we'll be JPY 25 billion -- JPY 250 billion company so by 2023, and I think that's a path that we need to follow. But last year, the profit, we used to have JPY 200 billion has fallen to JPY 140 billion, the decrease in profit. And I think that we have hit the bottom, and this is a year for them to turn around. So we would like to increase profit for Yahoo. But on a consolidated basis, we believe that we can fully manage. So we're not going to be affected by the ups and downs, but we need to just make sure that they generate profits so that we can continue to grow. So the number of Yahoo, I think you should ask the question, be done with it directly, Yahoo management should communicate directly with the market. So I hope as a parent company, we would like to cooperate with Yahoo so that you can continue to believe in them.
Thank you very much for the questions. So with this, we would like to end the Q&A session.
That would conclude SoftBank Corporation's investor briefing on earnings results for the 3 months ended June 30, 2019.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]