SoftBank Corp

TSE:9434

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, thank you very much for waiting. We would like to start the investor briefing on earning results for the first quarter.

I would like to introduce to you the attendees: Mr. Naito and Mr. Hirono are participating remotely. From SoftBank Corporation, Board Director and Executive Vice President and CFO, Fujihara; Vice President and Head of Finance and Accounting division, Naito.

[Takashi Naito, executive]

My name is Naito.

[Operator]

Vice President, Head of Strategic Finance Division of the Finance Unit, Hirono.

[Koichi Hirono, executive]

My name is Hirono.

[Operator]

Today's briefing is streamed live on the Internet.

Without further ado, Mr. Fujihara will be providing the explanation on the earning results of the first quarter.

[Kazuhiko Fujihara, executive]

My name is Fujihara. Thank you very much for coming to this briefing session over your busy schedules today.

So today is the briefing of the results for the first quarter of fiscal year 2020. Last year was when we had consolidated Yahoo, and we talked about the -- we have -- have talked about how we had been making losses for the past 3 years. But this year, for the first quarter, Yahoo has contributed a lot to the increase of our performance.

Miyauchi had talked about the earning results of this first quarter. And also, he talked about the road towards operating income of JPY 1 trillion, and I would like to provide you the details on those matters, and I will be taking questions after the presentation.

First is a summary of our results, revenue, operating income and net income. We are aiming for record high figures for the full year. First quarter went very smoothly. Revenue was JPY 4.9 trillion, is the fiscal year forecast and the progress was 24%. On a year-on-year basis, we are able to grow by 0.7%. The pace is almost the same as the last fiscal year.

As for the operating income, we were able to grow by JPY 11.1 billion, which is 4.1% increase. The progress is 30%. The fiscal year forecast is JPY 920 billion, meaning that we are doing very steadily. As for the net income, regrettably, on a year-on-year basis, there was a decrease by JPY 12.7 billion, but if you look at the progress, it's 31%.

Last fiscal year, there was one-off evaluation gains. And considering that, net income progress is quite good. And overall, we are doing -- posting very strong performance.

This is the breakdown of the revenue by segment. On the left, you see in the pink, Yahoo. There is a significant growth of Yahoo. JPY 35.2 billion increase year-on-year. Enterprise business was very robust, plus JPY 8.1 billion. It contributed to the increase in the revenue.

As for the distribution, due to the Windows matter, last year, there was a huge boom, but it is still robust. As for the consumer, which is the biggest pillar, at the start of the first quarter was negative JPY 32.6 billion. So out of the JPY 32.6 billion, JPY 31 billion is coming from the sales of goods and others. This was caused by the -- the decrease was caused by the decrease in sales of handsets. The broadband did very well, but if you look at the mobile, there was the negative of JPY 35 billion. I will be talking about the details of this, but there was a decrease in the -- 20% in the volume and the other was caused by the price decrease. And the service was almost flat, a negative JPY 1.6 billion, which is negative 0.3%, almost flat for the service revenue. And we have included in here electricity sales. It was included in the revenue from sales of goods and others last year, but we had moved it because the volume was growing. The broadband is growing by JPY 2.2 billion, but mobile was a decrease by JPY 11.4 billion. Because of the accounting changes for the first year and half year discount, this had bogged down the revenue. And I would like to go one by one for the segmental breakdown.

Next is enterprise. JPY 8.1 billion increase in the revenue for enterprise. We started off very well this fiscal year. Solution is where we are focusing on the most. There was an increase of JPY 5.8 billion. There has been double-digit growth from the business solution and others, and we will continue to focus in this area.

What is characteristic for this first quarter is that the mobile had grown very handsomely. Tablet, smartphones due to the increase in the demand for the telework. These products had worked for positives. Usually, it is almost the same as the fixed line, but mobile grew more.

As for Yahoo, commerce had grown very significantly. ZOZO had contributed a lot. Media, we thought would do worse, but we were able to maintain at this level. So in any case, it has contributed a lot.

Let's look at the operating income and adjusted EBITDA. Let me speak with EBITDA, it was JPY 18.9 billion, plus 4.4%. Operating income was plus JPY 11.1 billion, again, plus 4% in increase. There's about JPY 7.8 billion in the difference between. I would say more than 90% is actually occurring in Yahoo segment. Because of depreciation in Yahoo, there's a difference of JPY 7.8 billion.

Now if you break down the operating income by segment, this is on the right-hand side, you can see that Yahoo's contribution is JPY 14.5 billion. Enterprise is also strong, double-digit. Distribution, even though revenue was declined, operating income was positive. Consumer of minus JPY 16.4 billion is -- one is the first year and half year discount impact of accounting changes. Secondly, it's the handset sales. So together, this is about JPY 22 billion down. So I will explain this more in detail later on.

Let's look at the year-on-year comparison of this operating income, you can see this by segment. In the past, we had Yahoo and others. It was a high level disclosure, but we have decided to disclose them more in detail. If you look at the consumer segment, which is JPY 16.4 billion, service revenue was slight down minus JPY 1.6 billion. This is as I had explained earlier.

Next to it is revenue from sales of goods. This is minus JPY 31.1 billion. The cost of goods was JPY 19.5 billion. So the difference is JPY 16 billion. So I think you can see that, that's consistent with the total.

In here, this includes about JPY 6.6 billion in the improvement of provision, it's a rebound from -- cycling from the last year and also impact of COVID-19 and the decrease in margin in handsets. So there's different elements included in there. But Q1, this has come out a little rather strongly, but this should come down. As for other expenses, you can see on the right-hand side, cost of goods. This is JPY 7.2 billion. This is mostly electricity, sales commissions. Most is improvement in promotion expenses, advertisement differences and telecom network charges. This is SBG and other company-related. And this is, I think, increasing cost. And then others has increased, but we're implementing corona countermeasures, and we have depreciation and amortization. We are in the face of enhancing our network. So that is why there's a depreciation, amortization cost here.

As for enterprise, revenue was increased JPY 8.1 billion. Expenses JPY 4.9 billion, cost is minus JPY 5.6 billion. Others is for JPY 0.7 billion.

For distribution, revenues JPY 6.6 billion down, expenses was JPY 6.8 billion, JPY 7.2 billion was cost of goods. Again, enterprise, where the profitability is low, this is revenue, and we have done a little better in distribution. Yahoo, we see overall contribution from commerce. In others, last year, PayPay was 1 month consolidation last year but subsidiaries are, in general, an improvement. So this is the reason why it's positive.

So in summary, consumer, so minus JPY 12 billion and minus JPY 10 billion. So this is as Miyauchi has explained. Handsets and first year, half year discounts. And we have student support, support for distributors, staff, crew. There's many things that's happening. But we have also progressed with cost reduction. So that is why it's a total of minus JPY 16.4 billion in reductions. This is actually a little better than we had expected. Actually, in May, the impact of corona, we expect it to continue until the end of June, but emergency state declaration had been lifted in June so slightly limited compared to the beginning of May, when we made a forecast then. In terms of the cost reductions, we have done well. And as for remote working and upside of the demand on telework was larger than we had expected. So that's the situation for consumers.

For enterprise, you can see the increase in telework demand, that's increasing. Demand increase for voice, and also increase in sales of handsets.

Enterprise segment, I think, has taken in a lot of the demand. And of course, there's a decrease in international roaming. So there were some negative elements in enterprise business. But I think we have been able to offset that with the strong domestic demand. Distribution is as I have explained. Yahoo, we have already disclosed already. So if you could just check the numbers here again.

Next is cumulative subscribers. These are all very important drivers. Let me take some time for this. So main subscribers was an improvement. And smartphones also reached 24.5 million, which is plus 2 million year-on-year. And there was 360,000 and year-on-year was 37 million. So smartphone has increased at the same time as last year -- at the same pace as last year, despite corona, April and May, acquisition decreased significantly. June, we have been able to recover. But between April-June period, especially in consumer, there was a lot of negatives. But churn has improved significantly. So I think we have continued to persist in this area . And including enterprise, I think we're happy to see this result. All the 3 brands have done very well.

Churn rate, this is record low. Main subscribers is 0.29, smartphones is 0.28%. Those are both improvements. And smartphones itself is -- improvement is 0.53%. In Q3, there was an impact of telecommunications business act amendment but -- and we also had the COVID-19 impact, so recovery rate is slightly low. And this April was extremely low. And then May, June, July, we have been able to maintain low level. So I think we're flowing at a good trend, and we should be able to start off Q2 with a nice start.

Let's go into ARPU. Again, in the previous quarter, we have explained about ARPU. The impact of first year and half year discount is about JPY 100. So you see that impact. But on an overall basis, ARPU before discount, we have seen penetration of unbundling plan. So when we introduced this unbundling plan, we had to include family discounts or smartphone debut plans. We had -- if you look at all that together, then the implementation unbundling plan was actually a big impact. Of course, Y! mobile and LINE MOBILE, composition ratio has also risen. So this has an impact changes in mix. So minus JPY 140,000 is the result.

Meanwhile, I mentioned about the penetration unbundling plan but on the other side, there's improvement in monthly plans. So that's about plus JPY 300,000. So if you could check that as well. And then after that, the impact of first half year and half year discount will probably come in Q2. But in Q3, it should improve. So that's the general direction. So in terms of ARPU, we should hit bottom in Q3. After that, it really depends on our initiative, but we would like to keep it stable as possible.

Let's look at broadband. This was 6.6 million in cumulative subscribers. This is plus 0.55 million year-on-year. So I think it revived itself. You can see that by quarter net increase, that's 140,000. Last year was 60,000. So you can see it's becoming more positive. WiFi without any construction work, that's the commercial we run, actually, a product that fits well with the telework demand. So that is why our broadband service is doing well. And bundling with Hikari is also doing well. Churn rate is 0.34%. So the retention effect is also big.

Next is the net income from JPY 164.8 billion, there was -- it had shifted to JPY 152.1 billion. So there was a decrease. Operating income has increased JPY 11.1 billion. And there was JPY 9.9 billion negative impact, which is from onetime factors of last fiscal year like gains on sales and valuations. The shares of losses of associates accounted for using the equity method is JPY 3.6 billion. That's mainly from PayPay.

PayPay has had a lot of advanced investments. So those investments are peaking out. So after the second quarter, we would like to see improvement from the previous year.

Going on to the right, the equity method investments. Yahoo! and ZOZO are contributing. And the minority interests are big. So that's why the net income attributable to noncontrolling interest is big.

And as for the CapEx, the progress rate is 15%. In the first quarter last year, it was around 13% to 14% progress for the CapEx. The CapEx tends to concentrate in the fourth quarter, so it is the same as the previous years. As for the free cash flow if we go by the previous standards, the IFRS 16 and Yahoo, excluding those two, there is -- there is the JPY 530 billion. And IFRS, there is about JPY 120 billion. So there -- this is something that will be included in the financial cash flow. So overall, it's JPY 670 billion, the full year target, including the IFRS. So for the first quarter, the progress was quite good. So we try to generate cash.

Next is interest-bearing debt and the net leverage ratio. The interest-bearing debt, so Z Holding is being consolidated, and there is an impact from the accounting change in the IFRS 16. So JPY 5.58 billion is the total of the -- JPY 5.58 trillion is the interest-bearing debt. We try to hold cash in larger amount. And the securitization of sales receivables, it's JPY 1.09 trillion. Last quarter was JPY 0.69 trillion meaning that here is where we had generated cash. So the sales receivables are included here. Within COVID-19 situation, we wanted to have accumulation of cash. And in the fourth quarter, we try to sum down the balance sheet. So there was a decrease in net cash, but now we have more cash. On the right, you see net leverage ratio, inclusive of IFRS 16 is 2.5x. So excluding IFRS 16, it's 2.4x, and you would be able to compare it with apple to apple from the previous year and there was a slight increase. First, to in the first quarter, there is seasonal factors such as payments of dividends as well as the income tax. So the second quarter, we will see decrease in the net leverage ratio. These are the major financing activities for your reference.

Securitization of -- and also we conducted the self-declared trust -- self-settled trust. And in addition to that, we had JPY 100 billion worth of second issuance of bonds. Those are the key events which had occurred. As for the credit ratings, we were able to get the same credit rating and Z Holdings had also maintained their credit holding, so we would like to keep this up.

Next is balance sheet. The net assets, because of the ZOZO acquisition, we have gotten to JPY 10 trillion and the equity ratio is 9.5%. As you can see at the top right, the dividend was bigger. And because the denominator is bigger and now the equity ratio is smaller. And so with the JPY 100 billion increase in equity, there is a movement of 0.1% in the equity ratio. There is a lot of minority shareholders. And so if you could take a look at the ratio of total equity to the total asset of 16.4%, if you could focus on that, that would be good.

And Z Holdings, market cap is JPY 1,396.4 billion. And when we were consolidating Z Holdings, we had decreased the other's retained earnings by looking at the goodwill amount, and the consolidated book value of Z Holdings is JPY 371.6 billion. So there is the unrealized gains.

As for the Z Holdings and LINE integration. We had declare the TOB yesterday and it started today. And the FTC had conducted the first phone conference and we were able to receive the clearance for the TOB. And towards March, we will work for the business integration of the 2 entities.

So let's look at the road to achieving JPY 1 trillion in operating income. This is what Mr. Miyauchi mentioned, but let me elaborate from the numbers. We have already disclosed this from revenue to adjusted EBITDA, operating income, net income, CapEx, free cash flows, net leverage ratio, we are clear numbers, which is the target numbers we will commit to. And with regard to specific initiatives, Mr. Miyauchi already explained this. But with regards to consumer business, we would increase our profit every year. In this age of 5G, we will use smartphones as a driving force to increase the volume. Enterprise, we will realize double-digit growth each year. In particular, we will focus on solutions sale. Yahoo will -- on a profit increase trend. And in FY '23, they have committed to achieving JPY 225 billion operating profit. They want to be #1 in e-commerce. As for equity methods, we will pick out on loss-making businesses. In any case, JPY 1 trillion is not our absolute target, but it's just a passing goal. We will continue to grow beyond JPY 1 trillion.

With regards to cost, again, Mr. Miyauchi disclosed the number, but so this is just a recap, but JPY 1 trillion is the fixed cost of consumer enterprise business. So we want to keep this flat. And we will make different growth investments but absorb the cost through digitization and different efforts.

Next is financial discipline. So we had free cash flows of over JPY 670 billion each year. This will be the source of all the businesses we do. So we need to make sure we generate this. And next year onward, we will continue to achieve this level and above. And our leverage ratio today at 2.4x will be improved. That will be our default goal. And we will provide you with an update each quarter.

And finally, shareholder returns. Let me be a little more detailed in these explanations here. When we went public, we called out for continued stable and high dividend payments that we said that we will continue to do so. And the characteristic of our equity story is that it's not just high in shareholder return, but we have 2 wheels, growth and shareholder returns. So the 2 things that we will balance out, it's -- we had declared that we will achieve both. And over the last 3 years, between '18, '19 and '20, I think we have been able to realize this numeric number-wise. But going forward, we will continue to achieve this.

So on the right-hand side, you can see our policy for shareholder return. So we will not reduce dividend each year. Let me declare that first and foremost. We get a lot of questions on this. We deliberately wrote this that we will not reduce our dividend. And in terms of dividend payout ratio, it had been 85%. But there's investors asking us to improve our EPS.

In terms of ROE, it's very high, it's like 37%. But in terms of utilization our capital, I think we're doing well. But in terms of needs for buyback shares, I think we have not done -- there's great demand from the investors, so we need to tighten the demand. So we need to be more flexible. And that is why we are now aiming for total shareholder return ratio of around 85%.

So in terms of dividend, JPY 86 is the basis. And at the beginning of the year, we will make sure that we set our directions clearly, so it will not go any -- below JPY 86. So that's why we said JPY 86 plus alpha.

As for share buybacks, the timing I think is flexible. It won't be same amount each year, but it will be at the optimal timing with the optimal amount. So we hope you'll allow us to be flexible here. So within 3 year weighted average basis, target is 85%. So hopefully you will understand that. And I'm sure you will have questions on this slide, we'll be willing to discuss that later on.

So that is all from me. Thank you very much for your kind attention. Let's take questions.

[Operator]

[Operator Instructions] Any questions from the venue? No questions from the venue so we would like to move on to taking the questions from the Zoom. [Operator Instructions] From Nomura Securities, Mr. Masuno.

[Daisaku Masuno, analyst]

Can you hear me?

[Unknown Executive]

Yes, we can hear you.

[Daisaku Masuno, analyst]

I have 2 questions. So I have one question for this quarter and the other for medium term. As for the first quarter, mobile telecommunications service revenue had decreased by 2.7%. And I didn't understand this. ARPU had gone down by 3%, I see. But the main subscribers had gone up by 5%. And it should be increase in the revenue. And I don't think that the PHS decrease was that significant. So the main subscriber times the ARPU, it seems that the revenue -- there was a discrepancy in the revenue. And also for the handset, there was a decrease by JPY 12 billion in the sales of the handset, but there was an increase from the sales promotion. So I was wondering there -- isn't there a discrepancy in the results?

[Unknown Executive]

April to June period, the ARPU times the number of subscribers, well, there was an impact from JPY 10 billion of the first year and the half year discounts. And because of that, there is not much growth, but there is a decrease in the cancellation fee. And also, in the -- there were campaigns for the long-term subscribers and evaluation of the used handset had impacted by a little less than JPY 10 billion. And because of that, there was a discrepancy -- there seems to be a discrepancy in your calculation. So the first year, half year discount will impact in the second quarter, but it will be -- it will decline after the third quarter. So in the second half, considering other elements, it will be better. As for the handset, the sales promotion, how we view this is that there is a -- for the handset, there was a provision made, and that was a temporary factor. And as for the incentive, there was accumulation of the 24-month discount. So that will not be a one-to-one relationship. But overall, in the net, it will be the same. So I think in terms of the numbers, it will offset each other.

[Daisaku Masuno, analyst]

I would like to make one confirmation. As for the first and half year discount that is included in the ARPU? And as for the valuation loss from the used handset, would that be included in the service?

[Unknown Executive]

The discounts are included in the ARPU. And as for the used handset, so we are promising the exchange to the new handset. So because of that, there is an impact. And as for the JPY 1 trillion operating income target, so Yahoo is targeting operating income of JPY 225 billion. So the telecommunication profit seems not to grow so much.

[Daisaku Masuno, analyst]

So do you -- are you assuming that or not?

[Unknown Executive]

I would like you to give the overview. Yahoo for fiscal year 2023 is targeting JPY 225 billion. And we are talking about JPY 1 trillion operating income in 2022. So if Yahoo was keeping their pace of growth -- if telecommunications business, it can grow steadily, then we will be able to get to JPY 1 trillion. So our goal is fiscal year 2022, but President, Mr. Miyauchi wants to get there as quickly as possible. So we will be working steadily towards that goal, aiming at overachieving.

[Operator]

Next is Mr. Kikuchi from SMBC Nikko Securities.

[Satoru Kikuchi, analyst]

This is Kikuchi speaking. Can you hear me?

[Unknown Executive]

Yes, we can hear you.

[Satoru Kikuchi, analyst]

I have 2 questions. First question, in your midterm plan, this year, if you go with the midterm plan, consumer segment would have been positive, but if you look at Q1 and also revenue from telecommunications maybe will not improve rapidly. It seems as though this is a very high hurdle to overcome.

And maybe you answered this in the question from Mr. Masuno, but what would be the factors for increasing consumer business in Q2 onwards? So that's my first question.

[Unknown Executive]

Yes, I understand. With regards to minus JPY 12 billion handset, there's JPY 6 billion in provision. That's onetime, so it will all disappear. And in terms of used -- valuation of the used handsets. When we made valuation on it last year, it was actually good. So that's a cycling of that. So Q2, I don't think that element will be included in Q2. In fact, it will be positive. So that negative factor will disappear. So we had some one-off factors in Q1, which will probably disappear in the second half, including the first and half year discounts. So in that sense, I think we can achieve increasing profit, but it's not a very big hurdle to overcome.

[Satoru Kikuchi, analyst]

Additional question, in your midterm plan, next year and the year after that, you're planning to be profitable. However, the marginal profit consumer segment is the mobile service revenue. But now you're starting to enter into a declining trend in revenue. So do you think you can achieve increase in revenue for mobile services?

[Unknown Executive]

Well, of course, it depends on how we work on it next year and the year after. But this decline in trend should hit bottom in Q1, Q2. And Q3, we should recover. In Q4, we should become breakeven. So that's the momentum. So what would happen next year? We want to stabilize this as much as possible. Meanwhile, in terms of main subscribers, it's increasing steadily. So if you look at it all in all, even service revenue, I don't think it will be in a negative situation. So that's an expectation we have.

[Satoru Kikuchi, analyst]

My second question. So the business integration announcements of Z Holdings and LINE Holdings, maybe what is the impact on your P&L or balance sheet? It's not just about expansion and the consolidation, but through this transaction, the conditions, what would -- how would it impact you, especially on profit?

[Unknown Executive]

In terms of operating profit, because it will be consolidated, LINE's operating profit will be added, reflected in our consolidated earnings. Hopefully, we can preserve synergies between the 2 companies. And in terms of net income, it's currently 44% right now. But in terms of economical stakes, it will be 65% together. So it will be 32.5%. So the minority shareholding has actually increased. So the contribution from net income will actually decrease from just a stand-alone basis, but the 2 companies actually will increase. And also, Yahoo and LINE and same thing with PayPay, but they are very strong companies. And the synergy with SoftBank's telecom business, I think, is something we can really pursue. We just received a formal clearance from FTC today. So these are all things that we're still yet to work on, but I hope that we will be able to report to you that our initiatives have been good.

[Satoru Kikuchi, analyst]

Is there onetime valuation gains?

[Unknown Executive]

At this point in time, we don't have anything we can assume. But in the integration of the 2 businesses, we may be able to generate one-off gains. But it's -- in general, you don't really get a lot of big one-off gains in M&A. So I don't think we can expect too much from it.

[Operator]

We would like to move on to the next question from Citigroup, Mr. Tsuruo.

[Mitsunobu Tsuruo, analyst]

This is Tsuruo. Can you hear me?

[Unknown Executive]

Yes, we can hear you.

[Mitsunobu Tsuruo, analyst]

I would like to ask about the medium-term plan. This time around, the JPY 530 billion in the profit after tax. What is included and what is not included? So the variation in the equity method, the LINE performance, the PayPay performance improvement, if you could focus on those 3 things, I would appreciate it.

[Unknown Executive]

LINE, PayPay and what?

[Mitsunobu Tsuruo, analyst]

LINE, PayPay and the difference in the equity method ratio. So change in the equity, underlying impact.

[Unknown Executive]

Well, we are not looking at the direct impact from LINE, but we are trying to merge LINE. And as for PayPay, we are looking at this clearly.

[Mitsunobu Tsuruo, analyst]

So what are the forecast for PayPay?

[Unknown Executive]

We believe PayPay will be bottoming out, and it will work towards recovery. I would not be able to disclose the specific figures at this moment.

[Mitsunobu Tsuruo, analyst]

Understood. So with that in mind, I would like to move on to my second question. If that's the case, the after-tax profit will be about 5% growth per annum if it goes, as you have said. And in terms of the dividend growth, how do you view this?

So I would like to make confirmation about some points. The first point you said that you want to get to JPY 1 trillion in the operating income. And so it's fiscal year 2022 at the earliest. In order to get to this operating income, what are the conditions that you need to have in place? And also the share buyback, what is the scale that you are envisioning? Would you be using the debt or not? So I'm sure that this is a sensitive issue, but if you could give me the overall concept that you have in mind, I would appreciate it.

[Unknown Executive]

So fiscal year 2022, we are declaring that we will get to JPY 1 trillion, but we are trying to exceed JPY 1 trillion level in operating income. That's the target that we have. In fiscal year 2022, if we get to JPY 1 trillion, on the following year, we would like to go even more. We want to steadily grow from the JPY 1 trillion. We want to get to that level, hopefully, in fiscal year 2022.

And as for the share buyback and as for the dividend of 85%, so 85% of the JPY 530 billion is what we have in mind, but we are thinking about that in the 3-year timeframe, and we will not be decreasing the dividend. And as for the share buyback, we will be conducting it at the optimal timing possible. There is nothing decided at this point. And you asked a hypothetical question of whether we will be using the debt instrument or not. I will not be able to answer this at this point, but we have a free hand in considering various options.

[Operator]

Moriyuki from SBI Securities.

[Shinji Moriyuki, analyst]

This is Moriyuki speaking.

[Unknown Executive]

Please unmute.

[Shinji Moriyuki, analyst]

This is Moriyuki. Can you hear me now?

[Unknown Executive]

Yes, we can hear you now.

[Shinji Moriyuki, analyst]

You talked about different one-off factors. So I want to clarify that. In Q1, consumer one-off factor is JPY 6 billion in handset, JPY 10 billion for used and OTOKU is JPY 10 billion. So in second half, you will not have this minus JPY 2.6 billion and the other one-off factors. So again OTOKU, the first and half year discounts, I think, will be eliminated. But so JPY 6 billion revision, that's true and JPY 1 billion for first year discount, that's true. But used is less than JPY 1 billion. So what in total? What's the total for one-off factor?

[Unknown Executive]

So majority of the JPY 22 billion is JPY 12 billion and JPY 10 billion from the provision and discounts. And the discount, the -- how you -- if you break it down between the accounting changes and the actual discount, I think you had JPY 100 and JPY 10 billion. Well, we used to book JPY 500 for 24 months, that's accounting we had applied, but we have changed this to 120 month JPY 1,000 -- 12 month, excuse me, JPY 1,000, so that's the big impact. But this will probably come down.

[Shinji Moriyuki, analyst]

You don't have any breakdown?

[Unknown Executive]

I don't have it with me, but accounting effect is quite significant.

[Shinji Moriyuki, analyst]

I understand. Also, what you were saying at the beginning was that in first half, it would be difficult and you'll recover in second half, and you will be able to realize 1% increase in full year level. But Q1, I think it was a relatively large size or high level. But consumer is better than expected. So do you think you're on an upside trend? And are you going to spend money on other measures? Are you spending on cost?

[Unknown Executive]

So if you take corona for one example, at the beginning of May, it was mainly after the golden week. We were in the midst of the state of emergency, and we were not sure how long this will be prolonged. We had less traffic at the shops. And that was the direction. So we thought that if they continue until June, this was the scenario. If they continue even further down, this will be the scenario. We have to reduce the cost. And what is the upside that we have different scenarios. And not able to really sense the upside. So we tend to be somewhat conservative. And in terms of cost down, we have not been able to realize the forecast effect yet. So the negative impact we expected to continue until the end of June. So in all business segments, we were a little more conservative than the numbers we have ended up disclosing. Even if in Z Holdings, we thought it was a lot more difficult. We were wondering if they will be able to reduce cost as scheduled. In the enterprise business, they were able to really leverage on telework demand. But at the beginning of May, we did not have that assumption in mind. Therefore, in Q1, we were a little more conservative, especially last year Q1, it was immediately after we went public and the share price level was still sluggish, so in that sense, we wanted to improve in profit. So we were stretching ourselves. I think that was how we were operating. So year-on-year Q1, we thought it was going to be very difficult. So it's true that that's how we have projected Q1 in May. Compared to that, we encountered COVID, and we were able to counter that quite well. So on an overall level, I think we're somewhat a little more bullish. I think we've had a good upside, but Z Holdings was saying this but they had about JPY 10 billion level cost reductions. But actually, they want to -- would have done more sales promotion, and they would have generated more revenue. I think Mr. Kawabe's intention was to do that if it was under normal circumstances.

[Shinji Moriyuki, analyst]

So each business segment invest -- slightly invest in growth? Or do they want to focus on profits?

[Unknown Executive]

If you have an upside, I think that will be an option we have to look at, if you allow us some flexibility. In Q2 I think we should have the numbers a little more solid number, fixed numbers. And this is just a summary of just 3 months just starting out. So we will continue to scrutinize. So it's not just corona, one factor.

[Shinji Moriyuki, analyst]

What about organic? Is that also an upside trend? Do you think it's upward looking?

[Unknown Executive]

Yes, I think so. In terms of number of smartphones, I think it's very steady. So business trend is not bad. Also, enterprise is really growing, 10% in profit increases for sure. We have strong confidence against that. So business trend is good, including Z Holdings.

[Operator]

The next questioner is from Merrill Lynch Japan, Mr. Kinoshita.

[Yoshiyuki Kinoshita, analyst]

I have 2 questions also. The first question is related to the shareholder returns, especially about shareholder buyback. You're thinking about the timing. So in the 3 years, you will be looking at the weighted average. And you will be conducting share buyback by looking at those numbers. So if you look in the 3-year time frame, for example, next year, if some event occurs, and you believe that it is the timing for conducting the share buyback, the amount that you will be buying back, that will be basing the net profit for the 3 years and you will be conducting it earlier. So for example, next fiscal year, you will be looking at this fiscal year and next fiscal year and consider 85% out of that. So I didn't know how you would be thinking about it? Would you be thinking about it in the 3 years or the current year and the year that you will be conducting a share buyback?

[Unknown Executive]

Well, we have to think flexibly for that. So in FY '19, we conducted consolidation of Z Holdings, and we conducted a huge investment. And this fiscal year, we are acquiring LINE. Out of the free cash flow, we conducted dividend payment, and we tried to also, at the same time, improve the financial health. So each year, we will be looking at the -- we will be looking at the remaining from the 85% will be used for the financial improvement. And in terms of whether we will be conducting the share buybacks that we will be working flexibly. So out of the 3 years, we will be looking at the overall situation.

[Yoshiyuki Kinoshita, analyst]

So would there be a possibility that the shareholders' returns will be conducted earlier?

[Unknown Executive]

Well, I don't deny the possibility of that.

[Yoshiyuki Kinoshita, analyst]

My second question, so this is a 3-year midterm plan. And this fiscal year, next fiscal year and the fiscal year 2 years from now. So this fiscal year, you don't expect huge jump in the profit, but next fiscal year and the year following that, do you feel that there will be acceleration in the improvement in the profit? Or after next year, the mobile telecommunication business will go into the positive? So the investors can be confident about the accomplishment of your goals for fiscal year 2022? So how do you envision that?

[Unknown Executive]

So if you look at the breakdown of the business, so consumer, it will increase in the profitability. And enterprise, it will grow by double digits. Z Holdings in fiscal year 2023, they are expecting JPY 225 billion in operating income. So the framework will be quite clear. In equity method companies, it will bottom out for recovery in the performance. So overall, I think that there would be acceleration of the profitability. In fiscal year '19 to '20, there was growth of JPY 12 billion in the net profit. And in the coming years, there is improvement by JPY 40 billion-or-so. So I think that you will see the acceleration.

[Yoshiyuki Kinoshita, analyst]

So there will be more accelerations compared -- are you going to accelerate more in fiscal year '22 than fiscal year 2021?

[Unknown Executive]

Well, we want to think more flexibly about the future figures. But for fiscal year 2021, we will be targeting improvement of the profit compared to this fiscal year.

[Operator]

Because of time constraints. The next question will be the last question. The phone number for the last 4 digits, 5307. [Operator Instructions]

[Yoshio Ando, analyst]

Yes, hello.

[Unknown Executive]

Yes, now we can hear you.

[Yoshio Ando, analyst]

I apologize. My name is Ando from Daiwa. I have 2 questions. First question, in midterm plan. So cumulative subscribers is 23 -- 30 million. What is the competitive landscape, migration, mobility? I mean there are different factors, which I think you have been able to come up with the number 30 million. So what is the assumption of 30 million? And also, let's say, you have a different target of JPY 1 trillion. What is the degree of commitment compared to, for example, JPY 1 trillion in operating income?

[Unknown Executive]

So internally, sales division is very much committed to 30 million. Mr. Miyauchi also stated that it will be 30 million. So I think it's a promise. I think to us, it's a commitment. I think we are putting our utmost efforts to deliver our commitment of what we have promised. So compared to profit -- and profit and dividend policy are important, but it's equally important. We always say 100% smartphone penetration. That's what Mr. Miyauchi has been calling out for. So our commitment to this is very strong, including our top management.

[Yoshio Ando, analyst]

What is the assumption on 30 million?

[Unknown Executive]

Assumption, you mean like mobility?

[Yoshio Ando, analyst]

Yes, and also unbundling plan or COVID, you would think that mobility will decrease in terms of market-wise. And then maybe there's an entry of other players and also migration of number portability. So what is the...

[Unknown Executive]

I said FY '23, so this is different from the midterm target 2022. So 30 million, and we will do 18 million of 5G. So we declare that. So 5G will be one driver. There's no doubt about that. 3G is reset. So of course, 3G customers will become smartphone users as well. So feature phone users will be migrated as well. By the way, JPY 30 million, this includes enterprise customers as well. So enterprise side, there's many lag -- companies are lagging behind in smartphone subscriptions. So I think enterprise will also drive this overall number.

[Yoshio Ando, analyst]

My second question in your business segment, there's others. Last year, Q1 was very large losses, but having said that, I think it was JPY 3.8 billion in Q1. What is the content of those business segments? And how should I look at this in the future?

[Unknown Executive]

Last year Q1, one characteristic was that in 1 month of April, PayPay was consolidated because of retrospective accounting, SBG -- this is before SBG invested. So in April, we were making a lot of upfront investments in PayPay. And this comprises much of JPY 9.6 billion. So this is Q1, April one-off event, one-time event. But if you expect that it's not such a big number, and the assumption behind this is that subsidiaries' performance business earnings have been improving gradually. So I think, hopefully, we can continue to be positive. We're not asking the segment to become a big point getter, but we want them to gradually become point getter.

[Yoshio Ando, analyst]

So this is the new business fields that you have been talking about? Is that the right understanding?

[Unknown Executive]

This is not about new business fields, but this is maybe like SBG payment, services or technology players. These are groups of subsidiaries which are improving slightly, and the number of subsidiaries is increasing as well. So this is all in others. So this is basically subsidiaries, excluding Z Holdings.

[Operator]

So thank you very much. So our time is up. We will complete the question-and-answer using Zoom. So with this, we end the investors briefing and the earnings results for the first 3 months ended June 30, 2020.

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