IIJ Announces its First Three Months Financial Results for the Fiscal Year Ending March 31, 2021
TOKYO, Aug. 07, 2020 (GLOBE NEWSWIRE) — Internet Initiative Japan Inc. (“IIJ”, TSE1: 3774) today announced its consolidated financial results for the first three months for the fiscal year ending March 31, 2021 (“1Q20”, from April 1, 2020 to June 30, 2020) under International Financial Reporting Standards (IFRS).1
Overview of 1Q20 Financial Results and Business Outlook“We started FY2020 with well-accomplished first quarter: accumulation of enterprise network services as well as profit improvement significantly exceeded our expectation. Amid the abnormal circumstance caused by the COVID-19, we were able to continuously and structurally improve operating profit by following FY2019 trend of solid accumulation of enterprise network services, which are all monthly recurring revenues. The COVID-19 has absolutely stimulated slow-moving Japanese enterprises to increase their dependency on network services and other IT means and we firmly believe this trend should last for middle-to-long term. For IIJ, this mainstream adoption of network and IT by Japanese enterprises is very positive as such shift should translate into network services’ continuous revenue growth for our business as well as profit growth contribution. Regarding Systems Integration (SI), 1Q system construction revenue and gross profit were mostly in line with our expectation, based on 4Q19-end order backlog. Although favorable demand remained, 1Q20 order-received was relatively small compared to normal years due to slowdown of Japanese enterprises’ business activity, which we expect to gradually recover. As for ATM operation business, most hard-hit business of ours by the pandemic and we expect its revenue and profit to decrease year over year, delivered better than expected results,” said Eijiro Katsu, COO and President of IIJ.
“As for other noticeable business developments, we are the provider of Smart Factory for Toyota Motor’s subsidiary.4 We are excited about executing this kind of full-scale and advanced IoT adoption as such projects contribute to accelerate many of our existing revenue categories such as mobile, security, cloud and SI. We continuously aim to acquire flagship IoT projects by leveraging our competitive advantage of having both various network services and SI expertise. DeCurret, our affiliated company engaged in fintech, has been co-working with its enterprise shareholders on settlement-related PoC experiments such as issuing digital currencies,5 P2P electricity trading6 and executing smart contracts.7 They have also been playing an active role in discussing about the future of digital currency settlement in Japan with mega banks and other major players,8” continued Katsu.
“What we saw in 1Q about Japanese enterprises requiring network services and other IT means might be a small change, yet this could eventually become a profound catalyst in pushing them to rely much more on them to bring greater business productivity and continuity. IIJ shall continue to operate exceptionally reliable network and system infrastructures as well as develop highly valuable network services toward our current client base, mostly comprised by medium-to-large Japanese enterprises. IIJ shall strive to expand its corporate value by sustaining Japanese enterprises’ network systems that are surely becoming critical social infrastructure,” concluded Koichi Suzuki, Founder, CEO, and Chairman of IIJ. 1Q20 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 Summary
1Q20 Revenues and Income
Revenues
Total revenues were JPY50,379 million, up 1.1% YoY (JPY49,829 million for 1Q19).Network services revenue was JPY30,934 million, up 0.8% YoY (JPY30,680 million for 1Q19).Revenues for Internet connectivity services for enterprise were JPY9,809 million, up 9.9% YoY from JPY8,926 million for 1Q19, 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 JPY6,454 million, down 0.7% YoY from JPY6,500 million for 1Q19, mainly due to 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 JPY6,175 million, down 16.8% YoY from JPY7,424 million for 1Q19. 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 JPY8,496 million, up 8.5% YoY from JPY7,830 million for 1Q19, 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 JPY18,875 million, up 4.2% YoY (JPY18,109 million for 1Q19).
Systems construction and equipment sales, a one-time revenue, was JPY6,550 million, down 9.6% YoY (JPY7,249 million for 1Q19), mainly due to stagnation of sales activities during April and May caused by the COVID-19 pandemic. Systems operation and maintenance revenue, a recurring revenue, was JPY12,325 million, up 13.5% YoY (JPY10,860 million for 1Q19), mainly due to an increase in private cloud services’ revenues.Orders received for SI, including equipment sales, totaled JPY20,643 million, down 7.1% YoY (JPY22,217 million for 1Q19); orders received for systems construction and equipment sales were JPY6,693 million, down 17.6% YoY (JPY8,118 million for 1Q19), and orders received for systems operation and maintenance were JPY13,949 million, down 1.1% YoY (JPY14,099 million for 1Q19). The decreases were mainly due to stagnation of sales activities as seen in revenue results.Order backlog for SI, equipment sales, as of June 30, 2020 amounted to JPY57,631 million, up 4.4% YoY (JPY55,222 million as of June 30, 2019); order backlog for systems construction and equipment sales was JPY7,650 million, down 12.2% YoY (JPY8,709 million as of June 30, 2019) and order backlog for systems operation and maintenance was JPY49,981 million, up 7.5% YoY (JPY46,514 million as of June 30, 2019).ATM operation business revenues were JPY570 million, down 45.2% YoY (JPY1,040 million for 1Q19), mainly due to temporary closure of stores to which we had placed ATMs caused by the COVID-19 pandemic during April and May, yet we saw some signs of recovery in June.Cost of sales
Total cost of sales was JPY42,266 million, down 0.4% YoY (JPY42,447 million for 1Q19).Cost of network services revenue was JPY24,944 million, down 2.8% YoY (JPY25,661 million for 1Q19). There was a decrease in circuit-related costs along with WAN services revenue decrease. Gross profit was JPY5,990 million, up 19.4% YoY (JPY5,019 million for 1Q19), and gross profit ratio was 19.4% (16.4% for 1Q19).Cost of SI revenues, including equipment sales was JPY16,884 million, up 4.1% YoY (JPY16,219 million for 1Q19). There was an increase in license fees along with an increase in cloud-related revenues. Gross profit was JPY1,991 million, up 5.4% YoY (JPY1,890 million for 1Q19) and gross profit ratio was 10.5% (10.4% for 1Q19).Cost of ATM operation business revenues was JPY438 million, down 22.7% YoY (JPY567 million for 1Q19). Gross profit was JPY132 million (JPY473 million for 1Q19) and gross profit ratio was 23.1% (45.5% for 1Q19).Selling, general and administrative expenses and other operating income and expenses
Selling, general and administrative expenses, which include research and development expenses, totaled JPY6,049 million, up 0.1% YoY (JPY6,042 million for 1Q19). There were an increase in personnel-related expenses and decreases in sales commission expenses, traveling expenses and advertising expenses.Other operating income was JPY48 million (JPY113 million for 1Q19).
Other operating expenses was JPY65 million (JPY72 million for 1Q19), mainly due to disposal loss on fixed assets.Operating profit
Operating profit was JPY2,047 million (JPY1,381 million for 1Q19), up 48.2% YoY.Finance income and expenses, and share of profit (loss) of investments accounted for using equity method
Finance income was JPY80 million, compared to JPY90 million for 1Q19. It included dividend income of JPY56 million (JPY61 million for 1Q19).Finance expense was JPY154 million, compared to JPY215 million for 1Q19. It included interest expenses of JPY151 million (JPY126 million for 1Q19).Share of loss of investments accounted for using equity method was JPY279 million (compared to profit of JPY112 million for 1Q19), mainly due to our share of loss of in DeCurret of JPY306 million.Profit before tax
Profit before tax was JPY1,694 million (JPY1,369 million for 1Q19), up 23.8% YoY.Profit for the period
Income tax expense was JPY572 million (JPY543 million for 1Q19). As a result, profit for the period was JPY1,122 million (JPY826 million for 1Q19), up 35.9% YoY.Profit for the period attributable to non-controlling interests was JPY6 million (JPY49 million for 1Q19) mainly related to net income of Trust Networks Inc.Profit for the period attributable to owners of parent was JPY1,116 million (JPY777 million for 1Q19), up 43.8% YoY.
Financial Position as of June 30, 2020
As of June 30, 2020, the balance of total assets was JPY205,349 million, decreased by JPY1,175 million from the balance as of March 31, 2020 of JPY206,524 million.As of June 30, 2020, the balance of current assets was JPY85,167 million, decreased by JPY1,423 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 JPY221 million to JPY38,893 million, a decrease in trade receivables by JPY4,086 million to JPY28,499 million and an increase in prepaid expenses by JPY3,017 million to JPY12,714 million.As of June 30, 2020, the balance of non-current assets was JPY120,182 million, increased by JPY248 million from the balance as of March 31, 2020 of JPY119,934 million. Right-of-use assets decreased by JPY1,954 million to JPY48,607 million, mainly due to depreciation. The balance of investments accounted for using the equity method was JPY7,179 million, increased by JPY2,352 million, mainly due to an additional investment in DeCurret. The amount of other investments was JPY10,611 million, increased by JPY1,424 million mainly due to fluctuation of fair value of our holding marketable equity securities.As of June 30, 2020, the balance of current liabilities was JPY66,995 million, increased by JPY1,309 million from the balance as of March 31, 2020 of JPY65,687 million. Trade and other payables decreased by JPY2,226 million to JPY16,061 million. Borrowings increased by JPY3,170 million to JPY18,750 million. The major 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. Income taxes payable decreased by JPY1,482 million to JPY801 million. Contract liabilities increased by JPY2,385 million to JPY8,283 million, mainly due to prepayment received in operating transactions.As of June 30, 2020, the balance of non-current liabilities was JPY56,685 million, decreased by JPY4,095 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 JPY1,313 million to JPY34,993 million, mainly due to lease paymentsAs of June 30, 2020, the balance of total equity attributable to owners of the parent was JPY80,737 million, increased by JPY1,661 million from the balance as of March 31, 2020 of JPY79,076 million. Ratio of owners’ equity to total assets was 39.3% as of June 30, 2020.
1Q20 Cash Flows
Cash and cash equivalents as of June 30, 2020 were JPY38,893 million (JPY32,893 million as of June 30, 2019).Net cash provided by operating activities for 1Q20 was JPY11,635 million (net cash provided by operating activities of JPY5,250 million for 1Q19). There was profit before tax of JPY1,694 million, depreciation and amortization of JPY7,095 million, including JPY3,009 million of depreciation of right-of-use operating lease assets under IFRS 16, and income taxes paid of JPY2,177 million. Regarding changes in operating assets and liabilities, there was net cash in of JPY4,576 million compared to net cash out of JPY2,057 million for 1Q19. As a result of an increase in proceeds from revenues, cash in related to decrease in trade receivable and increase in contract liabilities, which included prepayment of revenue, increased in comparison with 1Q19. As for trade and other payables, which was temporarily increased at the beginning of 1Q19, the cash out for 1Q20 decreased compared to 1Q19.Net cash used in investing activities for 1Q20 was JPY4,592 million (net cash used in investing activities of JPY2,141 million for 1Q19), mainly due to payments for purchase of tangible assets of JPY1,407 million (JPY2,947 million for 1Q19), payments for purchase of intangible assets, such as software, of JPY1,805 million (JPY1,650 million for 1Q19), proceeds from sales of tangible assets, which include sale and leaseback, of JPY1,017 million (JPY348 million for 1Q19) and an investment in an equity method investee of JPY2,754 million.Net cash used in financing activities for 1Q20 was JPY6,802 million (net cash used in financing activities of JPY2,097 million for 1Q19), mainly due to repayments of long-term borrowings of JPY915 million, payments of other financial liabilities of JPY5,223 million, including JPY2,980 million of payment of operating lease under IFRS 16, and dividends paid of JPY609 million.
Considered Factors for FY2020 Financial Targets
Due to seasonal factors, our financial results tend to be small in first quarter and large in fourth quarter every fiscal year. While 1Q20 financial results, profit in particular, exceeded our plan, because it continues to be difficult to meticulously estimate how much the COVID-19 impacts our earnings, as of today, our financial targets for the fiscal year ending March 31, 2021 (FY2020) announced on May 14, 2020 remain unchanged.PresentationPresentation materials will be posted on our web site (https://www.iij.ad.jp/en/ir/) on August 7, 2020.
Presentation materials are also available in these file archives: http://ml.globenewswire.com/Resource/Download/07746825-27a9-4912-831f-25599747e4c5.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/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
