Basic Management Approach
The Company is guided by its corporate philosophy of “Information Revolution — Happiness for everyone.” The Company aims to maximize enterprise value and to be a provider of essential technologies and services to people around the world through its endeavors in various businesses in the information and technology industries.
Target Management Indicators
The Company focuses on maximizing enterprise value over the medium-to long term by expanding adjusted EBITDA*1 and the value of its investments.
Medium- to Long-term Strategies
The Company seeks to be a primal instrument of the information revolution where IT transforms societies and lifestyles, and thereby contribute to the well-being of people over the long term. To this end, it is vital for the Company to tirelessly transform itself along with the change of times, without fixating on specific technologies or business models. With this in mind, the Company is implementing the Cluster of No.1 Strategy, a unique organizational strategy.
The Company is also stepping up strategic investment through participation in SoftBank Vision Fund, with focus on “Singularity,” the point where artificial intelligence (AI) exceeds human intelligence. Expected to occur within this century, Singularity will be humankind's greatest paradigm shift.
The goal of the Cluster of No.1 Strategy is to form a diverse group of companies with outstanding technologies or business models in particular fields. It encourages these companies to continuously evolve and grow in tandem by creating synergies based on capital ties and shared vision, while making decisions independently. As a strategic holding company, SoftBank Group Corp. will influence the decision-making of companies in the Cluster of No.1 Strategy. However, realizing the importance of maintaining diversity and independence, the Company will not require ownership of majority equity interests or integration of brands. Incorporating many diversified companies in this way will enable the whole Group to change and expand business lines flexibly as society evolves and continue to grow over the next 300 years.
The Company also expects the advent of Singularity to greatly expand existing business models and create new industries, thereby redefining every industry. To grasp these huge opportunities, SoftBank Vision Fund started its operation on a full scale in 2017. The fund aims to conduct large-scale, long-term investment in companies and platform businesses that have the potential to bring about next-generation innovation. The Company aims to achieve sustainable growth by realizing the Cluster of No.1 Strategy, while pursuing maximum investment returns from SoftBank Vision Fund.
Business Environment and Important Management Issues
Success of SoftBank Vision Fund
SoftBank Vision Fund is managed by the Company's wholly owned subsidiary SB Investment Advisers (U.K.) Limited (“SBIA”), which is based in London in the United Kingdom and registered with the Financial Conduct Authority. SBIA will endeavor to guide SoftBank Vision Fund toward success and maximize the returns of the fund.
Significance of the fund
While receiving advice from advisory companies in the U.S and Japan, SBIA manages the fund's portfolio companies and undertakes the decision-making process for the fund's investments. SBIA receives management fees and performance fees in relation to the investment activities of the fund.
SoftBank Group Corp. has invested in the fund as a limited partner. SoftBank Group Corp. believes that participation in the fund not only enables participation in large-scale, long-term investments that include contributions from other limited partners, but also enables sustained investment activities that reduce financial burden and curb the availability of credit compared with investment activities conducted using only its own funds.
SBIA selects and evaluates candidate portfolio companies and monitors portfolio companies under the leadership of Rajeev Misra, who is a director of the Company and serves as CEO of SBIA, and approximately 10 managing partners, from a variety of professional backgrounds including investment banks, venture capital, and technology companies. An investment committee established at SBIA decides on the investments of SoftBank Vision Fund, and Rajeev Misra and the Company's Chairman & CEO Masayoshi Son participate in the committee. SBIA and the advisory companies had 159 employees as of March 31, 2018. The Company is endeavoring to expand the organization as the scale of the fund's investment increases.
SoftBank Vision Fund will seek to invest in various companies, ranging from technology start-ups to major, multibillion dollar companies looking for large investments to fund their growth, regardless of whether the companies are listed or unlisted or the size of the shareholding ratio. With the benefit of having USD 91.7 billion total committed capital in the SoftBank Vision Fund (as of March 31, 2018), SBIA believes that SoftBank Vision Fund will be able to invest in a variety of companies with high corporate values. Also, the fund has the ability to pursue medium- to long-term investment returns due to its long fund period.
Pursuing maximization of the value of portfolio companies
SBIA will seek to maximize the value of portfolio companies by promoting the growth of portfolio companies through a wide range of support, as well as carefully selecting investees. During these investment activities as a whole, SBIA is able to utilize the expertise of the Company in the information and technology fields.
Sound financial management and continuous improvement of financial position
The Company is enhancing its functions as a pure holding company by shifting from financial management that is dependent upon cash flows from telecommunications services, while continuing to make strategic investments through participation in SoftBank Vision Fund. To sustain support for such initiatives, the Company will require financial management that has even greater stability than before. To raise funds to contribute to SoftBank Vision Fund, the Company plans to utilize and sell marketable securities held. The Company will be carefully assessing the impact to its existing stakeholders when implementing these fund-raising measures. In its effort to conduct sound financial management and continuously improve its financial position, the Company seeks to maintain a certain level of financial indicator for each business: net leverage ratio*2 for the domestic telecommunications business, and debt coverage ratio*3 for other businesses.
Expansion of Arm's shares of growth markets
The technologies of processor designer Arm are highly energy efficient and currently used in over 95% of the main chips for smartphones. The global semiconductor market, to which Arm's products and services belong, is expected to grow steadily. Arm plans to further increase its research and development to expand its shares of other markets with growth potential, such as network infrastructure, servers, automotive, the Internet of Things (IoT), and AI, while maintaining its overwhelming share of the smartphone market as well.
Steady improvement of Sprint
Although the U.S. mobile telecommunications market is approaching maturity, competition for customer acquisition has been intensifying since the introduction of unlimited data plans by competitors in the mobile telecommunications industry. Amid these conditions, Sprint has endeavored to enhance network quality and customer value by taking maximum advantage of an extensive spectrum and endeavored to increase net sales by increasing the number of postpaid and prepaid subscribers and stabilizing ARPU. From the fiscal year ending March 2019, Sprint plans to advance a strategy to differentiate from other companies by significantly increasing investment in telecommunications equipment (cash base) and improving network quality even further. In addition, Sprint is continuing to reduce costs by increasing operational efficiency.
Further, on April 29, 2018 (EST), Sprint and T-Mobile US, Inc., entered into a definitive agreement*4 to merge in an all-stock transaction (the “Transaction”). The Company believes the Transaction will benefit its shareholders by giving the Company an equity interest in a stronger and more competitive combined company that itself will benefit from significant expected synergies, which will be generated by the cost reductions and economies of scale expected to result from the Transaction.
Steady earnings growth and stable cash flow generation in the domestic telecommunications business
While mobile telecommunications market in Japan is one of the most stable markets that boasts strong profitability from a global perspective, the business faces issues to address in recent years, including an emergence of MVNOs*5 and advanced competition to acquire customers. In addition, Japan market as a whole faces the problem of a population decrease due to the aging population and lower birth rates. Tasked with achieving steady earnings growth and stable cash flow generation amid such structural problems, SoftBank Corp., the mainstay of the domestic telecommunications business, is working to expand its customer base and to advance the fostering and expansion of new businesses in fields outside telecommunications.
To enlarge its customer base, SoftBank Corp. is adopting a multi-brand strategy comprising three brands — SoftBank, Y!mobile, and LINE Mobile, and precisely to address various customer needs. Further, SoftBank Corp. is creating earnings opportunities that expand interactions with customers from individuals to households by offering Home Bundle Discount, which provides discounts on bundle subscriptions for mobile communication services and broadband services such as SoftBank Hikari, and by offering Home Bundle Discount Denki Set, which provides discounts on bundle subscriptions for telecommunications services and electricity services such as SoftBank Denki. In addition, SoftBank Corp. is developing and offering new business solutions by leveraging the analysis of big data that acquires through the operation of telecommunications services.
Moreover, SoftBank Corp. is endeavoring to differentiate itself from competitors in the same industry by deepening coordination with Yahoo Japan Corporation. It will endeavour to maximize the earnings of the Company by securing new sources of revenues through the provision of coordinated services in such fields as e-commerce, content, and sharing economy.
In addition, SoftBank Corp. will advance the Beyond Carrier strategy, which aimed to foster and expand new businesses outside the telecommunications field. It will be conducting strategic investments with a view to discovering new growth engines while taking maximum advantage of the potential of such business assets as favorable relationships with customers and other stakeholders, telecommunications networks, stores, and sales expertise. At the same time, SoftBank Corp. will take advantage of the Company's ties with outstanding technology companies worldwide to roll out next-generation services.
- *1Adjusted EBITDA of reportable segments are calculated as follows.
Segments excluding the SoftBank Vision Fund and Delta Fund segment:
Adjusted EBITDA = segment income (loss) + depreciation and amortization ± other adjustments
SoftBank Vision Fund and Delta Fund segment:
Adjusted EBITDA = segment income (loss) + depreciation and amortization ± unrealized gain and loss on valuation of investments ± other adjustments
- *2Net leverage ratio = net interest-bearing debt / adjusted EBITDA. Net interest-bearing debt = interest-bearing debt − cash position.
- *3Debt coverage ratio = net interest-bearing debt / equity value of shareholdings.
- *4The Transaction is subject to the approval of both companies' shareholders, regulatory approvals, and other customary closing conditions. The Transaction is expected to close no later than the first half of 2019. Upon completion of the Transaction, the combined company will become an equity method associate of the Company, and Sprint will no longer be a subsidiary of the Company.
- *5Mobile virtual network operators. MVNOs provide mobile telecommunications services by leasing networks from telecom carriers.
Company names and abbreviations used in this page, except as otherwise stated or interpreted differently in the context, are as follows:Each of the following abbreviations indicates the respective company, and its subsidiaries if any.
SoftBank Group Corp. : SoftBank Group Corp. (stand-alone basis)
The Company : SoftBank Group Corp. and its subsidiaries
Sprint : Sprint Corporation
Arm : Arm Limited