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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
[Interpreted] Thank you very much for waiting, ladies and gentlemen. Welcome to SoftBank Group Corp.'s earnings results announcement for the 3-month period ended June 30, 2019. First, I would like to introduce today's participants. From your right: Masayoshi Son, Chairman, CEO, SoftBank Group Corp.; Yoshimitsu Goto, Senior Vice President and CFO; Kazuko Kimiwada, Senior Vice President, Head of Accounting Unit. Today's announcement is broadcasted over Internet. Thank you very much. Now I would like to invite Mr. Son to the podium and update you the earnings results for the 3 months period ended June 30, 2019. Mr. Son, please.
[Interpreted] My name is Son. Thank you very much for coming today. Yesterday or the day before yesterday, I am not sure, my new friend told me that this person would like to join, to invest in SoftBank Vision Fund 2. And we had a dinner over -- a discussion over dinner, and I was so happy. And this person was also happy to have more business together with SoftBank Group to come. So this -- I asked this person what makes this person happy, and he said treasure hunting with old map is impossible anymore. That's what he said. So to see -- for them, seems like SoftBank has a new map, which I feel that way. We feel that way. That is why they have decided to invest in SoftBank Vision Fund 2. That made -- that comment made me so happy. So new era. New, exciting world is something that we would like to see; and we would like to hunt the treasure in the new world. So whenever -- when you were a kid, you go and have an adventure in the mountains and so on, but whenever you go for the adventure, you feel the excitement. Now that I'm getting old, but still I feel the same way, same excitement. And that's something that I look for and go for the adventure. That's how I feel every day. It may be strange you hear, but I'm -- physically I am getting old, but I'm still young in my mind. I'm so young in my mind, so that's how I feel myself. Now let me go into my presentation for the earnings. So today's agenda is in one word, just move forward. So recently, when you look at the economic news, there are many disappointing or sometimes sad news, and we're all concern what's happening next and what the economy will be. And myself still believe we just move forward whatever the world is, whatever the economy is. We just move forward. That's how I feel. For SoftBank Group, we had 2 big events happened to us recently. One thing is the Sprint discussion. And now we are almost there to hear for this discussion. So when we -- the very first day, from the very beginning, when we decide we have a merger of Sprint, our basic policy was that the way we'd like to combine 2 companies, Sprint in #3 position and T-Mobile #4 position back then, and now that it's not that order, but we can combine those 2 companies so that we will be able to compete against those 2 big belts, AT&T and Verizon, so that we can play the 3-party competition. That was my basic approach. If we fail to merge, then we should not enter into the U.S. market, U.S. telecom market. That was our internal discussion back then.
Actually, it took longer than we expected, and approval of merger was always questioned whether this is going to be happening or not. And for several years, we -- it looks like so difficult to receive approval for the merger, but recently we finally received the conditional approval by DOJ. With that, still we are waiting for the remaining processes and things to be solved, but I believe that was a big one step forward. And the next one was the Vision Fund 2. And now that we have a plan for SoftBank Vision Fund 2 and recently made an announcement at the Board of Directors meeting, SoftBank Group Corp., we solved the -- resolved the investment from SoftBank Group to SoftBank Vision Fund 2 for about JPY 4 trillion. And the remaining participants for the SoftBank Vision Fund 2, we have executed MOU and received a sign on this MOU. So that's the level that we are right now, but at least we do in our Board of Directors meeting resolve to plan for the SoftBank Vision Fund 2. So that's the announcement we have made. So these two are the 2 big steps forward for SoftBank Group Corp. at this moment. And basic direction is that we just move on with this direction, again just move forward. That's the way we are going to be. And here is the consolidated results, as you see, net sales, EBIT and net income. Net sales, as becoming a strategic holding company, net sales is now meaningless. Even EBIT now meaningless -- became meaningless. However, having said that, as a public company we still believe it is important to share with you the consolidated results and these other numbers for this quarter. So let me break into details net sales. So Sprint and SoftBank segments mainly from domestic telecom business. So in total we have increased by 3%. EBIT is down by 4%. And when you look at the breakdown, in previous -- same quarter last year, we had a onetime gain from Arm China. So if we exclude this onetime gain from Arm China, actually EBIT was increasing by 24%. And Sprint, as of today, it's still a deconsolidated subsidiary, but as I mentioned earlier, merger approval with condition is given. So starting from next quarter, Sprint is no longer consolidated result. So that net sales and sales will not increase -- it will not include Sprint. So from the continuous business-side, Sprint will not be included. So Sprint, Arm China, such onetime gain, so exclude of those and calculate EBIT for this quarter. It was increased by 37%. If you look at a little bit longer period, this is how you see. Arm China, it was -- it happened only last year, gave us a onetime gain. So if we exclude this, you see other segment and also Sprint. And if we take out Sprint because this will be gone from the next quarter -- so it's a little bit too quick to show such a picture, but this will be the way. So we're going to be -- retrospectively take out a Sprint portion. So from that sense, EBIT was increased by 37% effectively. So if I say this way, if we give you this such breakdown, many people may criticize that we are only cherrypicking the good elements, but the gain from the accounting does have several angle, and this is one of such an angle to see our EBIT. So that's how you can refer to. So net income, this does include the reversal of the Alibaba prepaid forward exchange transaction. So that is inclusive in this number. However, it's -- all total, we have exceeded JPY 1 trillion in quarter basis for net income. This is the first time we exceed JPY 1 trillion for net income in quarterly basis, which is a remarkable achievement, I believe. And as mentioned in the beginning, Sprint, although this is still with conditions, but we have received the approval on mergers by DOJ. We have already received approval by CFIUS in United States. On top of that, FCC's approval is about to give and the Chairman of the FCC has already mentioned publicly that they are in direction. And so with those 3, CFIUS, FCC and DOJ, those 3 are the major regulatories that are necessary for the merger. And so these are the 3 regulatories that requires the mergers in United States by foreign-owned company. Once we have all those 3 approvals -- there was no case which did not see the merger completed or closed with those 3 approval in the past. So we have obtained those 3 major approvals. So starting from the next quarter, Sprint will be noncontinuous business from the next quarter. So the merger is not closed yet, but we will now show you how was the performance on the investment in Sprint.
At the time of the acquisition of Sprint, the acquisition cost was about JPY 2.1 trillion, of which borrowing was a great portion. Our capital or as a shareholders' value-wise, those are the blue. The remaining has been raised by the borrowings. So whenever SoftBank go for aggressively, we oftenly use, utilize financing. So if we fail, SoftBank Group suffer -- would suffer from such big borrowings. So that is why in many case people criticize SoftBank. It relies too much on debt so that no wonders that, whenever, SoftBank could bankrupt any time. Of course, if we fail, that can be a big risk. However, if it goes well, then we can take a very good advantage of leverage so that we can show the good result from there.
So with the conditional approval by DOJ, assuming we are doing well, then as of today, Sprint share price -- so after the merger, we will be owning 27% of the new company or merged company. And our shareholder value up, less borrowings, will be JPY 1.3 trillion from JPY 0.4 trillion. So if you call it from 2.1 to 2.9, it's less than 50% increase, but if you only look at, focus on the shareholder value, if you focus on the blue portion, as a strategic investment company, strategic holding company, this blue portion is the performance for our shareholder value. And from the sense, JPY 0.4 trillion became JPY 1.3 trillion. So it's about JPY 1 trillion result came along. So investment in Sprint for SoftBank Group. Some people say that it was a big mistake. And maybe majority of people believes that the SoftBank investment in Sprint was a big mistake and that was big failure and with the lots of debts that management suffers. And that's how people evaluate in SoftBank. And it's one aspect that can be true, but SoftBank Group as a strategic holding company, actually our performance is this year in the blue portion. So in the meantime, we invest in Sprint, and we were able to obtain or created 3x more of the value. So about JPY 1 trillion of the result came along. So in IRR was 21%, so 3x of the value came along. If we look back even more before, when we look back at the acquisition of Vodafone K.K., which happened before Sprint acquisition, and that time, Vodafone K.K. which was a sinking ship, number of subscriber declining, EBIT was declining sharply and was coming close to 0 and even going to the negative. And right before that, that we have acquired, in that time, amount to invest was about JPY 1.9 trillion. So we didn't have cash with us much. So no cash, but actually we acquired the company so that the people will criticize us that we stretched ourselves too much. So that is why many people criticize that we're going to be bankrupt any time soon. However, that time, we mainly raised debt or the borrowings so that as the money -- cash that we used for this acquisition was about JPY 0.2 trillion. From there, about 10 years later, as of today, such -- a almost bankrupting company went public to Tokyo Stock Exchange. And along with this IPO, we monetized partially and also received a dividend so that SoftBank Group obtained about JPY 8.3 trillion of the shareholders' value, so which means that we made about JPY 8 trillion of the result here. So the -- against to -- against the investment that we made, we received about 40x of the return. And we have achieved 40% of the IRR, increasing value compound. With that back then, that we have very little money, acquired a sinking ship and made a V-shaped recovery, went public and received a great return. So that's the history we can see.
Many of the telecom industry, amongst many of the telecom companies, I believe this is the only company that creates such a great V-shaped recovery with the great return. Or maybe very small number of company were able to achieve such. And also, last week or this is what -- was this, this week? This Monday, we had earnings announcement by SoftBank Corp. And looking at the results, amongst those 3 major carriers, those 2 peers are showing declines in sales, revenue, but only SoftBank Corp. were able to achieve increase in sales, increase in revenue without any excuse. That's the very -- I believe that came from the very strong venture spirit. And very motivated companies are -- keep growing, and I'm very happy to see such a great growth in those. So next comes shareholder value. It is not an operating company anymore. It is not engaged directly in operations of any companies. It is a strategically holding -- strategic holding company. Therefore, the investment in assets, how they are going to be maximized in a safe manner and an assured manner, that is supposed to be our task. So I would like to briefly talk about the shareholders' value. I think many people still believe this kind of remaining perception of the company that means heavy debt, in the first place. That's for one thing. The second thing is that SoftBank is a telecom company. So those are the 2 perceptions that still persist in the minds of many people. It is no more a fact, which I would like to elaborate once more. So equity value of holdings. Please take a look at this. It is often said, for Japanese manufacturing companies, they have a large amount of equity shareholdings. And so they are believed to be safe in operation, but the land, buildings, equipment that they own, if they are defined as assets in terms of the balance sheet, they may be valuable even if that is supposed to be the calculation. But if they are going to sell off their plants, they will not be able to survive as a company. The plant, the land and equipment or the facilities, they will not be easily sold. It would take 6 months or a full year or 2 years or 3 years in order to sell off those facilities. However, the equity value of holdings that we own in a form of equity, there is the stock market. Therefore, they can be traded as marketable securities in a very short period of time, full amount and in some cases with a controlled premium. They can be sold off in the market, and that is possible for us to do. And those assets carry their value, and there is a lot of liquidity. That means marketable securities, and that amount for us is JPY 26 trillion. Now on the other hand, the gross debt is JPY 17 trillion. So this interest-bearing debt that we have is JPY 17 trillion in its total amount, but this number figure contains a Sprint portion with the amount of JPY 5 trillion. So Sprint has been included in a consolidated basis and accounted as a gross debt, but as I mentioned earlier, there is going to be a merger with T-Mobile. And if this process is complete, at least the Sprint is going to be out of the consolidation. And that would also mean this JPY 5 trillion is going to gone -- is going to be gone. And this JPY 5 trillion, it is included on a consolidated basis, but still do we have the obligation to pay it back? That is not the case. So whether Sprint is going to be merged with T-Mobile or not, this amount, simple amount, JPY 5 trillion, is not included on the consolidated basis. It is not, in reality, our borrowing. In addition to that, most recently, SoftBank KK, the telecom carrier, is listed in the first section of the Tokyo Stock Exchange. And as an independent company, SoftBank KK has its own assets, free cash flows and use them to borrow money within their means. For instance, in capital lease, that is included in that amount. And as for this amount, as I mentioned earlier, it is nonrecourse loans. This independent company, SoftBank KK, takes -- deals with the loans on their own decision, on their own. So that means SoftBank Group on its own has its own amount of debts with the amount of JPY 7.4 trillion. At the same time, we have cash and deposits with the amount of JPY 2.5 trillion. If these cash and deposits are going to be subtracted, then the net debt amount is JPY 5 trillion. So this is supposed to be the substantive amount that should be repaid is JPY 5 trillion. This amount, JPY 5 trillion, is -- how much is the percentage against this to JPY 26 trillion in assets? LTV is 19%. So as an individual, you have some borrowings such as housing loans, and you also own some equities. If you have such assets and the borrowing amount is 1/5 of your assets, do you have to have sleepless nights? If that is the case, then 20% of your equity holdings can be sold off. If 20% are sold, then you will have 0, 0 borrowing. If you do not want to have sleepless nights, you can pay back the loans, and 20% of your assets can be sold for that purpose. Even individuals can make such decisions. That also mean so do I. I can make a decision quickly if I think so. As President of the SoftBank Group, if I may have 1 week sleepless nights, then I can make a decision to sell 20% of the equity holdings in order to eliminate the borrowing amount. And the AAA is going to be the rating we will be able to enjoy in that case, with no borrowings and JPY 21 trillion in asset without any form of borrowings. And that JPY 21 trillion, that can be converted into cash. It is a super blue chip company, and no one would try to label it as a company with heavy debt. And that decision can be made any time if I think it necessary. There is no barrier to make such a decision. It is not the asset that should not be sold off and by the parents. And I created this company, and so no one dares and to instruct me not to sell them. If that is the case, we don't have to be worried about the situation. Nothing worries us. If that is the case, we don't need to sell off our assets. In that way, we are also in a safety mode in terms of operation. About 1/4 of the assets is equivalent to the borrowings. In the ordinary times, against the owned assets, the borrowing ceiling is going to -- up to 1/4 of it. And that is the decision and the mindset that we have at the management team. Now if something happens in the market like a Lehman global financial crisis, if the asset comes down -- value comes down, well, in such an extraordinary situation, maybe that ceiling can be 35% or a little over 35%. In such a situation, investment speed can slow down. And in that way, the dividend with a contribution can flow, flows into our coffer, so we will be able to survive. And we may be able to sell our assets a little bit more. In this way, at the time of the Internet bubble, 99% of the asset value declined. Even in such a situation, we survived through these challenges, and we learned many things in the process. So the net borrowing should remain up until 1/4 of the owned assets. That is the promise the management teams -- team keeps. Sorry for this explanation. So as an investment company, as the SoftBank Group, these net -- the net income and the sales and EBIT, they do not carry any importance. Every quarter, they all go up and come down. Now we will be able to give explanation about what will be the percentage of the increase or decrease. They do not mean much. What is most important is this equation, the equity value of holdings. What about the amount of the net debt and the subtraction? What is the shareholders' value? And I think this equation will tell everything in order to understand what the corporate value, what enterprise value we have and we own. The equity value of holdings, minus net debt, the shareholders' value is JPY 21 trillion. Now how the market evaluates our company. The market capitalization amount is JPY 11 trillion, and the shareholders' value is JPY 21 trillion. The market capitalization amount is JPY 11 trillion. So this green line represents the market capitalization. It flattened for the past 10 years. And this blue line represents SBG's shareholder value. From 8 years ago, is almost equivalent to the market capitalization, but for the past 8 years, as you can see, that -- the shareholder value grew twofold. What I come to say here in this regard is that, the shareholders' value or the market capitalization, they go up and down, but consistently what I can say is that for the past 20 years -- for the past 20 years, it continuously grew and rose. The market capitalization went up and came down but this blue line -- look at this blue line, which is the shareholders' value. In fact, consistently it steadily increased. Telecom Internet business or more recently AI-related business. By making investments in those sectors, we have delivered those results. So coming back to this remaining image: Heavy debt, for one thing, is it really true? We have to revisit all the facts. As for the borrowings, just less than 1/3 of the assets we own. That is the current situation. And whether it is a telecom company, today it is no more a telecom company. Loan-to-value is less than 19%. That means 1/5 of the total assets. And the shareholders' value is JPY 21 trillion. So the future outlook of SoftBank. We are going to focus our efforts on SoftBank Vision Fund, and that is no exaggeration. In the past, we enjoyed some returns on the past investments -- telecom, Internet, equities -- but today we are going to accelerate our efforts is AI segment -- or investment in AI segment. That is what Vision Fund stands for. For the past [ 2 ] years, we made investments in 82 companies. They are unicorns and span the different sectors, the real estate and financial and others. And sometimes, we are confused. Some people are confused about what industries we are making investment, but the answer is simple, just one. That is AI. Transport, medicine, financial sector, in whatever sector, AI is used as a new weapon and as a new tool in order to innovate these industries. And for that purpose, we make investments. So AI is single-handedly an area where I am interested. In the past, we made investments and we have those assets related to the past performance, but going forward or moving forward, we focus our efforts on this AI segment. And this is the track record of our performance: As you can see, in total, JPY 9 trillion was invested. JPY 7 trillion was invested, and JPY 2 trillion returned. JPY 7 trillion in investment and JPY 2 trillion in profit and returns, that is the track record of Vision Fund 1. Only 2 years have passed since the investment. We are going to recoup our returns more, so this amount of JPY 2 trillion is going to grow to the level of JPY 3 trillion to JPY 5 trillion. JPY 8 trillion -- less than JPY 8 trillion or over JPY 7 trillion, that is the amount of investment. Now going forward, we are going to rely on return. And here comes SoftBank Vision Fund 2. So we are looking at USD 108 billion, equivalent to about approximately JPY 11 trillion. So we are -- we have companies who are participating to this JPY 11 trillion fund, and these are the expected participants. And we have signed MOU with amount. So some -- I saw the articles asking that there is no amount on MOU. Ms. Negishi, you misunderstood. Actually, we do have amount on MOU. So all the MoUs have signed with amount. And sum of that amount total to $108 billion. If a number is not indicating in the -- indicated in MOU, we haven't counted on this number. So all these numbers are on the MOU. And for those people who are still having a discussion, they are not included in this number. So under-discussion parties actually are outside of this number, and we have several investors who are still having discussions. And once we agree, this number may increase even further. And this is not a final agreement. This is a framework agreement. So we have basic terms, have already presented to the counterparties, basic terms such as management fee or conditions on investment, common shares, preferred shares, ratios. Those basic terms have agreed to some extent and also indicated the amount on MOU. And that's been signed and that totals to $108 billion, but this is not a final contract. This is still a level of the MOU. And we have a term sheet which includes, contains the basic agreements so that we can share the same direction. Something in for example is the common shares and preferred share. In total, those investments totals to $108 billion. In addition to that, there are still under-discussion numbers. Under-discussion terms for those parties are not included into the numbers of $108 billion yet. So that's how we calculate this $108 billion. SoftBank Group, we also had a Board of Directors meeting and resolved to invest in the SoftBank Vision Fund 2 by $38 billion or JPY 4 trillion. So -- and because we have a timely disclosure requirement so that resolution by SoftBank Group Board of Directors meeting needs to be disclosed so in accordance with these regulations, we have announced that we are contributing $38 billion, which is JPY 4 trillion equivalent, by SoftBank Group into SoftBank Vision Fund 2. So we are further aggressively promote this SoftBank Vision Fund. And by even with this investment of JPY 4 trillion, of course, this JPY 4 trillion doesn't happen in a month. That will be invested over years, maybe like 4 year or 5 years we will be investing. So this is going to be happening phasely manner, but every time when we invest or contribute such money, we make sure that borrowings should be less than 25% of the total asset, so which means we will manage LTV at less than 25% during normal periods. And even at the abnormal periods, a potential to be 35%. And also, we maintained cash position covering bond redemption for at least 2 -- next 2 years. With that, that we can show you we are safe driver. And we also secure sustainable distribution and dividend income from Vision Fund and other subsidiaries. So those are the 3 major disciplines, financial disciplines, for the company and like make sure to maintain. So in addition of Vision Fund 1 and Vision Fund 2, that is going to be about JPY 22 trillion level of the fund. And this amount, when Internet launched at Silicon Valley, when Internet start used by general public, when that was -- happened back in 1995, up until today, venture capitals, this is equivalent amount -- equivalent to the amount where that Silicon Valley invested over such period cumulatively. So you may ask: Such a huge money. Can you safely, healthy, soundly receiving return and keep investing? That may be your next question. And we believe AI -- after AI and the companies start using AIs -- we believe the number of unicorns are growing rapidly in the past few years. And these unicorns are now over 300 companies, and that it's still growing. Especially these days, amongst the global top 10 unicorns, of about half -- in month-wise, it's more than half, but number-wise, about half of those companies are investee of SoftBank Vision Fund. That is why I mentioned recently that for the investors we have shown the IRR, equity IRR, of the more than 40%. And what we receive in SoftBank Group is even more than that of the IRR. And that, we believe, is going to keep increasing in numbers of unicorn. And we will be able to -- we will have no difficulty finding investees. So looking back about 20 years, investment in Internet, and the return for that was about JPY 15 trillion. In telecom industry, investment return to -- of the Vodafone was about JPY 8 trillion. Even Sprint, we have received about JPY 1 trillion of the return by the investment in Sprint. And for AI, it's just the beginning. It's too early to say, but we have already obtained the JPY 2 trillion. So the shareholders' value of JPY 21 trillion is including those 3 segments, 3 areas. And if we show you by color: So we have -- we start investing in Internet related, starting from back in '96, '98. And we have one peak in 2000; and we dropped again, came to almost 0. And once again, we suffered but sustained, and as of today, we were able to receive quite a large number of returns. And when you look at telecom, we bought a very much sinking company but successfully able to make a great turnaround. And recently, on top of that, we have investing in AI. This AI portion is actually the driver, driving force, for the EBIT growth. Quite many portion of the EBIT growth is coming from Vision Fund segment, and that will lead us further increase in value. So those investments happened in the past. Those business activities happened in the past. They also gave us a great return. And that already achieved -- reached to JPY 20 trillion, but actually we are investing, only focusing in AI going forward. So coming back to the original discussion. We never look back, just move forward. Many of the Japanese companies or the major, big companies actually only looking at the old maps, but us actually we, based on our new maps, looking for the new land and just move forward. We may face, too, difficulties like those challenges like Sprint or Yahoo! BB in the past. There were always some challenges, difficulties on the way, but even we face such an -- issues and problems, but still we are -- managed to solve those and keep moving forward. This is because we have obtained a new map; and because we believe that our map is new one, not the old one. That's why we can keep our direction and move forward. We will do our best. So thank you very much for your attention.
[Interpreted] Thank you very much. Now we would like to open the floor for the questions. If you have any questions, please wait for the microphone and state your name and affiliation. We would like to receive as many questions as possible, so please keep your question to 2 questions per person. Thank you.
[Interpreted] My name is Owada, Nikkei Computer. Now this JPY 10 trillion Vision Fund 2. In Vision Fund 1, Saudi Arabia was listed on the top, but this time around, in this second fund release, there was no mentioning. I think you were in negotiation. Going forward, how do you see? Are there any issues and to be addressed?
[Interpreted] Well, we don't have any issues or issues when it comes to Saudi Arabia and Abu Dhabi, those 2 entities. For us, when it comes to Vision Fund 1, they were large investments. We maintain good relations with those 2 entities, and those 2 entities showed -- show very high interest in Vision Fund 2. So when it comes to the specifics, we are still in the negotiation with them. Now at the time of Vision Fund 1, there was an intention expressed by them, and the actual implementation of the action, it took about 9 months. Starting from MOU, all the way down to the final conclusion, deal closure, it took 9 months, but this time around, I hope that this period is going to be shortened less than 9 months. We are still in consultation with them, similar to what we experienced in Vision Fund 1. As I mentioned at the outset, we are now negotiating on the details and so the investment amount is not fixed. So it is not included in this disclosed number of $108 billion. There are also other potential investors who are showing strong interest. Therefore, going -- we are still in the consultation with them and to determine the figure of the number of investment. Therefore, at the end of the day, we are confident that the total amount of contribution is going to be over JPY 1 trillion -- JPY 10 trillion.
[Interpreted] Now AI is JPY 2 trillion, and then -- and other areas as well, but what do you think of the potentiality of AI segment for investment?
[Interpreted] And as far as SoftBank Group is concerned. Now for IRR for SoftBank, over 60%. That's what I mentioned, but that was too much among all the international investment funds. Over 60% IRR is too high. That said, for the past, looking back on the past 20 years, SoftBank's return stood around 44% on average. And that is the track record that we experienced in the -- for the past 20 years. Therefore, this -- based on this past track record, our performance going forward is going and to try to be equivalent to that. Therefore, we are hoping that our future performance is not going to be less than what we experienced in the past. That would mean now we have this JPY 20 trillion investment fund and we are going to enjoy the return with the double -- over double digits. And that is a simple calculation. I hope that you will be able to enjoy the calculation. Any other questions?
[Interpreted] Yes, next person, please.
[Interpreted] My name is [ Hogda ] from Nikkei newspaper. I have 2 questions, please. First one. So macro environments for investment. How do you see the future outlook? So recently, that we've been seeing the share price down due to the U.S.-China relationship issues. So looking at the dynamics of the political situation, that is impacting to the financial world economy. This can be longer. This can be -- stays long. And you mentioned loan-to-value. And you said that abnormal case, abnormal situation. And we may be facing -- or how much do you think we may be facing such abnormal situation in -- coming in short?
[Interpreted] Well, once in 10 years, we may facing -- we may be facing something close to abnormal situation. And maybe once in 10 years, once in 20 years, even we have such abnormal situation, I believe we need to be prepared to be able to address such abnormal situation. That's mostly important for us. So that is why, during the normal situation, normal time, we need to manage our loan-to-value less than 25%. Then even we face the abnormal situation, even equity market goes by half -- Nikkei averages about JPY 20,000. It goes to JPY 10,000, like half of the price, such an abnormal situation comes, but if we can -- if keep managing our loan-to-value less than 25%, maybe around 20% or so -- and once we see the yellow signal, that will be 25%. And of course, we would like to manage this and that yellow signal. Then even we all of a sudden face the abnormal situation, but still we believe we will be able to manage our loan-to-value less than 35%. That's the kind of preparation we are working so that we don't have to be panicked at the time of abnormal situation. And if you look back about 20 years or 25 years in the past. After the born of Internet and up until today, we have a Lehman Brothers incident, Internet bubbles. There are several occasions, several abnormal occasions we saw. Or rate has been raised, rise or dropped sharply. We have a trade issue or the political issues here and there. So in the past 25 years, we faced so many such an occasion, but even we see those 25 years now, that blue line, which is our shareholders' value, actually didn't show much of the ups and downs but actually keeping growing. Keep -- it kept growing in the past 25 years. What I'm trying to say is that even we see the rate, fed rates, increase, decrease; foreign exchange increase, decrease, but that can be just a small noise for us. Real investors don't look at or focus on such short-term noise. Otherwise, you cannot really receive the good results, good performance. If you try to make a big achievement, you need to see the macro 10 years, 20 years, which industry will be going down, which industry, which technology actually structurally increasing, improving. That's the way. That's the eye that you need to have as an investor. From the sense, I just ignore those short-term noise, keep calm and make -- keep investing. That's most important thing for me.
[Interpreted] And my second question is about Sprint. So you mentioned that discontinued operation. It's going to be discontinued, that operation, so how are you going to involved in the management? How much do you going to make an commitment to the business of the telecom industry or Sprint business in U.S.? So 27% ownership. And Masa, you also sit on the Board, I heard. And after Sprint becomes discontinued operation, that means that you are withdrawing from the U.S. telecom industry or U.S. telecom market. Or are you going to keep committing to telecom operation?
[Interpreted] Sprint is like it's -- will become like Alibaba for us. Alibaba is not consolidating subsidiary. We don't control them. However, they are very -- one of the very important asset for us and also brings us great synergies to -- with those portfolio companies in China. And there are many positive effects due to the relationship with Alibaba. So by having Sprint, even we don't control the management -- we don't control business, but that can be very effective and useful for other portfolio companies or our investees. But how long this will, that will sustain is something that I need to see, wait and see. That depends on financing needs, positive effect to us. Those are the elements that we need to see and decide after that.
[Interpreted] Next to him.
[Interpreted] Nikkei Shimbun. My name is [ Igawa ]. Now I have 2 questions about the Vision Fund.
[Interpreted] Can you restrict one question for each?
[Interpreted] So just one question about the Vision Fund. So the exit and the input to strategy. So JPY 4 trillion is going to be the amount of contribution. How are you going to secure the financial sources for that purpose? And about the exit of Vision Fund 1, now JPY 2 trillion in returns, most of it, I suppose, to the valuation, the profits of listed companies. How are you going to overview -- view the -- envision the exit strategy?
[Interpreted] Now with regard to the exit. Now it is -- ours is an investment company, so we will always think about how an exit strategy should be in our own management. There is no tunnel without an exit. That means obviously, when we make an investment, sometime in the future, we have to decide how to monetize the investment. And that is supposed to be the assumption that we work on. So as for this particular exit, whether we are going to sell them immediately after they've been listed on a market or should we wait for a few period of time to see how the company develops? It depends case by case. So it depends on the company, how this company is going to perform into the future. And in addition to that, against the other assets that we own, what kind of synergetic effect does that company is going to have? So those 2 aspects are going to be reviewed in order to determine how the exit is going to be materialized. Already, NVIDIA and Flipkart, those are entities that were already monetized in order to materialize our exit strategy. Therefore, going forward, if there are going to be go -- there are those companies that will go public. And every time when they go public, every quarter, in every quarter, when we are going to deal with those listed shares, we have to make a decision internally. And that is how the strategy going -- is going to be. With regard to the financial sources of Vision Fund 2: Now the returns from the Vision Fund 1 is going to serve as an important contribution for Vision Fund 2. Aside from that, as I have been talking about, we have marketable securities with the amount of JPY 26 trillion. Sometime in the future, they are also going to be turned, converted into cash so that they can also be used as a financial source for Vision Fund 2. That would also mean that we are not going to rely more on borrowings, like for example, like, going beyond 25% the percentage. We are not going to manage the fund in that way.
[Interpreted] Next question, please.
[Interpreted] My name is [ Enso ] from TV Asahi. It's a question out of blue, but today, Mr. Shinjiro Koizumi and Ms. Christel Takigawa announced their marriage. Well, congratulations. What is your impression? And he is one of the candidate for the future Prime Minister. How do you think about this memorial day?
[Interpreted] I just say congratulations. I am not any close to him. I just had opportunity to say hi so that I just sent him congratulations. Any other questions?
[Interpreted] Anyone in the first row? So there are 2 persons.
[Interpreted] [ Kavotavo ], Kyodo News. First, now the Vision Fund 2 is going to be launched in 9 months. That's what you announced. More specifically, around what timing is SVF 2? When is it going to be -- is it going to be launched? Now some of the assets of the subsidiaries are going to be used for financing SoftBank Vision Fund 2. So SoftBank, for example, and telecom carrier subsidiaries is -- they are going to be sold out. Is that -- sold off. Is that supposed to be the assumption?
[Interpreted] Now I -- at the time of Vision Fund 1, large investments -- large investors -- for large investors, it took about 9 months, but in the case of Vision Fund 2 the MOU with the large investors is going to be finished earlier than 9 months. After MoUs, there should be final contract. They will take some time, several months, to go, but as for the basic agreement, it won't take 9 -- as long as 9 months. As for the actual investment, the SoftBank Vision Fund 2, the actual investment is going to start in 1 month or 2 months. So that means SoftBank Group is going to -- or has decided to invest JPY 4 trillion in this SVF 2. In addition to that, we are going to determine who are going to be the contributors. And based on the pro rata contribution, there is going to be the capital contribution for actual launch. So the -- in 1 or 2 months, the actual investment may start in the case of SoftBank Vision Fund 2, but anyway, within 1 month and 3 months, the actual investment action is going to, taken place for Vision Fund 2. As for large contributors, once there is going to be an agreement, they are going to join in the fund, too. What was your second question?
[Interpreted] In your answer to other questions, the sources or the financial source of SVF 2, the selloff of -- the sales of subsidiaries are going to be used.
[Interpreted] What I meant, what I said is that in the case of SoftBank Fund 1 there are going to be some of the companies who are going to go public. By next March, I think there are going to be 5 or 6 companies who would go public. And next year, there are going to be 10 more who would be listed on the market. And in 2 years time, more number will come. Therefore, every year, there are going to be some numbers of listed companies. They are going to join us. Therefore, we are going to monetize some of those listed companies. As for other companies, if necessity arises, we will make necessary decisions. As for SoftBank KK, it is a core operating company in the Japanese market and it is going to continue to play that important role. Therefore, we have no intention of monetize it soon in the future.
[Interpreted] Next question, please.
[Interpreted] My name is [ Deborah ] from Wall Street Journal. So I have one additional question to the previous question. In 2, 3 months, you said you may start investing from second Vision Fund. That means that you already used up all of the Vision Fund 1?
[Interpreted] I will say about amount 85% of the fund amount. Once it's invested or capital is called, then we'll start investing from Vision Fund 2. So about 15%, we need to keep for the follow-on investment or distribution for -- or preferred. So that needs to be remained. That's the basic role for Vision Fund 1. So once we hit investment amount of 85% of the fund. And that, I -- we are expecting around next month or following month or so. Then we don't -- considering that we don't see any gap in-between Vision Fund 1 or Vision Fund 2, then that -- 1 months later or, I will say, 2 months later, that we believe investment by Vision Fund 2 will starting in such.
[Interpreted] And next question is completely different subject, solar energy business. In the past, I believe you were passionate about the solar business. And about a year ago, you have agreed -- 200 giga solar energy generation plan was announced in Saudi Arabia. What is the status of that business? You don't -- I don't see any progress, and I was wondering that you are in a difficult position for the progress of the project.
[Interpreted] Actually, mainly from India, we are aggressively working on the solar energy business and making our investment. And such investment is expanding. Japan, government of Japan is not too passionate about the solar business, and right now we don't hear such big voice that needs the solar energy. However, on the other hand, in India we believe we, SoftBank Group, are one of the biggest size in terms of solar energy business in India. And in the world, I believe we are -- expanded the business to the level of top 3 or something. I don't know the -- I forgot the specific numbers, but I believe we are quite high in terms of ranking. So sometime soon, that -- we'll be able to grow such business to world's top companies. So that we would like to aggressively grow our business in this area. In Saudi Arabia they have their own domestic plans and adjustments and so on, so that may need more time.
[Interpreted] Any other questions? In the third row, A2 on the third row.
[Interpreted] [ Murakami ] of [ NHK ]. It is not directly related to your presentation. Your personal activities. One of them is to provide support to competent children, the scholarship fund [Foreign Language] SoftBank foundation. And I think that -- do you believe that some of the children are not given opportunities? I know you studied abroad in the United States when you were young. And that -- I think you were also talking about such a fund, I think. Do you have any things that you would like to talk about, about Japan's education?
[Interpreted] Japanese education systems. Speaking of that, I think it focuses on the average of scores, to raise the average level. And I think many efforts have been paid into that purpose. And this kind of effort is going to continue, but with the talented children, how they are going to be further developed, when it comes to this kind of aspect, I think Japanese education system did not pay much attention to that and not good at it either. In the United States or in China, for example, the top layer, the talented children and school children, are going to be given opportunities to further develop their talents instead of just the -- suppressing such talents. So there are such programs in place. When it comes to Japan, it is not paying that attention to that kind of aspect. Therefore, as far as I'm concerned, for future growth and development of Japan, those invaluable children and talents we can grow into the leaders in the business community or in academic community, I am willing to provide support to such schoolchildren. And I would like to continue with those efforts.
[Interpreted] So next question.
[Interpreted] My name is Inoue from Asahi newspaper. I have a question on Sprint. So as of today, in summary, is Sprint investment successful? And in which aspect do you believe it's successful if you think it's successful? And you mentioned that you can expect some synergy out from Sprint by having -- or by having Sprint, but more specifically, what kind of synergy you can think of?
[Interpreted] Yes, whether that was success or failure. We did have a lot of struggle, many long hours. And a lot of resources was needed. So it was a struggling and some risky path that we have drawn, but when it comes to the return on investment, as a shareholder value point of view, it became 3x return and gave us about JPY 1 trillion of the investment gain, which is not bad at all. Of gaining JPY 1 trillion is not something easy to obtain. So that -- I mean if you see the many Japanese company investing overseas but they usually got damaged and came back. We saw a lot of such cases, but I mean compared to those, I believe that making 3x more of the shareholder return -- shareholders' value and 21% of the return -- although it was a struggling challenge, but return was not bad at all. That's how I think. As for synergy, once we see the closure of the merger between T-Mobile-Sprint, we will have about 100 million subscriber base. 100 million is equivalent to the population of Japan. So for the customers of 100 million, we will be charging every month. And for those customers, we have a lot of portfolio companies such as [ Uber, Dordas ] that they may have a potential to -- for the customer condition who can show the synergy effect. I don't know how much are there such synergies and how long that's going to sustain. That's something that we need to have a further study but looking closely on the synergy and also looking closely on our financing needs. So with those 2 aspects, we would like to think and decide how we're going to address.
[Interpreted] In the front.
[Interpreted] Hyuga of Bloomberg. Vision Fund 2 is my -- is a question I would like to ask of. Now PIF Saudi Arabia and Abu Dhabi, those large investors you -- or potential investors, you are negotiating with them. In terms of track record, if you're going to be successful, a huge amount is going to be materialized, JPY 1.7 trillion, if that is the current level. How -- to what extent does it go -- is it going to grow? Would you please tell us on the potential size? And there was a journalist, Khashoggi, who was killed and assassinated. And there was an explanation given at -- on the November 5 meeting last year. And then you mentioned that you would take time to think about whether Saudi Arabia could be invited to Saudi Arabia -- excuse me, SoftBank Vision Fund 2. So from that day on, how do you see the overall situation? And what is supposed to be your decision to be made?
[Interpreted] At least -- I think that was an accident -- or incident that should have not taken place. And that saddens me a lot. And that is an incident that should have never happened, but when it comes to more than that, the knowledge I have is basically the same as the knowledge that you have. We are not in a position to know all the details about the incident. And on the other hand, we have to continue with our efforts, AI and technological evolution, to bring benefit then to the people. And we are going to make steady steps toward that goal. And for that to be achieved, what is supposed to be the size of the funds to be contributed from whom? And this is something that we still are working on, so at this point in time, I have to refrain from making any further comments.
[Interpreted] Next question, please.
[Interpreted] My name is Sugimoto from Nikkei newspaper. So I would like to ask you about the role of Vision Fund. So you are mentioning about the maximizing the shareholders' value. And I think that's one of the measure to see the performance of the SoftBank Vision Fund, but if you come back to the original point that I believe creating the #1 synergy group is the main objective to set and launch the SoftBank Vision Fund, but I think there are big difference compared to your original plan which is that exit strategy. So you mentioned that you always focus on the exit all the time because you have invested Internet and telecoms. So I believe you spent about 2 years of SoftBank Vision Fund, and the #1 synergy group has created, or not. Because you have to always focus on exit. And how can you manage and operate #1 synergy group strategy?
[Interpreted] Even before we launched SoftBank Vision Fund, we've been investing in many companies relating to Internet. And also we have invested, for example, Yahoo! Inc. in United States. We were the major shareholder of that company, but we have about quite close to the peak time that we have divested of that shares. And also, other than that, we have invested in E*TRADE in United States in some other companies. Those are all divested as well. In Japan, [ also a ] bank. And those also we have invested and we have divested in all. So whenever we make any investment, it's not that we ignore exit or we don't look at the exit strategy. But actually, Trend Micro, that has also divested as well. So whenever we make any investment, it's not that we don't divest anymore but, of course, at the appropriate timing, seeing the situation, keeping the balance and execute. So for the core businesses, core companies, whenever we see this company have synergy with other group companies, then it's not the only value of this company but -- or their own future growth but what kind of positive impact to our synergy strategy with other company. That's another aspect we also need to consider. So it's that synergy effect that we need -- we will come to the final decision. After the launch of SoftBank Vision Fund -- and also in top -- on top of that, we have another aspect which is the other investors' or LPs' money is also here for the Vision Fund. Up until now, we are only investing in our own money, but after the launch of the Vision Fund, we're also aggregating other people's money, third parties' money. And we set the investment period. For example, it's 12 years and 2 extension, so in total 14 years investment period is set from the beginning in the terms. So in principle, no any investment without exits. That's the structural -- or direction for after Vision Fund launch. So you need to always keep focused on that, and also we need to show the good result, IRR, to LPs and investors. We shouldn't be keeping those companies with less growth ratio. That will give us worse IRR. And we don't want to reduce the average IRR so that any slowdown, any companies with slowed-down growth, before they're showing the signs of the slowdown, we need to manage those assets, keeping focus on those IRR all the time. In those portfolio companies, in principle the size is at more than JPY 10 billion, which is a unique on level of the size that investment is made. And the growth cycle for such a sizable company is usually close to IPO, and majority are at those late stage. So that any companies invested by SoftBank Vision Fund, about 80% of those are expecting to go public in early days or in a few years. So those are the companies that are targeted by SoftBank Vision Fund. From that sense, investment cycle can be quite quick, from that sense. So size is big. And also short cycle.
[Interpreted] So with those short cycle, can you still perform the synergy effects? Are you confident with those past 2 years?
[Interpreted] Yes.
[Interpreted] So this side. Sorry. So 2 more questions before we close.
[Interpreted] My name is [ Sosan ] of [ Reuter ]. About ASKUL -- well, not directly about ASKUL. [indiscernible] SoftBank Group and K.K. are invested, and ASKUL is an investee by a subsidiary. So there is kind of a hierarchy and it is somewhat complex in terms of the structure. Compared to overseas companies, I think, the parent company and subsidiary, if those 2 companies are going to be listed, they are problematic. That's the overview -- the overseas perception, but how do you see this kind of a complex structure? How do you view it?
[Interpreted] First of all, many Japanese media have misunderstanding on this topic. Now as for parent and subsidiary listing, it is not prohibited overseas. There are many examples, and more recently there are new examples also emerging, for example, the Sprint. In the United States, the -- their -- this parent company and subsidiary both being listed. And so -- and the Sprint is being listed. And as for T-Mobile, German-listed company, which is Deutsche Telekom, owns the T-Mobile which is listed on the market. [ Simmons ] in the United States, they are also both listed. And more recently, Volkswagen in Europe, the parent and subsidiary are both listed. I think it took place as recently as last month. So the Japanese media have misunderstanding on this topic that sometimes they say and report that it is prohibited for the parent and subsidiary companies to be listed both. And that is not the case. For example, the Goldman Sachs most recently and the 3 giant investment [ and friends ], we contacted them for clarification. In Europe and the United States there is no such prohibition with regard to the parent and subsidiary listing. And I hope that you will check against that fact. What I'd say important is that each company has minority shareholders and their shares are traded on the market. Therefore, there are those investors who are willing to make investment in that company and their shares can be traded. And in that way, a market can survive. And if the shareholder -- if there are any investors who will refrain from investment -- investing because of the fear of the investing of the parent company and subsidiary company, there is always a choice on the part of the shareholders. There is the majority shareholder in specific case. And if minority shareholders are willing to make investment, they can. And if they are not willing to, they can refrain from making investment. That's it. And from the viewpoint of governance, corporate governance, outside the directors, as opposed and to make up the majority of companies in Europe and in Japan -- and in the United States, I think that is going to be the basic direction that most companies would move into in Japan. And as for SoftBank Group and SoftBank KK, I think these -- we are the companies that actively and proactively incorporate that kind of rule. So I think the outside directors' role is extremely important in the corporate management from the viewpoint of protecting minority shareholders. And in the case, when it comes then to the case of ASKUL, that I was pulling the strings behind the scenes, yes, my name is Son, but I didn't make any discrete decisions on how to manage it.
[Interpreted] And thank you. The last question.
[Interpreted] Ms. Negishi, I think that you -- please amend or modify or revise your article.
[Interpreted] So Negishi from Wall Street Journal. Vision Fund 2. I would like to ask your basic concept on structure on Vision Fund 2. So it's going to be common and preferred. What will be the best position from JP's point of view? Amongst the big investor, would you like to -- if they wish to take more equity for the upside, are you going to respond to that? What is the structure you have in your mind for Vision Fund 2? And also, new friend that you mentioned that you had a dinner, can you be more specific on what discussions you made with this new friend?
[Interpreted] So common and preferred, we separate into 2, is because one is to address the investors' needs. Investors may say that they only want to go for equity with the high risk and high return. And some of them, because this is new for them, so that they would like to be more safe and also like to make sure have an insurance, that they would like to be go for safe. So there are 2 needs for the investors. And because this is a new transaction, so for both -- for the sake of both of us, not only equity but also preferred -- to be provided, but at the same time, return will be fixed for the case in -- for the case of preferred. So those are the 2 types. Preferred is not a borrowing. Some said preferred is like borrowings. And some misunderstanding happening, but this is completely a misunderstanding. Preferred is not debt. And fixed distribution will be preferably provided, and they will be preferred in terms of the distribution if in case of any issues. And the ratio for that, for Vision Fund 1 or the LPs, we are taking same ratio between common and preferred, 1 versus 1.75. So 1 for common. 1.57 is for preferred. So about 1.5x more in preferred. And that was the combination for LPs, so all the LPs use the same ratio.
For Vision Fund 2, for those -- for investors from Vision Fund 1. And the new investor from Vision Fund 2 has different ratios between common and preferred. That detail has not been finalized yet but that we are planning to separate into 2 groups. So that we are not yet ready to announce the details at this moment, but I am thinking roughly 2 groups for the ratios between common and preferred. SoftBank and management will not have any preferred but because to take on responsibilities in management and also to take the upside when the performance is well. So that Softbank and management will be only taking common shares. Thank you very much.
[Interpreted] So I believe more investors are joining for Vision Fund 2, but are they all going to follow the same terms, same conditions? That sounds quite difficult.
[Interpreted] Yes. Hopefully, the group will be into 2 for the terms. It can be 3 groups but that we don't want to have an individual contract or individual discussion.
[Interpreted] In the center.
[Interpreted] IT journalist. My name is [ Mikami ]. Now with regard to Vision Fund 2. Vision Fund 1 was AI. Now as for Vision Fund 2, are there any differences in terms of themes? What is going to be the future of Vision Fund 2?
[Interpreted] There will be no difference, change.
[Foreign Language]
[Interpreted] My name is [ Watanabe ], freelance. Recently, in media, corporate tax looks small in SoftBank Group, and some media may be misinterpreting the situation. Can you make any comment?
[Interpreted] I believe they are misinterpreting. That's all from me.
[Interpreted] Any other questions?
[Interpreted] And for your reference. SoftBank Group, in cumulative from the past, compared to other traditional major companies in Japan, I believe we are paying tax quite -- we are paying quite a large tax. Of course, depending on the year, due to several situations, sometimes tax ratio is high, sometimes low, but in cumulation I believe tax ratio can be quite high, don't we? How do you think, Kimiwada-san?
[Interpreted] No, not really.
[Interpreted] Not really, maybe in the middle. Maybe we are in the middle of those companies, depending on the years, sometimes high, sometimes low due to some reason, but that doesn't mean that we don't pay tax at all. That doesn't -- that's not the case. And my -- personally, individually, tax payment-wise, quite probably I'm one of the highest taxpayer.
[Interpreted] So this is going to be the last question, in the middle of the audience.
[Interpreted] My name is Suzuki of Nikkei Asian Review. Now we are talking about more IPOs to come. WeWork of the United States is going to be one of them, I believe. Now as for this WeWork, in the market there are different perceptions. And some people say that, $47 billion, this valuation is too high. So some people are very suspicious. And how do you view WeWork? And in the past, in the case of NVIDIA, there was derivatives used in order to offset the decline of [ stock ] price. Now Vision Fund potential investment entities, if they are going to be those companies that are going to come down in their equity, do you have any -- the offset measures in place?
[Interpreted] Now as for WeWork, it is still in the midst of growth, and it is my understanding. Next year, the year after the next and in 3 years time, this company will enjoy high growth. I think into 5 years and 10 years. This is my perception of the company. And actually we have [ WeJapan ] as a joint venture; and our employees are also working inside the building of WeWork, many of them. And they are satisfied with the level of the quality of the work at WeWork. And the substantial -- the substantive profitability ratio is extremely good in terms of gross profit or depending on the locations. Therefore, I don't think that it is overvalued as an enterprise. In 5 years, in 10 years' time, it has high potential of high growth. I highly appreciate the company's potentiality.
When it comes then to specific numbers, I will not elaborate on them but still that I place a lot of expectation on the potential high growth. It is a wonderful company. Going forward, in general terms, the derivatives may be used as a kind of a countermeasure or as a part of the -- kind of an insurance policy. Whether we are going to employ that or not, it depends on the situation. If we find it advantageous to us, we may employ such a method, but in some other cases, we may think it is too costly. So it depends on the situation and the project.
[Interpreted] It's about time, so thank you very much. We would like to close the meeting. Thank you once again.
[Interpreted] Thank you, ladies and gentlemen. That's all for the earnings results announcement for SoftBank Group for the 3 months period ended June 30, 2019. You would be able to check today's announcements on our corporate website. I thank you very much once again to join SoftBank Group Corp. earnings results announcement for the 3 months period ended June 30, 2019. Those who joined over Internet... [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]