Japanese

Presentation Materials

• Questioner No. 1

  Q1 I realize that you are making favorable progress in operating income generation and cost reduction, but I would like to know more details concerning its breakdown. Specifically, your equipment sales profitability declined by 61.5 billion yen, other operating revenues dropped by 5.9 billion yen while other operating expenses increased by 11.7 billion yen. Can you explain the factors behind the changes in these numbers?

  Open

  A1 The primary reason why the growth in operating revenues for FY2017/1H was limited to a mere 11.8 billion yen was the large drop in equipment sales revenues compared to the same period of the previous fiscal year, which was caused by the significant imbalance of sales promotion measures implemented between the first half and second half of FY2016.
  Specifically, in FY2016/1H, the number of devices sold with the application of "Direct Wari" subsidy scheme was limited, but this fiscal year, we applied this scheme to a greater number of devices.
  Another factor was the change in the composition of handsets sold. In FY2016, we released a larger number of high-end models in the first half, but this year, we increased the proportion of low-cost handsets (such as those eligible for the "docomo with" program) and reduced the gross margin, which resulted in a significant drop in equipment sales revenues.
  In FY2017/2H, unlike last year, we plan to sell products with a more balanced application of "Monthly Support" and "Direct Wari" discount schemes. At the same time, with our plan to release iPhone X and other high-end models, we will aim to secure our topline growth through the improvement of equipment sales revenues.

  Q2 It seems that you are achieving a favorable performance in income generation. Can you comment on the prospects for EBITDA and operating free cash flow?

  Open

  A2 Operating income for FY2017/1H decreased by over 30 billion yen compared to the same period of the previous fiscal year. This was in line with, or even better than our earlier projections. For FY2017/2H, we are confident that we will be able to achieve our guidance for operating income as well as operating free cash flow through EBITDA growth and proper control of capital expenditures.

  Q3 With respect to your operational performance, churn rate is kept low and ARPU recorded an improvement over the same period of the previous fiscal year. I believe this was driven mainly by the reduced impact from the "Monthly Support" discount package. Please share with us the outlook for ARPU excluding the impact of discounts.

  Open

  A3 The ARPU was significantly affected by the stepped up customer return measures. These measures had a strong impact on our packet communications revenues in particular, thus the packet ARPU (excluding the impact of discounts) posted a decline over the same period of the previous fiscal year.
  To overcome this issue, as we have mentioned on a number of occasions, we will work to facilitate subscribers' migration from feature phones to smartphones, reinforce tablet sales, promote upselling and subscription of video content services to increase traffic and employ other steady measures, aiming to maintain or even improve our ARPU.

• Questioner No. 2

  Q1 Please explain the rationale behind your decision to carry out a share repurchase program. This round appears to be decided in a different way from the previous rounds, so let us know what triggered your decision. Also, please also share with us the indicators we should pay attention to for future share buy-backs.

  Open

  A1 As we mentioned on many occasions, reinforcement of shareholder returns is positioned as one of the most important issues in our corporate management. Also, we have explained that we will aim to strengthen our shareholder returns over the medium term. Given the better-than-expected operating income performance for FY2017/1H, we are convinced about the income generation in the second half and the attainability of our full-year guidance of 960 billion yen, thus we decided to execute the share repurchase program at this juncture to improve the returns to shareholders.
  As for the amount, in the last round we received an authorization of up to 500 billion yen and repurchased shares worth approximately 460 billion yen. This time around, in light of our current financial position and the period of the program, we decided that 300 billion yen would be an adequate size.

  Q2 I am sure that you will aim to grow your income in the next fiscal year as well, but if there are no major M&A projects and if the current level of financial performance can be maintained, I believe you will have sufficient capacity to carry out share repurchase every year. Did you decide on the share repurchase program this time based on the thought that you do not need to increase your retained earnings any further?

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  A2 Share repurchase is not something that we decided to conduct on an annual basis. Our policy remains intact, i.e., we will carry out share repurchases in a flexible and expeditious manner taking into consideration our financial conditions and need for growth investments.

  Q3 In your LPWA service, will the LoRaWan infrastructure be constructed by DOCOMO?

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  A3 For LoRaWAN, we intend to provide total support from construction to maintenance and operational support, so the network infrastructure that you asked will also be provided by DOCOMO. Depending on the application, LoRaWAN may be combined together with cellular IoT to deliver services in an integrated manner.

• Questioner No. 3

  Q1 You have not followed SoftBank's "Ultra Giga Monster" service. I believe you arrived at that decision after investigating the impact on your financial results and competitiveness, but could you elaborate on how you came to that conclusion?

  Open

  A1 We launched ahead of the competition "Ultra Share Pack," a family-sharable large data bucket offering 100GB of data in response to the request of customers. Customers can enjoy even greater benefits by combining this with our "Simple Plan." Although we will continue to listen to customers' requests and perform studies as necessary, at this point of time, we do not think it is necessary to follow because we have not received so many requests for a similar package.

  Q2 Can you let us know the planned amount of investment for PREMIUM 4G for FY2017 and the planned total number of base stations as of March 31, 2018? I understand that the capital expenditures for PREMIUM 4G are made with an eye on the coming 5G era. How much investment will be required to convert the existing PREMIUM 4G base stations that operate in the 3.5GHz band into 5G?

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  A2 We have been working on cost efficiency improvement, which encompasses capital expenditures, so the conversion into PREMIUM 4G-enabled base station is not done across the board but concentrated in high-traffic areas. Since we own detailed information pertaining to the area coverage of our nationwide 3G and LTE base stations, it is possible to identify the areas where PREMIUM 4G is required based on the changes in traffic conditions and the potential of each base station. The vast majority of our network investments is already allocated to PREMIUM 4G. When we install new equipment compatible with PREMIUM 4G's carrier aggregation technology, we always take into consideration the requirement in the future 5G era. At this point of time, we would like to reserve comments on the required investment for conversion from PREMIUM 4G into 5G.

  Q3 I highly appreciate that you presented concrete actions to strengthen your shareholder returns in the form of share repurchase in just six months after the announcement of your Medium Term Strategy 2020 "Declaration beyond." As far as I understand, you are projecting 710 billion yen in operating free cash flow and to spend a total of some 670 billion yen for dividends and share repurchases for the current fiscal year. That means almost the entire amount of your operating free cash flow or net income will be used for shareholder returns. Do you think it will be possible for you to improve your shareholder returns on an ongoing basis from next year onwards?

  Open

  A3 We did not look only at the free cash flow and total amount of dividends in deciding the 300 billion-yen authorization for share repurchase this time. We considered our current share price, financial conditions and other factors in a comprehensive manner, and indeed made a "flexible and expeditious" decision. Also, we will continue to make a decision in a flexible and expeditious manner going forward. Please understand that we raised reinforcement of cash generation capability as one of the managerial targets in our Medium Term Strategy 2020 "Declaration beyond" because we wanted to present our determination to attach emphasis on our cash generation capability and use it for shareholder returns and growth investments.
  The CAPEX plan for 5G will be developed from now onwards, but 5G is not planned to offer blanket coverage across Japan. We will rather roll out 5G in accordance with the traffic demand in places where new services or businesses are likely to be created. In addition, as we plan to make an efficient use of our existing PREMIUM 4G infrastructure, the cumulative CAPEX for 5G is estimated to be smaller than that for 4G.

• Questioner No. 4

  Q1 The effects of the reduction of "Monthly Support" discounts that you have been tackling since last year are becoming visible and your mobile communications services revenues are recording a steadfast increase. The total number of smartphone users has been growing recently, so I reckon your overall performance this year is quite favorable. Do you think you can continue to expand your mobile communications services revenues in the next fiscal year and beyond?

  Open

  A1 We will aim to achieve a steady expansion of mobile communications services revenues over the medium term, not only through the reduction of Monthly Support discounts, but also through facilitating subscribers' migration from feature phones to smartphones, encouraging a single individual user to own a second mobile device (such as tablets) and promoting our docomo Hikari optical-fiber broadband service, etc.

  Q2 The sales of devices appear to have significantly impacted your equipment sales revenues and operating income. Do you foresee this situation to continue into the next fiscal year?

  Open

  A2 Equipment sales revenues are to a large extent linked to the demands from customers, so it is not easy to precisely predict the trend of medium-term equipment sales revenues and expenses. For example, the impact on equipment sales profitability is different between the case of a customer purchasing a less expensive handset leveraging the "docomo with" program upon the migration from a feature phone and the case of an existing smartphone user upgrading to a flagship model equipped with a suite of new services.
  Also, we previously sold handsets with a certain amount of gross margin, but we are currently implementing measures to lower the margin reflecting the reduction of "Monthly Support" discounts and launch of "docomo with" program, and we will continue to pursue this direction going forward.
  

  Q3 You announced an expeditious implementation of a share repurchase program, but I believe the central pillar of your shareholder return measures continues to be dividends. With the acquisition of your own shares, the total number of outstanding shares will come down, resulting in a reduction in total dividend payments for the next fiscal year. How do you consider this, because I have seldom seen a drop in your total dividend payments in the past?

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  A3 We are aware of the correlation between the repurchase of shares and total dividend payments. While we would like to reserve comments on your question, our basic policy is to continue strengthening our shareholder returns.

• Questioner No. 5

  Q1 Please explain your net additions acquisition performance and churn rate for FY2017/2Q. Please also share with us the number of subscribers to your Smart Life content services.

  Open

  A1 The number of net additions for FY2017/2Q declined by 1.08 million compared to the same quarter of the previous fiscal year, which was affected mainly by communication modules and MVNO subscriptions. The number of modules sold posted a reactionary decline from the huge sales in the same period of the last fiscal year, and was therefore in line with our assumptions. On the other hand, the number of MVNO subscriptions has continued to underperform our projections in two consequtive quarters after FY2017/1Q.
  For churn rate, we saw an improvement in the churn rate for data plan subsciptions over the previous quarter. As the total number of data plan subscriptions has been increasing, we have seen some contract cancellations among subscribers who previously had owned both a feature phone and a tablet upon their migration to a smartphone.
  Under the content and commerce category, we offer numerous services other than the eight principal "dmarket" services. And when we look at the overall Smart Life business, many new services have been developed in other categories such as finance/payment. As such, we thought that the eight principal services alone do not necessarily represent the overall picture of Smart Life business, and changed the disclosure policy for "dmarket" subscriptions starting this fiscal year. Recently, other than "dmarket," services like "DAZN for docomo" and "Photo Collection Plus" are recording brisk sales. When the number of subscriptions of these two are added to the conventional eight "dmarket" services, the total subscriptions remain almost unchanged from the same quarter of the previous fiscal year. Furthermore, in light of consumer protection and the actual situation at the point of sales, we changed our operational focus to attach greater emphasis on support, to make sure that our services are sold with full attention to customers' needs, so we can garner their long-term usage after the sale of service.

  Q2 You made revisions to the full-year projections for some items in your Financial Data Book. For example, ARPU was revised downwards. Is this because the customer composition of the various billing plans, etc., turned out to be different from your assumptions? Please give us an explanation.

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  A2 We revised some of our projections in light of our performance in FY2017/1H, during which we saw a huge increase in the number of "Share Pack 5" subscriptions. The number of "Share Option" subscriptions has also recorded an increase. As a consequence, the total number of group subscriptions to our "Packet Pack" have fared lower than our expectations. Given these trends, we revised our projections for mobile communications services revenues and ARPU.