LY Corporation (4689) Earnings Call Transcript & Summary

[Interpreted] I am Kentaro Kawabe, President and Co-CEO of Z Holdings Corporation. Amidst your busy schedule, thank you very much for participating in the strategic briefing on the business integration with LINE Corporation. Today, as of March 1, 2021, we have finalized the business integration of Z Holdings and LINE Corporation. With that, let's begin the strategic briefing of the integration. Next page, please. These are the 3 agenda items I will cover today. Next page, please. Firstly, the outline of the new Z Holdings. Next page, please. Through the integration, the new Z Holdings indeed became a group that provides the largest Internet services in Japan. Aggregated revenue of 2 companies is just over JPY 1.28 trillion, and the number of users is 67 million for Yahoo! And including Asia and other regions, 167 million for LINE, reaching the majority of the Internet users in Japan. Services provided by both companies touch every user's daily life and are widely used. We believe that we have evolved into a group with strong assets in Japan in terms of reach, which indicates the breadth of use and engagement, which reflects the depth of use. The number of group employees increased to 23,000, and the number of domestic services exceeded 200. Yahoo! boasts an overwhelming presence in Japan and with the addition of LINE, which has overseas operations, the number of countries and regions that we cover expanded to 230. We would like to maximize on the assets of both companies and challenge the future that only we can create. Next page, please. The uniqueness of our asset is the source of our value creation Yahoo!'s media, commerce and fintech businesses are complemented by LINE's messenger and SNS services. In addition, we have NAVER's AI technology and SoftBank's communication services in our group. No other group in the world has such an asset portfolio, and this is the source of our value creation. Next page, please. How do we plan to use these assets to create new value through the integration, whether it be online or offline? User actions such as connect with information and people, search, know, purchase, pay, borrow money or increase wealth and enjoy can be supported end to end. Rather than providing these services individually, we want to build a unique ecosystem that only we can achieve by organically linking each service. Next page, please. Next, business and service growth policy. We have 3 staggering sources of actions. Namely Yahoo! Japan that connects information and people; LINE that links people; and PayPay, that connects people and payments. These 3 sources of actions are practiced by the majority of domestic Internet users. On the promise of user content, we can link IDs and membership programs, feed data generated from such linkage to AI engine and design optimum service for each individual all based on the 3 sources of actions. Furthermore, we aim for dramatic growth by conducting bold strategic investments. Next page, please. Here are the investment highlights. With the integration, we believe that we can dramatically accelerate our growth by aggressively investing cash obtained from the increased earning capability. I will explain later. But after the integration, the management index will be changed from operating income to EBITDA. We would like to achieve a strong growth by maximizing on Japan's strongest asset portfolio through bold strategic investments while maintaining the trend of increasing profit on an EBITDA basis. The first investment highlight, as mentioned earlier, is to dominate the 3 sources of actions that reach the majority of the Internet users in Japan. Secondly, we will maximize on our most powerful assets in Japan by conducting bold strategic investments of JPY 500 billion over 5 years, mainly focusing on data and AI. And thirdly, we will expand market share through the integration. This includes, in addition to increasing the share of existing businesses, a creation of a target market through synergy effect. Last investment highlight is our financial strategy and management structure that are important in achieving these goals and in securing a unique position that enables the group as a whole to realize our vision. This completes the overview of the new Z Holdings. Next page, please. Next, business strategy and medium-term management index and financial strategy. Next page, please. First, the new business categories after the integration. We will reorganize ourselves into 3 categories, namely: Media; Commerce; and strategic businesses. Management indices and KPIs will be set according to the growth phase of each business. Performance disclosure in new business categories is expected to begin in FY 2021, which starts in April. Today's presentation is based on these business categories. Next page, please. Our new medium-term goals of the group. Details will be provided later, so just an overview here. The growth of the profit expected from the integration will be used for investment in -- to accelerate medium to long-term growth, aiming for dramatic growth that would not have been possible without this integration. We aim to achieve a revenue of JPY 2 trillion and adjusted EBITDA of JPY 390 billion in FY 2023. This is equivalent to the existing medium-term target, our operating income of JPY 225 billion, which means that even with both strategic investments, this target will be achieved. Next page, please. From here, I will explain the strategy of each businesses. First, about the Media business. Please go to the next page. First, I would like to touch on the Internet advertisement market in Japan. The growth rate of Internet advertising continues to grow at a high double-digit rate every year. In particular, 2019 has been historic year with online ad spending overtaking TV media and spending for the first time. Last year, hit by COVID, the market temporarily slowed down. However, the big picture is that advertising will continue to go digital. As an industry leader, we will continue to lead the growth of the online advertising market which is expected to grow further in the future and will also utilize LINE's asset to increase our market share. Please turn to the next page. In addition to expanding our share of the online advertising market, we would like to expand TAM by defining the sales promotion market as a new target market that can be approached through integration synergies. Next page, please. Now I will explain in detail how we will expand our share of the advertising market and develop the sales promotion market. In order to do this, the new marketing solution made possible by the integration will be important. As mentioned, our strength lies in our unique assets. By fully utilizing these assets, we will be able to provide new marketing solutions that our competitors cannot imitate. Please turn to the next page. Specifically, we will realize a new marketing solution that supports clients in an integrated manner from the funnel for acquiring new customers, such as awareness and interest to the funnel for boosting customers' loyalty such as purchase and CRM. And until now, we have captured awareness and interest by distributing display ads and search ads. From here on, in addition to this, we will provide solutions that commit to conversions such as purchases and repeat businesses, which is the ultimate goal of marketing such as marketing to encourage purchases using PayPay and CRM, using data accumulation and LINE official accounts. As a result, we will shift from one-to-many marketing to one-to-one marketing that provides personalized suggestions to each user. In addition to the online advertisement market, this alone means incorporating the sales promotion market, which we hope will lead to the expansion of our target market. Please go to the next page. Next, I will explain the short, medium- and long-term initiatives. The development of advertising systems and platforms is indispensable for new marketing solutions. First, in order to maximize advertising effectiveness, we will speed up the process of linking user IDs and company IDs on the premise of user consent. In the short term, we would like to achieve optimization of advertisement and improve the accuracy of delivery by neutrally distributing advertisements and integrating data collection systems. In the medium to long term, we would like to achieve both business and cost synergies by integrating reporting and ad serving systems. In the medium to long term, we would also like to integrate our sales organization. Next page, please. The management indicators and key KPIs for the Media business. We are aiming for double-digit growth in advertising sales revenue by maximizing existing advertising sales through integration synergies and expanding sales of sales promotion and CRM products. For Media business as a whole, we aim to achieve an adjusted EBITDA margin of 40% to 50%. Strategic investments will be made mainly to strengthen the advertising platform and system infrastructure and to acquire human talent. Next page, please. Next is the Commerce business. Next page, please. But first, I would like to talk about the market environment in the Commerce business. The EC merchandise market continues to expand year after year. And the base of the market has expanded further, especially in COVID-19 last year. It is expected that the use of EC will continue to expand between all ages, and we will not only enjoy the benefits of this expansion, but we'll also leverage synergies to drive our growth. While the EC market continues to expand, off-line purchases still account for the majority of purchases in Japan compared to other countries. Yahoo! Japan has already launched X Shopping, which allows customers to purchase inventory from physical stores online. By this, we will not only compete in the EC market but also expand the market by adding new value to purchasing behavior, thereby eliminating barrier between online, off-line. Next page, please. And from here, I will explain the specific initiatives. In the short time, we will expand our loyalty program to include LINE service to build a cross group company economic zone. In addition, we will link our LINE official accounts, which can create strong connections with users with each service. In addition, we will promote the strategy of linkage with physical stores and provision of new value that can only be realized by working together with LINE. As a result, we will be #1 in the 4 elements of lineup, ease of search, delivery and marketing and achieve our goal of becoming the #1 EC in Japan in the first half of 2020. Next page, please. Plans to integrate user loyalty program as a short-term initiative. As explained at the beginning of this report, by linking the 3 starting points, we will encourage cross use between services and further expand the economic affair. We would like to realize a world view where people can shop more economically and conveniently. Next, [ Page 2 ] please. As a mid- to long term initiative, we will develop and promote social EC, a new shopping experience that utilizes LINE's communication functions. And as a foothold, the Smart Stores project, which leverages NAVER's knowledge, is currently underway and plans to launch the service in the first half of this year that will support companies in everything from building EC site to maximizing sales. Other than that, group purchasing or communications will also be our focal point, and we would like to create a world where Social Gifts and Live Commerce will become the norm. We expect that it will take some time to create a market that is not yet widespread in Japan. But we would like to achieve medium to long-term growth while studying successful examples in Asia. Next, about efforts to integrate online and off-line. As already been announced, we are linking physical store inventories to online sites and are providing various purchase and pickup options. This effort will be further accelerated. In addition, we will implement My Price Initiative, a so-called dynamic pricing in which product prices fluctuate depending on the user, even when purchasing at physical stores. We would like to realize a convenient and stress-free shopping experience by fusing online and off-line and capture the off-line consumer market as well. Next page, please. This is on O2O. We will increase service transaction value, mainly in 3 areas: travel, dining and delivery. In addition to a wide range of traffic referral from group services, we will utilize LINE official accounts to attract customers and boost the reservations to differentiate ourselves from competitors by using Demae-Can, which is an equity method affiliate of LINE, we can enhance our last-mile service using the Demae-Can's delivery staff. Next page, please. Management indices and major KPIs of Commerce business. We aim to become #1 in transaction value in EC merchandise in the first half of 2020 by providing new shopping experiences through the linkage with physical stores and synergies with LINE. Strategic investment will be made with a focus on expanding and nurturing the customer base and strengthening logistics. Lastly, a strategic business, including Fintech and health care. Next page, please. Strategic business is a new business category for our group. Focusing on Fintech, we will create the third and the fourth revenue pillar following Media and Commerce. Fintech is at the core. We will start full-scale monetization by expanding to various financial services starting from payment. Next page, please. Pursuing the optimum from the user's point of view, discussions on integrating domestic QR/barcode payment with LINE Pay into PayPay is underway with the goal set for April 2022. However, it is subject to completing necessary procedures, including relevant registrations and approvals. Based on this premise, PayPay will be available from LINE wallet after the integration. Also, payment with LINE Pay will soon be enabled at merchants supporting PayPay user scan. Globally, we will continue to provide LINE Pay, which already has the largest share in Taiwan and other countries, aiming for further expansion in major Asian countries. The specific integration process will be announced once the details are decided. In addition to cost synergies, we will further expand usage by utilizing the user and merchant base developed by both services. Next page, please. Here's the size of the Japanese payment market. PayPay became the most popular smartphone payment in Japan, highly recognized across generations. However, cashless ratio is still less than 30% of the total domestic consumption, and QR code payment is only a fraction of the whole. On the other hand, the Japanese government set a goal of raising the domestic cashless ratio to 40% in June 2025 and 80% in the future. As a means to replace cash and as an industry leader in smartphone payments, we want to aggressively drive cashless market in Japan via PayPay. Next page, please. Using the increase of PayPay's payment transaction values as our springboard, we will start full-scale monetization of other financial services. We will participate in financial services markets such as borrow, increase and prepare that have high affinity with payments. As already announced, we are rebranding the financial subsidiaries and services currently under Z Holdings to PayPay. We will create a world that offers unparalleled convenience when financial services are provided through PayPay. This should lead to an increase in our market share of financial services. We want to nurture Fintech as our future profit engine. How do we plan to expand Fintech business? Expansion of financial services will be based on PayPay payment and EC transaction values. Given that, we will continue to promote scenario finance initiative that provides financial products that match the nature of each service. When providing various financial services, we will adopt a multi-partner model and not stay only within group companies. Taking the examples of banks, Japan Net Bank is working with Sumitomo Mitsui Financial Group and LINE Bank Preparatory Company is established with Mizuho Financial Group. In addition, as with Media and Commerce businesses, we will increase usage by continuously approaching users through LINE official accounts. Through such a service development scheme, we would like to nurture Fintech as a new revenue pillar following Media and Commerce businesses. Next page, please. Now health care, which is a strategic business besides Fintech. Under COVID-19, many people are wary of making doctor's appointments. Medical staff are indeed busy caring for corona patients, but hospitals are falling into deficit, putting some institutions in a very challenging situation. LINE Doctor provided by LINE Health provides a platform for offering online medical consultation at any time. With LINE Doctor, you can search clinics, make a reservation, get consultation and complete payment with just 1 smartphone. By driving Dx of the medical industry, we want to launch online medication guidance service within FY '21 and subsequently offer health management service. We want to realize a world that can be accommodated with a single platform -- excuse me, with a single smartphone. Next, management indices and major KPIs of strategic business. We aim for revenue growth of over 20% year-on-year, while continuing investment so that we can generate adjusted EBITDA of about JPY 100 billion in the future. Next page, please. Medium-term management index and financial strategy. Next page, please. As I have mentioned so far, the new holdings -- Z Holdings will be making aggressive strategic investments. For this reason, we plan to change our management index from operating income to EBITDA so that we can eliminate accounting effects as much as possible and evaluate our performance on a cash basis, taking into account the effects of our investment. Next page please. Midterm management index. We aim to achieve adjusted EBITDA of JPY 390 billion in FY 2023, which is equivalent to the existing medium-term target of JPY 225 billion in the operating income. Even after making strategic investments of JPY 500 billion over 5 years and the leverage -- net leverage ratio will be 2.5 to 3x with the aim of maintaining our credit rating. The -- we have been mentioning that we're going to be achieving the JPY 225 billion for operating income. And the acquisition of ZOZO and the business integration with LINE have not only increased the probability of achieving this -- the goal. But also made it possible to allocate the expected increase in profit to both strategic invests. In addition, we have set a new top line growth target to increase revenue from the current level of JPY 1.2 trillion to JPY 2 trillion by FY 2023. We will aim for top line growth while maintaining the trend of increasing adjusted EBITDA. Next page, please. Lastly, this is regarding the management structure, group management structure. Next page, please. Let me explain the group structure again. The Z Holdings will quickly formulate group strategies and optimize resource allocation while the companies under its control will be responsible for management execution. The holding -- A Holdings, a joint venture between SoftBank and NAVER, will be one of our shareholders and will also provide knowledge and expertise to both companies to help us create corporate value together. Next page, please. About new management structure, the number of directors have been increased from 9 to 10, of which 4 will be independent outside directors. And we will strive to maximize shareholder value by promoting management that is more transparent and well governed. I, Kawabe, as President and Co-CEO, will strongly lead the group's rapid decision-making. And Mr. Idezawa, a former LINE executive, will also work as a Co-CEO and will lead the rapid creation of synergies as Representative Director and Co-CEO. Mr. Shin, as Chief Product Officer, will lead product strategy at the product committee. In addition, I myself will make decisions with a sense of speed and responsibility while assessing the direction of the entire group. Next page, please. We will also continue to focus on ESG initiatives. From the DJSI and MSCI, which are external evaluation organization, we are receiving high evaluations. We aim to maintain this high evaluation. And we'd like to further solidify our position as a leading ESG stock issuer in the sector. In addition, I believe that the solution to environmental and social issues is what we need to focus on in our business integration. Japan has many challenges such as climate change, natural disasters, declining birth rate and aging population and lagging digital transformation. So we will fulfill our responsibility as one of the largest platformers in Japan and work vigorously to update Japan from a country with many issues to a country with advanced solutions. We will proactively develop and utilize data and AI as a way to solve these issues. Next page, please. Now this is about overseas development. We would like to expand our business from Japan and Asia to the rest of the world in the future. So in Taiwan and Indonesia, we have various #1 services. And based on that, we would like to develop our businesses too. And SoftBank Vision Bank -- SoftBank Vision Fund and NAVER liaison should be strengthened, and we will utilize our network to the fullest in order to develop our overseas businesses. Next page, please. Finally, this is again about the investment highlight. Up to now, we have created a series of highly convenient services that are only possible on the Internet, solving various problems in people's lives and provided more convenient and comfortable lives. Through this integration, we feel that the possibilities for a rich living environment and social development that we can realize through the power of information technology are unlimited. I would like to ask for you, your continued support as we work as one with all the employees who share this vision. With this, this concludes my presentation. Thank you very much for your time listening.

[Interpreted] Thank you very much, Mr. Kawabe. Now we would like to start the Q&A session. First question, SMBC Nikko Securities. Mr. Maeda, please?

[Interpreted] I am Maeda of SMBC Nikko Securities. I have 2 questions. So I should ask you 2 questions at a time?

[Interpreted] Yes, please ask those 2 questions together.

[Interpreted] First question is about AI. You plan to invest JPY 500 billion. And maybe you might be investing JPY 100 billion each year, times 5 years? Or are you going to increase each year? And I guess there will be a balance between different years. But I believe that there will be an increase each year. With the investment of JPY 500 billion for 5 years, will there be any negative impact on the profit? Is there any such a risk? Let's move on to the second question. So KPI will be changed from operating income to adjusted EBITDA. And I think that is a very correct strategic change. And from the investors' point of view, return to shareholders and also EBITDA and cash flow, how will they be interrelated? I believe that there will be much dilution through the business integration. And so we want to know how you are going to efficiently pursue shareholders' return. How are you going to balance EBITDA and shareholders' return as well as cash flow? There might be a risk of cash flow not going to the hands of the shareholders. So can you tell me about your view about the relationship between these parameters?

[Interpreted] Thank you for your question. Firstly, I will answer about AI and then the continuation of the first point and the financial [ fee ] answered by Mr. Sakaue. As we have stated, in terms of the investment amount, it will increase as year passes by. And as we have mentioned, we need to secure cash flow at the very beginning. And when we develop a new product, we need to define the specification and then allocate the resources. So at the very beginning, there will be the days in which we do not need much investment. So because of that reason, the investment will gradually grow and expand as years pass by. And in a 5 year time, we will be investing JPY 500 billion in total, but the overall picture will be incremental. Mr. Sakaue, please?

[Interpreted] About the amount of investment, as you've mentioned, instead of investing equally, there will be increase as time passes by. What will be the impact on profit in FY '21 and FY '22? We will be able to elaborate on that later on. But in terms of FY '23, our target is to have EBITDA of JPY 390 billion. And as we get close to 2023, we will try to explain to you the details as time becomes right. Second point about dilution. On EPS base, I understand that we are seeing dilution. And in FY '23, even though we achieved EBITDA target, I guess it is slightly shy of going back to the state before the dilution. In terms of VR, there will be accounting impact because of amortization. So when you look at EBITDA per share in FY '23, LINE issued more stocks. But we will be able to make up for that in FY '23. So needless to say, VR, not VR -- excuse me, EPS, I'm talking about EPS, must be recovered as soon as possible. And we will put our full pledged effort. Now about the relationship to shareholders' return. Regarding the dividend, we have fixed a dividend and we are going to maintain that level to some extent. And once we can generate more profit, how we are going to use that cash? Of course, we will conduct investment for growth rather than increasing the shareholders' return. But by doing so, the share price will go up, and that will positively impact the shareholders. That's all for me.

[Interpreted] Next from Nomura Securities, Mr. Nagao, please.

[Interpreted] This is Nagao from Nomura Securities. I have 2 questions. So the second question refers to numbers. And if possible, I would like to understand the revenue. And by each segment, I would like to know the EBITDA and JPY 390 billion per segment. It's about Media, Commerce and strategic business, I would like to know the details for each of them. And in addition, if possible, after the adjusted EBITDA of JPY 390 billion and the JPY 225 billion of the operating income, there is differences. Therefore, as you mentioned the differences, I would like to know which businesses is going to be referred to. And second question, it is about PayPay and LINE. After integrating the 2 companies, let us say the LINE Pay side, how much cost will be decreased as a synergy? I would like to just know the image, please. And for the strategic business in 2019 fiscal year, there was JPY 66 billion for a strategic investment. And this year, too, I think there's going to be a loss in that side, too. This is due to the integration, but how much cost synergies are you going to be going after all these procedures, please?

[Interpreted] Please wait for a few seconds. Thank you very much for waiting. So regarding your first question, I would like to explain the overall. This is Mr. Kawabe. And our CFO, Mr. Sakaue, is also going to be talking about #1 and #2. So whether it be top line or the adjusted EBITDA, the mainstay before the integration is media advertisement. The 2 companies who are strong in these 2 areas have integrated together. Therefore, advertisement is going to be the lead for the short-term synergy. And at the same time, the e-commerce -- the holdings have been strengthening this for a very long time and utilizing the LINE characteristics we have in starting the e-commerce as well. Therefore, the commerce revenue will also be on top. Those are the 2 contributors from hereon for the revenues. And within the 3 years' time, we're waiting for Fintech to grow for the revenues and profit, for operating income, too. How much contribution will be put from Fintech is going to be our challenge. That is the overall thinking. And now I hand over the microphone to our CFO.

[Interpreted] So I'm just talking about image about -- for the sales, JPY 2 trillion revenue, JPY 2 trillion. The Media, Commerce, there is 10% growth, is what we consider. And that is happening for Media and Commerce, too. And currently, I do not want to make a simple calculation, and we do not have an image that the ratio is going to be changing. And strategically, we have to look into the details. And here, we would like to grow more than 10% for strategic businesses. We consider that the portion or the ratio is going to be improved or higher. Regarding EBITDA, the overall understanding is the same. Media covers -- the growth rate is going to be -- or wanting to be within the same growth rate. And JPY 225 billion operating profit and EBITDA, JPY 390 billion difference is explained by images with Yahoo! and the LINE of the depreciation. Well, both companies are having the depreciation already. And these are about 2/3 of the differences within the gap of JPY 225 billion and JPY 390 billion, and the remainder is by integrating with LINE, we have to -- so it's related to [ Paypay ] and other side that we are going to be inheriting from LINE. And that is going to be coming out for cash and expense. So that is the difference. And for the second question, is the cost synergy with LINE. It is difficult for me to explain right now. Regarding fiscal year 2021, the LINE Pay and PayPay. We're now underway with the integration for the both payment. And last year, the cost for LINE Pay compared to that, we're going to be some decreases. But then the full-fledged cost synergy is going to be coming after this fiscal year. That is my understanding. Thank you.

[Interpreted] Let's move on to Goldman Sachs Securities. Mr. Munakata, please.

[Interpreted] This is Munakata of Goldman Sachs Securities. I have 2 questions on Commerce. First question, in the -- first in 2020s, you want to be #1 in the transaction value in EC. And you have a e-commerce initiatives, and you have Social Gift and those are loyal program integration and other measures that you have mentioned. And I want to know what will be the main drivers that will help you attain your goal? Let's move on to the second question, which is related to e-commerce. This is about logistics. Frankly speaking, I think that you are lagging behind in logistics as compared to competitors. And so I guess you cannot catch up overnight. And you want to be #1 in the delivery side logistics. So concretely speaking, what kind of position you want to obtain in logistics in terms of logistics? You want to be #1 in terms of volume? Or in customer satisfaction? And I want to know how much you factored in on the contribution from Demae-Can.

[Interpreted] Thank you very much for your question. I will respond to the first question, which is Kawabe. And complementary comments and answers to #2 will be provided by Mr. Ozawa. Firstly, in the first half of 2020, we want to be #1 in e-commerce. And how do we position ourselves? Right now, Yahoo!, PayPay e-commerce, we have a very large transaction volume. So we are going to have more lineups and provide with more appealing prices and ease of search and also logistics, other basic functions that we are going to further reinforce so that the function will be more readily usable. And therefore, the users will pick our service as the first choice. And we are going to accelerate transaction value and loyalty program will be one engine to realize that. We have PayPay STEP already. And a loyalty program will be integrated with LINE users. So LINE users will be able to leverage on our e-commerce functionality. So that's the basic strategy that we will uphold. And on top of that, we are going to maximize on the merits of LINE so that we can provide a magnificent shopping experience. And in the beginning of 2020, I believe that, that will contribute to the increase of transaction value. About shopping, we have new LINE SHOPPING and also we have current shopping experience, and we're going to realize X Shopping so that both online and off-line can be converged together. So far, we competed only in the domain of online. And -- but from here onward, we would like to expand our scope and encompass off-line as well. So in both online and off-line in totality, we want to be #1. And I want Mr. Ozawa to respond to the second question and add on to my comment on the first question.

[Interpreted] This is Ozawa speaking. About the first point, we have a traditional marketplace and mall business and YAHUOKU! and we have lead market. And LINE has many users. And by combining the loyalty program, we will be able to enjoy referrals. And on top of this, we're going to capture new markets and propose a new shopping experience. With the existence of LINE and Yahoo!, only Z Holdings can encompass real tangible stores as well. So when you go to the physical store, PayPay will be used. And also by using LINE's other functions, we can solicit them to use off-line. And so we can actually cater to both e-commerce as well as online stores ecosystem. And we have the platform. So in terms of messenger, if you want to give a gift to your friend, you can use the gift shopping mechanism, the so-called Social Gift so that you can provide birthday gifts to your friends once you get the message about the birthday on messenger. And so the traditional e-commerce will be stronger than ever before. And on top of that, we will come up with a unique value proposition using the mechanism of LINE. About the second point, there are 2 points to note about logistics. We have the ordinary delivery service and you purchase on e-commerce, and you can have the same-day delivery or the next-day delivery. And last year, we announced the partnership with Yamato, and we are going to pursue this partnership very aggressively. And we have the quick delivery. So in terms of food delivery, you can get your dish immediately. And Demae-can be used for e-commerce. And right now, we are conducting a discussion with them. And of course, Demae-Can is an independent listed company. And RPA wise, if 1 entity has to heavily invest, it does not make any sense. So we have to look into that matter. But in terms of within 30-minute delivery, it does not provide value only to food delivery, but to other areas of e-commerce as well. So we want to expand the scope of coverage as much as possible, and that's how we think. Once again, we have not really ironed out the details with Demae-Can yet. And so once the discussion comes full-fledged, we will be able to make some definitive announcement to you. Thank you.

[Interpreted] And now from Jefferies Securities. Mr. Sato, please -- excuse me, Ms. Sato.

[Interpreted] Can you hear me?

[Interpreted] Yes, we do.

[Interpreted] So I have 2 questions, too. This is very detailed. So LINE Pay for FY 2021 when integrated, I thought the integration will come the next year. If so, the LINE Pay cost is going to be reflected in the EC cost? That's one question. And the second question is, currently the PayPay is coming out on the chart on the lower part. And in the future, when it is going to be transferred to LINE Pay, 25% and 50%, it is about the holdings company of the SoftBank Group. So I would like to know about the understanding.

[Interpreted] Thank you very much for your question. And this is going to be answered by our CFO.

[Interpreted] Thank you very much, Ms. Sato. Regarding the first one, it is about strategic business. Within the strategic business, that's including payment included fee [indiscernible]. And for FY '21, it is going to be -- the LINE Pay is going to be reflected into the strategic business. And the second point. PayPay has other shareholders, too. Therefore, we're going to be consulting with them and to work out. Currently, there's nothing determined. Therefore, if there's any changes, we would like to make a reporting to you.

[Interpreted] Let's move on, Mitsubishi UFJ Morgan Stanley Securities. Araki-san, please.

[Interpreted] I am Araki of Mitsubishi UFJ. I have only 1 question. You mentioned about JPY 500 billion investment in 5 years on data and AI. And in terms of SG&A, what will be the item? Does it include HR cost? Or only the depreciation cost? And also in terms of sales promotion expense, are you considering it as an investment? So is sales promotion expense included in JPY 500 billion? Can you give me some ballpark figure?

[Interpreted] Thank you for your questions. So CFO, Mr. Sakaue will be responding to that question.

[Interpreted] So in 5 year time, cumulatively speaking, we will be developing new product. And we have to operate that new product, and that includes HR and also CapEx such as servers. And that's about 60% or 70% of the JPY 500 billion investment plan. And the rest is the development and product marketing i.e., promotional cost. So that's about 30% to 40% of the total investment plan that we have. We have to develop the product then operate it. And some will be under depreciation. But in our company's case, we depreciate usually in 5 year time. So in the next 5 years, in the first and second year, when the products are being developed, the depreciation will complete in the next 5 years. And of course, we have to develop a product at the very beginning, and that will be the initial cost that we have to incur. And that's what we plan for now.

[Interpreted] From Okasan Securities, Mr. Okumura, please.

[Interpreted] This is Okumura from Okasan Securities. Can you hear me?

[Interpreted] Yes.

[Interpreted] I have 2 questions. One is about Media business. So you're aiming double-digit growth year-on-year for the revenue. And when there is a difference of LINE and PayPay -- LINE and the Z Holdings for the advertisement Media business, I'd like to know the difference. And is it going to be showing effect soon, immediately? And regarding the second question, there could be some covered -- so overlapping businesses, and it is about the -- so it is about the prioritization or making some LINE comics -- to LINE comics, when are you going to be doing that? And for -- you have a smart project which is going to be a unique project -- or Smart Store, excuse me. And is that going to be related with Commerce too? That is -- or that is my 2 questions.

[Interpreted] So please hold on for a second. Thank you very much for waiting. Regarding the first point, this similar as the e-commerce story. So we have a traditional product of each other, and there's a big revenue out of them. Therefore, we can just share and refer traffic or else bundle to sell. Or else for traditional products, we would like to enlargen our profit and revenue. And the other expectation is related to what we have announced today, utilizing full funnel to work on the advertisement product. It's not only advertisement, but the sales promotion budget we would like to secure that, too. And in order to do that by providing a solution, have a double-digit growth in the Media business. And anything to add to that Mr. Idezawa?

[Interpreted] For the synergy for buy advertisement is what I would like to add. In the short term -- that was your question, too. So the sales coordination is very effective. And there are clients that both party could not be [ above ] covering. And bundling up the product is also something that we are about to start from hereafter. Therefore, I think there's going to be a great synergy. And in the mid to long run, as Mr. Kawabe mentioned, for the sales promotion area, PayPay, LINE and Yahoo! information, all these combined, we're going to be having an exclusive power product to be created. Therefore, I think we have area to grow there, too. And for the coordination for system and data, it is also going to show synergy for the mid to long term, too. Then, it's going to be pushing up the revenue, too. Therefore, the advertising synergy is something that we look very highly into.

[Interpreted] And regarding the second point, so LINE Manga and value commerce and smart project -- Smart Store Project is what I have been mentioning. And for LINE Manga, as announced, there is no changes to the capital structure. And Smart Store Project, the Z Holdings and the Yahoo! LINE, the integrated 2 companies and the parent companies, A Holding and NAVER, who is a stockholder, this is the project among these people. And therefore, regarding the value, we are not discussing to this point yet. Especially for the value commerce synergy, we might be looking into this in the future. But then currently, at this point, we are not discussing that right now. So that was my answer.

[Interpreted] Let's move on. Ace Research Institute, Sawada-san, please.

[Interpreted] I am Sawada of Ace Research Institute. I have 2 questions. First question, LINE and Yahoo! conducted business integration, and I understand that appealing services will be launched. And I want to know how you're going to communicate that to users. Its services, which are large, will be integrated. And I think that this will be very impactful amongst the users. In the media briefing, you mentioned that you are going to emphasize the ease of comprehension, understandability of the new services. And I want to know how you're going to communicate the nature of the new services to the users so that they will understand what are the appealing points. The next question, is there any possibility of launching hardware? GAFA are working on their unique hardware and Apple are actually generating profit from hardware as well. And in Japan, LINE is the entity that succeeded in going abroad. And so if you're going to combine hardware and software, well, you have Komatsu and Nintendo who are being successful in the global arena. So that as a backdrop, I want to know whether you have any plan to handle hardware in the future.

[Interpreted] Thank you very much for your question. First question, ease of understanding and communication to facilitate that is very important. So IR, we conduct business explanations. But for users, we want to cater to the emotional aspect rather. For example, we have LINE message and please enter LINE and enter some message. And if you enter Yahoo! and then you will see characters of Yahoo! at LINE. And also, if you go to top page of LINE -- or rather Yahoo! PC left-hand side, you will see LINE Music and also in LINE content list, you will see Yahoo! Travel. Or we have the mast head, and we are going to have each of those characters appear. And so we touch the day-to-day living of people. So we want to touch base using those venues. So it's not a press conference. But rather, we want to communicate via the channel that is being used by the consumers on a day-to-day basis. So Yahoo! top page, we come up with ingenuity every day. And LINE is the entity that come up with the ideal stem. So they're good with the communication. So we're going to have traffic referral. And also, we're going to come up with only one unique service together, and we have more than 80 million users. And we want to aggressively communicate the nature of the new services to those people. Let's move on to the second point. This is my personal thought, but the software is very important to provide new update and services. But when you think about the real innovation, it tends to be generated from hardware, and [ iPoint ] is 1 such example and also automatic vehicle will be another innovation based on hardware. And so I personally feel that we want to be committed in hardware innovation. But then that does not mean that Z Holdings will be building hardware. So it will be us providing software to the hardware being manufactured by a third party. For example, we had EV of autonomous vehicle. And what can be done through that hardware, there will be new services on that platform. But in reality, you can use LINE and Yahoo! and you can watch LINE live video. So we want to launch the existing and also new services on the platform such as autonomous vehicle so that we will be able to commit to the new emerging hardware. And that is my thought point now. And of course, there is no crystal ball to read the future.

[Interpreted] Next from Mizuho Securities. Mr. Kishimoto, please.

[Interpreted] This is Kishimoto from Mizuho Securities. Can you hear me?

[Interpreted] Yes.

[Interpreted] So I would like to refer to the material, Page 13. So I really feel high potential for this Internet advertising market and the sales promotion market. And for the sales promotion market or the capability, I thought that there is some area that is difficult to capture. So how are you going to be covering this area? Or are you going to be having a new capability? Are you going to be going through a new acquisition -- merger and acquisition? So how are you going to be capturing this promotion -- sales promotion market? Are you okay sufficient, currently? Or else are you going to be acquiring any other company? That is one only question for myself.

[Interpreted] Thank you very much for your question. This will be full funnel advertisement marketing market. Within the Media segment, this is the area where we really want to focus on. So acquiring new capability was your question. And regarding the sales, the budget is coming from the manufacturers and the retailers is supporting our budget. And regarding this, the PayPay sales unit and LINE OA, the users who are utilizing this LINE Official Account, OA, we are able to reach them out. Therefore, the capability of the current organization, I think, we can cover the area for the new market. But of course, in order to accelerate, there could be some better solution, new solutions or new unit to work. Maybe such ideation could come in the future. But then so far today, I think we can cover with today's capability. And at the same time, we are thinking that we are unapproachable from other companies. Therefore, we would like to maintain our originality. Thank you very much.

[Interpreted] If so, so you are already within the boundary that nobody would be able to imitate yourselves. So you think you can have a very high ratio of winning?

[Interpreted] Yes, that is our understanding. And that is why we would like to focus in this core area. Thank you very much.

[Interpreted] Let's move on, JPMorgan Securities. Ms. Mori, please.

[Interpreted] I have 2 questions. Upon business integration, you came out with EBITDA goal. And you talked about growth based on integration. But can you talk about cost synergy? Regarding LINE Pay, you mentioned about integration. Going forward, I believe that you will be consolidating different contents. So regarding SG&A and also development cost, did you factor that in, in coming up with the EBITDA? The goal is JPY 390 billion and if everything goes well and if the revenue exceeds your goal, are you going to use that extra cash for other investments? Second question is on Commerce business. So Mr. Sakaue mentioned that 10% is the growth that you are aiming for operating income. And you want to have #1 GMV, if all the e-commerce transaction value. And I guess you need to grow more in GMV. So it seems that there's a gap between -- in the revenue and GMV. And based on your briefing today, what is your thought on improving GMV?

[Interpreted] Please give us a few minutes. Thank you for waiting us. So I will answer #1 and 2, first. And then Mr. Sakaue, our CFO, will add on to my comments. Firstly, about cost synergy. Once we can enjoy cost synergy, are we going to use that surplus for profit or for further investment? For services, we have user-first policy. We had media briefing, and there was a question of whether LINE news and Yahoo! News will be consolidated. And regarding these 2, the user profile is very different. And also the top page -- while LINE news and Yahoo! News are very popular, so there is no point in consolidating them. But nonetheless, there are 200-some services so -- in the committee, and based on Mr. Shin, our CPO, we will try to identify how we are going to streamline the current services. Maybe we might just leave some services as they are now or maybe we might consolidate the duplicated services. So regarding QR code, PayPay and LINE will be consolidated going forward. And that means that we will have less resources to handle this business. So in terms of our manpower, since we are trying different waters, so maybe one service will be eliminated. But that person who was involved in that eliminated service will be relocated to another team. So human -- talent-wise, there will not be much reduction. But in terms of promotional cost, there is a possibility that there will be reduction or maybe we can streamline the promotional fee. And are we going to consider that as profit or reinvest? It all depends on future cash flow. But as mentioned in our briefing today, we would like to use the surplus for mid- to long-term investment, i.e., JPY 500 billion for 5 year in AI so that we will be able to have a positive snowball impact of further growing the surplus in the future. But of course, we will keep the financial discipline at the same time. So we are going to strike a balance between the financial discipline that we will position ourselves in. About our Commerce business, Mr. Sakaue will talk in addition to the -- addition to my prior comment.

[Interpreted] Regarding point number one, there is no other addition. Let's move on to the second question. Regarding Commerce revenue and profit, I talked about revenues. So as for B2B and travel, service EC are included. But service, the growth rate is different. Having said that, another KPI, which is important for e-commerce merchandise, we want to further grow as compared to other intangible services so that we can be #1. We want to realize 2-digit growth, and when time is right, we want to do better than the ordinary 2-digit growth. How are we going to evolve our e-commerce merchandise? We have to think about the environment, whether it is right to grow GMV. Or right now, we are in the pandemic and at the very beginning, we were not able to increase the awareness of Yahoo! Shopping. So for now, we have to redefine the logistics area so that once we have the stable backdrop, we will be able to step up our activities to increase the merchandise transaction value. So regarding the merchandise, we will give you the details when time is right. Thank you.

[Interpreted] Macquarie Securities, Mr. Han Joon Kim, please.

Great. If I may ask my questions in English, 2 questions. The first one, if I look at LINE's existing growth rate in ads and Yahoo! Japan's existing growth in ads, if I just add them together, we would have had double-digit growth and resume the 40% to 50% margins we've been talking about. So at the current juncture, I don't feel like there's a lot of synergy embedded in that guidance expectation. So if you can kind of help us understand how this -- how the merger is actually creating synergy on the advertising side, that will be good to understand. The second question is when I look through many of the initiatives that you've talked about, whether it's trying to focus on direct sales -- integration of ad tech or smart store integration and Fintech services and so forth or logistics investments, I feel like all of these, you could have done without the merger. So could you just help contextualize through these initiatives, how we see the benefit that could have existed above and beyond if Z Holdings decided to do it by yourself, all these initiatives before or without the merger?

[Interpreted] Thank you very much. Please give us a few minutes. Thank you very much for waiting. So the first question will be answered by Mr. Sakaue. And the second question will be answered by myself. So first question, Mr. Sakaue, please.

[Interpreted] We factored in the synergy to some extent. And this is the management KPI that factors in the synergy to some extent. We have search advertisement and display advertisement of Yahoo! But looking at the recent situation, it's quite difficult to attain 2-digit growth. But with the integration with LINE, we can have the sales promotional initiatives and enjoy synergy. So the integration will enable us to embrace the synergy impact and attain 2-digit growth for media and advertisement and EBITDA margin factored in that already. That's the answer for the first question.

[Interpreted] Moving on to the second question. And the story is the reverse of what Mr. Sakaue mentioned. So LINE has not actually leveraged on e-commerce that much, only in the level of [ opportunity ]. But LINE actually is strong in communication between people. So they could have worked in e-commerce. On the other hand, Yahoo! has solidified its position in e-commerce. So we have the know-how and we have the merchant network, and we have the logistics mechanism. And so we are going to provide this know-how to LINE and cater to LINE users as well. So social e-commerce can be created through partnerships. And I believe that Yahoo! can provide know-how to LINE because we integrate it. Talking about Smart Store Project, NAVER is very successful in Korea, and we are going to use that platform. And is only a partnership contract suffice? No, because we have to cater to SMEs, and it takes a long time to realize this. And just because we conducted the business integration, we can have a long-term stance in working on this matter. So regarding advertising, the synergy is from LINE to Yahoo! and e-commerce synergy will flow from Yahoo! to LINE direction. And positive impacts can be realized only because we were able to conduct business integration. So growth rate, maybe you might not be satisfied with what we have indicated today. But going forward, we are going to iron out the details and come up with new numbers. Because of Fair Trade Commission and also gun jumping prohibition and also, we cannot have any sharing of information under TOB. So those were the constraints that we had to work up until today. But from today onward, there will be no restraint whatsoever. So we will be able to exchange information more freely and actively working on the positive synergy that we can realize together. So that's all for me.

[Interpreted] And next, from Citigroup Securities, Mr. Tsuruo, please.

[Interpreted] This is Tsuruo from Citigroup Securities. First question, so JPY 500 billion investment. And when the profit comes then, the profit is going to be turned to investment, as what you have mentioned. And the benefit of the integration I was hoping that it will be coming back to the shareholders. And now my question, so within the JPY 500 billion, is it very needed? So are you going to be investing all your profit that you create because there is going to be some competition pressure? And what is your feeling? I would like to know. And second question regarding Fintech business, you said that you would like to create a JPY 100 billion EBITDA someday in the future. And I would like to be more concrete on this. I would like to know the timing, when it is going to be coming? Because it's going to be impacting the share prices of your company. And therefore, if any clues to be specific, I would like to know, please.

[Interpreted] Thank you very much for your question. For the first point regarding our investment -- but first of all looking at our future, the R&D expenses compared to GAFA and [ BAG ] even if we invest JPY 500 billion, we have a different gap from the giant from 1 digit. Therefore, I honestly think that we have to do more investment. But then it's not a national budget. Therefore, we're not aiming to utilize and invest everything, that we have to utilize all our budget like the government. And so according to the nature of our needs, we would like to be flexible about being in the budget. But then compared to GAFA, I think we need to have more investment. That's my honest feeling. And for your second issue regarding Fintech, how are you going to be understanding the growth of the Fintech business? There's 2 to mention. One is about PayPay. So how much foundation will PayPay be in order to call in the Fintech business? And the second point is utilize LINE or Yahoo! or create a scenario of finance and how much these platforms are going to be used. So I would like you to follow the progress. For the foundation of PayPay, there is 3,500 -- sorry, 35 million to 40 million users in PayPay. And when the payment is going to be steady or not, that's going to be the key point that you should like to observe. And the second point, honestly speaking, I would like the users to utilize the service. And they are the foundation of PayPay, LINE and others. And when these platforms are usable for Fintech products, then it will mean that the experience is good for the users. So that's going to be the benchmark. Within the business portion, the borrowing or repayment or having loans from the banks or the financial institutions and the revolvement payment for the credit cards in the short term, when the numbers are going to be growing in those area, then in the final end, Fintech is going to be contributing to the profit. So that's going to be the signal of the Fintech growth. So the investment for increasing money, those are the scenarios we would like to focus too. But then the largest part is the revolvement payment or payment later on, deferred payment. So I would like you to observe this area. And we would like to look into an opportunity where we can disclose these information. Thank you very much, and that was my answer.

[Interpreted] So I would like to follow-up. So for the JPY 500 billion. Within this JPY 500 billion, is it including logistics? And the second point for Fintech. You mentioned about JPY 100 billion and you're concrete on that, but is it -- are we going to be having to wait for 10 years for the EBITDA? Or we don't have to be waiting for so long?

[Interpreted] So for first point, the logistics that we are considered, this is factored in within the investment. For the second point, after 10 years, I think I'm very confident that Fintech is growing largely. But then even before that milestone, we would like to show a business result. And for PayPay's foundation, it's already grown in the past 2 to 3 years. Therefore, I think we're going to be having a concrete result even without waiting for 10 years. Thank you very much.

[Interpreted] Let's move on. So Nagao-san of Nomura Securities, please.

[Interpreted] I have one quick question, it's about EPS. So Mr. Sakaue mentioned about EPS, and you want to bring it back to the current level. So I guess that you need to generate profit from PayPay in order to return the EPS level. LINE Pay regarding the barcode, 2.54% will be -- is the charge as of August and PayPay is from October. And you did not actually mention about the percentage of the fee. And I guess if the fee percentage is different between PayPay and LINE Pay, that doesn't sit well. And so I want to know what will be PayPay's fee ratio come October?

[Interpreted] Thank you for your question. After October regarding PayPay fee, it's not decided yet. So if anything is decided, we will conduct announcement on a timely basis. Thank you.

[Interpreted] From Jefferies Securities, Ms. Sato, please.

[Interpreted] This is Sato from Jefferies. This is a very simple question from Tokyo securities. When your category is going to be different, are you going to be qualified?

[Interpreted] Thank you very much for that question. For the Tokyo securities exchange, we are going to be monitoring closely of their consideration and how they are thinking. So specifically, when they fix their understanding, we would like to speak with our parent company, [ VA Holdings ]. Anything to add Mr. Sakaue?

[Interpreted] So starting June to summer, the prime market criteria after closing, our stockholders' listing will be shown. Therefore, including the capital policy, we would like to think -- and if anything is fixated, we would like to report to you. So this is a business handling cash and money. So I think the Tokyo Stock Exchange will be very fixated on the prime.

[Interpreted] This is Kawabe. The CEO is the first person, the priority person, to make decision. Therefore, for detailed condition and looking at the number of stocks, we will make the appropriate adjustment to make a disclosure. Thank you very much.

[Interpreted] It is about time to close the session. We would like to end the Q&A session now. Lastly, we would like to hear by Mr. Kawabe.

[Interpreted] Thank you very much for staying with us late in the evening. And I know that you have waited for the business integration. And after 16 months, we were able to provide you with a briefing. So as step 1, we are disclosing to you the strategy that we have discussed already. And going forward, we will conduct more discussions so that strategies will be more tangible and concrete. And we will have the performance report for FY 2020. And then afterwards will be the meetings and IRs. And using those venues, I would like to give you more solid information about what we are planning to do. We had advertisement in the morning newspaper. And we definitively want to make this integration a success and go through a PMI so that we can further expand our business. So Mr. Idezawa, Co-CEO, and myself, we will be responsible in bringing into fruition our vision. Thank you very much for joining this session tonight. Mr. Idezawa, do you have any comments?

[Interpreted] Thank you very much for participating in this briefing. As mentioned by Mr. Kawabe, we will be united so that we can tackle new challenges and move forward. Thank you very much. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]