LINE Corporation Announces Consolidated Financial Results for the Nine Months Ended September 30, 2017

TOKYO--(BUSINESS WIRE)--LINE Corporation (NYSE:LN) (TOKYO:3938) announces its consolidated financial results for the nine months ended September 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

LINE Corporation

A. Corporate information

I. Corporate overview

1. Selected consolidated financial data

                 
Term    

17th term
Nine months ended
September 30, 2016

18th term
Nine months ended
September 30, 2017

17th term

Accounting period    

From January 1,
2016 to
September 30, 2016

From January 1,
2017 to
September 30, 2017

From January 1,
2016 to
December 31, 2016

Revenues   103,239 121,233 140,704
[Third quarter] (Millions of yen) [35,929] [42,537]  
Profit before tax from continuing operations

(Millions of yen)

15,266 21,198 17,990
Profit for the period

(Millions of yen)

5,684 12,184 7,104

Profit for the period attributable to the shareholders of the Company

(Millions of yen) 5,315 12,074

6,763

[Third quarter]   [2,756] [1,801]  
Total comprehensive income for the period, net of tax

(Millions of yen)

4,331 13,334 5,852
Equity attributable to the shareholders of the Company

(Millions of yen)

156,480 177,277 160,834
Total assets

(Millions of yen)

218,088 283,412 256,089
Basic profit for the period 28.54 55.09 34.84
[Third quarter] (Yen) [13.23] [8.19]  
Diluted profit for the period

(Yen)

25.68 50.90 31.48
Ratio of equity attributable to the shareholders of the Company to total assets

(%)

71.8 62.6 62.8
Net cash provided by operating activities

(Millions of yen)

16,347 4,076 28,753
Net cash used in investing activities

(Millions of yen)

(4,059) (16,959) (34,086)
Net cash provided by financing activities

(Millions of yen)

84,427 2,266 106,628
Cash and cash equivalents at the end of the period

(Millions of yen)

129,515 123,981 134,698
   
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 consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS).
4. As of September 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 reason:

• 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 nine months ended September 30, 2017, there were no material changes in the business of the Group (the Company or the principal subsidiaries and affiliates of the Company).

II. Business

1. Risk factors

During the nine months ended September 30, 2017, we entered into new businesses that may further expose the Group to certain operational risks described in the previous fiscal year’s securities report. Such new businesses are described below.

Note that any forward-looking statements herein are based on judgments of the Group as of this document’s submission date.

Also, the item numbers attached to the below headlines correspond to the item numbers of “A. Corporate information, II. Business, 4. Risk factors” in the previous fiscal year’s securities report.

(1) Attracting, keeping and monetizing users

The Group is promoting the cloud artificial intelligence (“AI”) platform business which includes the Group’s AI assistant technology “Clova.” Going forward, the Group plans to proactively invest in the development, and sale of new AI products, engage in promotional activities, etc., to secure a competitive edge in the market early on. However, it is uncertain whether or not the Group’s AI platform business will be profitable or competitive going forward.

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 third quarter ended September 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 nine months of 2017 (from January 1, 2017 to September 30, 2017), there was ongoing uncertainty in the global economy overall, including with respect to foreign exchange trends, primarily as a result of concern over the new U.S. administration’s protectionist economic policies and increased geopolitical risks in the Middle East and North Korea. At the same time, emerging economies in Asia, particularly the Chinese economy, began to show signs of respite from economic slowdown. Thailand, one of the Company’s key countries, enjoyed brisk exports despite appreciation of the baht, and achieved a year-on-year increase in GDP growth rates, while Taiwan increased its exports at a growth rate exceeding 10% for the first six months of 2017 compared with the same period of the previous year and maintained positive GDP growth rates for five consecutive years.

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 September 30, 2017, MAUs* in our four key countries (Japan, Taiwan, Thailand and Indonesia) reached 168 million, a year-on-year increase of 4.1%.

* 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

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

 

(In millions of yen)

For the nine-month period
ended September 30,
2016   2017
LINE business and portal segment
Communication and content
Communication(1) 22,317 23,141
Content(2) 34,025 30,400
Others(3) 7,921 13,217
Sub-total 64,263 66,758
 
Advertising
LINE advertising(4) 31,423 46,634
Portal advertising 7,553 7,841
Sub-total 38,976 54,475
Total 103,239 121,233
        (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, LINE Fortune and LINE MUSIC.
(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 nine months of 2017, other operating income included 10,444 million yen in gain on transfer of business resulting from restructuring 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 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 108,269 million yen, a year-on-year increase of 20.1%.

As a result, for the first nine months of 2017, the Group recorded profit from operating activities of 24,479 million yen, a year-on-year increase of 33.8%.

Profit for the period from continuing operations

The Group recorded profit before tax for the period from continuing operations of 21,198 million yen in the first nine months of 2017, a 38.9% increase year on year, due in part to an increase in profit from operating activities, a decrease in loss on foreign currency transactions, net, an increase in other non-operating income and a decrease in other non-operating expenses due to the revaluation of conversion right and redemption right of preferred stock which were offset in part by an increase in share of loss of associates and joint ventures mainly related to the Group’s interest in Snow Corporation. Income tax expense increased by 15.1% to 9,003 million yen for the first nine months of 2017 compared to the first nine months of 2016. On an after-tax basis, profit for the period from continuing operations was 12,195 million yen in the first nine months of 2017, an increase of 63.8% year on year. The effective tax rate for the nine-month period ended September 30, 2017 of 42.5% differed from the Japanese statutory tax rate of 31.7% for the year ending December 31, 2017. The effective income tax rate of 42.5% was primarily due to pre-tax losses recorded by subsidiaries on a standalone basis and pre-tax losses recorded by associates for which no deferred tax assets were recognized as the related tax benefits could not be recognized and due to recognition of share of loss on associates and joint ventures.

Profit for the period

Loss for the period from discontinued operations, which relate to the MixRadio business, for the first nine 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 12,184 million yen in the first nine months of 2017, an increase of 114.3% year on year. Profit for the period attributable to the shareholders of the Company was 12,074 million yen in the first nine months of 2017, an increase of 127.2% year on year.

(2) Financial position

Regarding the financial position of the Group as of September 30, 2017, total assets of the Group increased by 27,323 million yen compared to the end of the previous fiscal year to 283,412 million yen. The main factors of increase were a 9,794 million yen increase in investments in associates and joint ventures mainly due to the acquisition of additional shares of Snow Corporation, an associate of the Group, in exchange for the camera application business, a 7,939 million yen increase in trade and other receivables due to increase in revenue, a 5,937 million yen increase in goodwill resulting from acquisition of subsidiaries, a 5,126 million yen increase in other financial assets, non-current, mainly due to the acquisition of debt instruments and the acquisition and revaluation of available-for-sale financial assets, and a 4,646 million yen increase in property and equipment, which related mainly to the relocation of the headquarter offices, while the main factor of decrease was a 10,717 million yen decrease in cash and cash equivalents.

Total liabilities increased by 7,105 million yen to 102,171 million yen as of September 30, 2017. The main factors of increase were a 3,811 million yen increase in advances received mainly due to an increase in unused LINE Points, a 2,772 million yen increase in other financial liabilities, current, mainly due to an increase in the balance of charges payable in the LINE Pay service, a 2,069 million yen increase in trade and other payables due to increased costs associated with increased revenues, and a 1,800 million yen increase in provisions, non-current, caused by an increase in provision for asset retirement associated with the relocation of the headquarter offices, while the main factor of decrease was a 2,860 million yen decrease in income taxes payables due to tax payments.

Total shareholders’ equity increased by 20,218 million yen to 181,241 million yen as of September 30, 2017. The main factors of increase were recognition of 12,074 million yen of profit for the period attributable to the shareholders of the Company, a 4,516 million yen increase in share capital and a 2,705 million yen increase in share premium mainly due to exercise of stock options, recognition of share-based compensation expenses and issuance of common shares due to the introduction of the Employee Stock Ownership Plan (J-ESOP), and a 3,775 million yen increase in non-controlling interests mainly due to acquisition of subsidiaries. Such increases were offset in part by the acquisition of 4,000 million yen worth of treasury shares following the introduction of the Employee Stock Ownership Plan.

(3) Cash flow position

The balance of cash and cash equivalents (hereinafter, "cash") as of September 30, 2017 decreased by 10,717 million yen from the end of the previous fiscal year to 123,981 million yen.

The respective cash flow positions are as follows.

Cash flows from operating activities

Net cash provided by operating activities was 4,076 million yen in the first nine months of 2017, compared to net cash provided by operating activities of 16,347 million yen in the first nine months of 2016. Cash provided by operating activities in the first nine months of 2017 primarily consisted of profit before tax of 21,181 million yen and gain on loss of control of subsidiaries of 10,444 million yen, which were partly offset by adjustment for non-cash items including depreciation and amortization expenses of 4,887 million yen and share of loss of associates and joint ventures of 4,308 million yen. Cash used in operating activities in the first nine months of 2017 primarily consisted of income taxes paid of 11,151 million yen and an increase of 7,522 million yen in trade and other receivables, partially offset by an increase of 3,686 million yen in advances received.

Cash flows from investing activities

Net cash used in investing activities was 16,959 million yen in the first nine months of 2017, compared to net cash used in investing activities of 4,059 million yen in the first nine months of 2016. Factors affecting the cash outflows in the first nine months of 2017 are primarily related to acquisition of property and equipment and intangible assets of 8,413 million yen, purchase of debt instruments of 4,433 million yen and acquisition of subsidiaries and business, net of cash acquired of 3,876 million yen.

Cash flows from financing activities

Net cash provided by financing activities was 2,266 million yen in the first nine months of 2017, compared to net cash provided by financing activities of 84,427 million yen in the first nine months of 2016. The cash inflows in the first nine months of 2017 are primarily related to proceeds from exercise of stock options of 2,030 million yen.

(4) Operational and financial issues to be addressed

During the nine months ended September 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
September 30, 2017)

Number of shares
issued as of filing date
(Shares; as of
November 14, 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 221,658,310 222,739,810

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 221,658,310 222,739,810
 
Note: "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 November 1, 2017 until the filing date of this Quarterly Securities Report.
 

(2) Stock acquisition rights

Stock options (warrants) issued during the third quarter period are as follows:

a. 20th series of stock options (warrants)

     
Date of resolution June 26, 2017
Number of stock options (Units) 12,621 (Note 1)
Number of treasury stock options included in stock options (Units)
Class of share to be issued upon exercise of stock options Common stock
Number of shares to be issued upon exercise of stock options (Shares) 1,262,100 (Note 2)
Exercise price of each stock option (Yen) 4,206 (Note 3)
Exercise period for stock options From July 18, 2018 to July 18, 2027
Per share issue price and amount incorporated into capital per share upon exercise of stock options (Yen) (Note 4)

Issue price:
Amount incorporated into capital:

5,751
2,876

Conditions for exercise of stock options (Note 5, 7)
Matters relating to transfer of stock options Acquisition of stock options by transfer will be subject to approval of the Company’s Board of Directors.
Matters relating to substitute payment
Matters relating to granting of stock options in association with organizational restructuring (Note 6)

Contacts

LINE Global PR
Michiko Setsu, +81 3 4316 2104
dl_gpr@linecorp.co


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