Message from Our Chief Risk Officer (CRO)—SoftBank Group Report 2024

When I joined SBG in 2020, our investment business, especially SVF, was thriving and posted the highest consolidated net income ever recorded by a Japanese company. However, the situation has changed drastically since then, and a period of significant deficits followed. The composition of our holdings has also changed. In 2020, Alibaba was the cornerstone of our portfolio, but Arm, once targeted for sale to NVIDIA, went public in 2023 and is now our core holding. Throughout my tenure as an auditor, I have seen many companies, and it is hard to find a company that changes on such a scale and with such speed. In addition, as an accountant, I found it unprecedented that understanding a company required more than analyzing financial statements. Typically, I can understand the substance of a company by looking at its accounting profits and assets, but in our case, that is not enough to decipher the true nature of the company.

In this context, I became acutely aware of the complexity and importance of the Group’s risk management. I began by analyzing our assets and liabilities to understand the actual situation. I then gathered information from all sources, including each division and subsidiary, to identify material risks and consider how to address them. In fiscal 2023, we made progress in shifting our holdings to an AI-centric portfolio and resumed investments aimed at moving to offense mode. Meanwhile, our business environment remains highly uncertain due to the turmoil in international affairs. I am dedicated to considering risks from all aspects and support the Company’s sustainable growth.

Alibaba used to be a major holding, and SVF also had many other investments in Chinese companies, so the Risk Management Office has focused on swiftly identifying various risks, such as tightening regulations in China and its conflict with the U.S. We have reported to the Board of Directors and GRCC the percentage of our total portfolio that is invested in China and the impact on the Company if the value of our holdings were to plummet. Currently, our holding in Alibaba is virtually zero, and our Chinese investments as a percentage of total holdings have dropped. Therefore, I believe the China risk has been significantly mitigated.

However, there are new risks. Our portfolio is being transformed into a group of AI-empowered companies, with Arm at the core. Sparked by ChatGPT, AI in 2023 evolved and spread rapidly and had a significant impact on the economy and financial markets. At the same time, concerns about AI risk have also grown, and many countries and regions, including the European Union, the U.S., and Japan, are actively discussing rulemaking on the development and use of AI. In light of this, we are working to strengthen our AI governance by monitoring regulatory trends and enhancing cooperation among Group companies.

We are focusing on strategic investments that have been gradually increasing. Unlike SVF, which is based on financial investments, these are business investments with a longer-term perspective. Therefore, we need to consider various risks, such as the possibility that a portfolio company’s business might not perform well and how to manage a portfolio company that has become a subsidiary.

Currently, many of our investments are in the early stages, and the risks we need to monitor could change depending on future business developments. It is essential to understand the business situation of each company, work closely with all parties involved, and provide support as needed.

In addition, I believe it is crucial to manage existing investments in SVF. SVF has developed a strategic portfolio management policy that includes helping portfolio companies increase their corporate value through effective engagement. The Risk Management Office actively considers the impact of these efforts and continuously monitors the status.