Softbank Group Corp. · TSE:9984
Softbank — Q1 FY2016 Earnings Presentation
81 slides from Softbank's earnings presentation, Jul 28, 2016
Slide 1: Earnings Results for the 3-month Period Ended June 30, 2016
July 28, 2016 Earnings Results for the 3-month Period Ended June 30, 2016 Masayoshi Son
Slide 2: Disclaimer
Disclaimer This material was prepared based on information available and views held at the time it was made. Statements in this material that are not historical facts, including, without limitation, plans, forecasts and strategies are “forward-looking statements”. Forward-looking statements are by t
Slide 3: FY2016 Q1 Highlights: Steady Progress in All Segments
FY2016 Q1 Highlights Steady Progress in All Segments Investment Assets Domestic Telco E-Commerce Realized value Adjusted EBITDA Continued EBIT growth Revolution progress through exits, significantly increased (+11%) on track generating $17.2bn (+18%) (transaction value +38%) in total proceeds *1 Adj
Slide 4: Consolidated Results
Consolidated Results 3
Slide 5: Consolidated Results: Increased all KPIs
Consolidated Results Increased all KPIs (JPY bn) Net Sales Adjusted EBITDA EBIT Net Income +3% +8% +0.2% +19% 2,066.5 2,126.5 678.4 254.2 628.3 318.6 319.2 213.4 FY2015 FY2016 FY2015 FY2016 FY2015 FY2016 FY2015 FY2016 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Net income: net income attributable to owners of the paren
Slide 6: Net Sales
Net Net Sales Sales (JPY bn) 2,066.5 2,126.5 Up 3% Sprint 873.9 Impact of strong yen (-JPY 98.3bn) 974.0 ($8.0bn) ($8.0bn) Flat in dollar terms 286.6 Distribution & other 259.5 204.2 Yahoo Japan 110.5 Consolidation of ASKUL Domestic Telco 722.6 761.8 Increase in telecom service revenue product & oth
Slide 7: Adjusted EBITDA: Record high
Adjusted EBITDA 678.4 (JPY bn) 628.3 Record high 13 consecutive periods 2003 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 (FY) Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Japanese-GAAP IFRSs *FY2013-14: excluding impact of GungHo & Supercell. 6
Slide 8: Adjusted EBITDA
Adjusted EBITDA (JPY bn) 678.4 628.3 Up 8% Sprint: up 5% Cost reduction effort 271.7 Impact of strong yen 259.2 ($2.5bn) (-JPY 30.6bn) ($2.1bn) Up 17% in dollar terms 59.5 Yahoo Japan 54.5 Domestic Telco 322.8 351.3 Revenue increase & cost reduction effort (Exchange rate) Distribution & other FY2015
Slide 9: EBIT: Record high
EBIT 319.2 318.6 (JPY bn) Record high 11 consecutive periods 2003 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 (FY) Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Japanese-GAAP IFRSs *FY2013-14: excluding impact of GungHo & Supercell. 8
Slide 10: EBIT
EBIT (JPY bn) 318.6 319.2 Sprint Up 0.2% 45.4 69.6 One-time charge (-JPY 12.3bn) Impact of strong Yen (-JPY 5.1bn) 50.3 Yahoo Japan 48.9 Domestic Telco Revenue increase 239.0 215.0 & cost reduction effort One-time charge: loss on contract termination related to the Shentel transaction Distribution &
Slide 11: Financial Status
Financial Status 10
Slide 12: Net Debt EBITDA Multiple (Consolidated)
Net Debt EBITDA Multiple (Consolidated) 6.2x (after Vodafone K.K. acquisition) Toward prompt reduction 4.4x 1. Monetization of Supercell, GungHo and portion of Alibaba 3.8x 2. Pro forma for ARM acquisition 2006 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’16 *1 Adjusted EBITDA for fiscal 2014 has been r
Slide 13: Consolidated Net Debt & Market Cap of Shares Held
Consolidated Net Debt & Market Cap of Shares Held Alibaba After reflecting monetization of Supercell, GungHo, portion of Alibaba (pro forma before ARM acquisition) (JPY t) 9.1 7.1 Alibaba 5.9 Sprint 3.3 Sprint 2.0 Excl. Sprint 3.8 Yahoo Japan 1.1 Other Consolidated net debt Market cap of shares held
Slide 14: Status of Major Segments
Status of Major Segments 13
Slide 15: Domestic Telco Highlights
Domestic Telco Highlights 1. Robust results (EBIT +11%) 2. Accelerate growth via smartphones & FTTH 3. Generate JPY 500bn in FCF in FY2016 Investment Assets 14
Slide 16: Domestic Telco EBIT
EBIT EBIT Domestic Telco (JPY bn) 239.0 215.0 Solid growth 2012 ’13 ’14 ’15 ’16 (FY) *FY2012-16: IFRSs *After FY2014: Domestic Telecommunications segment Up to FY2013: Mobile Communications segment + Fixed-line segment + Broadband Infrastructure segment Q1 Q1 Q1 Q1 Q1 15
Slide 17: Cumulative Subscribers (Main Subscribers)
Cumulative EBIT Subscribers (Main Subscribers) Domestic Telco 31.57mil 32.15mil Steady growth YoY +580k 2014 ’15 ’16 (FY) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 16
Slide 18: Churn Rate (Main Subscribers)
Churn Rate (Main Subscribers) Domestic Telco Significantly improved 1.24% 1.13% Improved “SoftBank” brand (Impact of bundled services with FTTH, etc.) 2014 ’15 ’16 (FY) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 17
Slide 19: ARPU (Main Subscribers)
ARPU (Main Subscribers) Domestic Telco (JPY) 4,610 (-50) 4,660 520 560 Service ARPU Service ARPU (+40) increase (Telecom ARPU decrease) 4,050 Telecom ARPU 4,140 (-90) 2014 ’15 ’16 (FY) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 18
Slide 20: Cumulative Subs (FTTH Service)
Cumulative Subs (FTTH Service) Domestic Telco 2,240k 1,720k Rapid growth 1,218k SoftBank Hikari 715k 341k 119k 2014 ’15 ’16 (FY) Q4 Q1 Q2 Q3 Q4 Q1 *SoftBank Hikari includes SoftBank Air. 19
Slide 21: Fixed-line Cumulative Subs
Fixed-line Cumulative Subs Domestic Telco 5,350k SoftBank Hikari Record high FY2010 FY2016 Former record: 5,170k (November 2006) Q1 Q1 *SoftBank Hikari includes SoftBank Air. 20
Slide 22: Smartphone Data Connectivity
Smartphone Data Connectivity Domestic Telco 98.7% No.1 98.4% 97.9% Source: Agoop (as of July 24, 2016) 21
Slide 23: Free Cash Flow
Free Cash Flow Domestic Telco (JPY bn) 69.7bn Significantly improved -32.2bn Free Cash Flow = operating cash flow + investing cash flow FY2015 FY2016 *IFRSs Q1 Q1 Excluding eliminations within SoftBank Group Corp. 22
Slide 24: Growth Strategy: Create growth opportunities through smartphones & FTTH
Growth Strategy Domestic Telco Create growth opportunities through smartphones & FTTH Health promoting insurance Automatic driving Smartphone-based securities Israeli security technology IBM Watson Joint Venture with Alibaba (Utilize Alibaba Cloud) 23
Slide 25: FY2016 Forecast
FY2016 Forecast Continue profit growth 1 (toward 12 consecutive periods) 2 JPY 500bn in FCF Domestic Telco 3 Focus on smartphones & FTTH 4 Expand business areas and synergies with Yahoo Japan *Toward 12 consecutive periods: after FY2014: Domestic Telecommunications segment. Up to FY2013: total of Mo
Slide 26: Sprint Highlights
Domestic Telco Highlights 1. Robust results (adjusted EBITDA +18%) 2. Turnaround strategy making steady progress 3. Adjusted FCF around break-even in FY2016 Investment Assets 25
Slide 27: Turnaround Strategy Update
Turnaround Strategy Update Net Adds Improvement Revenue Stabilization OPEX Reduction Diverse Network Financing Methods Improvement 26
Slide 28: Net Additions (Postpaid Phone)
Net Additions (Postpaid Phone) 173k Highest in 9 years -12k Net port positive for first time in over 5 years -620k 2014 ’15 ’16 (FY) *Q1: April - June Q1 Q1 Q1 *9 years: excludes Nextel migrations, Q1 basis. *Net port positive: MNP from the three major national carriers. *Sprint platform (excluding
Slide 29: Churn (Postpaid Phone)
Churn (Postpaid Phone) 2.02% Lowest in Sprint history 1.49% 1.39% 1.0% 2014 ’15 ’16 (FY) *Q1: April - June Q1 Q1 Q1 *Sprint platform 28
Slide 30: Average Billing Per Users: ABPU (Postpaid Phone)
Average Billing Per Users: ABPU (Postpaid Phone) $69.91 $72.17 $69.34 Equipment Continuously Service increase YoY +3% 2014 ’15 ’16 (FY) *Q1: April - June Q1 Q1 Q1 *Sprint platform 29
Slide 31: Net Sales
Net Sales USGAAP (USD bn) 8.9 Stabilized 8.8 8.0 $8.0bn 2013 ’14 ’15 ’16 (FY) Q1 Q1 Q1 Q1 *Q1: April - June 30
Slide 32: Cost Reduction
Cost Reduction USGAAP (USD bn) On track $4.6bn $4.0bn Amount of reduction SG&A -$0.6bn Cost of services 2015 2016 (FY) Q1 Q1 *Q1: April - June 31
Slide 33: Adjusted EBITDA
Adjusted EBITDA USGAAP (USD bn) $2.5bn Joined SoftBank Group 2.1 Up 18% 1.8 1.5 1.4 2012 ’13 ’14 ’15 ’16 (FY) Q1 Q1 Q1 Q1 Q1 *Q1: April - June 32
Slide 34: Adjusted Free Cash Flow
Adjusted Free Cash Flow USGAAP (USD bn) $0.5bn 0.2 Significantly -0.4 -0.5 improved Joined SoftBank Group -2.2 *Q1: April - June 2012 ’13 ’14 ’15 ’16 (FY) Adjusted FCF: the cash provided by operating activities + the cash used in investing activities (excluding short-term investments) + the proceeds
Slide 35: LTE Download Delivered Speed
LTE Download Delivered Speed Sprint Verizon No.1 AT&T speed T-Mobile ’15 Sept. Oct. Nov. Dec. ’16 Feb. Mar. Apr. May June (CY) Aug. Jan. Source:(Sprint’s(analysis(of(Nielsen(NMP(data((Apr.(:(June(2016)(of(average(LTE(download(speeds(in(44(NMP(MSA’s 34
Slide 36: RootScore Awards (Network Reliability)
RootScore Awards (Network Reliability) Up 75% RootScore Awards (Reliability) Number of outright or shared first-place for reliability of network performance measured in 125 metro markets 2015 2016 (CY) H2 H1 (Source) RootMetrics 35
Slide 37: Liquidity
Liquidity USGAAP (USD bn) 14 16 Receivables/device financing 2~4 More than Vendor financing Unsecured 1.1 sufficient liquidity financing facility 2.5 General purpose Revolver 3.0 liquidity 5.1 $10.6bn Other repayments (Handset lease, etc.) Cash, cash equivalent, short-term 5.1 Debt maturities invest
Slide 38: Share Price in 2016
Share Price in 2016 $5.79 (July 27) +25.3% (July 25 - July 27) Significantly 2016/Q1 improved Earnings announcement 2016/1 2016/2 2016/3 2016/4 2016/5 2016/6 2016/7/25 Source: S&P Capital IQ (2016/7/28) 37
Slide 39: Acquisition Cost
Acquisition Cost JPY1.95t JPY2.01t (+JPY 0.07t) Avg. share price: $6.90 Share price: $5.79 (Avg. FX rate: JPY 85.2 / $) (FX rate: JPY 105.0 / $) Acquisition cost Current value Excl. acquisition-related expenses (July 27, 2016) FX rate: JPY 105.0 / $ 38
Slide 40: FY2016 Forecast
FY2016 Forecast 1 Adjusted EBITDA $9.5-$10.0bn 2 Operating income $1.0-1.5bn 3 Cash CAPEX approx. $3.0bn 4 Adjusted FCF around break-even Cash CAPEX excluding the CAPEX associated with purchasing leased devices in indirect channels Adjusted FCF: the cash provided by operating activities + the cash u
Slide 41: Yahoo Japan Highlights
Domestic Telco Highlights 1. Continue profit growth 2. Display advertising driving growth 3. Surge in shopping transaction value (+38%) Investment Assets 40
Slide 42: EBIT
EBIT (JPY bn) 50.8 Continued growth (FY) 2002 ’04 ’06 ’08 ’10 ’12 ’14 ’16 (FY) Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 *Up to FY2012: Japanese-GAAP, 2013-: IFRSs 41
Slide 43: Advertising Revenue
Advertising Revenue (JPY bn) 63.3 65.3 Driving growth 27.1 33.1 Display (+22%) ads Search ads (FY) 2013 ’14 ’15 ’16 (FY) Q1 Q1 Q1 Q1 42
Slide 44: Shopping Transaction Value
Shopping Transaction Value (JPY bn) 99.9 72.4 Up 38% (FY) 2013 ’14 ’15 ’16 (FY) *Transaction value of Yahoo! Shopping and LOHACO Q1 Q1 Q1 Q1 LOHACO: revenue of ASKUL Corporation’s LOHACO business; closed on every 20th. 43
Slide 45: Investment Assets Highlights
Domestic Telco Highlights Results Realized value generating $17.2bn in proceeds Strategy Market leadership in key markets New Follow-on in Didi and SoFi; exit of Supercell, Activities GungHo, asset reallocation of Alibaba Investment Assets *1. Alibaba total proceeds (net): $8.8bn; the net proceeds o
Slide 46: Universe of Portfolio Companies
Universe of Portfolio Companies E-commerce Ride-sharing FinTech Internet & Media AI & Connected Devices Healthcare *Not comprehensive; E-commerce includes classifieds. 45
Slide 47: Capital Deployed Last Year
Capital Deployed Last Year Total: $2.0bn Ride-sharing Asia Other 26% 41% U.S. 47% 59% 14% 13% E-commerce Internet & Media *E-commerce includes classifieds. 46
Slide 48: Major Portfolio Changes: Didi, SoFi
Major Portfolio Changes New investments Exits Asset reallocation (Follow-on) Didi, SoFi • Fastest growing in world’s largest consumer market • Dominant platform with Alibaba & Tencent backing • Strong execution serving entire demand curve 47
Slide 49: Major Portfolio Changes: Supercell, GungHo
Major Portfolio Changes New investments Exits Asset reallocation Supercell, GungHo • $7.8bn total proceeds; 93% IRR • Tencent ideal partner to go to next level • Deleveraging and strategic flexibility 48
Slide 50: Major Portfolio Changes: Alibaba
Major Portfolio Changes Asset reallocation New investments Exits Alibaba (partial stake) • $8.8bn net proceeds; 68% IRR • Innovative sale and EB structure enables monetization at premium • Remain largest shareholder with 27%; close partnership continues *EB = exchangeable bond; holdings exclude ordi
Slide 51: Investment Track Record: Alibaba
Investment Track Record Alibaba JPY 10.1t IRR 44% JPY 739.8bn Accumulated investment Accumulated return USD 1.00 = JPY 102.91, as of June 30, 2016 50
Slide 52: Further Growth Strategy
Further Growth Strategy 51
Slide 53: July 18, 2016 Announced Strategic Agreement
July 18, 2016 Announced Strategic Agreement 52
Slide 54: Total Acquisition Price
Total Acquisition Price £24.0bn (¥3.3t, $31.0bn) £24.0bn (¥3.3t, $31.0bn) £7.3bn Loan (¥1.0t, $9.5bn) 100% Cash £16.7bn Cash on hand (¥2.3t, $21.5bn) ARM Acquisition financing Excluding 20.4mil shares (1.4%) SoftBank Group currently owns. 53
Slide 55: Timeline
Timeline Court and shareholder Scheme meeting Scheme Announcement document becomes (July 18) Present petition posted effective for sanction of scheme 54
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Slide 57: Net Sales
Net Sales JPY 179.1bn ($1.5bn) Steady growth 2006 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 (FY) (Source) Created by SoftBank Group Corp. based on ARM Holdings’ disclosure materials GBP 1 = JPY 184.95 (Jan. - Dec. 2015, average number rate) 56
Slide 58: Operating Profit
Operating Profit JPY 92.4bn ($770mil) Solid growth 2006 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 (FY) (Source) Created by SoftBank Group Corp. based on ARM Holdings’ disclosure materials GBP 1 = JPY 184.95 (Jan. - Dec. 2015, average number rate) 57
Slide 59: Operating Margin
Operating Margin 51.6% High profit margin 31.7% 2006 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 (FY) (Source) Created by SoftBank Group Corp. based on ARM Holdings’ disclosure materials 58
Slide 60: Profit After Tax
Profit After Tax JPY 79.3bn ($6.6bn) High profit 2006 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 (FY) (Source) Created by SoftBank Group Corp. based on ARM Holdings’ disclosure materials GBP 1 = JPY 184.95 (Jan. - Dec. 2015, average number rate) 59
Slide 61: ARM Business
ARM Business R&D and design Chip manufacturer Develop & manufacture chips Device manufacturer Various electric devices 60
Slide 62: Ecosystem
Ecosystem Many consumer products incorporate ARM’s technology 61
Slide 63: Market Share
Market Share Smartphones Tablets Wearables Storage >95% >85% >90% >90% >25% >60% >55% >95% Automotive infotainment Microcontrollers Wireless connectivity Consumer electronics (Source) Created by SoftBank Group Corp. based on ARM Holdings’ disclosure materials. Figures as of Capital Markets Day prese
Slide 64: ARM Powered SoCs Shipped
ARM Powered SoCs Shipped bn 14.8bn Explosive growth continues 0.01 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 (Source) Created by SoftBank Group Corp. based on ARM Holdings’ disclosure materials. 63
Slide 65: ARM Powered SoCs Shipped by processor
ARM Powered SoCs Shipped by processor; bn 14.8bn New products Cortex-M expanding Cortex-R Cortex-A Classic (ARM7, ARM9, ARM11) 0.01 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 (Source) Created by SoftBank Group Corp. based on ARM Holdings’ disclosure materials. 64
Slide 66: Product Lineup
Product Lineup Cortex:A Cortex:R Cortex:M Highest(performance Fast(response Smallest/lowest(power For(rich(opera6ng(systems For(real86me(applica6ons For(microcontorollers (Source) Created by SoftBank Group Corp. based on ARM Holdings’ disclosure materials. 65
Slide 67: Cortex-A73
Cortex-A73 (Scheduled to be released in 2017) Frequencies(up(to(2.8GHz Op6mized(for(Mobile Smallest(footprint(in(Premium 30%(( 30%(( 0.65mm( 2 higher(performance increased(power(efficiency per(core(area The(most(efficient(ARM(premium(CPU (Source) Created by SoftBank Group Corp. based on ARM Holdings’ di
Slide 68: Cortex-A73: Maximizes Performance
Cortex-A73: Maximizes Performance 1.3x 2.1x Cortex8A57 Cortex8A72 Cortex8A73 20nm(@(1.9GHz( 16nm(@(2.5GHz( 10nm(@(2.8GHz( (2015) (2016) (2017) Galaxy(S6,(Nexus(6P Sustained operation within 750mW per-core power budget. (Source) Created by SoftBank Group Corp. based on ARM Holdings’ disclosure materi
Slide 69: Cortex-A73: The Smallest ARM Premium CPU
Cortex-A73: The Smallest ARM Premium CPU 70%(core(area(reduc6on 46%(core(area(reduc6on Cortex8A57 Cortex8A72 Cortex8A73 2015 2016 2017 Process(rules 20nm 16nm 10nm (Source) Created by SoftBank Group Corp. based on ARM Holdings’ disclosure materials. 1nm(=(0.000001mm 68
Slide 70: Smartphone Performance comparison with 2009
Smartphone Apps Processor Cellular Modem Touchscreen & Sensor Hub Wi-Fi Power Management Camera SIM Sensor Hub Bluetooth Flash Controller GPS Performance comparison with 2009 300x 20x 24x 100x 5x GPU(( Compute( Environmental Connec6vity Screen(resolu6on performance performance sensors (Source) Creat
Slide 71: Cortex-R8
Cortex-R8 (Scheduled to be released in 2016) Fast Unrivaled Reliable Scalable Real(Time The highest Performance on Low interrupt Only real-time Advanced data performing demand from latency with processor for integrity processor 1 to 4 coherent immediate 5G performance features in its class cores eve
Slide 72: Automotive: Expanding the Connected Experience
Automotive: Expanding the Connected Experience Expanding the connected experience Key(technology(is(the(ARMv88R(Architecture Advanced driver assistance Making Your Car Do More For You • Back up camera Driver cockpit • Blind spot detection • 360 surround view • Instrument cluster • Automatic parking
Slide 73: ARM Innovation Hub for IoT Era
ARM Innovation Hub for IoT Era (Source) Created by SoftBank Group Corp. based on ARM Holdings’ disclosure materials. 72
Slide 74: The World's #1 Computing Ecosystem
CPU Trust Tools GPU Mobile The(World’s(#1 Compu6ng(Ecosystem Embedded Networking Wearables InnovaZon Efficiency (Source) Created by SoftBank Group Corp. based on ARM Holdings’ disclosure materials. 73
Slide 75: Chip Shipment Forecast (Global)
Chip Shipment Forecast (Global) 2015 2020 Forecast Mobile Application Processors $18bn $25bn Includes smartphone, tablets and ARM addressable laptops Network Infrastructure $13bn $16bn Servers $15bn $20bn Embedded Intelligence $21bn $30bn Includes microcontrollers, smartcards and non-mobile connecti
Slide 76: Chip Shipment Forecast (Global)
Chip Shipment Forecast (Global) 2015 2020 Forecast Automotive $10bn $15bn Includes Automotive Infotainment Other Mobile Chips $13bn $15bn Includes Modems, WiFi/BT, GPS, NFC, sensor hubs, image sensors, eMMC, etc Consumer Electronics $20bn $20bn Includes Desktops, PCs, DTVs and STBS Chips into Other
Slide 77: Support and Accelerate Existing Strategy
Support and Accelerate Existing Strategy + 76
Slide 78: Financial Policy
Financial Policy NO SoftBank equity financing used 1 for ARM’s transaction 2 NO change in Softbank dividend policy Maintain flexibility with continued focus on net debt 3 reduction 77
Slide 79: Toward Further Growth
Toward Further Growth SoftBank
Slide 80: Adoption of IFRSs, Definition of terms, Trademarks
1. Adoption of IFRSs SoftBank Group Corp. adopted the International Financial Reporting Standards (IFRSs) from fiscal 2013. Figures for fiscal 2012 have also been presented in accordance with IFRSs. 2. Definition of terms etc. in this material. Free cash flow = cash flows from operating activities +
Slide 81: Disclaimer
Disclaimer Overseas Jurisdictions Not for release, publication or distribution (in whole or in part, directly or indirectly) in, into or from any jurisdiction where to do so would constitute a violation of the relevant laws or regulations of such jurisdiction. Forward-looking statements This present