Presentation Materials
Analyst Meeting Q&A (Earnings Release for the Fiscal Year Ended March 31, 2019)
Announced on April 26, 2019
Please be advised that the following text has been edited/modified from the original Q&A conversations for the sake of clarity.
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Questioner No. 1
Q1 Your operating profit for FY2019 is projected to decline by 180-billion-yen year-on-year. You explained that the negative profit impact from the new rate plans is estimated to be 200 billion yen. Can you share with us your analysis on the other factors that will negatively affect your profit? Please also explain your views on the path to recovery, such as the factors that will positively affect your profit and the speed of recovery.
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Q2 You mentioned that you will aim for the "earliest possible" recovery of profits. Do you envisage this will happen earlier than what you explained during the results presentation for FY2018/1H?
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Q3 Regarding the actions undertaken in FY2018 toward the delivery of "Declaration beyond" (slide 18), please share with us your current views as to how these initiatives will contribute to your revenue and profit in the future. Also, if you are contemplating any additional investments or expenses in relation to these measures, please let us know.
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Q4 The projected growth of operating profit from Smart life and other businesses is limited to a mere 12.7 billion yen in FY2019. What are the reasons behind this slow growth? Is it because you need to make upfront investments to deliver your Medium-Term Strategy 2020 "Declaration beyond?"
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Questioner No. 2
Q1 You spent a considerable amount for growth investments in FY2018. If you increase the amount of investments by 50 billion yen in FY2019, that would imply the total amount of growth investments will reach over 100 billion yen. The cumulative amount of growth investments planned for FY2018 and 2019 appears to be quite sizable, but how do you plan to generate returns from these investments going forward?
You also mentioned that the impact from the change of handset sales method on your equipment sales profit is estimated to be 80 billion yen in FY2019. However, this will not have a full-year impact in FY2019, thus the size of impact will become much more significant in the next fiscal year. You mentioned earlier that you expect to see profit recovery from FY2020. I believe you will try to achieve that by offsetting the negative impact from the rate revision and decrease of equipment sales profit-which are both expected to become larger next fiscal year-through cost reduction. Please give us a concrete indication as to how much you plan to earmark for growth investments and how you plan to recoup these investments?Open
Q2 Although you are projecting a profit recovery next fiscal year, I would like you to present a guidance for the next two years because the decrease of profit for this fiscal year is so steep. The net impact of the new rate plan is estimated to be 160 billion yen (negative impact of 200 billion yen partly offset by the positive impact of 40 billion yen), which I believe is more or less in line with the market forecast. In FY2020, despite the expansion of the negative impact from the new rate plans, if you can also foresee additional positive impacts and opportunity for cost reduction in the magnitude of 100 billion yen or so, the net impact of the new rate plan could be suppressed to around 100 billion yen, which can be considered an absorbable level. I am aware of the difficulty of providing an accurate forecast but it will be helpful if you could clarify the elements that are expected to affect your results for the next fiscal year.
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Q3 If the net additional impact from the introduction of the new rate plan is limited to only several tens of billions of yen next year, do you think the positive impacts from subscriber migration, upsell, cost reduction and the positive outcome in Smart life business derived from the advance investments that you are accelerating this fiscal year will outweigh the negative impact from the introduction of the new rate plans?
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Questioner No. 3
Q1 Your competitors have not yet published their guidance, but the market expects that they will likely announce flat growth or profit gains for FY2019 even under the current market circumstances. If that is the case, DOCOMO will become the only carrier that will suffer a huge reduction in profit from the execution of a rate revision, which I believe is a sensitive issue that the management must take seriously. I believe the public perception of DOCOMO is that you have accumulated excessive amount of profits in the past, which will be stripped off in the course of the mobile industry's normalization process. How do you accept this situation?
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Q2 You have a customer base that is larger by tens of millions compared to your competitions'. In any infrastructure business, the carrier with a larger customer base generally can produce a larger amount of profits and yield a better profit margin due to the efficiency of network utilization. Hypothetically, if we assume KDDI and Softbank will generate 1 trillion yen and 700 billion yen, respectively, in profit, DOCOMO's profit level would be inferior, or at best comparable to those carriers who have a customer base much smaller than yours. Don't you think DOCOMO should be able to achieve a higher profit level in light of the difference of the size of customer base?
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Q3 Let me ask about shareholder returns. I believe you are planning on total shareholder returns worth approximately 700 billion yen for FY2019 against the projected net profit of less than 600 billion yen. I am sure you will be able to continue a comparable size of shareholder returns in the coming years given your strong balance sheet and the amount of disposable profit that can be used for dividends. Can we expect that you will continue to provide shareholders with returns exceeding your annual net income going forward?
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Questioner No. 4
Q1 I understand Rakuten's entry in the mobile market was one of the reasons that led to the decision to lower your rates. In your projections for FY2019 on the number of subscribers and ARPU, etc., how did you foresee Rakuten's impact? A qualitative explanation will also work.
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Q2 Regarding your plan to promote digital marketing (Slide 26), I believe this refers to your marketing approach connecting your customer base with your partners. Previously these roles were fulfilled by the shops. When these roles are replaced by digital means, how powerful will they be as tools, how strongly can these tools appeal to customers, and how do you plan to capitalize on these tools? Please share with us your views.
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Questioner No. 5
Q1 The new rate plans are designed in a way that offers steeper discounts when two additional discount packages ("Minna DOCOMO Wari" and "Hikari Set Discount") are applied together. I believe users who subscribe to only one line and cannot be applied with these discounts account for approximately 15% of your total user base, or roughly several million. Do you plan to take any measures against those single-line users?
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Q2 I hear many voices that among the single-line subscribers, users of high-end models who are still receiving Monthly Support discounts will not be able to achieve any savings from the new rate plans. Don't you need to take any measures against this risk? In the assumptions that you used for developing your guidance, did you assume that those users who will be disadvantaged by switching to the new rate plans will stay on your network? Or did you factor a certain number of churns from this so-called "disadvantaged segment" in your plan?
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Q3 Regarding the assumptions that you used in developing your business plan, how many subscribers are expected to migrate to the new rate plans by the end of the current fiscal year? In particular, at which pace do you think the users who are no longer receiving Monthly Support will migrate to the new rate plans? I recall that when you introduced the "Kake-hodai" plan in FY2014, some 10 million users switched to the new plan in the first four months. Are you expecting a similar pace or a faster migration this time around?
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Questioner No. 6
Q1 Regarding "d POINT," how sizable will its impact on your profit for FY2019 be? How is this factored in your guidance which is predicting a negative profit growth?
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Q2 A question on your cash flow. Your free cash flow guidance seems to be conservative. Is the proceeds from the sale of your stake in Sumitomo Mitsui Card Co., Ltd. included in your projections?
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Q3 Your working capital seems to have deteriorated in FY2018. Was this due to the increase of credit card receivables? What level of improvement of working capital can you expect from securitization?
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Questioner No. 7
Q1 You mentioned that you will introduce a new handset sales method and provide discounts in one way or another. Your equipment sales profitability is expected to deteriorate by 80 billion yen in FY2019 compared to the previous fiscal year, but does this reflect the impact from the change of handset sales method? Also, will the impact from the new sales method be recorded in your P/L for FY2019? Or, will you record only expenses in FY2019 and record the revenues in FY2020?
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Q2 Will you complete the accounting treatment within the same year as opposed to splitting the timing of recording expenses and installment revenues between the current and the next fiscal year?
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Q3 I believe the increase in depreciation is caused by the switch to IFRS. Are there any other irregular factors that will affect the FY2019 depreciation amount?
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