SoftBank Corp (OTCPK:SOBKY) Q1 2022 Earnings Conference Call August 4, 2022 5:00 AM ET
Company Participants
Kazuhiko Fujihara – CFO, EVP & Director
Conference Call Participants
Yoshio Ando – Daiwa Securities
Daisaku Masuno – Nomura Securities
Satoru Kikuchi – SMBC
Mitsunobu Tsuruo – Citigroup
Shinji Moriyuki – SBI Securities
Yoshiyuki Kinoshita – Bank of America Merrill Lynch
Unidentified Company Representative
Thank you for waiting. We will now begin the investor briefing for earnings results for the 3 month ended June 30, 2022, of SoftBank Corporation. We would like to introduce today’s attendees. SoftBank Corporation, Board Director, Executive Vice President and CFO, Fujihara; Finance Unit, Vice President and Head of Finance and Accounting Division, Naito; Finance unit, Vice President and Head of Strategic Finance Division, Akiyama.
Today’s briefing will be broadcast live via the Internet. Thank you for your cooperation.
CFO, Fujihara, will now explain the consolidated financial results of SoftBank Corporation.
Kazuhiko Fujihara
This is Fujihara. Thank you so much for your attendance today. Just before we had the first presentation of the earnings results, in this session, we would like to touch upon in details about the earnings results. After that, we have a Q&A session.
Here is the executive summary, which was explained in the first presentation earlier. As for the fiscal year ’22, this Q1, the revenue was up and profit down, which is aligned with our forecast. The second, we had a sound growth in mobile net additions. I will touch upon in details later. The third, we’ve announced consolidation of PayPay, and we announced this on July 27. The purpose of this consolidation of PayPay is to strengthen growth strategy. I will also follow up on this. The fourth point, with consolidation of PayPay, we will newly establish financial business segment to accelerate our strategy, especially Beyond the Carrier strategy.
Let me go into the details. This the summary of the figures. In the first quarter, PayPay’s consolidation is scheduled on October 1, and we expect — we include this in the number. Based on this, revenues, operating income and net income, we are expecting to reach historical highs for the fifth consecutive year.
I will go by segment. Now first, revenue by segment. The total, JPY5.4 billion, up and — at 0.4% due to the impact of price reductions. So therefore, consumer business, minus JPY25.8 billion. However, other segments had a positive results, which covers the negative revenue of the consumer business. Based on this number, as we expected, full year forecast at JPY5,900 billion, and we are in steady growth. Now adjusted EBITDA, due to the impact of price reductions, therefore, we have the negative figure. As for Yahoo! JAPAN/LINE, achieved the year-on-year growth due to immediate strong performance, focused on LINE advertising especially. As for operating income, JPY36 billion negative at minus 12.7%.
Even though other segments finished to negative figures, however, Consumer, Enterprise and Distribution, and this fiscal year, we expect positive results, and this forecast is not changed. As for the negative impact, for consumer business, is due to mobile service price reduction and decrease in mobile device sales. And also, there was a onetime cost reversal of last year. Even though we started from the negative figure, we are recovering.
As for Consumer business, which I believe you are most interested in, let me touch upon in details. Now sales of Consumer business, the total, minus JPY25.8 billion at minus 3.7%.
Let me go by the segment. Sales of goods and others, especially the sales of device, decrease due to decrease in mobile device upgrades, which impacted the negative figure of the revenue. Now Electricity, we see a revenue increase due to subscriber increase and reflection of market volatilities in trade volume and price, which contributed to the positive figure. As for Broadband, due to the timing of switching from 4G to 5G, so there was a discount from communication fees. And as such campaigns, there was a decrease in revenue. Now next is Mobile. Due to the impact of price reductions, it shows minus JPY25.2 billion. However, the subscriber increase and others with JPY8 billion in positive.
Now Consumer segment sales. As for the segment income, for service revenue, we booked. And sales of goods and others, minus 30 point — JPY38.2 billion. As for the net, JPY7.4 billion, so the gross profit decreased at JPY7.4 billion. Now as for the costs, JPY34.7 billion. As for the cost of goods is JPY32.3 billion, and mostly Electricity. As for telecommunications network charges, due to the increase of the Hikari, and — the figure is positive. And for the other costs, as a whole, annually, JPY500 million, is positive.
As for JPY500 million breakdown in , first is sales of goods. The sales-related expenses is minus JPY200 million. This increased due to sales commissions and sales promotion expenses, mainly deferred expenses in the past years, which accounts the largest figure. And this was deferred into this fiscal year. That’s why we have the largest impact. As for the advertising costs, due to the effort of cost reduction, we have JPY13.2 billion plus. And the gross profit of sales and goods cost of JPY74 billion. And as CEO Miyakawa earlier mentioned, shows gross profit. As for the depreciation, is minus JPY200 million. And there are 3 types of sunsets we are working on. So those negative figures hit each other. And as a total, it’s JPY200 million minus. So there will be some increase of the sunset cost. However, as for the net, we have JPY900 million of — plus as a whole. So Consumer as a whole, the progress rate is 32.3% against the full year forecast.
As for Enterprise segment, is JPY5.1 billion plus at 2.9% increase. And Business solution and others shows 11.8% positive. As for Mobiles, shows minus JPY0.4 billion, which is related to Mobile and others. The right side shows segment income, which has a onetime factor of minus JPY2.7 billion. Excluding this, we have a minus JPY2.0 billion year-on-year.
As for Enterprise, we especially focus on solutions, and also cloud, securities and IoT, and data centers, digital marketing, which we can expect positive figures and which shows 2-digits increase. We also like to double down on this area moving forward, and we would like to disclose the results of each segment.
And next is Yahoo! JAPAN/LINE segment, which was announced by Z Holdings the other day. I would like to brief on this. The total, JPY17.2 billion year-on-year growth. This increased sales shows minus because we have some adjustments, which increased. And personnel expenses, also, that was to strengthen recruitment. Now we have PayPay and Consolidated. Therefore, as a parent company, we would like to pay attention to its business growth moving forward.
Distribution segment and Other, up by JPY13 billion and 11.2%. For the whole year, we expect both revenue and the profit to growth. And please refer to this page for Other business.
Next, Net Income. Started from last year, on the left-hand side, and the operating income, minus JPY36 billion. Financial income or loss, JPY14.5 billion loss. 50% SoftBank and 50% Z Holdings. SoftBank last year, we recorded a big valuation loss, and Z Holding, revaluation of financial assets had a huge impact here. Shares of profit and loss of associate and accounted for using the equity method, JPY0.1 billion negative. Due to Demae-can and LINE, loss increased. So all in all, slightly negative number.
Income taxes, plus JPY31 billion. Decrease of pretax income by JPY50 billion was reflected. And last year, there were some onetime events. With integration of LINE, tax on dividend from Z has changed. But all in all, income tax was JPY31 billion. For the whole year, JPY530 billion stayed the same as the goal. So we strive for record high.
Now CapEx, we want to focus on 5G investment. And currently, progress at 21%, so we are in line with the plan. Due to IFRS 16 impact, which is around JPY9.5 billion, mainly due to Colocation contract with NTT, which is renewed every 3 year, which took place. That’s a ordinary business cycle.
Free cash flow, JPY82.6 billion, down by JPY3.9 billion year-on-year. We are in the phase of accelerating 5G so we pay more on equipments than last year. For this term, we strive to generate JPY600 billion of free cash, which is slightly higher than last year.
Net interest-bearing debt and net leverage ratio. On the left-hand side is net interest-bearing debt. From this time onwards, we added one topic here. Excluding Z Holding and securitization, this is in line with adjusted free cash flow. That’s essentially SoftBank KK’s capacity to deliver dividend. We saw improvement by about JPY70 billion compared to last year. So we generated more cash than dividend payment. Please compare to the same term last year.
Net leverage ratio is on the right-hand side, 2.4x. It was same as the same term last year, so almost flat over the last 12 months. Next, balance sheet. Ratio of total equity total assets are one of the things that we focus on, which was 22.4% or down by 0.3%. The quarter to deliver dividends, so that’s from the seasonality perspective. But for the full year, we want to reach a positive number as opposed to negative.
KPIs include Mobile subscriber number, which was up by 6.7%. And our primary LINE’s smartphones are the entry point for different services so we want to reach 300 — excuse me, 30 million sooner rather than later. And churn rate, almost flat in terms of smartphone. So mobility among carriers is very fluid.
And the net adds, 340,000, up by 90,000 compared to last year. For the fourth quarter and onwards, we turned to positive in terms of net adds. For net main subscribers’ net additions, again, compared to last year, we saw growth. ARPU. Due to price reduction, we have seen downward trend , down by JPY270. Of that, JPY220 is due to price reduction. Last quarter — or the fourth quarter last year, it was JPY280. So I would say JPY10 improvement from the last quarter. So decrease has narrowed since last year. Like I said earlier, JPY260 was due to price reduction.
Broadband and Electricity. Subscribers increased by 340,000 and Electricity subscribers grew by 27%. So like Mobile business, they are growing steadily. One comment, for Electricity, market is very volatile recently. And recently, we put break on acquiring subscribers. So that impact could be reflected in the second quarter onwards. So please note that we slowed down acquisition of Electricity subscribers.
And next, it’s about Yahoo! JAPAN/LINE, which was already announced. I would like you to go through the numbers briefly. And as for the transaction value, JPY40.8 billion year-on-year. As for the media, which — contributed by media, we have higher expectation on this area especially. And as for PayPay, we had 8.37 million, up at 20.8% up year-on-year. So once we have opportunity to inform you about more details around PayPay, I hope we should be able to have a better number. But we have an increase in the number of merchants as well as the registered users. And number of payments is growing steadily and GMV increased by 37.9%. We have a steady growth. Please confirm the number. As for revenue of PayPay, year-on-year growth was JPY12.9 billion, which is more than double year-on-year. We have absorbed the charging payment system fees. We still have positive figure.
As for SoftBank payment service, every time, I also touch upon this, and this time, as I — as we announced, that we are going to establish the financial segment. So this segment also grew at 26.6%. And we have higher growth in non-group companies as well as within the group companies.
That’s all about the details of the earnings results. As for consolidation of PayPay, which was explained on July 27. And we are going to go through the same materials. Let me brief on this.
As for the summary of transactions. We, SoftBank, to consolidate PayPay on October 1, 2022, by converting preferred shares to common shares and increase voting rights. By consolidating PayPay, we establish intermediate holding company with Z Holdings to jointly manage PayPay. And also, PayPay is to acquire PayPay Card from Z Holdings, which will accelerate the growth. As for the purpose, especially, we would like to strengthen alliance with Z Holding Services, especially LINE. As a result, we would like to enhance synergies with other SoftBank Group Services.
The current structure is shown here. And the next is after transaction. As you can see, there’s an intermediary holding company, but Paytm has not exercised stock acquisition right. So that’s the difference between left and right.
Our Board competition, as you are all aware of. And time line is shown here again. Impact on the business, we don’t expect any change to forecast announced in May 2022. It’s highly likely to record revaluation gain. And it’s more likely to reach the target of JPY5.9 trillion of revenue and JPY1 trillion of operating income. We want to put financial business in our core business. And we want to drive beyond the carrier strategy further by leveraging different segments, including financial segment, after that segment is established.
That’s all for myself. Thank you very much for your attention.
Now we are going to question-and-answer session. Thank you.
Question-and-Answer Session
Operator
[Operator Instructions]. Now Mr. Ando from Daiwa Securities.
Yoshio Ando
Two questions. One is about ARPU. Now it’s nearly over the peak, I assume. So Q4 last fiscal year was JPY280 as for the amount. Moving forward from the Q2 to Q3, Q4, what figure you are looking at? And also, what will be the factors impacted to reach the peak? Is the plan change which affected the number? If you could elaborate on that, it would be great.
Kazuhiko Fujihara
Thank you for your questions. As for this year, in Q1 to Q2, I think there is no big change. However, Q3 onwards, the impact of the price reductions with — would see some positive contribution to the recovery. And the speed is getting lower and lower in terms of the ARPU change. So mainly, the cycle of consumers, clients which change their Mobiles, I mean the upgrade, so when we take this into consideration, the change in ARPU figure trend should be like this. And our Mobile is going well, which drives our growth. So other than price impacts, is not only the factor to reduce the ARPU. So Q1 ARPU is better than you had expected. Yes, most — almost. It’s just slightly better. Our forecast was made in May. So therefore, there was no big change. It’s just a slight positive change.
Yoshio Ando
My second question is referred to Page 8. So JPY7.4 billion of…
Kazuhiko Fujihara
Sorry. We lost your — can you speak up? Can you hear us? Mr. Ando, can you hear us? We can’t hear you. Since we can’t hear, we would like to move on to the next question.
Operator
Mr. Masuno from Nomura Securities, please.
Daisaku Masuno
First, for midterm, in order to increase ARPU, you must consider new price plan to increase ARPU. But in your case, all-you-can-eat plan accounts most of subscribers. So I wonder if you look at Y!mobile as opposed to SoftBank to increase ARPU.
Kazuhiko Fujihara
Yes. We look at everything. Y!mobile is performing well in terms of number of subscribers. So we — of course, want to increase further Y!mobile.
Daisaku Masuno
And Y!mobile subscribers, how can we attract Y!mobile subscribers to SoftBank?
Kazuhiko Fujihara
That’s something that we are looking at as well.
Daisaku Masuno
And the SoftBank brand itself is attractive. And how can we increase the attractiveness of SoftBank brand? And how can we create added value?
Kazuhiko Fujihara
So we are looking at everything, not only just Y!mobile in terms of ARPU increase.
Daisaku Masuno
So is it like bundling content for SoftBank main brand?
Kazuhiko Fujihara
Yes, that’s one thing. SoftBank brand. There are a lot of opportunities for users to experience a SoftBank brand. So we can leverage group capability, the total capabilities of the group to figure out how can we increase ARPU.
Daisaku Masuno
Then a second question, Financial segment. The payment should be included in the Financial segment. Just to make sure I understand correctly. LINE Securities and LINE Pay and PayPay and PayPay Card, PayPay Bank, PayPay Securities, and asset management and SB Payment, they all in Financial segment?
Kazuhiko Fujihara
While the scope of Financial segment, we have not finalized yet. We are still looking at different options. At the next quarter, we should be able to explain more in detail. If we include every financial-related business, it may be very confusing. But on the other hand, there are ways to categorize financial businesses. But whatever option, PayPay should be definitely in Financial segment. So PayPay is not the only business in Financial segment. That’s all I can say now.
Daisaku Masuno
Okay. Then Payment Service will play a bigger role as a core business?
Kazuhiko Fujihara
Yes. PayPay and Payment Service, SB Payment, at least should be in Financial segment. And any more, at the next quarter, I will communicate with you more in detail.
Operator
And next question is Nikko Securities SMBC. Mr. Kikuchi, please unmute and ask your question.
Satoru Kikuchi
This is Kikuchi. Regarding free cash flow, I would like to hear more details. And in the earlier earnings results presentation, CEO Miyakawa mentioned about free cash flow will be maintained at JPY600 billion level. But I wonder how you can achieve this. Naturally, I see that free cash flow would decrease. But Mr. Fujihara, how can you maintain that level of free cash flow? By endeavoring and squeezing, sweat and tears, I think. But how would you — how you are thinking about achieving this free cash flow of JPY600 billion level? Thank you so much for going through this thoroughly.
Kazuhiko Fujihara
Yes, we are working on the securitization. So I would like to see the positive impact through this initiatives. And also, as for the working capital, we are continuing to make efforts so that we can maintain the certain level of free cash flow. As for last year, we invested a lot in PayPay, but this fiscal year, not as much. Therefore, as for our main business and through the EBITDA, yes, it is true that you see it’s a bit looking tough to be able to achieve this free cash flow. However, this JPY600 billion is our target, and we would like to commit this to achieve.
Against this JPY600 billion, JPY125 billion, which is impacted by IFRS 16, because financial cash flow has to be covered by cash, and the dividend is JPY400 billion. So we need to keep some margin to be able to cover this so that we can maintain ourselves even though we face in a difficult situation. So therefore, committing this number is what we have to achieve as we keep making efforts towards that.
Satoru Kikuchi
And last time, in order to maintain JPY600 billion of free cash flow, you would provide the dividend? So free cash flow and dividend. These 2 are closely linked. If no cash then, of course, you won’t be able to provide dividends. So if you cannot maintain this free cash flow level, then the dividends will be lower?
Kazuhiko Fujihara
Well, it is different from the dividend source. So in terms of healthy business performance, yes, we should be able to provide right dividends based on the free cash flow. As for the dividend policy onwards, next May, we should be able to explain more in details.
Satoru Kikuchi
CapEx reduction is also determined. So next fiscal year’s free cash flow should be maintained? So as for now, we can understand in that way?
Kazuhiko Fujihara
Yes. Of course, our finalization will be announced next to May.
Operator
And now it seems Ando-san is back.
Yoshio Ando
Sorry about the trouble earlier. So I was about to ask you on Page 8, JPY7.4 billion down of sales of goods and others. So I want to know more in detail. And the JPY2.8 billion of expenses — excuse me, equipment network changes, is it related to broadband or what?
Kazuhiko Fujihara
For sales of goods, we have not seen a big change in unit price, so volume, mainly due to upgrade. iPhone, for example, from iPhone 12 and iPhone 13, sales was better in iPhone 12 than iPhone 13. So volume-wise, compared to last year, we saw a negative number. However, at some point, so long as customers stay with us, at some point, we expect them to upgrade again.
Yoshio Ando
With 5G coming in, what kind of upgrade cycle is going to be normal?
Kazuhiko Fujihara
That’s something that we want to look at. And also product services, we should expect some changes. So we are not too pessimistic about this. And talking about broadband, we have a product called SoftBank Air and we are in the timing of switching from 4G to 5G. We are, like I said, ran sales campaign to promote switching from 4G to 5G. In fact, SoftBank Air sales was up from last year, and price reduction won’t be forever. It just 1, 2 year in terms of sales campaign. So once we acquire customers for broadband, that should contribute in the future to our business. So we are not doing unprofitable business.
Yoshio Ando
I want to understand more about device sales. So you talked about volume makes a difference, composition of upgrade and the composition — or mix of devices. Does it have an impact on gross margin?
Kazuhiko Fujihara
So one, upgrade times volume should be the impact, if you will. So profitability is not different. As you may know, price was up. So the number should be come down in the second quarter and onwards from a unit price perspective. But the question is how much volume we can expect. But compared to last year, product changed from second quarter last year and second quarter this year. And unit price should improve.
Operator
Next, BofA Securities. Mr. Kinoshita, please unmute and ask your questions.
Yoshiyuki Kinoshita
This is Kinoshita. I have two questions. One is about Enterprise business. You mentioned about a onetime factor. Understanding that, however, I still think that Q1 result is low. So if there are any advanced investments, in which area you have made investments? And in the midterm, you have higher expectations. For that, you are progressing steadily towards the midterm or you have to strive even harder?
Kazuhiko Fujihara
Yes, as for consumers, yes, we have aggressive upward expectations. As for Enterprise business, it is not about sales momentum. But we are trying new things, which take a little more time. And also, the impact — positive impact will be coming towards the second half of the fiscal year. As for the first half of the fiscal year, we would like to achieve as much as possible towards our forecast. I hope you can expect our steady progress. Are there any advanced investments or expenses? Not a big one. But as for Enterprise segment, we have to enhance our expertise. So therefore, we enhanced — we increased HR costs, recruitment costs especially. Therefore, different from Consumer business, we have pressure on recruitment costs, which seems advanced investment, which we admit.
Yoshiyuki Kinoshita
This is initiated due to the expectation of the revenue growth in the second half of the fiscal year?
Kazuhiko Fujihara
Yes. Of course, we have to keep challenging towards the positive return.
Yoshiyuki Kinoshita
As for the acquisition is my next question. So at the bottom, the competition among the others is still high. So acquisition cost increased at JPY13.4 billion. And even in the balance sheet, it seems bigger. So the contract cost, do you think is it going to decline? Or next fiscal year, this acquisition cost could be the risk?
Kazuhiko Fujihara
Let me answer into 2 different angles. And one is, let’s say, we defer in 3 years. Now for one year, from 2021 to 1Q — Q1, it comes to this year. So — because it’s deferred in a year base, and that’s also due to the increase of consumption tax and the regulation changes. So ’18, ’19 and ’20 fiscal years, so those years are the ones that acquisition costs were lower. Now fiscal year ’21, acquisition cost is higher. So the lower acquisition cost in fiscal year ’18 and ’19, the merit was shown in the fiscal year ’20. But in ’21, ’21’s — the fiscal year ’21 see the impact of 2 years. So this fiscal year, the impact should be smaller. And this is the structure due to SBM. So looking at the current fiscal year, so it should be flat or a little higher compared to the fiscal year ’19 and ’20, so this fiscal year ’22. However, it should not be a big difference.
As for the number of SoftBank and Y!mobile, the number of Y!mobile portion is higher and its cost is lower than that of SoftBank. So there are a number of plus factors. So there will be some mixed factors. So in fiscal year ’22, there is a bit positive. You might see however in the fiscal year ’23, as well you might see still some increase of this.
Yoshiyuki Kinoshita
So you mean the cost in the PL would be higher for acquisition cost?
Operator
Moriyuki-san from SBI Securities.
Shinji Moriyuki
Coming back to the Page 8, the waterfall chart. The first quarter, acquisition cost was offset by other expenses or — in — for the advertisement. And the sales promotion cost, how much can you increase — decrease in the last half of this year? And the cost of service, you said that you slowed down the sales of Electricity business, but our cost should go up. So is there any other thing that you consider to improve?
Kazuhiko Fujihara
So advertisement cost, we took a very strong action in the first quarter. Because of that, the progress is pretty high, as high as 32.3%. Going forward, depending on what decision we can make, but compared to first quarter, we don’t expect that much in the later quarters this year.
For Electricity, we need to keep watching how things go. It looks electricity — electric companies are struggling in their performances. So how electricity prices will go, whether it be increasing or not, we have to keep watching how the industry goes to make reasonable decision. And electricity bills are likely to go up, and we are making utmost efforts to address them. But do we expect losing money in Electricity business? I don’t think so. So as a business, Electricity is doing okay and has contributed to us. But we don’t expect huge contribution from Electricity either, but still, we need to make sure that Electricity business won’t lose money.
Shinji Moriyuki
In the second quarter and later, what about advertisement cost?
Kazuhiko Fujihara
JPY480 billion, JPY1 trillion and JPY600 billion of cash, those are the forecasted numbers. So we can’t say for sure, plus or negative. But EUR 480 billion for this year is highly likely and JPY1 trillion is highly likely. So we may increase or raise the goal. But again, JPY600 billion cash flow is something that we are committed to.
Shinji Moriyuki
Next question is about ARPU, which is affected by price reduction and downgrade of the device cycle. So what about upgrade trend? Of course, upgrade should have a positive impact to ARPU. But recently, what upgraded trend? And SA to consumers, when are you going to implement fully to consumers? Then network slicing, should it be helpful to contribute to your business?
Well, upgrading to SoftBank brand, like, for example, UQ to SoftBank brand, not net, but as absolute number, are you seeing upward trend from, let’s say, UQ to SoftBank brand.
Kazuhiko Fujihara
But starting from relation between Y!mobile and SoftBank. From Y!mobile to SoftBank, it’s slightly downward trend. And customer inflow to SoftBank is improving. So a certain number of upgrade is what? Increasing, increasing. Is it hugely increasing? Not that much, slightly increasing. And to stand-alone of 5G, timing and et cetera, we should communicate with you when an appropriate time is. But again, still limited sales of devices for 5G stand-alone. So whenever we are ready, we will communicate with you more.
Coming back to absolute number of upgrade, slightly increasing, you said. Well, it’s not keeping — increasing since last year. But more likely, recently, we started seeing a slight increase of a percentage number.
Operator
Due to time constraints, we will take questions from one more person, and then we will conclude. Citigroup Securities, Mr. Tsuruo.
Mitsunobu Tsuruo
One question from me. First question is related to balance sheet. We lost you just before, Slide 16, about net leverage ratio. 2 things. One, to consolidate PayPay, will be the factor due to the — what will be the factor for the change of net leverage ratio due to the consolidation of PayPay?
Kazuhiko Fujihara
Yes, this should also change.
Mitsunobu Tsuruo
So same as the free cash flow. So it should be neutral?
Kazuhiko Fujihara
As for the entire picture, as for PayPay, we have a good cycle of cash. So in short term, it should be positive, we expect, because this is going to be under Financial segment so the trend should be different from this one. So we have to have a solid definition. However, just calculating this, as for now, simply it should be positive.
Mitsunobu Tsuruo
And my next question is also above balance sheet, including free cash flow. And I think this net leverage ratio should be renewed after consolidation. And how much — what would be the capacity of the range of net leverage ratio change?
Kazuhiko Fujihara
And of course, as we have shown this as a net interest-bearing debt, and this is what we see and target — yes, we would like to stick with this 2 points something and also mid — 2-point mid something level is where we feel comfortable at. If we have some special event to grow, but as for the ordinary cases, this 2-point-something level would be where we feel comfortable at.
Mitsunobu Tsuruo
So the purpose of my question is that Z Holdings business is driven by advertisement, which might have some negative impact.
Kazuhiko Fujihara
And considering this Z Holdings, yes, we do have a separate cash management from Z Holdings because Z Holding is also a loan-listed company. So compared to the time of our listing, we have more stable and return of loans has been paid back in advance, and so our stability is good. So I think this net leverage ratio shows our position in a good way.
Mitsunobu Tsuruo
My second question is about net additions. For smartphones net addition, among those increase, how much would be the inflow from Rakuten? What do you think about the trend of net additions?
Kazuhiko Fujihara
I can’t specifically mention about inflow from Rakuten. However, under this circumstance, yes, we have returned from minus to positive in Q1. Of course, we are not looking at so optimistically. However, we would like to take thorough initiatives to increase their net additions moving forward.
Operator
That’s all for Q&A session. Now we’d like to conclude investor briefing for the first quarter of fiscal year 2023. This investor briefing will be distributed on demand on our website later. Again, thank you very much for joining us today for this quarter’s investor briefing. Thank you.
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