LINE Corp (ifrs-full:DisclosureOfFinancialRiskManagementExplanatory)

25.

Financial Risk Management

The Group has exposure to the following risks from its use of financial instruments:

–	Credit risk

–	Liquidity risk

–	Market risk

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout the Group’s consolidated financial statements.

(1)	Risk Management Framework

The Group limits its fund management to highly liquid and low risk investments, such as time deposits and other debt instruments. The Group raises funds mainly through the issuance of corporate bonds, and borrowings from financial institutions, including banks, with high credit ratings. The Group may enter into foreign exchange forward contracts to hedge foreign exchange risk. The Group does not enter into any financial transactions for speculative purposes.

(2)	Credit Risk

Credit risk is the risk of financial losses to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and investments.

(a)

Maximum amounts of possible financial loss to the Group due to credit risk as of December 31, 2016 and 2017 are as follows:


	(In millions of yen)

	December 31, 2016		December 31, 2017
	Book value		Book value
Demand deposits⁽¹⁾		134,690		123,593
Time deposits⁽¹⁾		10,764		12,002
Loan receivables⁽³⁾		2		206
Guarantee deposits⁽¹⁾⁽²⁾		3,447		726
Trade and other receivables⁽³⁾⁽⁴⁾		28,167		42,892
Japanese government bonds⁽¹⁾⁽²⁾		280		280
Corporate bonds and other debt instruments⁽¹⁾		7,643		8,835
Office security deposits⁽¹⁾⁽⁵⁾		6,028		5,904

Total		191,021		194,438

⁽¹⁾	None of these assets were past due or impaired at the end of the respective reporting period.

⁽²⁾	Refer to Note 15 Financial Assets and Financial Liabilities for details of the financial instruments being deposited under the Japanese Payment Services Act.

⁽³⁾

For receivables, the Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Group regularly performs credit assessments on customers and counterparties considering their financial position and historical data in order to manage the credit risk. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of loan receivables, trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical experience for similar assets.

⁽⁴⁾

The Group identifies concentrations of credit risk when a limited number of the Group’s counterparties that have similar characteristics or business activities, and thus are affected similarly by changes in economic or other conditions, account for a large portion of the entire trade and other receivables. The Group had significant concentrations of credit risk with two payment processing service providers, representing 38.5% and 30.5% of trade and other receivables as of December 31, 2016 and 2017, respectively.

⁽⁵⁾	The amount mainly consists of the office security deposits paid for the Group’s office lease agreements.

(b)

Impaired or past-due financial assets

In case of impairment of financial assets, the Group does not directly write off such assets by reducing the carrying amount, but instead records an allowance for doubtful accounts. However, in the event that there is no realistic prospect of future recovery, financial assets are directly written off.

Below is the movement in the allowance for doubtful accounts attributable to trade and other receivables, and other financial assets current:


	(In millions of yen)

	Allowance for doubtful accounts
Balance at January 1, 2016		430
Provision for the year		663
Reversal		(9	)
Utilized		(9	)
Translation		2

Balance at December 31, 2016		1,077

Provision for the year		83
Reversal		(515	)
Utilized		(204	)
Acquisition of subsidiary		44
Translation		7

Balance at December 31, 2017		492

Refer to Note 7 Trade and Other Receivables for more details on non-current trade and other receivables that were tested for impairment on an individual basis.

(3)	Liquidity Risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as much as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group monitors its cash flow through long-term and short-term management strategies and ensures it has sufficient cash on hand to meet expected operational expenses.

(a)

Financial liabilities

The book values of financial liabilities based on the remaining maturities as of December 31, 2016 and 2017 are as follows. The amounts below include estimated interest from financial liabilities scheduled to be paid.


	(In millions of yen)

	December 31, 2016
	Book value		Contractual cash outflows		Less than one year		One to five years		After five years
Trade and other payables		21,532		21,532		21,532		—		—
Short-term borrowings⁽¹⁾		21,925		21,937		21,937		—		—
Deposits received		2,572		2,572		2,572		—		—

Total		46,029		46,041		46,041		—		—


	(In millions of yen)

	December 31, 2017
	Book value		Contractual cash outflows		Less than one year		One to five years		After five years
Trade and other payables		28,810		28,810		28,810		—		—
Short-term borrowings⁽¹⁾		22,224		22,341		22,341		—		—
Deposits received		5,730		5,730		5,730		—		—
Office security deposits received under sublease agreement		23		23		—		23		—
Put option liabilities		486		486		—		486		—

Total		57,273		57,390		56,881		509		—

⁽¹⁾	The Group had lines of credit with four banks for the years ended December 31, 2016 and 2017. The lines of credit available and the lines of credit used are as follows:


	(In millions of yen)

	December 31, 2016		December 31, 2017
Lines of credit available		24,380		22,712
Lines of credit used		21,667		22,000

Remaining lines of credit available		2,713		712

(b)

Financial assets

Private equity investments

As a limited partner of the private equity investment funds, the Group may be required at any time to contribute to the partnership its pro rata share of the aggregate amount to be contributed by all limited partners for such portfolio investment, up to the amount of its unfunded capital commitment (17 million U.S. dollars, equivalent of 1,956 million yen, as of December 31, 2016 and 810 million yen, 26 million U.S. dollars, equivalent of 2,942 million yen, and 45 million Taiwan dollars, equivalent of 170 million yen, as of December 31, 2017) as of the day of the capital contribution call.

(4)	Market Risk

Market risk is the risk that changes in market prices which will affect the future cash flow or the value of the Group’s holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

(a)

Exchange rate risk

The Group has exposure to currency risk on sales and purchase transactions denominated in currencies other than the functional currencies. The main currencies used for transactions of the Group are the Japanese yen (“JPY”), the Korean won (“KRW”), the euro (“EUR”), the U.S. dollar (“USD”), and the Thai baht (“THB”).

The book values of major monetary assets and liabilities denominated in currencies other than the functional currency as of December 31, 2016 and 2017 are as follows:


							(In millions)

	December 31, 2016
	Currency		Amount		Exchange rate		Yen equivalent
Monetary assets:
Cash and cash equivalents		KRW		37,595		0.10		3,626
		USD		32		116.56		3,775
		EUR		6		122.26		750
Trade receivables		KRW		2,310		0.10		223
		USD		6		116.56		725
		THB		395		3.24		1,282
Time deposits		KRW		5,100		0.10		492
		USD		2		116.56		257
Office security deposits		KRW		5,623		0.10		542
Available-for-sale financial assets		USD		9		116.56		1,059


							(In millions)

	December 31, 2017
	Currency		Amount		Exchange rate		Yen equivalent
Monetary assets:
Cash and cash equivalents		KRW		7,312		0.11		770
		USD		101		112.88		11,364
		EUR		2		134.78		213
		JPY		258		1.00		258
Trade receivables		USD		12		112.88		1,336
		THB		188		3.45		649
Other receivables		USD		5		112.88		611
Time deposits		KRW		6,100		0.11		643
		USD		10		112.88		1,131
Office security deposits		KRW		5,655		0.11		596
Available-for-sale financial assets		USD		35		112.88		3,949


								(In millions)
	December 31, 2016
	Currency		Amount			Exchange rate		Yen equivalent
Monetary liabilities:
Trade and other payables		KRW		(7,669	)		0.10		(740	)
		USD		(5	)		116.56		(612	)
		EUR		(2	)		122.26		(211	)


							(In millions)
	December 31, 2017
	Currency		Amount		Exchange rate		Yen equivalent
Monetary liabilities:
Trade and other payables		KRW		(20,456)		0.11		(2,155)
		USD		(10)		112.88		(1,166)
		THB		(97)		3.45		(334)
Put option liabilities		KRW		(2,114)		0.11		(223)

The effects on profit or loss before tax from continuing operations and shareholders’ equity as a result of exchange rate fluctuations as of December 31, 2016 and 2017, are as follows:


						(In millions of yen)

	December 31, 2016
	Shareholder’s equity					Profit or (loss) before tax
Currency	Appreciation of functional currency by 5%		Depreciation of functional currency by 5%			Appreciation of functional currency by 5%		Depreciation of functional currency by 5%
EUR		20		(19	)		27		(26	)
KRW		157		(150	)		207		(197	)
USD		195		(186	)		260		(248	)
THB		47		(45	)		64		(61	)


							(In millions of yen)

	December 31, 2017
	Shareholders’ equity						Profit or (loss) before tax
Currency	Appreciation of functional currency by 5%			Depreciation of functional currency by 5%			Appreciation of functional currency by 5%			Depreciation of functional currency by 5%
EUR		11			(10	)		8			(8	)
KRW		(18	)		18			(13	)		12
USD		861			(820	)		603			(574	)
THB		16			(15	)		11			(10	)
JPY		13			(12	)		10			(10	)

The tables above demonstrate the sensitivity to a change in EUR, KRW, USD, THB and JPY assuming all other variables are constant.

(b)

Interest rate risk

Interest bearing financial assets and liabilities as of December 31, 2016 and 2017 are as follows:


					(In millions of yen)

	December 31, 2016				December 31, 2017
	Fixed rate		Variable rate		Fixed rate		Variable rate
Financial assets
Japanese government bonds		280		—		280		—
Time deposits		10,764		—		12,002		—
Loan receivables		2		—		116		—
Corporate bonds and other debt instruments		4,632		3,012		8,835		—

Total financial assets		15,678		3,012		21,233		—

Financial liabilities
Short-term borrowings		258		21,667		43		22,042
Total financial liabilities		258		21,667		43		22,042

The Group has exposure to interest rate risk as it possesses financial assets and liabilities bearing variable interest rates. The analysis below was performed using balances of the financial liabilities with variable interest rates outstanding as of December 31, 2016 and 2017, assuming such liabilities were outstanding for the full fiscal year immediately before the respective dates, while holding all other variables constant. Potential effects on shareholders’ equity and profit or loss for one year from the reporting date as a result of a change in the interest rate are as follows.


									(In millions of yen)

	December 31, 2016
	Shareholder’s equity					Profit or (loss) before tax
	Increase of 50 basis points			Decrease of 50 basis points		Increase of 50 basis points			Decrease of 50 basis points
Interest expenses		(74	)		11		(108	)		16


									(In millions of yen)

	December 31, 2017
	Shareholders’ equity					Profit or (loss) before tax
	Increase of 50 basis points			Decrease of 50 basis points		Increase of 50 basis points			Decrease of 50 basis points
Interest expenses		(75	)		13		(110	)		19

(5)	Capital management

The Group maintains a strong capital base to ensure the Group will be able to continue as a going concern. In addition, through management of the debt and equity balances, the Group aims to maintain investor, creditor and market confidence, and to sustain future development of the business. In order to achieve sustainable growth, the Group understands that financing capacities sufficient to make business investments when there are opportunities, such as the acquisition of external resources for business growth, are required. For that reason, the Group aims to maintain a well-balanced capital structure by ensuring sound and flexible financial conditions for future business investment.


			(In millions of yen)

	December 31, 2016		December 31, 2017
Short-term borrowings		21,925		22,224
Total		21,925		22,224

Total shareholders’ equity		161,023		189,977

The Group is not subject to any externally imposed capital requirements.

LINE Corp | CIK:0001611820 |

ifrs-full:DisclosureOfFinancialRiskManagementExplanatory