IIJ Announces its Financial Results for the Fiscal Year Ended March 31, 2023

TOKYO, May 12, 2023 (GLOBE NEWSWIRE) — Internet Initiative Japan Inc. (“IIJ”, TSE Prime: 3774) today announced its consolidated financial results for the fiscal year ended March 31, 2023 (“FY2022”, from April 1, 2022 to March 31, 2023) under International Financial Reporting Standards (IFRS).¹

Overview of FY2022 Financial Results and Business Outlook
“We had a strong year of accelerating revenues growth of 11.7% YoY with the operating profit growth of 15.6% YoY even after the COVID-19 pandemic calming down. These results would convince that our recent growth is not a temporary outcome during the pandemic, but a consistent one. Recently, we have acquired several large scale projects that require comprehensive network services together with systems integration, adding to the constant accumulation of monthly recurring revenues; some projects have started to increase our revenues from the latter half of this fiscal year and the others would contribute after this fiscal year. With regards to network services, for making our competitive advantages more prominent, we have continuously expanded our services line-up and enhanced existing services. We have also strengthened our network infrastructure such as our own data centers and Internet backbone for absorbing growing demands. As for FY2023, we target the total revenues of JPY286.0 billion and operating profit of JPY31.5 billion based on our recent business progress, largely exceeding FY2021-FY2023 mid-term plan’s initial revenues target. We anticipate that continued implementation of our unchanged business strategy would realize strong revenue growth in FY2023, final fiscal year of current mid-term plan, and that would further continue to next mid-long term plan after FY2024,” said Eijiro Katsu, President of IIJ.

“We have started to see that networks and systems among Japanese enterprises and governmental organizations have been changing gradually. As Internet related technologies such as Cloud and remote access have begun to be adopted, enterprise systems need to combine internal networks with external services through Internet. At the same time, advanced security measures have become more essential toward various Internet threats. These changes distinguish our stable and secure network services and operation capabilities accumulated for around thirty years. Under these business circumstance, we have increased recruitment activities and approximately 1.4 times more new graduates joined this April compared to that of the last year. We have confidence in further expanding our role of supporting Japanese enterprises’ networks and systems,” concluded Koichi Suzuki, Founder and Chairman of IIJ.

____________________________

¹ Unless otherwise stated, all financial figures discussed in this announcement are prepared in accordance with IFRS, unaudited and consolidated.
² YoY is an abbreviation for year over year change.
³ Net profit is “profit for the year attributable to owners of the parent.”
⁴ IIJ conducted a stock split at a ratio of two-for-one with an effective date of October 1, 2022. YoY in annual cash dividend is calculated based on the post-stock-split basis.

FY2022 Financial Results Summary

We have omitted segment analysis because most of our revenues are dominated by network services and systems integration (SI) business. 

FY2022 Revenues and Income
Revenues
Total revenues were JPY252,708 million, up 11.7% YoY (JPY226,335 million for FY2021).

Network services revenue was JPY138,922 million, up 8.4% YoY (JPY128,213 million for FY2021).

Revenues for Internet connectivity services for enterprise were JPY40,253 million, up 6.2% YoY from JPY37,911 million for FY2021, mainly due to an increase in revenues of IP services, enterprise mobile services and broadband services, which absorbed a decrease in IIJ Mobile MVNO Platform service (MVNE) revenue in the response to the reduction in procurement cost.

Revenues for Internet connectivity services for consumers were JPY24,235 million, up 3.7% YoY from JPY23,376 million for FY2021, mainly due to an increase in revenue of IIJmio Mobile services led by an increase in subscription, which absorbed a decrease in revenue resulted from a decrease in average revenue per user along with continued migration of old plan’s customers to “GigaPlans” launched at the beginning of the previous fiscal year, and an increase in optical fiber internet access service for consumers in others.

Revenues for Outsourcing services were JPY46,808 million, up 15.5% YoY from JPY40,523 million for FY2021, mainly due to an increase in security-related services revenues.

Revenues for WAN services were JPY27,626 million, up 4.6% YoY from JPY26,403 million for FY2021.

SI revenues, including equipment sales, were JPY110,944 million, up 16.4% YoY (JPY95,338 million for FY2021).
Systems construction and equipment sales, a one-time revenue, was JPY42,945 million, up 21.4% YoY (JPY35,376 million for FY2021). Systems operation and maintenance revenue, a recurring revenue, was JPY67,999 million, up 13.4% YoY (JPY59,962 million for FY2021), mainly due to continued accumulation of systems operation orders as well as an increase in cloud-related services’ revenues.

Orders received for SI, including equipment sales, totaled JPY120,910 million, up 19.2% YoY (JPY101,476 million for FY2021); orders received for systems construction and equipment sales were JPY44,293 million, up 14.6% YoY (JPY38,660 million for FY2021), and orders received for systems operation and maintenance were JPY76,617 million, up 22.0% YoY (JPY62,816 million for FY2021).

Order backlog for SI, including equipment sales, as of March 31, 2023 amounted to JPY82,757 million, up 13.7% YoY (JPY72,791 million as of March 31, 2022); order backlog for systems construction and equipment sales was JPY13,799 million, up 10.8% YoY (JPY12,451 million as of March 31, 2022) and order backlog for systems operation and maintenance was JPY68,958 million, up 14.3% YoY (JPY60,340 million as of March 31, 2022).

ATM operation business revenues were JPY2,842 million, up 2.1% YoY (JPY2,784 million for FY2021).

Cost of sales
Total cost of sales was JPY194,800 million, up 11.5% YoY (JPY174,707 million for FY2021).

Cost of network services revenue was JPY100,776 million, up 8.8% YoY (JPY92,595 million for FY2021). There were an increase in purchasing cost of mobile devices and one-time cost reimbursement, which was related to a mobile unit charge by NTT DOCOMO, INC., of over JPY0.5 billion in 3Q22 (a similar impact of approximately JPY1.08 billion in 3Q21) as FY2021 mobile unit charge was fixed based on its actual results for the corresponding period. Gross profit was JPY38,146 million, up 7.1% YoY (JPY35,618 million for FY2021), and gross profit ratio was 27.5% (27.8% for FY2021).

Cost of SI revenues, including equipment sales was JPY92,391 million, up 14.9% YoY (JPY80,396 million for FY2021), mainly due to increases in purchasing costs and multi-cloud related services’ license fees along with an increase in revenues. Gross profit was JPY18,553 million, up 24.2% YoY (JPY14,942 million for FY2021) and gross profit ratio was 16.7% (15.7% for FY2021).

Cost of ATM operation business revenues was JPY1,633 million, down 4.8% YoY (JPY1,716 million for FY2021). Gross profit was JPY1,209 million (JPY1,068 million for FY2021) and gross profit ratio was 42.5% (38.3% for FY2021).

Selling, general and administrative expenses and other operating income and expenses
Selling, general and administrative expenses, including research and development expenses, totaled JPY30,897 million, up 10.5% YoY (JPY27,969 million for FY2021) , mainly due to increases in personnel-related expenses, advertising expenses and outsourcing expenses.

Other operating income was JPY281 million (JPY171 million for FY2021).

Other operating expenses was JPY71 million (JPY283 million for FY2021).

Operating profit
Operating profit was JPY27,221 million (JPY23,547 million for FY2021), up 15.6% YoY.

Finance income and expenses, and share of profit (loss) of investments accounted for using equity method
Finance income was JPY844 million (JPY3,506 million for FY2021). It included gains on financial instruments, mainly related to funds, of JPY303 million (JPY3,055 million for FY2021) and foreign exchange gain of JPY365 million (JPY327 million for FY2021).

Finance expense was JPY552 million (JPY556 million for FY2021). It included interest expenses of JPY529 million (JPY538 million for FY2021).

Share of loss of investments accounted for using equity method was JPY204 million (loss of JPY2,335 million for FY2021). There was a loss of DeCurret Holdings, Inc. of JPY382 million (share in the investee’s loss of JPY1,607 million and impairment loss on corresponding amount of goodwill of JPY1,181 million for FY2021), the tax effects of which were not recognized.

Profit before tax
Profit before tax was JPY27,309 million (JPY24,162 million for FY2021), up 13.0% YoY.

Profit for the year
Income tax expense was JPY8,330 million (JPY8,362 million for FY2021). There was a positive impact of JPY406 million related to a tax deduction due to tax incentives to promote wage increases. As a result, profit for the year was JPY18,979 million (JPY15,800 million for FY2021), up 20.1% YoY.

Profit for the year attributable to non-controlling interests was JPY141 million (JPY128 million for FY2021), mainly related to net income of Trust Networks Inc.

Profit for the year attributable to owners of parent was JPY18,838 million (JPY15,672 million for FY2021), up 20.2% YoY.

Financial Position as of March 31, 2023
As of March 31, 2023, the balance of total assets was JPY246,193 million, increased by JPY14,388 million from the balance as of March 31, 2022 of JPY231,805 million.

As of March 31, 2023, the balance of current assets was JPY106,678 million, increased by JPY2,193 million from the balance as of March 31, 2022 of JPY104,485 million. As for the major breakdown of balance and fluctuation of current assets, cash and cash equivalents decreased by JPY4,919 million to JPY42,472 million, trade receivables increased by JPY3,691 million to JPY41,340 million, inventories increased by JPY580 million to JPY3,188 million and prepaid expenses increased by JPY1,788 million to JPY15,341 million.

As of March 31, 2023, the balance of non-current assets was JPY139,515 million, increased by JPY12,195 million from the balance as of March 31, 2022 of JPY127,320 million. As for the major breakdown of balance and fluctuation of non-current assets, tangible assets increased by JPY5,475 million to JPY23,321 million mainly due to purchases related to Shiroi Data Center Campus construction, right-of-use assets, which include right to use leased assets under operating lease contracts such as office and data centers and assets under finance lease contracts such as data communication equipment, increased by JPY1,801 million to JPY46,675 million, mainly due to the recognition of leased assets related to data center contracts and others, intangible assets increased by JPY192 million to JPY16,616 million mainly due to purchase of software, prepaid expenses increased by JPY2,127 million to JPY12,579 million, mainly due to operation and maintenance costs, and other investments increased by JPY1,740 million to JPY19,150 million, mainly due to investment in the bond of DeCurret DCP Inc.

As of March 31, 2023, the balance of current liabilities was JPY77,864 million, increased by JPY1,087 million from the balance as of March 31, 2022 of JPY76,777 million. As for the major breakdown of balance and fluctuation of current liabilities, trade and other payables increased by JPY1,571 million to JPY22,313 million, borrowings increased by JPY458 million to JPY16,828 million mainly due to a decrease of JPY1,515 million from repayment of long-term borrowings, a decrease in short-term borrowings of JPY100 million and an increase of JPY2,000 million owing to a transfer from non-current liabilities, income taxes payable decreased by JPY1,761 million to JPY4,034 million, contract liabilities increased by JPY598 million to JPY10,169 million and other financial liabilities increased by JPY1,070 million to JPY18,105 million, mainly due to increases in liabilities related to operating leases.

As of March 31, 2023, the balance of non-current liabilities was JPY49,027 million, decreased by JPY1,380 million from the balance as of March 31, 2022 of JPY50,407 million. As for the major breakdown of balance and fluctuation of non-current liabilities, long-term borrowings decreased by JPY1,898 million to JPY3,602 million mainly due to a transfer to current portion, contract liabilities decreased by JPY18 million to JPY7,411 million and other financial liabilities increased by JPY549 million to JPY30,695 million, mainly due to increases in liabilities related to operating leases.

As of March 31, 2023, the balance of total equity attributable to owners of the parent was JPY118,117 million, increased by JPY14,589 million from the balance as of March 31, 2022 of JPY103,528 million. Ratio of owners’ equity to total assets was 48.0% as of March 31, 2023.

FY2022 Cash Flows
Cash and cash equivalents as of March 31, 2023 were JPY42,472 million (JPY47,391 million as of March 31, 2022).

Net cash provided by operating activities for FY2022 was JPY38,529 million (net cash provided by operating activities of JPY43,573 million for FY2021). There were profit before tax of JPY27,309 million (JPY24,162 million for FY2021), depreciation and amortization of JPY28,801 million (JPY28,444 million for FY2021), including JPY11,618 million (JPY11,534 million for FY2021) of depreciation of right-of-use operating lease assets under IFRS 16, and income taxes paid of JPY9,958 million (JPY5,700 million for FY2021). Regarding changes in working capital, there was net cash out of JPY7,712 million (net cash out of JPY2,892 million for FY2021). As for the major factors for the increase in net cash outflow in comparison with FY2021, there were increases in trade receivables and prepaid expenses.

Net cash used in investing activities for FY2022 was JPY18,386 million (net cash used in investing activities of JPY11,838 million for FY2021), mainly due to payments for purchases of tangible assets of JPY11,787 million (JPY6,783 million for FY2021), payments for purchases of intangible assets, such as software, of JPY5,471 million (JPY4,734 million for FY2021), payments for purchases of other investments such as investment in the bond of DeCurret DCP Inc. of JPY2,511 million (JPY717 million for FY2021), and proceeds from sales of tangible assets, which include sale and leaseback, of JPY1,546 million (JPY2,150 million for FY2021).

Net cash used in financing activities for FY2022 was JPY25,731 million (net cash used in financing activities of JPY27,296 million for FY2021), mainly due to payments of other financial liabilities of JPY19,344 million (JPY19,983 million for FY2021), which included payments under operating lease contracts such as office rent and finance lease contracts such as network equipment, dividends paid of JPY4,901 million (JPY3,836 million for FY2021) , and repayments of long-term borrowings of JPY1,515 million (JPY5,170 million for FY2021).

Outlook for FY2023 and three-year mid-term plan (FY2021-FY2023)
With regard to our outlook for FY2023, we expect revenue growth and profit expansion to advance furthermore as we expect steady revenue growth of enterprise network services as well as the contribution from large complex projects requiring network services and systems integration.

Our consolidated financial targets for FY2023 are as follows: total revenues of JPY286.0 billion, up 13.2% YoY and operating profit of JPY31.5 billion, up 15.7% YoY. As for profit before tax, we target JPY30.4 billion, up 11.1% YoY, by considering finance expenses, share of profit or loss of investments accounted for using equity method and others. As for profit for the year attributable to owners of the parent, we target JPY20.7 billion, up 10.0% YoY, by considering income tax expenses at the normal effective tax rate and others.

As for the three-year mid-term plan (FY2021-FY2023), we have updated the revised financial targets, which were announced in May 2022, of total revenues JPY270.0 billion and operating margin 11.5% to the above mentioned FY2023 targets of total revenues JPY286.0 billion and operating profit JPY31.5 billion. Operating margin’s target was originally over 9% which was announced in May 2021 and was revised to over 10% which was announced in November 2021.

Dividend Policy, FY2022 Dividend and FY2023 Dividend Forecast
The basic dividend policy of IIJ is that IIJ pays dividends to its shareholders continuously and stably while considering the need to have retained earnings for the enhancement of financial position, medium- to long-term business expansion, future business investment and others.

Based on the Articles of Incorporation of IIJ, the frequency of dividend payments is twice each fiscal year, an interim dividend and a year-end dividend. The interim dividend is decided by the meeting of the board directors of IIJ and the year-end dividend is approved at IIJ’s general meeting of shareholders.

As for FY2022, considering this basic policy, our interim dividend was JPY14.625 per share of common stock on the post-split basis and year-end dividend forecast is JPY14.63 per share of common stock. FY2022 total annual dividend forecast is JPY29.255 per share of common stock.

As for FY2023, our interim and year-end dividend forecasts are JPY17.18 and JPY17.18 per share of common stock respectively. FY2023 total annual dividend forecast is JPY34.36 per share of common stock, which is an increase of JPY5.105 from FY2022 annual dividend.

Presentation
Presentation materials will be posted on our web site (https://www.iij.ad.jp/en/ir/) on May 12, 2023. 

About Internet Initiative Japan Inc.
Founded in 1992, IIJ is one of Japan’s leading Internet-access and comprehensive network solutions providers. IIJ and its group companies provide total network solutions that mainly cater to high-end corporate customers. IIJ’s services include high-quality Internet connectivity services, mobile services, security services, cloud computing services, and systems integration. Moreover, IIJ operates one of the largest Internet backbone networks in Japan that is connected to the United States, the United Kingdom and Asia. IIJ listed on the First Section of the Tokyo Stock Exchange (“TSE”) in 2006 and transitioned to the Prime Market of TSE from April 2022.

For inquiries, contact:
IIJ Investor Relations　Tel: +81-3-5205-6500　E-mail: ir@iij.ad.jp　URL: https://www.iij.ad.jp/en/ir

Disclaimer:
Statements made in this press release regarding IIJ’s or management’s intentions, beliefs, expectations, or predictions for the future are forward-looking statements that are based on IIJ’s and managements’ current expectations, assumptions, estimates and projections about its business and the industry. These forward-looking statements, such as statements regarding revenues and profits, are subject to various risks, uncertainties and other factors that could cause IIJ’s actual results to differ materially from those contained in any forward-looking statement.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Going Concern Assumption
Nothing to be reported.

Changes in Accounting Policies
Nothing to be reported.

Segment Information
IIJ and its subsidiaries (collectively “the Company”) primarily operates its network service and system integration business, which provides a comprehensive range of network solutions to meet its customers’ needs by cross-selling a variety of services, including Internet connectivity services, WAN services, outsourcing services, systems integration and sales of network-related equipment, and the ATM operation business. Therefore, the Company defined two reportable segments: “Network service and systems integration business” and “ATM operation business.”

Segment information for the Company is as follows:

Intersegment transactions are based on market price. Substantially all revenues are from customers operating in Japan. Geographic information for revenues is not presented due to immateriality of revenue attributable to international operations. In addition, non-current assets (excluding financial instruments, deferred tax assets and assets related to retirement benefits) are not presented because substantially all non-current assets are located in Japan and non-current assets located overseas are not material.

Major customers information is not provided because there is no single external customer that accounts for 10% or more of the Company’s revenue.

Earnings per share
Basic earnings per share attributable to owners of the parent and diluted earnings per share attributable to owners of the parent for the years ended March 31, 2022 and 2023 were as follows:

Stock split
IIJ conducted a stock split at a ratio of two-for-one with an effective date of January October 1, 2022. Accordingly, basic earnings per share and diluted earnings per share have been calculated as if the stock split had been conducted at the beginning of the previous consolidated fiscal year.

Subsequent Events
Nothing to be reported. 

Note: The following information is provided to disclose Internet Initiative Japan Inc. (“IIJ”) financial results (unaudited) for the fiscal year ended March 31, 2023 (“FY2022”) in the form defined by the Tokyo Stock Exchange.

Consolidated Financial Results for the Fiscal Year ended March 31, 2023　[Under IFRS]

May 12, 2023

Company name: Internet Initiative Japan Inc.
Exchange listed: Tokyo Stock Exchange
Ticker symbol: 3774
URL: https://www.iij.ad.jp/
Representative: Eijiro Katsu, President and Representative Director
Contact: Akihisa Watai, Senior Managing Director and CFO
TEL: (03) 5205-6500
Scheduled date for annual general shareholders’ meeting: June 28, 2023
Scheduled date for dividend payment: June 29, 2023
Scheduled date for filing of annual securities report (Yuka-shoken-houkokusho) to Japan’s regulatory organization: June 30, 2023
Supplemental material on annual results: Yes        
Presentation on annual results: Yes (for institutional investors and analysts)

(Amounts of less than JPY one million are rounded)

1. Consolidated Financial Results for the Fiscal Year ended March 31, 2023 (April 1, 2022 to March 31, 2023)

(1) Consolidated Results of Operations                                                                                                                                　　(% shown is YoY change)

(Reference) Share of profit (loss) of investments accounted for using equity method
              Fiscal year ended March 31, 2023: JPY(204) million, Fiscal year ended March 31, 2022: JPY(2,335) million
(Note) IIJ conducted a stock split at a ratio of two-for-one with an effective date of October 1, 2022. Accordingly, basic earnings per share and diluted earnings per share have been calculated as if the stock split had been conducted at the beginning of the previous consolidated fiscal year.

(2) Consolidated Financial Position

(Note) IIJ conducted a stock split at a ratio of two-for-one with an effective date of October 1, 2022. Accordingly, owners’ equity per share has been calculated as if the stock split had been conducted at the beginning of the previous consolidated fiscal year.

(3) Consolidated Cash Flow

2．Dividends

(Note) IIJ conducted a stock split at a ratio of two-for-one with an effective date of October 1, 2022. The year-end dividend per share for the fiscal year ended March 31, 2023 is the amount after the stock split. Regarding the pre-split basis amount for the fiscal year ended March 31, 2023, the year-end and annual dividend per share are JPY29.26 and JPY58.51, respectively.

3．Targets of Consolidated Financial Results for the Fiscal Year ending March 31, 2024
(April 1, 2023 through March 31, 2024)

(% shown is YoY change)

* Notes:
(1) Changes in significant subsidiaries: None

(2) Changes in accounting policies and estimate

1. Changes in accounting policies required by IFRS: None
2. Other changes in accounting policies: None
3. Changes in accounting estimates: None

(3) Number of shares issued (common stock)

1. Number of shares issued (inclusive of treasury stock):
   As of March 31, 2023: 187,069,600 shares
   As of March 31, 2022: 187,069,600 shares
2. Number of treasury stock:
   As of March 31, 2023: 6,371,732 shares
   As of March 31, 2022: 6,443,334 shares
3. Number of weighted average shares outstanding:
   For the fiscal year ended March 31, 2023: 180,683,190 shares
   For the fiscal year ended March 31, 2022: 180,592,178 shares

* IIJ conducted a stock split at a ratio of two-for-one with an effective date of October 1, 2022. Accordingly, number of shares issued, number of treasury stock and number of weighted average shares outstanding above have been calculated as if the stock split had been conducted at the beginning of the previous consolidated fiscal year, respectively.
  
* Status of Audit Procedures
This document is not subject to the audit procedures by certified public accountant or independent auditor.

* Explanation on the Appropriate Use of Future Outlook and other special instructions
i) Forward-looking statements
Forward-looking statements disclosed in this document are based on IIJ Group’s expectation, estimates, and projections based on information available to IIJ Group as of May 12, 2023. As these forward-looking statements are subject to known and unknown risks and uncertainties, actual results may differ from those disclosed due, for example, to but not limited to changes in business climate and/or market trends. As for our latest forecast of our financial targets, please refer to “Outlook for FY2023 and three-year mid-term plan (FY2021-FY2023)” written on page 8 of this document.

ii) Adoption of IFRS
We have adopted IFRS from the Annual Securities Report (Yuka-shoken-houkokusho) for the fiscal year ended March 31, 2019.        

iii) Others
Presentation material will be disclosed on TDnet as well as posted on our website on May 12, 2023. 

[English Translation]

May 12, 2023

Company name: Internet Initiative Japan Inc.

Company representative: Eijiro Katsu, President and Representative Director
(Ticker symbol: 3774, The Prime Market of the Tokyo Stock Exchange)

Contact: Akihisa Watai, Senior Managing Director and CFO
TEL: 81-3-5205-6500

Information Pertaining to Our Largest Shareholder

1. About Our Largest Shareholder (As of March 31, 2023)

2. Position of the Listed Company (IIJ) within NTT Group and other relationships

The ownership percentage by NTT, which is IIJ’s largest shareholder, was 26.9% as of March 31, 2023, including its indirect ownership. However, IIJ’s business activities are not affected by NTT’s ownership in IIJ and IIJ is maintaining its management independence.

3. Business Relationship with NTT Group

IIJ uses services provided by Nippon Telegraph and Telephone East Corporation and Nippon Telegraph and Telephone West Corporation for a significant portion of IIJ’s access circuits, services provided by NTT Communications Corporation for a significant portion of IIJ’s domestic and international backbone circuits, and services provided by NTT DOCOMO, INC. for a significant portion of IIJ’s mobile infrastructure, to provide Internet connectivity, mobile-related and other services to IIJ’s customers. IIJ also leases a part of Internet data center facilities from NTT Group companies to provide Internet data center services. The aggregate amount paid to for these services was JPY20,140 million for the fiscal year ended March 31, 2023.