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Edited Transcript of 9984.T earnings conference call or presentation 6-Nov-19 7:00am GMT

Q2 2020 SoftBank Group Corp Earnings Presentation

Tokyo Nov 11, 2019 (Thomson StreetEvents) -- Edited Transcript of SoftBank Group Corp earnings conference call or presentation Wednesday, November 6, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Masayoshi Son

SoftBank Group Corp. - Founder, Chairman of the Board & CEO

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Conference Call Participants

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* Naotaka Owada

* Ryo Inoue

* Takahiko Hyuga

* Yasuaki Oshika

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Presentation

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Unidentified Company Representative, [1]

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I'd like to start the SoftBank Group Corp. earnings results announcement for the 6 months period ended September 30, 2019. First of all, I would like to introduce today's participants. From left, we have Masayoshi Son, Chairman and CEO; Yoshimitsu Goto, Senior Vice President and CFO; Kazuko Kimiwada, Senior Vice President and Head of Accounting.

This meeting is live broadcast over the Internet and can be heard by telephone. Thank you very much.

Now I would like to invite Mr. Son, Chairman and CEO, to present to you the earnings results and business overview. Mr. Son, please.

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Masayoshi Son, SoftBank Group Corp. - Founder, Chairman of the Board & CEO [2]

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My name is Son, Masayoshi Son. Thank you very much for joining today. So this time, earnings results announcement is not good at all. It's a big negative. And the 3 months quarter result, with this size of the negative, is probably the first time after the foundation of the business.

I want you to look at this picture. We are actually in a rough sea. There are many media coverage here and there, especially in the past 2 months. "SoftBank may go bankrupt. Vision Fund are big negative. Uber is in terrible share price after the IPO. WeWork may go bankrupt. And SoftBank is actually putting further money into this company so that it can go bankrupt altogether so that all the aggressive investment activity has been failed." Such a coverage -- or the headlines has been covered in the newspapers. In a sense, it may be true. That's the market view on us. So in 2 words: significant decrease in profit and also the WeWork issue, so with this, our numbers has been damaged. CDS is now expecting the risk and surging, too. So in such circumstance, without any excuse, I would like to take this opportunity to explain you the situation and also the facts.

So let me go into more details. Net sales, EBIT, net income, as you can see -- and the breakdown, as you can see on the slides. But the EBIT, actually, in the first half in last year, the main driver for the positive number was SoftBank Vision Fund. It's now in the big red. And about the same amount of last year's EBIT is now recorded in negative side for this quarter. Other business is doing smoothly. And the net income is actually -- went half.

Sorry, I pushed the opposite button. So now biggest one out of such impact is WeWork. As for WeWork, JPY 3 billion from SoftBank Vision Fund has been invested in WeWork. On top of that, from SoftBank Group, USD 4.5 billion has been invested in WeWork already. And also last year April, JPY 1.5 billion investment commitment is already made in agreement, and that is going to be the warrant issuance. And those are nonoperating P&L impact that we are expecting.

Let me go one by one. One more thing is the joint venture that WeWork has established. So it relates to WeWork. We have WeWork Japan. We have WeWork Asia and WeWork China. So those 3 are joint ventures received the investment by SoftBank Vision Fund, and all those will be impacted. In WeWork, originally, JPY 3 billion has been invested by SoftBank Vision Fund, as of the end of June, JPY 4 billion as fair value. However, this time, it has been revised to the JPY 7.8 billion. So amount-wise, about JPY 3 billion loss will be recorded as a negative operating loss for Vision Fund. And for the impact to joint ventures, JPY 1.5 billion in total and additional investment is USD 200 million. As of the end of June, fair value is JPY 1.3 billion and also additional investment has been made. And this time, as of the end of September, fair value is JPY 1.1 billion. This is to be classed to the mother ship share so that it's going to be converted into the value of the mother ship, which is JPY 0.4 billion negative.

On top of that, from SoftBank Group itself invested in WeWork JPY 4.5 billion and JPY 1.5 billion. And that 4 point -- we have recorded nonoperating loss to be recorded -- has been recorded this time, so that the impact to Vision Fund due to WeWork and also impact to SoftBank Group was quite a large impact that we've been seeing. And that's -- my judgments in investment was not right in many ways, so I regret in many ways.

So far, I talked about negative numbers from accounting perspective. And we have 2 facts that we want to share with you: Shareholder value in the last 3 months, even though we recorded the historically biggest negative numbers, but shareholder value increased by JPY 1 trillion; and another fact is that Vision Fund value may have lost 1/2 of the value, that's the majority of the market view, but from Vision Fund perspective, in cumulative numbers, it recorded JPY 1.2 trillion of profit. So in fact, it recorded increase as opposed to decrease by 50%. So those 2 facts are something that many people may not believe or may not want to believe no matter how hard I try to explain to them from their psychology perspective. But those are 2 facts.

And let me walk you through one by one. First, shareholder value, which is JPY 1.4 trillion. The view on shareholder value is as follows, which I have been explaining many times at previous earnings calls: From accounting perspective, we recorded JPY 1 trillion, JPY 2 trillion of profit. However, as an investment company, shareholder value is more important measurement. That's what I have been talking about a lot in the past. I'll show you a video. From accounting perspective, revenue, profit, those are not the measurements that I'm looking at the moment when I run the business anymore. Of course, to the standard of global accounting standard, we record a lot of numbers, but that's not the most important measurement for us. The most important measurement for us is shareholder value. That simple. So again, that's the consistent message that I have been sharing with you for a long time. Not profit from accounting perspective, but shareholder value, that's the biggest and most important measurement for us when we run the business.

At the last time, shareholder value, value of our shareholding is worth JPY 25.8 trillion, and the net debt were JPY 4.9 trillion. So net-net, shareholder value was JPY 20.9 trillion. That was the numbers that I disclosed to you last time. So this time, value of the holding, from JPY 25.8 trillion, it increased to JPY 27.9 trillion; and shareholder value increased from JPY 20.9 trillion to JPY 22.4 trillion, increase by JPY 1.4 trillion. That means the most important measurement of SoftBank Group is shareholder value, like I said, and in the same period of 3 months when we recorded the biggest loss in corporate history, but shareholder value increased by JPY 1.4 trillion, the biggest value in our corporate history.

So again, if you compare last time and this time, Alibaba, we saw an increase by JPY 2 trillion, and other businesses increased or decreased. But the biggest part of increase was Alibaba. Of the Vision Fund, SoftBank's holdings decreased from JPY 3.5 trillion to JPY 3.2 trillion, which means JPY 0.3 trillion decrease. But Alibaba portion did increase by JPY 2 trillion. So impact from SoftBank Vision Fund is only 1% of the total value. Of the total shareholdings, a little bit more than 1% was impact in change. In fact, the biggest impact was increase by JPY 2 trillion of Alibaba. So net debt subtracted, shareholder value increased by JPY 1.4 trillion from JPY 20.9 million to JPY 22.4 million. When I say something like that, and people may say that Masa is always cherry-picking when he discloses numbers, but this is the fact. This is the fact, which is, in the period when we recorded the biggest loss in our corporate history, shareholder value increased by JPY 1.4 trillion.

The second fact, next fact, which is about Vision Fund. Vision Fund invested in Uber and Slack, and even after IPO, their share prices went down. And WeWork, people would say that, "You failed a lot, big time." And as a result, SoftBank Vision Fund value decreased by 50%. Most people would say that. But let me share with you the fact. The fact is cumulatively, in about 24 months of Vision Fund history, we saw increase of value by JPY 1.8 trillion, which include JPY 1 trillion of valuation gain and realized gain. Without cashing out or without liquidation, without monetization, the value is not realized, people might say that. But realized gain is JPY 0.5 trillion and valuation loss was about JPY 0.6 trillion. Valuation loss again was a negative JPY 0.6 trillion, and realized gain was JPY 0.5 trillion, which is cash. On top of that, valuation gain, we recorded JPY 1.3 trillion. So all in all, we saw increase of value by JPY 1.8 trillion, and we saw decrease of valuation by JPY 0.6 trillion. So monetary number -- well, number of companies wise -- of many companies that we invested, 37 companies contributed to our valuation gain and 22 companies contributed, if you will, to the loss of value.

In terms of absolute amount of money [321.] Well, we paid a lot of value in a company specializes in dog walking, and SoftBank must be going out of -- mad, which we learned a harsh lesson from that investment. But including Uber and Slack -- in fact, Slack, even though their share price went down from IPO, but from the number of investment, money that invested, they increased value. Likewise Uber, even though after IPO, they have seen share price going down, but from the viewpoint of investment that we made, Uber increased its value. And valuation loss, JPY 0.6 trillion, and realized gain and valuation gain total was JPY 1.8 trillion. Even though we don't show IRR here, but of 5,000 venture capitals around the world, on average, their IRR is 13% roughly. That's what we heard. But Vision Fund, even though people may have said that Vision Fund made a huge loss and Vision Fund purchased or invested at very high valuation price, but we recorded this kind of gain. So even compared to global venture capitals, we recorded a huge value than -- and huge returns compared to venture capitals.

And I wanted to challenge most people's view because people say that SoftBank Vision Fund lost a lot. But that's not the fact. So again, investment uplift -- market uplift was JPY 1.2 trillion, which means Vision Fund invested a total JPY 8.2 trillion. On that, we recorded JPY 1.2 trillion of gain. Of course, JPY 8.2 trillion included distribution to LP from realized gain. And in the period, we started recouping investment very rapidly from a valuation gain perspective. So SoftBank Group calculation of valuation gain, people criticize that we don't take it seriously and that SoftBank Group preferentially calculates valuation gain, but we have a strong framework in place. For example, reporting framework, we are looking at international private equity and venture capital.

And from a regulatory compliance perspective, we are regulated by applicable regulators when we run this business. And for -- when it comes to valuation/evaluation, we are an investment company. When we make an investment limited to partners, we want to make sure that the investment we make is properly valuated/evaluated. So those LPs investment advisory board, the valuation that we make from independent evaluator, they check our valuation investment. And also Valuation and Financial Risk Committee is in place. That's also another reviewer. And AIIB, which is investors, they are also checking. And all in all, Deloitte and other auditors do audit. And this evaluation committee do not allow people like me and [Yoshimitsu] to fully manage those investments. So independent audit and check and evaluation is being done in that framework and structure.

And talking about WeWork, why SoftBank Group prepared lots of finance package to WeWork or people questions whether it was a rescue measure or not. What we wanted to do was not rescuing WeWork. But what we wanted to do was the shareholder value that we recorded, the value was too high, we wanted to make sure that the share value was most appropriate because investment -- regardless of investment that we have made so far, contractually, SoftBank Group has made a commitment of JPY 1.5 billion. So that's an agreement already in place. When we discussed with lawyers, we realized that this agreement is not cancelable. That's the commitment we have made. So the question was how we can reprice better.

Before exercise, the valuation was $47 billion or $110 per share. That's the value based on which we should make additional investment. But with this finance package, we made repricing to 1/10. As a result, in return, we should be able to get more number of shares. That's the negotiation that we have done. So in April next year, we would put JPY 1.5 billion. That was the commitment. But we accelerate by 6 months, from April [next] year to October this year, so that we can get return of value repricing from $110 per share to $11 per share.

And credit facility from financial institution -- support for letter of credit facility from financial institution in secured notes -- senior secured notes, that's the total finance package. In return for the total finance package, 17% of shares we have the right to get without extra money. So when you make an investment, when share price goes down, if you bought a share at a very high price and if the share went down after that, you may want to buy more shares when the share prices went down to normalize the total investment.

But without extra investment, we wanted to have more number of shares by providing credit facility instead of adding cash. The investment that we have already committed will be made earlier than we promised. On top of that, we'd provide credit facility, then reprice was made possible. So after that -- before that, finance package and transaction holding increased from 12.5 -- 8% to 41.2% without extra cash provisioning, $89 per share to $90.4 per share. That was repricing we succeeded in terms of the price of share that we acquire. So already committed investment will be made 6 months earlier than we agreed because that's the legal obligation, and on top of that, provide credit facility. By doing so the acquisition price decreased to 1/4 without spending money or cash.

Marcelo worked hard on this negotiation process, and we succeeded in the end. So our effective value of share acquisition decreased to 1/4. So WeWork was a sinking ship, and SoftBank Group tried to salvage that sinking boat. That was the view held by many people. But from our perspective, without spending more money, the acquisition cost, purchase cost of the share decreased to 1/4 of original cost or original price.

But what if we WeWork really sunk by providing -- even after providing credit facility? So in order to make sure the WeWork stay afloat, Marcelo was appointed as Executive Chairman to optimize the governance. In fact, Marcelo was already in there. And Marcelo helped a lot to turning around Sprint and also potential merger with T-Mobile, and he led a team to invest in Latin America. But this time, the most important task that we have to address, which is to turn around WeWork immediately, so I asked Marcelo to focus on turning around WeWork.

And now WeWork business, what's happening and why SoftBank Group believe that WeWork is not sinking boat. Why we believe that? So let me share our view with you. So WeWork business, which is in red -- I mean negative, and actually this negative is increasing every year basis. This is a fact. This is the one side of fact. But the background for that is that gross profit is low in location level and OpEx is high, therefore, EBITDA is in negative. That's the actually formula that we've been looking at. And for that, we would like to increase gross profit, reduce OpEx so that we will be able to increase EBITDA. That's the simple formula that we would like to change. That's the simple turnaround that we will be aiming for.

And how are we going to do that? I'd also like to add some explanation. It's simple. Very simple answer. It's not that easy issue. Why do we think it's easy and simple in one word? And let me also explain why I can say that. It's because WeWork has been increasing number of desks, number of offices, doubling every year basis on the past few years, double and double in every year. At the time that we're doubling the number of desks means many of the offices is still under construction for the interior. Those under construction has no revenue. So no revenue but it's in progress, so that the expense, that's recorded. Anything that recorded assets but still many expense is recorded.

Salespeople -- or the development of the offices is worked by many salespeople and also design for the interiors, designers for that, has been designing those offices, that's only expense centers without any revenue, which is dotted line portion here. And every year, we're doubling the number of desks means that even after the launch of the office, less than 12 months is the yellow and red portion, every year doubling the number of desks means that -- lengths of desks is the number of desks and the number of offices. But actually, about 40% is offices launched more than 12 months ago, and that is making actually revenue.

But for those buildings, after the launch of 7 to 12 months, which is still yellow because of low revenue, if the building is only opened first 6 months, it's still a bit negative. So doubling the number of desks means that this red portion is actually occupying about 40% of total of number of offices. So if you call it as apples, it's still the unripe green apples. It's still unripe. And many of those green apples are there. So those unedible green apples, which is 1 to 6 months, is taking about 40%. Yellow is 20%. Those profitable one is 40%. That is the situation for WeWork, so that at location level, it's not profitable, which means expense in headquarter level is not yet profitable.

About 700 offices, buildings are launched this month. About 700 worldwide launched this month. In Japan, about 22 buildings has been launched. For these buildings or these offices, how is the occupancy ratio? You may wonder. So after the launch of the office and many customers, clients, enterprises are leasing and coming in for this WeWork. And how many -- how much of the occupancy ratios are there? And we actually analyzed, do the due diligence in the past 1 month for the occupancy by location basis. For example, the lower Manhattan, one by one, actually occupancy ratios in pink, in green, in blue, these are all occupancy ratio. Y-axis is the occupancy ratio. Top is 100%, bottom is 0%. And X-axis is the months elapsed after the launch.

As you can tell, first 6 months, occupancy ratio is still very low. After 7 months to 12 months, it's increasing. After 12 months, occupancy ratio reaching about 80% stable basis. In worldwide, about 700 buildings we analyzed in detail like this, one office by one office, that we checked all this. And if we weighted average, then this is the curve that we are looking at. So this curve, if you go in details one by one, that's a bit difficult to tell. But if you weighted average showing the weighted leverage, this is the occupancy ratio. First 6 months, it's all red, all negative. And that takes about 40% of total. Yellow portion is about 20%. Green is about 40%. So 40%, 20% and 40%, that's the distribution. Because we've been increasing the number of desks, doubling every year basis, so whenever you have new offices, then that's going to be taking half of the total. So that's how we see the occupancy ratio.

As a big large shareholder, we would like to be involved or we would like to suggest the 3 initiatives for WeWork: The first one is to pause the contract in new offices. So already, about 1 month ago, we all stopped the new contract, new agreements for new office agreements. This is maintained maybe for 3 to 4 years until we see the stable operations and the profitability. In the meantime, we would like to pause new -- contract in new offices. We may have some, not exactly 0. For example, in Japan, actually Japan's business is profitable. For example, in Tokyo, about 99% of the occupancy ratio and are actually making a very good profit. Those areas can be exceptions, and we may increase some contracts, but in principle, we would like to pause all the contract for new offices.

And second is the cost reduction. As I mentioned earlier, new buildings, new offices are increasing, doubling every year. But that's the -- we regard it as cost for the growth, which is taking more than half of the total cost, which includes the negotiation with landowners, designs and everything. But if we stop contracting new office means we can reduce the expenses by half. So we can do the cost reduction.

And third one is to -- there are many new businesses or -- which is noncore businesses by acquisitions or newly started in the past. But we would like to terminate such unprofitable businesses by selling or maybe closing down so that we would like to focus on core business. Other than that, we would like to terminate those. So by those 3 initiatives, we would like to -- we believe that we will be able to have a big improvement in WeWork.

SoftBank has been experiencing many challenging turnaround starting from Yahoo! BB, Vodafone K.K., Japan Telecom. So there are many experience. Also in Sprint, that there are many challenges that we have faced for turning around the business. And whenever we do, basically, it's always the same that we need to do.

Pausing the contract in new offices means -- these dotted lines are the under construction. As I mentioned, as of today, about 40% are office launched for 1 month to 6 months; 20% is yellow, 7 to 12 months; and the green is 13 months or over. So with this, as you can see, that the red portion is quite high. But if we will pause the contract in new office, then those dotted lines, the construction in progress, is going to be completed. And that will be added on the yellow portion. But at the same time, green will increase. After 6 months, red will turn into yellow. After further 6 months, yellow turn into green. As this every 6 months, we will be able to switch to profitable businesses, so about 18 months or so we believe majority of the offices will be turning into green, means that a high profit or profitability business. Why? Because occupancy ratio will increase.

Why we can increase occupancy ratio? Because after deep dive analyzing 700 offices with our track record, that's the average weighted leverage. So that we don't have to create new things from scratch while we don't have to add values. That's something that we would love to say for the improvement actually. But time helps for us. So without inventing anything new, without adding anything new, but actually, we're just pausing the new contracts, and time will help us. Green apples will turn.

Actually, the color indicates the opposite, but green apple will be in red, and a better and tasteful apple will come to us. So those red portion from the graph will be turning into green. So that's going to be very good profit. Profitable offices will be increasing. So the answer is time will help us. That's how easy is that. So that's the kind of improvement in gross profit. So along with the time and also by pausing new contracts, we don't have to rush for the growth. But the gross profit by office level, we will be able to improve those.

So this is -- the green line is the gross profit after the improvement. Of course, expense has been large. This is for the spending for growth. And many of them are for designings, CapEx. Many -- CapEx can be recorded as assets, but there are many other expense needs to be spent so that the breakeven point was very high. But here, by pausing new contracts means that the cost can go by half, and the expense for growth can turn -- stop for now means that we will be able to reduce the cost by half. And reducing cost by half means we will be able to accelerate the breakeven points so that the office level, location level profit will increase dramatically. So as is, very simple. Terminating all the unprofitable businesses and pausing new contracts for buildings, offices, reducing cost, that's it. So that those big negative will make a hockey stick improvements. That's how we picture our future turnaround plan for the business. Whether we can follow as we aim, that we would like to share with you in -- whenever we have the results from there.

We've been challenging many difficult turnaround every time that we've been able to successfully turnaround the business. This time, I do have a confidence to do the same because the logic is always simple, pausing the new contract and just wait for the time to come. Then business becomes profitable. Then second or third year, then we will be able to maintain the healthy profitability and increase for the growth. So that's something that we believe we will be able to improve the value of WeWork.

Still we -- because we priced too high so that with this finance package, actually our purchase price for the equity has gone to 1/4. So this is not a rescue, but the investment -- invested amount has to reduce to 1/4. That's the position as the investor that SoftBank has.

But this time, finance package by SoftBank Group to WeWork and also the initiative for the management has been concerned by the lenders, banks financial institutions, rating agencies, markets, investors because SoftBank, this has been an investment activity and also not taking more than 50%. Usually, that we aim for 20% to 30% ownership means that not everything is going to be successful so that we just forget about the loss, forget about the failure.

Why do we need to have additional support to such a company? There are such criticism came to us. It's not really the risky investment. But actually, we just reduce the average purchase cost to 1/4. But many of people look at us as putting more money into the sinking boat and we will be sinking altogether. That's the kind of concern that the market has been seeing and the very concern has been raised. As a result, share price goes down, CDS goes up. There are so many criticism of our company. I do learn a lot from here and also learned and regret several actions. So here, once again, we would like to make sure and emphasize once again our policy on our investments.

First, the directions or the policies on the support to portfolio company. So the portfolio companies' financing is self-financing. Even they go negative, but we will not invest for the rescue purpose. This time, WeWork, because of certain situations and circumstance, but this is just one time. This type of exceptions will not happen again. That something that I would like to clearly extend my message to you. Without this message, Goto-san -- now Mr. Goto is going to be really upset because many people, markets are upset with us. As a CFO, Mr. Goto is going to be upset with me without extending this message because so many concerns, so that we have to share my disciplines. And Mr. Goto has been telling me. But even without him telling me, I was to share this message with you, clearly, that no investments for rescue purpose. The financing for the portfolio company will be done by respective companies as a self-financing base. So that's the one clear message I wanted to communicate with you today.

On top of that, our financial disciplines, our financial policy, once again, Mr. Goto asked me to remind you and also share with you our determination, which is the managing loan to value, less than 25% during normal periods. After the investment, after the loan or financing, if the equity value goes down, even such an abnormal case, we would like to manage loan-to-value less than 35%. This has been communicated to you in the past, and this will be maintained.

Second one is to maintain cash position covering bond redemptions for at least next 2 years. And also -- or secure a sustainable distribution and dividend income from SoftBank Vision Fund and other subsidiaries. So there are a very rich distribution dividend will be received from Vision Fund, SBKK and so on. So those 3 means no change at all in this financial discipline.

And measurements for investments in SoftBank Vision Fund has been asked to us. For example, the share price decline in Uber or the investment in WeWork, many people said that my eyes on investment has been obsolete or maybe he didn't have such a power anyway or probably not only Mr. Son but some of the managers of the SoftBank Vision Fund was not enough capable to screen the investment target or maybe creating the bubble in the investment field. And for such criticism or such questions, we would like to also once again share with you how we see the importance and the important indicators for the target companies, the portfolio companies. Actually, this is being used at the CEO Summit that's organized by SoftBank Vision Fund, together with all those CEO and investment deal managers and other managements gather together and discuss.

So that most important KPI is free cash flow. Often, they said that multiple -- sales multiple or multiple of GMV, gross profit multiple, EBITDA multiple, those are the oftenly used indicator in general, or the daily active user multiples. So there are many indicators that you can use as a measurement. But me, if I need to pick only one, then I will say free cash flow. That's the most important KPI. But this free cash flow, if you only look at as-of-today free cash flow, then there are many company start-ups, they are all negative. For example, Yahoo U.S., Alibaba was also in negative for past -- in beginning of 10 years.

Facebook, Google, they are all in negative in the beginning. We -- can we invest in such companies? No, we can't because a few years later that these companies will be generating free cash flow. So once this company matured, becomes steady-state -- it's not matured but actually on track, free cash flow is important. And that multiple will be the measure for company's value. That's my formula. And the sigmas for this free cash flow will be calculated. But when you calculate this formula, you need to see the gross ratios for the free cash flow as of that date. So free cash flow multiple for those companies that start generating free cash flow about 15x to 45x, there are many distributions.

So some of the companies are already on track, steady-state, already went public. And this shows the distributions and about 10% to 20%, 30% of the gross ratios against revenue. And how much free cash flow are there for the market cap. This is how you see this graph. In average, if you go for average, then that is the red line. Means once the company goes on track and if you have a revenue CAGR of 30%, then actually, 25% times of the free cash flow is the company's value. Those portfolio companies that we've been invested about 20 years ago are those companies who are not generating any free cash flow.

But from today to 5 years, how much free cash flow can be expected? For example, one company is generating JPY 1 billion free cash flow in 5 years. And if you times -- multiply it by 25, that will give you JPY 25 billion. And if you calculate 30% of the IRR discount rate, that's the one level we are looking at. And about 30% annual discount rate, over 5 years, then that will give us JPY 7 billion. And business plan that provided by management does include some risk factors. So we actually discount 40% additionally. Then that will give us JPY 4 billion. So even if you don't generate free cash flow today, but expect a free cash flow in 5 years is used for the base for the calculations applying the discounts.

And if it's more than JPY 4 billion, then that's too high. If it's less than JPY 4 billion, then that's to buy. So that's the measure that we are using. So this is kind of the measure and the calculation we are using for the Investment Committee discussion. And also the fund managers are using such indicator to check and review the investment decisions. So if the company is not making free cash flow in 5 years, then we calculate -- recalculate in 7 years. If it's 7 years, then the discount ratio is going to be even higher.

With that, we actually -- for example, the other companies, other funds or other investment companies investing in how much, that is not the measure we are using for our -- these investment decisions. But we do have a very numerical formula based on the free cash flow calculation that we have discounts and also use this as an indicator for the investment decisions. So this was already the direction that we've been using from the beginning, but we remind once again with our investment fund managers that this is the direction that we are using. So it's not that -- regardless of the other investment firms are using, but this is the -- our own direction. And also I learned from the WeWork case. We also need to focus on the governance for founders and the managements, and we need a clear standards in the -- for that.

With that, Vision Fund as of today, many companies, some of them already exited. We invested in them, and people worried that Vision Fund may go bankrupt. Vision Fund lost 50% of value. That's not the fact. In fact, when we fail onetime, we recorded 3 success. So valuation gain increased to JPY 1.8 trillion. So 88 portfolio companies, in fact, increased their value by 200% compared to an average.

The Internet companies -- or investment in Internet companies, people say that it's a bubble. Companies that are losing money, companies that don't have business model work. SoftBank invested at very high price. That's mainly people's view. But after the Internet bubble burst, SoftBank suffered a lot actually. But looking back in the last 20 years, Internet companies, 7 out of 10 -- top 10 market value companies are Internet companies. And value of Internet companies and free cash flow of Internet companies are growing, like I have kept saying.

Likewise, in the space of AI, AI companies' value, some increase -- sometimes increase, other times decrease. But looking at the digital data traffic, which is a source of AI, so this data traffic volume grew exponentially. And for the next 20 years, it will continue to grow like our Internet traffic did. So AI revolution was just started.

So in summary, we recorded about JPY 1 trillion of loss in the last 3 months. And the profit that we have made were more than offset by the loss in the 3 months. But on the other hand, shareholder value increased by JPY 1.4 trillion. And if Alibaba's value was recorded in EBIT, it would have increased shareholder value, could have increased by JPY 2 trillion, but that's the hypothesis. Anyway, shareholder value increased by JPY 1.4 trillion, and Vision Fund grew by JPY 1.2 trillion in terms of its cumulative investment.

And LTV, net debt divided by shareholder value, LTV is 17% excluding nonrecourse portion, which means that we are not obliged to pay back. It's 17%, which is very healthy level. And Vision Fund, 1 failure to 3 success in terms of gain and loss. And share price has actually decreased, but now JPY 9 trillion, about, but the shareholder value increased.

I guess in corporate history, this is a blue line. SoftBank market value peaked at about 2000 -- when net Internet bubble burst, but we exceeded actually this time in terms of shareholder value. So from financial results perspective, it was terrible in the last 3 months. But shareholder value, which is the most important KPI for us, is the biggest in our corporate history.

From our perspective, no change in our journey. We don't see any storm, rough orders. It's just a soft order, to be honest. So some people, I hear you laughing. And Masa is always talking big, you may say. But from my perspective, no change in the journey, no vision change, no strategy change. All we will do is to just keep going, keep moving forward. That's Masa's commitment and our direction. Thank you very much.

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Unidentified Company Representative, [3]

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Now we would like to open the floor for questions. If you have any questions, please raise your hand and wait for the microphone. And please begin your question by stating your name and affiliation. We would like to take up to 2 questions per person so that we can take questions from as many people as possible. So please raise your hand if you have questions.

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Questions and Answers

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Unidentified Company Representative, [1]

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So A2 block, the second row, or the glasses, white glasses person, please.

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Unidentified Participant, [2]

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My name is [Onishi], journalist. WeWork, thank you for the very simple explanation. The very last page of the presentation, you said that all of a sudden that you jumped to the AI. So what's the AI about WeWork? Many of the people here from the market has actually question about AI in WeWork. When the market value increase surged dramatically, people think that it's tech company. But actually, this is just a real estate business, isn't it? And also that market value is not really suitable for the real estate business. So for you, even that you can speak about it, but the market values for the real estate business is not that much, right? So that's the kind of a question I have. So as a general or real estate business in WeWork, what's the difference? What's value? What's the -- is there value in it for your investment? That's 2 of my questions. Can you please explain?

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Masayoshi Son, SoftBank Group Corp. - Founder, Chairman of the Board & CEO [3]

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Yes, I think you have very logical question. The explanation I made is a kind of a basic -- a base case. So those speak negative WeWork, sinking WeWork, that's the -- from the financial point of view, how can we turn around the business? So how can we stop the negative further? So this is the base case to do so. And once -- we first need to address this base case. And once we complete in the -- make a progress in base case, then we will be able to have a next stage. In this next stage, we believe there will be many businesses using AI and the community services. Such an additional value can be added on in the model we would like to introduce as a next stage.

The reason that we decided to invest in WeWork, we had a quite large expectation on such utilizing of AI for WeWork, and we had a big discussion with management of WeWork in the beginning. But they, management, couldn't execute all those ideas yet. But that, we SoftBank Group and SoftBank Vision Fund, we have a lot of investment portfolio companies utilizing AI. So we would be able to utilize such know-how in the AI technologies in the coming -- after 6 to 12 months, we would like to add it on to WeWork business.

But we also need to test those as well. So if we go for the next stage, jump up to the next stage, result going through base case, which is to stop the negative, reducing the cost, that needs to be fully exercised first. So that's the first step that we would like to exercise and then go on to the next stage by introducing -- exercising this base case initiative and stop the negative and mature the business, then we believe we are expecting to see about JPY 1 billion EBITDA in coming few years. That's the actual internal plan that we have.

This is just a prediction or forecast, so it's not yet built into the actual business plan for WeWork because Marcelo just assumed the position of Chairman of WeWork, and they just started a further deep-dive study. So I wasn't planning to talk about this JPY 1 billion. But in 5 to 6 years' time, we hope to be able to -- we're actually confident to be able to achieve such a goal without -- we don't have to spend any CapEx if -- once we post the new agreements, new contracts, then that we believe that we'll be able to start the JPY 1 billion EBITDA.

And this time, our purchase -- our average purchase cost has been reduced, replaced to 1/4 with this finance package to WeWork so that we actually may not be able to make a big gain but will at least be able to collect our investment. That's something that, with the basic case, that we'll be able to achieve that. After then, next stage, we would like to add more value on top of that. So the results going through the base case, we don't believe that we can be more exciting about the additional value on top of that. So that will be the next stage.

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Unidentified Company Representative, [4]

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Next question, please?

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Naotaka Owada, [5]

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Owada from Nikkei Computer. When you select a potential invested target, you -- I think you mentioned that you look at the founder of the business. I understand the potential growth of WeWork, but you failed judging Mr. Adam Neumann. Well, he had good sides and bad sides, to be honest. And his good sides, I think we -- or I overestimated Adam's good side, which I should have known better and more. And his negative side, in many cases, I turned blind eye especially when it comes to governance. He was so energetic and passionate and very aggressive. Such nature, such quality, he was excellent, and WeWork's design -- or product, I should say, WeWork's product was brilliant, and users of WeWork are happy using WeWork service and products.

So Adam, as an artist, he was great. And probably, I looked his good side too much to look at his negative side, and I learned the harsh lesson from that experience. And in your presentation, IRR, global average was 13% and -- but you have twice as big as IRR. But in the past, I think you mentioned over 40%. So even though you are at very top level globally, but you saw like a 20-point down.

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Masayoshi Son, SoftBank Group Corp. - Founder, Chairman of the Board & CEO [6]

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Right. Yes. WeWork was damaged a lot. And Uber, after IPO, the stock price went down dramatically and other reasons. So before, it was over 40%, but now 20%. That's the reality. Having said that, from a global average perspective, we are twice as big in terms of IRR. So it's not that bad, don't you think? So value decreased by 50%, that's not reality. Thank you.

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Unidentified Company Representative, [7]

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So white shirt, gentleman, please?

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Unidentified Participant, [8]

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My name is [Hota] from Nikkei Newspaper. I have 2 questions, please. First, in your explanation of WeWork, you mentioned that you regret or you learned the harsh lessons. But at the same time, company value -- or that you maybe pay too much for the equity in the beginning or first stop the size growth, but to focus on profitability. But can you summarize what you have learned, what you have regret? And for the fund operation going forward, how can you utilize such a learning?

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Masayoshi Son, SoftBank Group Corp. - Founder, Chairman of the Board & CEO [9]

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Yes, I have 2. One, overestimated the value, that's the first lesson. And for the -- to address that with this finance package, SoftBank Group purchase price has reduced down to 1/4. So that's the measure we addressed specific to WeWork issue.

Second lesson is the governance. Founders, Mr. Adam Neumann, had quite a large rights and powers, for example, voting rights for 1 to 10. After IPO, that can increase to 1 to 20. That has been accepted by the Board of Directors meeting. We don't take majority seats of Board. We just have a one Board seat in WeWork. And in the Board meeting, we couldn't stop such progress.

So after the investment, actually, the governance issue has been worsened, and we couldn't stop that. That's the -- and also some other -- 4 out of 9 Board seats were actually held by Adam's appointments. So his personal or transaction with the company was quite excessive, which Board meeting -- the Board couldn't stop. So for the governance issue, our finance package, out of 9 Board seats, 4 will be as appointed by SoftBank Group and SoftBank Vision Fund. So 4 out of 9 remaining will be independent directors. And Adam, the founder, his right will be terminated this time largely so that we believe we will be able to improve the governance aspect as well. So these 2 are the lessons that I learned.

So for these 2 points, for the other portfolio companies, how we address that? So as a KPI to decide on investment, we need to make sure those KPIs has a due diligence. And also for the governance, for those companies we have already invested, we once again would like to share our investment guideline, and the guideline will be again checked for those existing portfolio companies. Whenever they raise the financial round and if we're to participate in such a financial round, we need to review and check once again based on -- according to the investment guidelines. Of course, there is not any big mess, but there are some companies that -- who does need a closer watch. So that for those new investments, along with this guideline, that we would like to negotiate for the further actions.

One revision that I would like to make. The Board total number is 10 seats, of which 5 will be -- so 5 out of 10 Board seats. Let me restate my earlier comment. Wasn't that 4 out of 9? No? 5 out -- so in final conclusion it's 5 out of 10. So sorry, let me restate once again, it's 5 out of 10 Board seats. So that up until now, it was only 1 Board seat we have out of 9 Board members. But with this finance package we provide, we have amend many of the governance and have some rights in our side as well.

So I said 2 lessons that I learned. But the only that's not been criticized regarding WeWork is product quality, service quality. That has not been criticized so far, I believe. Product is great actually, and that's the actual voice from the actual users. We do have WeWork Japan. Our employees of SoftBank and our affiliates are also using WeWork service. But actually, they don't want to go back to the former office anymore. That's how comfortable it is to work in WeWork office. So product itself is very good and great. And that's the only -- but also the biggest thing that I believe I'm happy about for WeWork.

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Unidentified Company Representative, [10]

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Next question? Actually, same question from the same person.

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Unidentified Participant, [11]

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Second question from myself. For WeWork, you paid too much. Why? You invested at very high price. Why? That's one question. But looking at your portfolio companies, are there any other companies that you spend too much? Or second WeWork, third WeWork, is there any potential WeWork?

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Masayoshi Son, SoftBank Group Corp. - Founder, Chairman of the Board & CEO [12]

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Well, right before we made investment, other investors made a similar amount of investment. In that trend, we made a similar valuation. That's one thing. And on following rounds, we added more investment because we over-evaluated Adam.

Is there any other similar concern? In fact, yes, there is. Like a dog-walking company and other portfolio companies, we may see similar problems surfacing. But at the same time, other companies would realize that we bought them, we acquired them at very value price. So all in all, we saw valuation loss by JPY 0.6 trillion, but we saw increase of value by 1.8 -- JPY 1.4 trillion, excuse me. So we can't win all the time. There are 5,000 venture capitals globally and average IRR is 13%, like I mentioned, and we are at least over 13%.

And people, they would also often say Vision Fund spent a lot, paid a lot, and they invested at very higher price, higher value. But the return is 13%, and our return is about twice as big as this. So numbers will tell you.

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Unidentified Company Representative, [13]

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Next person, please, in white shirt? Can you keep your question to one question so that we can take more questions?

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Ryo Inoue, [14]

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My name is Inoue from Asahi Newspaper. So for your future investment strategy for Vision Fund 1, I believe you have already invested quite much money. In your previous announcement, you mentioned about Vision Fund 2 starting sometime soon. And I believe you accelerate your investment strategy going forward. But like Saudi Arabia or some other LPs, in the media, as far as I see the newspapers, they are not optimistic about participating. But what is the current status?

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Masayoshi Son, SoftBank Group Corp. - Founder, Chairman of the Board & CEO [15]

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Investment period for Vision Fund 1 has already completed, so scheduled amount. About -- we just maintained the remaining of the 15% out of total. That's the rule. That's for the follow-on investment for the existing portfolio companies and also for the distribution for the preferred. So we have a rule to keep about the remaining 15% of total fund. And we have already -- once we spend all the 85% of total fund, we close, and that happened last month actually.

As a result, our Vision Fund 2, as a seat round, SoftBank Group itself with our own money, we would like to kind of start the preparation to start the investment. We have already -- are starting some. And the other LPs, we have some which agreed the memorandum and also some that are having additional negotiations. And for that, we are still negotiating so that who are in which stage or which status is not something that I can discuss today. But in general, Vision Fund 2 is going to be launched as scheduled. So we will start accordingly.

Mr. Oshika, give me tough question, please.

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Yasuaki Oshika, [16]

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Oshika from Asahi Newspaper. So somebody asked you why you paid a lot, too much. Well, due diligence or pricing, what -- how did you do initially? I think you tend to like people. For example, Nikesh, you spent a lot in Nikesh, and you probably love too much Adam. That's one question.

And the governance for SoftBank Group, you mentioned that Goto-san gave you a hard time. But compared to the past -- like in the past, someone like [Akitao-san] and [Kasahi-san] and [Shima-san], maybe they controlled you or they could have stopped you. So from governance perspective, in your organization, is there any check and control process in SoftBank Group to make sure that you don't go crazy?

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Masayoshi Son, SoftBank Group Corp. - Founder, Chairman of the Board & CEO [17]

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So you should have asked me one question, but you did 2. Anyway, about loving Adam too much, again, I learned a harsh lesson, like I keep saying. Value of a company, so free cash flow is the most important KPI when we evaluate investment in a company. But in 5 years, in 7 years, free cash flow against the future business plan. So how much probability a company has to exercise or execute business plan to generate free cash flow? Vision Fund, in principle, we don't invest company at an early stage, rather, they have some track records and they have become #1 in particular space. Those unicorn companies are the ones that we tend to invest.

So it's supposed to be easy to measure those companies quantitatively, not qualitatively, because they have some track records as opposed they are still on early stage now to start up. So it should be easier for us to forecast free cash flow in some years ahead. Still, however, the management's leadership, sometimes we have no choice but to exercise our subjective view. And I think that 50% of the probability is something to do with such quality of the founder or the leadership. Still, however, in the case of WeWork, I made a mistake, and I don't make an excuse because that was a very harsh lesson.

Then your next question, SoftBank Group's governance. The Board of SoftBank Group, every time we have a Board meeting, a challenging guy, Mr. Yanai, he always gives me a hard time, not only Yanai-san, but also other Board members, especially independent Board members and the internal Board members, especially on this WeWork issue, the Board members most -- almost all the Board members gave me hard time. And in the end, I end up being very exhausted. That's how I am lately. So I keep saying that. We learned a lot from this experience.

And turning around WeWork, we will make sure that we start from the basic to turn around the WeWork. And without Vision Fund, we won't make a big investment anymore. And we have 3 investment principles in place and no rescue -- no investment for the purpose of rescue. As a public company's owner, I make a statement officially. And the partners, almost every week, they participate in investment committees and that they give us very tough questions, especially lately because of WeWork and Uber issues. And they check and make sure balance. So we have a structure in place whereby we can't go out of place, and we have investment committee in place to make sure that I can't make my preferential investment. Even though I have a very big voice physically, but structurally, I'm not allowed to make kind of a crazy investment.

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Takahiko Hyuga, [18]

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My name is Hyuga from Bloomberg. Do you have -- I would like to ask you about the responsibility in the capital market. For WeWork, last November, it's growing very well and making a good development. And this August, it's still making a good growth and you are not overestimating. Actually, the remarkable growth has maintained, and you have a high expectation. Those are the words that you used for -- or to express WeWork. But at the same time, in the meantime that you have issued a lot of bonds and also SoftBank Corp., the Domestic Telecom has gone public.

WeWork is negative and also making a big loss, and rescue is needed. If you have conveyed such message much earlier, then your equity -- maybe the market investor that they may cancel purchasing the securities of SoftBank Group or SoftBank Corp. So when do you think -- when was the point that you realized that you overestimated? And what was the trigger for that? And also how do you think about your responsibility for capital market?

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Masayoshi Son, SoftBank Group Corp. - Founder, Chairman of the Board & CEO [19]

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A reasonable question. For those great things about WeWork was highly evaluated. As mentioned earlier, sales were -- revenue were -- sales were increasing, doubling every year basis. And many clients are there and actually using WeWork office. You can tell when you go their offices, you will realize how energetic the office is with the very crowded customers. So we very much focus on those great site of WeWork. Probably we look -- focused too much on those great site. But at a point that we postponed IPO -- decision on postponing IPO and also the prospectus of IPO has been questioned by many investors, that was the governance issue mainly, and the management had to change -- replaced.

Around that timing, once that the things goes wrong, then the value damaged dramatically all of a sudden. So even that the negative was increasing, but if the sales is increasing and if negative is healthy investment for the future growth, then I think it is good because Google has been also making sales increase. But still, at the same time, we're increasing in the -- loss. Right immediately before the IPO, a few years after the IPO, many of the companies are still in negative in EBIT. And WeWork, we thought, was one of those, same as like Googles or Facebooks, and we were believing in such an idea. That's why that we've been making additional investments so that we are not trying to deceive investors or anything like that. We were taking our route as we believe. And also we've been making actions as we believe, which includes our additional investments.

So there are many things that we need to learn the lesson. But I -- we are very -- always, we believe in our own ideas and concepts and follow on that into decisions.

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Unidentified Company Representative, [20]

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I'm sorry, but we will take 2 more questions.

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Masayoshi Son, SoftBank Group Corp. - Founder, Chairman of the Board & CEO [21]

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Well -- so I'm sure most of them are not happy, so I wouldn't mind taking more questions.

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Takahiko Hyuga, [22]

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About listing portfolio companies -- pace of listing portfolio companies, you mentioned 2, 3 companies per year. But after this WeWork case and Uber and Slack, after these experiences, do you still maintain the pace of IPO?

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Masayoshi Son, SoftBank Group Corp. - Founder, Chairman of the Board & CEO [23]

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Companies like WeWork, Slack and Uber, looking at those companies, the timing of IPO, shouldn't we be more careful and cautious about timing of IPO? Beginning -- I'm beginning to think that way. But also there are companies in our group that started making money or about to make money soon. For those companies, they make decisions, and we will support them. That's the case. So next year and the year after that, several portfolio companies every year should go public. That's the direction that we will keep.

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Unidentified Company Representative, [24]

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Next questions, the second row in A2 block, please.

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Unidentified Participant, [25]

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My name is [Miyajima] from [Fox Star]. So 700 offices of WeWork, how much of those -- how many of those you have been looking? You said the product is great. But how many you have offices? Because really, you said you have to go local site, otherwise you cannot really tell. So maybe Tokyo 22 offices, you may know. And I -- whenever you fail, I thought that you can record the loss, and that can be your learning. But for WeWork case, I think you may misjudging here, and I want to hear, maybe you're a little bit away from the local site and that may be your learning lesson, isn't it?

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Masayoshi Son, SoftBank Group Corp. - Founder, Chairman of the Board & CEO [26]

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Close to 700 offices, I myself been seeing probably 7 or 8, maybe 10 offices that I myself been there. But in principle, design model is common amongst the world. So if you go to McDonald's, if there are 30,000 outlets, do you need to really see all those? Maybe if you go 10 outlets, then you may -- you can get the ideas. Likewise, 7-Elevens, they have 10,000, 20,000, do you really go everywhere? By only looking at outlets that I will finish my life, actually, so that franchising type of the such model is not really the matter of looking how many of offices I've been there, but rather we need to have a deep dive in the data. Now this is understanding the model, capture the improvements, and that's even more important from my understanding. And for that, I think I've been able to showing the good directions for the turnaround of the business.

And one more thing. Whenever I'm criticized, maybe I mean withdrawing too quickly and irresponsible. That was a criticism that I've been receiving. But this time maybe, I'm going too far. So this is the opposite criticism that I'm receiving this time. But in the case of Yahoo! BB, Japan Telecom, Vodafone K.K., Sprint, those are the cases that I stepped forward. In that case, we stepped forward and actually made a great turnaround. That's my confidence as well. So that this time for WeWork, with the sinking boat, it's not something that I'm trying to put further burden in it. But actually, we are -- this additional -- or this financial package is not a rescue, but to kind of repricing or reducing our average purchase price to 1/4. So regardless of my age, my direction never change. Thank you for your question.

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Unidentified Participant, [27]

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[Hatakita] from TV Tokyo. I have a question with regards to your capital market, like somebody asked you a question about Uber, share price after IPO was terrible. And the WeWork case, if WeWork listed according to the plan, most investors would suffer damage. Not only Vision Fund-related investments, but also general unicorn companies are in a similar situation. So as a SoftBank Group or SoftBank Vision Fund, investment strategy and term to recoup investment, maybe you need to revisit them.

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Masayoshi Son, SoftBank Group Corp. - Founder, Chairman of the Board & CEO [28]

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Well, when Internet bubble took place, almost the same criticism was there. So it's like a déjà vu. Back then, we were criticized just like that. The Internet was a fake, and Internet didn't have a business model, actual business model. And Yahoo! America, for example, provided information for free and they're dependent on advertising revenue. Google was like that and Facebook was like that. And even though they listed, went public, they still lost money after IPO. But then they became as big as a listed and ranked top 10 of market cap.

And in Japan, the companies that were huge in the past lost market cap now. So virtual world has become real, and the real world has become virtual, if you will. So in Japan, for example, we have been suffering from stagnation, and Japan should try more new stuff. That's I am afraid of. So the companies, Internet companies in 20 years ago, and I have confidence and vision in those Internet companies 20 years ago, and AI and portfolio companies that we have and vision and confidence in them are the same.

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Unidentified Company Representative, [29]

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Next question, please.

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Unidentified Participant, [30]

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My name is [Watanabe], freelance. So Mr. Son, at the AGM, you have a 50-year plan as your life designed or life plan. And according to that, you complete your business in your 50s and you succeed the business in 60s. So in the past few years, you have made acquisition of Arm, establishing Vision Fund. So you are aggressively involved in the management. But for this 50-year plan, do you need some revision or amendment? What is your future plan?

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Masayoshi Son, SoftBank Group Corp. - Founder, Chairman of the Board & CEO [31]

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So in 60s, I would like to succeed to the next generation. That's the plan that I made up in my then age of 19, and no change as of today for that. But when I become 69, I may want to do more. I may come to that feeling. That's how, in the past few months, I have been receiving many criticism over my capability on management. But actually, I'm so excited to be able to manage and do the business. I have very motivated and also like to establish Vision Fund 2 and 3 so that we can pursue AI revolutions. So I have very much motivation to pursue that in such a circumstance. But still, at the same time, when -- whether I'm going to be go over 69 or not, but also I need to raise and lead the next-generation management as well. So that's the -- my mission, too. So that needs to be also addressed at the same time in parallel.

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Unidentified Participant, [32]

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[Hugo] from NHK. Investment judgment, you mentioned that your insight is criticized and you humbly admit you made a mistake and you should have known better. So the question is, you are still confident in making judgment when it comes to investment?

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Masayoshi Son, SoftBank Group Corp. - Founder, Chairman of the Board & CEO [33]

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Like I keep saying, the success or failure, in terms of investment amount, again JPY 0.6 trillion valuation loss and JPY 1.8 trillion positive, which means many companies we invested in, from monetary perspective, 3, 2, 1, that's the success ratio, if you will.

So question is, how much I should regret from that? Well, maybe I should regret a little bit. But should I regret too much to invest more? So again, 5,000 venture capitals are in the world, and nobody make 100% success. And IRR, on average, 13%. And even though I keep saying that we should have learned -- we should have known better, we have learned a harsh lesson, but still, we have twice as big as IRR than venture capitals' average.

So of course, I should -- I learned a lot of lessons, but no change in our strategy. We don't see any rough sea. It's just the gentle waves in the sea. So after this earning result announcement, the frontline -- front page might be Son learned from this failure or Son made a mistake or made a big failure. So again, I am -- I learned a harsh lesson and I should have known better. But I don't regret it too much to be nervous or pessimistic about future investment.

So again, we are twice as big as 5,000 venture capitalists in terms of IRR. Amongst this criticism, we still are twice as big as IRR. So I am very optimistic person. So against this background, we are still okay. So I am keeping confident.

And as for the number of bases, offices of WeWork, as of the end of September, 600 locations in the worldwide. But now this is November today, so about -- increased to 700 offices, locations. And in Japan, we have 23. I restate in my earlier comments, 22, it's 23.

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Takahiko Hyuga, [34]

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My name is Hyuga from Bloomberg. So I have question about Vision Fund 2. You mentioned earlier that the size can be bigger than Vision Fund 1. No change for that plan? And due to this WeWork situation, is there any LPs that changed their mind? And is there any changes in negotiation with those potential LPs?

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Masayoshi Son, SoftBank Group Corp. - Founder, Chairman of the Board & CEO [35]

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As for Vision Fund 2, due to a series of incidents in WeWork and also the Uber situation, some investors are therefore to be more careful about the decision. And at the same time, they're concerned, but at the same, no change of plan. Investors are still there as well. And there are some investor newly adding to Vision Fund 2. So all in all, Vision Fund 2 in total, I am expecting somewhere around Vision Fund 1's level. It's not final in the memorandum. It's not -- it's still final until we actually sign on the official contracts. So as of today, I cannot make us affirmative answers for the size of Vision Fund 2. But roughly speaking, closely to the same equivalent level of the Vision Fund 1.

And also from the earlier questions, such as Uber, Slack, Slack actually, they have increased about 5x compared to our invested amount. We are making gains from there. And there are many others too such as [GODA] and [telc], actually making several 100% increase, 10x Genomics as well. So there are many of those that are giving us profit. But still, market investors are becoming more careful. And in such circumstance, Vision Fund 2 are aiming to launch as we scheduled, then I believe our presence can be even bigger under such a circumstance. So that's how I'm positive about the situation. So people say -- criticize that I don't really learned a lesson, but actually I am optimistic in nature. So I take in positive way. Of course, I learned lesson and I agreed to some extent as well.

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Unidentified Company Representative, [36]

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The last question.

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Unidentified Participant, [37]

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[Debra] from Wall Street Journal. Talking about free cash flow, in 5 years, 7 years, those invested companies, I'm sure that you are checking your invested companies to make sure that they can generate cash -- free cash flow in 5, 7 years. But preferred shares, Vision Fund, you have to pay every year. But can you still wait for another 5 years or 7 years? That's my question.

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Masayoshi Son, SoftBank Group Corp. - Founder, Chairman of the Board & CEO [38]

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So SoftBank Vision Fund's cash flow, what will happen to cash flow of SoftBank Vision Fund? So some companies will go public in 5 years, in 7 years, other companies will go public next year, other companies will go public in 2 years.

So which company will go public when, at what kind of value? Internally, we have analyzed those invested companies. And after IPO, gradually, we have an exit plan, internal exit plan. And all in all, plenty of cash flow should be generated. And the distribution of free cash flow or preferentially, investors of preferred shares will get first. And investors with common stock will get dividend later. That's our prediction and forecast. So we are confident that we can make distribution to those investors with that -- from that free cash flow. With that confidence, many investors of SoftBank Vision Fund 1 continue to be very interested in SoftBank Vision Fund 2. I think that's how I look at them.

I'm sure there are a lot of other people in this room who want to make questions, who want to ask me questions, but I'm sorry to say that, but I'd like to close this meeting now. Thank you very much for your participation.

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Unidentified Company Representative, [39]

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Thank you very much. This concludes the SoftBank Group Corp. earnings results announcement for the 6-month period ended September 30, 2019.

The video [replay] of this meeting will be distributed on demand from our corporate website. Thank you very much once again for joining the SoftBank Group Corp. earnings results announcement for the 6-months period ended September 30, 2019.

Those who are with us over the Internet, thank you indeed for staying until the end of the meeting.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]