Note: This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. The Company assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translation.
LINE Notice of the 18th Ordinary General Meeting of Shareholders
Date: 10:00 a.m., Thursday, March 29, 2018
Location: “Prince Hall,” 5th floor, Annex Tower, Shinagawa Prince Hotel 4-10-30 Takanawa, Minato-ku, Tokyo Please note that the location is changed from the last meeting.
LINE Corporation Securities code: 3938
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CLOSING THE DISTANCE Our mission is to bring people, information and services closer together.
To our shareholders and investors
I would first like to take this opportunity to thank our shareholders for their continued support and interest in LINE. As part of our Smart Portal strategy, we launched LINE SHOPPING and other new services in 2017 and continued to steadily expand existing services, such as LINE Pay and LINE NEWS. The advertising business also gained momentum, making a significant contribution to revenue growth. In anticipation for a world after smartphones, we launched the AI assistant Clova and began selling Clova-embedded smart speakers in autumn 2017. We also enhanced initiatives to address social issues, including working with authorities to create LINE-based helplines. In 2018, we plan to steadily grow existing businesses while making strategic moves in areas such as AI and Fintech to increase shareholder value. I hope we can receive your continued support as we work to deliver the LINE Group’s business strategy.
Takeshi Idezawa, Representative Director and President
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Securities code: 3938 March 8, 2018 To our shareholders Takeshi Idezawa, Representative Director and President LINE Corporation 4-1-6 Shinjuku, Shinjuku-ku, Tokyo
Notice of the 18th Ordinary General Meeting of Shareholders
You are cordially invited to attend the 18th Ordinary General Meeting of Shareholders of LINE Corporation (the Company), which will be held as described below:
1. Date: 10:00 a.m., Thursday, March 29, 2018 2. Location: “Prince Hall,” 5th floor, Annex Tower, Shinagawa Prince Hotel 4-10-30 Takanawa, Minato-ku, Tokyo (Please note that the location is changed from the last meeting.) 3. Agenda: Items To Be Reported: 1. Report on the Business Report and Consolidated Financial Statements for the 18th business term (from January 1, 2017 to December 31, 2017), and the results of the audit on the Consolidated Financial Statements by the Accounting Auditor and the Board of Corporate Auditors 2. Report on the Non-consolidated Financial Statements for the 18th business term (from January 1, 2017 to December 31, 2017) Notes: You are kindly requested to present the enclosed attendance card for the general meeting of shareholders to the receptionist when you attend the meeting. To conserve natural resources, please bring this notice with you. Please note that persons other than shareholders who can exercise voting rights, such as proxy agents who are not shareholders or those accompanying shareholders, will not be permitted to enter the meeting venue. In the event of situations requiring amendments to items in the Business Report, Consolidated Financial Statements or Non-consolidated Financial Statements, amended items will be posted on the Company’s website (https://linecorp.com/en/ir/stock).
Internet-based Disclosure The following items are posted on the Company’s website in accordance with laws and regulations and Article 16 of the Articles of Incorporation of the Company, they are not provided in this Notice. 1) Consolidated Statements of Change in Equity and Notes to Consolidated Financial Statements 2) Non-consolidated Statements of Changes in Equity and Notes to Non-consolidated Financial Statements URL: https://linecorp.com/en/ir/stock
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Attached materials Business Report From January 1, 2017 to December 31, 2017
1. Current Condition of Corporate Group (1) Business progress and results 1) Overview The LINE Group pushes ahead with its Smart Portal strategy. Under the strategy, we aim to bring about a world in which our LINE communication application (LINE) acts as a gateway, to encompass all aspects of people’s lives. As of December 31, 2017, LINE MAUs* in the Group’s four key countries (Japan, Taiwan, Thailand and Indonesia) were 167.5 million, up 0.3% from the previous fiscal year-end, while MAUs in Japan increased by 7.4 million to 73 million during the fiscal year. Also, the DAUs**/MAUs ratio, which indicates the level of engagement with users, remained high in the four key countries, at 75%. LINE had a particularly dominant position in the Japanese market, where the DAUs/MAUs ratio was 84%. The high frequency of use that LINE enjoys places the Group in a dominant position in terms of strategy promotion and future business expansion. Using LINE as a platform, the Group is actively rolling out a wide range of services in two areas – stickers, news, manga, games and other services in the content area, and payment, mobile communication services, job search information and other services in the daily life area. In fiscal 2017, as a result of employing such tactics as launching new products and functions for its various services and interlinking services with other services in order to increase the number of users and the frequency of their use, the Group expanded settlement volume for services including LINE Pay, LINE Manga, and LINE MUSIC. Advertising services, which the Group has been developing for the strong content and services on the LINE platform, showed strong growth with a year-on-year increase in revenue of 39.9% due to measures such as increasing the number of advertisements and enhancing functions of the advertising platform, which helped drive the Group’s overall revenue growth. Moreover, the Group launched new services such as LINE SHOPPING and LINE Delima, and moved into the field of artificial intelligence (AI) as part of its post smartphone strategy. As a result of the above, the consolidated operating results of the Group were as follows. Revenues totaled 167.1 billion yen, a new record for the Group, increasing 18.8% year on year. Profit from operating activities was 25.1 billion yen, a year-on-year increase of 26.0%, despite increases in business consignment expenses and personnel expenses accompanying business expansion. Profit attributable to the shareholders of the Company was 8.1 billion yen, a year-on- year increase of 19.4%.
* Monthly Active Users (MAUs) in a given month refers to the number of user accounts that (i) launched LINE or LINE GAME from mobile devices; (ii) sent messages through LINE or any other LINE application from personal computers or mobile devices, in each case at least once during that month.
** Daily Active Users (DAUs) in a given day refers to the number of user accounts that (i) launched LINE or LINE GAME from mobile devices; (ii) sent messages through LINE or any other LINE application from personal computers or mobile devices, in each case at least once during that day.
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2) Principal services and revenues by service Because the business of the Group consists of a single business segment, this information is presented by service.
Revenues from Advertising increased by 39.9% year on year and became the driving force that boosted the Group’s overall revenues. Performance ads achieved significant growth with 2.5 times the previous fiscal year’s annual revenues. This was mainly the result of an expansion in advertisements including LINE NEWS, more sophisticated data usage, the enhancement of advertisement platform functionality, and an increase in advertisers. Revenues from messenger ads increased by 16.2% year on year due to an increase in the number of official accounts and LINE@ accounts in Japan and overseas.
Revenues from Communication increased by 3.2% year on year. The Group succeeded in launching new services such as New Year’s Stickers that include New Year’s gift money, “deco-moji” that are large and colorful emoji, and the “LINE Creators Studio” that allows users to easily create, submit and sell LINE stickers using only their smart phone. Also, initiatives are underway including improving products from popular creators of “creators’ stickers.”
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Revenues from Content overall decreased by 10.4% year on year. Specifically, in regard to LINE GAME, although sales for existing puzzle games were level, sales of new titles were unable to make up for the decrease in sales of existing titles. However, with the goal of taking on the new challenge of the mid-core games category, for which user demand is high, in 2017 the Group established the subsidiary, LINE GAMES Corporation, and the subsidiary acquired NextFloor Corporation. Settlement amounts increased substantially for content other than games, with LINE MANGA steadily growing as Japan’s No. 1 e-book app, and LINE MUSIC exceeding 43 million songs distributed.
The annual transaction amount for LINE Pay in 2017 exceeded 450 billion yen, making 2017 a year of dramatic growth. In October 2017 the number of global monthly transactions exceeded 10 million, and in November the number of registered accounts exceeded 40 million. Additionally revenues from Others increased by 69.8% year on year due to the launch of 10 new LINE FRIENDS stores including a location in New York, and due to the significant growth of LINE Mobile.
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3) New services launched in 2017 Clova AI assistant
As part of its post smartphone strategy, the Company announced an artificial intelligence (AI) assistant called Clova in March 2017. The Company began sales of Clova WAVE, Japan’s first smart speaker, in August, and launched smart speakers with LINE character designs called Clova Friends in December. The smart speakers already have a large number of functions such as the ability to play music, provide news and weather information, read children’s stories out loud, and control home electrical appliances with infrared remote control, as well as functions unique to the Company such as making voice calls via LINE, and sending and reading out LINE messages. The smart speakers learn from the large number of people that use the functions, helping to improve and expand functionality. The Company plans to extend the use of Clova from smart speakers into cars, home electrical appliances, retail stores, and embed Clova in a wide range of other devices, facilities and environments to make life more convenient and richer for users.
LINE SHOPPING The Company started offering its LINE SHOPPING service in June 2017. The service got off to a strong start, with the number of registered users reaching more than 15 million in January 2018. LINE SHOPPING is a comprehensive shopping service that allows users of the LINE to easily search for and buy products from 30 million listings across categories such as fashion, general goods, sporting goods, home decor, electronics, cosmetics, and beyond. The service provides a new way for users and shops to communicate with each other that is convenient for users and helps shops to attract new customers and increase repeat rates.
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(2) Changes in assets and profit (loss) Changes to key consolidated performance indicators of the Company are shown in the table below. (In millions of yen) 18th term 15th term 16th term 17th term (Current fiscal year) Revenues 86,366 120,406 140,704 167,147 Profit (loss) before income taxes 6,263 (530) 17,990 18,145 from continuing operations Profit (loss) attributable to the 4,207 (7,582) 6,763 8,078 shareholders of the Company Basic earnings (loss) per share 36.56 24.05 (43.33) 34.84 (Yen) Total assets 85,664 122,159 256,089 303,439 Total equity 12,511 17,533 161,023 189,977 Notes: 1. The above performance indicators are based on the consolidated financial statements prepared under International Financial Reporting Standards (IFRS). 2. The Company conducted a 500-for-1 share split on July 28, 2014. Basic earnings (loss) per share was calculated on the assumption that said share split was carried out at the beginning of the 15th term.
(3) Issues to be addressed Although the market of the internet industry in which the Group is engaged is growing rapidly, competition from other companies is also intensifying as a result of an increase in new entrants. Under these circumstances, the Group will develop LINE as a form of social infrastructure, continuously expanding the amount of new content in order to meet the diversifying needs of users, and preparing the organizational structures to achieve the same, while remaining aware that the further strengthening of corporate governance, in accordance with business expansion, is an important issue. In relation to the concrete realization of the above, we consider the following to be the key issues.
1) Continuous growth of LINE LINE becoming a part of the foundation of users’ daily lives is indispensable to the stable and continuous development of the Group. To make this a reality, in addition to LINE functioning as a vital communication tool in daily life, we believe it is necessary to provide content such as news, games, music and video with LINE serving as a gateway and to further expand platforms for providing services that enrich the lives of users such as payments and product purchases. As well as raising the number of users and increasing the frequency of service use, the continuous provision of new content and the expansion of the service bolster the LINE platform and make it possible to offer targeted bidirectional marketing solutions to advertisers, leading in turn to increased revenue opportunities for the Group. The Group’s policy is to continue to work on the expansion of LINE by leveraging its significant capabilities in planning and development.
2) Global share expansion In June 2011, we launched the LINE messaging application to the public in Japan, followed by launches in overseas countries. We believe LINE is the leading mobile messaging application in Japan, Taiwan and Thailand in terms of number of users, and we have obtained substantial numbers of users in Asia including Indonesia, Hong Kong, Singapore, Malaysia and Myanmar, and the Middle East including Egypt, Iran and Saudi Arabia, as well as the United States and other countries worldwide. The Group aims to expand the user base and raise the frequency of service use by leveraging its experience in customizing content to suit the needs and tastes of each region and utilizing the marketing know-how it has accumulated thus far. Going forward we will maintain a particular focus on markets in Asia and elsewhere where LINE is highly recognized.
3) Strengthening system infrastructure Because the Group deploys its services over the internet, it has recognized that securing the safely and stability of these systems is an important management issue. Until now, the Group has developed and deployed programs to protect users’ privacy, promote a safe online environment,
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and guarantee the safety of user data. Moreover, based on our policy that the user has the right to determine what they share and with whom they share it, we do not monitor private communications between users. In regard to security, as one of the measures to protect users’ personal information, in addition to promoting countermeasures to cyber-attacks and illegal access, we have been investigating security vulnerabilities by examining commercial tools and code, and conducting penetration tests. Furthermore, the Group has obtained international certification for both security and privacy. Aiming to build systems that users can continue to use with peace of mind, the Group is continually working on strengthening system infrastructure, including upfront investment in equipment.
4) Competition In the internet and mobile application market in which the Group operates, competitors are strengthening their initiatives to entice and secure users, and competition is expected to increase sharply going forward. LINE, provided by the Group, faces direct competition from mobile messaging service providers such as Facebook’s WhatsApp and Tencent’s WeChat and from other services. Moreover, the Group faces significant competition from not only companies such as Facebook, Google, Twitter and Yahoo! Japan, which offer a variety of social network services and products as well as online advertising services, but also companies that provide products and services that compete with specific functions of applications provided on the LINE platform, such as game companies, online payment service providers, telecommunication carriers, e-commerce companies, and music distribution companies. As well as expanding the user base through the practicality, performance and reliability of our products and services, and through establishment and maintenance of relationships with platform business partners, we leverage the size and composition of the Group’s user base to attract companies to provide contents, and aid differentiation. In advertising, we are working to differentiate our services from the competition by improving the advertising platform, which includes promotion of service use by users, securing of advertising inventory, and targeting/retargeting functions. In addition to such differentiation, the Group is enhancing the convenience of existing services to drive further growth while significantly stepping up its introduction of new services and global expansion initiatives.
5) Expanding the revenue base The Group searches unceasingly for new monetization opportunities. In general, the Group focuses on expanding the user base and the frequency of service use at the time a new service or product is released. Later, when we judge we have secured a certain amount of users and satisfied the needs from users regarding a service, we proceed with monetization according to appropriate timing and methods. In addition, our policy is to gradually introduce additional products and new services in both domestic and international markets in order to raise the frequency of service use, gradually increase the revenue from users, and secure stable and sustained profits.
6) Hiring highly skilled personnel The Group perceives the hiring, on a timely basis, of personnel essential to its further growth going forward to be an important management issue. We experience significant competition for highly skilled personnel, including senior management, engineers, designers and product managers, and our hiring costs are on a rising trend. Competition for highly skilled personnel is intense, particularly in Japan where our headquarters is located, and we compete for qualified personnel with other companies in the state-of-the-art technology industry and traditional media businesses. To ensure the Group can effectively hire highly skilled personnel, we will strengthen the hiring competitiveness of our corporate culture through instituting improvements to areas of the human resource system such as the environments that lead to the heightened motivation of employees, including the creation of work environments that encourage independence, creativity, and innovation; as well as the rewards, compensation, and the like.
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7) Strengthening management structures and compliance with laws and regulations The number of employees is rising sharply due to the expansion of our operations, and in order to run an organization that can respond quickly and flexibly to changes in market trends, competing companies, and customer needs and also to continuously enhance corporate value, the Group will use Advisory Committee to improve governance, in addition to working to strengthen internal control structures and structures designed to thoroughly inculcate compliance with laws and regulations.
8) Secure the safety and soundness of services The LINE product provided by the Group is a tool that facilitates close communications between users. To communicate directly with other LINE users, each user can register a “LINE ID” to allow other users to find such user through a LINE ID search. Each user may choose whether his or her account is visible to other users’ LINE ID searches. The LINE product and peripheral services provided by the Group do not themselves have functions to encourage interactions between users who do not know each other, but by searching for the LINE ID, it is possible for a user to contact through LINE another user they have not met. There are many businesses that misuse this LINE ID in external bulletin board services to provide dating services for men and women. Because this has become a source of a wide range of problems, it is a matter of extreme concern for the Company, which has taken various countermeasures. We have made it possible for users to permit whether their account can be searched for by other users by means of their LINE ID. Furthermore, with the goal of preventing trouble involving interactions with users who are minors, users who have not completed an age verification and users who are below the age of 18 are unable to register a LINE ID or use the LINE ID search function. In addition, LINE has undergone an inspection by the Content Evaluation and Monitoring Association to evaluate whether the operating structure is suitable in the context of use by minors, and has subsequently been certified to be appropriate. As well as carrying out these measures, with regard to a safe and secure usage environment for minors, we have continued to conduct educational lecture activities, since FY2012, aimed at children pupils and students, school staff, PTA and so on, calling for safe and secure usage for those not yet adult. We are also working on the development of information ethics education, such as by creating workshop materials that can be used in information ethics education and that emphasize enjoyable communication, releasing these free of charge to school staff as educational materials. Going forward, we will strive to secure the safety and soundness of our services, such as by continually devising appropriate mechanisms to protect users, as needed.
(4) Capital investments Total capital investments by the Group in fiscal 2017 were 9,958 million yen. Main investments included the purchase of servers and networking equipment of 4,429 million yen, carried out with the goal of stable operation of the systems for the provision of LINE services, and the purchase of furniture and fixtures of 2,736 million yen, accompanying the relocation of our headquarters. No important facilities were retired.
(5) Financing No special items to report.
(6) Important parent company and subsidiaries 1) Parent company The Company’s parent company NAVER Corporation holds 73.37% of the Company’s voting rights, and one of the Company’s Directors is also Director at NAVER Corporation.
2) Important subsidiaries Name Share capital Voting rights ratio Principal business Overseas operations and LINE Plus Corporation KRW12.0 billion 100% marketing related to LINE services
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Note: Through the meeting of the Board of Directors on January 31, 2018, the Company resolved to subscribe to a capital increase of its subsidiary LINE Plus Corporation. On February 9, 2018, the Company completed the payment for the subscription to the capital increase of 100,000 million Korean won (9,995 million yen).
3) Important business combination, etc. LINE Plus Corporation, a subsidiary of the Company, transferred its camera application business to Snow Corporation, an associate of the Company, effective May 1, 2017. LINE GAMES Corporation, a subsidiary of the Company, acquired 51.0% of voting shares of NextFloor Corporation, effective July 24, 2017. As a result, NextFloor Corporation and its subsidiaries became subsidiaries of LINE GAMES Corporation. On January 10, 2018, the Company established LINE Financial Corporation to undertake activities of investment, management etc. related to the financial business.
(7) Major place of business (As of December 31, 2017) 1) The Company Name Location Head office Shinjuku-ku, Tokyo Note: On April 1, 2017, the head office was relocated from Shibuya-ku, Tokyo.
2) Principal Subsidiaries Company name Location Within LINE Fukuoka Corp. Fukuoka City, Fukuoka Japan LINE Pay Corporation Shinjuku-ku, Tokyo LINE Ventures Corporation Shinjuku-ku, Tokyo LINE MOBILE Corporation Shinjuku-ku, Tokyo M.T. Burn Inc. Minato-ku, Tokyo Gatebox Inc. Chiyoda-ku, Tokyo BALIE Corporation Sendai City, Miyagi STAIRS Corporation Shibuya-ku, Tokyo LINE Friends Japan Corporation Shinjuku-ku, Tokyo LINE TICKET Corporation Shinjuku-ku, Tokyo Next Library Corporation Shinjuku-ku, Tokyo FIVE Inc. Shibuya-ku, Tokyo Overseas LINE Plus Corporation Seongnam, Gyeonggi-do, South Korea LINE PLAY Corporation Seoul Special City, South Korea LINE BIZ+ PTE. LTD. Singapore, Singapore LINE Company (Thailand) Limited Bangkok, Thailand LINE Taiwan Limited Taipei, Taiwan LINE C&I Corporation Seongnam, Gyeonggi-do, South Korea LINE Biz Plus Corporation Seongnam, Gyeonggi-do, South Korea Line Biz+ Taiwan Limited Taipei, Taiwan PT. LINE Plus Indonesia Jakarta, Indonesia LINE Friends Corporation Seoul Special City, South Korea LINE GAMES Corporation Seoul Special City, South Korea NextFloor Corporation Seoul Special City, South Korea LINE Euro-Americas Corp. California, U.S.A.
(8) Employees (As of December 31, 2017) 1) Employees of the Group Number of employees Changes from the previous fiscal year-end 5,100 [422] + 1,439 [- 22] Notes: 1. Because the business of the Group consists of a single business segment, information by business segment is not provided.
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2. The number of employees is the number of employees currently on duty excluding individuals seconded from the Group to outside the Group and including individuals seconded to the Group from outside the Group. 3. The number in the bracket in the “Number of employees” row refers to the yearly average number of temporary employees (calculated using 7 hours, 30 minutes as one work day). 4. The number of employees increased by 1,439 during the current fiscal year, reflecting mainly mid- career hires associated with expanded business operations.
2) Employees of the Company Changes from the previous Number of employees Average age Average years of service fiscal year-end 1,460 [92] + 233 [- 22] 34 3 years Notes: 1. The number of employees is the number of employees currently on duty excluding individuals seconded from the Company to other companies and including individuals seconded to the Company from other companies. 2. The number in the bracket in the “Number of employees” row refers to the yearly average number of temporary employees (calculated using 7 hours, 30 minutes as one work day). 3. The number of employees increased by 233 during the current fiscal year, reflecting mainly mid-career hires associated with expanded business operations.
(9) Major lenders (As of December 31, 2017) (In millions of yen) Lender Borrowings outstanding Sumitomo Mitsui Banking Corporation 12,000 Mizuho Bank, Ltd. 10,000
(10) Other significant matters pertaining to the current condition of the Company Through the meeting of the Board of Directors on January 31, 2018, LINE MOBILE Corporation, a subsidiary of the Company, resolved to enter into an agreement with SoftBank Corp. (SoftBank) in regard to the mobile communication service. This agreement sets forth provisions for SoftBank to subscribe to a capital increase by allotment conducted by LINE MOBILE Corporation. Upon completion of the third-party allotment, the Company’s ownership of LINE MOBILE Corporation will decrease from 100.0% to 49.0%, which will result in LINE MOBILE Corporation becoming an associate under the equity method, and no longer being the Company’s consolidated subsidiary.
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2. Share information (As of December 31, 2017) (1) Total number of authorized shares Common share: 690,000,000 shares
(2) Total number of issued shares Common share: 238,496,810 shares Notes: 1. On July 18, 2017, the Company increased its total number of issued and outstanding shares by 1,007,810 shares by means of third-party allotment carried out in accordance with the introduction of an Employee Stock Ownership Plan (J-ESOP), as resolved by the meeting of the Board of Directors on February 23, 2017. 2. The total number of issued shares has increased by 19,713,500 shares as a result of warrants exercised during the current fiscal year.
(3) Number of shareholders 21,773
(4) Top 10 shareholders Name Number of shares held Shareholding ratio NAVER Corporation 174,992,000 shares 73.37% MOXLEY & CO LLC 9,568,003 shares 4.01% Jungho Shin 4,760,500 shares 1.99% GOLDMAN SACHS INTERNATIONAL 3,531,242 shares 1.48% Haejin Lee 2,359,500 shares 0.98% MSIP CLIENT SECURITIES 2,253,168 shares 0.94% KSD - MIRAE ASSET DAEWOO (CLIENT) 2,243,100 shares 0.94% BNY GCM CLIENT ACCOUNT JPRD AC ISG (FE- 1,834,635 shares 0.76% AC) Japan Trustee Services Bank, Ltd. (Trust Account) 1,719,000 shares 0.72% Joonho Lee 1,638,000 shares 0.68% Notes: 1. “Shareholding ratio” has been rounded down to units of one hundredth of a percent. 2. The Company does not hold treasury shares. 3. The shareholding ratio has been calculated including the Company’s shares held by the trustee Trust & Custody Services Bank, Ltd. (Trust Account E) as its trust assets of the Employee Stock Ownership Plan (J-ESOP). Such shares have been classified as treasury shares in the Consolidated Financial Statements and the Non-consolidated Financial Statements.
(5) Other significant matters related to shares No items to report.
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3. Warrants, etc. of the Company (1) Warrants owned by officers of the Company that have been issued as compensation for their execution of duties as of the end of the current fiscal year Name 4th Warrants 16th Warrants 20th Warrants Number of warrants 201 151 12,621 Number of holders 2 2 4 (Directors of the Company) Class and number of shares Common shares of the Common shares of the Common shares of the to be issued upon exercise Company Company Company of warrants (per warrant) 500 shares 500 shares 100 shares Amount of payments Gratis Gratis ¥154,500 (per warrant) Exercise value ¥344 ¥1,320 ¥4,206 December 17, 2015 to February 4, 2017 to July 18, 2018 to Exercise period December 16, 2023 February 3, 2025 July 18, 2027 Notes: 1. The above-mentioned warrants are included in the holdings of neither the Company’s outside Directors nor its Corporate Auditors. 2. Of the above mentioned warrants, the principle conditions for exercise of the 4th warrants and 16th warrants are as follows; 1) In cases where a warrant holder dies, their heirs cannot exercise those warrants. However, this shall not apply if the Board of Directors approves. 2) Warrant holders must be in a position of either Director, Corporate Auditor, Executive Officer (Shikkoyaku), employee, or equivalent position of the Company or a subsidiary or associate of the Company at the time that the warrants are exercised; provided, however, that this does not apply in cases when the holding or exercise of warrants by a warrant holder has been acknowledged beforehand at a meeting of the Board of Directors beforehand. 3) Each warrant may not be partially exercised. 3. Of the above mentioned warrants, the principle conditions for exercise of the 20th warrants are as follows; 1) In cases where a warrant holder dies, their heirs cannot exercise those warrants. However, this shall not apply if the Board of Directors approves. 2) Warrant holders must be in a position of Director of the Company or a subsidiary or associate of the Company at the time that the warrants are exercised; provided, however, that this does not apply in cases when a warrant holder has retired from the position of Director of the Company or a subsidiary or associate of the Company due to the expiry of his/her term of office, or when a justifiable reason is acknowledged at a meeting of the Board of Directors. 3) Each warrant may not be partially exercised.
(2) Warrants granted to employees of the Company and officers and employees of subsidiaries as compensation for their execution of duties during the current fiscal year Name 21st Warrants Employees of the Company 9,616 Number of warrants Officers of subsidiaries 1,803 Employees of the Company 9 Number of holders Officers of subsidiaries 1 Common shares of the Class and number of shares to be issued upon exercise of Company warrants (per warrant) 100 shares Amount of payments per warrant ¥154,500 Exercise value ¥4,206 July 18, 2018 to Exercise period July 18, 2027 Note: Principle conditions for exercise of the above-mentioned warrants are as follows; 1) In cases where a warrant holder dies, their heirs cannot exercise those warrants. However, this shall not apply if the Company’s Board of Directors approves. 2) Warrant holders must be in a position of either Director, Corporate Auditor, Executive Officer (Shikkoyaku), Executive Officer (Shikkoyakuin) or employee of the Company or a subsidiary or associate of the Company at the time that the warrants are exercised; provided, however, that this does not apply in cases when a warrant holder has retired from the position of Director, Corporate Auditor, or Executive Officer (Shikkoyaku) of the Company or a subsidiary or associate of the Company due to the expiry of his/her term of office, or when a justifiable reason is acknowledged at a meeting of the Board of Directors. - 15 -
3) Each warrant may not be partially exercised.
(3) Other significant matters related to warrants No items to report.
4. Officers of the Company (1) Directors and Corporate Auditors (As of December 31, 2017) Name Title and Responsibility Significant concurrent positions outside the Company Representative Director, Representative Director of LINE Book Distribution Takeshi Idezawa President and CEO Corporation Representative Director of LINE Pay Corporation Representative Director of LINE MUSIC Corporation Representative Director of AUBE, Ltd. Jun Masuda Director and CSMO Representative Director of LINE Ventures Corporation Representative Director of LINE TICKET Corporation Director of Yume no Machi Souzou Iinkai Co., Ltd. Jungho Shin Director and CGO Representative Director of LINE Plus Corporation Representative Director of LINE Ventures Corporation In Joon Hwang Director and CFO Representative Director of LINE C&I Corporation Haejin Lee Chairman of the Board Director of NAVER Corporation Attorney at law of T. Kunihiro & CO. Outside Director of Tokio Marine & Nichido Fire Insurance Co., Ltd. Tadashi Kunihiro Director Outside Audit & Supervisory Board Member of Mitsubishi Corporation Outside Audit & Supervisory Board Member of OMRON Corporation Attorney at law of Koji Kotaka Law Office Outside Director of Monex Group, Inc. Koji Kotaka Director Supervisory Director of Japan Senior Living Investment Corporation Representative Director of Hatoyama Research Institute, Ltd. Rehito Hatoyama Director Outside Director of Pigeon Corporation Outside Director of transcosmos inc. Full-time Corporate Hitoshi Kurasawa Auditor Jin Hee Kim Corporate Auditor Representative Director of NAVER I&S Corporation Specially Appointed Professor, Faculty of Law, Musashino Takashi Kanai Corporate Auditor University Attorney at law of Frantech Law Office Notes: 1. Directors Tadashi Kunihiro, Koji Kotaka and Rehito Hatoyama are outside Directors. 2. Corporate Auditors Hitoshi Kurasawa and Takashi Kanai are outside Corporate Auditors. 3. The Company appoints all outside Directors and outside Corporate Auditors as independent officers provided under the provisions of the Tokyo Stock Exchange and registers the individuals as such with that exchange.
(2) Changes to Directors during the current fiscal year No items to report.
(3) Summary of details of limited liability agreement The Company has entered into an agreement with Tadashi Kunihiro, Koji Kotaka, Rehito Hatoyama, Hitoshi Kurasawa, Jin Hee Kim and Takashi Kanai to limit their liability for damages provided for in Article 423, Paragraph 1 of the Companies Act pursuant to the provisions of Article 427, Paragraph 1 of the said Act if they have acted in good faith and without gross negligence in performing their duties. The maximum amount of liability for damages in accordance with the agreement shall be 10 million yen or the minimum amount of the liability stipulated in Article 425, Paragraph 1 of the said Act, whichever is higher.
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(4) Amount of remuneration, etc. to Directors and Corporate Auditors Eight Directors 1,309 million yen (including 41 million yen for three outside Directors) Three Corporate Auditors 15 million yen (including 12 million yen for two outside Corporate Auditors) Notes: 1. The amount of remuneration, etc. to Directors includes 116 million yen of Directors’ bonuses. 2. The amount of remuneration, etc. to Directors does not include the portion for employee salaries paid to those Directors who also serve as employees. 3. The amount of remuneration, etc. above includes the amount recorded as an expense in the current fiscal year related to warrants granted as consideration for the execution of duties (Directors: 928 million yen). 4. The maximum amount of remuneration to Directors is 1.0 billion yen per year (excluding stock options) (by resolution of the 15th Ordinary General Meeting of Shareholders held on March 31, 2015). Separate from that amount, a resolution was passed with respect to setting a maximum limit of 3.0 billion yen on the amount of remuneration, etc. relating to warrants allocated as stock options in the 18th term (from January 1, 2017 to December 31, 2017) (at the 17th Ordinary General Meeting of Shareholders held on March 30, 2017). 5. The maximum amount of remuneration to Corporate Auditors is 0.1 billion yen per year (by resolution of the 5th Ordinary General Meeting of Shareholders held on March 31, 2005).
(5) Outside officers 1) Significant concurrent positions of outside officers and their relationships with the Company The Company has business transactions with transcosmos inc., where Director Rehito Hatoyama holds a significant concurrent position. There are no other special relationships between the Company and the companies in which the outside Directors and outside Corporate Auditors of the Company hold significant concurrent positions.
2) Major activities in the current fiscal year Director Tadashi Kunihiro attended all 17 meetings of the Board of Directors held during the current fiscal year. He provided appropriate and valuable advice and suggestions in meetings of the Board of Directors from his professional perspective as a lawyer, primarily on the topics of corporate crisis management, and organization of the compliance system. Director Koji Kotaka attended all 17 meetings of the Board of Directors held during the current fiscal year. He provided appropriate and valuable advice and suggestions in meetings of the Board of Directors based on his abundant insight relating to the financial and capital markets as a lawyer and investment banker. Director Rehito Hatoyama attended all 17 meetings of the Board of Directors held during the current fiscal year. He provided appropriate and valuable advice and suggestions in meetings of the Board of Directors based on his abundant insight relating to business development and corporate management overseas that he has acquired as a corporate manager, primarily on the topics of the contents business and the character license business. Corporate Auditor Hitoshi Kurasawa attended all 17 meetings of the Board of Directors held during the current fiscal year and all 16 meetings of the Board of Corporate Auditors. He provided appropriate and valuable advice and suggestions in meetings of the Board of Directors and meetings of the Board of Corporate Auditors based on his long-standing experience as a corporate manager and extensive knowledge. Corporate Auditor Takashi Kanai attended 15 of the 17 meetings of the Board of Directors held during the current fiscal year and 14 of the 16 meetings of the Board of Corporate Auditors. He provided appropriate and valuable advice and suggestions in meetings of the Board of Directors and meetings of the Board of Corporate Auditors from his professional perspective as a lawyer based on his abundant insight gained primarily from his long-standing experience of legal support in venture companies.
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5. Accounting Auditor (1) Accounting Auditor’s name PricewaterhouseCoopers Aarata LLC
(2) Accounting Auditor’s remuneration, etc. for the current fiscal year (In millions of yen) 1) Amount of remuneration, etc. for the current fiscal year 378 2) Total amount of money and other financial benefits to be paid by the 409 Company and its subsidiaries Notes: 1. The audit contract between the Company and PricewaterhouseCoopers Aarata LLC does not clearly distinguish between remuneration, etc. paid for the audit conducted in accordance with the Companies Act and remuneration, etc. paid for the audit conducted in accordance with Financial Instruments and Exchange Act. It is practically impossible to make such a distinction. Accordingly, the amount of remuneration, etc. of Accounting Auditor for the current fiscal year stated above is the aggregate amount. 2. Of the Company’s important subsidiaries, LINE Plus Corporation is audited by Samil PricewaterhouseCoopers, an audit corporation other than the accounting auditor of the Company.
(3) Details of remuneration for non-auditing services The Company entrusts the Accounting Auditor with advisory services regarding code of conduct questionnaires, which are services outside of the services stipulated in Article 2, Paragraph 1 of the Certified Public Accountant Act (non-auditing services). The Company pays remuneration to the Accounting Auditor as consideration for these services.
(4) Reasons for approval of the Accounting Auditor’s remuneration, etc. by the Board of Corporate Auditors When the Company concludes an audit contract with the Accounting Auditor, the Board of Corporate Auditors provides their approval for the Accounting Auditor’s remuneration, etc. This approval is contingent on the Board of Corporate Auditors decision, based on the result of their consideration of each item, that the content of the Accounting Auditor’s audit plan, the status of their performance of duties in the previous fiscal year, and the grounds of the calculation of the remuneration estimate are all appropriate.
(5) Policy on decision for dismissal or non-reappointment of Accounting Auditor In the event that there is an obstacle to the execution of duties by the Accounting Auditor, or when otherwise deeming the action necessary, the Board of Corporate Auditors will determine the content of a proposal to the General Meeting of Shareholders concerning the dismissal or non- reappointment of the Accounting Auditor. In addition, when the items in Article 340, Paragraph 1 of the Companies Act are applicable to the Accounting Auditor, the Board of Corporate Auditors will dismissal the Accounting Auditor by a unanimous resolution. In this case, a Corporate Auditor selected by the Board of Corporate Auditors shall report the dismissal of the Accounting Auditor and the reason for dismissal at the first General Meeting of Shareholders to be held after the dismissal.
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6. System and Policies of the Company (1) Systems to ensure that the execution of duties of Directors complies with laws and regulations and the Articles of Incorporation and other systems to ensure appropriate business operations The Company determines basic policy on developing internal control systems by resolution of the Board of Directors. An overview of this is as follows. 1) Systems to ensure that the execution of duties of Directors and employees complies with laws and regulations and the Articles of Incorporation i. To ensure that Directors and employees of the corporate group consisting of the Company and its subsidiaries (hereinafter referred to as the “Group”) adhere to laws and regulations and the Articles of Incorporation, and execute their duties on the basis of sound social norms, we have drawn up the LINE Group Code of Conduct and accordingly adopt systems for fully ensuring that our adherence to laws and regulations acts as the basis of all corporate activities performed by the Group’s Directors and employees. ii. We have established the Internal Audit Department to act as an organizational unit directly under control of the Representative Director, and accordingly adopt systems for carrying out internal audits of the Group. iii. We establish whistleblowing systems that enable anonymous reporting by employees who have directly noticed conduct which they suspect may involve a breach of laws or regulations. iv. We have established a dedicated office for promoting compliance, and we develop and promote compliance systems. v. We do not engage in any relations whatsoever with anti-social forces that pose a threat to the order and safety of society. We also address matters pertaining to anti-social forces on an organization-wide basis, and resolutely handle such matters in conjunction with external professional organizations.
2) Systems for the storage and management of information relating to the execution of duties of Directors We establish Board of Directors Regulations, Document Retention Policy and Information Security Policy, and accordingly adopt systems for recording and storing documents and electromagnetic records containing information pertaining to the execution of duties by Directors.
3) Rules and other systems for management of risk of loss i. We establish Basic Policy for Risk Management, and accordingly adopt systems for appropriately managing risk under ordinary circumstances. ii. We have established the Risk Management Committee, which is chaired by the Representative Director and President, and accordingly adopt systems for sharing information on risks, reviewing countermeasures and performing other such tasks. iii. We appoint a Chief Information Security Officer (CISO) and a Chief Privacy Officer (CPO), organize bodies for holding meetings headed by the respective officers, and accordingly adopt systems for enhancing safekeeping and control of our information assets and appropriately managing risks related to those information assets. iv. We establish Crisis Management Policy and accordingly adopt systems for systematically managing risks on the basis of instructions provided by the Representative Director and Directors in charge, in cases involving the emergence or potential emergence of risks affecting business continuity. Moreover, the Internal Audit Department conducts audits on the basis of Internal Audit Policy in order to determine the effectiveness and adequacy of respective risk management procedures, and accordingly adopts systems for reporting audit outcomes to the Representative Director and Corporate Auditors, depending on the importance of the matter involved.
4) Systems to ensure the efficient execution of duties of Directors We adopt systems whereby the Board of Directors makes important managerial decisions and executive Directors execute business operations. We employ executive officer systems and accordingly separate the tasks of management oversight and business execution by delegating a substantial portion of business execution to executive officers, and otherwise work to streamline decision-making and business execution. We appropriately divide job authority and business operations on the basis of in-house regulations with respect to executing individual aspects of our
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business, and accordingly take steps to achieve greater specialization and improvement of business operations.
5) Systems to ensure the appropriateness of operations in the Group i. Systems for the reporting of items related to the execution of the duties of directors, etc. of subsidiaries to the Company We establish Affiliate Management Policy and accordingly adopt systems for ensuring timely and appropriate reporting to the Company in relation to matters pertaining to the execution of duties by directors of our subsidiaries, by having our subsidiaries report important matters and conduct preliminary discussions. ii. Rules and other systems for management of risk of loss at subsidiaries We adopt systems for controlling risks of loss incurred by subsidiaries by accordingly exchanging opinions with managers in charge of finance, legal affairs, security and other such operations of our subsidiaries whenever necessary, and furthermore striving to gain an understanding of risk management issues and other challenges from the viewpoint of accurate financial reporting. iii. Systems to ensure the efficient execution of duties of directors, etc. of subsidiaries To ensure a prosperous coexistence among Group entities, the Company adopts systems for ensuring that directors of subsidiaries effectively execute their duties. To that end, we cooperate closely with our subsidiaries and develop systems to ensure that the appropriateness of respective business operations is ensured autonomously. iv. Systems to ensure that the execution of duties of directors, etc. and employees of subsidiaries complies with laws and regulations and the Articles of Incorporation We have drawn up the LINE Group Code of Conduct which is applied across the overall Group, and accordingly work to cultivate and build compliance awareness by regularly providing education and training opportunities. We have established a meeting body for promoting and monitoring the overseas compliance activities of the Group and adopted a system for the execution of these activities. We promote use of our whistleblowing reporting desk which has been established to make it possible for us to swiftly gather information in instances involving suspected compliance violations involving our subsidiaries. v. Systems to prevent circumstances that would undermine shareholder interests due to transactions involving related parties and conflicts of interest We have established the Advisory Committee comprised solely of outside Directors, and accordingly adopt systems for ensuring that the Committee engages in preliminary deliberations regarding important matters in terms of those transactions involving related parties and conflicts of interest, and for ensuring that outcomes of such deliberations are respected by the Board of Directors.
6) Matters pertaining to employees who are assigned to assist Corporate Auditors in performing their duties i. We promptly assign employees to the task of assisting Corporate Auditors upon request in that regard. ii. With respect to transfer, evaluation, disciplinary action and other personnel-related matters involving employees set forth in the preceding paragraph, we require prior agreement from Corporate Auditors and otherwise strive to ensure that such employees maintain independence from Directors and receive effective instructions from Corporate Auditors.
7) Systems for reporting to the Company’s Corporate Auditors i. Systems for reporting by the Company’s Directors and employees to Corporate Auditors, and other systems for reporting to Corporate Auditors We adopt systems for promptly reporting matters to the Corporate Auditors, in cases where any individual becomes aware of actions of Directors or employees that may be in violation of laws and regulations, the Articles of Incorporation or the LINE Group Code of Conduct, or actions that could potentially cause the Group to incur substantial losses, or incidents that could otherwise have a substantial adverse effect on the Group (hereinafter collectively referred to as “Unwarranted Conduct, etc.”).
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Moreover, we adopt systems providing for Corporate Auditors to attend meetings of the Board of Directors and full-time Corporate Auditors to attend Management Meetings, reporting results of internal audits to full-time Corporate Auditors by the Internal Audit Department, and otherwise effective reporting to Corporate Auditors by means of discussion between Directors and Corporate Auditors. ii. Systems for reporting to the Company’s Corporate Auditors by directors, corporate auditors and employees of subsidiaries, or by individuals reported to by directors, corporate auditors or employees of subsidiaries We adopt systems for promptly reporting matters involving Unwarranted Conduct, etc. to Corporate Auditors, by directors, corporate auditors or employees of subsidiaries (hereinafter referred to as “Subsidiary Directors, etc.”) where Unwarranted Conduct, etc. has been detected, or by Directors or employees of the Company who have received reports from Subsidiary Directors, etc. regarding Unwarranted Conduct, etc. iii. We adopt systems prohibiting unfavorable treatment of whistleblowers on the grounds of having reported as described in the preceding two paragraphs.
8) Items related to the policy for the handling of expenses or financial obligations by Corporate Auditors of the Company in the execution of their duties We adopt systems whereby Directors ensure budgets are secured as necessary and sufficient to guarantee effectiveness of audits with respect to expenses and obligations incurred in relation to execution of duties of Corporate Auditors.
9) Other systems to ensure the audits of Corporate Auditors are implemented effectively We adopt systems whereby the Board of Corporate Auditors carries out meetings to exchange opinions respectively with the Representative Director, Directors and the auditing company that acts as the Accounting Auditor, and whereby the full-time Corporate Auditors work in conjunction with the Internal Audit Department in efficiently and effectively performing audits with respect to tasks such as audit item selection and implementation when investigating the status of the Company’s business operations and assets, and when taking on other audit tasks.
(2) Summary of operational status of systems to ensure appropriate business operations The Company endeavors to maintain and appropriately operate its internal controls systems, on the basis of its basic policy on developing internal control systems. A summary of the operational status for the fiscal year under review is as follows. 1) Initiatives regarding compliance with laws and regulations, etc. by Directors and employees i. We have established the LINE Group Code of Conduct setting forth legal and ethical standards which are to be observed by officers and employees of the Group. It is posted in multiple languages to our in-house corporate intranet and elsewhere, and we ensure that individuals can access it when necessary. Moreover, we obtain written pledges from employees upon entering the Company regarding their compliance with LINE Employment Regulations and other internal corporate regulations, and with the LINE Group Code of Conduct. In so doing, we strive to ensure widespread familiarity with such matters and full commitment in that regard. After employees enter the Company, we conduct training sessions pertaining to the LINE Group Code of Conduct as well as various laws and regulations, and also carry out surveys on awareness of the LINE Group Code of Conduct. In so doing, we are able to visually assess the extent to which such matters have taken hold, and further promote heightened awareness in that regard. ii. To ensure that business operations are carried out appropriately, we have established Whistleblowing Policy and developed whistleblowing systems which act as means for employees to furnish information regarding suspect behavior with respect to laws and regulations, and our internal corporate regulations. We stipulate prohibitions against treating whistleblowers unfavorably in our Whistleblowing Policy, and establish whistleblowing reporting desk in law firms external to the Company. Although we take necessary corrective action in the event that we find any indications of illegality or unworthy behavior based on results of investigations into whistleblowing reports, in such instances, we do not allow persons who have conflicting interests to become involved in handling cases pertaining to whistleblowing, and when conducting investigations we also give due consideration to the
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matter of using means of investigation geared to ensuring that whistleblowers maintain anonymity in order to safeguard their confidentiality. iii. We have drawn up “Prevention of Influence by Anti-Social Forces Policy,” stipulating provisions regarding matters such as rejecting ties with crime syndicates and other such entities, and cooperating with outside organizations such as law enforcement and attorneys with respect to rejecting ties with such entities. On the basis of such policy, we confirm whether our business counterparties are involved with anti-social forces in any way, and we establish provisions stipulating rejection of ties with anti-social forces and other such wording within our written contracts. Moreover, we strive to increase the effectiveness of measures for rejecting ties with crime syndicates and other such entities by disseminating information necessary to relevant employees, through means that include holding in-house training sessions, individual meetings and delivering emails regarding the purpose and details of measures for rejecting such ties, as well as regarding countermeasures to be taken under specific scenarios.
2) Initiatives regarding risk management i. At the Company, matters deemed as involving Group-wide risk exposure or high levels of risk are reported to the Board of Directors in a timely manner. ii. The Internal Audit Department performs audits of the Company and Group companies on the basis of audit plans. Audit reports containing audit results are submitted and reported to the Representative Director and President, the full-time Corporate Auditors and heads of departments subject to audit, to the extent necessary, and such reports are accompanied by written requests for corrective measures when certain action is required. In such cases, the Internal Audit Department helps make improvements to business operations, upon taking receipt of policies and plans regarding countermeasures and actions from the department subject to audit, as well as reports on corrective measures aggregating progress made in implementing the aforementioned policies and plans. iii. Regularly scheduled meetings headed by the CPO/CISO are held to consolidate views of those in relevant departments of the Company regarding the Group’s information assets particularly privacy protection. We also strive to promote unified measures and also to maintain and improve the LINE brand.
3) Initiatives regarding the efficiency and appropriateness of performance of duties by Directors i. Meetings of the Board of Directors are held once per month generally, and otherwise held on a flexible basis as necessary. As the Company’s highest management decision-making body, the Board of Directors resolves matters stipulated by laws and regulations as well as in the Articles of Incorporation, resolves significant policy matters, and oversees progress made in business execution. The Board of Directors Secretariat prepares Board of Directors meeting minutes each time such meetings are held, in accordance with the Board of Directors Regulations, and those documents are stored and managed on the basis of internal corporate regulations. ii. The Company holds Management Meetings whenever appropriate, attended by the Representative Director and President, CFO, CGO, CSMO, CPO/CISO, executive officer in charge of finance and accounting, executive officer in charge of human resources, executive officer in charge of legal affairs, executive officer in charge of internal audit, and full-time Corporate Auditors. The Management Meeting conducts preliminary deliberations on agenda items for meetings of the Board of Directors. It also engages in discussing matters such as progress made in such business execution on the basis of strategies and policies determined at meetings of the Board of Directors, and making decisions in that regard. Moreover, Investment Strategy Meetings on matters of the Company’s investment are held whenever appropriate, attended by the Representative Director and President, CFO, CGO, and CSMO.
4) Initiatives to ensure the effectiveness of audits by the Corporate Auditors i. The full-time Corporate Auditors attend meetings of the Board of Directors and the Management Meetings to assess the status of business execution. Moreover, in striving to share information, an audit report is submitted to the full-time Corporate Auditors, containing
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results of audits conducted on the basis of audit plans of the Internal Audit Department, as stated in 2-2), above. ii. Audits by Corporate Auditors are performed on the basis of details stipulated in annual audit plans of the Corporate Auditors, while meetings of the Board of Corporate Auditors are generally held once per month in order to share information. Audits by Corporate Auditors entail initiatives that include exchanging opinions with the Representative Director and President, attending important meetings, viewing important documents, investigating important assets, conducting interviews at operating divisions, and investigating subsidiaries. They also involve efforts to enhance the effectiveness and efficiency of audits, in coordination with the Internal Audit Department and the Accounting Auditor. iii. The Board of Corporate Auditors has been given direct control over a dedicated corporate audit staff, which has been made separate from organizational units involved in business execution. The corporate audit staff members have been supporting the Corporate Auditors in performing their duties, working in conjunction with the Internal Audit Department. Moreover, matters involving transfers and personnel evaluations of corporate audit staff members are decided upon gaining consent of the full-time Corporate Auditors. iv. We have secured budgets to cover expenses incurred by Corporate Auditors in performing their duties, as necessary to ensure effectiveness of audits.
5) Initiatives to ensure the appropriateness of operations of the Group i. We clarify standards of management relating to the Company’s affiliated companies by establishing the Related Party Transaction Management Policy, and respective departments related to the Company receive reports regarding certain matters relating to business execution of Group companies. Moreover, we develop systems for gaining approval from the Representative Director, the Management Meetings, Investment Strategy Meetings or the Board of Directors, depending on the importance of any given matter, with respect to business execution of Group companies and the exercise of voting rights in relation to Group companies. ii. Each fiscal year, the Internal Control Team draws up the “Basic Plan regarding Evaluation of Internal Controls on the Financial Reporting” on internal controls pertaining to the financial statements, and it gains approval from the Board of Directors. The Internal Controls Team evaluates the Group’s internal controls on the basis of that plan, and issues instructions for improvements if material deficiencies are detected. iii. From the perspective of protecting minority shareholders, we have established the Advisory Committee comprised solely of outside Directors. The Advisory Committee conducts deliberations and review that includes important matters in terms of related-party transactions including those with parent company NAVER Corporation and transactions involving conflicts of interest, the operational status of the Board of Directors, and policies on protecting minority shareholders. The Board of Directors respects the opinions of the Advisory Committee.
7. Transactions with the parent company, etc. No items to report.
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Consolidated Financial Statements
Consolidated Statement of Financial Position (As of December 31, 2017) (In millions of yen) Item Amount Item Amount (Assets) (Liabilities) Current assets 190,649 Current liabilities 101,417 Cash and cash equivalents 123,606 Trade and other payables 28,810 Trade and other receivables 42,892 Other financial liabilities, current 28,003 Other financial assets, current 13,258 Accrued expenses 12,087 Inventories 3,455 Income tax payables 2,365 Other current assets 7,438 Advances received 17,975 Non-current assets 112,790 Deferred revenue 9,246 Property and equipment 15,125 Provisions, current 991 Goodwill 16,767 Other current liabilities 1,940 Other intangible assets 6,486 Non-current liabilities 12,045 Other financial liabilities, Investments in associates and 602 24,844 non-current joint ventures Deferred tax liabilities 1,573 Other financial assets, non-current 32,084 Provisions, non-current 3,060 Deferred tax assets 16,492 Post-employment benefits 6,162 Other non-current assets 992 Other non-current liabilities 648 Total liabilities 113,462 (Shareholders’ equity) Equity attributable to the 185,075 shareholders of the Company Share capital 92,369 Share premium 93,560 Treasury shares (4,000) Accumulated deficit (4,294) Accumulated other comprehensive 7,440 income Non-controlling interests 4,902 Total shareholders’ equity 189,977 Total liabilities and Total assets 303,439 303,439 shareholders’ equity Note: Amounts are rounded to the nearest million.
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Consolidated Statement of Profit or Loss (From January 1, 2017 to December 31, 2017) (In millions of yen) Item Amount Revenues and other operating income: 179,158 Revenues 167,147 Other operating income 12,011 Operating expenses (154,080) Profit from operating activities 25,078 Finance income 257 Finance costs (26) Share of loss of associates and joint ventures (6,321) Loss on foreign currency transactions, net (818) Other non-operating income 1,963 Other non-operating expenses (1,988) Profit before tax from continuing operations 18,145 Income tax expenses (9,922) Profit for the year from continuing operations 8,223 Loss from discontinued operations, net of tax (13) Profit for the year 8,210 Attributable to: The shareholders of the Company 8,078 Non-controlling interests 132 Note: Amounts are rounded to the nearest million.
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Non-consolidated Balance Sheets (As of December 31, 2017) (In millions of yen) Item Amount Item Amount Assets Liabilities Current assets 142,768 Current liabilities 77,831 Cash and deposits 97,193 Accounts payable - trade 4,884 Accounts receivable - trade 28,931 Short-term loans payable 22,000 Securities 849 Accounts payable - other 20,253 Merchandise 538 Accrued expenses 7,544 Prepaid expenses 3,851 Income taxes payable 1,366 Deferred tax assets 6,472 Advances received 12,165 Other 6,086 Deposits received 890 Allowance for doubtful accounts (1,155) Unearned revenue 6,413 Non-current assets 122,748 Provision for points 561 Property and equipment 10,802 Other provision 425 Buildings 4,136 Other 1,326 Tools, furniture and fixtures 6,666 Non-current liabilities 2,352 Intangible assets 446 Other provision 249 Goodwill 315 Asset retirement obligations 1,995 Software 86 Other 108 Other 44 Total liabilities 80,184 Investments and other assets 111,499 Net assets Investment securities 12,463 Shareholders’ equity 179,215 Shares of subsidiaries and 81,051 Capital stock 92,368 associates Investments in other securities of 5,338 Capital surplus 83,334 subsidiaries and associates Long-term loans receivable 2,462 Legal capital surplus 82,433 Long-term prepaid expenses 358 Other capital surplus 900 Deferred tax assets 7,586 Retained earnings 7,512 Other 3,898 Other retained earnings 7,512 Retained earnings brought Allowance for doubtful accounts (1,660) 7,512 forward Treasury shares (3,999) Valuation and translation 417 adjustments Valuation difference on investment 417 securities Subscription rights to shares 5,698 Total net assets 185,332 Total assets 265,517 Total liabilities and net assets 265,517 Note: Amounts are rounded down to the nearest million.
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Non-consolidated Statements of Income (From January 1, 2017 to December 31, 2017) (In millions of yen) Item Amount Net sales 125,929 Cost of sales 75,446 Gross profit 50,482 Selling, general and administrative expenses 36,634 Operating income 13,848 Non-operating income Interest income 215 Other 1,125 1,341 Non-operating expenses Interest expenses 16 Other 1,015 1,031 Ordinary income 14,157 Extraordinary income Gain on sales of non-current assets 6 Gain on sales of investment securities 299 Reversal of allowance for doubtful accounts for subsidiaries and 252 associates Other 62 620 Extraordinary losses Loss on valuation of shares of subsidiaries and associates 1,176 Loss on valuation of investment securities 203 Provision of allowance for doubtful accounts for subsidiaries and 1,591 2,971 associates Profit before income taxes 11,807 Income taxes - current 5,218 Income taxes - deferred (1,144) 4,073 Profit 7,733 Note: Amounts are rounded down to the nearest million.
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Independent Auditors’ Audit Report
February 21, 2018
To the Board of Directors of LINE Corporation PricewaterhouseCoopers Aarata LLC Designated Limited Liability Partner, Certified Public Accountant: Kentaro Iwao (Seal) Designated Limited Liability Partner, Certified Public Accountant: Yoshihisa Chiyoda (Seal) Designated Limited Liability Partner, Certified Public Accountant: Nobuhiro Nasu (Seal)
Pursuant to Article 444, paragraph 4 of the Companies Act, we have audited the consolidated financial statements, namely, the consolidated statement of financial position, the consolidated statement of profit or loss, the consolidated statements of changes in equity and the notes to the consolidated financial statements, of LINE Corporation (the “Company”) for the fiscal year from January 1, 2017 through December 31, 2017.
Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements pursuant to the provisions of the latter part of Article 120, paragraph 1 of the Ordinance on Accounting of Companies, which permits companies to omit some disclosure items required under designated IFRS in preparing consolidated financial statements, and for designing and operating such internal control as management determines is necessary to enable the preparation and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit in accordance to such plan to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. The purpose of an audit of the consolidated financial statements is not to express an opinion on the effectiveness of the entity’s internal control, but in making these risk assessments the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the consolidated financial statements referred to above, which were prepared with some disclosure items required under designated IFRS omitted pursuant to the provisions of the latter part of Article 120, paragraph 1 of the Ordinance on Accounting of Companies, present fairly, in all material
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Conflicts of Interest We have no interest in the Company which should be disclosed in compliance with the Certified Public Accountants Act.
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Independent Auditors’ Audit Report
February 21, 2018
To the Board of Directors of LINE Corporation PricewaterhouseCoopers Aarata LLC Designated Limited Liability Partner, Certified Public Accountant: Kentaro Iwao (Seal) Designated Limited Liability Partner, Certified Public Accountant: Yoshihisa Chiyoda (Seal) Designated Limited Liability Partner, Certified Public Accountant: Nobuhiro Nasu (Seal)
Pursuant to Article 436, paragraph 2, item 1 of the Companies Act, we have audited the non-consolidated financial statements, namely, the non-consolidated balance sheets, the non-consolidated statements of income, the non-consolidated statements of changes in equity, the notes to the non-consolidated financial statements, and the supplementary schedules of LINE Corporation for the 18th business term from January 1, 2017 through December 31, 2017.
Management’s Responsibility for the Non-consolidated Financial Statements and Others Management is responsible for the preparation and fair presentation of these non-consolidated financial statements and the supplementary schedules in accordance with accounting principles generally accepted in Japan, and for designing and operating such internal control as management determines is necessary to enable the preparation and fair presentation of the non-consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility Our responsibility is to express an opinion on these non-consolidated financial statements and the supplementary schedules based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit in accordance to such plan to obtain reasonable assurance about whether the non-consolidated financial statements and the supplementary schedules are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the non-consolidated financial statements and the supplementary schedules. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the non- consolidated financial statements and the supplementary schedules, whether due to fraud or error. The purpose of an audit is not to express an opinion on the effectiveness of the entity’s internal control, but in making these risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the non-consolidated financial statements and the supplementary schedules in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the non-consolidated financial statements and the supplementary schedules. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the non-consolidated financial statements and the supplementary schedules referred to above present fairly, in all material respects, the financial position and results of operations for the period - 30 - covered by these non-consolidated financial statements and the supplementary schedules in conformity with accounting principles generally accepted in Japan.
Conflicts of Interest We have no interest in the Company which should be disclosed in compliance with the Certified Public Accountants Act.
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LINE CSR Activities
Guided by its corporate mission – CLOSING THE DISTANCE – the Group is working closely with individuals, schools, companies, local governments, national government agencies and other groups to solve social issues and create new value for society from two perspectives: improving communication and working with regional communities.
1. More than 5,000 awareness presentations! To encourage young people to use the internet safely, we visit educational institutions across Japan and hold awareness presentations for children, parents and teaching staff. We also run free seminars with workshops that feature card-based training materials. Since establishing a specialist department in January 2014, the Group has held more than 5,000 presentations and workshops, including roughly 2,500 in 2017 alone.
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2. Helplines The Company started providing support for local governments in 2017 to establish LINE-based helplines. Amid growth in the types of communication tools that children use today, the helplines are designed to give children an environment where they can readily access support to help them deal with bullying and other concerns. In August 2017, the Company concluded an agreement with Nagano Prefecture that gave all junior high school and senior high school students in the prefecture access to a special LINE account for two weeks in September to receive advice about any concerns they might have. During the two week period, the account was accessed 1,579 times, with roughly one third (547) resulting in a request for advice. That represented a significant increase in requests for advice compared with the previous telephone-based helplines, which received 259 requests during the whole of the previous fiscal year. To take this approach forward, the Company established the Social Media Counseling Association in December 2017 to establish and improve the quality of social media- accessible helplines.
3. Overseas initiatives The Group is also contributing in any way it can to solving social issues overseas. In Japan, we have been working with educational specialists for several years to develop learning materials for children about internet morals. These materials have been welcomed in Japan, and in 2017 we revised and translated some of the materials for use in Thailand. The materials are now being used in schools in Thailand. Other initiatives conducted by the Group overseas include supporting a charity running event in Thailand, working with local governments in Taiwan to provide disaster prevention information about typhoons and other disasters via LINE, and providing programs for creators in Indonesia with government-affiliated associations.
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Working to realize our mission
To realize our mission – CLOSING THE DISTANCE (bringing people, information and services closer together) – the Group has established LINE STYLE and LINE CODE as shared values for all executives and employees.
LINE STYLE (Behavior to keep in mind) The Group keeps evolving so that it can continue providing innovative value to users, and pursues “wow” services that exceed people’s expectations. To enable the ongoing creation of a sense of amazement (wow), the Group has selected six keywords that all members who work at the LINE Group must keep in mind at all times. There is no hierarchy among these words. Only when all six are met can “wow” be created.
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LINE CODE (Actions to carry out) Each of us who works at the Group needs to take PRIDE in our work, comply with social rules, respect all people (suppliers, partners, local communities) and act with humility and transparency so that the Group can continue to take on new challenges and constantly develop and create new value. To encourage that kind of behavior, the Group has selected three key words that all members who work at the Group need to keep in mind. It has also created the LINE CODE BOOK, which contains concrete examples of expected behavior and is promoted widely in the Group.
For the full text of LINE Group Code of Conduct, please visit our website (https://linecorp.com/en/ir/governance).
IR Official Account The Group has set up an official IR account called LINE IR News. After LINE users add the official account to their friend lists, the users can receive information from the Group, including IR disclosure information, financial information and the latest information selected from press releases and CSR news.
How to add the official account as a friend 1. Scan the QR code or search for the account name below.
How to search by account name
Search for “@lineir_jp” (english version is “@lineir_en”) by going to: More > Official Accounts > Search by name, ID or category
2. Add “LINE IR News” as a friend After confirming the notes on the authorization page, tap “Confirm.”
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