Confidently Moving Toward Even Higher Continuous Growth

Full-fledged Expansion of “Growth” and “Profitability,” and “Ability to Generate Cash”

Fiscal 2009 marked our fourth consecutive year of record operating income, with 10.7% growth to 359.1 billion yen. Looking back at results over the past 10 years, net sales have grown by a factor of 5.1 and operating income by a factor of 29.6. In addition to this growth in both business scale and profitability, the biggest change during fiscal 2009 was a notable improvement in free cash flow^*1.

As the SOFTBANK Group successively entered new businesses —ADSL in fiscal 2002, fixed-line telecommunications in fiscal 2005, and mobile communications in fiscal 2007 free cash flow tended to be negative because of large capital expenditures. In fiscal 2009, however, free cash flow turned around to a positive 181.5 billion yen (a 345.7 billion yen improvement from fiscal 2008). As a result, net interest-bearing debt^*2 outstanding as of the end of fiscal 2009 was 97.3 billion yen less than at the end of fiscal 2008. We have completely moved from an investment stage to one of reaping the benefits of those investments, and are on a clear course for rapid improvement in our financial strength. We intend to reduce net interest-bearing debt by half within fiscal 2012 and to zero by fiscal 2015.

Three Pillars of “Confidence”

Anticipating the arrival and spread of the Internet age since the time of SOFTBANK's founding, I have always had faith as we grew the business. That faith has now changed to three areas of strong confidence. First, I have “confidence in our continuous business growth.” Any business has various elements of uncertainty at its inception. Nevertheless, the Mobile Communications segment has established an unquestionable track record with consistent, continuous growth in the number of subscribers and the No. 1 position^{* 3} in net subscriber additions for two consecutive years, and the customer base continues to grow.

At both of the “fixed-line business” —the Broadband Infrastructure and Fixed-line Telecommunications segments— we have also reached the industry's top position in terms of operating income^*4. Earnings at our Internet businesses in Asia, and particularly in China including our equity method affiliate Alibaba Group Holding Limited, have also shown rapid growth. Next, I have “confidence in the strengthening of the financial base.” This comes against the backdrop of the clear change in direction toward the cash-flow-oriented management that I mentioned previously. Third, I have “confidence in the stability of management.” At the Mobile Communications segment for example, indicators including churn rates, bad debt in installment receivables, and mobile handset inventories are improving. The Mobile Communications segment has also created clear synergies with other segments in terms of both marketing and costs.

Becoming the “No. 1 Company in Terms of Expectations” and “No. 1 in Terms of Reliability”

The SOFTBANK Group uses “clear-cut communications” to convey these three Confidences, and this is leading toward even greater trust from our stakeholders. We strive to appeal in an easy-to-understand way to all stakeholders through easy-to-understand marketing and advertising of our differentiated services to customers, and through proactive IR activities to convey the degree of improvement in earnings growth and financial position to shareholders and investors. The SOFTBANK Group's corporate goal is to be considered the “No. 1 company in terms of expectations,” as well as “No. 1 in terms of reliability” by all stakeholders.

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Expanding the Mobile Communications Segment's Customer Base

SOFTBANK fully entered the mobile phone business with the acquisition of Vodafone K.K., and has been No. 1 in net subscriber additions for the two consecutive years from fiscal 2008. What are the reasons behind this success?

I believe it is because we have offered services using the SOFTBANK Group's unique business model, and customers have recognized the originality and convenience of these services.

Aggressive Promotion of the “Internet Machine” Concept

SOFTBANK had a 43.0% share of mobile net subscriber additions in fiscal 2009, putting us at No. 1 for the second consecutive year. Moreover, this level was well ahead of No. 2 NTT DOCOMO, Inc., which had a 25.5% share^*5. Since entering the mobile phone business, the SOFTBANK Group has taken a leading position in the industry with innovations including (1) introducing an installment sales system that separates usage charges from handset subsidies, and establishing White Plan and other easy-to-understand price plans, (2) developing and selling thin, fashionable handsets, and (3) the Yahoo! Keitai dedicated portal for SoftBank mobile phones. We also designated 2008 as the “Year of the Internet Machine,” and focused particularly on the convenience and ease of use of the mobile Internet. This included the introduction of a succession of revolutionary handsets, beginning with the Internet Machine SoftBank 922SH in the spring of 2008, the iPhone 3G™ in July, and the SoftBank 931SH in the fall. Despite the small display of a mobile phone, these are tailored for an easy-to-see and easy-to-operate mobile Internet experience. We have not only emphasized differentiation in terms of handsets. SOFTBANK has been far ahead of the competition in the area of FMC^*6services, which integrate mobile phones with IP telephony or fixed-line telephones, with our speed of service launches and rich variety of service options. We have also completely redesigned Yahoo! Keitai to make it more convenient, and aggressively introduced services like MOBILE WIDGET. I believe it has been the comprehensive, integrated nature of these initiatives that has led to the strong support we enjoy.

The SOFTBANK Group entered the mobile phone business recognizing the importance of the Internet, and with the belief that mobile Internet would drive the market going forward. Prior to the SOFTBANK Group's acquiring Vodafone K.K. and entering the business, the mobile phone industry had been controlled by mobile operators. I believe this resulted in a tendency to only offer services that were suited to their own infrastructure. With the SOFTBANK Group being the first company with the Internet as its core business when it entered the industry in fiscal 2007, users realized that services being offered had changed to a customer-oriented perspective, and I believe this led to dramatic changes in the industry map.

Dramatic Changes since Vodafone

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Highlights of Mobile Communications Segment's Earnings

Despite the steady growth of the customer base, the Mobile Communications segment's fiscal 2009 operating income declined 1.8% from fiscal 2008. How should we view the segment's fiscal 2009 results, including this point?

The decline in operating income was the result of consolidation adjustments. Operating income on a consolidated basis at SOFTBANK MOBILE, the segment's core company, rose 16.6% from fiscal 2008. Revenue from telecommunications charges also turned around to positive growth in fiscal 2009, and the acceleration of management strength and stability are the two major points.

Accelerating Growth and Increased Management Strength and Stability

Operating Income (Comparison)^*9 (Mobile Communications segment and SOFTBANK MOBILE)

SOFTBANK MOBILE Corp. (consolidated basis) maintained a high pace of profit growth again in fiscal 2009. Another highlight is the changing trend in the earnings structure. Although revenue from mobile handset sales declined, revenue from telecommunications charges rose 1.4% from the previous year. This was not only the first growth since entering the business in fiscal 2007, but also came against the backdrop of a downward trend at major competitors. In addition to the growth of the customer base, this turnaround to revenue growth came against a backdrop of a significant increase in the data ARPU^*8 growth rate (year-on-year), from 9.6% growth in fiscal 2008 to 16.8% growth in fiscal 2009. Total ARPU including voice usage continues to decline as an increasing number of subscribers use Monthly Discounts, which discounts the basic monthly charge and voice charges for installment subscribers, and White Plan, which has a basic monthly charge of 980 yen. Nevertheless, I believe the impact on ARPU will gradually decrease as an increasing number of customers reach the completion of the installment contract period and Monthly Discounts subsequently ends.

Movement of Telecom Service Revenues at 3 Major Mobile Operators^*11 (Year-on-year)

In addition, with the further promotion of Internet Machine handsets, data ARPU is rising further, and total ARPU can be expected to bottom out during fiscal 2010. This means that we are approaching the stage of the growth of the customer base and bottoming out in ARPU accelerating growth in both net sales and profit. We are forecasting both revenue and profit growth for the SOFTBANK Group overall in fiscal 2010, and it goes without saying that the Mobile Communications segment will be the driving force behind this growth.

Major advances were also seen in increasing management strength and stability during fiscal 2009. Specifically, (1) there was a large 0.32 percentage-point decline in the churn rate from fiscal 2008 as service levels were raised even higher, (2) stronger measures to prevent unlawful mobile contracts led to a reduction in allowances for doubtful accounts and losses from bad debt of installment receivables, and furthermore, (3) a significant improvement was achieved in reducing handset inventories by roughly 30%, bringing the inventory amount per handset sold down to nearly half the level at competitors^*10.

[Notes]

• *8 Average Revenue Per User.
• *9 The Mobile Communications segment's fiscal 2007 results include an 11-month contribution from SOFTBANK MOBILE, which was added to the scope of consolidation in May 2006.
• *10 Estimated by SOFTBANK based on NTT DOCOMO, Inc. and KDDI CORPORATION's publicly available information.
• *11 Calculated by SOFTBANK based on respective companies' publicly available information.

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Future Direction of Market and Competition for Mobile Communications Segment

The mobile phone market is seen as having reached maturity in terms of penetration rates. Does the limited size of the market mean that competition will intensify?

There is room for growth from both replacement demand for mobile handsets that are suitable for comfortable mobile Internet use, and from new demand, primarily in the corporate sector. Mobile Internet content and services are also gaining importance.

With its Internet-centered business structure, I see further growth for the SOFTBANK Group as a leader in comprehensively providing services ranging from infrastructure to content.

Reaching a Stage of Increasingly Demonstrating SOFTBANK's Unique Character

Internet anytime, anywhere…
Mobile Internet use is advancing with tremendous momentum. For example, Yahoo Japan Corporation (hereafter “Yahoo Japan”) saw a large increase in e-commerce transaction volumes via mobile devices in fiscal 2009, with a roughly 30% increase from fiscal 2008. The popularity of the iPhone 3G and the Internet Machine SoftBank 922SH showed how much users want mobile handsets that allow them to fully enjoy the convenience of the mobile Internet. The corporate market is also using mobile phones to raise operational efficiency and accelerate the introduction of mobile solutions. SOFTBANK TELECOM Corp., which handles corporate marketing of SoftBank mobile phones, is winning large orders of several thousand handsets from major companies in fields including the postal service, pharmaceuticals, and business consulting. Nevertheless, the SOFTBANK Group is not aiming for continuous growth by simply relying on differentiation in handsets. In the end, the handset is no more than a tool for promoting the mobile Internet, and I believe that comprehensive Internet services including content and services, the core of our business, represent the true source from which we will be able to achieve continuous growth.

Previously, handsets were not suited to the mobile Internet, which was why we took the lead in introducing the Internet Machine. Nevertheless, the subsequent introduction by all our competitors of customer-oriented handsets and the development of the mobile Internet environment is by no means a negative factor for the SOFTBANK Group. Rather, the more the mobile Internet spreads, the more the SOFTBANK Group will be able to demonstrate the strength it also has in the top layer of infrastructure, including portal, search, content and services. This top-layer strength will bring about a positive cycle of increasing the value of the Group's infrastructure business.

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Developments at Businesses Other Than Mobile Communications

What are the main items in terms of business strategies and industry trends at segments other than Mobile Communications?

Profitability and free cash flow grew at all segments during fiscal 2009, including large profit growth at the Fixed-line Telecommunications segment. This came against a backdrop of improved management efficiency including synergies with the Mobile Communications segment in terms of both marketing and sales.

Enhancing Intra-group Synergies

Operating Income/Loss(Excluding Mobile Communications segment)

Combined operating income at the five segments other than Mobile Communications (Broadband Infrastructure, Fixed-line Telecommunications, Internet Culture, e- Commerce, and Others) rose by 25.2% in fiscal 2009. Profit grew at four segments, and the loss narrowed at the Others segment. There was also a large rise in the combined EBITDA margin^*12 at the five segments, to 23.5% from 19.8%. There were three main reasons behind this large rise in profitability.

The first was synergies in terms of marketing. For example, the Broadband Infrastructure and Fixed-line Telecommunications segments cooperated with the Group's Mobile Communications segment to raise its ability to provide customer solutions through FMC services packaged with mobile phones. They also engaged in cross-selling through mutual sales channels. At the Internet Culture segment, core company Yahoo Japan provides the Yahoo! Keitai dedicated portal for SoftBank mobile phones, creating enhanced value for both businesses.

EBITDA(Excluding Mobile Communications segment)

The second reason was synergies in terms of costs, particularly among the three telecommunications segments. Costs were reduced by consolidating call centers and other bases of operations, and by integrating billing and collection functions.

The third reason was the reduction in the burden at the Broadband Infrastructure and Fixed-line Telecommunications businesses from the winding down of capital expenditure. Having moved from the period of initial investments to the stage of reaping the benefits of those investments, combined EBITDA minus capital expenditure at the two segments totaled 91.1 billion yen in fiscal 2009, significantly higher than the previous year's 75.1 billion yen and marking a significant increase in these segments' ability to generate cash.

Another item in fiscal 2009 results that is worth mentioning is the fact that operating income at the Group's “fixed-line business” (Broadband Infrastructure and Fixed-line Telecommunications) has grown to become the largest in the industry, surpassing NTT East, NTT West, and KDDI. Despite being a business field that is generally considered mature, the SOFTBANK Group has achieved large profit growth by concentrating management resources in growth areas, and creating intra-group synergies. I believe this also demonstrates the strength of the SOFTBANK Group.

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Overseas Development

You previously declared the goals of being the “No. 1 mobile Internet company” and the “No. 1 in Asia.” Why the “No. 1 in Asia” and not the “No. 1 in the world?”

Looking at population distribution and differences in economic growth rates by country and region, the global focus of the Internet is likely to shift to Asia. Being No. 1 in Asia therefore means being No. 1 globally in the future.

Laying the Path to Becoming No. 1 in the World

China's Online Shopping Market^*15

The United States has many major providers of Internet services, including Amazon.com and eBay in e-commerce, search services provided by Google, and the world's largest SNS^*13, Facebook. I believe this is largely because the Internet originated in the United States, and roughly 10 years ago the United States accounted for half of the world's Internet population^*14. However, Asia has many countries with much more vigorous economic growth than the United States and a denser population distribution, and the Internet, broadband in particular, is spreading rapidly. Asia is seen accounting for half of the world's Internet population in 2015^*14, and I believe that it is not an exaggeration to say that the company that controls Asia will become the world's largest Internet company.

China's Online Shopping Transaction Volume^*16Market Shares (2008)

Taking this mid-to-long term outlook, in addition to having an established position as an Internet company in Japan, the SOFTBANK Group has been steadily laying a path in Asia, and in particular China, which is showing a remarkable level of economic growth. For example, one of China's largest online shopping sites, Taobao, with more than three-fourths of the Chinese market, is owned by Alibaba Group Holding Limited (Alibaba Group), SOFTBANK's equity method affiliate and an important strategic partner in Asia. In early fiscal 2009 we also invested in Oak Pacific Interactive, operator of one of China's largest SNS sites, Xiaonei. Although the Chinese economy has experienced a slowdown from the global financial crisis, some economic indicators are already showing signs of bottoming out, and the country's latent growth potential is being looked at anew. Internet services in particular are showing a remarkable pace of growth. For example, the size of the online shopping market grew by a factor of three, to 1.8 trillion yen, during 2008 alone, and there are forecasts that over the next four years it will surpass 10 trillion yen. I feel that the path toward creating the No. 1 corporate group for the Internet in Asia has become increasingly clear.

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Shift Toward Cash-flow-oriented Management

You have begun emphasizing “cash-flow-oriented management,” and from the second half of fiscal 2009 released forecasts for operating income and free cash flow, which you had not done previously. In addition, along with the announcement of fiscal 2009 results, you referred to fiscal 2012 and 2015 targets for reductions in net interest-bearing debt. With some companies refraining from disclosing earnings forecasts because of weak economic conditions, why did you announce these mid-to-long term forecasts?

We have decided that various management risks have been reduced, and the path toward continuous profit growth and strengthening the financial base has become clearer than was previously the case.

Releasing Consolidated Earnings Forecasts From Fiscal 2009

The SOFTBANK Group anticipates the business environment 10 years and 20 years into the future, and has successively expanded its fields of business, centered on the Internet. This has meant that there were various elements of uncertainty over the short term, however, and made it difficult to release earnings forecasts. For example, the SOFTBANK Group has introduced things like pricing structures and installment sales for handsets, which were without precedent, and this made it difficult to forecast user trends. Now, however, with three years having passed since entering the mobile phone business, the business has stabilized and the bulk of capital investment is complete, and has entered a stage of reaping benefits and generating a steady cash flow. A dramatic improvement in our financial strength, which had been an issue, is now within sight. We have now laid the foundation to be able to provide comprehensive services from mobile and fixed-line telecommunications infrastructures to content and services, and our progress in broadband and FMC services is also on the course we envisioned, so the framework for maintaining and building on the SOFTBANK Group's leading position is in place.

For these reasons, we announced earnings forecasts along with fiscal 2009 second-quarter results, raised those forecasts twice during the year, and achieved the revised fiscal 2009 forecasts. For fiscal 2010, we are forecasting operating income of 420 billion yen (a 17.0% increase from fiscal 2009) and free cash flow of 250 billion yen (a 37.7% increase), so that shareholders and investors can numerically verify our progress under our growth strategy. We are also forecasting the creation of around 1 trillion yen in free cash flow over the three years to fiscal 2012, and aiming to reduce net interest-bearing debt by half in fiscal 2012 and to zero by 2015, moving toward effectively debt-free management.

Forecasts for SOFTBANK Group's Consolidated Earnings and Financial Strength

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Thinking Regarding Returns to Shareholders and Corporate Value

What is your basic thinking with regard to returns to shareholders and corporate value?

Our main theme is to increase corporate value, which we are pursuing through growth in free cash flow. Along with increasing corporate value, steady growth in free cash flow moves us closer to achieving our targets for reducing interest-bearing debt and raising shareholder value. We are also considering raising the dividend level in stages as a more concrete method for returns to shareholders. We intend to increase the dividend for fiscal 2010 to 5 yen per share, which would be double the fiscal 2009 dividend.

Generating Free Cash Flow Under Main Theme of Increasing Corporate Value

Top 10 Companies in Free Cash Flow (Fiscal 2009)^*17

Management has taken a clear position since the second half of 2008 of emphasizing free cash flow. I believe that increasing free cash flow with steady growth through the efficient management of all businesses within the Group will raise corporate value over the mid-to-long term. SOFTBANK anticipates solid consolidated results going forward, especially at the mobile phone business, and I am confident that we will be able to generate a total of around 1 trillion yen in free cash flow over the three years from fiscal 2010 through fiscal 2012.

As another element of increased corporate value, we are also emphasizing the further growth and development of our Group companies in China going forward. The speed and degree by which Chinese companies like the Alibaba Group's Taobao and Alipay, and OPI's Xiaonei are growing, and their future growth potential, are amazing. As one of the SOFTBANK Group's growth drivers, I see the growth of these Group companies in China making a major contribution to increased corporate value in the future.

[Note]

• *17 Based on Bloomberg data. (Financial industry excluded.) “Corp.” and “Co., Ltd.” are omitted from company names.

Moving from a Policy of a “Stable Dividend” to One of “Dividend Increases in Stages”

Dividend Forecast (Per share)

In addition to the shift in management emphasis to free cash flow, fiscal 2009 also marked a turning point in terms of dividend policy. Our policy had previously been based on the payment of a stable dividend, but we have announced our intention to increase the dividend in stages from fiscal 2010. We intend to increase the dividend for fiscal 2010 to 5 yen per share, which would be double the fiscal 2009 dividend.

We have steadily built up profit on a consolidated basis to date, while we adopted a stable dividend policy because the level of interest-bearing debt remained high. In fiscal 2009, however, we recorded a 345.7 billion yen increase from fiscal 2008 in free cash flow, to a positive cash flow of 181.5 billion yen. We expect the various businesses within the Group to be able to generate a stable free cash flow from fiscal 2010, and therefore intend to increase the dividend for fiscal 2010. We are also planning to use future free cash flow as the source of funds for the reduction of net interest-bearing debt. Our specific targets are to reduce net interest-bearing debt by half in fiscal 2012, and to zero in fiscal 2015. From fiscal 2012, with the achievement of mid-to-long term targets for free cash flow and net interestbearing debt reductions, we plan to return profits to shareholders, as appropriate in line with circumstances, by increasing the dividend level more in stages.