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Earnings Transcript for 9984.T - Q3 Fiscal Year 2023

Operator: Now, we would like to start the SoftBank Group Corp. earnings results announcement for the nine months period, ended December 31, 2023.
First of all, I would like to introduce today's participants. From left we have Yoshimitsu Goto, Board Director and CFO; Kazuko Kimiwada, Corporate Officer, Senior Vice President and the Head of Accounting Unit; Navneet Govil, SB Investment Advisers, SB Global Advisers CFO; and Jason Child Executive Vice President and CFO ARM. Jason is attending through the web.:
This announcement is live broadcast over Internet. Now I would like to invite Yoshimitsu Goto to present to you the earnings results and business overview. :
Yoshimitsu Goto: Good afternoon everyone. My name is Goto. Thank you very much for your time today. First of all, I would like to express our deepest sympathies to those who have been severely affected by the Noto Peninsula earthquake on January 1, 2024. We are heartbroken over the news of serious damages to the region and people still living in difficult situation. We, SoftBank Group, would like to do our best to support that disaster area through internet services we provide including mobile phones, line and Yahoo so that the affected people will be able to be back to the normal life as soon as possible.
About a year ago, just about a year ago, on New Year's, I was there in Noto with my family. And I was so impressed with the great beauty of the nature there. And the great people there. And we came back and actually that place, I was there a year ago, has been affected by this disastrous earthquake. So I very much hope that the places -- affected places is going to be recover soon.:
Now let me start our highlights for the quarter, the results announcement. Third quarter 2023 we have 5 highlights. First significant improve in consolidated results with JPY 950 billion net income. So, profit in quarter for a while and I'm a bit relieved to have such a news for you. And also acquired JPY 1.1 trillion T-Mobile shares for no additional consideration. And 3, net asset value increased JPY 2.8 trillion quarter-over-quarter to JPY 19.2 trillion driven by the increased value of Arm. Third -- fourth, portfolio shift from Alibaba to AI with Arm as the core. We've been working on this for the past few years. Our asset was mainly focusing focused on Alibaba, but now that we are clearly shifting to AI. Last but not least, significant improvement in Vision Funds performance.:
And now I'd like to start with consolidated results. As you see -- want you to look at the net income JPY 950 billion, JPY 1.7 trillion of the increase compared to last quarter, same quarter last year. In the gray bar for that is actually JPY 424 billion of the gross and -- gain in investments, and this was increased by JPY 936 billion. Gain and loss on investments and net income here. But the lines are the quarterly changes and in the past 4 quarters we've been seeing the net loss but this quarter we are able to show you the big improvements here. And the main driver for that is the orange lines, which is the gain and lose on investments especially this first quarter to second and third quarter we are making a very steady improvements quarter-by-quarter.:
I would like to be a little bit more details in terms of the gain and loss on investments. So we have SBG investments and also we have a Vision Fund investment. In this side, you can see the breakdown in between those 2, so blue portion is Vision Fund investments activities and orange are the investment from the holding company SoftBank Group. And you see pink lines. This is the consolidated results and the JPY 424 billion of the gains/loss recorded this time.:
And the next agenda is the acquired JPY 1.1 trillion of the T-Mobile shares. And what happened was that originally we invested in Sprint and after the merger between Sprint and T-Mobile. We had several discussions negotiation with the counterpart. This is one of the contingent consideration. T-Mobile share, when the condition of the trailing 45 day VWAP was over, $149.35, then that leads to our 48.8 million shares equivalent. So this is the earn-out term and this was actually achieved as a result as of the present share price, it was JPY 1.1 trillion, and we are able to acquire those.:
Sprint Investments. We had suffered a lot as well. After the announcement of acquisition, many consideration was made from many people on the many complaints or criticism was also there as well. And also Masa management team and actually the actual hands-on people be working on to make these investments better. And back then, actually that we knew it's going to take a longer time. But also actually, that increase while enhancing the value was dramatic after the acquisition. So originally, JPY 3.3 trillion of the investment was made and the return, as of the end of December, this rose to JPY 5 trillion. Equity return was JPY 3.4 trillion. So equity IRR is 26%. MOIC or multiple of investment capital was 8.2x. So I believe this project or this investment was very good in terms of economy. And also recent figures wise, as of the recent share price was actually is slightly improving as well.:
So U.S. Telecoms that I want you to share -- I want to share with you the -- some history. Right before the acquisition of Sprint 2012, AT&T was a king and Verizon was a very much a second player. Sprint was far behind and actually T-Mobile was even smaller back then. So the third #3, 3 player, #4 player was matched together. But as of December 31, you can see the result. What happened on your right-hand side, new T-Mobile has actually surpassed AT&T and Verizon. And not only there in the United States, but also in the world, actually that the T-Mobile market by market cap, it is the #1 in the world as well as in the United States. I believe that the management is doing a great job in T-Mobile and the Deutsche Telekom T-Mobile, they are also having great efforts into the T-Mobile too.:
And T-Mobile share price, 2020, it was $82. And recall the high since IPO was $165. It was up by 99% since the merger. So I believe that this was a great result from the great management efforts. And here are the key indicators; one of the most important KPIs are net asset value, loan-to-value and cash position. Net asset value as of the end of December, JPY 19.2 trillion. So we believe that asset grow quite largely. Loan-to-value, 11.5%, continuously keeping a very safe level. Cash position slightly decreased because we have some investment activities, but still JPY 4.4 trillion. And as a finance policy to cover at least 2-year equivalents of the debt redemption, actually, this cash position covers over 4 years of the debt redemption. So this is also another safe level of the KPI. Net asset value, JPY 2.8 trillion increased.:
And I want to discuss a little bit about the breakdown. So share price increased JPY 4.2 trillion was from the share price increase, mainly driven by Arm growth, JPY 3 trillion and the JPY 0.4 trillion is from T-Mobile and some others. In the past 3 months from October to December yen to dollar actually was changed the trend from the yen depreciation to yen appreciation. So that is negative for the net asset value calculation wise. And this was minus JPY 1.1 trillion. And net-net, still, the JPY 2.8 trillion of the increase has been secured for net asset value. So I believe that the share price was the main and very important driver.:
Now let me talk about the Arm. Earlier today, in Japan time, they announced their financial results. And share price exceeded $78 which is record high since IPO. And today's price is about the same. IPO price was $51. So Arm share price saw increase by 54.1% in a very short period of time; great performance. And this has a significant positive impact on our share price, especially today.:
Let me talk about investment return on Arm, like I explained about T-Mobile earlier. In 2016, I believe we made an investment at JPY 3.3 trillion. But equity portion was bigger. We had a great cash position, so we didn't have to borrow too much. And equity was JPY 2.3 trillion plus some leverage. That was when we made investment. As of December 31, JPY 11 trillion of return and equity grew from JPY 2.3 trillion to JPY 10 trillion. Equity IRR, 21%; and MOIC 4.2x, which is a great performance for a big ticket item. Not only that in the -- until the end of December 31, looking at the most recent share price, which was up, so equity IRR even increased more and for Arm, we expect more growth from Arm and Arm is the biggest contributor to global AI evolution. So we have the highest expectation from Arm than anybody else.:
And looking at SoftBank Corporation, which is the mobile carrier in Japan, they announced the financial result yesterday, not only their business performance, but also their share price performance have been very good. And in fact, mobile market is on a good trend in Japan at the moment. And IPO price of SoftBank Corporation was JPY 1,500 and record high since IPO was JPY 1,900, slightly declined recently, but still a record high price was up by 33% since IPO. Right after IPO, maybe we had caused some concerns among investors. But SoftBank Corporation focuses on dividend yield, which is 4.9%. And SBG, in fact, received a dividend almost JPY 1 trillion. So not only the share price, but also the dividend we received have been the value that we have been enjoying with SoftBank Corporation.:
Now Vision Funds. For the 3 consecutive quarters, they made a profit, which is really reassuring. 2 years ago, we had some tough time. But since then, right after tank, if you will, they have been steadily improving their performance. Cumulatively speaking, again, we have seen improvement continuously, and it's been recovering to negative JPY 2.9 trillion, almost there, almost there. So again, this is a cumulative number, including Vision Fund 2 and LATAM value. In the last 12 months, we have been very at low level, which is good because we focused on defense. So in the last 12 months or so, the LTV have been about 10%. But our policy or guideline is 25%, 25% itself is very safe. Less than half of 25% is current level. We will come back to the point what we're going to do with this low LTV as an investment company. We have more opportunity for investment. I think that's what the number can tell.:
Cash position. We maintain high level. Continuously, we keep high level. Of course, as an investment company, we want to have a good cash position to make sure we are not going to miss investment opportunity. As an investment company, again, we will finance and we will invest in mid long term. Sometimes we may focus on return and sometimes we may focus on make investment, but we make sure that we maintain a certain level of cash position always.:
Impact of ForEx. As of the end of September, $1 was JPY 149 but as of December 31, up to JPY 141. So higher yen has an impact on NAV by JPY 1.1 trillion. On accounting side, the higher yen had negative impact on equity, but positive impact on consolidated net income. By the way, in January, the yen has been weakened. So I think it's around JPY 148 per dollar. So at the moment, this negative impact might have been gone.:
Now shift from Alibaba to AI. In the past, our portfolio was mainly built by Alibaba. But we have been shifting the assets from Alibaba to others. And I think now we are at the stage of completion of shifting. This chart compared as of December 31, 2019, and December 31, 2023. So 4 years ago, Alibaba accounted for 50% of assets held, Arm 9%, Vision Fund 12%. That was 4 years ago. And as of December 31, 4 years later, Alibaba effectively 0. Arm accounts for 32%, up from 9%. Vision Fund likewise, as they have been investing more, increased from 12% to 38% in terms of percentage of our assets held. So we have done a dynamic shift.:
Even though net asset value or gross asset value have not changed dramatically, but content changed dramatically. What it means is, we have gone through a shift from Alibaba to AI-centric portfolio. Arm, obviously, and Vision Fund have been investing in opportunities for businesses that contribute to AI evolution. And SoftBank Corporation, although they are a mobile operator, they are really committed to themselves to become AI-centric company. And we can deliver synergies from those invested businesses, and that should bring us an opportunity to make new investments. At same time, as AI industry grows, those business should grow along with AI evolution going forward.:
And talking about Alibaba, when we had a lot of Alibaba before, we were China-centric. But now we have gone through the shift. The regional competition changed dramatically. So we have been able to mitigate risk of being China-centric. 4 years ago, 54% accounted for the regional competition, the red part, China and now only 8% and 43% EMEA, including Arm and also Japan, other APAC, 15% and 9%, respectively. So we are well balanced in terms of geography. By the way, North America, 21%.:
So looking at those changes from different angle. Looking back the history, as you can see, Alibaba have been going down, whereas Arm have been going up. So it shows a shift obvious shift from Alibaba to Arm.:
And about net asset value, another important aspect of NAV is as follows, the time line starts from 1998 through 2023. I joined SoftBank 2000. I think this is the history of mine in SoftBank, if you will. I have seen ups and down. Important message here is we are on upward trend recently, not only to SoftBank Group, but also market condition and the future outlook have been very positive. And that have had a positive impact to us as well. We expect -- we hope at least that next 12 to 24 months should be growth term.:
And not only NAV, but also market cap is another important indicator that we need to always keep in mind. And the NAV discount is 52%. NAV is JPY 19.2 trillion, but market cap was only JPY 9.2 trillion. So again, NAV discount is 52%, which is really a serious thing that we need to look at. But today's share price was JPY 7,350 and at that rate, NAV discount will be 40-something percent. But of course, NAV itself should increase even more as Arm growth. So we have to keep watching NAV discount, and we need to figure out how we can narrow the width of NAV discount.:
Here on, we would like to discuss about Arm. In one word, it's doing great. You see the results announcements. And you may also check the numbers announced this morning in Japan time. The cumulative number of shipments of chip actually, this graph is actually we were using, when we were discussing to acquire Arm. And this was the kind of picture we were seeing at the time of the acquisition. And this exponential graph is something that very much overlap with what is actual was with our expectation and very happily that they were able to show this great numbers of the Arm-based chips shipped.:
And also great strategy discussion with industry leaders making progress. This is just one example that -- 3 examples to be more specific. For example, the Renesas Electronic adopted base technology for the high-performance microcontroller, which delivers real-time operations, also Media Tek, adapted Arm-based CPU and GPU for Dimensity 9,300 chip for high-performing smartphone. Microsoft also announced that developed its first CPU for cloud servers, which is Arm-based and performs 40% higher than current generation.:
So with those major players in the industry, we were -- Arm is able to having great discussions and making good progress in strategic move. With such a great progress, quarterly revenue, it's continuously reaching record high and $824 million and also the loyalty revenue for the quarterly basis, this is the highest ever. In the quarterly non-GAAP operating income, quarter-to-quarter, 17% increase. And earlier this morning, Arm also disclosed the guidance and business forecast. And as a result of this guidance updated, the range in between $3,155 million to $3,205 million and very steadily making performance and very much expecting that it's going to be following as it has guidance.:
And this is the guidance for the business performances announced earlier. And fourth quarter revenue is expected between $850 million to $900 million. Full year basis, $3.1 billion to $3.2 billion. You have some parenthesis/brackets underneath. This is the prior guidance range. And actually, the upper range was just about $3 billion. And actually, this time, the range of the smaller one is exceeding what was previously announced as an upper range of the prior guidance. So this is great news and great guidance that we are very happy to hear such a great progress.:
And how and what kind of growth driver will be the kind of a player for the Arm's future? And there are 4 big agenda. One is the royalty revenue. And next, it's subsystem, which I will be putting some more color on this later and compute for AI. And also the world's largest ecosystem to support such 3 agendas. So these are the kind of the main driver for the future growth of Arm.:
First, royalty revenue. Because the demand is increasing in semiconductor, we are -- it is expected a 7% growth for the industry itself. In this industry, Arm actually reaching to a variety of the markets not only to the smartphones. For example, PC, automotives, infrastructure, those can be a very attractive market, and that can be another market share that the Arm is going to be able to aim for. In addition to that, royalty rates itself is increasing, and that's another expectation we'll be able to add on. So on the various devices, complicated computing is required such as generative AI and so on, and that requires even more higher quality chip. And along with the needs for the higher-quality chip, rates for the royalty is going to be also increased. So the quantity is going to increase and at the same time, royalty rates increase. As a result, you see the good growth in royalty revenue.:
In subsystems or the growth from subsystems for the designing of the semiconductor chip is becoming even more complicated -- for those licensees, designing -- using such design, but not all of each individual IPs, but Arm provides integrated and verified configurations of Arm IP and such needs are increasing. And the users will be able to minimize the time necessary by having such a subsystem. And for those that are using this subsystem does not require to developing from the each individual IP so that you'll be able to reduce the cost and also the time to market. And right now Arm is having a great contract with the 5 companies so far, of which are the Microsoft. Microsoft's Azure Cobalt CPU for cloud servers are developed using Arm based subsystem, which delivers 40% higher performance per watt.:
Even with other customers, they will be able to reduce the time to market and also be able to still develop the complicated chips.:
And third, growth from compute for AI. To do the generative AI developments or machine learning, energy efficiency is even more important. So server to PC to camera, smartphones. In anywhere Arm-based chip has been used because of such energy efficiency. For example, recently, Samsung in Korea just announced the smartphone using their latest chip Arm-based chip. That actually enables live translations or the high-quality computing performance.:
With such elements actually, we have our largest ecosystem to support that. And Arm has built out the world's largest collection of companies who work together to make Arm based chip design successful. Many companies actually communicating closely together and that this ecosystem is built. And with those companies collaborating and have all the parts and process ready, then that we'll be able to have this chip. So inter compatibilities with the other companies' part is also very important. So not only the licensee but also for those customers who are not our licensee, actually, we are providing the compatible test free of charge so that we are trying to build the infrastructure, which can run AI-based chip properly.:
Right now, about 70% of the world population are using Arm-based products in many ways. Smartphone probably is the easiest example. And not only that, many devices around you are actually using Arm-based chip or Arm-based products.:
In design and develop. So those people who are in the process of developing -- developers involved in developing Arm-based chip is 15 million and above. And at the same time, more than 1,000 partner companies are involved in shipping Arm-based chip. So with such a great collaborations in the great ecosystem, we are successfully producing or we are successfully providing Arm-based chip.:
In the beginning, I mentioned about the share price of Arm. And recently, we've been seeing a great development of the share price as an invested -- investor of Arm. But in the future, actually, we are hoping, and we are expecting that there are even more room to grow for future -- in Arm's business future.:
Rene, Arm's CEO, recently attended and spoke at the CES, and he said, AI everywhere, and you can't run AI without Arm. I believe this is really the kind of time now that we're seeing such a trend, and we are very much convinced that the AI is really essential for many ways.:
And now I would like to turn to investment strategy and also about Vision Fund. Vision Fund gain and loss on investments in the past 3 months, Vision Fund I, Vision Fund II and LATAM funds. Major part is from the Vision Fund 1 and 2, but those 3 funds are actually showing us a very good and steady performance here. With total of those 3 funds over JPY 600 billion or above of the gain. And for breakdowns for Vision Fund 1 compared to Vision Fund 2, each -- ticket size of each portfolio is relatively large and also mainly invested in later stage of unicorns. There are many successful cases in the past. For example, Arm is one of them. Coupon is also the good example. And now that we're seeing the good and strong performance from ByteDance. So ByteDance as Vision Fund I, is recording $1.9 billion of the gain. Vision Fund II, $1.7 billion of the gain. And this is mainly due to share price rise in public assets and also having up rounds of the financial rounds. Those are the major driver for the -- this result of Vision Fund II. In terms of LATAM, share price rise in public assets is a good contributor.:
For Vision Fund 2, I would like to add a little bit more color because Visual Fund 1 has a longer history, Vision Fund II was about 3 years ago that we have started and actually try to distribute the money or investments in many places. We had some difficulties because of the environment and the market situation. But if you look at this slide on your right-hand side, this is the current when you see the improvement in value, that's the blue bar. And those markdowns were the red bar on the far right. Mark up public companies are 8 companies, and in dollar terms $1,158 million. In markdown, the bottom of the red bar, you see 9 companies has marked down in dollar term, $287 million. So net-net, actually, that the more companies marked up and also the more amounts are marked up compared to markdown. In private companies, 88 companies, 88 private companies' value are increased in dollar term, $1.7 billion. Markdown companies in private and 74 companies in dollar term $929 million. So compared to the second quarter 2023, we have largely improved the quality of the portfolio companies.:
The main driver for the private company value up is the -- some improvements in business, also the peers improvement as well. But actually, the main driver was round up of the financial rounds. And this is by quarter of the gain and loss on investments and in the past 3 quarters -- 3 quarters consecutively, that they're increasing or improved. And the cumulative wise, we are almost above the water. So very close to the above the water now.:
Cumulative investment return, this is for Vision Fund 1 invested $89.6 billion in total and cumulative return is $106 billion. Of that 64 exited, 18 public companies investment before exit. We are looking at great performance and Vision Fund 2's cumulative investment return is shown here. Investment costs $52 billion and a cumulative investment return, $33 billion. So the performance is well underperforming, but it's been improving in the latest 3 months, backed by a positive market condition, we believe that Vision Fund 2's performance will get even better.:
Talking about our funding round. This chart shows funding rounds of private portfolio companies. In 2023, they raised $8 billion and 41 rounds took place and the up round was 48%. Almost half of the companies, which is great. But businesses that did financing or funding down round. Well, it's not bad either, even though it was down round, it means they got trust from future investors, which is, I think, they're great itself. Sometimes, it's good to finance even though down round because you cannot finance at all is the worst. So private equity market has turned around, and that has had a positive impact on those private portfolio companies funding rounds.:
The investment amount is shown here. In the third quarter, we invested only $0.3 billion because we did not see many opportunities. But as a policy, we want to capture investment opportunities as much as possible. That's why we have turned to offense mode as opposed to defense mode. We already [ resumed ] the investment. Important thing is to actively make investments. Of course, that require sort of analysis also requires a lot of communications. Those groundwork is important before actually making investments.:
One or 2 investment examples here recently. One of them is Tractable. The other is CATO. Left-hand side is Tractable, which is AI-powered automation insurance claims and damage assessments, enabling real-time condition assessments and accurate repair estimate via smartphone images. This is, I think, a very unique business model.:
And the right-hand side is CATO networks. This is security access service edge optimally and securely connects all enterprise locations, users and clients. There are many more investments we did recently, but those are just what I wanted to pick up today.:
Last but not the least, I need to talk about this financial strategy before closing. For FY '23, we keep this financial strategy adhering to financial policy, financial management, adaptable to both defense and offense policy. We have kept this policy for a long time. Why don't you change policy depending on conditions, some people suggest, for example, 25% to a year worth of bond redemption? Why don't you change those numbers? Well, some people criticize our policy, I think a simple policy like this is important because it is the pillar for us to express ourselves, we are stable and we are reliable. And retail investors and retail end users, we need to make sure that they understand what we are doing easily. So again, maintaining LTV below 25% in normal terms, maintaining at least 2 year worth of bond redemption in cash and securing recurring distributions and dividend income from SVF and other subsidiaries. That remains our policy.:
To respond to defense and offence. We need to make sure that we have a strong policy in place so that it will allow us to be either defense or offense. And talking about capital allocation now, what would you like to use capital for. The slide shows new investment, shareholder return and financial policy at the bottom. What we want to do is to have an equal view on shareholders and the debt holders. And in order for the company to grow, we need to make an investment. Otherwise, we cannot grow. So we need to strike a good balance. Even going deeper. Net asset value whether it is growing or not that shows a track record of corporate growth.:
And the NAV discount, which we showed you earlier, so the gap between NAV and market cap. Why there is a discount, there should be a reason why there is a discount. To put simply trust, whether it's a strong or weak in [indiscernible] in which direction NAV goes, going forward.:
So I think the message here is we need to communicate more about what we are doing to address this discount. And what we can do to increase corporate value; one way is share buyback.:
Please take a look at this graph. We have done JPY 4.5 trillion worth shareholder buyback in total, sometimes JPY 0.6 trillion, JPY 2.5 trillion, JPY 1.4 trillion. When did do share buyback, share price went up. But right after the share buyback, the share price went down to pre-share buyback level. It was not sustainable to be very honest with you. Why? Shouldn't we do something about it? We understand that the share buyback is an important tool to return to shareholders. And CEO Masa himself, has over 30% of stake in the business. So the shareholder returns importance is well understood, not only by the management but also CEO Masa himself.:
And NAV is the thing that can show corporate growth. In order to grow NAV increase NAV, we need to be active in investment. So what we should do is here. We have JPY 4.4 trillion cash position, and we have JPY 19 trillion of net asset value. So while we are using cash position backed by different types of assets, we can structure different leverage financing. In order for us to increase NAV, we need to make new investments for growth, and we need to focus on new investments at the moment. But as an investment company, we need to return to shareholders while this investment cycle is running well.:
Increasing NAV is the first step we should take before returning to shareholders. But again, let me repeat. We have done JPY 4.5 trillion of share buyback in the last 5 years. This trend, we want to keep the trend while making proactive investment. And as a investment company for us to grow going forward, we will run a good cycle of investment and reinvestment and making sure we return to shareholders.:
Summary; net income, JPY 950 billion. And in the last quarter, we have done a lot of things, and we have moved forward. And thank you very much for your attention, and that's all for my presentation. Now we would like to have questions from yourself. Thank you very much. :
Operator: [Operator Instructions] Now we would like to take questions from the floor. Far left on the frontline gentleman, please.
Unknown Attendee: Thank you I am [ Sata ] from Nikkei Newspaper. I have 2 questions, so one by one. First, great performance. Are there any changes to your strategy of SBG? Any AI strategy has been highlighted, but any changes or any updates on your AI strategy for SBG?
Unknown Executive: Yes. Share price increase is kind of a short-term performance here. But what we are very much focusing is the AI, which is the most discussed agenda. And actually, Arm is a company who can make the best contribution to such an AI movements. And I believe that, that has been valued and because we have Arm in our group, we will be able to address AI move in a variety of the way. And also having Arm in our group that we'll be able to make a very specific steps towards the AI strategy. Masa is actually discussing exploring AI strategy. He's trying to do many things, but anything that he would like to do always lead to Arm-based or chip or Arm technology. So that's something that we always reminded ourselves that how Arm is important for our next steps or next progress. And I believe that, that has been interpreted in the shape of share price, I believe. So AGI or strategy can be more involved for the -- because of the Arm good results.
Unknown Attendee: And the next question is about the net asset value discount. You also show some slide. So JPY 19 trillion of the asset value. And I believe you have a bad debt of JPY 2 trillion. So less debt is JPY 17 trillion. That's my assumption. And about JPY 8 trillion at the end of March. About JPY 8 trillion of the gap will be made between asset value and market cap. It may not be the simple question or simple answer, but the Vision Fund, JPY 7 trillion size it looks like it's not counting Visual fund at all. And I believe that there are kind of intransparency of the Vision Fund or the people may not be enough trusting the Vision Fund performance or Visual Funds' growth. That's probably one of the reasons for the discount. Do you have any message? Or do you have any comments about the Vision Fund activities going forward?
Unknown Executive: The Vision Fund strategy, I believe it's very clear and simple as an investment fund, focusing setting the vision for AI and believe in the world to be utilizing AI in a variety of the ways. And there are companies who are going to focus on AI or developing with AI. And that's the kind of the target for Vision Fund to invest in. And there are teams that are making every effort. Of course, a year ago, 2 years ago, there were a time that we have to stop a little bit of time for the offense. This year that we kind of shifting -- but because we have experienced the difficult moment in the past 2 years.
So that is why we have to be a little bit more careful, I have to be a little bit of a conservative. So that's why as a result that we are not showing more big numbers from the Vision Fund. And because performance comes along after our activities, that's why it comes even later, but not now. And I believe the biggest message for investors, I believe the most important thing for the fund is performance, showing you the performance, which is not happening now, but the size is exceeding JPY 1 trillion. And also, we would like to spend enough time for the investment period to show you the performance. :
Operator: Next question [ Shinkai from Bomgargen ].
Unknown Attendee: First question about Arm. I have a question about how you treat Arm as assets? You have about 90% of Arm shares. And going forward, you may want to sell a little bit of Arm ownership or using Arm shares, you may want to do asset back financing to make new investments. So -- or which way or what kind of idea do you have in terms of how you use Arm assets.
Unknown Executive: Yes, Arm is a public company and whether sell or not, buy or not. In principle, I will not make comment on that. But I would just say Arm in our group company is the most important company for us. Like I keep saying, we are the company that has the biggest confidence in Arm's growth potential, and we want to value Arm asset. Of course, we can utilize Arm assets in different ways. For example, using Arm shares for margin loans. So Arm share as an asset from a financing perspective, it's easier for us to utilize. So I think there are a lot of options that we can select to support investment from a financing perspective. Again, Arm is a great asset for us. I think that's something I can say now.
Unknown Attendee: Maybe for Navneet about Vision Fund? We see that the investment figure is quite still very small, actually smaller than the previous quarter. We want to know if -- when -- if at all, the pace of investments could pick up later this year or in the future?
Navneet Govil: Thank you, [ MJ ]. We remain very focused on looking at opportunities in the AI space. But at the same time, we're being very prudent about finding the right opportunities at the right valuations. So our focus is on AI investing across all AI verticals, but there's a very high bar for investing. And we are also focused on unlocking our portfolio value. So part of the earlier question about the discount in net asset value and market cap, the Vision Funds and LATAM funds have a fair value of $146 billion, and we want to make sure that the value is unlocked. And it also includes disciplined and consistent monetization. So it's not just investing in new opportunities, but also unlocking value and monetizing our portfolio. But recently, in the second half of 2023, we made investments in companies like TravelPerk, Tractable, Cato Networks. So we are ready to deploy capital when we see the right opportunities.
Operator: Any other questions, please? The very front row in the right-hand side.
Unknown Attendee: [ Yamaguchi ] from Mainichi newspaper. It may be difficult for you to answer this question. I thought I'd like to speak about Rakuten; other company. So in the coming 2 years, JPY 800 billion of their bond redemption is expected and they are refinancing. And as a CFO, how do you look at the Rakuten status? And also as a general opinion wise? What is anything that you can comment that you care about?
Unknown Executive: Comment to the other companies is really difficult. It can be very rude. I don't want to make any comments about others. I can't talk about our company. So you mentioned that Rakuten is expecting the JPY 800 billion of the bond redemption. So when you speak of bond redemption, probably I can talk about our positions for the bond redemption. For example, our case as an issuer, we are quite a large issuer in terms of bonds and especially for the retail bonds, retail investors, we have quite a large issuance as well. And for them, we don't want them to feel any risk at all when it comes to redemption. So when you see the redemptions that I want them to invest us again, that's something that I would like them to feel. So that's why that I believe it is important to show you what is the source for the redemption.
So that's why we have a financial policy of cash positions, keeping the cash position for -- to cover to at least a year of the bond redemption because we have expiries every year so that we have to show you what is the source for the redemption. You have the expiry dates. We have money here. We can redeem you. We can pay you back. Or would you like to invest us again? Do you want us to prepare a same kind of instrument so that you can invest once again.:
As long as you can show you the source of the redemption, then the investors feel more safe and happy if you don't have any other way to manage your assets, then that you'll be able to invest us again. I think that's very important. And if you go the other way, that's going to be very tough. We did experience a little bit of difficult time in the past as well. So that is why we would like to show you we have more than enough room there to redeem because we are an investment company that is going to be even more important. And I think that we would like to keep that kind of policy. :
Unknown Attendee: And also another question to Navneet? India, OYO IPO is expected. When do you think it's going to be the time? I think that they are postponing the IPO timing.
Navneet Govil: We're very pleased with our India portfolio. In fact, FirstCry and Ola Electric filed for a listing in December of 2023. As you pointed out, OYO is also expected in the coming year or so to go public.
Unknown Attendee: Any reason why that they are postponing IPO event itself?
Navneet Govil: There is no rush for all of our portfolio companies, they will go public when the time is right, and that means when they can give -- they have the right controls in place, they have sustainable financial performance, and they are either on the path to profitability or are already profitable. So that timing will depend on that.
Operator: Thank you very much. Any other questions from the floor? If not, let me move on to Zoom. Again, please refrain from connecting to other live stream to avoid any echoing. And if you join Zoom's Japanese channel, please ask us question in Japanese. First question, Nago San from NHK. Please unmute and speak, please.
Unknown Attendee: My name is [ Nagoshi ] from NHK. In the last quarter -- third quarter of last year, Masa did not attend financial result announcement anymore. So he has been focusing on the growth of the business. I believe that I wonder if you can share with us the update on Masa, what Masa is doing lately.
Unknown Executive: Well -- what I didn't mention in the presentation, I think that what Masa is doing is one of the most interest you may have, every day he has been pretty busy, as you can imagine, although he isn't -- not in front of you, but he is in office. And every day, if necessary, I see him, I talk to him and I listen to him. There are a lot of amazing stuff going on. The last presentation he had in front of you, at that time, he mentioned that he wanted to ensure Arm's growth and Arm's evolution, Arm's growth should be linked to the growth of the society. And that kind of broad vast subject, in fact, not only one, but also multiple broad big subjects are something that he is working on. It may take time before making them bearing fruit. And it's been some time since he stopped showing himself to you. I hope he will come back to you sooner the than later, I cannot say when, but I hope that you look forward to seeing him once again in person sooner rather than later. I believe that what he is doing should contribute to a lot to SoftBank's corporate value, and we appreciate your patience.
Unknown Attendee: A different question, if I may. At the last quarter's financial results announcement, you mentioned several investment by SoftBank Group, including autonomous vehicle business. I wonder from SoftBank Group, are there any specific themes or subjects where you focus on investment? And can you share with us how many companies that you have made an investment as a SoftBank Group.
Unknown Executive: Well, I am not updated as recent as now, but maybe automated warehouse business was something that we invested in. And AI is one of the biggest topics that we are looking at, obviously, and gen AI, and logistics, manufacturing, talking about logistics, including transportation and autonomous driving; from factory through transportation to the final destination. And when it comes to manufacturing, specific cars or vehicles or robots. So there are a lot of things that can be presented to you as a result of AI evolution. And those are the subjects that we are looking at. But investment opportunity does not come in order. So we are looking at wide varieties of area. But at the same time, whenever we have attractive business opportunities, we are not slow in talking to those founders. And if you want to have a long-term relationship, we use our balance sheet to make an investment in those businesses. And I think that kind of a stance will remain the same for some time.
Unknown Attendee: Well, a follow-up question. investment by SoftBank Vision Fund investment by SoftBank Group may be different by nature. But as a SoftBank Group, going forward, the investment that you make will you run your business going forward after investing in those businesses.
Unknown Executive: Yes, that is one option. Those invested companies can work with us as a long-term partner or maybe we built a joint venture with them. And eventually, we will have them as a group company. Even though investor companies keep running the business and as a holding company, we may manage them as investment. And we may transfer them to Vision Fund or SoftBank investment may be transferred to us. So we are open to different options that we can take.
Operator: Next question from Mr. [ Hugo ] from Bloomberg.
Unknown Attendee: This is Hugo from Bloomberg. Thank you very much for your presentation today. In the beginning, you mentioned that you turned to profit, and you are relieved, you said. So do you think that this is the next stage, you are in the next chapter or because the investment amount for the third quarter was relatively small. I believe that it was because of the prudent manner, but is it because you couldn't find any good target for the investments? Or you couldn't find good investments or there are private equity investments in the AI investments are happening here and there. Why the third quarter investment amount was relatively small. And also, what is your pipeline right now for the next quarter? Is it going to be, again, the small amount for the fourth quarter? Or what -- can you share any pipelines that you have right now for the coming quarters.
Unknown Executive: So for this third quarter, actual amount for investment is small, like you said. However, I believe this happened to be a small or coincident, I would say, because many of our team members are -- look for the good target, there are many discussions coming into Masa's office as well. We do see quite a large number of the pipelines, too. But when it comes to the actual investment itself and also the decision-making for the investments and actual execution of the amounts. So this is the amount that we have executed at the very last stage is shown here, which happened to be relatively small, but we may see the next quarter or next quarter on that these that we are preparing, that we are working on can be coming out.
So because we can really control the investment timing or investments because we don't have an investment budget. Many people ask us, but we SoftBank Group or SoftBank doesn't have a budget for the investment because there is nothing good about setting the budget for investment because when we have a good preparation, when we have a good target, good investment investees, then we do execute the investments. And that process was actually small this quarter, that's the kind of reason why. :
Unknown Attendee: In Japan, it was on the -- you found only the 5 or 6 investees in Japan from the Vision Fund. Do you see any potential or any good possibility that you may be able to find a good investees in Japan from a Vision Fund investment point of view. Goto san, do you see any opportunities here in Japan?
Yoshimitsu Goto: I don't specifically talk about any company's name or anything but I think there are many attractive companies in Japan. And also, of course, my expectation, my feeling was we want to have more investments in Japan, too. We hope that we will be able to support more and more in Japanese company, too. We have energies. Of course, that is going to be distributed to the world. And also, as you said, that the number of the investments that we have made in Japan is still less. So I hope that the good entrepreneurs in Japan is going to grow going forward.
Operator: Thank you very much. That is all of from -- question from Zoom. Thank you very much. That concludes the SoftBank Group Corporation's earnings results announcement for 9 months period ended December 31, 2023. The video footage of this meeting will be distributed on demand from our corporate website. Thank you very much once again for joining the SoftBank Group Corp. earnings results announcement for the 9-month period ended December 31, 2023.