SoftBank Corp

TSE:9434

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, thank you very much for waiting. We would like to start the investor briefing of earnings results for the 9 months ended December 31, 2019, of SoftBank Corp.

First of all, I would like to introduce to you the executives on stage. From your right, Executive Vice President and CFO, Fujihara; Vice President, Head of Strategic Finance Division, Finance Unit, Hirono; Vice President, Head of Finance and Accounting Division; Naito.

The briefing is streamed live on the Internet. Mr. Fujihara will brief you on the earnings results of SoftBank Corporation.

[Kazuhiko Fujihara, executive]

My name is Fujihara. Thank you very much for coming out of your busy schedules in the late evening. We have announced our earning results, and I would like to give you some details to the numbers. Please take a look at this slide. I would like to start from Page 4. Excuse me, Page 3.

You see on this slide, the revenue, operating income and net income summary for first to the third quarter of fiscal year 2019. We have done very well. We were able to increase the revenue by JPY 20 billion to JPY 4,820 billion. The progress rate is 75%. So we were able to see the increase year-on-year by JPY 163.5 billion, which is 4.7% plus.

So our core business had grown steadily. And as for the operating income, we have revised upward the target to JPY 900 billion. And if we are able to accomplish that, it's about 10% increase. So the -- so for this cumulative third quarter, it was JPY 795.1 billion. Progress rate, 88%.

Net income, because we had to book JPY 19.5 billion additional in corporate taxes, so we decided to leave the forecast as is. But in actuality, if we exclude those corporate tax addition, we were able to increase by JPY 20 billion.

So if you turn to Page 4. In all of the segments, we have seen increase in the revenue. Last year was the first year after IPO. And in all segments, we have seen good increase, and that situation has continued. I would like to go one by one. And as for distribution, there was increase in the enterprise -- at the corporate area. And consumer. If you look consumer breakdown, in mobile telecommunications, JPY 60 billion increase was seen, so which is 5% plus. The -- there was an expansion of the subscribers, especially in the smartphones, and ARPU had gone up year-on-year. So the number of subscription and the ARPU had gone up hand-in-hand. Broadband increased by 6.8%. So the rate of increase was better than mobile.

And as for the revenue from sales of goods and others, it was negative JPY 53 billion. I would like to comment on that. If it's just handset, there was a negative of more than JPY 80 billion. However, the electricity, et cetera, had been in the positive, so it had offset the negatives. As Miyauchi had mentioned earlier, in October and November, there was a large negative. So handset upgrade had been sluggish. And the handset, the sales had gone down more than that. But if you look at the net user increase, it was growing steadily.

Next, I would like to talk about the Enterprise segment. Enterprise segment had grown handsomely. The solution is where we are focusing on: This is cloud, IoT, security services, digital ad. The new fields are growing very well. So Enterprise segment had grown by 18.9% or JPY 18.8 billion. So we would like to aim at doubling the profit.

And on the right, you see Yahoo! breakdown. Yahoo! had made a briefing already as the holdings and JPY 50 billion increase was seen. And so the commerce had grown by about 10%. So there was impact from ZOZO as well. And as for Media, the environment is severe, but we are growing little by little. Overall, this revenue had increased by 7.3%. So approximately JPY 50 billion increase.

Next, I would like to go over the operating income. Operating income was added by JPY 65.6 billion, and EBITDA had grown significantly by JPY 176.4 billion. IFRS 16, because we have made some of the items into assets -- we are recording some of the items as assets and depreciating it now. And if we exclude that impact, it was JPY 66.2 billion plus. So the depreciation amount impact is very small.

If you look at the right, you see segment income. All of the segments are in the positive. That's one big characteristic. Consumer was JPY 20 billion plus; Enterprise, JPY 3.3 billion; Distribution, JPY 2.6 billion; Yahoo! JPY 7.4 billion. And in addition to that, others.

In the consumer, it is growing steadily. But in the third quarter, the growth was small. One of the biggest reasons was acquisition costs as well as handset. So there was unbundling, and the handset price had gone down. The margin had gone down together with that. In addition to that, the acquisition cost, the contract cost -- the contract acquisition cost is recorded as asset. It's capitalized and the amount paid to users. The October had gone down drastically. It had dropped from 70,000 to 80,000 to 20,000. So contract wise, it would work to the positive. However, when it's depreciated 24 to 30 months, due to the impact from the depreciation, the amount used up to September was generated to October. And so for the third quarter, there was more impact from the past. The cash out is decreasing, but P&L wise, it worked negatively. So if you look at the margin, there is the -- there was impact of latter half of JPY 10 billion. But next year, it would work to the positive.

So in the third quarter, the other segments were doing well also, so we had a drastic reform. And also we structurally changed the account wise. So the consumer's growth in the other profit was smaller, and there may be questions about that. So I wanted to mention about that.

So please turn to Page 7. Miyauchi mentioned this. But in the past, there were losses on the orders, so there was expenses. And 5 years ago, we had put these losses on the orders received. And there was a reversal last year. So JPY 8.6 billion that was a tailwind for us last year. And until December last year, this was booked. But in Q4 onward, this will not be reflected, but the JPY 8.6 billion will be a one-off factor. So if you exclude that, it's actually a plus 18% growth. So this business is doing extremely well compared to FY '18. Within a few years, our plan is to double, and we're very serious about this. And I can say that the progress is very good against that. So next year, we're -- I believe that this will drive profit growth for us.

On the other hand side, you can see other segments. So it was minus JPY 20 billion or so last year. This is because PayPay in the previous year, we had to do adjustments. And if you line up with Yahoo!, so Yahoo! and SoftBank, we used to have 100% PayPay. So we did a retrospective consolidation. So that is why it is minus -- negative. But this year, it's actually equity method, so operating profit is actually positive this year. And in Q2, we announced the Cybereason transaction. We will be losing the control over Cybereason, so this actually contributed to be positive. And that rest of the JPY 3.8 billion includes payment service players, these are improvements in the subsidiary businesses.

Next is Page 8. So we have consolidated ZOZO as our subsidiary. Along with that, we have a summary of the business impact on us, and this is actually already disclosed in ZHD. But in this quarter, in ZOZO, it was JPY 24.1 billion in revenue; operating income, $4.3 billion; net income was JPY 0.6 billion. That was the impact. And we have the PPA amortization, which is JPY 2.2 billion. So it's about JPY 1.1 billion on a monthly basis, and this is reflected in our P&L.

Next is Page 9, please. This is the operating income trend step chart. So revenue is strong, is JPY 112.3 billion, and you can see cost of goods. So first of all, it says JPY 5.3 billion, but that could be maybe arrears. So you have the cost of the handsets and you have the distribution cost as well. So the JPY 31 billion is, for example, it could be a consumer, it could be enterprise. These are the cost of the sales of goods. So this is incurred as cost of sold goods.

Next is telecom network charges. So we have the Hikari contracts increasing, so the amount we pay to NTT is increasing as well. But in terms of Enterprise, this is fixed line. The business is decreasing, so cost is decreasing. So there's a net of, which is minus JPY 1.6 billion.

Next is sales-related commissions and promotion expenses. This amount -- this is a contract acquisition cost, and you can see depreciation as well. So you can see it's at the bottom, but you can see ups and downs. So overall, this is the result in the increasing expenses.

The next is depreciation, about JPY 100 billion or so. This is because up until now, we were paying as expenses. So it was on top of EBITDA, what we used to book there on that line. It is now depreciation and amortization. So that is why it's minus JPY 8.3 billion. And please so confirm that impact.

And then if you look at outsourced services fees, this is JPY 69.8 billion additions. This is looking at the IFRS impact, minus JPY 14 billion or so. So this is increase in cost as well. But actually, most of them are related to cost. So consumer, customer service-related payments in Enterprise, we have outsourced service fees. So these are things that have high fixed costs. So it is actually linked to revenue. So increase in revenue increased in outsourced cost.

And then we have the PayPay and gain on loss of control of subsidiary. You have that. And then we have the Yahoo! increased segment profit.

Looking at the cumulative subscribers, Page 10. So in terms of main subscribers, we see an increase of 1.7 million. This is very strong. But we're focusing on smartphones. So this has increased 20 million. That's actually -- excuse me, that's an increase of plus 2 million year-on-year. This is actually happy news for us. The reason is because now we can actually target 30 million that's becoming very viable and 30 million that we're always conscientious of that in our mind. So we're asking for 100% smartphone penetration. That's our slogan, and we're working towards that slogan.

Now looking back 10 years ago, how much was the level of smartphones? That was little less than 2 million. Now after 10 years, it's 2 point -- 23 million. So in a year of 4G, this is what we have -- the business we have built over the years. And we think that 5G smartphone is the big launch pad. So we will like to continue to work on this.

On the right-hand side, you can see smartphone subscribers by brand. You can see that each of the brands have played its role and contributed. So this strategy, tactic, we want to continue.

In terms of churn rate, churn rate improved significantly, 0.53% is record low. And the improvement is 0.25%. So this is a significant. Characteristic is that churn SoftBank brand has actually been retained in Y!mobile. So the 3-brand strategy is really working well here as well, which is different from -- which we can differentiate ourselves from the competitors. In any case, this is actually very efficient.

On Page 12, that's ARPU. In terms of ARPU, there was a question earlier in the briefings. But year-on-year, this is plus JPY 60 in total ARPU. In the previous quarter, it was plus JPY 120. So this -- the margin of increase has deteriorated. What's happening today is that if you look at ARPU before discount, we continue to see a decrease because the rate -- it's not because we have implemented unbundling plan, we have discounted where we have lowered the rate. So we see penetration in that sense. And also the 3 brands because Y! mobile is the main pillar of growth. In terms of mix, there's a downward pressure.

Meanwhile, if you look at the 4 years installment has become 2 installment. And there's an effect of 4-year installment still. So in terms of the discount ARPU, you can see there's more increase there. So that is why the total ARPU increased by JPY 60. Now in terms of the effect of the discounts, the trend is on the decrease. So towards next year, ARPU, there's a little more pressure for ARPU next year.

So BB. So please turn to Slide 13. The BB service is growing steadily also. Inclusive of ADSL, it's 7.78 million. And if it's the SoftBank Hikari cumulative subscribers, it's 6.25 million. And there are -- if you look at the right, we are reaching almost 10 million for home bundle discount Hikari set cumulative subscribers. So that would be about 0.3% to 0.4%. And so the churn rate for them is very low. About less than half -- less than 30%, excuse me.

So if you turn to Page 14. There is an increase by JPY 13.3 billion. And the biggest is the operating income increased by JPY 65.6 billion, financing income and costs. So there was impact from IFRS 16. And so there was a booking of JPY 4.2 billion. So if we exclude that, it's JPY 8.9 billion. And so there were some financing income, and that contributed to the business.

And as for the equity method, PayPay is equity method company, and we have invested a lot this year. And the impact -- the biggest impact came from the investment in PayPay. And there were some gains on sales of equity method investments, and that impacted by JPY 9.5 billion. And another characteristic this term is income taxes. It was a negative JPY 38.3 billion. So there was increase in the profit. So there was increase in the corporate tax, but there was a unique factor. So we are working to integrate line and the holdings and in that process. We will be having a 100% subsidiary which would have the injection of the Z Holdings. And so this is within group transaction. And if you look at the taxation, the amount of transfer, that would be deferred. So that -- and so the corporate taxes will be paid in fiscal year 2021, if it's occurred in 2020. But we already know the exit clearly. And for the in-group transaction, the authorities have said that we need to book the corporate taxes this fiscal year. So because Z Holdings shares value had increased, we have agreed to the fair market value, as you see on this slide.

So for the corporate taxes, we have booked JPY 19.5 billion.

Last year, we used JPY 12 billion worth of loss carryforwards. And that was a benefit for last year. And this year, we cannot use that. So that was a negative impact to the net profit. But this is onetime factor. So the trend is -- the growth trend, and that has remained unchanged. So the amount of the net income in total was JPY 436.6 billion.

If you turn to Slide 15, you see the revision upward for the full year forecast, JPY 20 billion for revenue and JPY 10 billion for operating income. As I have said, for the revenue, there was an increase in the smartphone growth and also the business solution services.

So there was impact from ZOZO, but that was offset with the decrease in the handset sales. And as for the operating income, in the core business, there was a steady growth. So that's the background for upward revision.

As for net income, because we need to absorb the JPY 19.5 billion in corporate taxes, we decided to have it remain unchanged. And dividend per share is JPY 85.

Please turn to Slide 16. I would like to talk about CapEx and free cash flow. On the left you see CapEx, it's about JPY 216.9 billion. And so compared to last year, it's still low at JPY 281.9 billion. In the fourth quarter, we will aim towards the target of JPY 380 billion. So the 5G investments have already begun.

On the right, you see adjusted free cash flow. Before the IPO, we did not have Yahoo! or Z Holdings. There was no change in accounting. So at the time of the IPO, we said that we will have free cash flow above JPY 500 billion and to have high dividend. And on the apple-to-apple basis, it's JPY 475.2 billion. But overall, the business is bullish. So I think that we would be able to go above the JPY 520 billion in full year.

Next is interest-bearing debt. The Z Holdings is now included. And so the red portion is just added on. And in IFRS, the use of asset rights. We need to recognize this as liability. So due to that, there was increase by JPY 500 billion. At SoftBank, JPY 450 billion was used for the acquisition of Z Holdings stocks, and Z holdings had to spend JPY 400 billion for M&A of ZOZO. So the net leverage ratio was 2.6x. So there was impact from ZOZO.

And the first quarter and the third quarter is the time when we pay the corporate taxes and dividends. So compared with the second and fourth quarters, the net leverage ratio tends to deteriorate. So going forward, we expect that the net leverage ratio to go down. In the fourth quarter, we believe that the net leverage ratio will slightly go down from the figures that you see now.

So on Page 18, you can see the summary of our financing activities. This year, we have Mr. Hirono here, but this was a year of busy financing activities. So we had syndicated loans we executed, so we have a balance of JPY 325 billion, which is on our balance sheet. We also have structured ECA financing. We had good conditions. So we had about JPY 50 billion in the facility, which is to be executed. And we have also built the mechanism of securitization of telecom service fees receivables, about JPY 140 billion. The commitment line is JPY 300 billion. This is like revolving loan. Depending on the financing situation, we can use this commitment line. Balance is JPY 140 billion. We're trying to reduce this balance as quickly as possible.

With regards to securitization installment receivables, we're doing this every 3 months on a quarterly basis. So we can have a commitment line of JPY 250 billion in efficiency of financing, and we have a balance of JPY 30 billion. So we still have more commitment we can plan to use. And because the market situation is good in the recent days, we're planning to -- we have started issuing CPs, about JPY 100 billion in the balance. And we have recently announced this, but we have finally been able to acquire good credit ratings. So leverage on that, we can issue corporate bonds. So specifics are underway.

Please take note of the financial -- improvements in our financial status health.

So Page 19. One of the biggest events of this quarter was the business integration of Z Holdings and LINE. As we -- this is what we have already published, disclosed, so this is just a confirmation for you. But SoftBank and NAVER, the 2 companies will do 50%, 50% joint venture. We will -- SoftBank will have a control of the majority of the Board members. And so Miyauchi and Hae-Jin Lee, the Founder and the Chairman will be on the Board. The 2 of them will lead the company. And independently, Z Holdings will maintain its listing. And below that, Yahoo! and LINE will fall under as business lines. And Integrated Z Holdings, we will have 6 Board directors, which will be sent from the joint venture. Representative Director is Kawabe, and the co-CEO is Mr. Idezawa.

As for that the tender offer for LINE, it's exactly as we have announced before. We're preparing for this, but we are still in the review of the FTC. So we need -- we are long looking forward to the approval by FTC. So in terms of the consultation with LINE, we are prohibited to disclose that because we don't want to do any gun jumping. So that is why Mr. Miyauchi was not able to make any comments about that.

With regards to the structure, please confirm this. At the commencement of the transaction, we were transferring -- planning to transfer the shares at Z Holding, and we did that 100%. And then the second step was the -- after the FTC process is completed, the LINE will delist, and we will do this together with NAVER. And next, we will transfer the Z Holding shares. The transfer of the shares is already being planned. It's part of the transaction.

And next, it says in JV. This is referring to the today's LINE. It does have an operation. So this operation will be actually passed on to the successor company. And Z holding, as a consideration, will issue shares. So it will now become an operating company. So Z Holding, I think they already issued it, but they are planning to carry out an extraordinary shareholders meeting. So through this procedure, they will be able to get a pre-approval for this process. That is scheduled in March.

So Page 21, here's the time line. So in December, we did the signing of the definitive agreement and depending on FTC's approval, when that will be but we're aiming for fall, maybe October or so, to complete this entire into the closing.

So this is our strategy. We have the telecom business as a basis, we will achieve stable growth with this. Based on the stable cash flow, we will seek for opportunities for growth. So we have Yahoo! and we have new businesses.

Earlier, there was a lot of questions about OYO. So let me update you on the situation with OYO. So the partnership with OYO, we have a stake of 25%. So the main management is undertaken by OYO because they're doing this in Japan, the market which we are in, so we are partners in the Japan market. And there were some troubles. So if there's a personnel issue, then we will send out HR specialists and have them rectify, help them correct. And with regards to the trouble with the hotel owners, we have also assisted in the revising of the business plan. We advise them. So in any case, we are receiving -- OYO is asking for advice. And we have a good relationship with them. So we want to continue to support the growth as a partner.

So that is all from me. Thank you very much for your kind attention. We would like to take questions from the floor. So thank you so much.

[Operator]

[Operator Instructions] Left block, the third row from the front.

[Yoshiyuki Kinoshita, analyst]

From Merrill Lynch, Kinoshita. I have 2 questions. My first question is about dividend, the concept of the dividend going forward. Mr. Miyauchi talked about providing high dividend. So the payout ratio, so you are eyeing on the certain payout ratio for maintaining a high dividend. But considering integration with LINE and equity method company investments, I think that there may be some fluctuations in the net income figures going forward, considering those factors. A calculation of the dividend. So I think that your -- the payout was to be JPY 85 per share. And do you have any intention to revisit that? What is your directionality for the dividend? That's my first question.

My second question is about CapEx towards next year. For 5G, you have talked about the incentives, and you are not so interested in the spectrum. And you said that the converting the usage of the 4G spectrum to 5G if possible. So how many base stations for 5G would you like to have? Do you have any specific figures that you can give us?

[Kazuhiko Fujihara, executive]

In terms of the dividend, as I have said at the beginning of the fiscal year, 85% payout ratio is the basis of the calculation. And what we have said at the beginning of the year will be kept as a promise. And during the year, there would be a lot of things going on which are temporary, the things which would be impacting cash, those which aren't. But each year, in May, we will announce the dividend policy, and we will keep our word. And we have negative impression towards decrease in the dividend, so that's what we -- that's how we view the concept of high dividend.

In terms of 85%, we have no intention of changing that at this point. In terms of the initiative with LINE, we don't know what kind of synergy, what kind of business plan that we would be able to have. We are not at that point yet. And once we have the clear view, we would like to disclose that to you. But at this moment, we don't have any intention of changing the payout ratio of 85%.

To your question about CapEx. The investment towards 5G have begun and the CapEx plan that we have submitted to MIC. So compared to that plan, we have been able to conduct the investment earlier, about 50% is -- of the investment is being conducted earlier than planned. And towards the end of March, I think that the 5G service will start in full scale. And -- but this year, I think that the service will be very limited, inclusive of the other companies. And next year, I think that the service will be more in full scale. So inclusive of the issue about utilizing the 4G spectrum to 5G, we would like to thoroughly prepare ourselves for the world of 5G. We are serious about working on 5G.

[Yoshiyuki Kinoshita, analyst]

I would like to make a confirmation. So if there is no short-term synergy with LINE, I think that would negatively impact net income in the short term. What's your take on that?

[Kazuhiko Fujihara, executive]

For the next fiscal year, I would like to talk about that in May. So LINE was in the red ink this fiscal year. And next fiscal year, there are some people who take a very severe look at their performance. We would like to thoroughly review what the situation would be and make announcement once we know. LINE does not disclose the forecast. It would be Z Holdings who would be responsible for the overall business. So we will be having our guidance, but that would -- the stable dividend will remain unchanged.

[Yoshiyuki Kinoshita, analyst]

So I would like to confirm what you have said. So by this year and next year, do you mean this fiscal year, next fiscal year? Or do you mean this year as calendar year? So you said -- are you saying that calendar year 2021 will be important? Or are you talking about the fiscal year?

[Kazuhiko Fujihara, executive]

So please consider what I have said as calendar year.

[Operator]

Next question, the gentleman in the very front row on the right block.

[Satoru Kikuchi, analyst]

Kikuchi from SMBC Nikko Securities. First question, with regards to new business, the joint venture. So the profit from the equity method company, I think PayPay really stands out in that item. And then with regards to other new businesses like WeWork or OYO, Miyauchi-san, you mentioned earlier that OYO will be profitable on a single month basis. I thought he said that. And so other than PayPay, the joint ventures or new businesses other than PayPay, how would these companies contribute to the P&L? So these equity method companies, how would they contribute to P&L, both positive and negative? And what is the direction, the guidance for the next fiscal year? If you could explain a little bit more in detail with numbers.

[Kazuhiko Fujihara, executive]

With regards to pay, this is in the tens of billions of yen. So as you can see from that number. And we don't have anything else as big as PayPay. Everything is in billions or so, many are less than JPY 1 billion. So that's the scale. And we only have 25% stake. But in that sense, the impact on the overall equity method, the new business is really limited. If you compare to the size of the company, KK, and also PayPay, I think it's not that significant. But of course, when would they become profitable, that's a big topic or theme for us. So WeWork, it really depends on how much they expand and the timing of the profitability would change. So -- and of course, the occupancy is different from property probably. But we are promoting the property's expansion to a certain level. So maybe a little bit more in terms of the timing of the profitability, but I think it's doing well. So I don't think there should be any concern.

With regards to OYO, it's still yet to really start-up. And because we had some trouble with the contracts, we have been revisiting the contracts, we revised the business plan. So you can see that this is still in the stage of renovation or remodeling. So there's -- it really depends on how much growth you're expecting, so it's really trade off of that. But in terms of the impact on the business performance on a consolidated basis, I don't think it will be anything of a big surprise for you. So it should be okay. In any case, PayPay really stands out. We don't really have anything that's maybe anywhere between JPY 1.5 billion to JPY 2 billion. We don't really have anything beyond that.

[Satoru Kikuchi, analyst]

So last time, if it's possible, if you can explain by one by one. So WeWork compared to Q2, do you have less losses? And is it heading towards black ink? Is that correct?

[Kazuhiko Fujihara, executive]

Well, because WeWork itself is not disclosing, it's hard for us to comment. But with regards to the business in Japan, I don't think there's a problem.

[Satoru Kikuchi, analyst]

Yes, I just wanted to ask about WeWork Japan.

[Kazuhiko Fujihara, executive]

But because WeWork doesn't disclose anything about Japan itself, we can't disclose it. But just to give you the direction of the business, just to give you the sort of the relative comment about -- I can speak for general. So in the sense, occupancy by property is ZOZO and the new properties are all in Central Tokyo, so I think we have good chances.

[Satoru Kikuchi, analyst]

In that sense, and I'm sorry that I'm a little persistent here, but you can just give me an overall comment or general impression. But next year, I don't -- we don't know about PayPay, but the joint ventures, the new businesses, what would be they -- how much power would they have to push up your pretax profit?

[Kazuhiko Fujihara, executive]

For next year, I think it's still in on the negative side. So in other words, there's more losses, I don't know. Maybe compared to this year, I guess it depends on how we do it. But I don't think there should be a big surprise compared to this year. If it goes well, we should be about the same as this year or even slightly better. But we have to -- it really depends on how much accelerate, we want to apply on each of the businesses. So we want some free handle on this. So we do plan on the net income, and we will indicate how much it will be also along with the dividend as well. So we should be able to announce that in May.

[Satoru Kikuchi, analyst]

Then the second point, I guess it's a lot of overlap with the earlier question, but maybe at the pretax profit level, can you provide us with the guidance on the direction of the factors that would determine next year's performance -- business performance? So next year, telecommunication revenue before discount, ARPU before discount, do you think that will be at the same pace, and then there will be less discount and maybe a little less depreciation? I'm assuming that will be sort of the combination, the mix. So what would be the finish? What's the plan for next year?

[Kazuhiko Fujihara, executive]

So if I could give a factor analysis, so in May, we will give you the overall number, but I can give you the direction. So of course, we look at both growth and shareholder return. We want to strike the balance of both. So we went public with those 2 goals. So when you say what is growth, it's really about increasing profit. So we would be concerned about increasing profit, for sure. With regards to the consumer segment, the subscribers is increasing. ARPU, as you have commented, compared to this year, I think there will be additional pressure. Meanwhile, in terms of acquisition cost, we will begin to see the benefits of depreciation. So I think acquisition cost will become little more positive. So consumer segment, I think, can increase in profit. Now in terms of enterprises, we're saying we will double. So I don't think we need to really explain about any onetime event. I think it will be -- we want that to be a point getter for us. With regards to Z Holdings, we have all the necessary things in place so we have great expectations for that business as well. So we will build up on all of these combinations and then work it out, and then we can give you the numbers in May. I just want to let you know that we will be aiming to increase profit.

[Operator]

Any other questions? In the left block, the third row from the front.

[Toshiyasu Ohashi, analyst]

From Daiwa Securities, my name is Ohashi. I have 2 questions. The first question, you will be going into the other corporate bond market. We have high expectations. And the financing -- in your financing scheme, how do you position the corporate bonds? And the second part of the first question is the interaction with the corporate bond market. Is there any idea that you have in terms of how you interact with the market? That's my first question.

[Kazuhiko Fujihara, executive]

We can now issue corporate bonds. And the condition wise, I think, we will be able to have good conditions, and we would like to increase to the extent we can. But of course, we have to think about the relationship with the bank and also the exposure of the parent company and the subsidiary, we need to strike a proper balance. And with that in mind, we need to think about how to position corporate bond. In the corporate bond, I think there are cases where the group accesses the same market, and we would like to see how it goes. But in terms of the directionality, we want to grasp this opportunity and utilize this. So I have the Head of Strategy for Financing. So I would like to turn over to him.

[Koichi Hirono, executive]

My name is Hirono. And in terms of the corporate bond, as Fujihara has mentioned, we want to be -- we understand that the liability is big. So we want to replace it, part of it, with corporate bond so that our burden will be lessened. So we want to have a long-term communication inclusive of the secondary market and consider the balance. Now we have indirect financing and relatively short-term borrowing. So in that sense, long-term corporate bond is very attractive. It's complementary. So it would be a very important financing tool for us. And we want to have long-term relationship in terms of the corporate bond market.

[Toshiyasu Ohashi, analyst]

My second question. You mentioned about improvement of the finances. Do you have any KPI for finance? Is there anything that you can disclose to us at this point in time?

[Kazuhiko Fujihara, executive]

First of all, relationship of a debt to net EBITDA. So in terms of the ratio, we want to get to the half of the 2s, around 2.5. So that's the criteria that we have in mind. And also free cash flow, we need to generate free cash flow and subtracting dividend, we want to have more than JPY 100 billion remaining after the dividend. So there were LINE issues and Yahoo! issues. We conducted various investments. So we want to improve our finances.

[Operator]

Next question, center block, the second one from the front.

[Mitsunobu Tsuruo, analyst]

It's Tsuruo. I want to ask about the current situation and the collaboration between Z Holdings and SoftBank. It's about 6 months since it's been consolidation and you talked about collaboration of the sales team -- sales forces. So how has it been in this quarter? And what about the next quarter, the fourth quarter? What is your view on the collaboration? So this is a question for the media business.

[Kazuhiko Fujihara, executive]

So being a parent and being a sister, it's completely different. So if it's a sister company, you have to talk about profit on which book -- on which side, cost on which side. But if it's a parent, it's we're together. I think the conversation is -- the tone is different. So we're investing our sales and marketing resources. And Kita is in Yahoo! as a sales rep, and he's really leveraging the sales capabilities. He's really drawing on the strength of Yahoo! as well. With regard to cost, I think they've really worked hard on it to generate profit. And we, I think, have been talking more than before about how they need to generate more profit. I think more so than we were sister companies. As a parent, we have expectations for them to generate profit and grow. So it's an independent company, but I think management is very much accountable to us in that sense.

With regards to media business, I think it's really still yet to go forward to play. We do have a structure now in place. But for example, if you take INCUDATA, Arm's, Treasure Data is used, and with the power of the marketing capabilities, we created this together. But to answer, Treasure Data, the information that's spread out in the company, customer inflation spread out can be unified. So once we have this in place, then we can talk about what can we do with this. And we can combine Yahoo!'s product, and we can propose that to the customers. And it's a perfect fit. So if the profession goes way, then we will be able to propose and carry out sales and marketing activities together as one single team. So please wait for the result. It just has started.

[Mitsunobu Tsuruo, analyst]

The second question is on the top of Page 4 of attached sheet, you talked about additional investment. And now with the 2 companies, you have 51%. So PayPay in its aggressive promotions, I think they will probably have funding needs more in a relatively short term. So what is your picture for long term? What is the structure that you're looking for in the long term? With NAVER getting involved, they will have PayPay stay indirectly. So what is your mindset? What is your view on the equity structure?

[Kazuhiko Fujihara, executive]

So December, we did a small amount of additional investment. PayPay is the financial services so in terms of capital, they need to maintain to a certain extent. So we have taken a short-term budget, but they're expanding on their campaigns. And we have already started discussions on the next funding date. In May, we should be able to give you a clear picture. So if you could please be patient and wait. But just in terms of our thinking, Yahoo!'s strength and SoftBank's strength will be brought together. And Paytm is also done in agile development. So we place importance on that. Yahoo! and SoftBank are looking at this as our core business as well. So in the next few months, we will examine this. And in May, we should be able to give you better guidance about PayPay. At this point in time, please bear with us for this information -- the limited amount of information.

[Operator]

Due to constraint in time, we would like to take 2 questions from 2 other people and finish this session. So left block, the person sitting in the front.

[Yoshio Ando, analyst]

Ando from Daiwa Securities. I have 2 questions also. My first question, you talked about the other expenses related to handset. I was not able to capture everything that you have said. So could you help me understand this? So the gross margin decrease of handset, and also, there is a deferred expenses for the other costs. So what kind of cash benefits were there? And the promotion and -- I think that you are promoting the migration handsets, what was the movement of that? And the handset sales amount is increasing. So I was -- if you could explain about the dynamic movement of that, I would appreciate it.

[Kazuhiko Fujihara, executive]

In terms of the new subscribers, we have the amount of the subsidies towards the handsets. There was a decrease in about tens of billions for a decrease in the cash out. Advantages of that will be seen. So of course, due to depreciation, there was a lag in the booking, but it will be positively impacting us. And in terms of the handset price, due to unbundling, the handset price will be decreased. So in October, we have decreased the price. Excuse me, in September. So it's a negative impact for us. But due to improvement in the incentives, we would be able to offset the negatives. But accounting wise, in the third quarter, there was a decrease in the margin and also increase in the depreciation. And because the depreciation from the past is increasing, the P&L seems deteriorated. But this will be solved with the passing of time.

We are conducting various kinds of promotions, but the promotion does not change the overall structure. In the past, there were some upfront payments, which we have paid in a lump sum. And those prepayments had accounting benefits. So even if we increase the promotions, it would offset that. So the activities are bearing fruit. We are competitive. And if we look at the sales report on a daily basis, it's going well. The margin and incentives, if you look at quarter-by-quarter basis, I think that it will continue to improve.

[Yoshio Ando, analyst]

My next question is related to that. The unbundled price was introduced from a regulatory perspective. So if you could give me a summary of what has happened. The net increase, the acquisition amount, the -- and so how did the competitive power change compared with competitors?

[Kazuhiko Fujihara, executive]

In October and November, due to the last-minute demand in September and also impact from the consumption tax hike, the acquisition was sluggish. However, churn rate decreased. So in terms of the net increase, we were able to see quite good numbers. What the kind of strength that we have is the people who are leaving from another MNO is coming into Y!mobile and Y!mobile share is growing. And in terms of the people who are leaving us, the people are transitioning from SoftBank to Y!mobile. So in that sense, there is a good increase of Y!mobile users. But SoftBank also has debut discount, family discount and also large capacity. So they have uniqueness as a brand. So we see increase in the subscribers and the smartphones. Our smartphone brands, inclusive of LINE mobile, is growing very well. So there is a limited amount of handset subsidy now market wise.

[Yoshio Ando, analyst]

Well, I think that you were very strong in that area. But even if you lose that benefit, there was not much impact -- negative impact?

[Kazuhiko Fujihara, executive]

There was no big negative impact from this change. But in terms of the transition to smartphones, we have had the service of smartphone advisers. And they don't have any target for sales. They are to be customer-centric to make advice, to give advice about smartphones. And this has fit well with the current trend. We have PayPay, and people are buying things through smartphones. And if the customers want to enjoy those advantages, from -- subsidy from the government and the usage of the smartphone app for payment, they need to buy smartphones. So we were able to create a good system to attract customers to our smartphones.

[Operator]

So this will be the last person to ask the question. The gentleman in the front row in the center block.

[Daisaku Masuno, analyst]

Masuno from Nomura Securities. I have several questions. First of all, you talked about net debt to EBITDA, the remains of the free cash flows. You said you want to have more lift in the fresh cash flows. Currently, you have integrations, you have reorganizations, you have a flow of extra cash. These are the things that we do not assume beforehand. So you're trying to regain that back by JPY 100 billion per year, maybe then that would take you maybe 4 years or so. So what is -- how much time do you assuming? And I'm thinking maybe if you generate more profit, of course, you can get that back. But of course, if your EBITDA is growing, then you can accelerate that, maybe the ratio could fall quickly. But so my question is, what is the time span in which you can go back to your financial target?

[Kazuhiko Fujihara, executive]

So in that sense, 2.5x. That's already in view -- in our view already. In terms of ratio, it's not such that we have to do -- urgently do anything. We don't -- we're far away from violating the covenants. But just in terms of financial discipline, every year, we need to make sure that we can pay down debts every year. We have the bank loans, and we need to be able to generate enough cash flows to do that. I think we need to have that position.

[Daisaku Masuno, analyst]

But what's the best way to use that cash?

[Kazuhiko Fujihara, executive]

And I think that requires judgment at that time. So now, of course, we do want to look -- continue to keep in mind the financial improvements. But we also need to keep the growth opportunities in horizon as well. So those are the 2 things we will keep in mind. The shareholders' equity is slightly low today. So -- but ROE is like 50%, it's very high. So we have to look at the balance sheet to consider what is the most optimal financial strategy, but we always want to have ability to choose. So we want to have options for management. So in few years, we should be in good condition, and then we will be able to find the next step.

[Daisaku Masuno, analyst]

In equity valuation, your dividend is good. It's a high level. But if you look at it in EBITDA, and that's a traditional -- and I think the net debt ratio today is slightly higher, we're afraid that there will be some pressure. And you already have many growth opportunities you have taken. And next year is your period to recover your investments. So are you going to take into account EBITDA ratio? Are you -- I'm thinking maybe it's time for you to have more control of your finances.

[Kazuhiko Fujihara, executive]

Yes, the general direction is true. That's the financial discipline that we want to apply, and we hope we can demonstrate that.

[Operator]

Thank you very much. We would like to conclude the Q&A session. That concludes the investor briefing for SoftBank Corporation on earnings results for the 9 months ended December 31, 2019.

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