Softbank Group Corp

Thank you very much for waiting, everyone. Now, we would like to start the SoftBank Group Co-op Earnings Results Briefing for the three-month period, ended June 30, 2023. First of all, I would like to introduce today's participants. From left, we have Yoshimitsu Goto, Board Director, and CFO. Kazuko Kimiwada, Senior Vice President and Head of Accounting Unit. Navneet Govo, CFO, ASP Investment Advisors and CFO, Member of Executive Committee, ASP Global Advisors. Today's briefing is live broadcast over the internet. Now I would like to invite Mr. Goto, board director and CFO, to present you the earnings results and business overview. Mr. Goto, please. Thank you very much for your attendance for today's meeting. My name is Goto, a CFO of Softbank Group Corp. So I would like to present you the earnings results for the first quarter. First of all, I would like to touch on the market status to begin with. As an investment company, What we need to be keen on is the market environments and also the economical environments. At the same time, we also need to see the geopolitical situations, global situations. Those kind of thing is something that we always need to be keen. And starting for this April to June period, we've been very careful to watch all those important factors. At the previous earnings announcement, I said market is showing the recovering trend. sign but at the same time also there are still several considerations which we do not see the clear solutions for so that we do need to still keep on being very alert and careful but at the same time also we would like to take a lead before all the movements occur but at the same time to be selectively that we would like to consider the investment activities and looking at the equity market in the last three months actually showing a very good trend. And as you see on the graph, on the top of this graph is Thomson Reuters Venture Capital Index. So private equities KPI is also showing a very good trend in the past three months. at the same time that the public securities is also showing a good sign too in the Golden Dragon China, the Chinese markets, KPI. Looking at the January to March, we were a bit concerned, but now for the April to June period, showing a good recovery trend. But when you go a little bit more deeper, especially the public securities in the United States. We believe Magnificent Seven, so-called, which used to be called GAFA, those large logos, Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, Tesla, those seven major companies, large companies, share price is actually becoming a big driver for the recovery of the market. Of course, there are some other positive factors as well for this recovery. And for us, looking at the public securities movement in the past three months, actually, the number has been showing very positively. NASDAQ, compared with NASDAQ, we believe that our trend is becoming very similar to NASDAQ these days. And looking at the current status of the market and the Vision Fund progress, Looking at the past few periods, actually, we returned to profit for the first time in six quarters. This is one of the highlights for these earnings, I believe. This is the Vision Fund's standalone basis, so it's not a consolidated base, so that it's positive figures showing here on your right, 975. As a result, to the cumulative gain loss on investments. This again is the first turnaround in six quarters. So now you see that the trend has turned around. So based on this trend, we also like to make a good balance in between gas and brake for the reinvestment activities. So, April to June quarter, visual fund investments and also investment from SVG in total it was about 1.8 billion US dollars of the investments has been executed since we made an announcement on shifting to offense mode. Last year, the whole year was almost stopped in terms of investing. So when you look at the three-year trend, we've been carefully carefully restarting our investment activities. I hope you get that kind of sensitivity here that we are carefully and slowly moving back to the investment activities. The investments that we have done so far has been selectively considered and at the same time keep focusing on the AI trend and for the future growth that we would like to start having a good relationship with those companies for the futures of the group. Back in June, when we had a shareholders meeting, our chairman, CEO Masa, came back to the stage and talked about shifting to offense mode. I believe we are actually shifting to the offense mode but at the same time from CFO's point of view we would like to be carefully and selectively when it comes to shifting the offense mode our baseball team Hawks also needs to be back to offense mode we've been having a bit of difficult games and challenging games these days but Baseball as well as the business needs to shift towards offense mode after we had a very challenging period in the past. With those understanding, let me share with you the consolidated results. First quarter consolidated results, as you see, net sales, as we are the investment holding company, so that the 1.53 billion, more importantly, net income minus 477 billion yen. And also, the loss on investments, when you see the change on your right, 2.6 trillion of the net income improvements, but the loss on investments has improved by 2.1. And this is compared to the market trend recovery. Maybe we should be a little bit better than these numbers, but there are some reasons behind for those. and also the gain and loss on investments. This is the vision fund number. So this has been needed for the consolidated base. So there are several companies, Arm and PayPay, these has been netted off from this number's point of view, but still that they are coming back to almost, back to the originals. And with that gain, and loss on investments, minus 699 billion yen. This is materially improved compared to the previous year, but when you look at the breakdown, Out of the 699 billion yen, of which 550 is due to the loss on Alibaba due to lower share price, I want you to recall that this monetization of Baribaba share has already been completed. However, we still keep on holding our shares. And because we have done the derivative transaction, which has already completed, this is kind of a forward transaction. Therefore, when share price goes down, derivative point of view, it is positive. So this derivative gain related to the shares is shown on the dotted line. 769 billion is the derivative gain. Therefore, the accounting item-wise, it's different, so that this still remains as a negative for the gain and loss on investments. But Alibaba, 200 billion yen is positive after net. So looking at the gain and loss on investments, actually, effectively we can say that our status was positive that's something that the real status of the company and here is the income before income tax by segment here the showing the performance of the income before income tax so investment business of holding companies It's still minus 394. Change wise, difference is 803. And the Vision Fund is contributing 2.4 trillion yen, positively. And consolidated base, it was minus 176 billion yen. And net income, 477.6 billion, as I mentioned earlier in the previous page. And here, I want you to see the breakdown of that. And as a matter of fact, because of the weak yen, there are 464.6 billion loss on foreign exchange. So this as well, should be regarded in the gain and loss on investments. But here in net income, the Forex impact has been shown here. So this is actually comes up to the P&L. So as an investment holding company, weak yen, whether this is good things or bad things actually this is very good which I will cover that later pages so as a result net income although that this is minus 477 billion however the insight or the breakdown is coming from the P&L or negative from the Forex again that I believe that effectively is almost break even that's the kind of a real picture of SoftBank Group

There are two very important key indicators for us as an investment company, net asset value, or NAV, loan-to-value, or LTV, and cash position. Compared to the end of March this year, in all indicators, we have seen improvements For example, NAV increased from 14.1 to 15.5, and LTV, 11 to 8% cash position, almost 6 trillion yen. So all three indicators improved. So we can be proud of saying that we are in a good position in terms of our financial basis. This slide shows a change in NAV. Main driver is Forex. When yen is weaker, the value of asset goes up. So it's not a bad thing. Every quarter, we have announced financial results. And the share price, it says plus 0.4, which has been negative for a long time. And this term, we have seen the positive number of share price for the first time for a long time. Impact of Forex in terms of P&L, minus 0.5 trillion yen impact. But if you analyze further, why it's negative? Because borrowing in foreign exchange denominated increases in trillions of yen. And borrowing in foreign denominated currency, do we have a lot or not? For example, a foreign currency denominated bond is, of course, borrowing in foreign currency. And we have group companies. we do exit, we do recoup, and when we get contributions from group companies, there are a lot of intercompany loans in foreign denominated currency. That's why we see the negative number because borrowing in foreign currency denominated, the value went down when yen is weaker. And in terms of net asset value, it has a positive impact of 1.3 trillion yen. So again, weaker yen is good for us as an investment company. And this slide shows NAV per share and share price. This is also one of the important aspects that we should look at. And investors and analysts often say, or often use the term, SoftBank discount. And NAV per share, if you look at that, Our share prices are very weak or cheap because of the discount people often say. As of end of March, the discount was 46%. But at this moment, thanks to increased share price and more than the increase of assets. So at the moment, we are looking at 36% of discount. So discount has improved significantly. to what extent we should have it improved of course there are a lot of discussions and comparison pre-tax from cash tax perspective in theory it should not be zero but for investors we want to make efforts technically and essentially to improve this discount status. This slide shows equity value of holdings. The highlight here is Alibaba monetization, which we completed. And if you look at dark blue second from the bottom, 3.7 in Q1 FI 2023, which indicates ARM value. So, steadily, ARM has been adding value to its business. So, all in all, equity value of holdings was 16.9 in the quarter. So it has been decreasing for a long time, but now we are beginning to see the turnaround. Since 1998, this graph shows a trend of net asset value. I joined SoftBank in 2000, so I have been in SoftBank for almost the whole time of this time horizon. And again, we are looking at upward trend this quarter and last quarter. Considering possible IPO of Arm, we are expecting this to improve further and increase further. This slide shows trends of loan-to-value. Looking back the history, currently 8% and this is the lowest in our history. Loan-to-value is low means we are safe. Is it good or bad? Well, people may say that you're not doing your job. You are too safe. But as an investment company, taking into account of our stance change from defense to offense, loan to value. Of course, we have a strong rule of financial policy. We want to make sure that we operate our business in a safe, disciplined manner. And to what extent we should allow loan to values fluctuation. There's no correct answer. We keep saying 25% because 25%, don't you think that 25% is safe from just a traditional perspective? Since we became an investment company, loan-to-value average for the last four years was 15%. And looking forward, we make sure that we are running the business in a very safe manner from LTV perspective. Now, cash position. We believe that we have highest amount of cash position in our history, almost 6 trillion yen. So those are key indicators. And also, I touched upon P&L and balance sheet and SoftBank Vision Fund. In the first quarter, total Gain on investment was $1 billion. We have three boxes, if you will, in terms of Vision Fund. Vision Fund 1, which started first, and Vision Fund 2, which is ongoing. Vision Fund 1, investment was already completed, and Datum Funds and SoftBank Vision Fund 2 are still making investment. SoftBank Vision Fund 1, we saw $1 billion positive. Vision Fund 2 still negative, but all in all, combined $1 billion of gain on investment. Positive number for the first time in six quarters. For Vision Fund 1, against about $90 billion of investment cost, return $102 billion. As you can see, orange part, which is exited, has been getting bigger and bigger. They have some challenging time, but they're still making sure that they get returns. SoftBank Vision Fund will not only invest in public company, but also private companies as well, which include Arm. When Arm is listed, and when its valuation is appreciated by the market, I believe that ARM will contribute to Vision Fund 1 a lot. There are a lot of companies that can be listed in a pipeline, and also we will support Vision Fund and monitor Vision Fund 1 to make sure that the investment is surely monetized. Vision Fund 2, which started investment about three years ago, It's been going through very challenging market conditions. Against 52 billion of investment cost return, it was only 33 billion. But this fund is still young. And going forward, Vision Fund 2 will take a lead in future investments and We will keep watching fund performance to improve their operations. And this slide shows value changes in portfolio, which I'm sure you're familiar with. Whether portfolio companies gained or lost their values. Left-hand side shows the status three months ago, cumulatively. Unfortunately, however, the red pie, which lost value, was 346 companies. The number has been getting bigger and bigger from 100, 200, and 346 as of March 31st. So the portfolio has been deteriorating. But if you look at the right-hand side, slightly, the number of companies lost their value got smaller from 346 to 343, and the companies who lost, excuse me, gained value, the number increased from 101 to 112, slightly increased. Again, this is cumulative number. And if you look back further, On the left-hand side, compared to the term from October through December, how the portfolio changed. 190 companies lost values and 88 companies gained values. We saw a sign of improvement in the quarter from January through March, but if you look at the right-hand side, the number of companies gained a value reached 150, and the company that lost value improved from 192 to 116. So, again, we can say that we are beginning to see the turn of the trend. We will keep monitoring Vision Fund against a backdrop of challenging market conditions, and we can't be complacent, but for those portfolio companies, we are looking at a positive change, which I want to highlight here today. In quarter one, invested amount was 0.9 billion in terms of Vision Fund. And Vision, excuse me, SoftBank's standard investment was 0.9, so total 1.8. So slightly, we started accelerating investment.

Vision Fund has close to 500 portfolio companies and we would like to take an advantage of this network for our group management and also synergy, positive synergy between those companies is also important. Navneet here is also making an effort to connect and arrange those portfolio companies each other. Sozo Connect is one of the events that gather the portfolio companies to networking and having a dialogue between those companies. Also inviting investment bankers or our members to study the good part about each other that has been held sometimes during the COVID period it has done in over Zoom also after then that have been held at Paris or Japan and so on or India And at the same time, we would like to encourage those portfolio companies to start entering into Japanese market and we actually support those activities. Here as you see that we've been enhancing ecosystem for them to enter into Japanese market already 50 portfolios start operating in Japanese market. Of course, this is just the beginning. We would like to see and expect a bigger success of such an activity and provide business opportunities to Japanese companies inside and also outside Softman Group, including Softman KK, which is the domestic telecom operator, but at the same time, they can be the big agent for the portfolio companies who are coming into Japanese markets. So SoftBank KK has been playing a good role to kind of assist those companies to come into our market. Here shows the AI technology mapping that I would like to touch on a little bit as we invest And also shifting to offense mode, because we would like to kind of catch up the opportunities here. Of course, the Vision Fund has started investing about six years ago. And actually, since then, we've been very much focusing on AI. These days, we see a very good trend in the popularities of the generative AI and very much a trend. But generative AI is only one component of the overall AI. But there are other AI technologies, such as the natural language processing, deep learning, machine learning, and so on. I believe that we can break down into about 10 segments or 10 sectors for the AI technology here that I show as one examples of such AI technology use cases, starting from frontier tech to enterprise consumer and so on. So logistics, fintechs also included in here, and edtech is also one of the examples. And you see that the example of Investees, for details of such companies. If you need to understand more, please contact Navneet here. But the Vision Fund has been already start investing or start looking into not only generative AI, but variety, wide range of AI technology and being very selective to put the money into such companies. Next is... I would like to touch on a little bit about here. I want to make a comment, however, because they are preparing for IPO, so I cannot really say anything. That's a comment I can say about. I'm sorry about that. But for revenue, you see the numbers, $641 million. So year on year, a slight decrease, so short-term period. semiconductor industry is on a little bit of a down cycle but if you see the past three years the annual growth rate or the three-year CAGR is 14 percent and also the value of this company actually that the real picture is going to be seen going forward. So that with the AI trend, they are the one that the designing chip and they have a very great track record for such businesses. And we believe that they will be evaluated in many areas, many sectors. I cannot touch on much of the value that the legal has been told me, telling me that very strictly that I should not be talking too much about here so that I like to stop here. But what I can say is that their area that they are covering is even more expanding. So not only ARM that they're working on chip, of course, that Intel used to design and produce, but ARM actually... showing their capabilities starting from the mobile device that they are having a great deal of market shares and many people utilize such mobile device smartphone to tablets that it's been used inside and those chip are very much close to arm designed chip and when it comes to cloud compute automotive compared to five years ago that the chip for the cloud computer automobile is different. It's been changed automotive itself that it's been evolving in autonomous driving and so on. Cloud compute has also changed because generative AI belongs to this area so that the arms capability can be fully taken in many, many more areas. So in our life, IoT is the one that we can see, smart camera, all the facial recognitions, those is also done with ARM's latest edge technology chip. So I believe that their chip is highly evaluated from the sense as everywhere that ARM has been used. And one announcement that was done in May 2023 by ARM is the computing platform for mobile. And ARM's latest edge technology CPU has been built in, so for example in gaming. immersive gaming experience which you have ever experienced before, that kind of technology has been also shared since then. And the latest GPU is also mounted, therefore... something that close to your life technology has been used by the ARM technology. And the next is the Nvidia's announcement that they have announced the ARM-based supercomputer recently back in May. 2023, and that they have adapted the latest chip. And through this supercomputer, we believe that medical and scientific research is going to be making good progress, and also Europe's most energy-efficient systems, according to NVIDIA. So this is also a great event that we have seen. ARM's IPO plan is going very smoothly, and today I am not going to share the financial status or business progress of ARM from me, but once public filing is made, then I believe some information is going to be available so that I would like you to wait for that. And here it's titled AI Reshapes the Industrial Landscape because there are some companies that we have invested in April to June quarter. And there are three companies that I would like to share with you today as an example. Basically it's logistic related and because AI is revolutionizing every industry and actually internet, is basically the advertisement model from the business point of view. But advertising revenue is 0.3 trillion, but 1.8 trillion for logistics. So it's quite a difference. of the logistic market size as a percentage of GDP in United States. In Japan, a bit smaller size, but 1% advertisement, but 9% logistics. So it's quite similar to United States. And the AI actually redefine, so they have a capability of redefining all the sectors industry so that we believe the logistics can be redefined in many aspect. And we've been making some investment based on that hypothesis. And we've been... We invested in those three companies.