SoftBank Group Corp. (SFTBY) Q3 2024 Earnings Call Transcript

SoftBank Group Corp. (OTCPK:SFTBY) Q3 2024 Earnings Conference Call
February 8, 2024 2:30 AM ET

Company Participants:
– Yoshimitsu Goto – Board Director & Chief Financial Officer
– Navneet Govil – SB Investment Advisers, SB Global Advisers, Chief Financial Officer
– Jason Child – Executive Vice President & Chief Financial Officer, ARM

Conference Call Participants:
Operator

Thank you very much for waiting everyone. 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 Zoom. This announcement is live broadcast over the 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 situations. 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 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 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 affected places are going to recover soon.

Now let me start our highlights for the quarter the results announcement. Third quarter 2023, we have five highlights. First significant improvement in consolidated results with JPY 950 billion net income. So profit in the quarter for a while and I’m a bit relieved to have such news for you. And also acquired JPY 1.1 trillion T-Mobile shares for no additional consideration. And three net asset value increased JPY 2.8 trillion quarter-over-quarter to JPY 19.2 trillion driven by the increased value of ARM. 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 on Alibaba, but now we are clearly shifting to AI. Last but not least, significant improvement in Vision Fund’s performance.

And now I’d like to start with consolidated results. As you see, I want you to look at the net income JPY 950 billion, JPY 1.7 trillion of the increase compared to the same quarter last year. In the gray bar for that is actually JPY 424 billion of the gross 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 four quarters, we’ve been seeing a 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 loss on investments especially this first quarter to the second and third quarter, we are making very steady improvements quarter-by-quarter.

I would like to give a little bit more details in terms of the gain and loss on investments. So we have SBG investments, and also we have Vision Fund investment. In this side, you can see the breakdown between those two, so the 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.

The next agenda is the acquisition of 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, negotiations, with the counterpart. This is one of the contingent considerations, T-Mobile shares 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 were able to acquire those.

Sprint Investments. We had suffered a lot as well. After the announcement of the acquisition, many considerations were made from many people, and many complaints or criticism was also there as well. And also Masa management team and actually the actual hands-on people were working on to make these investments better. And back then actually, 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 the economy. And also, recent figures-wise, as of the recent share price was actually slightly improving as well.

So, US Telecoms that I want you to share — I want to share with you — some history. Right before the acquisition of Sprint in 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 number three player number four, 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 number one 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 assets grew 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 two-year equivalents of the debt redemption actually this cash position covers over four 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 three months from October to December, yen to dollar actually was changed the trend from 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 ARM. Earlier today in Japan time, they announced their financial results. And share price exceeded $78, which is a record…



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