(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 maximize enterprise value while being a corporate group that provides essential technologies and services to people around the world.
(2) Key Management Indicators
Under the Company’s management system, SoftBank Group Corp. (“SBG”), a strategic investment holding company, exercises overall control over its investment portfolio comprising 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.
As a financial policy to support this goal, from the perspective of ensuring financial stability, the Company attaches great importance to SBG’s LTV (loan-to-value, the ratio of liabilities to holding assets; calculated as adjusted net interest-bearing debt*1 ÷ equity value of holdings) and strives to manage LTV below 25% in normal times, with an upper threshold of 35% even in times of emergency. In addition, SBG also aims to secure ample cash and cash equivalents to redeem bonds for at least the upcoming two years and to maintain safety.
(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 benefits 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 reshape 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 engaging in investment activities, mainly through SoftBank Vision Fund 1, which stated operations 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 investment holding company, SBG will influence the decision-making of the group of companies formed under the Cluster of No. 1 Strategy. However, SBG will not require ownership of majority equity interests or integration of brands, as it values the independence of each company. 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 the Company recognizes SoftBank Vision Fund 1, Arm, and SoftBank Corp. as its most important subsidiaries in terms of the extremely large-scale investments made therein by the Company and the impact each has on the Company’s consolidated earnings. Important management issues of each subsidiary are as follows.
a. Success of SoftBank Vision Fund 1
SoftBank Vision Fund 1 began its operation in 2017. SoftBank Vision Fund 1 aims to maximize returns from a medium- to long-term perspective by making large-scale investments in high-growth-potential companies that are leveraging AI. SBG participates in SoftBank Vision Fund 1 as a limited partner. In addition, the Company’s wholly owned subsidiary SBIA, which is authorized and regulated by the U.K.’s Financial Conduct Authority, acts as the manager of SoftBank Vision Fund 1 and is entitled to receive management fees and performance fees from the fund, each of which is measured by reference to the investment activities of the fund.
The success of SoftBank Vision Fund 1 is crucial to the implementation of the Company’s business model as a strategic investment holding company. SBIA seeks to maximize SoftBank Vision Fund 1’s returns over time through the following efforts.
ⅰ. Managing large amounts of funds over the medium to long term
SoftBank Vision Fund 1 is characterized by its large amount of committed capital, USD 98.6 billion (as of March 31, 2020), and its status as a long-term private fund, with the term of the fund lasting in principle until November 20, 2029. Leveraging such distinctive features, SoftBank Vision Fund 1 has a unique investment portfolio mainly comprising private companies valued at more than USD 1 billion at the time of investment, colloquially known as “unicorns.” Moreover, the fund conducts investment in companies that have established a presence across industries and types of technology. By doing so, SBIA believes the fund maintains a level of geographic and strategic diversity across its portfolio as it strives to maximize medium- to long-term returns.
As of March 31, 2020, SoftBank Vision Fund 1 had 88 portfolio companies (excluding exited investments), comprising eight listed companies and 80 unlisted companies. In both the public and private markets, volatility has been rising due to the impact of the outbreak of COVID-19. Operating loss from SVF1 and Other SBIA-Managed Funds business amounted to JPY 1.9 trillion in SBG’s consolidated financial results for the fiscal year ended March 2020 due to declines in the fair value of many investees. Regardless, due to the long-term strategy and life of the fund, SoftBank Vision Fund 1 has the ability to devise strategies aimed at supporting investments and optimizing their value over the medium to long term, while avoiding the effects of market fluctuations as much as possible. Retaining capacity of uncalled capital to invest across market cycles enables the fund to capitalize on buying opportunities through follow-on investments created through periods of macroeconomic disruption.
ⅱ. Enhancing the value of portfolio companies
Now that SoftBank Vision Fund 1’s investment period ended on September 12, 2019, SBIA seeks to maximize the equity value of the holdings of SoftBank Vision Fund 1 by carefully selecting investments and promoting responsible growth and development of its portfolio companies through a wide range of post-investment support. For example, SBIA seeks to identify and execute opportunities to accelerate profitability and growth by establishing partnerships and collaboration across the greater ecosystem of the Group, including the Company’s subsidiaries, associates, investees, and partners, and its dedicated team of operators provides hard-earned wisdom, counsel and boots-on-the-ground resources to company leaders as they navigate growth. Moreover, SBIA encourages sustained growth by monitoring the profitability and governance structures of portfolio companies, in addition to supporting their business activities.
ⅲ. Ensuring an appropriate management system
The operations of SBIA are overseen by Rajeev Misra, who is a director of SBG and serves as the CEO of SBIA, and run by senior leadership from a variety of fields including investment banking, venture capital, and technology. SBIA believes it has built and continues to maintain an organizational structure with investment, operating, capital, functional and management teams that matches the needs and scale of its managed assets and global business. The number of employees of SBIA, located across 10 countries, was 474 as of March 31, 2020.
b. Growing Arm’s business success into new markets
The technologies of processor designer Arm are highly energy efficient and are used in virtually all of the main chips for smartphones. 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), and increased connectivity of many digital electronic devices. Arm technology is already being used in virtually all smartphones, and also in a high proportion of the main chips in disk drives, drones, digital TVs and dashboards in cars. Over time, the company anticipates its market shares to increase, especially in consumer electronics, industrial IoT, automotive, networking infrastructure, and data centers.
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 more than three years following the Company's acquisition of Arm, Arm increased its R&D headcount by 36% (as of March 31, 2020). This accelerated investment period will continue for the next few years, and Arm can increase its profitability as revenues from the new technologies that Arm is developing start to flow.
ⅰ. Primary investment areas and long-term strategies
Arm is developing the technologies needed for many years in the future; it increased its research and development through the downturn, and expects to continue to increase R&D in future years to execute the following long-term strategies:
|Arm’s primary investment areas|
|Market share (Fiscal 2019)*2||90%||32%||75%||90%|
|Long-term strategies||Maintain market|
ii. Semiconductor industry trends and their impact
Semiconductor industry trends can have a significant impact on Arm’s financial results. In fiscal 2019, the industry declined by 7.8%*2 year on year due to a slowdown in sales of smartphones, global trade disputes and company-specific sanctions. While this slowdown started to show early signs of recovery in the second half of fiscal 2019, industry sales in 2020 are projected to be slightly lower than 2019 mainly due to the impact of the COVID-19 outbreak.*3
Despite such risks still lingering, as market conditions normalize, Arm expects that its business will continue to grow again. In addition, Arm is expecting that as technology becomes more advanced, its technology will be further utilized and opportunities will expand over the long term.
World semiconductor market*2
(Billions of USD)
|Apr 2017 to Mar 2018||Apr 2018 to Mar 2019||Apr 2019 to Mar 2020|
c. Steady growth of corporate value of the SoftBank Corp. group
In Japan’s telecommunications market, the business environment remains in flux, mainly reflecting the government’s strengthening of policies that promote competition, the widespread adoption of low-cost smartphone services by mobile virtual network operators (MVNOs), and new entrants from other industries. In the Internet market, overseas companies primarily from the U.S. and China have remained in the lead, with intensified competition particularly in the fields of e-commerce, finance, and payments. Against this backdrop, in the SoftBank segment, the SoftBank Corp. group has been pushing ahead with its Beyond Carrier growth strategy, in an effort to continuously increase its corporate value in the fast-changing Internet and telecommunications industry.
In terms of its business strategy, SoftBank Corp. is implementing three initiatives: (1) drive further growth in the telecommunications business, (2) drive growth of Yahoo business, and (3) develop and expand new business fields.
In terms of its financial strategy, SoftBank Corp. believes that free cash flow, the source of funds for growth investments and shareholder returns, is a key performance indicator. SoftBank Corp. will continue aiming to keep adjusted free cash flow*4 at JPY 500 billion or more per annum. By ensuring stable cash flow generation, SoftBank Corp. will continue to execute growth investments and provide shareholder returns in a well-balanced manner.
a. Construction of stable financial foundations
In the financial management of the Company, SBG, as a strategic investment holding company, 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 aims to manage 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 value of investment assets.
SBG also aims to secure ample cash and cash equivalents to redeem bonds for at least the upcoming two years and to maintain safety. For this purpose, SBG endeavors to exit or monetize its investment assets, in addition to receiving revenues, including dividend income from subsidiaries and other Group companies and distributions received from SoftBank Vision Fund 1 as a limited partner.
On March 23, 2020, SBG decided on a program to sell or monetize up to JPY 4.5 trillion of its assets. The funds obtained from the sale and monetization will be used to repurchase up to JPY 2 trillion of SBG’s common stock with the balance to be used for debt redemptions, bond buybacks, and increasing cash reserves. As a part of this program, on May 15, 2020, SBG decided to repurchase up to JPY 500 billion of its own shares. SBG aims to further strengthen its balance sheet through this program.
b. Promotion of sustainability
SBG has formulated the statement “Help shape the next 300 years for our future generations and the planet” as its sustainability vision for realizing both the sustainable development of society and the Group’s medium- to long-term growth. Based on this sustainability vision, SBG has also identified six activity themes and high-priority strategic material issues that it needs to focus on. Concurrently, in order to strengthen its sustainability promotion structure, SBG has appointed a Chief Sustainability Officer to be responsible for promoting sustainability and has set up the Sustainability Committee. SBG will promote sustainability by conducting its business activities with a keen awareness of these activity themes and strategic material issues.
“Help shape the next 300 years for our future generations and the planet”
Activity themes and strategic material issues
|Activity themes||Strategic material issues|
|1. Drive sustainable growth and|
innovation in society by uniting
wisdom and knowledge
|2. Take responsibility by responding to|
emerging issues tha come with
|3. Ensure the growth of future|
generations and our business by
creating higher quality
employment for all
|4. Leverage breakthrough|
technologies to resolve
environmental issues, including
|5. Demonstrate highly transparent|
governance and integrity to win
further trust of our stakeholders
|6. Maximize our potential as a group|
by joining forces with people
around the world to make a
positive impact on society
Sustainability promotion structure
Excludes interest-bearing debt attributable to entities that are managed on a self-financing basis, including the listed subsidiaries and associates SoftBank Corp., Z Holdings Corporation, Alibaba, and T-Mobile, as well as SoftBank Vision Fund 1, and Arm.
World Semiconductor Trade Statistics (WSTS) as of May 2020. Arm-addressable market excludes memories and analogue chips. This data is compiled on the basis of data submitted by semiconductor companies participating in the survey.
IHS and Gartner as of April 2020
Adjusted free cash flow = free cash flow ± cash flow relating to non-recurring transactions with the parent company SBG + (proceeds from the securitization of installment sales receivables – repayments thereof)
“Co., Ltd.,” “Corporation,” etc. are generally omitted from the names of companies and organizations.
Company names or abbreviations, except as otherwise stated or interpreted differently in the context, are as follows:
|Company names / Abbreviations||Definition|
|SoftBank Group Corp. or SBG||SoftBank Group Corp. (stand-alone basis)|
|The Company||SoftBank Group Corp. and its subsidiaries|
|*Each of the following abbreviations indicates the respective company and its subsidiaries, if any.|
|SoftBank Vision Fund 1 or SVF1||SoftBank Vision Fund L.P. and its alternative investment vehicles|
|SBIA||SB Investment Advisers (UK) Limited|
|Alibaba||Alibaba Group Holding Limited|
|T-Mobile||T-Mobile US, Inc.|