IIJ Announces its First Six Months Financial Results for the Fiscal Year Ending March 31, 2021

TOKYO, Nov. 09, 2020 (GLOBE NEWSWIRE) — Internet Initiative Japan Inc. (“IIJ”, TSE1: 3774) today announced its consolidated financial results for the first six months for the fiscal year ending March 31, 2021 (“1H20”, from April 1, 2020 to September 30, 2020) under International Financial Reporting Standards (IFRS).¹
Overview of 1H20 Financial Results and Business Outlook“Under the continuation of the COVID-19 pandemic, both public and private sectors of Japanese society were certainly pressured to accelerate their adoption of IT and network resources. The ongoing transition shall go beyond just relying on emergency remote-work measures and to become profound changes for large Japanese enterprises’ attitude toward IT, which is quite behind in general. We have been pursuing our basic business strategies to develop reliable and value-added network services by ourselves to offer comprehensive solutions to our blue-chip clients base by leveraging our Internet-related technology expertise and robust Internet backbone. The current business climate would enhance our business growth more than ever,” said Koichi Suzuki, Founder, CEO and Chairman of IIJ.“We had strong 1H20 financial results under the above mentioned business circumstance. We continued to acquire demands for variety of network services such as SD-WAN services, private connectivity services with other cloud vendors, mobile VPN services. Demands for systems integration seemed to be recovered gradually which were slow in 1Q20 due to the slowdown in enterprise business activity. The network services’ revenue growth largely contributed to a significant increase in the gross profit and translated into stronger than expected operating profit. We are well-positioned in the coming Japan’s shift toward much more network-based society, and by considering the financial results, we have revised our full-year financial targets upward.⁵ Along with the profit growth, we increased both interim and year-end cash dividend forecast⁶ and also announced the 2-for-1 stock split,⁷” concluded Eijiro Katsu, COO and President of IIJ.
1H20 Financial Results SummaryWe have omitted segment analysis because most of our revenues are dominated by network services and systems integration (SI) business.Operating Results Summary(Note) Systems integration includes equipment sales.Segment Results Summary1H20 Revenues and Income
Revenues
Total revenues were JPY101,665 million, up 2.5% YoY (JPY99,220 million for 1H19).Network services revenue was JPY62,104 million, up 1.5% YoY (JPY61,204 million for 1H19).Revenues for Internet connectivity services for enterprise were JPY19,650 million, up 8.7% YoY from JPY18,075 million for 1H19, mainly due to an increase in IP services revenues and mobile-related services revenues along with an increase of telecommunication demands.Revenues for Internet connectivity services for consumers were JPY12,885 million, down 0.9% YoY from JPY12,997 million for 1H19, mainly due to competition and a decrease in “IIJmio Mobile Service,” consumer mobile services revenues, along with sluggish sales of retailers under the COVID-19 pandemic.Revenues for WAN services were JPY12,336 million, down 14.0% YoY from JPY14,342 million for 1H19. The decrease was mainly because of the year over year impact by large enterprises clients’ migration to mobile which mostly ended in 3Q19.Revenues for Outsourcing services were JPY17,233 million, up 9.1% YoY from JPY15,790 million for 1H19, mainly due to an increase in security-related services revenues.Network Services Revenues BreakdownNumber of Contracts and Subscription for Connectivity Services(Notes)Numbers in the table above show number of contracts except for “IIJ Mobile Services (enterprise)” and “IIJmio Mobile Service” which show number of subscriptions.The numbers of IP service contracts include the numbers of IIJ data center connectivity service contracts.Total contracted bandwidth is calculated by multiplying number of contracts under “Internet connectivity services (enterprise)” except for “IIJ Mobile Services” and the contracted bandwidths of the services respectively.SI revenues, including equipment sales, were JPY38,167 million, up 6.3% YoY (JPY35,916 million for 1H19).
Systems construction and equipment sales, a one-time revenue, was JPY13,020 million, down 5.3% YoY (JPY13,754 million for 1H19), mainly due to stagnation of business activities during April and May caused by the COVID-19 pandemic. Systems operation and maintenance revenue, a recurring revenue, was JPY25,147 million, up 13.5% YoY (JPY22,162 million for 1H19), mainly due to an increase in private cloud services’ revenues.Orders received for SI, including equipment sales, totaled JPY43,291 million, up 19.1% YoY (JPY36,351 million for 1H19); orders received for systems construction and equipment sales were JPY15,159 million, up 3.8% YoY (JPY14,610 million for 1H19), and orders received for systems operation and maintenance were JPY28,131 million, up 29.4% YoY (JPY21,741 million for 1H19).Order backlog for SI, equipment sales, as of September 30, 2020 amounted to JPY60,988 million, up 18.3% YoY (JPY51,550 million as of September 30, 2019); order backlog for systems construction and equipment sales was JPY9,646 million, up 10.9% YoY (JPY8,696 million as of September 30, 2019) and order backlog for systems operation and maintenance was JPY51,341 million, up 19.8% YoY (JPY42,853 million as of September 30, 2019).ATM operation business revenues were JPY1,394 million, down 33.6% YoY (JPY2,100 million for 1H19), mainly due to temporary closure of stores, to which we had placed ATMs, caused by the COVID-19 pandemic.Cost of sales
Total cost of sales was JPY84,210 million, up 0.2% YoY (JPY84,020 million for 1H19).Cost of network services revenue was JPY49,896 million, down 2.5% YoY (JPY51,153 million for 1H19). There was a decrease in circuit-related costs along with WAN services revenue decrease. Gross profit was JPY12,208 million, up 21.5% YoY (JPY10,051 million for 1H19), and gross profit ratio was 19.7% (16.4% for 1H19).Cost of SI revenues, including equipment sales was JPY33,390 million, up 5.2% YoY (JPY31,742 million for 1H19). There was an increase in license fees along with an increase in cloud-related revenues. Gross profit was JPY4,777 million, up 14.5% YoY (JPY4,174 million for 1H19) and gross profit ratio was 12.5% (11.6% for 1H19).Cost of ATM operation business revenues was JPY924 million, down 17.8% YoY (JPY1,125 million for 1H19). Gross profit was JPY470 million (JPY975 million for 1H19) and gross profit ratio was 33.7% (46.4% for 1H19).Selling, general and administrative expenses and other operating income and expenses
Selling, general and administrative expenses, which include research and development expenses, totaled JPY12,124 million, up 1.9% YoY (JPY11,901 million for 1H19). There were an increase in personnel-related expenses and decreases in sales commission expenses and traveling expenses.Other operating income was JPY80 million (JPY159 million for 1H19).
Other operating expenses was JPY172 million (JPY106 million for 1H19), mainly due to disposal loss on fixed assets.Operating profit
Operating profit was JPY5,239 million (JPY3,352 million for 1H19), up 56.3% YoY.Finance income and expenses, and share of profit (loss) of investments accounted for using equity method
Finance income was JPY109 million, compared to JPY119 million for 1H19. It included dividend income of JPY75 million (JPY61 million for 1H19).Finance expense was JPY469 million, compared to JPY295 million for 1H19. It included interest expenses of JPY296 million (JPY279 million for 1H19) and loss on funds of JPY141 million mainly due to foreign exchange loss.Share of loss of investments accounted for using equity method was JPY413 million (compared to loss of JPY133 million for 1H19), mainly due to our share of loss of in DeCurret of JPY578 million.Profit before tax
Profit before tax was JPY4,466 million (JPY3,043 million for 1H19), up 46.7% YoY.Profit for the period
Income tax expense was JPY1,656 million (JPY1,185 million for 1H19). As a result, profit for the period was JPY2,810 million (JPY1,858 million for 1H19), up 51.2% YoY.Profit for the period attributable to non-controlling interests was JPY40 million (JPY102 million for 1H19) mainly related to net income of Trust Networks Inc.Profit for the period attributable to owners of parent was JPY2,770 million (JPY1,756 million for 1H19), up 57.7% YoY.Financial Position as of September 30, 2020As of September 30, 2020, the balance of total assets was JPY206,455 million, decreased by JPY69 million from the balance as of March 31, 2020 of JPY206,524 million.As of September 30, 2020, the balance of current assets was JPY87,202 million, increased by JPY611 million from the balance as of March 31, 2020 of JPY86,590 million. The major breakdown of fluctuation and balance of current assets was: an increase in cash and cash equivalents by JPY2,931 million to JPY41,602 million, a decrease in trade receivables by JPY4,403 million to JPY28,182 million and an increase in prepaid expenses by JPY1,221 million to JPY10,918 million.As of September 30, 2020, the balance of non-current assets was JPY119,253 million, decreased by JPY681 million from the balance as of March 31, 2020 of JPY119,934 million. 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, decreased by JPY2,416 million to JPY48,144 million, mainly due to depreciation. The balance of investments accounted for using the equity method was JPY7,032 million, increased by JPY2,205 million, mainly due to an additional investment in DeCurret. The amount of other investments was JPY11,030 million, increased by JPY1,843 million mainly due to fluctuation of fair value of our holding marketable equity securities.As of September 30, 2020, the balance of current liabilities was JPY65,581 million, decreased by JPY106 million from the balance as of March 31, 2020 of JPY65,687 million. Trade and other payables decreased by JPY2,643 million to JPY15,645 million. Borrowings increased by JPY3,170 million to JPY18,750 million. The breakdown of increase in the borrowings was: a decrease by JPY915 million due to payment of long-term borrowings, and an increase by JPY4,085 million due to a transfer from non-current liabilities. Contract liabilities increased by JPY1,532 million to JPY7,430 million, mainly due to prepayment received in operating transactions. Other financial liabilities decreased by JPY1,934 million to JPY15,911 million, mainly due to lease payments.As of September 30, 2020, the balance of non-current liabilities was JPY57,059 million, decreased by JPY3,722 million from the balance as of March 31, 2020 of JPY60,780 million. Long-term borrowings decreased by JPY4,085 million to JPY8,085 million due to a transfer to current portion. Other financial liabilities decreased by JPY1,195 million to JPY35,111 million, mainly due to a transfer to current portion.As of September 30, 2020, the balance of total equity attributable to owners of the parent was JPY82,850 million, increased by JPY3,774 million from the balance as of March 31, 2020 of JPY79,076 million. Ratio of owners’ equity to total assets was 40.1% as of September 30, 2020.
1H20 Cash FlowsCash and cash equivalents as of September 30, 2020 were JPY41,602 million (JPY34,036 million as of September 30, 2019).Net cash provided by operating activities for 1H20 was JPY21,498 million (net cash provided by operating activities of JPY13,394 million for 1H19). There was profit before tax of JPY4,466 million, depreciation and amortization of JPY14,156 million, including JPY5,984 million of depreciation of right-of-use operating lease assets under IFRS 16, and income taxes paid of JPY2,045 million. Regarding changes in operating assets and liabilities, there was net cash in of JPY4,022 million compared to net cash out of JPY2,947 million for 1H19, mainly due to increases in proceeds related to decrease in trade receivable and increase in contract liabilities, which included prepayment of revenue, increased in comparison with 1H19. As for trade and other payables, which was temporarily increased at the beginning of FY2019, the cash out for 1H20 decreased compared to 1H19.Net cash used in investing activities for 1H20 was JPY6,547 million (net cash used in investing activities of JPY4,087 million for 1H19), mainly due to payments for purchase of tangible assets of JPY2,754 million (JPY4,788 million for 1H19), payments for purchase of intangible assets, such as software, of JPY2,772 million (JPY2,422 million for 1H19), proceeds from sales of tangible assets, which include sale and leaseback, of JPY1,448 million (JPY818 million for 1H19) and an investment in an equity method investee of JPY2,754 million.Net cash used in financing activities for 1H20 was JPY11,969 million (net cash used in financing activities of JPY7,139 million for 1H19), mainly due to repayments of long-term borrowings of JPY915 million, payments of other financial liabilities of JPY10,390 million, including JPY5,933 million of payment of operating lease under IFRS 16, and dividends paid of JPY609 million.Considered Factors for FY2020 Financial TargetsWe have revised our FY2020 financial targets and dividend forecast announced on May 14, 2020. For details, please refer to our press release titled “Notice Regarding the Differences between Financial Results for the Six Months ended September 30, 2020 and September 30, 2019, and Upward Revision of the Full-Year Financial Targets for the Fiscal Year ending March 31, 2021” and “Notice Regarding the Distribution of Retained Earnings (Interim Dividend, Increase) and Revision of Dividend Forecast for the fiscal year ending March 31, 2021” both of which were announced today, November 9, 2020.PresentationPresentation materials will be posted on our web site (https://www.iij.ad.jp/en/ir/) on November 9, 2020.
Presentation materials can also be found here: http://ml.globenewswire.com/Resource/Download/f0136eff-b394-4ae8-9ddb-2e9e38a92d9e 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 in 2006.For inquiries, contact:IIJ Investor Relations　Tel: +81-3-5205-6500　E-mail: ir@iij.ad.jp　URL: https://www.iij.ad.jp/en/irDisclaimer: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