Management Policy and Priority Issues to Address

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 our subsidiaries, associates, and investees as our 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) by increasing the equity value of our holdings over the medium to long term. Our financial policy, designed to support this objective, ensures financial stability by managing SBG’s LTV (Loan-to-Value: calculated as adjusted net interest-bearing debt ÷ equity value of holdings,^*1 i.e., 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, we ensure that SBG has secured a cash position sufficient to cover bond redemptions for at least the next two years.

We aim to seize the significant opportunities presented by the Information Revolution, where IT transforms societies and lifestyles, thereby contributing to the well-being of all people over the long term. To achieve this, it is imperative for us to promptly identify changes in social needs and continuously transform ourselves, optimizing the structure of our group to maximize the benefits from the technologies and business models driving the future. At present, the integration of artificial intelligence (AI) into a variety of business models is starting to reshape value creation and will fundamentally redefine most industries. The evolution and widespread adoption of AI are expected to expand markets and create new industries. To capture these burgeoning opportunities, we are actively pursuing a broad investment strategy, including strategic investments by SBG and other investments through SVF. Furthermore, we are implementing the Cluster of No. 1 Strategy, a unique strategy for orchestrating our organization. This strategy aims to enhance the corporate value of our investees and, ultimately, SBG’s equity value of holdings by fostering business growth and business model evolution through positive interactions among these companies.

Despite monetary tightening by the U.S. and European central banks, and increased geopolitical risks leading to a drop in fiscal 2022, many global stock markets have shown an upward trend in fiscal 2023. In the first half of the fiscal year, amid mixed outlooks for the U.S. economy, stock prices of U.S. semiconductor and major technology companies rose, spurred by heightened expectations for generative AI. Following a halt in interest rate hikes and the subsequent growing expectations for rate cuts, coupled with prospects for a soft landing of the U.S. economy, U.S. long-term interest rates began to decrease in late October 2023, with U.S. stock markets generally trending upward in the second half of the fiscal year. Outside the U.S., while the stock prices of Chinese companies listed in Hong Kong and Shanghai remained under pressure, the trend towards higher stock prices began to spread globally, affecting markets such as Japan and India. In the venture capital market, although the total amount of investment in the U.S. in 2023 remained significantly lower than in 2021,^*2 active investments were made in leading companies engaged in generative AI. In the initial public offering (IPO) market, the number of IPOs in the U.S. in 2023 continued to decrease from the previous year,^*2 but prospects for a full-scale resumption of IPOs have become increasingly favorable since the end of 2023.

In this business environment, we are focused on implementing the following measures, 1-3, to maximize NAV over the medium to long term. Furthermore, we consider Arm, SVF, and SoftBank Corp. as top priority assets, accounting for a significant share of our equity value of holdings. Each is implementing the following measures, 4-6, to increase its equity value.

Our equity value of holdings and NAV have significantly increased from the end of fiscal 2022 to the end of fiscal 2023, primarily driven by a substantial rise in Arm’s share price following its IPO in September 2023. Our portfolio, with Arm at the core, spans a broad spectrum of investments, from the hardware layer that supports AI evolution to the application layer that leverages AI. This diversity positions us well to capitalize on emerging trends in AI. Building on this robust foundation, we are dedicated to enhancing the value of existing investments and actively pursuing new investments in high-growth AI-related companies to secure more reliable future growth.

Existing investees Arm and SoftBank Corp. are both expected to steadfastly implement growth strategies outlined below, in alignment with our corporate philosophy of “Information Revolution—Happiness for everyone,” and are thereby expected to enhance the value of our equity holdings. As for SVF, we anticipate a steady flow of IPOs and subsequent exits from portfolio companies as the IPO market resumes full-scale operations. We also expect SVF to continue exploring opportunities for divestment to strategic buyers and other institutional asset managers.

For new investments, we rigorously vet investment opportunities based on our AI investment theme, leveraging funds recovered from exits. Strategic investments that offer added value through deep management involvement are expected to be made by SBG or its wholly owned subsidiaries, while other investments are to be channeled through SVF.

As outlined in “(2) Key Management Indicators,” our financial policy is to manage SBG’s LTV below 25% in normal times in financial markets, with an upper threshold of 35% even in times of emergency, while securing a cash position sufficient to cover bond redemptions for at least the next two years.

In fiscal 2022, we significantly strengthened our financial base by effectively taking defensive measures such as monetizing assets and repaying debt, while also massively curtailing new investments. In fiscal 2023, we resumed investments gradually while maintaining LTV well below 25%. With a robust cash position that significantly exceeds the funds needed for bond redemptions over the next two years, our finances are exceptionally secure, providing ample capacity to fund future growth investments.

From fiscal 2024 onward, as we continue to make new investments to further expand NAV, LTV is expected to return to levels appropriate for market conditions. We will persist in adhering to our financial policy by carefully managing net interest-bearing debt based on new investments and the value of our equity holdings, and by monetizing assets and collecting dividends and distributions from subsidiaries and other investees.

We believe that promoting sustainability in our corporate activities is essential for achieving both the sustainable development of society and our medium- to long-term growth. With this perspective, we have identified risks and opportunities to sustainability, and are actively engaged in mitigating these risks while capitalizing on the opportunities.

Arm is a global leader in the development of semiconductor technology and we believe that it 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.

As the foundational architecture for more than 280 billion digital devices globally, Arm delivers efficiency without compromising performance and provides a consistent, supported, and security-backed foundation for running current and future AI workloads everywhere—from cloud to edge and endpoint. We believe that Arm is the AI compute platform the world will rely on.

The current advancements and widespread adoption of AI technologies, including generative AI and large language models, are significantly boosting demand for Arm’s technology. Many AI algorithms are computationally intensive, requiring high-performance CPUs to deliver quick responses to queries. While much of today’s AI processing occurs in the cloud, the shift toward edge AI^*3 is well underway. In edge devices, such as smartphones and cars, data is processed in real time and underscores the critical importance of high performance while maintaining energy efficiency. This trend towards edge computing^*3 makes Arm’s energy efficient CPUs especially suited for powering AI applications, positioning Arm as a key player in the AI technology landscape. Accelerated edge AI inference runs best on Arm.

To achieve sustainable long-term growth, Arm focuses on maintaining or gaining share in all target markets, increasing the royalty revenue received per chip, and enhancing its software ecosystem, as detailed below.

Arm holds a strong position in the mobile application processor market, with a greater than 99% market share. Arm’s strategy is to broaden its market share in sectors including the automotive and cloud server markets. Growing demand for Arm’s technology is driven by the accelerated investment by its customers who strive to develop high-performance and energy-efficient chips that are essential for powering future AI algorithms. Arm’s diverse compute technology portfolio is designed to meet the unique requirements of each market. Furthermore, Arm recently introduced a subscription-based licensing model, offering customers wider access to Arm’s technologies in return for a higher licensing fee, illustrating a flexible approach to business that aligns with Arm’s vision for sustained market share growth. By supplying the essential semiconductor IP components for the next generation of computing devices, Arm underscores its commitment to being at the forefront of technological innovation.

The rapid evolution of AI is driving a demand for energy-efficient chips with higher performance and more complex designs. Arm’s latest generation technology, Armv9, along with integrated compute subsystems (CSS) that combine multiple Arm IPs, are seeing significant adoption, especially in high-end smartphones and servers. CSS combines Arm’s CPUs with other on-chip technologies, and is pre-integrated and pre-verified to work on a leading foundry manufacturing process. CSS allows customers to design chips more easily and quickly, reducing time to market. Arm charges higher royalty per chip for advanced technologies like Armv9 and CSS, and is focusing on the promotion and expansion of these technologies to secure consistent royalty-driven revenue growth over the medium to long term.

Arm’s growth is underpinned by an ecosystem comprised of more than 15 million engineers who develop software for Arm-based products. The success of a CPU largely depends on the wide availability of compatible software, as programs and applications are optimized for the underlying CPU architecture. For more than three decades, Arm has been dedicated to building and nurturing its ecosystem, providing software engineers with access to the tools and libraries needed to efficiently develop their programs and applications for Arm-based chips. Arm continues to invest in the ecosystem needed for AI to run everywhere on Arm.

SVF1, SVF2, and LatAm Funds are designed to invest in high-growth-potential technology companies primarily leveraging AI. The wholly owned subsidiaries of SBG that manage each fund (SB Investment Advisers (UK) Limited for SVF1, and SB Global Advisers Limited for SVF2 and LatAm Funds; collectively, the “Fund Management Subsidiaries”) aim to maximize the returns over the lifecycle of each of the funds through the following initiatives:

SVF1, SVF2, and LatAm Funds are long-term private capital investment vehicles with a duration of over a decade. These funds aim for medium- to long-term returns, mitigating stock market fluctuations through diversification across different regions, sectors, and technologies, under the investment theme of AI.

The Fund Management Subsidiaries seek to maximize the equity value of SVF’s holdings by identifying companies within the portfolio that have significant equity value or the potential for enhancement and supporting their growth through a range of strategic support and network connections. For example, they seek to identify and execute opportunities to accelerate the profitability and growth of portfolio companies by establishing partnerships and collaborations across our greater ecosystem, including our portfolio companies and partners. They also provide growth-oriented portfolio company leaders with guidance for cross-border business expansion, profitability improvement, and monitor the governance structures to support sustained growth.

The Fund Management Subsidiaries implement disciplined approaches to selectively exit assets in a timely and appropriate manner, aiming to maximize returns and ultimately make distributions to limited partners, including SBG. Funds may exit portfolio company investments through acquisitions by strategic buyers, secondary share sales to other institutional asset managers, or via public market listings. For public portfolio companies, the Fund Management Subsidiaries have a mechanism in place to systematically sell the funds’ shareholdings while prudently assessing the company’s performance against the investment case, market environment, and share price trends. Moreover, these funds may procure asset-backed financing for distributions to limited partners, optimizing the timing of sales to maximize returns.

In fiscal 2023, a total of five portfolio companies across all funds went public, bringing the total number of IPOs since the inception of SVF to 50. As SVF are long-term investment vehicles, the Fund Management Subsidiaries aim to maximize returns from a medium- to long-term perspective, minimizing the impact of short-term market fluctuations.

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 with extensive experience in investment banking and venture capital. 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 global operations and portfolio management responsibilities. 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.

Changes in people’s lifestyles, such as telework, online shopping, and growing use of contactless payment, which were driven by the COVID-19 pandemic, as well as the worsening labor shortage have made the digitalization of companies and government essential. We believe that digitalization will become a driving force that will transform Japan’s society in the future, by facilitating improvement in productivity and the creation of innovation, and furthermore that the emergence of generative AI, which can generate a variety of content such as text, images, and programming code, will accelerate the speed of this transformation.

In this environment, under its Beyond Carrier growth strategy, SoftBank Corp., which is responsible for our 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 its business in various fields of the information and technology sector, with the aim of maximizing its corporate value. Specifically, SoftBank Corp. 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 Media & EC (e-commerce) 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, SoftBank Corp. believes that adjusted free cash flow^*4 is a key performance indicator. It will continue aiming to steadily generate adjusted free cash flow so that it can make investments in growth while maintaining high shareholder returns. Furthermore, it will maintain a sound financial position and engage in highly capital-efficient management with appropriate financial leverage.

LY Corporation, a core company in the Media & EC business, received administrative guidance from the Ministry of Internal Affairs and Communications in March and April 2024 and recommendations and guidance from the Personal Information Protection Commission in March 2024 concerning the leakage of information due to unauthorized access, which was announced in November 2023. LY Corporation takes the administrative guidance and recommendations and guidance seriously and will proceed to fundamentally review the safety management measures and the management of contractors, strengthen countermeasures, and essentially review and strengthen security governance, as well as sequentially implement measures to prevent recurrence. As the parent company of LY Corporation, SoftBank Corp. will consider measures to ensure effective security governance.