Softbank Group Corp

Thank you very much for waiting, everyone. Now, we would like to start the SoftBank Group Corp Earnings Results Announcement for the nine-month period ended December 31st, 2023. First of all, I would like to introduce today's participants. From left, we have Yoshimitsu Goto, Board Director, NCFO. Kazuko Kimiwada, Corporate Officer, Senior Vice President, and the Head of Accounting Unit. Navneet Govil, SB Investment Advisors, SB Global Advisor, CFO. And Jason Child, Executive Vice President, and CFO. Jason is attending through Zoom. Today's announcement is live broadcast over internet. Now I would like to invite Yoshimitsu Goto to present you the earnings results and business overview. Good afternoon, everyone. My name is Goto. Thank you very much for your time today. First of all, I would like to express our deepest sympathies to those who have been severely affected by the Noto Peninsula earthquake on January the 1st, 2024. We are heartbroken over the news of serious damages to the region and people still living in difficult situation. We, SoftBank Group, would like to do our best to support the disaster area through internet services we provide, including mobile phones, LINE, and Yahoo, so that the affected people will be able to be back to the normal life as soon as possible. About a year ago, just about a year ago on New Year's, I was there in Noto with my family, And I was so impressed with the great beauty of the nature there and the great people there. And we came back. And actually, that place I was there a year ago has been affected by this disastrous earthquake. So I very much hope that the affected places is going to be recovered soon. Now let me start our highlights for the quarterly results announcement. Third quarter 2023, we have five highlights. First, significant improvement in consolidated results with 950 billion yen net income. So profit in quarter for a while, and I'm a bit relieved to have such a news for you. And also acquired 1.1 trillion yen team over shares for no additional consideration. And three, net asset value increased 2.8 trillion yen quarter over quarter to 19.2 trillion yen driven by the increased value of ARM. Fourth, portfolio shift from Alibaba to AI with ARM as the core. We've been working on this for the past few years. Our asset was mainly focused on Alibaba, but now that we are clearly shifting to AI, last but not least, significant improvement in vision fund performance. And now I'd like to start with consolidated results. As you see, I want you to look at net income, 950 billion yen. 1.7 trillion yen of the increase compared to last quarter, same quarter last year. And the draper for that is actually 424 billion yen of the growth and gain in investments. And this was increased by 936 billion yen. Gain and loss on investments and net income here. The lines are the quarterly changes and in the past four quarters We've been seeing the net loss, but this quarter we are able to show you the big improvements here. And the main driver for that is the orange lines, which is the gain and loss on investments. Especially this first quarter to second and third quarter, we are making very steady improvements quarter by quarter. I would like to be a little bit more detailed in terms of the gain and loss on investments. So we have SPG investments, and also we have a vision fund investment. In this slide, you can see the breakdown in between those two. So blue portion is the vision fund investments activities, and orange are the investments from the holding company, SoftBank Group. And you see pink lines. This is the consolidated results. And 424 billion of the gains are recorded this time. And the next agenda is the acquired 1.1 trillion yen of the T-Mobile shares. And what happened was that Originally, we invested in Sprint, and after the merger between Sprint and T-Mobile, we had several discussion, negotiation with the counterpart, and this is one of the contingent consideration. T-Mobile share, when the condition of the trading 45-day VWAP was over $149.35, then that leads to about 48.8 million shares equivalent. So this is the earn-out term, and this was actually achieved as a result. As of the present share price, it was 1.5 trillion yen, and we were able to acquire those. Sprint investment. We had suffered a lot as well after the announcement of acquisition. Many considerations were made from many people, and many complaints or criticism was also there as well. And also, the management team and actually the actual hands-on people have been working on to make these investments a better one. And back then, actually, we knew it's going to take a longer time. But also, actually, that increase or enhancing the value was dramatic after the acquisition. So originally, 3.3 trillion yen of the investment was made. And the return, as of the end of December, this rose to 5 trillion yen. Equity return was 3.4 trillion yen. So equity IRR-wise, 26%. MOIC, or multiple investment capitals, was 8.2 times. So I believe this project or this investment was very good in terms of economy. And also, recent figures-wise, As of the recent share price, well, it's actually slightly improving as well. So U.S. telecoms that I want to share with you some history. Right before the acquisition of Sprint 2012, AT&T was a king, and Verizon was very much a second player. Sprint was far behind And actually, T-Mobile was even smaller back then. So the three-player and number four-player was merged together. But as of December 31st, you can see the result, what happened on your right-hand side. New T-Mobile has actually surpassed AT&T and Verizon. And not only that in the United States, but also in the world. Actually, the T-Mobile market cap, it is the number one in the world, as well as in the United States. I believe that the management is doing a great job in T-Mobile. And Deutsche Telekom T-Mobile, they are also having a great effort into the T-Mobile, too. And T-Mobile share price, 2020, it was $82.00. And record high since IPO was $165. It was up by 99% since the merger. So I believe that this was a great result from the great management effort. And here are the key indicators. Thank you. One of the most important KPIs are net asset value, loan-to-value, and cash position. Net asset value as of the end of December, 19.2 trillion yen. So we believe that assets grow quite largely. Loan-to-value 11.5%, continuously keeping a very safe level. Cash position? Slightly decreased because we have some investment activities, but still 4.4 trillion yen. And as a finance policy? to cover at least two year equivalent of the debt redemption. Actually, this cash position covers over four years of the debt redemption. So this is also another safe level of the KPI. Next asset value, 2.8 trillion yen increased. And I want to discuss a little bit about the breakdown. The share price increase, 4.2 trillion was from the share price increase, mainly driven by arm growth, 3 trillion yen. And the 0.4 trillion yen is from T-Mobile and some others. In the past three months from October to December, yen to dollar actually changed the trend from the yen depreciation to yen appreciation. So that is negative for the net asset value calculation-wise. And this was minus 1.1 trillion yen. And still the 2.8 trillion yen of the increase has been secured for net ascent value. So I believe that the share price was a main and very important driver.

Now let me talk about ARM. Earlier today in Japan time, they announced their financial results. And share price exceeded $78, which is record high since IPO. And today's price is about the same. IPO price was $51. So share price, so increased by 54.1% in a very short period of time, great performance. And this has a significant positive impact on our share price, especially today. Let me talk about investment return on ARM, like I explained about T-Mobile earlier. In 2016, I believe, we made an investment at 3.3 trillion yen. But equity portion was bigger. We had a great cash position, so we didn't have to borrow too much. And equity was 2.3 trillion yen plus some leverage. That was when we made investment. As of December 31st, 11 trillion yen of return. and equity grew from 2.3 to 10 trillion equity IRR 21% and MOIC 4.2 times which is a great performance for a big ticket item not only that and the three, excuse me, until the end of December 31st, looking at most recent share price, which was up. So equity IRR even increased more and for ARM, we expect more growth from ARM and ARM is the biggest contributor to global AI evolution. So we have the highest expectation from ARM than anybody else. And looking at the Softbank Corporation, which is a mobile carrier in Japan, they announced the financial results yesterday. Not only their business performance, but also their share price performance have been very good. And in fact, mobile market is on a good trend in Japan at the moment. And IPO price of SoftBank Corporation was 1,500 yen. And the record high since IPO was 1,900. Slightly declined recently, but still record high price was up by 33% since IPO. Right after IPO, maybe we had caused some concerns among the investors, but SoftBank Corporation focuses on dividend yield, which is 4.9%. And SPG, in fact, received a dividend almost 1 trillion yen. So not only the share price, but also the dividend we receive have been the value that we have been enjoying with SoftBank Corporation. Now, Vision Fund. For the three consecutive quarters, they made a profit, which is really reassuring. Two years ago, we had some tough time, but since then, right after tank, if you will, they have been steadily improving their performance. Cumulatively speaking, again, we have seen improvement continuously, and it's been recovering to negative 2.9 trillion, almost there, almost there. So again, this is cumulative number, including Vision Fund 2 and LATAM. loan to value in the last 12 months we have been very at low level which is good because we focused on defense so in the last 12 months or so the LTV have been about 10% but our policy or guide line is 25 percent 25 cent 25 percent itself is very safe less than half of 25 percent is current level we'll come back to the point what we're going to do with this low ltv as an investment company we have more opportunity for investment i think that's what uh the number can tell cash position. We maintain high level. Continuously we keep high level. Of course, as an investment company, we want to have good cash position to make sure we are not going to miss investment opportunity. as an investment company again we will finance and we will invest in mid long term sometimes we may focus on return and sometimes we may focus on make investment but we make sure that we maintain a certain level of cash position always impact of Forex as of the end of September one dollar was 149 but as of December 31, up to 141 yen. So higher yen has an impact on NAV by 1.1 trillion yen. On accounting side, the higher yen had negative impact on equity, but positive impact on consolidated net income. By the way, In January, the yen has been weakened. So I think it's around 148 yen per dollar. So at the moment, this negative empath might have been gone. Now shift from Alibaba to AI. In the past, our portfolio was mainly built by Alibaba, but we have been shifting the assets from Alibaba to others. And I think now we are at the stage of completion of shifting. this chart compared as of December 31st 2019 and December 31st 2023 so four years ago Alibaba accounted for 50% of assets held ARM 9% Vision Fund 12% that was four years ago and as of December 31st four years later Alibaba effectively zero ARM account for 32% up from 9%. Vision Fund, likewise, as they have been investing more, increased from 12% to 38% in terms of percentage of our assets held. So we have done dynamic shift. Even though net asset value or gross asset value have not changed dramatically, but the content changed dramatically. What it means is we have gone through a shift from a robot to AI-centric portfolio. Arm, obviously, and Vision Fund have been investing in opportunities for businesses that contribute to AI evolution. And SoftBank Corporation, although they are mobile operator, they are really committed to themselves to become AI-centric company. And we can deliver synergies from those invested businesses. and that should bring us an opportunity to make new investment. At the same time, as AI industry grows, those business should grow along with AI evolution going forward. And talking about Alibaba, when we had a lot of Alibaba before, we were China-centric. But now we have gone through the shift. The regional composition changed dramatically. So we have been able to mitigate risk of being China-centric. Four years ago, 54% accounted for the regional composition, the red part, China, and now only 8%. and 43% EMEA, including ARM, and also Japan, other APEC, 15% and 9% respectively. So we are well balanced in terms of geography. By the way, North America, 21%. So looking at those changes from different angle, looking back the history, as you can see, Alibaba have been going down whereas ARM have been going up so it shows a shift obvious shift from Alibaba to ARM and about net asset value another important aspect of a NAV is as follows The timeline starts from 1998 through 2023. I joined SoftBank 2000. I think this is the history of mine in SoftBank, if you will. I have seen ups and downs. Important message here is we are on upward trend recently. not only to SoftBank Group, but also market condition and the future outlook have been very positive. And that have had a positive impact to us as well. We expect, we hope at least that next 12 to 24 months should be growth term. And not only NAV, but also market cap is another important indicator that we need to always keep in mind. And NAV discount is 52%. NAV is 19.2 trillion yen, but market cap was only 9.2 trillion. So again, Now the discount is 52%, which is really a serious thing that we need to look at. But today's share price was $7,350. And at that rate, now the discount would be 40-something percent. But of course... NAV itself should increase even more as ARM grows. So we have to keep watching NAV discount and we need to figure out how we can narrow the width of NAV discount.

Here on, we would like to discuss about ARM. In one word, it's doing great. You see the results announcements and you may also check the numbers announced this morning in Japan time. The cumulative number of shipments of ships. Actually, this graph is actually what we were using when we were discussing to acquire arms. And this was the kind of picture we were seeing at the time of the acquisition. Exponential graph is something that very much overlap with what is actual was with our expectation and very happily that they were able to show this great numbers of the arm-based chips shipped. And also great strategy discussion with industry leaders making progress. This is just one example, or three examples to be more specific. For example, the Renaissance Electronics adopted ARM-based technology for the high-performance microcontroller, which delivers real-time operation. Also, Mediatek adopted ARM-based CPU and GPU for Dimensity 9300 chip for high-performing smartphones. Microsoft also announced that they developed its first CPU for cloud servers which is ARM-based and performs 40% higher than current generation. So with those major players in the industry, We are able to having great discussions and making a good progress in the strategic move. With such a great progress, quarterly revenue is continuously reaching record high in $824 million. And also the loyalty revenue for the quarterly basis, this is the highest ever. And the quarterly non-GAAP operating income, a quarter 17% increase. And earlier this morning, also disclosed the guidance and business forecast. And as a result of this guidance updated, the range in between 3,155 million to 3,205 million and very steadily making a performance and very much expecting that it's going to be following as it has guidance and this is the guidance for the business performances announced earlier and Fourth quarter revenue is expected between 850 to 900 million. Full year basis, 3.1 billion to 3.2 billion. You have some blackouts underneath. This is the prior guidance range. And actually, the upper... a range was just about 3 billion. And actually this time, the range of the smaller one is exceeding what was previously announced as an upper range of the prior guidance. So this is great news and great guidance that we are very happy to hear such a great progress. And how and what kind of growth driver will be the kind of player for the arms future. And there are four big agendas. One is the royalty revenue. And next is subsystem, which I will be putting some more color on this later, and compute for AI. And also, the world's largest ecosystem to support such three agendas. So these are the kind of the main driver for the future growth of arms. First, royalty revenue. Because the demand is increasing in semiconductor, it is expected that 7% growth for the industry itself. In this industry, I'm actually reaching to a variety of the markets, not only to the smartphones. For example, PC, automotives, infrastructure, those can be a very attractive market and that can be another market share that the Army is going to be able to aim for. In addition to that, loyalty rates itself is increasing and that's another expectation we'll be able to add on. So on the various devices, complicated computing is required such as generative AI and so on And that requires even more higher quality chip. And along with the need for the higher quality chip, rates for the loyalty is going to be also increased. So the quantity is going to increase, and at the same time, loyalty rates increase. As a result, you see a good growth in loyalty revenue. And subsystems, or the growth from subsystems, for the designing of the semiconductor chip is becoming even more complicated. For those licenses designing, using such chips, but not of each individual IPs, but ARM provides integrated and verified configurations of ARM IP, and such needs are increasing. And users will be able to minimize the time necessary by having such a subsystem. And for those that... Using this subsystem does not require developing from each individual IP so that you'll be able to reduce the cost and also the time to market. And right now ARM is having a great contract with the five companies so far, of which are the Microsoft, Microsoft Azure Cobalt CPU for cloud servers are developed using ARM-based subsystem, which delivers 40% higher performance per word. Even with other customers, they'll be able to reduce the time to market and also be able to still develop the complicated chips. And third, Growth from compute for AI. To do the generative AI developments or machine learning, energy efficiency is even more important. So server to PC to camera, smartphones, in anywhere, arm-based chip has been used. because of such energy efficiency. For example, recently, Samsung in Korea just announced the smartphone using the latest ARM chip, ARM-based chip. That actually enables live translations or the high quality computing performance. With such elements, actually, we have a larger ecosystem to support that. And Arm has built out the world's largest collection of companies who work together to make Arm-based chip design successful. Many companies actually communicating closely together in that this ecosystem is built. and with those companies collaborating and have all the parts and process ready, then that we'll be able to have this chip. So inter-compatibilities with the other companies apart is also very important. So not only the licensee, but also for those customers who are not our licensee, actually we are providing the compatible test free of charge so that we are trying to build the infrastructure which can run AI-based chip properly. Right now, about 70% of the world population are using ARM-based products in many ways. Smartphone probably is the easiest example, and not only that. Many devices around you are actually using arm-based chip or arm-based products. And design and develop. So those people who are in the process of developing, developers involved in developing arm-based chip is 15 million or in the back. And at the same time, more than 1,000 partner companies are involved in shipping ARM-based chip. So with such great collaborations and a great ecosystem, we are successfully producing or we are successfully providing ARM-based chip. In the beginning, I mentioned about the share price of ARM, and recently, We've been seeing a great development of the share price as an investor of Arm, but in the future, actually, we are hoping and we are expecting that there are even more room to grow for Arm's future and Arm's business future. Rene, Arm CEO, recently attended and spoke at the CES, and he said AI is everywhere. And you can't run AI without. I believe this is really the kind of time now that we're seeing such a trend, and we are very much convinced that AI is really essential for many ways. And now I would like to turn to investment strategy and also about vision funds. Vision funds gain and loss on investments in the past three months, Vision Fund 1, Vision Fund 2, and LATAM funds. Major part is from the Vision Fund 1 and 2, but those three funds are actually showing us a very good and steady performance here. With total of those three funds over 600 billion yen or above of the gain. And for breakdowns for Vision Fund 1 compared to Vision Fund 2, each ticket size of each portfolio is relatively large and also mainly invested in later stage unicorns. There are many successful cases in the past. For example, Arm is one of them. Coupon is also a good example. And now that we're seeing a good and strong performance from ByteDance, so Vision Fund 1 is recording $1.9 billion of the gain. Vision Fund 2, $1.7 billion of the gain. And this is mainly due to Share price rise in public assets and also having up rounds of the financial rounds. Those are the major driver for this result of Vision Fund 2. In terms of Latin, share price rise in public assets is a good contributor. For Vision Fund 2, I would like to add a little bit more color Because Vision Fund 1 has a longer history. Vision Fund 2 was about three years ago that we have started and actually tried to distribute the money for investments in many places. We had some difficulties because of the environment and the market situation. But if you look at this slide, on your right-hand side, this is the current. When you see the improvement in value, that's the blue bar, and those marked down were the red bar on the far right. Markup public companies are eight companies, and in dollar terms, $1,158 million. And marked down, The bottom of the red bar, you see nine companies have marked down. In dollar term, 287 million. So net, actually that the more companies marked up and also the more amounts are marked up compared to mark down. And private companies, 88 companies, 88 private companies' value are increased. In dollar term, 1.7 billion. Markdown companies in private and 74 companies in dollar term, $929 million. So compared to the second quarter 2023, we have largely improved the quality of the portfolio companies. The main driver for the private company value up is some improvements in business, also the peers' improvement as well, but actually the main driver was the round-up of the financial rounds. And this is the by-quarter of the gain and loss on investments, and in the past three quarters consecutively that they're increasing or improved. And the cumulative-wise, we are almost above the order. So very close to the above the water now.