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Earnings Transcript for 4689.T - Q4 Fiscal Year 2022

Kentaro Kawabe: I am Kentaro Kawabe from Z Holdings. Thank you very much for taking time out of your busy schedule today to join our Full Year and Q4 Business Results Meeting. Today I'll explain our business results for fiscal 2021 and our management policy for fiscal 2022. Please turn to the next slide. First are the topics of the full year results. Revenue was JPY 1.567 trillion and adjusted EBITDA was JPY 331.4 billion, both reaching record highs. I'll give a summary of FY 2021 and talk about the areas of focus for fiscal 2022 later in the presentation. In addition, in celebration of first year of integration of LINE, we announced today a commemorative dividend in addition to the regular dividend. Please turn to the next slide. This is a summary of fiscal 2021. The entire group has been working on reinforcing data governance as a top priority, as well as promoting PMI for business integration. We view the year as one in which we were able to implement a variety of measures, including achieving JPY 10 billion worth of cost synergies and promoting organizational and business restructuring. In addition to the promotion of PMI steady growth in each business segment and improvement in investment discipline resulted in record consolidated results for the company. By segment both Yahoo! JAPAN and LINE Ads performed well in the media business. In particular Yahoo! JAPAN Advertising achieved double-digit growth for the first time since fiscal 2013. In addition, collaboration between the two has progressed with Yahoo! JAPAN beginning to distribute advertisements on the LINE NEWS section from October last year. Moreover, sales collaboration for top-tier customers has been promoted and Yahoo! JAPAN, LINE and SoftBank have jointly started selling advertising package products. In the commerce business the reuse business grew significantly, achieving the highest growth since fiscal 2013. In addition cross-selling of LINE official accounts to merchants of Yahoo! JAPAN Shopping and PayPay mall is progressing steadily and the number of registering friend users has grown significantly. In addition, services that competitors cannot imitate such as LINE GIFT and Yahoo! Mart are expanding steadily as well. In the Strategic business PayPay GMV has grown dramatically reaching JPY 5.4 trillion for the full year. We also launched PayPay Card in December last year and PayPay Atobarai in February this year. The cumulative total number of users registered for Atobarai exceeded 1 million in the first three months after the launch of the service. Please turn to the next slide. This shows our consolidated business results for FY 2021. In Q4 the advertising businesses of Yahoo! JAPAN and LINE performed well and adjusted EBITDA of the media business increased approximately 64%, making it a segment that grew significantly due to the effect of the business integration with LINE. In the Commerce business, earnings declined due to investment for new shopping experiences utilizing LINE, but Shopping GMV grew steadily. In Fintech, although the release of PayPay Card and PayPay Atobarai were delayed from the initial forecast revenue in fintech reached levels close to the revised guidance. Please turn to the next slide. From here on, I will talk about the points shown here in order. Please turn to the next slide. First is full year business results for the company. Please turn to the next slide. Consolidated revenue and earnings increased for the full year, with revenue recording a high growth of 30% year-on-year due to the effect of the integration with LINE and solid growth in the advertising business. Please turn to the next slide. This slide shows LINE'S consolidated business results. Growth was driven by the advertising business and full year revenue exceeded JPY 300 billion for the first time. In addition, profitability improved due to improved investment discipline and the company achieved operating profitability for the full year excluding onetime gains. Next page please. This slide shows Yahoo! JAPAN advertising revenue. Full year revenue was JPY 392.6 billion, up 11% year-on-year. We achieved double-digit growth for the first time since fiscal 2013, by capturing the recovery of demand in the market as a whole, and improving our products, including the shift to a single platform. In particular, search ads achieved double-digit growth for the first time in three fiscal years, thanks in part to ongoing UI improvements. Please turn to the next slide. This slide shows LINE's advertising revenue. Full year revenue was JPY 188.9 billion, up by 25% year-on-year, recording high growth for the second consecutive year. Display ads achieved 33.7% growth year-on-year due to round-the-clock display of ads in chat lists, the introduction of new products and the expansion of advertisers. Account ads grew by 17.5% year-on-year, recording double-digit growth for the first time in three fiscal years, mainly due to a steady increase in the number of accounts opened. Next slide please. This slide shows the results of e-commerce transaction value. Although, the hurdle to surpassing the previous year's level was high due to the consumption tax hike in the previous fiscal year and last minute demand near the end of the government's cashless initiative, e-commerce transaction value achieved double-digit growth, reaching approximately JPY 3.6 trillion, up 10.9% year-on-year due to the integration with LINE and other factors. Please turn to the next slide. This slide shows the results for merchandise transaction value. Shopping business transaction value was approximately JPY1.7 trillion, up 13% year-on-year, mainly due to the utilization of group assets. The Reuse business also achieved the highest growth ever, since fiscal 2013 due to spend per YAHUOKU! user and expansion of PayPay free market. This slide shows the major KPIs of payment and financial business. The full year GMV of payment PayPay grew to JPY5.4 trillion level. Number of registered users exceeded 47 million as of April. So in the Japanese QR barcode payment market, we have built a solid position. As for cards and the bank business, we changed the trade name to PayPay Card and PayPay Bank. We would enhance the collaboration with PayPay for further growth. Lastly, let me talk about the major KPIs of the LINE financial business. In Japan centering around LINE Securities and LINE Pocket Money, we are trying to tap into the potential financial needs through LINE and expanding steadily. As for overseas, we are offering the financial instruments which meet the needs of the local users and growing steadily. In Taiwan, under LINE Bank, we have increased the users up to 1.1 million, since the launch of the service one year ago. And 75% of the users are in the 20s and up to 39 years old. We are increasing the customer in contact with the digital-native generation, enhancing the LINE's strength and providing the convenient innovative financial service. Next page shows the focus area. Talking about the strategic investment and business results forecast. There are three focus area
Operator: So the first question is from SMBC Nikko Securities. Mr. Maeda over to you.
Eiji Maeda: Hello. Thank you for taking my question. I have two questions then. The first one for FY 2022 and strategic investments of JPY50 billion you gave out the breakdown regarding which areas you're going to invest into by segment. Can you give us more flavor on that? Is it going to be investing into sales promotions, or is it going to be CapEx related or personnel related investments? So the way you're going to be making the investments is what I would like to learn about. That's my first question. Secondly for the equity accounted gains and losses, it went down somewhat in Q4 but can you give me the details of that? And in Q3, I asked about this and you weren't able to answer this but for the equity accounted gains and losses, how far can you tolerate the losses and up until when? What will be the time horizon? And what, kind of, investment losses are you tolerating is another area I am interested to learn about? Thank you.
Kentaro Kawabe: Thank you for your question. So our CFO, Mr. Sakaue will take that question.
Ryosuke Sakaue: So first of all for strategic investments in fiscal 2022, by segment for Media, approximately 20% of the total is being -- going to be allocated. Details would be areas that we would like to put emphasis on is official accounts and stock-based marketing or development of new advertisement products, as well as hiring salespeople. So those are some things we have on mind. So for Media, personnel costs as well as R&D related investments are going to be made. That's the nature of that. So secondly for commerce. For -- we would like to leverage the assets of Z Holdings in order to proceed into new e-commerce areas. So that's -- those are the areas that we would like to invest into. So LINE GIFT already has been starting to expand, but quick commerce would be another area. And Taiwan and Thailand where LINE has strengthened, e-commerce is an area that we would like to put emphasis on as well as EC and sales promotion. So we -- especially for gifting overseas EC, we are -- we would like to acquire new customers. So sales promotion of related investments are what we are thinking about. So finally for the last segment strategic. More than half of the total of investments going to strategic is going to be for the acquisition of PayPay cardholders. We are currently offering benefits worth ¥7,000 if they sign up. So it's mainly going to be sales promotional costs that we're going to be investing in. So for your second question about equity accounted gains and losses. In the appendix, this time around if you refer to page 4, we have been showing a breakdown in detail. So please refer to that page. Around the question around until when we can tolerate the losses, as a company we haven't set a hard goal. However, whether it be PayPay or at Demae-can, they are both currently on a growth trajectory. So when you just simply look at the losses it looks like they are contributing to losses. However, when you think about corporate value and the future prospect of growth, we believe it's quite substantial. So we would like to look at the balance between the two. So if it's a certain level of losses, we would like to tolerate that. Especially for Demae-can, because of IPO-related affairs, we would like to look at the valuations that they are able to get from the market as well. So those were my responses to your two questions. Thank you very much.
Operator: Thank you very much. Next from Mitsubishi UFJ Morgan Securities, we have Araki-san.
Masato Araki: Yes. This is Araki speaking. Can you hear me?
Kentaro Kawabe: Yes.
Masato Araki: I have two questions about the LINE ads. In Q3 and Q4 it's down. So I'd like to know the reasons for that. Probably through the integration with Yahoo! distribution of the new -- to the LINE News increased or started. So did the revenue shift to the Yahoo! or display ads in Q3, Q4? It's down from ¥23.9 billion from ¥28.6 billion. So could you tell us the background and also the question in relation to the LINE NEWS? Second question is a detailed question about the commerce business others. In Q3 and Q4, I think it's up by more than ¥4 billion from ¥33.9 billion to ¥38.4 million. Was there any onetime revenue in Q4? Could you give us the breakdown of this increase?
Kentaro Kawabe: Mr. Araki, thank you for your questions. Yes you did ask a question on the details. So from IR, we would like to respond to you as soon as possible. Is that agreeable?
Masato Araki: Okay. Then, I have another question. This is a major question that I have. So previously about the ID linkage you talked about that, so between Yahoo! and LINE. So that cost of linking the ID, is that something that you explained in any of the presentation materials? And what would be the size of the cost? I think it would be linked based on the phone number, so any additional comments or explanation that you can give us?
Kentaro Kawabe: Yes. It's not the integration it's linking the ID. So that's what we plan to do, Yahoo! ID and LINE ID which will be linked with each other. And by doing so, we can link the services and data so that we can have more synergies. Last, -- in the last fiscal year we started to prepare for this. And this fiscal year, we'll continue to prepare. And we want to execute this or implement this as soon as possible. And at the same time, we have to consider security matter and the prediction of the personal information. We need to test and system -- we have to do the thorough system development, and that's what we are doing. So as of now, I cannot say specifically when we can execute this. So even if we start the ID linkage, there are tens of millions of the users, so we won't be able to link them right away. We need to provide the incentives, so that the users will be willing to link. So we have to be very persistent in encouraging the users to do so. So T Point ID and Yahoo! ID we do have experience of linking them. It took us several years to integrate tens of millions of the users. So we have to be patient to increase the number of the linked IDs. So that's what we plan to do. I hope you understand that.
Masato Araki: Yes. Thank you. Another question, so sales promotion and the personnel cost you spend a lot in Q4. So sales promotion, ¥51.8 billion and ¥33.9 billion for Q4, in the shopping business and transaction it's 10% Y-o-Y. So it doesn't appear to be increasing that much. So when you spend more in the sales promotion, what would be the most obvious KPI? In which business did you spend the most?
Ryosuke Sakaue: Yes. This is Sakaue CFO speaking. Yes. But the sales promotion until now, rather than Yahoo! Shopping, it's a new commerce. So LINE Gift is where we enhance the promotion. So therefore the total impact on GMV that is something that we need to see, but in terms of gift throughout FY 2022 GMV tripled or more and the users -- cumulative number of users in the past year. Last year it was 12 million or 13 million. And it's now 24 million. So the cumulative number has more than doubled. So steadily, we are building the foundation of the LINE GIFT. So that's how we spend our investment money.
Kentaro Kawabe: Thank you very much. So go back to your questions the first question the second question. If I may briefly answer to your questions, LINE advertising, yes, the LINE Ads Q3 is usually a peak. Yahoo! conventionally Q4 was the peak towards the end of the year. But so -- excuse me through the end of the fiscal year. The LINE comes at the end of the year. So the -- because of the mix of the businesses for the LINE cosmetics and e-commerce it's more linked to the e-commerce increase at the end of the year. So Q-on-Q change or the increase is different from what is happening with Yahoo!. So LINE GIFT related whether the sales were taken by that that is not the case. To your second question as for the others, other revenue any -- there was no particular addition. But ASKUL there is a difference of the accounting. January to March there was a big growth. So especially in the B2B area, order was very strong for ASKUL. So that was the reason behind our growth. And the state of emergency and quasi state of emergency depending on the cases there were a lot of fluctuations for ASKUL. That was the background. And those are the answers that I can give you. If you need further details IR can follow-up.
Masato Araki: Well to your first answer I understand about account ads Q3, Q4, Q3 peaking and during the holiday season, yes you have a lot of campaign. But last year display ads Q3, Q4 were up. So, if you say seasonality this time it's down. So last year's Q4 -- Q3 Q4 probably were special? If you say that I don't really understand it. Because display ad usually Q4 is strong.
Kentaro Kawabe: Well concerning that in comparison to last year last year, Talk Head View gradually, we increased the inventory to launch the new products. So, it's a mixture of those, so difficult to say. So maybe Idezawa-san can talk about the seasonal trends of line?
Takeshi Idezawa: Yes. As you pointed out, Q4 year-on-year growth. But Q-on-Q it's down as you pointed out. So in that sense, the impression or inventory the display expansion or what we saw so compared to the previous year the growth was limited. And that was more vulnerable to the seasonality. So unlike Yahoo! October-December the ad posting, a display ad increases. So that has been the past trend. So that's -- those are the background.
Masato Araki: Thank you very much.
Operator: Thank you. Next is from JPMorgan Securities Ms. Mori over to you.
Haruka Mori: Thank you. I also have two questions. Both is associated with your guidance. First is, regarding the Media business and for advertising, revenue and earnings and the way you're looking at the range in your forecast. So you look at pre-integration Z Holdings and LINE. How did you come up with this range? Can you give us more flavor on that? In addition to that for adjusted EBITDA regardless of fluctuation in revenue it seems to only have one single target. Does that mean because you want to invest by a certain extent it's not going to be affected by a fluctuation of revenue? That's my first question? Secondly is about the Commerce business. If it's possible for the Shopping business and your expectations for transaction value this year, can you divide it into Shopping and Reuse and the range you're anticipating, as well as the external environment? The economy is heading towards a reopening. So, what is your view? That's all for my questions? Thank you.
Kentaro Kawabe: So first of all, Mr. Sakaue our CFO will respond to your first question.
Ryosuke Sakaue: So regarding the Media business and the range, we have in our guidance like last year at the beginning of the year, we are not able to give a narrow range and that is why we have this kind of breadth in our estimates. Of course, as a company we would like to try to reach the upper end as much as possible. But at this point in time, we hope that we could reach somewhere between this range. Whether it be Yahoo! or LINE, we have been able to grow both of the businesses steadily last fiscal year. So, the starting point is rather high. So, growth rates on a relative basis compared to the results from fiscal year 2021 guidance is relatively moderate. For EBITDA as you earlier pointed out, we will be investing into product development and this will lead to medium to long-term product development for the Media business. So for EBITDA we're expecting -- we have put together guidance that is at the lower range in this target. So that's my answer for your first question. For Shopping and YAHUOKU! expectations, we would like to withhold breakdowns of guidance. But from this time around we have been giving out guidance on an e-commerce wide basis because of Yahoo! Mart, as well as NFT businesses. These types of new areas of business are something we would like to leverage to grow the Commerce business overall through cross use. That's why we're only giving out guidance for the Commerce business this time around. But for results of course like we have been doing from the past it's going to be broken down into Reuse as well as Shopping. This will be ongoing.
Unidentified Company Representative: Regarding the reopening of the economy and external environment Mr. Kawabe will respond to your question.
Kentaro Kawabe: Yes. Post-COVID or after the reopening of the economy it has been close to three years that we have been experiencing COVID and e-commerce grew in a different way. So it's been several years. So, we believe that the usage trends have now turned into a routine by the users. And also relatedly, Japan has been hit by the wave of digitalization. So the e-commerce ratio, I believe even after the economy resumes, will not slow down. Rather, I think it's going to move upwards, not only from merchandising -- merchandise e-commerce but for services e-commerce. Now people will start to travel again as well as go out to dine again. So include Yahoo! Travel in our case maybe promising numbers-wise in the future. So that's our view after the reopening. That's all for me.
Haruka Mori: Thank you. If I'm able to ask a follow-up question. For the Media business, the lower end of your guidance seems to be extremely conservative. As the market continues to recover, are there any company-specific reasons why you are estimating this kind of conservative guidance at the lower end? And for Commerce, I'm sure it's hard to come up with a range. But for the new areas of business that you will be engaging in can you give us an update on where you are? And can you give us a bullish scenario and a bearish scenario for this fiscal year, if possible?
Kentaro Kawabe: So for the first question and your follow-up question Mr. Sakaue will take your question. And for the second question Mr. Ozawa will give you an image of our thought process.
Ryosuke Sakaue: So, for the first question company-specific negative apprehensions are not the case for the Media business. It's just because the hurdle from the previous year is high and we are not able to put together a good prediction yet. That is why the range is quite wide. That's all.
Kentaro Kawabe: And for the second follow-up question, Mr. Ozawa will take that question.
Takao Ozawa: Hello. This is Ozawa. For your second question, I will probably give you just an image. For GMV that contributes to growth, Mall would be a large part of it as well as ZOZO, which are existing businesses; and also C2C such as Yahoo! contributes too. It depends on the way we spend marketing expenses as well. But, we would like to ensure that these businesses continue to grow. As for new businesses and what kind of contribution they are likely to make, massive numbers are probably not the case. We are not able to give you specific guidance however at this moment. But globally speaking for e-commerce, it's not just for diversified EC, but for new businesses that we are currently engaging in. Although, the performance is still small we believe that we need to continue to invest. Therefore, we will continue to invest. And for GMV growth the Mall part of our e-commerce business will be leveraged in order to get the numbers we need to achieve. That's all for me.
Haruka Mori: Thank you.
Operator: Thank you very much. Next from Citigroup, Mr. Tsuruo.
Mitsunobu Tsuruo: Thank you very much. I have two questions. First about the PayPay performance, two questions. First, for this fiscal year, what will be the size of the loss and the equity method number PayPay and Demae-can what will be the ballpark figure? And also in relation to that, PayPay's equity through exercising the preferred CB, you have not yet exercised this. So when on what base do you plan to exercise this? And could you give us just a hint of it? That's my first question.
Kentaro Kawabe: Okay. So group company related loss and PayPay equity, Sakaue will answer to your questions.
Ryosuke Sakaue: Yes, in relation to PayPay, yes, they are trying to make sure that they can acquire customers and they are still going through trials and errors. So they cannot show you the clear guidance. As we mentioned previously, before the acquisition operating income, excluding the customer acquisition in Q4 we were profitable. So, concerning that we'll continue for this fiscal year to maintain such status. So the rest is that how to -- well, we have been collecting the fixed costs, so how to control the acquisition cost. We talked about Atobarai, but what do we do about it? So that is something that we are discussing. So that is something that we need to do. So, in terms of economics, if you can reduce the acquisition we can be profitable. So, I think we are building this business well. As for Demae-can it is a listed company, so their guidance is something that we would like you to refer to. Another is about the preferred stock of the PayPay. When we make all the decisions, we would like to disclose them. Right now we are not disclosing that. Thank you for your understanding.
Mitsunobu Tsuruo: Okay. Thank you very much. My second question is about strategic investments of ¥50 billion to ¥70 billion for this fiscal year. So, two questions concerning that. First how much of that will be DA? Could you talk about the ¥22 billion of the last fiscal year? Because based on your business software development I think is the major portion. So because of that amortization depreciation I think are included here. Another is say that it's ¥70 billion. So, that's ¥92 billion in two years and based on the ¥500 billion for five years, you have only spent ¥100 billion. So, ¥400 billion in coming three years. And so you need to spend a lot based on this calculation in coming three years. So that means that the next fiscal year you plan to increase the strategic investments. So, is this the correct calculation, or is this something that -- do I have any misunderstanding about those numbers?
Kentaro Kawabe: So, the first question, Mr. Sakaue would answer. For the second question, Mr. Kawabe will -- I would answer.
Ryosuke Sakaue: So, to your first question about the DA or depreciation amortization for fiscal 2021, it was not so much. I hope you understand that. So, sales promotion and logistics distribution the delivery support for the major parts so they were handled as OpEx. As for fiscal 2022 about 30% strategic -- sorry 30% for the strategic segment that is a PayPay Card. So that portion to some extent customer assets we have our assets and that would incur GA. So PayPay Card for -- that would be -- a part of that would be assets. So, therefore there will be a depreciation. As for the remaining commerce, the sales promotion is a major one so not much DA. In advertising -- media advertising development, depending on the development and the size we need to develop the software so that could be entered into the assets. But we are not disclosing the specific numbers for that. So, that's the answer for your first question.
Kentaro Kawabe: As for the second point and this is Kawabe speaking. LINE and the former Z Holding integrated and the aspiration we had was to integrate our businesses so that we can take advantage of the profitability and make a lot of investments and to become the AI tech company -- the first AI tech company in Asia and in -- from Japan. So, we continue to enhance our developments and we continue to enhance our investments. But the ¥500 billion in five years that was a kind of a very good catchy slogan. And the -- I think this led to the two misunderstandings I'm sorry to say. But one of them as we explained is that if you divide it into then to each year we are not spending ¥100 billion each year. But as we develop products and of course sometimes we need initial investment or through the PDCA we again spend a lot of promotion. In some cases, we need more promotion than the development. So, we cannot just divide ¥500 billion to each year. But towards the second half, I think we will spend more. At the same time, when we say ¥500 billion in five years, we are trying to make the developments. And for example when users are being attracted, we want to spend more for the promotion. And, of course, at the same time, we want to be efficient. So, we are not saying that we would spend all the ¥500 billion in five years for sure. So, that's something that we'd like to communicate to you clearly. So, the development and depending on the progress of the service usage this overall amount of the investment will be flexibly reviewed. So, we have three more years. Whether we spend ¥300 billion in three more years that is not the case, we'll be very flexible. So, our basic idea is to have the development capability to become bigger. That is the aspiration of the two parties that were integrated. Thank you very much.
Mitsunobu Tsuruo: Thank you, very much for your answers. Two follow-up questions. So what Sakaue-san said based on his answers, so ¥20 billion to ¥30 billion out of ¥50 billion to ¥70 billion is the DA. Is that right?
Ryosuke Sakaue: So 30% strategic investment. If it was -- it goes all to PayPay Card, yes. But we are thinking of investing in NFT as well. So it's not going to be as big as that. So PayPay card in terms of accounting depending on how the accounting is done, some of them will go to DA and some of them won't. So what Mr. Tsuruo said, I think that your number I think DA will be much smaller than that.
Mitsunobu Tsuruo: Okay. Thank you. Second part is about what Mr. Kawabe said, yes, it's understandable you will be flexible to make investments. But next fiscal year strategic investments, if you can give us some hint for example software development, what are the total expected spend for the software development? If you talk about that, I think we can get a good idea of the future DA. So any hints that you can give us.
Kentaro Kawabe: Thank you. Well, I repeat myself. When you develop something, there's a design and it takes time to develop and you have to go through PDCA. And if it goes well you need to spend more for promotion. So towards the second half, we need to spend more. There is a trend. There is the development of the services. So third year, after the integration next year in comparison to first year, second year, there will be more things to do. That will be the general forecast. At the same time, fiscal '23 the highest EBITDA that is a commitment that we made. So we have to keep that in our mind. Thank you very much. That's my answer to your question.
Mitsunobu Tsuruo: Thank you. That’s all.
Operator: Thank you. Next is from Okasan Securities, Mr. Okumura.
Yusuke Okumura: This is Okumura from Okasan Securities. Can you hear me?
Kentaro Kawabe: Yes we can.
Yusuke Okumura: Thank you. I also have two questions. First is about EBITDA and your guidance. Going back to that discussion. For this fiscal year's guidance, you were saying ¥390 billion for next fiscal year. So if it's possible for next fiscal year segmental profits as well as the direction of our investments? Can you give us more direction about it? So for a strategic segment, are the losses going to be at peak this fiscal year and will start contributing to profits next fiscal year? That's my first question. Secondly, earlier there was a question about this. But for this fiscal year, you were talking about making swift efforts around security. Are you doing something in particular? Will the IT linkage be postponed into the second half of the year? And for the impact from ID linkage, you were saying that impact will gradually emerge. But for cost advertising, how have you accounted for the positive impact in your guidance this fiscal year? That's all for me. Thank you.
Kentaro Kawabe: Thank you for your question. For your first and second questions, I Kawabe will answer your questions. And Mr. Sakaue will also follow up on some points. So for the first question, going back to the previous question that was asked, I responded -- basically my response is the same as the previous question asked earlier, meaning five years, ¥500 billion which is our investment plan. We would like to leverage our development capabilities to take on various challenges and we will continue to do so next fiscal year. However, we will be investing flexibly depending on the circumstances we face at that point in time. For next fiscal year, it's going to be a special year and we are well aware about that as a company. And we would like to be mindful of trying to reach record high EBITDA in 2023. For strategic businesses or projects, during the five years, there may be some business that contribute to earnings. And for businesses like AI, they may require a longer time horizon before they start contributing. So I think the contributions are going to vary depending on the business you're looking at. So, regarding that, Mr. Sakaue if you have anything to add to give more flavor, please go ahead.
Ryosuke Sakaue: Well for strategic investments in fiscal '23 as a company, we will be rolling our midterm plan. But it really depends on this year's performance which may largely change our expectations for next fiscal year. So we don't want to be misleading if we communicate something now. So we are not going to talk about it. For the strategic segment and the losses peak out regarding this as well for fiscal 2023, we think the situation is going to not change that much compared to fiscal 2022. When LINE Security as well as LINE Credit starts to contribute to earnings, that will be a little bit further ahead from a time horizon perspective. That's the answer for your first question. For your second question and ID linkage as well as services linkage beyond ID linkages. We believe that from a PMI perspective it's really important and we have been preparing from last fiscal year. And for the revised personal information production law more than we expected there has been a lot of changes and law as well as a lot of changes in society sentiment. So we would like to ensure that we are well prepared against the various securities affairs and protecting information and so forth so we are relevant. Therefore in fiscal '22 this fiscal year at some point in time during the fiscal year we wanted to go ahead with the linkage initiatives. But cost or from a time perspective is something we're continuing to look at and have it decided on.
Kentaro Kawabe: I think when Mr. Araki was asking a question I talked about this but after ID linkage starts are we going to see a positive impact overnight with a huge inflow of users? No that's not the case. For each of the users we'll have to have some consent to ID linkage and we believe it's going to take time for the process to go through. And it's going to probably take a matter of several years. So we hope you understand. Regarding the costs associated to this fiscal year. For ID linkage as far as I know the employees at our company are working on it. So costs are basically personnel cost but Mr. Sakaue will explain further.
Ryosuke Sakaue: As Mr. Kawabe just mentioned for top line and effect of ID linkage this is something that's to start going forward. So we haven't accounted for bullish numbers. And also for expenses development is going to be the main aspect. Of course, we may be adding more employees or we may be outsourcing by a certain extent. Although negligible, we have accounted for in the budget. But the impacts on overall performance is not going to be substantial. That's all for me.
Yusuke Okumura: Thank you very much for your kind response.
Operator: Thank you very much. Next is Sawada-san from Ace Economic Research Institute.
Ryotaro Sawada: My name is Sawada from Ace. Thank you very much for your presentation. I also have two questions. First is about PayPay, the campaign to – and you previously mentioned that you were successful in maintaining the customers and the campaign ended in March. So what has been the latest trend? Could you give us some hints? Second question is about Commerce, the service transaction value. So from now on the economy is reopening. So in the past two years or so compared to two years ago what is the current status of that? So as for post-COVID I think that you have accumulated your capability and – or in some cases maybe there were some damages due to the pandemic. So could you tell us what are the current status?
Kentaro Kawabe: So for both of your questions over the commerce and PayPay are the major parts. So Ozawa-san will answer to your question.
Takao Ozawa: About the PayPay campaign you asked the question. For the merchants – it's a cash-back campaign for the merchants. And as we started to charge the fee we started this campaign. And campaign is over, but still they are not going to disappear from PayPay as merchants and of course, if there are no changes to the payment amount of the users. So merchants and the payment value is increasing steadily. As to your second question about the services especially in the area of the travel after the pandemic now the pandemic continued for two years and what were the impact and what would happen now it's over. Now Ikyu during the COVID or pandemic in comparison to other companies, we had a very good number. People who want to go – going to take a trip but cannot go abroad, so instead they want to stay at a nice hotel or nice Japanese inn in Japan. So that was the news. And Ikyu is famous for having very high-quality inns and hotels. So they received a lot of reservations. So in comparison to the pre-COVID time frame, we did not see the major growth, but the decline were – it was about the same as the last year. So we repeated that kind of situation in the past two years. But in comparison to other companies when we do the interview of other parties we hear that there have been a lot of reservation with Ikyu. So now after the pandemic whether customers go abroad right away that is not the case. Rather than the business demand I think there is an increase of the casual trips. Yahoo! Travel Ikyu are growing significantly. As for eating out the restaurants yes we had less people, fewer people going to restaurants so there was a damage there. But travel is actually bigger in terms of our GMV. So that is how we see the situation. I hope that answers your question.
Ryotaro Sawada: Thank you very much for the detail. Now I understand.
Operator: Next is from CLSA, Kiba Son [ph].
Oliver Matthew: Hi. Actually, it's Oliver Matthew from CLSA. I have two questions. One, could you tell us how confident are you, you will achieve ¥390 billion EBITDA target in three 2024. And the second question investment range for this year is very wide ¥50 billion to ¥70 billion. If you only invest ¥50 billion would your EBITDA profit be ¥20 billion higher? Thank you.
Unidentified Company Representative: Thank you for your questions. For the first question Kawabe will take your question and the second question will be responded to by Mr. Sakaue, our CFO.
Kentaro Kawabe: So for your first question we have been discussing this with other analysts on the call, but we will be investing into a lot of development. But prior to LINE's integration, we have been committing to March 2024 EBITDA target of ¥390 billion. We are well aware that we have raised this target and we would like to work hard in order to achieve it. And if the management is well aware, we do believe it may be possible to reach this level. However, the world is changing and there's a lot of more uncertainty in the world. But on the other hand there maybe a chance where we face more opportunities in the next two to three years. So if there are any changes we would like to swiftly disclose where we stand at that point in time. But at this moment it's not as if we're lacking confidence to reach our commitment and we don't expect at this point in time that we need to make necessary changes.
Unidentified Company Representative: So the next question will be answered by Mr. Sakaue.
Ryosuke Sakaue: So for your second question, let me take that question. For strategic investments, if they were to stay at 57 -- ¥50 billion, we believe that the EBITDA will reach our upper end which is JPY 340 billion. So if strategic investments were to reach JPY 70 billion, if we make all of the investments – so for strategic investments if it's the lower end at ¥50 billion, adjusted EBITDA will be ¥340 billion presumably. That's what we're expecting now. As for – if strategic investments were to be ¥70 billion with successful investments being made adjusted EBITDA will be ¥331.5 billion, which is the lower end of our range. That's how we have put together our guidance. There is a ¥20 billion difference but EBITDA differences are not JPY ¥billion. But through cost reduction and other efforts we would like to ensure that we are able to increase our profit. So that is why we have set this target for the lower end. That's all for me. Thank you.
Unidentified Company Representative: [Operator Instructions] Next from Nomura Securities Mr. Masuno.
Daisaku Masuno: Thank you. This is Masuno speaking. I have two questions. Maybe it's a repeated question, but for this year's finance so half of the strategic investment goes to Commerce. So the EBITDA guidance of Commerce is not damaged so much. So you seem to be very conservative. For Media EBITDA I think is conservative. So maybe LINE advertising is a bit weak. So LINE advertising how do you see that? And in the area of the strategic segment there is a big deficit and also divestment deficit is down. So it seems that the direction of the profit is not very clear. So including the adjustment what is the current status of the business? That's my first question.
Unidentified Company Representative: Yeah. Sakaue-san will answer to your question.
Ryosuke Sakaue: About the LINE ads Talk Head View last year the new products launched come to an end. And so last year it grew significantly. So we had a very high hurdle to clear. And because of that this is the range that we are showing as of now. Naturally through the sales activities, and of course, we take various measures or initiatives. So for example a year ago here in this meeting we also showed the range like this. So that is how we like to show the guidance at the beginning of the fiscal year. As for others and adjustments please bear with me. Fiscal 2021, 53.2% in red and it's -- now it's ¥40.5 billion. So concerning this last year after the integration it was one year. So in order to retain employees there was a bonus. So others -- and I just meant the major difference here is the bonus based on the performance. So for fiscal 2020 it was red of ¥39 billion and now it's ¥40 billion -- a little bit more than ¥40 billion. So it's going back to 2020. So 2021 was different because of that bonus to commemorate the first year of integration. As for the Strategic segment EBITDA -- adjusted EBITDA the strategic investments we will be focused on the card and LINE Securities and LINE Credit. The number of the users is increasing. So fiscal 2022 LINE Securities and LINE Credit we have a large deficit. But we wanted to grow in these businesses. So this is why we are having a larger deficit for Strategic segment. And there was the sale of the YJFX! And without it, it should have been in red of ¥30 billion. So that will be the fiscal 2021 number without the onetime factor. Thank you.
Daisaku Masuno: Thank you very much. My second question about the next fiscal year. So for this fiscal year this was a transitional year and transition period preparing for the next year. Usually with this type of number I think you come up with those numbers for two years. So ¥390 billion that is the target. And towards that what would be the EBITDA number of each segment? Commerce I think you have a lot of investments next year. In Strategic business the card and the financial I think you would be investing. So if that is the case Media is the only one who would bring you profit. Then that would not give you the ¥50 billion plus. So which segment is going to have a higher profit? So this is the basic direction that we'd like to understand.
Kentaro Kawabe: Yes. Mr. Sakaue, CFO will answer.
Ryosuke Sakaue: Well it has to do with the strategic investments and what will be the allocation in fiscal 2023. So Media in terms of profit the contribution of the media is going to be high. At the same time in the area of the strategic segment this year the Fintech business -- new Fintech business and what would happen to that will be the major factor. And that's what we are thinking internally. So that's all I can say for -- as information that I can provide you outside of the company.
Daisaku Masuno: When you think about the medium term fintech and financial those are the areas that you really need to focus next fiscal year. What do you think?
Ryosuke Sakaue: Yes. We want it depends on the acquisition of the customers and ARPU what would happen to ARPU. And based on those we would like to make decisions.
Daisaku Masuno: Thank you. That’s all.
Kentaro Kawabe: Thank you. From MST Financial Services, Mr. David Gibson over to you.
David Gibson: Thanks very much. Two questions. For this fiscal year are there any cost synergies with the integration of LINE that you've included in your guidance or do you think there are that you haven't included in your guidance? The second point is on the guidance itself. You now state that the group EC transaction value is ¥3.92 trillion to ¥4.29 trillion. And that's a change in how you report the EC transaction value. Could you give us the same guidance number that you used previously just for the normal shopping EC transaction value please? Thank you.
Kentaro Kawabe: Thank you. Both questions will be taken by Mr. Sakaue our CFO.
Ryosuke Sakaue: So for cost synergies, first of all, in FY 2021, it was about JPY 10 billion of cost synergies that were generated. And we believe that in fiscal year 2022, we have accounted for the same amount in the guidance. For additional cost synergies, we are considering what we can do. But for that portion, we're not expecting to be that great and we haven't accounted for it in the guidance. And for the next year and how much cost synergies we're anticipating, going forward things that are on our mind is procurement-related, such as servers. We could have a common specification so that we can strengthen our buying power. That's something we would like to work upon and that will be depreciation-associated. So it's not really going to hit our P&L. it's more going to be affecting our cash base. So probably won't immediately affect our P&L. And also due to semiconductor shortages, as a buyer of servers, it's hard to strengthen your buying power, but that's where we are. That's my response to your first question. For the second question, there was a question about this I believe. For this fiscal year due to LINE, NFT and quick commerce, because we will like users to use a variety of our services that's why we decided to set forth this guidance for group EC transaction value instead of our conventional way of disclosing. For the individual disclosures, we would like to withhold the disclosures from this time around. But of course, for the results whether it be for shopping for GMV at that level, it will be disclosed once we are able to generate the results. That's it for me. Thank you.
David Gibson: Thanks so much.
Operator: Thank you very much. Next we have Mr. Maeda of SMBC Nikko.
Eiji Maeda : Thank you. This is the second time that I'm asking a question. Just one question. Your view on EPS as a management, I'd like to clarify that. Through the integration with LINE, there was a major dilution. But at the same time EBITDA is growing. But due to the equity loss, the EPS is not growing so much. So in the growing phase KPI is adjusted EBITDA, I understand that. But from the shareholders' perspective, EPS is very important. So there is an expectation that EPS is going to grow in the future. With the higher EBITDA, with the time lag EPS -- do you think EPS would recover or will come back, or in relation to the equity in cost of the associates and joint ventures if it enters into the recovery phase or collection phase, do you think that EPS will recover? So how committed are you to EPS? If you can give us your way of thinking about the EPS.
Kentaro Kawabe : Thank you very much for your questions. But the EPS, it's down and this is due to the integration and that's something that we expected. So Yahoo! and LINE integration has a lot of potential. So we want to have understanding of the shareholders. And that's what we did. Concerning EPS, yes, of course, we have been aware of the EPS. We would make sure that this dilution will be recovered through the businesses, so that we can improve the EPS. We will keep that in our mind as we engage in our businesses. Thank you very much for your question.
Eiji Maeda : Thank you very much.
Operator: Next is from JPMorgan Securities. Ms. Mori.
Haruka Mori : This is my second time around. I have two quick questions. My first one is -- might not be a relevant question to ask. But regarding your guidance, the range is extremely narrow. And considering the size of your investments, I wonder if you even need to set forth this kind of range if it's so narrow. So as a message, are you trying to say that you're definitely not going to see a decline in profit, or are you trying to say that because you aren't going to be making substantial investments in the fiscal -- previous fiscal year, there was loyalty decreases, so you were able to exceed. But are you trying to say that this year you're going to invest a lot so don't expect us to exceed or be at expectations. So what's your message in setting forth this narrow range of guidance? That's my first question. My second question is for LINE. In the previous fiscal year, profitability improved quite a lot. But for LINE, when you look at Page 7 and when you think about this fiscal year, what kind of year is it going to be? Are we going to see continuous profitability improvement, or will you be able to maintain being profitable? Those are my two questions. Thank you.
Kentaro Kawabe : For the first question I will take the question and then Mr. Sakaue may follow-up. And the second question will be taken by Mr. Sakaue. For the first question. If the first part of what you were surmising that is relevant meaning. With both companies integrating, while we grow EBITDA we still have more capabilities to invest. So we would like to ensure that we invest well. But at the same time, we would like to ensure that we will increase profits especially on the lower end of our expectations. So the backdrop to that is we now know how to invest. And I think it's more about the recent economic situation, which is quite uncertain. Even on a global scale, it's pretty uncertain. So, of course, we would like to respond to shareholder expectations. So for the lower end of our range, we would like to ensure that we are able to grow earnings. So that's the dialogue we're having between management. But if the economic situation changes or if the environment were to change, we would like to consult to our shareholders at that point in time. Do you have anything to add Mr. Sakaue for the first question?
Ryosuke Sakaue: No I don't.
Kentaro Kawabe: Okay. So that was my response for the first question. So Mr. Sakaue, can you take the second question please?
Ryosuke Sakaue: For LINE P&L, we're going to make more strategic investments in fiscal 2022 compared to 2021 especially for LINE e-commerce. We are going to make a deep dive into investments. So -- it's hard to give you a clear expectation about whether we're going to be profitable definitely. We are not able to commit at this point in time. That's all for me.
Haruka Mori: Thank you.
Operator: Thank you very much. Next Mr. Sawada of Ace Economic Research Institute.
Ryotaro Sawada: This is Sawada speaking. I have two questions. First question is about the marketing solution. How do you evaluate that as a product? In the past from the sales target, I think you estimated the amount of the ads. So including that the integrated marketing solution as a product how do you evaluate that? Also my second question as of now the external environment is complex supply chain, inflation, VPN, and others and the server procurement, the shortage of the semiconductor were also mentioned. So those are the risk factors. And probably there could be some tailwind. Could you talk about what you expect in terms of the external factors?
Kentaro Kawabe: Thank you. About the first question the integrated marketing solution, Yahoo! and LINE and also we collaborate with each other. So two core President Ozawa, representing Yahoo!; and Idezawa, representing LINE, they can give you the current evaluation. So starting with Mr. Ozawa of Yahoo!
Takao Ozawa: Yes. For fiscal 2021, we had a lot of experiments. In fiscal 2022, we also work on the various things. So manufacturers we get the capital. And when they make a payment through PayPay about a certain product there will be some benefit of PayPay. So -- but it's both for online and offline. You can grasp the data. So this is something that you can -- you could not do. You can link it to the purchase at the -- in the real physical store. So this is something that has a lot of expectations. So we are doing a lot of tests and getting a lot of results. So right now for each manufacturer, we are doing various tests and how to level this and how can we provide as a product. So that's something that we are working on right now. So that's the current status. Based on your question, we will continue to have a high expectation and we are confident that this will be effective. And many effects we want to make sure that we can have it in a continuous manner. So that's something that we are working on. Thank you. Idezawa, would you like to talk about the initiative at the LINE and also make some additional comments about the integrated marketing solution?
Takeshi Idezawa: The name itself is an extension of the Yahoo! I think. The reality is as Ozawa said there is an online and offline integration and also the sales promotion market and conduct the digital transformation of that. So in relation to LINE, the official account and LINE points are utilized, so that we can -- we have been working on this. Fiscal 2021, we combined that with the Yahoo! solution. So that's what we have been doing. More specifically in relation to the sales promotion we integrated the teams and also product planning and the development is something that we are doing. Most recently, by combining the existing products official account or Yahoo! various services, we are linking with them so that we can provide as a solution and full funnel solution is something that we are trying to offer. To your second question, the external factors and how would that affect our business. Yes. There are two different types of changes. One is the high material cost and the cost increase in relation to that. And another is FX, a very rapid depreciation of yen. Both of them in our Z management meeting, we have checked on the recent movements and situation. So far, the high material cost and the -- whether we are getting any impact that is not the case as of now. As for the rapid depreciation of yen, we did the various analysis. From the profit perspective, still most of the profit is from the business in Japan and also the revenues and expenses. From those perspectives, Thailand, Taiwan, Korea in those countries, we do have revenue and other expenses. But from the FX, they offset each other. So as a whole, there hasn't been a major impact. So that is as of now. But as you point out in the global economy there are so much uncertainties and especially the high natural resource cost. There could be and there will be some kind of impact due to those uncertainties and we need to reflect that in our expectations. As we discussed with you with Ms. Mori, we want to make sure that we can generate the profit for fiscal 2022 to reassure our shareholders. So we can still make some investments in those areas to reassure shareholders. And that is the overall situation that I can give you.
Ryotaro Sawada: Thank you very much for your answer and now I think have [indiscernible].
Unidentified Company Representative: Since that we ran out of questions, so we would like to conclude the Q&A session. Finally, I would like to hand over to Mr. Kawabe for closing remarks.
Kentaro Kawabe: Thank you very much everyone for joining us for the call over a long period of time. So year one of the integration has passed. For us as well as for our shareholders, there were many things that happened at Z Holdings for the past year. And although many things have happened, the management members of Z Holdings are establishing a good teamwork and relationship. And like I mentioned earlier, the situation in the world is extremely uncertain at this moment, but we would like to provide the ways of digitalization and make investments accordingly that are necessary for developing our services so that even with this backdrop our shareholders can feel assured to invest in our company as well as stay as our investors. That's the kind of management we would like to strive to achieve. So in year two with this fiscal 2022 after the business integration, we hope that you can continue to have good expectations towards us and we will be mindful of the commitments we have made to the market as well as we run our business. So we would like to ask you for your ongoing support. Thank you very much for joining once again.