SoftBank Group Corp. · TSE:9984
SoftBank — Investor Presentation (February 2018)
55 slides from SoftBank's investor presentation, Feb 9, 2018
Slide 1: SoftBank Vision Fund Business Model and Accounting Treatment
v.1.1 SoftBank Vision Fund Business Model and Accounting Treatment February 9, 2018 SoftBank Group Corp. * This material describes the business model and accounting treatment of SoftBank Vision Fund (“SVF”). The Delta Fund also has a similar business model and accounting treatment.
Slide 2: Disclaimer
Disclaimer This material was prepared based on information available and views held at the time it was made. Statements in this material that are not historical facts, including, without limitation, plans, forecasts and strategies are “forward-looking statements”. Forward-looking statements are by t
Slide 3: Background/Objective
Background/Objective • Since SVF’s first major closing* on May 20, 2017, it has actively engaged in various investment activities. These activities are expected to have increasing effects on SBG’s consolidated financial statements. • In order for analysts who cover the telecom industry to deeply und
Slide 4: Agenda
Agenda 1. Overview of SVF’s business and accounting treatment 3. Summary of SBG consolidated financial statements 1) SVF’s business model 1) Overview of fund transactions 2) Evaluation of profitability in SVF 2) Overview of SBG consolidated financial statements 3) Entities that compose SVF (BS, PL,
Slide 5: Overview of SVF's business scheme
Overview of SVF’s business scheme Parent SoftBank Group Corp. Company Wholly-owned subsidiary Wholly-owned subsidiary SVF Investment LP*4 advice Capital SBIA US*1 GP*2 call /SBIA JP*1 /SBIA UK*3 Advisory fees Perfor- Manage- External Parties Manage mance ment Operating fees fees Contribution SoftBan
Slide 6: 1. Overview of SVF's business and accounting treatment
1. Overview of SVF’s business and accounting treatment 5
Slide 7: Agenda
Agenda 1. Overview of SVF’s business and accounting treatment 3. Summary of SBG consolidated financial statements 1) SVF’s business model 1) Overview of fund transactions 2) Evaluation of profitability in SVF 2) Overview of SBG consolidated financial statements 3) Entities that compose SVF (BS, PL,
Slide 8: 1) SVF's business model
1) SVF’s business model SVF first gathers investors and sources deals. Then, investment as well as performance improvements are executed. Finally the investment returns (proceeds) are distributed back to LPs. 1. Gather investors 2. Deal sourcing SVF Selection of LP investees SVF (Limited Partners) C
Slide 9: SVF's business model: maximize investment returns (IRR)
1) SVF’s business model SVF measures the investment performance using an Internal Rate of Return (IRR). Maximize investment returns Improvement of Profitability (IRR) 8
Slide 10: IRR = the discount rate that makes present value equal investment
1) SVF’s business model IRR is the discount rate used, when the present value of all future cash flows and the investment amount are equal. In principle, the higher the IRR, the better the investment. Discount calculation Present Value Sale Dividend Dividend Dividend ・・・ Year 1 Year 2 Year 3 ・・・ Fin
Slide 11: Evaluation of profitability in SVF - Overview
2) Evaluation of profitability in SVF - Overview SVF collects investment returns through dividends and capital gains. To maximize the profitability of the investments (i.e., improve IRR), SVF engages in and supports the improvement of investee’s performance. Maximize profitability (i.e., improve IRR
Slide 12: Evaluation of profitability in SVF - Overview
2) Evaluation of profitability in SVF - Overview IRR can also be improved through the methods below. Sale Sale 250 200 IRR will be higher if the (A) investment is made at a lower Buy low and Investment Investment value and sold at a higher 50 value sell high 100 (Year) 0 1 2 3 4 5 (Year) 0 1 2 3 4 5
Slide 13: Evaluation of profitability - (A) Buy low and sell high
2) Evaluation of profitability in SVF - (A) Buy low and sell high IRR will be higher if the investment is made at a lower value and sold at a higher value, than if invested at a higher value and sold at a lower value, assuming identical investment periods. Buy high and sell low Buy low and sell high
Slide 14: Evaluation of profitability - (B) Shorten investment period
2) Evaluation of profitability in SVF - (B) Shorten investment period IRR will be higher if investment period is shorter, given identical investment and sale amounts. Long investment period Short investment period <Assumption> <Assumption> Investment period : 10 years Investment period : 3 years Inv
Slide 15: Evaluation of profitability - (C) Utilize leverage
2) Evaluation of profitability in SVF – (C) Utilize leverage To improve IRR, SVF may take out debt from financial institutions, with the intention of decreasing the usage of funds from LPs. This leverage effect can enhance profitability. Without Leverage With Leverage*1 <Assumption> <Assumption> Per
Slide 16: 3) Entities that compose SVF
3) Entities that compose SVF SoftBank Vision Fund (SVF) consists of GP / SBIA UK, SBIA US / SBIA JP, and Limited Partnership (Fund). Parent Company SoftBank Group Corp. Wholly-owned subsidiary Wholly-owned subsidiary SVF Investment LP advice SBIA US / SBIA JP GP / SBIA UK Manage SoftBank Group Corp.
Slide 17: 4) Business flow of SVF - Overview
4) Business flow of SVF - Overview First the GP/SBIA UK and LP enter into an LPA*1, and agree on commitments. Then, the GP/SBIA UK makes a capital call to the LPs, in order to receive the funds required to execute investment and operate the Limited Partnership (Fund)*2. Finally, GP/SBIA UK distribut
Slide 18: Business flow of SVF - a Form LPA
4) Business flow of SVF – a Form LPA GP/SBIA UK and LPs enter into an LPA*1 and agree on the amount and type of commitment. Commitment types are classified into Class A (performance based) and Class B (fixed). Form LPA*1 SVF (Agree on the amount and type LP of commitment) SoftBank Group Corp. GP/SBI
Slide 19: Business flow of SVF - b Manage the Fund
4) Business flow of SVF – b Manage the Fund GP/SBIA UK makes a capital call to LPs 1 . LPs respond by contributing funds to the Limited Partnership (Fund) 2 . The contribution will be paid to GP/SBIA UK or external parties, depending on the purpose of the contribution (e.g., management fees, operati
Slide 20: Business flow of SVF - c Invest
4) Business flow of SVF – c Invest GP/SBIA UK makes a capital call to LPs 1 . LPs respond by contributing funds to the Limited Partnership (Fund) 2 . Then the GP/SBIA UK executes investment to the investees (portfolio companies) via the Limited Partnership (Fund) 3 . SVF LP 1 Capital call GP/SBIA UK
Slide 21: Business flow of SVF - d Performance fees/distribution
4) Business flow of SVF – d Performance fees/distribution Cash flows derived from the sale of investees or collection of dividends are first pooled by the Limited Partnership (Fund) 1 .These funds are distributed to the LPs holding Preferred Equity Interests (Class B) 2 *1, then to the LPs holding E
Slide 22: Business flow of SVF - d Performance fees/distribution
4) Business flow of SVF – d Performance fees/distribution First the LPs holding Preferred Equity Interests (Class B) receive a fixed proportion of the investment principal as a coupon*1. Then, GP/SBIA UK receive performance fees*2 and the LPs holding Equity Interests (Class A) receive a distribution
Slide 23: 2. Accounting treatment for SBG
2. Accounting treatment for SBG 22
Slide 24: Agenda
Agenda 1. Overview of SVF’s business and accounting treatment 3. Summary of SBG consolidated financial statements 1) SVF’s business model 1) Overview of fund transactions 2) Evaluation of profitability in SVF 2) Overview of SBG consolidated financial statements 3) Entities that compose SVF (BS, PL,
Slide 25: 1) SBG's scope of consolidation - Overview
1) SBG’s scope of consolidation - Overview All entities that compose SVF will be consolidated by SBG. As for the investees (portfolio companies), SBG will determine whether to consolidate them or treat them as associates, or others (“Consolidation assessment”), and determine the corresponding accoun
Slide 26: 1) SBG's scope of consolidation - Details
1) SBG’s scope of consolidation - Details Through the Investment Committee in GP/SBIA UK, SBG’s wholly-owned subsidiary, SBG makes investment decisions for the Limited Partnership (Fund) 1 . SBG receives distributions based on the investment performance as an LP 2 as well as performance fees through
Slide 27: Accounting treatment for investees - SBG
2) Accounting treatment and presentation for investees (portfolio companies) - SBG SBG is not an investment entity under IFRS *1. Therefore, SBG should perform a consolidation assessment of the investees, and perform the corresponding accounting treatment. <SBG Consolidation> Parent Company SoftBank
Slide 28: Accounting treatment for investees - SVF
2) Accounting treatment and presentation for investees (portfolio companies) - SVF SVF is an investment entity under IFRS*1. Therefore, all investments are treated as financial instruments at FVTPL*2. SVF is an investment entity SVF under IFRS*1 Investment entity under IFRS <Control> >50% >=20% <20%
Slide 29: Accounting treatment for investees - Fair value measurement
2) Accounting treatment and presentation for investees (portfolio companies) - Fair value measurement SBG will use the result of the fair value measurement performed by SVF on its investments (except for cases where the investee is a subsidiary). Please refer to the following slide for details of th
Slide 30: Fair value measurement approaches
2) Accounting treatment and presentation for investees (portfolio companies) - Fair value measurement Common approaches are used for the measurement of fair value, such as a quoted market price, a recent transaction price adjusting for market and company performance, market approach, and income appr
Slide 31: Accounting treatment for investees - Associates/Others
2) Accounting treatment and presentation for investees (portfolio companies) - Associates/Others If the investees (portfolio companies) are classified as associate or other (i.e., not subsidiaries), in principle, investments in those investees will be treated as financial instruments at FVTPL. Howev
Slide 32: Associates/Others - Equity method
2) Accounting treatment and presentation for investees (portfolio companies) - Associates/Others Case 1 Case 2 Case 3 Case 4 Bridge investments from SBG Bridge investments from SBG Investments from SBG Investments from SVF (transfer agreed) (transfer NOT yet agreed) Accounting treatment : Equity met
Slide 33: Associates/Others - FVTOCI
2) Accounting treatment and presentation for investees (portfolio companies) - Associates/Others Case 1 Case 2 Case 3 Case 4 Bridge investments from SBG Bridge investments from SBG Investments from SBG Investments from SVF (transfer agreed) (transfer NOT yet agreed) Accounting treatment : FVTOCI [Wh
Slide 34: Associates/Others - FVTPL
2) Accounting treatment and presentation for investees (portfolio companies) - Associates/Others Case 1 Case 2 Case 3 Case 4 Bridge investments from SBG Bridge investments from SBG Investments from SBG Investments from SVF (transfer agreed) (transfer NOT yet agreed) Accounting treatment : FVTPL [Whe
Slide 35: Associates/Others - FVTPL
2) Accounting treatment and presentation for investees (portfolio companies) - Associates/Others Case 1 Case 2 Case 3 Case 4 Bridge investments from SBG Bridge investments from SBG Investments from SBG Investments from SVF (transfer agreed) (transfer NOT yet agreed) Accounting treatment : FVTPL (Val
Slide 36: Associates/Others - FVTPL
2) Accounting treatment and presentation for investees (portfolio companies) - Associates/Others Case 1 Case 2 Case 3 Case 4 Bridge investments from SBG Bridge investments from SBG Investments from SBG Investments from SVF (transfer agreed) (transfer NOT yet agreed) Accounting treatment : FVTPL (Val
Slide 37: Accounting treatment for investees - Segment information
2) Accounting treatment and presentation for investees (portfolio companies) - Segment information Total amount of gains/losses on investments (including the gains/losses at subsidiaries) and fund operating expenses will be shown as segment income of SoftBank Vision Fund/Delta Fund business. Gains/l
Slide 38: 3) Accounting treatment and presentation for third-party interests
3) Accounting treatment and presentation for third-party interests Third-party interests are defined as interests in SoftBank Vision Fund/Delta Fund, owned by third-party investors of SoftBank Vision Fund/Delta Fund. Third-party interests are presented as “Third-party interests in SoftBank Vision Fu
Slide 39: Distribution to SBG and third-party investors - Positive performance
4) Distribution to SBG and third-party investors - Positive investment performance The examples in pages 39 and 40 are calculated under the below assumptions: Total amount of capital called by the Fund: 1,000 consists of SBG (performance-based distribution type) = 300; third-party investors (perfo
Slide 40: Distribution - Positive investment performance
4) Distribution to SBG and third-party investors - Positive investment performance SBG Investment performance: +600 Operating expenses (200) Third-party interests SBG interests Management fees 50 Fixed fees Fixed fees 50 GP/SBIA UK Performance-based fees Performance-based Performance fees 200 (subje
Slide 41: Illustrative PL for the distribution flow - positive performance
4) Distribution to SBG and third-party investors - Positive investment performance Illustrative example of PL for the distribution flow on page 39 SVF P/L SBG consolidated P/L Limited Reconcili- Recorded item Partnership GP/SBIA UK Consolidated Presentation ations (Fund) Net Sales Gain on valuation
Slide 42: Distribution to SBG and third-party investors - Negative performance
4) Distribution to SBG and third-party investors - Negative investment performance The examples in pages 42 and 43 are calculated under the below assumptions ■ Total amount of capital called by the Fund: 1,000 consists of SBG (performance-based distribution type) = 300; third-party investors (perfor
Slide 43: Distribution - Negative investment performance
4) Distribution to SBG and third-party investors - Negative investment performance SBG Investment performance: (200) Operating income from SoftBank Vision Fund/ Third-party SBG Third-party SBG Delta Fund (400) interests interests interests interests Gain/loss on investment Performance- based (200) d
Slide 44: Illustrative PL for the distribution flow - negative performance
4) Distribution to SBG and third-party investors - Negative investment performance Illustrative example of PL for the distribution flow on page 42 SVF P/L SBG consolidated P/L Limited Reconcili- Recorded item Partnership GP/SBIA UK Consolidated Presentation ations (Fund) Net Sales Loss on valuation
Slide 45: 3. Summary of SBG consolidated financial statements
3. Summary of SBG consolidated financial statements 44
Slide 46: Agenda
Agenda 1. Overview of SVF’s business and accounting treatment 3. Summary of SBG consolidated financial statements 1) SVF’s business model 1) Overview of fund transactions 2) Evaluation of profitability in SVF 2) Overview of SBG consolidated financial statements 3) Entities that compose SVF (BS, PL,
Slide 47: 1) Overview of fund transactions
1) Overview of fund transactions The proceeding pages explain how SVF’s transactions will be presented in the SBG consolidated financial statements. SVF LP Capital call SBIA US/SBIA JP GP/SBIA UK Advisory fees External parties Performance Management Operating fees fees SoftBank expenses Contribution
Slide 48: Overview of SBG consolidated financial statements - B/S
2) Overview of SBG consolidated financial statements B/S Assets Liabilities and Equity Current assets Current liabilities Cash and cash equivalents Interest-bearing debt*1 Trade and other receivables Trade and other payables Other financial assets ----- ----- Non-current assets Non-current liabiliti
Slide 49: Overview of SBG consolidated financial statements - P/L
2) Overview of SBG consolidated financial statements [Gains/losses from investments] P/L Realized gain and loss on sales of 2• Net sales investments Cost of sales 3• Unrealized gain and loss on valuation of investments Gross profit 4• Interest and dividend income from Selling, general and administra
Slide 50: Overview of SBG consolidated financial statements - C/F
2) Overview of SBG consolidated financial statements [Gains/losses from investments] C/F Realized gain and loss on sales of 2• Cash flows from operating activities investments Net income 3• Unrealized gain and loss on valuation of Depreciation and amortization investments ----- Interest and dividend
Slide 51: Overview of SBG consolidated financial statements - Segment information
2) Overview of SBG consolidated financial statements Segment information SoftBank Domestic Vison Reconcili- Consoli- --- Other telecom Fund/Delta ations dated Fund Net sales xxx --- - xxx xxx xxx Segment income xxx --- xxx xxx xxx xxx = Operating income from SoftBank Vision Fund/Delta Fund EBITDA xx
Slide 52: Appendix
- Appendix - SoftBank 51
Slide 53: Fund-specific terms (1/2)
Appendix) Fund-specific terms (1/2) № Category Term Description 1 Contract LPA Abbreviation for Limited Partnership Agreement. Contract formed between GP/SBIA UK and LP. Defines the terms and conditions of the partnership. 2 Business SVF Abbreviation for SoftBank Vision Fund. entity 3 LP Limited Par
Slide 54: Fund-specific terms (2/2)
Appendix) Fund-specific terms (2/2) № Category Term Description 14 Distribution/ Waterfall The waterfall refers to the order in which cash generated by the fund (e.g., via the sale of Evaluation investments) are distributed to LPs, after fees such as management and operating expenses are paid off to
Slide 55: Definition of "investment entity" under IFRS
Appendix) Definition of “investment entity” under IFRS ■Definition of investment entity under IFRS IFRS10 27 (excerpt) An investment entity is an entity that: a. obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services; b. commits to
SoftBank Group — Investor Presentation (February 2018) on 6ix