LINE Corporation Announces Consolidated Financial Results for the Six Months Ended June 30, 2017

TOKYO--(BUSINESS WIRE)--LINE Corporation (NYSE:LN) (TOKYO:3938) announces its consolidated financial results for the six months ended June 30, 2017.


This is an English translation of the original Japanese-language document. Should there be any inconsistency between the translation and the original Japanese text, the latter shall prevail. All references to the “Company,” “we,” “us,” or “our” shall mean LINE Corporation and, unless the context otherwise requires, its consolidated subsidiaries.

Cautionary statement with respect to forward-looking statements, and other information

This document contains forward-looking statements with respect to the current plans, estimates, strategies and beliefs of the Company. Forward-looking statements include, but are not limited to, those statements using words such as “anticipate,” “believe,” “continues,” “expect,” “estimate,” “intend,” “project” and similar expressions and future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may,” or similar expressions generally intended to identify forward-looking statements. These forward-looking statements are based on information currently available to the Company, speak only as of the date hereof and are based on the Company’s current plans and expectations and are subject to a number of known and unknown uncertainties and risks, many of which are beyond the Company’s control. As a consequence, current plans, anticipated actions and future financial position and results of operations may differ significantly from those expressed in any forward-looking statements in the document. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented and the Company does not intend to update any of these forward-looking statements. Risks and uncertainties that might affect the Company include, but are not limited to:

i.   its ability to attract and retain users and increase the level of engagement of its users;
ii. its ability to improve user monetization;
iii. its ability to successfully enter new markets and manage its business expansion;
iv. its ability to compete in the global social network services market;
v. its ability to develop or acquire new products and services, improve its existing products and services and increase the value of its products and services in a timely and cost-effective manner;
vi. its ability to maintain good relationships with platform partners and attract new platform partners;
vii. its ability to attract advertisers to the LINE platform and increase the amount that advertisers spend with LINE;
viii. its expectations regarding its user growth rate and the usage of its mobile applications;
ix. its ability to increase revenues and its revenue growth rate;
x. its ability to timely and effectively scale and adapt its existing technology and network infrastructure;
xi. its ability to successfully acquire and integrate companies and assets;
xii. its future business development, results of operations and financial condition;
xiii. the regulatory environment in which it operates;
xiv. fluctuations in currency exchange rates and changes in the proportion of its revenues and expenses denominated in foreign currencies; and
xv. changes in business or macroeconomic conditions.

 

LINE Corporation

Index

 
Cover
 
A. Corporate information
 
I. Corporate overview
 

1. Selected consolidated financial data

 

 

2. Business description

 

 
II. Business
 

1. Risk factors

 

 

2. Material contracts

 

 

3. Analysis of financial position, operating results and cash flow position

 

 
III. Company information
 

1. Share information

 
(1) Total number of shares

 

 
(2) Stock acquisition rights

 

 
(3) Exercises of bonds with stock acquisition rights with exercise price amendment clause

 

 
(4) Rights plans

 

 
(5) Total number of shares issued, share capital, etc.

 

 
(6) Principal shareholders

 

 
(7) Voting rights

 

 

2. Directors and executive officers

 

 
IV. Accounting
 

1. Interim condensed consolidated financial statements (Unaudited)

 
(1) Interim condensed consolidated statement of financial position (Unaudited)

 

 
(2) Interim condensed consolidated statement of profit or loss (Unaudited)

 

 
(3) Interim condensed consolidated statement of comprehensive income (Unaudited)

 

 
(4) Interim condensed consolidated statement of change in equity (Unaudited)

 

 
(5) Interim condensed consolidated statement of cash flows (Unaudited)

 

 

2. Others

 

 
B. Information on guarantors

 

 

A. Corporate information

I. Corporate overview

1. Selected consolidated financial data

Term      

17th term
Six months ended
June 30, 2016

 

18th term
Six months ended
June 30, 2017

  17th term
Accounting period    

From January 1,
2016 to
June 30, 2016

From January 1,
2017 to
June 30, 2017

From January 1,
2016 to
December 31,
2016

Revenues
[Second quarter]

 

(Millions of yen)

67,310
[33,854]

78,696
[39,780]

140,704
Profit before tax from continuing operations  

(Millions of yen)

10,688 16,961 17,990
Profit for the period  

(Millions of yen)

2,866 10,549 7,104

Profit for the period attributable to the shareholders of
the Company
[Second quarter]

 

(Millions of yen)

2,559
[2,682]

10,273
[8,836]
6,763
Total comprehensive income for the period, net of tax  

(Millions of yen)

1,111 13,626 5,852
Equity attributable to the shareholders of the Company  

(Millions of yen)

23,471 176,329 160,834
Total assets  

(Millions of yen)

125,051 270,612 256,089

Basic profit for the period
[Second quarter]

 

(Yen)

14.63
[15.33]

46.95
[40.31]

34.84
Diluted profit for the period  

(Yen)

13.10 43.32 31.48

Ratio of equity attributable to the shareholders of the
Company to total assets

 

(%)

18.8 65.2 62.8
Net cash provided by operating activities  

(Millions of yen)

11,863 181 28,753
Net cash used in investing activities  

(Millions of yen)

(762) (8,810) (34,086)
Net cash used in financing activities  

(Millions of yen)

(683) (623) 106,628
Cash and cash equivalents at the end of the period  

(Millions of yen)

  43,049   125,512   134,698
   
Notes: 1. Trends in these selected financial data for the Company on a stand-alone basis are not separately discussed as we prepare quarterly consolidated financial statements.
2. Revenues do not include consumption taxes.
3. The above financial data were prepared based on the unaudited interim condensed consolidated financial statements and the annual consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS).
4. As of June 30, 2017, equity attributable to the shareholders of the Company and total assets held by the shareholders of the Company increased as a result of the issuance of common stock for the following reasons:
 

● Capital increase through the initial public offerings of new shares on July 14, 2016 and July 15, 2016

● Capital increase through third-party allotment of new shares on August 16, 2016

● Exercise of stock acquisition rights

 

5.

In 2017, the Company and its subsidiaries (collectively, the "Group") changed the rounding of its financial statements from thousands to millions. Prior periods have been revised to reflect this change in presentation.

2. Business description

During the six months ended June 30, 2017, there were no material changes in the business of the Company or in the principal subsidiaries and affiliates of the Company.

II. Business

1. Risk factors

During the six months ended June 30, 2017, there were no material changes either regarding the occurrence of new operational risks or regarding operational risks as mentioned in the Company's annual report.

For readers of this English translation: There were no material changes from the information presented in the Risk Factors section of the Company's Annual Report on Form 20-F (No. 001-37821) filed with the Securities and Exchange Commission (the "SEC") on March 31, 2017.

2. Material contracts

No important operational contracts, etc. were decided or entered into during the second quarter ended June 30, 2017.

For readers of this English translation: With respect to material contracts, there were no material changes from the information presented in the Company's Annual Report on Form 20-F (No. 001-37821) filed with the SEC on March 31, 2017.

3. Analysis of financial position, operating results and cash flow position

The analysis of financial position, operating results and cash flow position of the Group is as follows:

(1) Operating results

In the first six months of 2017 (from January 1, 2017 to June 30, 2017), amid continuing uncertainty regarding the economic policies of the new U.S. administration, emerging economies in Asia, particularly the Chinese economy, began to show signs of respite from the global economic slowdown. In addition, GDP growth rates in some of the Company's key countries, including Thailand and Taiwan showed a moderate trend of recovery.

Meanwhile, in the Japanese economy, there were signs of recovery in exports in industries such as the IT industry, firm improvement in employment rates and personal income levels, while personal spending showed moderate improvement.

Amid such circumstances, in the internet industry in which the Group is engaged, the total number of mobile phone shipments in Japan for the fiscal year ended December 31, 2016 was 36.06 million, a decrease of 3.0% year on year. The ratio of smartphones to the total number of mobile phone shipments in Japan was 81.6%, an increase of 3.6 percentage points year on year. Although the overall number of mobile phone shipments in Japan has hit a ceiling, there was an increase in users switching from feature phones to smartphones and an increase in the number of SIM-free smartphones. Current estimates suggest that the number of smartphone contracts in Japan will exceed 100 million by year 2018, and the mobile internet market is expected to continue to grow on the back of this expansion (Source: MM Research Institute, Japan mobile phone handset shipment estimates for year 2016 and Overview of domestic mobile phone shipments for FY 2016).

In this business environment, the Group actively moved forward with the LINE business and portal segment. As of June 30, 2017, MAUs* in our four key countries (Japan, Taiwan, Thailand and Indonesia) reached 169 million, a year-on-year increase of 7.5%.

* Monthly Active Users ("MAUs") in a given month refers to the number of user accounts that (i) accessed the LINE messaging application or any LINE Games through mobile devices; (ii) sent messages through the LINE messaging application from personal computers; or (iii) sent messages through any other LINE application from mobile devices, in each case at least once during that month.

Revenues

LINE Business and Portal segment

The Group’s revenues from continuing operations from its major services in the first six months of 2016 and 2017 are as follows:

   

(In millions of yen)

For the six-month period
ended June 30,

2016   2017
LINE business and portal segment
Communication and content
Communication(1) 15,063 15,615
Content(2) 23,252 20,521
Others(3) 4,503 8,496

Sub-total

42,818 44,632
Advertising
LINE advertising(4) 19,462 28,892
Portal advertising 5,030 5,172
Sub-total 24,492 34,064
Total 67,310 78,696

(1)

  Revenues from communication increased mainly due to the steady growth of Creators’ Themes released in April 2016, as well as a shortening of the time taken for stickers to pass the review process and enhancement of products by popular creators for Creators’ stickers.

(2)

Revenues from content decreased mainly due to a decrease in revenues generated by the LINE Games business as a result of fewer new title releases, although we are steadily promoting existing services such as LINE Manga and LINE Fortune.

(3)

Revenues from others increased mainly due to the expansion of LINE Friends service primarily overseas as well as the launch of LINE Mobile in September 2016.

(4)

Revenues from LINE advertising increased mainly due to the continued growth of existing “messenger ads” such as Official Accounts as well as a significant increase in revenues generated by “performance ads” on Timeline and LINE NEWS provided by the LINE Ads Platform released in June 2016.
 

Profit from operating activities

Profit from operating activities consists of revenues and other operating income reduced by operating expenses. In the first six months of 2017, other operating income included 10,444 million yen in gain on transfer of the camera application business. With respect to operating expenses, there was an increase in employee compensation expenses due to headcount growth in accordance with business expansion, an increase in marketing expenses due mainly to the active running of TV commercials for LINE Mobile, an increase in authentication and other service expenses due mainly to additional network costs for LINE Mobile accompanying arising number of users, an increase in depreciation expenses of furniture and fixtures which were newly purchased due to the relocation of the headquarter offices, and an increase in other operating expenses due to an increase in LINE Points expenses to attract new users for LINE Pay and an increase in rent payments for the new headquarter offices, which were partially offset by a decrease in share-based payment expenses. Accordingly, the Group recorded operating expenses of 71,091 million yen, a year-on-year increase of 20.5%.

As a result, for the first six months of 2017, the Group recorded profit from operating activities of 18,629 million yen, a year-on-year increase of 39.4%.

Profit for the period from continuing operations

The Group recorded profit before tax for the period from continuing operations of 16,961 million yen in the first six months of 2017, a 58.7% increase year on year, due in part to an increase in profit from operating activities, a decrease in loss on foreign currency transactions, net, and a decrease in other non-operating expenses, which were offset in part by an increase in share of loss of associates and joint ventures. Income tax expense increased by 4.1% to 6,405 million yen for the first six months of 2017 compared to the first six months of 2016. On an after-tax basis, profit for the period from continuing operations was 10,556 million yen in the first six months of 2017, an increase of 132.9% year on year. The effective tax rate for the six-month period ended June 30, 2017 of 37.8% differed from the Japanese statutory tax rate of 31.7% for the year ended December 31, 2017. The effective income tax rate of 37.8% was primarily due to pre-tax losses recorded by subsidiaries on a standalone basis and pre-tax losses recorded by associates and a joint ventures for which no deferred tax assets were recognized as the related tax benefits could not be recognized.

Profit for the period

Loss for the period from discontinued operations, which relate to the MixRadio business, for the first six months of 2017 decreased from the corresponding period in 2016. Therefore, after subtracting the loss for the period from discontinued operations, profit for the period was 10,549 million yen in the first six months of 2017, an increase of 268.1% year on year. Profit for the period attributable to the shareholders of the Company was 10,273 million yen in the first six months of 2017, an increase of 301.4% year on year.

(2) Financial position

Regarding the financial position of the Group as of June 30, 2017, total assets of the Group increased by 14,523 million yen compared to the end of the previous fiscal year to 270,612 million yen, primarily due to a 10,087 million yen increase in investments in associates and joint ventures mainly due to the acquisition of additional shares of Snow Corporation, which is an associate of the Group, in exchange for the camera application business and a 3,781 million yen increase in property and equipment, which related mainly to the relocation of the headquarter offices. Total liabilities decreased by 1,646 million yen to 93,420 million yen as of June 30, 2017. The main factor of decrease was a 2,719 million yen decrease in income taxes payable due to tax payments, while the main factor of increase was a 1,611 million yen increase in provisions, non-current, caused by an increase in provision for asset retirement associated with the relocation of the headquarter offices. Total shareholders' equity increased by 16,169 million yen to 177,192 million yen as of June 30, 2017. These changes were primarily attributable to profit for the period of 10,549 million yen.

(3) Cash flow position

The balance of cash and cash equivalents (hereinafter, "cash") as of June 30, 2017 decreased by 9,186 million yen from the end of the previous fiscal year to 125,512 million yen.

The respective cash flow positions are as follows.

Cash flows from operating activities

Net cash provided by operating activities was 181 million yen in the first six months of 2017, compared to net cash provided by operating activities of 11,863 million yen in the first six months of 2016. Cash provided by operating activities in the first six months of 2017 primarily consisted of profit before tax of 16,950 million yen, which was partly offset by adjustment for gain on loss of control of subsidiaries and business of 10,444 million yen, a non-cash item. Cash used in operating activities in the first six months of 2017 primarily consisted of income taxes paid of 6,788 million yen.

Cash flows from investing activities

Net cash used in investing activities was 8,810 million yen in the first six months of 2017, compared to net cash used in investing activities of 762 million yen in the first six months of 2016. Factors affecting the cash outflows in the first six months of 2017 are primarily related to acquisition of property and equipment and intangible assets of 5,793 million yen, purchase of equity investments of 2,310 million yen and loan receivables of 2,077 million yen. Factors affecting the cash inflows in the first six months of 2017 are primarily related to the return of the guarantee deposits for the Japanese Payment Services Act of 3,325 million yen.

Cash flows from financing activities

Net cash used in financing activities was 623 million yen in the first six months of 2017, compared to net cash used in financing activities of 683 million yen in the first six months of 2016. The cash outflows in the first six months of 2017 are primarily related to repayment of short-term borrowings, net of 2,037 million yen. The cash inflows in the first six months of 2017 are primarily related to proceeds from exercise of stock options of 1,454 million yen.

(4) Operational and financial issues to be addressed

During the six months ended June 30, 2017, there were no material changes in operational and financial issues to be addressed by the Group.

(5) Research and development activities

Not applicable.

III. Company information

1. Share information

(1) Total number of shares

a. Total number of shares authorized

     

Total number of shares
authorized

Class     (Share)
Common stock     690,000,000
Total       690,000,000
 

b. Number of shares issued

Class  

Number of shares
issued as of end of
period
(Shares; as of
June 30, 2017)

 

Number of shares
issued as of filing date
(Shares; as of
August 10, 2017)

 

Name of securities
exchange
where the shares are
traded or the
name of authorized
financial
instruments firms
association
where the shares are
registered

  Details
Common stock 219,407,000 220,442,310

Tokyo Stock Exchange
(First Section) and
New York Stock
Exchange

100 shares constitute
one "unit" of common
stock. Common stock is
not restricted by any
significant limitations
in terms of
shareholders' rights.

Total   219,407,000   220,442,310    
Notes:  

1.

 

"Number of shares issued as of filing date" does not include the number of shares issued upon the exercise of the stock options during the period from August 1, 2017 until the filing date of this Quarterly Securities Report.

2.

Accompanying the third-party allotment as of July 18, 2017, the total number of issued shares has increased by 1,007,810.

 

(2) Stock acquisition rights

Not applicable.

(3) Exercises of bonds with stock acquisition rights with exercise price amendment clause

Not applicable.

(4) Rights plans

Not applicable.

(5) Total number of shares issued, share capital, etc.

Date  

Change in the number
of shares issued
(Shares)

 

Balance of
shares
issued
(Shares)

 

Change in
share
capital
(Millions of
yen)

 

Balance of
share capital
(Millions of
yen)

 

Change in legal
capital reserve
(Millions of
yen)

 

Balance of legal
capital reserve
(Millions of yen)

April 1, 2017
to June 30, 2017
  410,500   219,407,000   565   79,918   565   69,983
   
(Notes) 1. Increase in total number of shares issued as a result of the exercise of stock options.
2. Amounts less than one thousand yen are rounded down.
 

(6) Principal shareholders

(As of June 30, 2017)

Shareholder name

 

Address

 

Number of shares held
(Shares)

 

Percentage of shares held to
total shares issued (%)

NAVER CORPORATION (Standing proxy: LINE Corporation, Investment Development/ IR Office) NAVER GREEN FACTORY, 6, BULJEONG-RO, BUNDANG-GU, SEONGNAM-SI, GYEONGGI-DO, 13561, KOREA

(1-6, Shinjuku 4-chome, Shinjuku-ku, Tokyo)

174,992,000 79.75
MOXLEY & CO LLC (Standing proxy: Mizuho Bank, Ltd., Settlement & Clearing Services Department) 270 PARK AVE., NEW YORK, NY 10017 U.S.A.

(15-1, Konan 2-chome, Minato-ku, Tokyo)

9,845,497 4.48
KOREA SECURITIES DEPOSITORY -SAMSUNG (Standing proxy: Citibank, N.A., Tokyo Branch) 34-6, YEOUIDO-DONG, YEONGDEUNGPO-GU,

SEOUL, KOREA (27-30, Shinjuku 6-chome, Shinjuku-ku, Tokyo)

2,113,000 0.96
MSIP CLIENT SECURITIES (Standing proxy: Morgan Stanley MUFG Securities Co., Ltd.) 25 CABOT SQUARE, CANARY WHARF,

LONDON E14 4QA, U.K. (9-7, Otemachi 1-chome, Chiyoda-ku, Tokyo)

1,480,215 0.67
BNY GCM CLIENT ACCOUNT JPRD AC ISG (FE -AC) (Standing proxy: The Bank of Tokyo-Mitsubishi UFJ, Ltd.) PETERBOROUGH COURT 133 FLEET STREET

LONDON EC4A 2BB, UNITED KINGDOM (7-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo)

1,449,716 0.66
Japan Trustee Services Bank, Ltd. (Trust Account) 8-11, Harumi 1-chome, Chuo-ku, Tokyo 1,400,500 0.63
GOLDMAN SACHS INTERNATIONAL (Standing proxy: Goldman Sachs Japan Co., Ltd.) 133 FLEET STREET LONDON EC4A 2BB, U.K. (10-1, Roppongi 6-chome, Minato-ku, Tokyo) 1,042,086 0.47
The Master Trust Bank of Japan, Ltd. (Trust Account) 11-3, Hamamatsucho 2-chome, Minato-ku, Tokyo 1,040,900 0.47
Japan Trustee Services Bank, Ltd. (Trust Account 5) 8-11, Harumi 1-chome, Chuo-ku, Tokyo 814,500 0.37
BNP PARIBAS SECURITIES SERVICES LUXEMBOURG/ JASDEC/ HENDERSON HHF SICAV (Standing proxy: The Hongkong and Shanghai Banking Corporation Limited Tokyo branch, Custody Operation Department) 33 RUE DE GASPERICH, L-5 826 HOWALD

-HESPERANGE, LUXEMBOURG (11-1, Nihonbashi 3-chome, Chuo-ku, Tokyo)

606,800 0.27
Total     194,785,214   88.77
 

(7) Voting rights

a. Shares issued

     

(As of June 30, 2017)

Classification

Number of
shares
(Shares)

Number of voting
rights
(Units)

Details
Shares without voting rights
Shares with restricted voting rights (treasury stock, etc.)
Shares with restricted voting rights (others)
Shares with full voting rights (treasury stock, etc.)
Shares with full voting rights (others)

Common stock
219,390,900

2,193,909

100 shares constitute
one "unit" of common
stock. Common stock is
not restricted by any
significant limitations in
terms of shareholders'
rights.

Shares constituting less than one unit

Common stock
16,100

Total number of shares issued

Common stock
219,407,000

Total number of voting rights held by all shareholders     2,193,909  

b. Treasury stock, etc.

Not applicable.

2. Directors and executive off


Contacts

LINE Global PR
Icho Saito, +81 3 4316 2104
dl_gpr@linecorp.co


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