SoftBank Group Corp.
Q2 2021 Earnings Call Transcript

Published: 10 Nov 2020

[Unidentified Company Representative:]

Thank you very much for waiting, everyone. Now we would like to start the SoftBank Group Corp. earnings results announcement for the 6-month period ended September 30, 2020. First of all, we would like to introduce today's participants. From left, we have Masayo Son, Chairman and CEO; Yoshimitsu Goto, Senior Vice President and CFO; Kazuko Kimiwada, Senior Vice President and Head of Accounting Unit. This meeting is live broadcast via Internet. Now I would like to invite Mr. Son, Chairman and CEO, to present you the earnings results and business overview. Mr. Son, please?

[Masayoshi Son:]

My name is Son. Thank you very much for coming today. The world COVID-19 situation hasn't been settled yet, actually that we've been seeing second wave and the third wave. And we are still facing a lot of challenges ahead of us. Having said that, vaccines are under development, and hopefully, we will be able to see the good improvement of the situation worldwide. Especially this winter, vaccines for general public may not be available yet, hoping next spring to summer or by the time of autumn next year, hopefully, that we will be able to see the calm down of the situation worldwide. Although that we are facing a lot of challenges ahead right now, I, myself, recently having some exciting moment personally because we've been seeing the great evolution of the era. And for such an evolution, how and where that SoftBank is going to -- heading is something that I would like to share and explain to you using these opportunities. What is SoftBank, what is us and where we are heading for is something that you may have as a question, so that, that I would like to touch on today with this opportunity now that I would like to go into my presentation. So you see this picture, what do you think? There are people on the horse and buggy. This is a picture or drawing back in ancient age of Egypt that we found at the heritage. In Egypt, about 5,000 years ago, people were already using horse as a transportation tool in the past 5,000 years. Just about recently -- just about 100 years ago, tintype photo, which was mass produced, this is a picture for the Ford. So the mass-produced automobiles are now available. And since then, we just spent about 100 years. So 5,000 years, horse and buggy; and 100 years history of automobile. And this automobile is going to be dramatically changing using AI. Automobiles is going to be driving by itself. So we will be seeing autonomous driving just a few years ahead. Just a few years. Actually, one of our investees, especially GM Cruise and Nuro, those management, I had a meeting -- a Zoom meeting with those -- managements of those companies. And I was thinking it would take about 5 to 10 years for the autonomous driving. But actually, just a few years ahead, much earlier than I expected that this complete autonomous driving will be mass produced and available in the market. That's the situation that we are looking at right now. So that availability of this autonomous driving is just in front of us, just a few years ahead. So 5,000 years, horse and buggy; 100 years, engine-equipped car; and just a few years later that we see the complete autonomous driving. And this complete autonomous driving is available just a few years ahead. And that's why I said earlier that I am so excited to see the evolution of the era, and this is one good example of such evolution. And let me go into the consolidated financial results. Actually, this time, only -- I have prepared only 2 pages for the consolidated results. And actually, other pages, I will be speaking on the other agenda. So there are only 2 pages. And 1 -- first page is about net income, 4.5x year-on-year basis. So last year -- last fiscal year first half, JPY 4.2 trillion -- excuse me, JPY 421 billion and this year, JPY 1.8 trillion. And net income, if I go one by one to explain the reason, what is onetime gain what is a onetime loss, what is the continuous gains, that's going to be complicated. But just to make the long story short, the biggest difference from the last year is the Vision Fund performance. Last year, first half, but you say -- you see it may not change too much. Last year first half, about JPY 1.3 trillion. The last year -- last fiscal second half was not very good, and this recovered so it came down to almost 0. But this fiscal year first half, again, we made a return profit and about -- close to JPY 1.4 trillion. This is a sum of Vision Fund 1 and Vision Fund 2 total of the profit. Especially this March, we made the biggest loss in the history of SoftBank. And such biggest loss because of the Vision Fund, WeWork issues and so on, so that people were expecting that we are making a big loss. But actually, rather, it was 0 in terms of cumulative gain profit and loss and now that we are back to the profit, again, to almost JPY 1.4 trillion. Other than that, this first half we had a merger of Sprint and T-Mobile and some other factors. And financials. Net income, roughly, you can view that. Operating income, I don't need to explain and announce here anymore. Then what is SoftBank? That's the question, I believe. Since the foundation of the business, we never changed, which is this information revolution make happiness for everyone. So the corporate philosophy and the passion as a Softbank, although how we make that happen has been changing because in the beginning, we start with the distribution of PC software, publishing exhibits. So the personal computer culture was something that we were promoting back then so that they will penetrate. And then once we see the penetration of Internet that we start investing in Yahoo! and also investing in many Internet-related companies and businesses. At that time that we just went public, in that moment, net income, operating income, we just don't care about those and although that we were not making any money, but investing in those company. After then, we had the Internet bubble burst. We had a difficult time, but we survived somehow and now that here we are. So how we do, how we work has been changing. But the one thing we never changed is the information revolution happiness for everyone so that we want to always be the member or number -- member of the information revolution, especially last year our subsidiary of Telecommunication SoftBank Corp. went public and they made their own business and pursue their mission. Then what happened to parent company because we don't operate the business? What is it? That may be the question of yours. But in one word, I will say, this is an investment company investing in information revolution. In addition, from here on, although that it's the same information revolution, but the information revolution of AI that will be our key whole focus. So where we are heading for? We are heading for AI revolution, and we will be the investment company for AI revolution. So that's the one and only key highlight for SoftBank and this is the way we are heading for. So I want you to see this video, just about -- just 1 minute-or-so video back in 2008. So about 12 years ago, this is an announcement we made back then at the earnings results announcement. [Audio/Video Presentation]

[Masayoshi Son:]

This is an important page and I believe this will be the key word continuously and I would say that we will be using this word frequently, so that's why I wanted to share with you. The winner in mobile Internet is a winner in Internet. And the winner in Asia will be winner in the world. Those are the 2 key words. I was young. But actually, I don't have much hair. But then anyway -- but anyway, I thought that I had even more hair, but put that things aside. Since 12 years ago, I've been saying this 1 page thing

[Operator:]

Thank you very much. Now we would like to open for questions. So we would like to first take questions from the floor. [Operator Instructions]

[Sam Nussey:]

My name is Sam from Reuter. Questions, so up to 2 questions.

[Masayoshi Son:]

Can you leave it to 1 question per person because we have many people?

[Sam Nussey:]

So MBO. There are media coverage regarding MBO that the Masa is considering. What do you think about MBO, management buyout?

[Masayoshi Son:]

I have no comment.

[Unidentified Analyst:]

[Morita] from TV Tokyo. Four years ago, after the President was elected, you went there to celebrate the new President and you said that you took that as opportunity to change regulations in the U.S. But with President-elect Mr. Biden, how do you see America as a place to invest?

[Masayoshi Son:]

So like I said, that we focus solely on AI evolution from going on. Silicon Valley or America is, what I say, mecca of AI revolution whether our interest rate -- or regardless of interest rate or regardless of who the President is, we want to continue investing in American market. And also, China, I showed you one of our video clips, which is Beike, and also a lot of AI companies are born in Chinese market. And also, Southeast Asia and India, a lot of companies coming from those markets. So the center is America and China when it comes to our investment, which market we are going to invest more or remain the same for us to focus.

[Ryo Inoue:]

My name is Inoue from Asahi Newspaper. In the previous earnings announcement, you said cash is the protection or defense and I believe that you talked about defense. And today, actually, you never talked about defense at all. JPY 4.5 trillion monetization program and actually you already achieved and exceed the target amount. And what is your position on the investment? Is defensive mode already finished? Are you going to be aggressively investing going forward?

[Masayoshi Son:]

Thank you for your question. We have -- we would like to be prepared with defensive mode, but at the same time like to be aggressive as well. Well, thankfully, at the end of March, we announced that we will be -- we would like to have enough cash and set JPY 4.5 trillion as a target for the monetization program so that we dispose and monetize the assets. And many people actually that we don't sell at all, but in the past 6 months we actually have monetized about JPY 10 trillion equivalent, including NVIDIA transaction. So total, about JPY 10 trillion monetization program has already been completed. So the target was JPY 4.5 trillion. And assuming that the contract complete is the transaction complete, of course, we have to wait for the regulatory approval. But including the transaction of Arm and NVIDIA, that I would say JPY 10 trillion monetization has already completed. So that the defense is enough that we have enough cash to be defensive mode, and we are prepared. So with this affluent cash, we would like to continuously invest in AI revolutional companies and we would like to evolve ourselves as well one by one. By the way, I don't wear masks today, but I take tests every 3 days. In fact, I took that in the morning, so rest assured.

[Tatsuhisa Shirakabe:]

Shirakabe from Nikkei Business. About SoftBank Vision Fund 2, you mentioned that it's been pretty well -- going well. With this good performance, are you going to invite third-party investors? What's your view?

[Masayoshi Son:]

Well, Vision Fund 2 and Vision Fund 3, we are open always to third-party investors. But at the moment, we are not that popular yet. So in the meantime, we have JPY 10 trillion of our own capital so we are okay so far, but we have investors that we have been working with for a long time and we want to respect them. And again, we keep our doors open always.

[Phred Dvorak:]

My name is Dvorak from Wall Street Journal. Relates to the previous question. JPY 10 trillion monetization has done and you will be proactive about investing. But how do you -- are you going to use those money? Are you going to do more share buyback, for example, like JPY 2 trillion? Another share buyback are you considering such? Or are you going to invest in more money in Vision Fund? Or is there any other way of using proceeds? How you -- or are you going to put money in the new management company to invest in tech industry? Or are you going to put money? There are articles regarding spec as well. How are you going to use those money?

[Masayoshi Son:]

Yes. Thank you for your question. We would like to be balanced in terms of use of proceeds. And I would like to be -- consider a variety of options available. So I would like to have our options available. That means we can be defensive, but at the same time, offensive. So in the previous announcement, we talked about the barriers for the horses and stuff like that. But actually, between those barriers, you have guns and you'll be able to shoot and also protect yourself as well. So there are 2 ways that you can do at the same time, defensive and offensive at the same time. So that's important so that even if we are a defensive mode, but not forgetting about defensive and also achieving more than that we have predicted for the program. But at the same time, that we would like to be proactive from the variety angles and we would like to be ready with those options available. And I think that we have set the frame for that.

[Unidentified Analyst:]

[Hota] from Nikkei. About new investments going forward, you mentioned 90% listed stocks. More specifically, what's your view on investing in listed stocks? For example, regions or markets and percentage, 20%, 40% or more or small? Or is it long-term investment or short-term investment? So give us your view on investment in listed stocks?

[Masayoshi Son:]

Well, we are running sort of pilot program when it comes to investing in listed stocks. And also, we made the names public those companies that we invested in. Stocks are very liquid, so if we make up our mind, we can quickly liquidate them in a few days. So it's more like cash. It's very convenient for us. And since it's a blue-chip stocks, we don't intend to own 10%, 20%. In Vision Fund, usually, on average, 20% ownership and usually Vision Fund is the leading shareholder of those investees. But when it comes to listed companies, listed stocks, maybe a few percent is ownership. I think it should be okay for us even a few percent. Since, again, those are blue-chip stocks, position will be reasonably big. And those companies' management, especially CEOs, I know them personally very well. So from cluster of leading company strategy, I believe that it makes us easy to partner with them. But again, this is a test program, so we will see how it goes. So it depends on market cap, I think.

[Unidentified Analyst:]

But is there possibility opportunity of merger?

[Masayoshi Son:]

Like I said, we are an investment company, not an operating company anymore. So merging a business and controlling it is not something that we are interested in now.

[Kana Inagaki:]

My name is Inagaki from Financial Times. Relates to the previous question. So talking about the listed securities and you said that you don't have intention to control the company by acquiring such, but you have quite enough money and you try to make all the options available, not only the listed securities. But would you consider, for example, mobility discussion earlier, but would you consider acquiring 100% of the company or you wouldn't think about that at all going forward?

[Masayoshi Son:]

I don't say it's -- I don't deny the possibility. I don't limit -- I don't want to limit myself. That will squeeze down our options. But 99%, I would say I don't have any intention to acquire 100% of any company at this moment. Rather, I would like to keep the position of the investment company, promote the AI revolution. And for that, I believe that I'm not interested in being a President, CEO or Chairman of the operating company. That would very time-consuming as well and that's a little bit tight for me.

[Unidentified Analyst:]

[Nakako] from Toyo Keizai. Again, about listed stocks. You mentioned that you would be willing to take risks as a risk capitalist? There are a lot of retail investors and institutional investors that are already invested in those listed companies. But still, you as a SoftBank Group, takes risks in those listed stocks. Why is that? There are a lot of speculations around your investing in listed stocks. So who is responsible for listed companies investment?

[Masayoshi Son:]

Well, since those are listed and most of them are blue-chip stocks, that means without SoftBank, without us, companies like Facebook and Amazon have been successful and will be successful. So a reason [indiscernible] for them may be not significant to them. But in a capital market, somebody like us keeps investing in those companies in a capital market. I think for them, it's good because they can use that money for their growing business. And again, without us, they can be successful. But with us, capital market is something critical to them for their growth. And Vision -- SoftBank Group's shareholders' perspective, all in all, total net asset value, they want to see net asset value constantly grows. In the case of listed stocks, investors can directly purchase them without going through SoftBank Group. They don't need Masa's presence in investing in those listed stocks. But if you go through a SoftBank Group, you can purchase them at half a price because the SoftBank's stock price is half of net asset value at the moment. So again, you can buy Amazon, Facebook and Alibaba directly. But through SoftBank Group, you can purchase them at half a price. Same stock, but at half a price. Not bad, I think. But who is responsible? And I myself get involved every day and we are organizing specialist team to do the job.

[Unidentified Company Representative:]

So we do have questions from the Zoom. So that after you that we received a question from Zoom.

[Unidentified Analyst:]

So my name is Igawa. How are you going to set the balance between United States and China in terms of investment because you have JPY 20 trillion out of JPY 30 trillion is Alibaba out of your portfolio. So under such circumstance, how do you see the political risk of China if you consider investing in Chinese market?

[Masayoshi Son:]

Yes. Thank you. So that's one of the consideration that because we are too much -- there are people criticizing us depending on too much Alibaba and I think that is true. So that, that's why that we would like to diversify through Vision Fund investments, and at the same time, not only unlisted securities because Alibaba's growth is too much. So even that we invest in Vision Fund for unlisted securities, but Alibaba is growing even more, so that we'll never be able to solve this proportion issue. So that is why that including listed securities, that we would like to change the balance in more appropriate way. But at the same time, I'm a strong believer of Alibaba's further growth so that not diversifying through us divesting Alibaba, but rather I would like to use Alibaba shares for the asset financing, appropriately manage those or using other optional financing scheme. So that we will be able to diversify the asset. Thank you.

[Unidentified Company Representative:]

Okay. A final question from the floor before going to questions from Zoom webinar.

[Unidentified Analyst:]

[Saito] from Nikkan Kogyo paper. Again, investing in stock -- listed stocks, you started mentioning that recently. What was the background? What was the trigger for you to start looking at listed stocks?

[Masayoshi Son:]

Like I said, 2 things. First, focusing on AI revolution and not only unlisted companies, but listed companies are major players in AI revolution. For them, AI revolution has just started, and in fact, GAFA will play key roles in AI revolution. So that's why we wanted to have them in our portfolio. And also too much dependence on Alibaba, we want to optimize the portfolio balance.

[Unidentified Analyst:]

I just want to confirm 1 thing. Monetization program of JPY 4.5 trillion, but we -- you achieved more than that. And in the presentation, you showed that you had quite a lot of listed stocks as of end of September. So by using the result of the monetization program, you started investing in listed companies?

[Masayoshi Son:]

Yes. Part of that money that we secured. And again, we could use stocks itself for asset financing. We still have some money left from the monetization program.

[Unidentified Company Representative:]

Now I would like to take a question from online Zoom. So now that we are taking the question from Zoom participants, so Mr. Owada from Nikkei BP, please unmute yourself and start your question.

[Naotaka Owada:]

Can you hear me okay?

[Masayoshi Son:]

Yes, I can hear you.

[Naotaka Owada:]

So I believe you are relocating your office to Takeshiba. And are you going to also move from Shiodome completely? Or is there some office remains in Shiodome? Or are you going to have new office, other in...

[Masayoshi Son:]

I myself completely moved to new office, Takeshiba.

[Unidentified Company Representative:]

[Shugo-san] from Bloomberg. And in the interest of time, we want to -- well, we can take 3 more questions. But if you have some appointment, you can excuse yourself. Again, [Shugo-san] from Bloomberg.

[Unidentified Analyst:]

About corporate governance. You announced a new Board of Directors, member and corporate officers. What kind of change we should expect from that? Marcelo and Sago-san and Rajeev, those were Directors, Board members in the past. But going forward, they are not anymore. So what does it mean to their authority? Do they have more power or less power?

[Masayoshi Son:]

Well, authority levels stay the same. In fact, even in the past, even as a Board member, they present their idea and make proposal and other directors discuss them if the proposal is a good idea or not. Like they have done, they will present their ideas and proposal to the Board about new business and keep other directors informed on progress. That stay the same. But percentage-wise, we had less percentage of external directors. But now we have more external directors than internal directors because Masa, myself, should be most supervised. And less internal directors mean better governance or stronger governance. We thought about that change in June, but we were not ready back then in June. And usually, we should wait until June next year when AGM is called. But instead of waiting until June next year, since we are ready, it's better to do that because it's a good thing to do. So that's why 6 months before the next AGM, we decided to make this happen.

[Unidentified Company Representative:]

We have -- we will take 2 more person. Next person is Mr. Hirata from Reuters.

[Noriyuki Hirata:]

My name is Hirata from Reuters. Can you hear me okay?

[Masayoshi Son:]

Yes.

[Noriyuki Hirata:]

So what is the pros and cons on being a listed company at SoftBank Group?

[Masayoshi Son:]

Advantage or merit, we have lots. And also lots of disadvantage as well. There are a few for me. And we have both advantage and disadvantage. Are we concerned? There are many speculations, I understand, but we're concerned and explore many. That's for -- that's the answer.

[Unidentified Company Representative:]

And last question, please? Suzuki-san from Nikkei Asia.

[Masayoshi Son:]

It seems he dropped. So maybe next one?

[Unidentified Company Representative:]

Okay. Move on to next question. Actually, last question, please wait for a moment. Or if Suzuki-san can come back again, we will -- he's welcomed. Suzuki-san is back now.

[Wataru Suzuki:]

You mentioned that you have a lot of Zoom calls every day and you are well-known that you believe in your gut instinct when you make a decision around investment. But can Zoom calls are lively enough for you to stimulate your gut instinct? And because of this corona outbreak, it's hard to see how long this kind of limitation continues. So how long do you expect this corona pandemic continues?

[Masayoshi Son:]

Well, until fall next year, I believe that challenges from corona are with us. Until then, even with vaccine available, hopefully. But it takes time to have the vaccine very effective. So gradually, it's getting better, but you can't expect sudden sunshine, if you will. But now I like better and better about the Zoom calls because whenever I go overseas trip, usually suffer from jet lags and sometimes waste of time. But without such long-haul trip, I feel better. Every year, I suffer from some sickness, but I'm not feeling bad at all and I can spend my time more efficiently and effectively. And Zoom is actually good because you can see the faces and you can see the presentation. You feel like talking to them in person in front of you. Even when I eat dinner, drink wine, I would do Zoom calls. So it's like Zoom parties every day -- every night. And I think production is very efficient. Every week, when we make a decision in new investment and first meeting is over Zoom, of course, we got our team doing research in advance. But ultimately, I meet potential investees. And Zoom calls are very effective, I feel really a new normal, as a new lifestyle. And this new normal is more and more popular, I think. Yes, I think that's the all for questions. Thank you very much for staying till the end of the meeting. I believe that you have lots of questions about what is SoftBank and I hope I was able to answer, to some extent, of your questions and hope that you have little bit deepened your understanding on us. Thank you very much.

[Unidentified Company Representative:]

Thank you very much. Once again, this concludes the SoftBank Group Corp. earnings results announcement for the 6-month period ended September 30, 2020.