Management Policy

We are guided by our corporate philosophy of “Information Revolution—Happiness for everyone.” We aim to maximize corporate value while being a corporate group that provides essential technologies and services to people around the world.

Under our management system, SoftBank Group Corp. (“SBG”), a strategic investment holding company, exercises overall control over its subsidiaries and associates (“Group companies;” together with SBG, the “Group”) and investees as its investment portfolio. Based on this system, we aim to maximize NAV (net asset value, calculated as equity value of holdings – adjusted net interest-bearing debt^*1) through increases in the equity value of holdings over the medium to long term. As a financial policy to support this goal, from the perspective of ensuring financial stability, we manage SBG’s LTV (loan-to-value, calculated as adjusted net interest-bearing debt ÷ equity value of holdings^*1, the ratio of liabilities to holding assets) below 25% in normal times in financial markets, with an upper threshold of 35% even in times of emergency. Concurrently, SBG secures a cash position sufficient to cover bond redemptions for the next two years or more.

We seek to seize the Information Revolution, where IT will transform societies and lifestyles, as a major growth opportunity, and thereby contribute to the wellbeing of all people over the long term. To this end, it is imperative for us to identify changes in social needs quickly and continuously transform ourselves while optimizing the structure of the Group to maximize the benefits from the technologies and business models that will be the driving forces in the future. At present, artificial intelligence (AI) is being incorporated into a variety of business models, and this trend is starting to reshape value creation and will fundamentally redefine most industries. To ensure that we capture the huge opportunities arising from the market expansion and the creation of new industries driven by AI utilization, we are implementing the Cluster of No. 1 Strategy, a unique strategy for orchestrating the organization. Based on this strategy, we are conducting investments, particularly investments through SoftBank Vision Fund 1 (“SVF1”), SoftBank Vision Fund 2 (“SVF2”), and SoftBank Latin America Funds (collectively, “SVF”) and strategic large investments either directly by SBG or through its subsidiaries, such as the investment in Arm Limited, which was acquired in September 2016.

In our investment activities, based on the investment theme of AI, we invest in companies expected to contribute to advances in the Information Revolution. After investment, we strive to increase the corporate value of our investees by enabling those companies to evolve their business models as they interact positively with each other within the Group’s ecosystem. In addition, we strive to carry out investment activities that generate sustained returns by combining (1) analytical capabilities in areas including technology and business models, (2) specialization systems and organizations such as expert teams for each field, and (3) funds recovered from investment exits, while making the most of economies of scale derived from developing investment businesses globally on a Group-wide basis.

In our financial management, SBG, as a strategic investment holding company, exercises control over its investment portfolio. With a business model that is susceptible to the impacts of fluctuations in the equity value of holdings, including stock market trends, SBG aims to ensure safety by conducting stable financial management that curbs such impacts as much as possible. Specifically, SBG manages its LTV as described in “(2) Key Management Indicators” while controlling liabilities appropriately in accordance with the status of investment activities, including new investments, divestments, and changes in the equity value of holdings. Moreover, SBG maintains safety by securing a cash position sufficient to cover bond redemptions for the next two years or more through selling or monetizing its investment assets, in addition to receiving dividends from subsidiaries and other investees and distributions from investment funds within the Group, such as SVF, in which SBG participates as a limited partner.

In fiscal 2022, as a result of continuous efforts to monetize assets, particularly shares of Alibaba Group Holding Limited, along with a drastic reduction in SVF’s investments, LTV improved significantly and the cash position also rose substantially from March 31, 2022. In fiscal 2023 and beyond, SBG will continue striving to conduct business management as a strategic investment holding company by adhering to its financial policy.

To sustainably increase the equity value of holdings as a strategic investment holding company, it is essential for SBG to ensure the liquidity and diversity of its investment portfolio. Regarding liquidity, in the investment businesses of SBG and entities such as SVF, investments are being made in private, late-stage companies in technology fields with rapid rates of business growth that have established business models and competitive advantages and are deemed highly likely to go public in the near future. As progress is made on the listing of these investees, liquidity can be expected to improve. In addition, SBG’s subsidiary Arm Limited is preparing for a potential initial public offering (IPO), as described later. When this proposed IPO is completed, we expect liquidity to improve substantially.

Turning to diversity in the investment portfolio, the composition of shares of Alibaba Group Holding Limited in SBG’s equity value of holdings had decreased to 5% as of March 31, 2023, indicating that SBG is already making progress on diversifying the investment portfolio. In addition, although the companies that SBG invests in through its investment funds have in common the fact that they utilize AI, these investees are not only spread out across a wide range of industries, such as the consumer, transportation, healthcare, real estate, and fintech sectors, but are also diversified across geographies, such as the U.S., Europe, Asia including China, Latin America, and other countries and regions. Furthermore, efforts are being made at SVF2 to diversify into smaller investments. As a result of these diversification effects, SBG has mitigated the impact that a change in certain industries or regions can have on its overall investment portfolio.

We seek to realize the sustainable development of society and the Group’s medium to long-term growth. We therefore recognize the importance of considering sustainability in our corporate activities and are addressing risks related to the environment, society, and governance (ESG). At the same time, we view responding to ESG-related issues as an opportunity to create new corporate value.

SBG has established the SoftBank Group Sustainability Principles as a guideline for the Group to appropriately advance sustainability activities. As part of these principles, SBG has set forth the Group’s sustainability vision and activity themes. SBG has also identified material issues that should be addressed with priority, and has been implementing sustainability efforts.

As a sustainability governance structure, SBG has established the Sustainability Committee, which is chaired by the Chief Sustainability Officer (CSusO) appointed by the Board of Directors. The Sustainability Committee discusses matters such as material sustainability issues and future responses, and it reports those discussions to the Board of Directors for supervision. In addition, as part of the sustainability risk management, SBG identifies risks from both financial and non-financial perspectives comprehensively, and monitors implementations of measures and their status.

Our management recognizes investment funds (SVF1, SVF2, and SoftBank Latin America Funds), Arm, and SoftBank Corp. as our most important businesses in terms of the extremely large investments made therein and the impact each has on SBG’s consolidated earnings. The priority management issues to address in each business are as follows.

SVF1, SVF2, and SoftBank Latin America Funds aim to maximize returns from a medium- to long-term perspective by making investments in high-growth-potential technology companies that are leveraging data and AI. SVF1 began its operation in 2017 and SVF2 and SoftBank Latin America Funds began their operations in 2019.

SBG participates in each fund as a limited partner, and its wholly owned subsidiaries that manage each fund (SB Investment Advisers (UK) Limited, which manages SVF1, and SB Global Advisers Limited, which manages SVF2 and SoftBank Latin America Funds; collectively, the “Fund Management Subsidiaries”) are entitled to receive management and performance fees from SVF1, management and performance-linked management fees from SVF2, and management, performance-linked management, and performance fees from SoftBank Latin America Funds, measured in reference to the investment activities of the funds.

The success of these investment funds is crucial to the implementation of SBG’s business model as a strategic investment holding company. The Fund Management Subsidiaries seek to maximize returns of the funds over time through the following efforts. However, current market volatility, driven in part by historically high inflation, particularly in Europe and the U.S., and the extended monetary tightening policies to address that inflation, has resulted in ongoing concerns about a global economic slowdown. For this reason, SBG adopted a thoroughly defensive stance in fiscal 2022, and drastically scaled down its new investments.

SVF1, SVF2 and SoftBank Latin America Funds have the characteristics of being long-term private funds with a duration of over a decade, in addition to their large amount of committed capital. As of March 31, 2023, the total committed capital for each fund is USD 98.6 billion for SVF1, USD 56.0 billion for SVF2,^*2 and USD 7.6 billion for SoftBank Latin America Funds. Making the most of such distinctive features, the funds have developed unique investment portfolios mainly comprising private companies valued at more than USD 1 billion at the time of investment, colloquially known as “unicorns,” or companies that are considered to have the potential to become such. Moreover, by conducting medium- to long-term investments in companies that have established a presence across industries and types of technology and maintaining a level of geographic and strategic diversity across their portfolios, the Fund Management Subsidiaries curb the effect of short-term market fluctuations while pursuing medium- to long-term returns.

The Fund Management Subsidiaries seek to maximize the equity value of the holdings of the funds by carefully selecting investments and promoting the growth of portfolio companies through a wide range of support and network connections. For example, they seek to identify and execute opportunities to accelerate profitability and growth of their portfolio companies by establishing partnerships and collaboration across the greater ecosystem of the Group and its partners. They also provide portfolio company leaders with access to a global team of operating specialists, as well as counsel from in-market resources as they seek to navigate growth. Moreover, they encourage sustained growth by monitoring the profitability and governance structures of portfolio companies, in addition to supporting their business activities.

Due to differences in the timing of the start of operations, each fund is in a different phase of its investment cycle. SVF1 is primarily focused on realizing value creation on invested capital, as its investment period ended in September 2019. SVF2 and SoftBank Latin America Funds remain in an investment phase, although new investments in fiscal 2022 tapered substantially considering the difficult market environment. In the realization of investments, it is crucial to selectively exit assets in a timely and appropriate manner in order to maximize return and ultimately make distributions to limited partners including SBG. While the funds may exit through sale to a third party by mergers and acquisitions, the principal exit strategy is via the public listing of a portfolio company. For a public portfolio company, the Fund Management Subsidiaries have a mechanism in place to systematically sell funds’ shareholdings while prudently assessing the competitive landscape and share price trends. Moreover, the funds may selectively utilize financing structures, collateralizing listed assets in order to precede distributions to limited partners while determining the optimal timing of the sales.

In fiscal 2022, a total of four portfolio companies went public. In the recent past, stock market volatility has increased due to heightened geopolitical risks and concerns about the monetary policies of the U.S. and other major central banks. Each fund aims to maximize returns from a medium- to long-term perspective while minimizing the impact of short-term market fluctuations. As long-term investment vehicles, these funds have a life cycle of over a decade to determine the optimal means and timing of exits.

Creating a strong organization, especially attracting and retaining top talent, is critical to the reproducibility of investment successes and the sustained growth of the funds. The Fund Management Subsidiaries are run by senior leadership from a variety of backgrounds including investment banking, venture capital, and technology. To date, they have built and continue to improve an organizational structure with investment, operating, capital, functional and management teams that match the needs and scale of their managing assets and global operations. By taking a team approach with a group of experts, the Fund Management Subsidiaries aim to accumulate and share institutional knowledge to achieve sustained growth for each fund.

Arm is a global leader in the development of semiconductor technology and is defining the future of computing at a time when semiconductor technology has become one of the world’s most critical resources. Arm’s processor technology is the world’s most widely licensed and deployed semiconductor design of its kind and is used in virtually all smartphones, the majority of tablets and digital TVs, and a significant proportion of all chips with embedded processors. Since being acquired by SBG in 2016, Arm has increased its investment in R&D and has been expanding its product portfolio and addressable markets. Arm is now preparing for a potential IPO. Arm announced in April 2023 that it has confidentially submitted a draft registration statement on Form F-1 to the U.S. Securities and Exchange Commission relating to the proposed IPO of American depositary shares representing Arm’s ordinary shares. The initial public offering is subject to market and other conditions and the completion of the SEC’s review process. SBG intends that Arm will continue to be a consolidated subsidiary of SBG following the completion of the proposed IPO. SBG does not expect that any such offering would have a material effect on its consolidated results or financial position.

To achieve sustainable long-term growth, Arm focuses on maintaining or gaining share in markets such as mobile applications processors, cloud computing, networking equipment, automotive, and consumer electronics, increasing the royalty revenue it receives per chip, and introducing new business models to help more companies gain access to Arm’s technology.

Semiconductor industry trends can have a significant impact on Arm’s financial results, both positively and negatively. After two years of strong growth in 2020 and 2021, Arm-addressable market in the industry declined by 3.2% during fiscal 2022, compared to fiscal 2021^*3, due to a decline in the sales of smartphones and other consumer electronics devices, partially offset by continued growth in the sale of chips into the automotive market. Despite this environment, Arm recorded the highest annual net sales (U.S. dollar-based) in fiscal 2022. Arm’s technology royalty revenue increased by 16.1% (U.S. dollar-based) year on year, driven mainly by the deployment of Arm-based networking equipment into 5G base stations, strong shipments of Arm-based 5G high-end smartphones, and Arm’s customers gaining share in multiple markets, such as automotive, IoT, and servers. Arm’s technology non-royalty revenue (technology licensing revenue and software and services revenue) decreased by 8.5% (U.S. dollar-based) year on year, from record revenues in fiscal 2021. For fiscal 2022, continued strong demand for Arm technology resulted in the second highest annual revenue.

Industry analysts indicate that inventory levels remain high across the value chain, which may result in industry revenues remaining weak for a short period until inventory levels are lower. Longer-term trends remain, such as more products and services requiring increasing amounts of embedded intelligence, so Arm expects the semiconductor industry to return to growth.

In response to the global spread of COVID-19 since 2020, the digitalization of every facet of human life and business has been progressing in Japan. Cutting-edge technologies including 5G, for which commercial services were launched in March 2020, as well as AI, IoT, big data, and blockchain will further advance the digitalization of society, and digital transformation (DX), which is changing the structure of industry itself, is expected to accelerate even further in the future. In this environment, under its Beyond Carrier growth strategy, the SoftBank Corp. group, which is responsible for the Group’s domestic operations, will strive to spur sustainable growth of its core telecommunications business, as it goes beyond the confines of telecommunications carriers and proactively expand the group’s business in various fields of the information and technology sector, with the aim of maximizing its corporate value. Specifically, the group is working to (1) drive further growth in the telecommunications business, (2) expand the DX/solution business in the enterprise business, (3) drive growth of the Yahoo! JAPAN/LINE business, (4) drive growth of the financial business, (5) develop and expand new business fields, and (6) streamline costs.

In terms of its financial strategy, the SoftBank Corp. group believes that adjusted free cash flow^*4 is a key performance indicator. The group will continue aiming to steadily generate adjusted free cash flow so that it can make investments in growth while maintaining high shareholder returns. Furthermore, the group will maintain a sound financial position and engage in highly capital-efficient management with appropriate financial leverage.