U.S. Markets close in 1 hr 25 mins

Edited Transcript of 035420.KS earnings conference call or presentation 30-Jan-20 12:00am GMT

Q4 2019 Naver Corp Earnings Call

Gyeonggi-do Feb 1, 2020 (Thomson StreetEvents) -- Edited Transcript of Naver Corp earnings conference call or presentation Thursday, January 30, 2020 at 12:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Kim Min;Director of IR

* Sang-Jin Park

NAVER Corporation - CFO

* Seong-Sook Han

NAVER Corporation - President, CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Dong Hwan Oh

Samsung Securities Co. Ltd., Research Division - Analyst

* Moonjong Lee

Shinhan Investment Corp., Research Division - Economist and Analyst

* Seyon Park

Morgan Stanley, Research Division - Equity Analyst

* Soyun Shin

Crédit Suisse AG, Research Division - Research Analyst

* Stanley Yang

JP Morgan Chase & Co, Research Division - Analyst

* Sung Eun Kim

Macquarie Research - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

[Interpreted] Good morning, and good evening. Now we will begin the conference of the fiscal year 2019 fourth quarter earnings results by NAVER. Today's conference call will be consecutively interpreted for the convenience of domestic and international investors. The conference call will include a summary of fourth quarter earnings followed by a Q&A session.

--------------------------------------------------------------------------------

Kim Min;Director of IR, [2]

--------------------------------------------------------------------------------

[Interpreted] Good morning. I am Kim Min, Director of IR. Thank you for joining NAVER's Q4 and 2019 annual earnings presentation. With us today are CEO, Han Seong-Sook; CFO, Park Sang-Jin; and COO, Choi In-Hyuk. The earnings results are K IFRS-based provided for the purpose of timely communications and are yet to be audited by an independent auditor and therefore are subject to change after the review.

With that, our CEO, Han, will now present on the business highlights.

--------------------------------------------------------------------------------

Seong-Sook Han, NAVER Corporation - President, CEO & Director [3]

--------------------------------------------------------------------------------

[Interpreted] Good morning. I am Han Seong-Sook. Dear investors, thank you for joining our earnings call. Last year, NAVER endeavored to foster a sustainable basis for growth, shifting our existing organization around new growth businesses around the CICs and subsidiaries. In line with these efforts,

Pay CIC was spun off as Naver Financial, setting up a foundation for new business expansion, while Webtoon is swiftly expanding into major global markets, on its way to becoming a global platform for creators and users around the world. Cloud and LINE Works and B2B businesses continue to grow their revenue, positioning themselves as NAVER's growth engine for the next generation.

On top of such organic growth and efforts, we've also strengthened ties with capable partners. Naver Financial secured KRW 800 billion of investment from Mirae Asset, while LINE and Z Holdings closed the deal on business integration in line with our efforts to accelerate growth in new markets through close partnerships.

This year, we will beef our platform competitiveness underpinned by our search and commerce while bringing visible results from new business drivers, such as from content, tech-fin and B2B, and broaden into new markets, like the U.S., Japan and Europe, so as to quickly expand our business and advance into becoming a global company.

For the Webtoon business, supported by its unrivaled domestic position, we are solidifying its global leadership. Q4 global MAU broke 60 million mark. And in the U.S., MAU surpassed the 10 million mark signaling a start of business expansion cycle. In the U.S., 75% of users are Generation Z, and together with top-ranking apps in iOS entertainment app category, like Netflix, TikTok and Hulu, WebToon app is on the top of the list, loved by many. Generation Z are young people under 24 years of age, biggest population segment with high consumption power over content, and they will form a fertile basis for Webtoon to grow in the long run in the U.S. market. And actually, a number of paying users for content in December for North America increased by more than threefold compared to the beginning of the year, and average revenue per paying user increased more than twofold, attesting to high acceptance rate. And thanks to the growth of North American GMV, NAVER Webtoon's Q4 global GMV posted more than 6% year-on-year growth with an encouraging contribution from global businesses reporting 20%.

We are also attempting to take secondary video contents made based on these Webtoons to the global market. This year, we are planning to air animations developed from mega IPs, like the Tower of God, Noblesse, God of High School concurrently in Korea, U.S. and in the Japanese market. Also, we are in the process of producing a drama off of Sweet Home and Advent of the Goddess, which were domestic kids with the goal of screening within this year. With such efforts, we will prove that Webtoon IPs can work in the global market and not just in Korea and can enhance -- and this will help to enhance Webtoon's global awareness. Also in Q4, we started to offer French and Spanish services to tap into new growth opportunities in Europe and Latin America. Based on our experience of successful localization in countries like Taiwan, Thailand, Indonesia and the U.S., we will develop country-specific strategies so that we may gain a #1 position in all of the major markets to become a true global leader.

While Webtoon is challenging itself to gain a global leadership, Naver Financial is expanding into a new business area of tech-fin. Naver Financial took off based on the payment business and as of 1st of November, its spinoff entered a second phase of growth, attracting KRW 800 billion investment from Mirae Asset, securing a basis to shape not only the payment but also the entire tech-fin market.

This year, we will focus on offering users seamless experience along NAVER Pay's fulfillment flow starting with the launch of NAVER bank book in the first half of the year, which will be followed by various financial services, such as credit card recommendations, securities and insurance products. One of the reasons behind such a fast growth of NAVER Pay is its 90 million monthly NAVER social login user base. As of today, if one signs up to a main shopping mall or uses lifestyle services, like the utility bill payment, one can simply log in with our NAVER ID and check the bill. Going forward, we will be supporting authentication based on the NAVER ID certificate, which will allow the setup of a pay account and will be an avenue for speedy penetration of future services and securities and insurance to be launched by Naver Financial. As we fully leverage NAVER's edge and by facilitating financial services closely connected to people's payment behavior, NAVER's business ecosystem will continue to expand, which will feed into further growth of our payment volume and create a driver for differentiation against other payment services. Eventually, based on the buildup of quality data, we will broaden our services to high-engagement products like the loans and evolve into becoming an overarching asset management platform.

On top of global expansion and our endeavor into tech-fin industry, our efforts and plans are well underway in the B2B segment as we seek to gain growth engine for the future. NAVER Cloud has further enhanced its level of completeness in terms of technology and product as major references are built up from various segments. Especially after opening financial cloud zone in Yeouido, which was well received, in Q4, we meaningfully secured financial institutions as our clients. Of the client, Hanwha Life Insurance adopted an AI cloud system for real-time and automatic underwriting of claims assessment for the first time in the insurance industry. We plan to further bolster stability and efficiency of our hybrid cloud so that in the future financial institutions' core IT system can eventually migrate to our cloud environment.

In the public sector, we have been chosen to provide cloud for the Big Data platform project led by NIA, National Information Society Agency. This is a massive government-led project that require KRW 150 billion over 3 years and building 10 specialized platforms that include finance, telecommunication, environment and transportation, of which NAVER Cloud will be provided to 7 sectors. NAVER Cloud is a B2B product that is based on an infrastructure that went through standardization inside NAVER over a long period of time and its development tools and services are fully detailed enough to be offered to our corporate clients. Going forward, we will continue to bring NAVER's distinct technology and services, like LINE Works, collaboration solutions and Clova's AI technology to the cloud in order to gain competitiveness at both home and abroad.

Clova is endeavoring to monetize its B2B business by sharing its core AI technologies with the outside community, like chatbot, voice recognition and synthesis, OCR, facial recognition, which has been used inside NAVER and LINE over the past 3 years. By broadly collaborating with financial, consumer electronics and telecom industry, we were able to identify needs and using that as the basis to develop solutions that will help operational efficiency for our customer centers by using chatbot, simplify document processing using image and text analysis and innovate in existing processes by enabling online authentication via facial recognition. We will continue to focus on solutions development and standardization and strengthen connection with NAVER Cloud so that we can efficiently offer these solutions to a diverse array of businesses.

We are also steadfast at strengthening NAVER's domestic platform competitiveness. Since the introduction of knowledge shopping service launched in 2003, together with e-commerce operators, and the launch of smart store afterwards, we were able to grow together with our SME online merchants. We plan to further strengthen partnership with large, branded operators and retailers so as to grow the overall commerce ecosystem. We plan to build branded stores on the NAVER shopping platform so that we may proactively support promotion and product introductions by offering space for showcasing such products. We will also offer as many features and functions as possible so that each brand can configure the page as if it were their own website with a large degree of freedom. Also, we will utilize this strength NAVER has around data. And by processing that data, we plan to provide insight to brands so that they can maximize their sales and develop our capabilities around data consulting. In February, we were first open consumer electronics category with 10 confirmed brands, which will be followed by gradual expansion into household, fashion and apparel and furniture categories with our target of having more than 200 brands by the end of the year. We will successfully set up brand store this year so that we may evolve into a sound data commerce ecosystem that embody NAVER's philosophy of coexistence and diversity, and we do our best to make it the starting point of online shopping journey.

NAVER search has developed in step with other verticals, such as not only e-commerce but also local information services and UGCs. Just as sellers and small merchants' success are important for commerce and local information services, we believe success of creators are important for user-generated content as it defines high-quality content. Going forward, NAVER will provide better support to content creators and by effectively connecting them to users will focus on making success stories for those creators. To this end, we've upgraded the current UGC services and launched the influencer search and knowledge expert at the end of last year and are planning to activate services by introducing new advertisement product, revenue sharing scheme in order to incentivize and reward creators for their efforts. We are also thinking hard about upgrading the revenue model following the major revamp in commerce, search and the main page. We are considering various aspects to further bolster NAVER ecosystem that surrounds the user, creators and sellers.

Lastly, in December, we closed the business integration agreement between LINE and Z Holdings. We are looking forward to various synergies between not only LINE and Z Holdings but among all of the 4 companies, including NAVER and SoftBank. We will share a more detailed plan once the integration is officially complete as antitrust review is currently underway. Having said that, we expect there will be close cooperation in many fields, including AI, search, advertisement, tech-fin, among others. Underpinned by NAVER's technology and service capabilities, together with capable partners in Japan, we will discover new opportunities and commercialize those new opportunities. We, at NAVER, will strengthen domestic business competitiveness, based on which we will leverage new business opportunities emerging in U.S. and Japan so that NAVER may take another leap forward. I ask for your continued interest and support.

And now I will turn it over to our CFO, Park Sang-Jin, for financial results.

--------------------------------------------------------------------------------

Sang-Jin Park, NAVER Corporation - CFO [4]

--------------------------------------------------------------------------------

[Interpreted] Good morning. This is Park Sang-Jin. Q4 consolidated operating revenue was up 17.9% year-on-year and 7.4% Q-on-Q to KRW 1.7874 billion. Consolidated operating profit was down 18.7% year-on-year and 14.2% Q-on-Q to KRW 173.4 billion, with operating profit margin reporting 9.7%.

NAVER's core business reported operating profit margin of 27.9% and operating profit of KRW 314.2 billion. Once the one-offs are removed, such as the year-end bonus payout and adjustment for stock-based compensation following the rise in share prices, OP margin is around 31% level.

Q4 net profit was up 58.2% year-on-year and 130.1% Q-on-Q to KRW 196.2 billion on valuation gains from equity holdings at Woowa Brothers.

FY 2019 operating revenue was up 18 point year-over-year to KRW 6.5934 billion, while operating profit was down 24.7% year-on-year to KRW 710.1 billion, with annualized profit margin reporting 10.8%. Taking NAVER's core business alone, operating profit came in at KRW 1.2478 billion, with margin reporting 30.1%.

In terms of the revenue breakdown, advertisement was up 10.7% year-on-year and 12.5% Q-on-Q, reporting KRW 171.8 billion, driven by improvement in mobile ad product appeal. Business Platform revenue was up 13.4% year-on-year and 3.8% Q-on-Q to KRW 746.5 billion on robust growth of shopping search ads. And continued GMV growth, even after the spin-off of Naver Financial, IT platform revenue was up 28.9% year-on-year and 16.9% Q-on-Q to KRW 136 billion. Content Service revenue was up 118.6% year-on-year and 28.4% Q-on-Q to KRW 69.9 billion on growth in Webtoon GMV in Q4 and higher V Live revenue.

Next on expense items. For platform development and operations, on one-offs, such as the year-end bonus and additional booking of stock-based compensation expense was up 29.4% year-on-year and 10.4% Q-on-Q, reporting KRW 252.4 billion.

Agency and partner expense was up 22.1% year-on-year and 11.5% Q-on-Q to KRW 339.7 billion on increase in revenue-linked commission. And due to gradual increase in depreciation, infrastructure expense was up 36% year-on-year and 11.6% Q-on-Q to KRW 94.8 billion.

Marketing expense was up 23.8% year-on-year and 0.8% Q-on-Q to KRW 123.1 billion, driven by increase in bookings for NAVER Pay points and global marketing for Webtoon.

Line and other platform expense was up 21.7% year-on-year and 11.3% Q-on-Q to KRW 804 billion on one-offs, such as the additional booking of stock-based compensation following the share price rise in Q4, year-end related tax payments as well as higher TV advertisement and Pay-related promotional expenses.

Lastly, I would like to talk about the new shareholder return policy. In order to stabilize the size of shareholder return by smoothing out fluctuations that follow changes in the business environment, we changed the baseline from 30% of consolidated FCF to a 30% of the previous 2-year average. Also, in order to enhance predictability and transparency of the dividend policy, we disclosed the FCF formula and the factors that comprise that formula as they form the baseline fund for shareholder distribution. You can also check the details through our consolidated financial statement and the footnote.

Payout ratio will be kept at 5% of stand-alone net profit, but any remaining fund after dividends will be used to buy back shares, which will immediately be canceled, which will have a direct effect of increasing the impact of the payout. As a matter of principle, we will keep this policy for at least 3 years. And if changes are inevitable due to pricing circumstances around competition, the BOD will reconsider the position.

Also separate from the changed payout policy, we've made the decision to cancel 467,000 treasury shares we currently hold. In addition to 83,000 shares, which will be acquired with the remaining funds after the dividend payout, a total of 550,000 treasury shares or KRW 100 billion equivalent will be canceled. Through such efforts, we plan to keep in line with our previous shareholder return stance.

NAVER will continue to implement transparent, sustainable and reasonable shareholder return policy so as to further enhance shareholder value.

Lastly, 2020 is an inflection point for NAVER with the coming together of LINE, our subsidiary, and Japan's Z Holdings. In terms of synergies from the business side as well as on the financial aspect, we do expect quite a bit of change. Although integration process is expected to end in October, once the antitrust review is completed, NAVER has to

Classify LINE as assets held for sale and recognize P&L front line as earnings from discontinued operations. So the timing for exclusion from the consolidated revenue and operating profit and material changes to our earning structure is expected to be several months before the completion of the business integration. As we expect changes to the financial position to be quite significant following the integration, we will closely monitor the relevant impact.

That ends the presentation on Q4 and annual performances. We will now take your questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

[Interpreted] (Operator Instructions) The first question will be provided by Kim Sung Eun from Macquarie Securities.

--------------------------------------------------------------------------------

Sung Eun Kim, Macquarie Research - Analyst [2]

--------------------------------------------------------------------------------

[Interpreted] I would like to pose 2 questions. First, relating to your business platform revenue, the growth rate seems to have dipped slightly on a Q-on-Q basis. Could you explain the reason why? And also, can you provide the guidance for 2020 relating to your advertisement and Business Platform revenue? Second question. Your content-related revenue was quite good. I would like to understand the growth rate of Webtoon and V Live-related revenue and also the relevant impact?

--------------------------------------------------------------------------------

Unidentified Company Representative, [3]

--------------------------------------------------------------------------------

[Interpreted] You asked question about the decline in the business platform revenue growth and our guidance for 2020. Well, up to the third quarter of last year, we've undertaken quite a bit of initiatives under Business Platform business, and we were expecting quite good performance in Q4. But then again, come the month of October, there were some political and social-related issue that drove much lower level of advertisement clicks and also Japan-related sales revenue has declined as well due to those social and political issues. After the month of October, the social issues started to alleviate. However, with the continuation of warmer winter, the sales from the apparel and fashion businesses have declined and also Japan-related sales has continued to post poor performance.

Now in terms of our outlook for 2020, because of the high base effect from 2019 and because the search usage growth rate is somewhat limited, on a year-over-year basis, we expect the growth rate to be lower. Having said that, we do expect the growth from online shopping to be quite solid going forward. And so combining both the advertisement and Business Platform, we are basically going to do our business with the target of bringing a double-digit growth.

Responding to your second question on the content revenue. If you look at our content service revenue, as of Q4, we were able to post year-over-year growth of 118%. If you take out Webtoon, it posted a growth of 128%. And basically, this is driven by 2 main factors: one, domestic, with the continuation of our strategy to apply the revenue model, we were able to increase the paying content basis and also in the overseas market, particularly for the U.S., the North American market, we were able to significantly grow the loyal user base. And by applying the revenue model -- the domestic revenue model, expanding and applying that, we were able to drive up our revenues.

Then if you look at V Live revenue, in Q4, both on a Y-o-Y and Q-on-Q basis, we were able to post more than a twofold growth. This is actually driven by 2 main factors: number one, it's a base effect from Q3 as Q3 performance slightly dipped compared to the second quarter. And if you look at the Q4 number, it was slightly higher than the Q -- than the second quarter performance. And this is mainly driven by mega concerts by BTS in Saudi Arabia and in Seoul as well as EXO concert. And our FANSHIP, which is a global star platform, is also solidly growing, and all of these factors contributed to a solid performance in Q4.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

[Interpreted] The next question will be provided by Stanley Yang from JPMorgan.

--------------------------------------------------------------------------------

Stanley Yang, JP Morgan Chase & Co, Research Division - Analyst [5]

--------------------------------------------------------------------------------

[Interpreted] I would like to ask 2 questions and just confirm one point that was raised previously. You've mentioned you will be shooting for double-digit growth combining both the ad and the Business Platform revenue. Now would that double-digit be in the lower 10% or mid-teens or upper teens? Could you clarify that point? And my first question is could you provide some color as to the Naver Financial, the spun off entity, its revenue and P&L figure for 2019 as well as guidance for 2020? And also, once the Naver Financial products are leased or launched, would you be recognizing the revenue that you make from these products as fee revenue or would that be on a gross basis with the product design aspect also included? Second question is, are you signaling any changes to your global investment strategy? Aside from this LINE and Z Holdings integration, will you be undertaking the global investment strategy in alignment with SoftBank or would you be implementing these global investment strategies on your own? And are there any specific global markets, geographies or product categories that you're currently interested in?

--------------------------------------------------------------------------------

Unidentified Company Representative, [6]

--------------------------------------------------------------------------------

[Interpreted] To clarify on the first point, I've mentioned that we're targeting double-digit growth for our business platform and display ad revenue. If you look at last year, we posted a mid-10% growth rate, but that revenue growth rate is currently -- the speed of the growth is currently slowing down. So we are targeting early teens, lower 10%.

Now because Naver Financial was spun off in November, it's quite difficult to carve out the revenue and profit figure for 2019. But for 2020, we will be targeting around 40 -- more than 40% year-on-year growth in terms of the revenue. For net profit, we will be in the negative. We will be in the deficit because in light of the business management and addition of headcount and relevant marketing expenses. For the time being, we will be focusing on expanding our services.

Now having said that, yes, this year, we are expecting a negative net profit. And also, we were -- depending on how much of a marketing spend we end up using, that deficit amount could -- the negative profit amount could actually rise. Having said that, we do not think that this is going to give us any financial burden because we will be spending our marketing budget in areas where we can gain performance.

In terms of the financial products, currently, the user base for NAVER Pay, they're familiar with the payment services that NAVER Pay offers. So for this year, when we are releasing and launching financial products and services, it will be for experience -- it will be with an experienced focus for the users. We will be giving them an opportunity to experience these types of products. So it will be mostly around lightweight products. So in terms of the revenue recognition this year, it will be mostly on a gross basis. After next year, once our platform really sets itself up as an intermediary financial platform, it is from that point in time where we will be recognizing and booking fee income as well.

--------------------------------------------------------------------------------

Sang-Jin Park, NAVER Corporation - CFO [7]

--------------------------------------------------------------------------------

[Interpreted] I'm the CFO. Let me elaborate on our global investment strategy. As you know, based on our strength in the portal business, our priority for investment has been search, AI, commerce, content and B2B business.

Now in 2019, we've invested about KRW 700 billion, both directly as well as indirectly. And mostly, it is to really gain the fruit of changing global environment and global transformation. And we've made entrances into different markets. We've invested around KRW 100 billion in countries like China, Southeast Asia, Europe and the North American market. So we have increased our investment. In 2020, we believe that this stance will continue, and we will be looking at investing around KRW 400 billion to KRW 500 billion.

Now already, even before our business integration with SoftBank, we've worked together. We've partnered up in investing in both domestic market and in Chinese market through SoftBank's funds. Once the current business integration process is complete, we will be able to come up with more detailed plan going forward. But if we think about the capital that SoftBank has and its technology investment fund, and if you think about the technological capabilities that NAVER has, we believe that we will be able to create new synergistic effect in a global market -- in the global market.

And also in 2020, some of the geographical areas that we are closely looking at is, if you look at Webtoon, we were able to bring quite a -- quite good performance from North American market. And the service user base for BAND is also growing in the U.S. market. So we're very closely following this market. And at the end of last year, Webtoon was launched in Europe. So once again, we're very closely having our interest in that market. And once the integration process is complete, of course, although LINE is being offered in Japan, I believe that in the Japanese market there is a lot of opportunities where NAVER and Yahoo! could bring synergies. We're also very closely following that as well.

So LINE is doing quite well in the Southeast Asian market as well. And we are looking at V Live as well as LINE products for Vietnam and other Southeast Asian countries.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

[Interpreted] The next question will be provided by Moonjong Lee from Shinhan Investment.

--------------------------------------------------------------------------------

Moonjong Lee, Shinhan Investment Corp., Research Division - Economist and Analyst [9]

--------------------------------------------------------------------------------

[Interpreted] My question relates to the Webtoon. Your business results from North American market was quite good. We'd like to understand what the [ARPU] is and what the paying ratio is for this market. And do you see any additional upside? And if North American users are more prone to or more accepting to the whole idea of paying for the content, I would think that compared to the domestic figure, ARPU and paying ratio would be higher. Is that the case? And also for the European market, what are your targets?

--------------------------------------------------------------------------------

Unidentified Company Representative, [10]

--------------------------------------------------------------------------------

[Interpreted] As our business performance from North American market for Webtoon was quite good, although it's difficult for me to share with you specific ARPU figure or the pay ratio, what I can say is that in North America, our Webtoon user base has surpassed 10 million mark, and we were able to successfully adopt the revenue model of the domestic model. And therefore, as of end of December, the number of paying subscribers or paying users increased by threefold as well as average revenue per paying users actually more than doubled. So -- and especially, as was mentioned during the presentation by our CEO, the 75% of U.S. user base are the so-called Z generation. So in the main U.S. market, we have this group of population who has the consumption power to spend on content. And basically, that, therefore, is a signal for -- of an upside in terms of possible increase in the pay ratio.

In terms of the pay ratio for North American market, we believe, although cautiously, that in the long run, it could go as high up as the levels in Japan and Korea because Japan and Korea, the pay ratio is relatively quite high. In terms of our targets for the European market, we've only recently started the service in France. So it's quite difficult for us to share with you the target MAU or other indicators. But once we start to see some of the results come out of these markets, we will take different occasions as much as possible to share with you those details.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

[Interpreted] The next question will be provided by Seyon Park from Morgan Stanley.

--------------------------------------------------------------------------------

Seyon Park, Morgan Stanley, Research Division - Equity Analyst [12]

--------------------------------------------------------------------------------

[Interpreted] I would like to ask 2 questions about your shareholder return policy. You've mentioned that starting this year, LINE is going to be removed from your consolidated statement. Does that mean that LINE contribution to your consolidated cash flow, which was a negative free cash flow, would that negative free cash flow element to be removed from the consolidated statement? Is my understanding correct? And you've mentioned that you will be canceling the treasury shares that you already hold. Since you have a lot of treasury shares. Going forward, will there be other occasions -- I mean, at what occasion or at what timing would you be making this additional share cancellation?

--------------------------------------------------------------------------------

Unidentified Company Representative, [13]

--------------------------------------------------------------------------------

[Interpreted] Responding to your first question, yes, at the end of this year, once the integration process is officially complete, it is correct that LINE is going to be removed from our consolidated statement. The reason why we decided to share and disclose our formula for calculation and the fund base for distribution is that because once the LINE -- once LINE is removed from the statement that means that LINE cash flow is going to be taken out of the consolidated cash flow calculation and basically, that was the basis for our change in the shareholder or dividend policy.

Responding to your second question on cancellation of treasury shares. Over the past 3 years, in order to drive growth from various different service areas, and because we were faced with fierce competition, we continuously increased our investment and spending. And as a result of that, compared to the new shareholder return logic that we had set up and the actual payout or distribution that was made to the shareholders, there was quite a bit of gap. So we decided to make an extraordinary share cancellation. Once again, in view of providing a steady shareholder return, every year, we will be able to review the possibility of a potential share cancellation. I would like to emphasize, though, that the treasury shares that we hold is going to be used only for the purpose of enhancing shareholder value. Starting next year, we will see exercise of the stock options that the employees and the management hold, and treasury shares will be used for the purpose of improving shareholder value.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

[Interpreted] Due to the time constraint, we will be taking final questions, last 2 questions.

The next question will be provided by Dong Hwan Oh from Samsung Securities.

--------------------------------------------------------------------------------

Dong Hwan Oh, Samsung Securities Co. Ltd., Research Division - Analyst [15]

--------------------------------------------------------------------------------

[Interpreted] I would like to pose 2 questions. First, when do you foresee your NAVER Webtoon, global that is, your global NAVER Webtoon revenue to post a turnaround? And secondly, I see that the traffic for that band is increasing quite rapidly. Do you plan to have an additional revenue model, monetization model? And what would the profitability outlook be like?

--------------------------------------------------------------------------------

Unidentified Company Representative, [16]

--------------------------------------------------------------------------------

[Interpreted] In terms of the Webtoon and our global turnaround, as you know, in Korea, we achieved BEP 2 years ago -- the second half of -- 2 years ago. And in the U.S. and in the global market, we believe that the current growth is quite important. And so continuing on from last year, this year as well, we will be quite aggressive in driving growth from the U.S. market and also entering into new markets, just as we did with the European market. So for the time being, we believe strengthening the global business base is more important. If BEP -- achieving BEP was our only objective, I believe, we could actually achieve that quite early on. But even at the expense of delaying that timing by a year or 2, we feel that accelerating global growth and increasing the overall volume from this business is quite important in terms of long-term effect.

Now responding to the question on BAND, yes, traffic is continuously growing, and MAU is also growing as well. In the fourth quarter, in the U.S. market, other than after-school activities, we have been continuously trying to discover new target groups, like church groups, school and workplace groups, and, hence, we were able to expand the MAU figure. In the domestic market, we feel that based on the users' behavior, it is currently evolving into becoming a gathering based on people's common interest. And also, for the domestic BAND, we have introduced different types of revenue models, like the banner advertisement, feed advertisement, gift shop as well as stickers. So there are various different types of revenue models that are currently being used. Going forward, we will continue to identify and discover new models and really improve the services and really focus on improving the user matrixes.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

[Interpreted] The final question will be provided by Soyun Shin from Crédit Suisse.

--------------------------------------------------------------------------------

Soyun Shin, Crédit Suisse AG, Research Division - Research Analyst [18]

--------------------------------------------------------------------------------

[Interpreted] My 2 questions are -- first one, related to shopping, you've mentioned you will be launching a brand store, but after -- since the -- after the launch in February, what are -- how do you plan to actually increase the number of brands and the branded stores? Are there new shopping solutions or new ad products you will be introducing? My second question is, when you are making that consolidated cash flow calculation, I know for your company, the effective corporate tax rate was very high because of the LINE factor. So once LINE is removed, does that mean that your effective corporate tax rate will be lowered to be aligned with the Korean average tax rates?

--------------------------------------------------------------------------------

Unidentified Company Representative, [19]

--------------------------------------------------------------------------------

[Interpreted] As I mentioned previously, in February, we're going to be opening a consumer electronics categories where there will be 10 brands that will be selling their product. And also it will then expand to other categories, like household, fashion apparel and furniture. So by the end of the year, we plan to expand the number of brands to around 200. And we will be coming out with products, which could be utilized for the marketing of those such branded products.

In terms of the consolidated effective tax rate, as you know, on a pretax basis, for NAVER, because the corporate tax expense was based off of the actual tax payment that is made, it was very high compared to Korean average. By the end of the year, once LINE is removed, we do expect that most likely that our tax rate will converge or be at the similar level to Korea's corporate tax rate.

--------------------------------------------------------------------------------

Kim Min;Director of IR, [20]

--------------------------------------------------------------------------------

[Interpreted] Thank you. This ends the earnings presentation for Q4 and 2019 annual earnings release. Thank you to our dear investors, and we look forward to your continued support.

[Portions of this transcript that are marked Interpreted were spoken by an interpreter present on the live call.]