Earnings Transcript for 9984.T - Q2 Fiscal Year 2024

Unknown Executive: [Interpreted] Thank you very much for waiting, everyone. Now we would like to start the SoftBank Group Corp. earnings results announcement for 6-month period ended September 30, 2024. First of all, I would like to introduce today's participants. From left, we have Mr. Yoshimitsu Goto, Board Director and CFO; Ms. Kazuko Kimiwada, Corporate Officer, Senior Vice President and Head of Accounting Unit; Mr. Navneet Govil, CFO, SB Investment Advisors and SB Global Advisors; and Mr. Ian Thornton, IR Vice President. Today's announcement is live broadcast over Internet. Now I would like to invite Yoshimitsu Goto to present you the earnings results and business overview. Mr. Goto, please.

Yoshimitsu Goto: [Interpreted] Thank you for the introduction. This is Goto speaking. Thank you very much for joining during your busy schedule. Here that we would like to announce the numbers, which actually is -- I'm quite happy with, with the good numbers, good results. The 1 thing that I couldn't achieve this term was [indiscernible] I could not win the Japan Championship, which is one big leftover. That's something that we need to do -- challenge again for the next year. So there is no reason for the loss. So I believe that we need to review once again and do it again. Actually, the earnings is not a loss, actually win. In the win, there is no -- there is a reason for win as well. So I would like to explain why this time for the good numbers. Start with highlights. Net income was over JPY 1 trillion, mainly driven by good performance of the investments, which has been challenged in the past 2 years, which is the Vision Fund, made a good performance this quarter. and also T-Mobile share price is doing pretty good. So as a result, that made quite a good contribution to the earnings results this time. And net asset value, which is actually our enterprise value itself of our company was -- remained high and at JPY 29 trillion at the end of September. After then, market is doing much even better so that, that brings us even better results for the latest number wise. Vision Fund, recorded JPY 610 billion as an investment gain and also posting cumulative gains, which is another kind of highlights in the symbolic message to the market. And performance also continues to excel. And as a result, we are able to maintain the very robust and stable finance -- financials and also maintain ample cash reserves, which will enable us to further AI investments. So I'd like to go into a little bit of more details, starting with consolidated results. As I mentioned, net income for the first half, exceeding JPY 1 trillion compared to the year ago, first half of 2023 actually is increased by JPY 2.4 trillion. And investment gains was JPY 2.6 trillion so that compared to the last year first half, JPY 3.6 trillion increase, the breakout down of these numbers will be followed by next pages. Here, the investment gain and loss and net income quarterly basis. JPY 2 trillion and over of the gain on investments for the quarterly basis. And if you see more in details -- JPY 2 trillion gain in investments, mainly due to the blue portion, JPY 567 billion from the Vision Fund. And the green bar inside of it, you see the dotted lines, which is a T-Mobile contribution by JPY 387 billion. So total Vision Fund 1n the T-Mobile over JPY 1 trillion of the performance contribution. Remaining, you may wonder is actually from the Alibaba share transaction. This is financially is a completed financing. In the scheme, we have used the prepaid for the contracts. As a result, we set the share price and agree the future sales and get the money in advance. And because there are some shares remain for before the settlement and that actually have market valuations and evaluation gain was about JPY 1 trillion or so. But that also being settled. Therefore, this is the kind of adjustments. So the sales has already been completed. And later on, even that share price increased, but still, but three is no impact to the cash settlements. Therefore, accounting-wise, evaluation increase. However, that's been already done. So that's going to be adjusted through the derivative transaction. In total, it's about JPY 1 trillion. However, at the same time, we see the ForEx movements. And because of the ForEx movements, we have about the difference of JPY 400 billion. So green portion is the gain on Alibaba shares, but below JPY 1.4 trillion with the -- JPY 400 billion of the ForEx impacts. And that also needs to be considered altogether. So put to JPY 2 trillion of the positive, you can exclude the Alibaba settlements. So maybe JPY 1 trillion of the Visual Fund at T-Mobile is a big contributor for the performance this time. But even with that, compared to the first quarter or the quarter on for the 2023, actually, we are making quite a steady growth, which is a very happy result for us. And key indicators -- 3 indicators that we see as a key indicator

Unknown Executive: [Interpreted] [Operator Instructions] Now from the floor.

Unknown Analyst: [Interpreted] [ MJ ] from Bloomberg. I have 2 questions. First, Rajeev-san -- about the Rajeev-san. Going forward, what kind of role Rajeev-san will play in SoftBank? So in -- or Rajeev-san's role in SoftBank is over? That's the first question. And second is about investment in OpenAI. Could you give us a background why you decided to invest now? And why not a group, but by Vision Fund 2? And if possible, on Vision Fund's investment strategy, $500 million seems like a big among the recent investments from the Vision Fund 2. So if we could get an explanation a bit more about the Vision Fund strategy, that would be great.

Yoshimitsu Goto: [Interpreted] First question I will take. And maybe I'm going to ask Navneet to add. About Rajeev. His key role is over. As announced, he himself takes a lead in managing a fund. And I'm sure that he will focus on that management, was that one I am -- yes. I'm sure he is focusing on running his own fund. But does that mean complete goodbye to Rajeev? I don't think so. I think we're going to keep communicating with him in some way, and I'm sure he's going to visit Japan from time to time. I will keep getting in touch with him. But like, as a management team, for example, that kind of relationship and role is over. About OpenAI. So they invited potential investors, and they created opportunity. And this timing, of course, we have tremendous interest in them, and we have close communication with the management. And maybe it will be great if timing was earlier, but I think still that round was great terming. And about Vision Fund portfolio, Navneet would you like to add some color?

Navneet Govil: Sure. Thank you, MJ, for your question. In terms of our investment strategy in Vision Fund 2, we are very much focused on companies that are AI-leading companies, whether they're product led or leveraging AI. And our criteria is 4 key things

Yoshimitsu Goto: [Interpreted] You have another question about the Vision Fund, OpenAI, yes. Why Vision Fund and not SoftBank Group? So again, OpenAI invited potential investors, and that was the round in September and obviously, OpenAI has a road map and they made it clear. From our perspective, again, it was just a minority investment and also, it's clear about their road map going forward. That's why I think it was good to have a fund to invest in that group.

Unknown Executive: [Interpreted] Any other questions? Person in the very front row, please.

Unknown Attendee: [Interpreted] My name is [indiscernible] form Nikkei newspaper. I also like to ask about the OpenAI. So even from the fund, but I think there is a meaning to have even if it's minority, especially when it comes to AI strategy, it may be easier for you to create a synergy because you'll be able to catch the good trend of the latest AI information. So with that, can you talk about the AI investments?

Yoshimitsu Goto: [Interpreted] So of course, this is a company leading the world with the generative AI. So this investment is going to be making it even more robust in terms of relationship with them. And even after the investments or before investments, we are continuously keeping the good communication with them so that we can discuss the potentials for the future business. That will be also important for us. And there are many to learn from them in terms of the AI trend in the world. That can be a good learning for us. Their technology, their future visions can be also the good -- learning for us for our development of the business. At the same time, the top of the company between those 2 companies are very close to each other as well. So we are very much expecting that, that can create good synergies.

Unknown Executive: [Interpreted] Any other questions from the floor?

Unknown Attendee: [Interpreted] [indiscernible] from Yomiuri newspaper. For the term in business performance, you mentioned that you're happy and beginning to see the summit. So I think this is the most positive presentation of the earnings results since you started during that or leading that earnings announcement. So I just wanted to ask here your position for the future investment. Masa-san showed interest in investment the size of several trillions yen. So backed by the great performance, so you are more aggressive or more of saving more in terms of future investment?

Yoshimitsu Goto: [Interpreted] It's not just because the great performance. So what does great performance mean? That means that our financial stability is even more even much stronger. We talked about the capital allocation in my presentation. And more powerful the financial stability gets and the bigger opportunity that we can tap into, I'm not saying that we see a big opportunity now. But now we are more ready than before to tap into new opportunities. We are not going to do all at once. We are going to be opportunistic. And rather than the size, we want to see whether a deal or potential deal is great or not. For example, investments in OpenAI, the size, big or not. From our perspective, size-wise, it was not a huge $500 million. But as a deal -- as significance, it was a big deal. And again, we are fully ready, and we are ready to tap into new opportunity. Having said that, the financial policy is solid because you may start asking how much you spend for investment. We will invest within range or within the capacity that we can keep -- supported by our financial stability.

Unknown Executive: [Interpreted] Any other questions? If not, then -- we have one another person, person in the very front row, please.

Unknown Attendee: [Interpreted] [indiscernible] from [indiscernible]. I have 2 questions. First, U.S. presidential election was there. And the second, Mr. Trump administration and tariff issue potential towards China. For you, as the SoftBank Group and any impact to portfolio companies are there? My second question, Arm's earnings also announced, second quarter, has a contract with SoftBank Group was also recorded, which was [ $400 million ]. And what was the content of this contract?

Yoshimitsu Goto: [Interpreted] So first question, I will answer that. And the second question, Ian, please go ahead. So first question. Presidential election, we have not much of the comments on that. So Mr. Trump being President-elect. And also I hear the news regarding how they're going to have a China policy. But we are the company of investments and of course, we need the management of the portfolio company in China. And also, we are very much slowed down when it comes to the investment in China, new investment in China as we mentioned in several times in the past. We don't have any business operation in China. So we don't have any direct impact to our business performance of our company itself. However, indirectly, our portfolio company, depending on the China policy by Mr. Trump in the future, there may be some damage or negative effect. And for those, we would like to pay a clear -- close attention and monitor them. And for the second, Ian, would you please go ahead?

Ian Thornton: Yes. Thank you for your question. Yes. So during last quarter, we signed a multiyear agreement with SoftBank to provide them with some technologies and services. This is an agreement very similar to other contracts that we signed with customers. And also similar to other agreements we signed with customers, it's not really for us to disclose the contents of that contract nor what end markets are being targeted. That is something we would normally push back to the licensing company. So maybe, yes, Goto-san, might like to comment.

Yoshimitsu Goto: [Interpreted] Well, we believe this is one of the transaction similar to others. So I think that you answered everything, Ian.

Unknown Executive: [Interpreted] Any more questions from the floor? If not, we'd like to conclude the SoftBank Group Corp. earnings results announcement for 6 months ended September 30, 2024. The video footage of this meeting will be distributed on demand from our corporate website. Thank you very much once again for joining SoftBank Group Corp. earnings results announcement for 6-month period ended September 30, 2024. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]