ZCZC
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JAPAN-TELECOMMUNICATION-SOFTBANK-EARNINGS LEAD
SoftBank Group reports record losses as Ma quits board
TOKYO, May 18, 2020 (BSS/AFP) – Struggling Japanese conglomerate SoftBank
Group on Monday reported record losses, as the coronavirus pandemic compounded
woes caused by its investment in troubled office-sharing start-up WeWork.
The losses were announced shortly after the firm said Chinese tycoon and
Alibaba co-founder Jack Ma would resign as a director of the board next month.
The telecoms and investment giant had already sounded the alarm, warning
last month that the “deteriorating market environment” would hit its bottom
line.
But the results were slightly worse than it had forecast, with net losses
for the year that ended in March coming in at 961.6 billion yen ($8.9
billion), rather than the estimated $8.4 billion.
Operating losses for the year were 1.36 trillion yen, having forecast 1.35
trillion last month.
The conglomerate said it had been “adversely affected” by the global health
crisis.
And it warned that “if the pandemic continues, the company expects that
uncertainty in its investment businesses will remain over the next fiscal
year”.
Its investment funds, including the key Vision Fund, recorded operating
losses of 1.9 trillion yen, and the company said it was working with firms in
the Vision Fund portfolio to prepare them for a “further deterioration in
business conditions”.
The results are the latest blow to chief Masayoshi Son, who has transformed
what began as a telecoms company into an investment and tech behemoth with
stakes in some of Silicon Valley’s hottest start-ups through its $100-billion
Vision Fund.
He has faced increasing criticism over his determination to pour money into
start-ups that some analysts say are overvalued and lack clear profit models.
His biggest headache has come from WeWork, once hailed as a dazzling
unicorn valued at $47 billion.
Son stood by his investment, even upping his stake, despite mounting
questions about WeWork’s strategy.
– ‘Poor’ investment decisions –
But things began to unravel last year as WeWork haemorrhaged cash and
cancelled its share offering, with founder Adam Neumann pushed out.
SoftBank Group and its Vision Fund have already committed more than $14.25
billion to the start-up, but in April the Japanese firm scrapped a plan to buy
up to $3 billion WeWork shares as part of a restructuring programme.
WeWork is now suing SoftBank over the decision, alleging breach of
contract.
The debacle has weighed heavily on the firm, which has struggled to raise
funds for a much-mooted second $100-billion Vision Fund.
Investors are increasingly questioning whether the supposedly cutting-edge
businesses targeted by SoftBank are really offering something new, said
Masahiko Ishino, an analyst at Tokai Tokyo Research Institute.
“Before, they said they were investing in cutting-edge technologies like
AI, but what they have done is often old-fashioned, like property investments
and hotels,” he said, referring to WeWork and struggling hotel start-up OYO.
“Suppose you have 10 billion yen and 20 percent of it has been burned in
someone else’s hands. Would you like to chip in more money there?” he said of
the struggle to attract investors to the second Vision Fund.
But Son said he was confident the tech-driven firms in its portfolio would
be well placed to weather the coronavirus pandemic.
“Those technologies will lead the rebound,” he told journalists.
“Our unicorns are facing serious challenges against the background of the
coronavirus outbreak, but I believe that some of them will fly over the valley
of coronavirus and fly high.”
In March, with stock markets plunging as the scale of the coronavirus
pandemic became clear, the firm announced a plan to sell up to $41 billion in
assets to finance a stock buy-back, reduce debts and increase cash reserves.
Earlier Monday, SoftBank unveiled changes to its board including the
resignation of Ma.
No reason was given for his departure after 13 years in the role, but Ma
has made plain for over a year he wants to reduce his day-to-day involvement
in running businesses to focus on philanthropy.
Son told reporters that Ma had made the decision himself and informed him
it was “made as part of his philosophy of life”.
The SoftBank chief said the resignation was “too bad”, but insisted their
friendship “will continue for the rest of our lives”.
SoftBank’s 2000 investment in Alibaba was a key driver of its
transformation, with its initial $20 billion stake eventually being worth
around $50 billion.
BSS/AFP/MMA/1600HRS