(1) The Company's Basic Management Policy
The Company is guided by its corporate philosophy of “Information Revolution—Happiness for everyone.” The Company aims to be a corporate group that maximizes enterprise value while providing essential technologies and services to people around the world.
(2) Target Management Indicators
Under the Company's management system, SoftBank Group Corp. (“SBG”), a strategic holding company, exercises overall control over its investment portfolio comprising the Group companies. Based on this system, the Company focuses on the maximization of shareholder value (calculated as equity value of holdings – net interest-bearing debt) over the medium to long term, and endeavors to increase the equity value of holdings.
(3) Medium- to Long-term Strategies
The Company seeks to seize the opportunity of information revolution, where IT transforms societies and lifestyles, as a major growth opportunity, and thereby contributes to the well-being of all peoples over the long term. To this end, it is imperative for the Company to identify the changes in social needs quickly and to continuously transform itself while optimizing the structure of the SoftBank Group (the “Group”) to maximize the benefit from the technologies and business models that will be the driving forces in the future. At present, the incorporation of artificial intelligence (AI) into a variety of business models is starting to change value creation and will fundamentally redefine most of the industries. To ensure that the Company captures the huge opportunities arising from the market expansion and the creation of new industries driven by AI utilization, the Company is implementing the Cluster of No.1 Strategy, a unique strategy for orchestrating the organization, and is stepping up its investment activities, mainly through SoftBank Vision Fund, established in 2017.
Cluster of No.1 Strategy
The goal of the Cluster of No.1 Strategy is to form a diverse group of companies with outstanding technologies or business models in respective fields. It encourages these companies to continuously evolve and grow by creating synergies based on capital ties and shared vision while making decisions independently. As a strategic holding company, SBG will influence the decision-making of the group of companies formed under the Cluster of No.1 Strategy. However, the Company will not require ownership of majority equity interests or integration of brands, as it realizes the importance of maintaining independence. In this way, by diversifying the Group's portfolio with many different types of companies, the Company aims to change and expand business lines flexibly and to continue to grow over the long term.
(4) Business Environment and Important Management Issues
The management of SBG recognizes SoftBank Vision Fund, Arm Limited, and SoftBank Corp. as its most important subsidiaries in terms of the extremely large-scale investments made therein and the impact each has on SBG's consolidated earnings. Important management issues of each subsidiary are as follows.
a. Success of SoftBank Vision Fund
SoftBank Vision Fund (“SVF”) is an investment fund based in London that aims to conduct large-scale, long-term investments in companies and platform businesses with the potential to bring about next-generation innovation. SBG is participating in SVF as a limited partner. In addition, SBG's wholly owned subsidiary, SB Investment Advisers (UK) Limited (“SBIA”), which is registered with the United Kingdom's Financial Conduct Authority, acts as a manager of SVF and is entitled to receive management fees and performance fees, each of which is measured by reference to the investment activities of SVF. SBIA aims to maximize SVF's returns through the following efforts.
ⅰ.Expansion of management system
The operations of SBIA are managed by Rajeev Misra, who is a director of SBG and serves as CEO of SBIA, and professionals from a variety of fields including investment banking, venture capital, and technology. SBIA is expanding its human resources with the aim of securing an investment and operational management system to match the expansion of the investment scale under management. The number of employees of SBIA, located across eight countries, was 297 as of March 31, 2019.
ⅱ.Diversified medium- to long-term investment centered on “unicorns”
SVF is characterized by its huge amount of committed capital, USD 97.0 billion (as of March 31, 2019), and its long fund life (in principle until November 20, 2029). SBIA leverages such distinctive features to invest mainly in private companies with estimated corporate values of more than USD 1 billion, colloquially known as “unicorns”. By conducting medium- to long-term investment in companies that have established presence in their respective business fields, SBIA curbs the effect of short-term market fluctuations while pursuing medium- to long-term returns.
ⅲ.Pursuing maximization of the value of portfolio companies
SBIA seeks to maximize the equity value of the holdings of SVF by promoting the growth of its portfolio companies through a wide range of support, as well as carefully selecting investments. For example, SBIA supports the development of new business opportunities by encouraging collaboration among portfolio companies. The Group provides its expertise and business infrastructure in the information and technology fields as requested by SBIA, in accordance with the parameters set forth in the SVF constituent documents.
b. Growing Arm's business success into new markets
The technologies of processor designer Arm Limited (“Arm”) are highly energy efficient and, as of December 31, 2018, were used in over 95% of the main chips for smartphones. Currently, Arm is in a period of accelerated investment in R&D and is reinvesting almost all of its revenues back into the business. In the two years following SBG's acquisition of Arm, Arm increased its R&D headcount by 34% (as of March 31, 2019). This accelerated investment period will continue for the next few years, but Arm can increase its profitability as revenues from the new technologies that Arm is developing start to flow. The global semiconductor market, to which Arm's products and services belong, is expected to grow steadily over the long term, driven by the deployment of new technologies such as AI and computer vision in emerging markets including autonomous vehicles and the Internet of Things (IoT). In the near term, however, the semiconductor industry is expected to grow more slowly than the long-term average. This slower growth is primarily related to a flattening in the growth of smartphones, and slower growth of the Chinese economy. As Arm is developing the technologies needed for many years in the future, it plans to continue to increase its research and development in order to execute the following long-term strategies:
- Maintain market position in areas where it is already strong, such as smartphones, consumer electronics, and embedded computing;
- Increase royalty per chip by increasing value where it can provide more technology (graphics processors and machine learning processors) or more valuable technology (one that increases performance and security);
- Establish market leadership in emerging technology areas including autonomous vehicles, IoT, and augmented reality headsets;
- Introduce new business models to change competitive landscape, for example, directly licensing its technology to OEMs and cloud companies; and
- Create new revenue streams from IoT-managed services such as device management, connectivity management, and data management.
c. Steady earnings growth and stable cash flow generation at SoftBank Corp.
In Japan's telecommunications market, competition among telecommunications carriers is becoming increasingly fierce, as a result of further competition based on government policies that promote competition and expected new market entries. On the other hand, the use of IoT and AI is rapidly spreading in telecommunications services. Amid such an environment, to continue to achieve steady earnings growth and stable cash flow generation, SoftBank Corp. is implementing the measures below under its Beyond Carrier Strategy. Taking advantage of its operational assets developed thus far, SoftBank Corp. aims to achieve further growth in the telecommunications business through expanding its customer base and to expand businesses into new fields through leveraging the Group's expertise, in order to strengthen and establish its foundations of revenues.
ⅰ.Further growth of the telecommunications business
1)Expansion of the customer base
- Achieve further smartphone penetration
- Cater to diverse needs through offering three brands: SoftBank, Y!mobile, and LINE MOBILE
- Create earnings opportunities through the provision of discounts on bundle subscriptions that include services such as Internet services and mobile telecommunications services
2)Upgrading of the telecommunications network
- Build a highly safe and reliable network that operates in a stable and continuous manner
- Build and operate a 5G-compatible network efficiently
ⅱ.Development and expansion of new business fields
- Develop innovative services by utilizing operational assets of its telecommunications business and the Group's connections with other global technology companies and by participating as an incubator in the development in Japan of SVF's portfolio companies and the Group's business partners
- Provide services and solutions through further collaboration with Yahoo Japan Corporation
Construction of stable financial foundations
The Group has transitioned its financial management that was reliant on cash flows from the telecommunications business, to that a strategic investment holding company, SBG, exercises control over its investment portfolio comprising subsidiaries and other Group companies. Given that this business model is susceptible to the impacts of fluctuations in the equity value of holdings, including changes in the stock market, SBG aims to ensure safety by conducting stable financial management that curbs such impacts as much as possible. Specifically, SBG has set as an important indicator its non-consolidated LTV (loan to value, the ratio of liabilities to holding assets; calculated as adjusted net interest-bearing debt* ÷ equity value of holdings). SBG aims for LTV, with an upper limit of 35%, to be less than 25% during normal financial market conditions. While being mindful of this indicator, SBG aims to control liabilities appropriately in accordance with the status of investment activities, including new investments, divestments, and increases in the value of investment assets.
SBG endeavors to secure its revenues—such as dividend income from subsidiaries and other Group companies and distributions received from SoftBank Vision Fund as a limited partner—and flexibly monetize its investment assets through divestments and asset-backed financing while undertaking debt financing. In this way, SBG aims to secure ample cash and cash equivalents to redeem bonds for at least the upcoming two years and to maintain safety.
- *Excludes interest-bearing debt attributable to entities that are managed on a self-financing basis, including the listed subsidiaries and associates SoftBank Corp., Sprint Corporation, Yahoo Japan Corporation, and Alibaba Group Holding Limited, as well as Arm Limited, SoftBank Vision Fund and Delta Fund, and Brightstar Global Group Inc.