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

Prepared in Accordance with the International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB")

LINE Corporation LN (TOKYO:3938) announces the summary of 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.

3. Consolidated earnings forecasts for 2017 (from January 1, 2017 to December 31, 2017)

Amid rapid international and domestic changes, there is a level of uncertainty within the mobile applications market for smartphones and other mobile devices, the main business of the Company and its subsidiaries (collectively, the "Group"). As the state of this market significantly impacts the Group's financial results, it is difficult to formulate a precise earnings forecast. Furthermore, as the Company's shares are listed on the New York Stock Exchange as well as the Tokyo Stock Exchange, we are also carefully considering risks relating to U.S. securities regulations. Accordingly, an announcement concerning earnings forecasts is not made at this time.

* Information regarding the quarterly review procedures

This summary quarterly financial results report is exempt from the quarterly consolidated financial statements review procedures in accordance with the Financial Instruments and Exchange Act.

* 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:

1. Qualitative information regarding financial results for the nine months ended September 30, 2017

(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 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:

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 the 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 increases 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, 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) Forecast of consolidated financial results

Forecasts for the next quarter

The Group's revenues for the current fiscal year (January 1, 2017 to December 31, 2017) are expected to be higher compared to the fiscal year ended December 31, 2016. Specifically, in LINE advertising, growth in revenues is expected primarily due to Official Accounts and the contribution from the revenues of performance ads following the launch of ads on LINE family service such as LINE Manga. With respect to content distribution, the Group expects to continue to generate steady revenues, mainly because the Group plans to appropriately update existing titles and implement marketing. In communication, the Group also expects to continue to generate steady revenues primarily as a result of executing measures designed to match with the seasons and events.

In the current fiscal year (January 1, 2017 to December 31, 2017), although operating expenses are expected to increase following the expansion of services and marketing activities, full-scale investments in cloud AI "Clova" and share-based compensation expenses, the Group expects to continue to achieve positive profit from operating activities.

(5) Notes to Interim Condensed Consolidated Financial Statements - Unaudited

Notes for going concern assumption

Not applicable.

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