Internet Initiative Japan Inc.
E-mail: ir@iij.ad.jp
Tel: +81-3-5205-6500
URL: https://www.iij.ad.jp/en/ir

TOKYO, May 14, 2020 (GLOBE NEWSWIRE) -- Internet Initiative Japan Inc. (“IIJ”, TSE: 3774) today announced its consolidated financial results for the fiscal year ended March 31, 2020 (“FY2019”, from April 1, 2019 to March 31, 2020) under International Financial Reporting Standards (IFRS).1

Highlights of Financial Results for FY2019
Total revenuesJPY204.5 billionup 6.3% YoY2 
Operating profitJPY8.2 billionup 36.6% YoY 
Net profit3JPY4.0 billionup 13.8% YoY 
Annual cash dividendJPY27.00per share of common stock 
 
Highlights of Financial Targets for FY2020
Total revenuesJPY210.0 billionup 2.7% YoY 
Operating profitJPY8.7 billionup 5.8% YoY 
Net profitJPY5.0 billionup 24.8% YoY 
Annual cash dividendJPY34.00per share of common stock 
 


“Amid the unprecedented fear and uncertainty coming from COVID-19, together with all of our employees, we continue to manage stable Internet network nationwide and provide reliable Internet connectivity and necessary network-related services to all of our clients so that they can continue their business activities. We believe our position of being able to offer comprehensive network services together with system integration (SI) should become even more critical in sustaining Japanese network society and economy,” said Koichi Suzuki, Founder, CEO and Chairman of IIJ. 

“As for FY2019 business, we executed our strategy as planned. We enhanced our full-MVNO service line-ups by launching official consumer eSIM services and adding chipSIM and SoftSIM functions, targeting many of corporates’ IoT usages. We also focused on local-5G projects, such as joint venture with SUMITOMO CORPORATION4 by leveraging our existing network-systems and expertise related to full-MVNO. Security continues to be a strong revenue driver as growing demands to implement and/or upgrade security measures in addition to revenue accumulation of our conventional gateway type services for emails and web as well as SOC5 services, DDoS protection services and other newer services. Cloud migration of Japanese blue chips’ internal systems has been constantly taking place and our multi-cloud service line-ups, which were expanded throughout FY2019, work to advance this shift continuously. In last May, we opened our second system module-based data center near Tokyo to integrate our server racks currently located in leased data centers and to reserve rooms to absorb future demands. Our existing service facilities have been migrated gradually. As for new businesses, JOCDN, our equity method investee with Japanese major broadcasting companies, enhanced their CDN service infrastructure in order to handle growing network traffic and invited new shareholders: NHK, sole public broadcaster in Japan, and WOWOW, prominent satellite broadcaster. DeCurret, our equity method investee engaged in FinTech business with 29 prominent Japanese large-cap shareholders, has started its cryptocurrency trading business as their 1st phase and preparing 2nd phase to handle digital currency, programmable money, security tokens and so on to exchange/deliver various value products through blockchain. They have been executing PoC projects with their shareholders,” said Eijiro Katsu, COO and President of IIJ.

“As for financial results, we achieved steady and continuous revenue growth in which security, enterprise mobile, and cloud significantly grew. Gross profit for both network services and SI also expanded with overall recurring revenue accumulation, full-MVNO profitability improvement along with its revenue accumulation, which service launch in March 2018 started with heavy fixed cost, and adequate performance of systems engineers with no unprofitable SI projects, through quality control measures. Operating profit strongly increased as SG&A stayed within our budget while we achieved gross profit expansion in both network services and SI,” continued Katsu.

“For FY2020, COVID-19 shall impose great uncertainty on global economy outlook and we may suffer from a decrease in system construction (one-time revenue) demands due to changes in Japanese companies’ investment appetite, decrease in consumer mobile acquisition due to sales partners’ shops temporary closure, and decrease in ATM transaction-related revenue due to shops temporary closure. However, we’re not too concerned about our recurring revenues, which amounted to 82.4% of FY2019 total revenues. In general, having experienced worldwide economic crisis of the past, IT and network oriented services usage shall become more and more indispensable and ultimately Internet traffic should grow. Our earnings growth pace may slowdown in FY2020, however we believe demands in the middle term will remain strong and we will pursue our continuous growth strategy going forward. Lastly, we plan to increase our FY2020 dividend forecast to JPY34.00 per common share of from JPY27.00 per common share in FY2019,” concluded Suzuki. 

_________________________________________
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 Please refer to our press release “Pursuing the Wireless Platform Business Using Local 5G” https://www.iij.ad.jp/en/news/pressrelease/2019/1224.html
5 SOC (Security Operation Center) engages in providing security monitoring and threat analysis of security logs collected from our dedicated security platform.

FY2019 Financial Results Summary
We have adopted IFRS 16 “Leases” (hereinafter “IFRS 16”) from 1Q19. As for the details, please refer to “Changes in Accounting Policies” written in the page 17 of this document.

Operating Results Summary

 FY2018FY2019YoY Change
 JPY millionsJPY millions%
Total revenues192,430 204,474 6.3 
Network services118,626 121,999 2.8 
Systems integration (SI)69,652 78,394 12.5 
ATM operation business4,152 4,081 (1.7)
Total costs(163,455)(171,880)5.2 
Network services(101,257)(102,092)0.8 
Systems integration (SI)(59,872)(67,584)12.9 
ATM operation business(2,326)(2,204)(5.3)
Total gross profit28,974 32,594 12.5 
Network services17,369 19,907 14.6 
Systems integration (SI)9,780 10,810 10.5 
ATM operation business1,825 1,877 2.9 
SG&A, R&D, and other operating income (expenses)(22,952)(24,369)6.2 
Operating profit6,023 8,225 36.6 
Profit before tax5,843 7,159 22.5 
Profit for the year attributable to owners of the parent3,521 4,007 13.8 

(Notes)
     Systems integration includes equipment sales.

Segment Results Summary

 FY2018FY2019
 JPY millionsJPY millions
Total revenues  192,430 204,474 
Network services and SI business188,634 200,679 
ATM operation business4,152   4,081 
Elimination(356)(286)
Operating profit6,023 8,225 
Network service and SI business4,599   6,729 
ATM operation business1,623   1,645 
Elimination(199)(149)

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

FY2019 Revenues and Income
Revenues
Total revenues were JPY202,474 million, up 6.3% YoY (JPY192,430 million for FY2018).

Network services revenue was JPY121,999 million, up 2.8% YoY (JPY118,626 million for FY2018).

Revenues for Internet connectivity services for enterprise were JPY36,635 million, up 10.4% YoY from JPY33,186 million for FY2018, mainly due to an increase in mobile-related services revenues such as MVNE and IoT type revenues by leveraging our full-MVNO infrastructure.

Revenues for Internet connectivity services for consumers were JPY26,055 million, up 3.3% YoY from JPY25,234 million for FY2018. The revenue growth was mainly due to “IIJmio Mobile Service,” consumer mobile services.

Revenues for WAN services were JPY26,972 million, down 13.0% YoY from JPY30,991 million for FY2018, mainly because of the planned migration projects of large enterprises clients who are moving away from dedicated line to mobile to connect their multiple locations.

Revenues for Outsourcing services were JPY32,337 million, up 10.7% YoY from JPY29,215 million for FY2018, mainly due to an increase in security-related services revenues.

Network Services Revenues Breakdown

 FY2018FY2019YoY Change
 JPY millionsJPY millions%
Total network services 118,626121,9992.8 
 Internet connectivity services (enterprise)33,18636,63510.4 
  IP services (including data center connectivity services)10,57210,7011.2 
  IIJ Mobile services 19,42022,59816.4 
   IIJ Mobile MVNO Platform Service14,55516,57413.9 
  Others3,1943,3364.5 
 Internet connectivity services (consumer)25,23426,0553.3 
  IIJmio Mobile Service22,53823,4874.2 
  Others2,6962,568(4.8)
 WAN services30,99126,972(13.0)
 Outsourcing services29,21532,33710.7 
      

Number of Contracts and Subscription for Connectivity Services

 As of
March 31, 2019
As of
March 31, 2020
YoY
Change
Internet connectivity services (enterprise)  1,757,7612,038,687280,926 
 IP service (greater than or equal to 1Gbps)   74376926 
 IP service (less than 1Gbps)   1,2651,245(20)
 IIJ Mobile Services  1,675,1231,949,927274,804 
  IIJ Mobile MVNO Platform Service  1,047,8561,107,11659,260 
 Others  80,63086,7466,116 
Internet connectivity services (consumer)   1,400,9281,410,0069,078 
 IIJmio Mobile Service  1,062,9211,075,08312,162 
 Others   338,007334,923(3,084)
Total contracted bandwidth (Gbps)  3,897.25,115.91,218.7 

(Notes)

  1. Numbers in the table above show number of contracts except for “IIJ Mobile Services (enterprise)” and “IIJmio Mobile Service” which show number of subscriptions.
  2. The numbers of IP service contracts includes the numbers of IIJ data center connectivity service contracts.
  3. 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.
  4. Along with our change in accounting principle from the U.S. GAAP to IFRS from the filing of our FY2018 annual report “Yuka-shoken-houkokusho,” the reporting period of foreign consolidated subsidiaries are different. As a result, the number of our Internet connectivity service contracts and total contracted bandwidth as of March 31, 2019, described above are different from the past disclosure.

SI revenues, including equipment sales, were JPY78,394 million, up 12.5% YoY (JPY 69,652 million for FY2018).
Systems construction and equipment sales revenue, a one-time revenue, was JPY31,976 million, up 14.7% YoY (JPY 27,882 million for FY2018), mainly due to continuous acquisition of system construction projects. Systems operation and maintenance revenue, a recurring revenue, was JPY46,418 million, up 11.1% YoY (JPY 41,770 million for FY2018), mainly due to continued accumulation of systems operation orders as well as an increase in private cloud services’ revenues.

Orders received for SI, including equipment sales, totaled JPY83,143 million, up 11.9% YoY (JPY74,302 million for FY2018); orders received for systems construction and equipment sales were JPY31,643 million, up 9.3% YoY (JPY28,955 million for FY2018), and orders received for systems operation and maintenance were JPY51,500 million, up 13.6% YoY (JPY45,347 million for FY2018).

Order backlog for SI, equipment sales, as of March 31, 2020 amounted to JPY55,864 million, up 9.3% YoY (JPY51,115 million as of March 31, 2019); order backlog for systems construction and equipment sales was JPY7,507 million, down 4.2% YoY (JPY7,840 million as of March 31, 2019) and order backlog for systems operation and maintenance was JPY48,357 million, up 11.7% YoY (JPY43,275 million as of March 31, 2019).

ATM operation business revenues, which include commission revenue for each bank withdrawal transaction when a customer uses the ATM and monthly revenue per each installed ATMs, were JPY4,081 million, down 1.7% YoY (JPY4,152 million for FY2018), mainly due to a decrease in the number of withdrawal transactions.

Cost of sales
Total cost of sales was JPY171,880 million, up 5.2% YoY (JPY163,455 million for FY2018).

Cost of network services revenue was JPY102,092 million, up 0.8% YoY (JPY101,257 million for FY2018). There was an increase in outsourcing-related costs along with our mobile-related revenue increase and a decrease in circuit-related costs along with our WAN services revenue decrease. Regarding the usage charge of mobile infrastructures provided by NTT DOCOMO, INC. (“Docomo”) and other mobile carriers, mobile interconnectivity telecommunications charges per bandwidth has been decreasing every year under the rules set by the Ministry of Internal Affairs and Communications. In March 2020, we were notified by Docomo about the revised new unit price for our usages during FY2018 and FY2019 and the unit price decreased by 6.0% from the previous year. Because the unit price is revised and notified at the end of our fiscal year, we had applied our own decrease rate, 8%, based on reasonable estimate in our quarterly earnings until the third quarter of FY2019. Mainly because there was a difference between our estimate, 8% decrease, and the actual, 6.0%, we recorded additional cost of JPY0.35 billion in 4Q19.

Gross profit was JPY19,907 million, up 14.6% YoY (JPY 17,369 million for FY2018), and gross profit ratio was 16.3% (14.6% for FY2018).

Cost of SI revenues, including equipment sales was JPY67,584 million, up 12.9% YoY (JPY59,872 million for FY2018). There was an increase in network operation-related costs and an increase in purchasing costs along with increase in our systems construction revenue. Gross profit was JPY10,810 million, up 10.5% YoY (JPY9,780 million for FY2018) and gross profit ratio was 13.8% (14.0% for FY2018).

Cost of ATM operation business revenues was JPY2,204 million, down 5.3% YoY (JPY2,326 million for FY2018). Gross profit was JPY1,877 million (JPY1,825 million for FY2018) and gross profit ratio was 46.0% (44.0% for FY2018).                                                                                                                         

Selling, general and administrative expenses and other operating income and expenses
Selling, general and administrative expenses, which include research and development expenses, totaled JPY24,076 million, up 6.3% YoY (JPY22,652 million for FY2018), mainly due to increases in personnel-related expenses and outsourcing expenses.

Other operating income was JPY223 million (JPY47 million for FY2018).
Other operating expenses was JPY516 million (JPY347 million for FY2018), mainly due to disposal loss on fixed assets.

Operating profit
Operating profit was JPY8,225 million (JPY6,023 million for FY2018), up 36.6% YoY.

Finance income and expenses, and share of profit (loss) of investments accounted for using equity method
Finance income was JPY350 million, compared to JPY570 million for FY2018. It included gains on financial assets, such as fund, of JPY128 million (JPY399 million for FY2018) and dividend income of JPY95 million (JPY87 million for FY2018).

Finance expense was JPY610 million, compared to JPY432 million for FY2018. It included interest expenses of JPY583 million (JPY430 million for FY2018).

Share of loss of investments accounted for using equity method was JPY806 million (compared to loss of JPY318 million for FY2018), mainly due to our share of loss of investments accounted for DeCurret Inc. of JPY1,005 million.

Profit before tax
Profit before tax was JPY7,159 million (JPY5,843 million for FY2018), up 22.5% YoY.

Profit for the year
Income tax expense was JPY2,965 million (JPY2,144 million for FY2018). As a result, profit for the year was JPY4,194 million (JPY3,699 million for FY2018), up 13.4% YoY.

Profit for the year attributable to non-controlling interests was JPY187 million (JPY178 million for FY2018) mainly related to net income of Trust Networks Inc. As a result, profit for the year attributable to owners of parent was JPY4,007 million (JPY3,521 million for FY2018), up 13.8% YoY.

Financial Position as of March 31, 2020
As of March 31, 2020, the balance of total assets was JPY206,524 million, increased by JPY39,235 million from the balance as of March 31, 2019 of JPY167,289 million.

As of March 31, 2020, the balance of current assets was JPY86,590 million, increased by JPY7,619 million from the balance as of March 31, 2019 of JPY78,971 million. The major breakdown of fluctuation and balance of current assets was: an increase in cash and cash equivalents by JPY6,714 million to JPY38,672 million, a decrease in trade receivables by JPY393 million to JPY32,982 million, a decrease in inventories by JPY927 million to JPY2,476 million, an increase in prepaid expenses by JPY1,174 million to JPY9,697 million and an increase in other financial assets by JPY1,090 million to JPY2,671 million.

As of March 31, 2020, the balance of non-current assets was JPY119,934 million, increased by JPY31,616 million from the balance as of March 31, 2019 of JPY88,318 million. Along with the adoption of IFRS 16 from the first quarter of the fiscal year ended March 31, 2020, right-of-use assets were newly accounted. The breakdown of right-of-use assets was: JPY34,477 million of assets under operating lease contracts which was newly recognized, mainly related to our office and data centers lease contracts, and JPY16,084 million of assets under finance lease contracts, most of which were transferred from tangible and intangible assets. Other investments was JPY9,187 million, decreased by JPY2,216 million mainly due to sale of marketable equity securities.

As of March 31, 2020, the balance of current liabilities was JPY65,687 million, increased by JPY12,782 million from the balance as of March 31, 2019 of JPY52,904 million. Trade and other payables decreased by JPY3,675 million to JPY18,288 million. Borrowings increased by JPY2,830 million to JPY15,580 million. The breakdown of increase in the borrowings was: an increase by JPY2,500 million in short-term borrowings, a decrease by JPY1,500 million due to payment of long-term borrowings, and an increase by JPY1,830 million due to a transfer from non-current liabilities. Other financial liabilities increased by JPY10,814 million to JPY17,845 million. The increase included JPY10,008 million related to operating lease recognized along with the adoption of IFRS 16.

As of March 31, 2020, the balance of non-current liabilities was JPY60,780 million, increased by JPY23,515 million from the balance as of March 31, 2019 of JPY37,265 million. Long-term borrowings decreased by JPY1,830 million to JPY12,170 million due to a transfer to current portion. Other financial liabilities increased by JPY24,154 million to JPY36,306 million. The increase included JPY24,584 million related to operating lease recognized along with the adoption of IFRS 16.

As of March 31, 2020, the balance of equity attributable to owners of parent was JPY79,076 million, increased by JPY2,804 million from the balance as of March 31, 2019 of JPY76,271 million. Ratio of owners' equity to total assets was 38.3% as of March 31, 2020.

FY2019 Cash Flows
Cash and cash equivalents as of March 31, 2020 were JPY38,672 million (JPY31,958 million as of March 31, 2019).

Net cash provided by operating activities for FY2019 was JPY33,394 million (net cash provided by operating activities of JPY 25,152 million for FY2018). There was profit before tax of JPY7,159 million, depreciation and amortization of JPY28,520 million, including JPY12,207 million of depreciation of right-of-use operating lease assets newly recognized by the adoption of IFRS 16, and income taxes paid of JPY2,611 million. Regarding changes in operating assets and liabilities, it was net cash out of JPY909 million mainly due to cash out by trade and other payables that had been recognized in FY2018 and were paid in FY2019, and prepaid expenses in relation to upfront payment for software licenses and maintenance cost for service facilities, while there were cash in by collecting trade receivables and deferred revenue.

Net cash provided by operating activities for FY2019 increased by JPY8,241 million compared to FY2018. By the adoption of IFRS16, there were reclassification of cash out related to operating leases of JPY12,141 million from operating activities to financing activities, while there were increase in cash out related to operating assets and liabilities of JPY7,752 million, mainly due to trade and other payables, and increase in cash flows related to profit or loss.

Net cash used in investing activities for FY2019 was JPY7,265 million (net cash used in investing activities of JPY8,688 million for FY2018), mainly due to payments for purchase of tangible assets of JPY7,197 million (JPY7,080 million for FY2018), payments for purchase of intangible assets, such as software, of JPY4,642 million (JPY5,400 million for FY2018), and proceeds from sales of other investments, such as equity securities, of JPY2,750 million.

Net cash used in financing activities for FY2019 was JPY19,354 million (net cash used in financing activities of JPY5,890 million for FY2018), mainly due to proceeds from short-term borrowings of JPY2,500 million, payments of other financial liabilities of JPY20,556 million (JPY 7,322 million for FY2018), including JPY12,141 million of payment of operating lease obligations newly recognized by the adoption of IFRS 16.

Considered Factors for FY2020 Financial Targets
We assume the following business of ours would particularly be impacted by COVID-19: 1) ATM operation business revenue decrease due to out of operation of placed bank ATMs along with stores temporary closure, 2) Systems construction (one-time revenue) and related revenue, due to decrease in enterprises investment appetite, 3) Acquisition of consumer mobile subscribers due to large shopping malls and other stores temporary closure. 

We assume impacts from these, especially ATM operation business revenue and operating profit, should particularly be apparent for the first half of FY2020 and we assume our first half operating profit to decrease YoY. On the other hand, we expect enterprise recurring revenue, such as network services, should continue to increase to some degree amid economic downturn. Please note that our FY2020 financial targets announced today are based on our expectation as of today and they include uncertainty. While we are well aware of possibility that the pandemic could further spread and/or take longer to end, we assume our FY2020 consolidated financial outlook based on our current expectation as written above.

Correspondence to COVID-19
In order to reduce the risk of COVID-19 infection, we have been working remotely from home, except for cases where it is impossible to continuously operate social infrastructure including Internet as well as to deliver necessary corporate operation. As of the end of April 2020, our ratio of working from home was approximately 80%. In case working at office is the only option, we take measures such as working different hours (showing up early/late) and/or allocating more space for seating. We will continue to take appropriate measures in timely manners in light of the changing circumstances.

Dividend Policy
Our basic dividend policy is that we pay dividends to our shareholders continuously and in a stable manner while considering the need to have retained earnings for the enhancement of financial position, medium-to long-term business expansion, future business investment and other goals.

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.

Based on the policy above, for FY2019, IIJ had paid the interim cash dividend of JPY13.50 per share of common stock and plans the year-end dividend to be JPY13.50 per share. Total dividend per share for FY2019 will be JPY27.00 per share of common stock.

As for FY2020, while we expect 1H20 operating profit to decrease YoY, we expect full FY2020 revenue and operating profit to increase YoY mainly because network services are expected to increase. Therefore, according with our basic dividend policy of continuous payment in a stable manner, our interim dividend forecast is JPY17.00 and our year-end dividend forecast is JPY17.00, which in total is an increase of JPY7.00 per share of common stock from the previous fiscal year.

Presentation
Presentation materials will be posted on our web site (https://www.iij.ad.jp/en/ir/) on May 14, 2020.

Presentation materials are also available in these file archives: http://ml.globenewswire.com/Resource/Download/bb8e5818-a32f-4ed2-8cca-9e22e0cdf12f

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.

Condensed Consolidated Statements of Financial Position (Unaudited)  
     
  March 31, 2019 March 31, 2020
  Thousands of yen Thousands of yen
Assets    
 Current Assets    
  Cash and cash equivalents 31,957,789  38,671,734 
  Trade receivables 33,375,808  32,982,448 
  Inventories 3,403,192  2,476,477 
  Prepaid expenses 8,522,554  9,696,856 
  Other financial assets 1,581,212  2,670,885 
  Other current assets 130,900  92,027 
  Total Current Assets 78,971,455  86,590,427 
 Non-current Assets    
  Tangible assets 33,136,059  17,399,863 
  Right-of-use Assets  50,560,361 
  Goodwill 6,082,472  6,082,472 
  Intangible assets 18,818,707  18,280,247 
  Investments accounted for using the equity method 4,837,867  4,827,287 
  Prepaid expenses 8,037,298  7,777,997 
  Other investments 11,402,365  9,186,646 
  Deferred tax assets 176,587  742,857 
  Other financial assets 5,293,547  4,706,321 
  Other non-current assets 532,839  369,782 
  Total non-current assets 88,317,741  119,933,833 
 Total assets 167,289,196  206,524,260 
     
  March 31, 2019 March 31, 2020
  Thousands of yen Thousands of yen
Liabilities and Equity    
 Liabilities    
  Current liabilities    
   Trade and other payables 21,962,239  18,287,546 
   Borrowings 12,750,000  15,580,000 
   Income taxes payable 1,139,460  2,283,707 
   Contract liabilities 5,368,075  5,897,674 
   Deferred income 93,738  88,901 
   Other financial liabilities 7,031,690  17,845,194 
   Other current liabilities 4,559,005  5,703,623 
   Total current liabilities 52,904,207  65,686,645 
  Non-current liabilities    
   Borrowings 14,000,000  12,170,000 
   Retirement benefit liabilities 3,488,501  3,984,880 
   Provisions 731,257  753,518 
   Contract liabilities 5,002,147  5,991,807 
   Deferred income 516,345  479,097 
   Deferred tax liabilities 421,396  136,536 
   Other financial liabilities 12,151,346  36,305,781 
   Other non-current liabilities 954,387  958,879 
   Total non-current liabilities 37,265,379  60,780,498 
  Total liabilities 90,169,586  126,467,143 
 Equity    
  Share capital 25,518,712  25,530,621 
  Share premium 36,225,775  36,271,395 
  Retained earnings 12,335,035  16,500,993 
  Other components of equity 4,088,704  2,669,501 
  Treasury shares (1,896,788) (1,896,921)
  Total equity attributable to owners of the parent 76,271,438  79,075,589 
  Non-controlling interests 848,172  981,528 
  Total equity 77,119,610  80,057,117 
 Total liabilities and equity 167,289,196  206,524,260 
     


Condensed Consolidated Statements of Profit or Loss (Unaudited)  
     
  For the year ended For the year ended
  March 31, 2019 March 31, 2020
  Thousands of yen Thousands of yen
Revenues    
  Network services 118,626,271  121,998,722 
  System integration 69,652,389  78,393,435 
  ATM operation business 4,151,525  4,081,358 
  Total revenues 192,430,185  204,473,515 
Cost of sales    
  Cost of network services (101,257,454) (102,092,065)
  Cost of systems integration (59,871,900) (67,584,141)
  Cost of ATM operation business (2,326,133) (2,203,884)
  Total cost of sales (163,455,487) (171,880,090)
Gross Profit 28,974,698  32,593,425 
Selling, general and administrative expense (22,652,036) (24,075,759)
Other operating income 47,008  223,215 
Other operating expenses (346,683) (515,709)
Operating Profit 6,022,987  8,225,172 
Finance income 570,004  349,965 
Finance expenses (431,763) (610,370)
Share of profit (loss) of investments accounted for
  using equity method
 (318,244) (805,780)
Profit (loss) before tax 5,842,984  7,158,987 
Income tax expense (2,144,196) (2,965,453)
Profit (loss) for the year 3,698,788  4,193,534 
Profit (loss) for the year attributable to:    
  Owners of the parent 3,520,566  4,006,773 
  Non-controlling interests 178,222  186,761 
  Total 3,698,788  4,193,534 
Earnings per share    
  Basic earnings per share (yen) 78.11  88.88 
  Diluted earnings per share (yen) 77.80  88.49 
       


Condensed Consolidated Statements of Comprehensive Income (Unaudited)  
     
  For the year ended For the year ended
  March 31, 2019 March 31, 2020
  Thousands of yen Thousands of yen
Profit (loss) for the year 3,698,788  4,193,534 
Other comprehensive income, net of tax    
 Items that will not be reclassified to profit or loss    
  Net change in fair value of equity instruments designated as measured at fair value through other comprehensive income (1,001,192) 234,772 
  Remeasurement of defined benefit plans 350,139  (157,541)
  Total items that will not be reclassified to profit or loss (651,053) 77,231 
 Items that may be reclassified to profit or loss    
  Exchange differences on translation of foreign operations 47,377  (92,375)
  Financial assets measured at fair value through other comprehensive income 1,260  (1,735)
  Share of other comprehensive income of investments accounted for using equity method (15,386) 7,671 
  Total of items that may be reclassified to profit or loss 33,251  (86,439)
 Total other comprehensive income, net of tax (617,802) (9,208)
Other comprehensive income for the year 3,080,986  4,184,326 
Other comprehensive income for the year attributable to:    
 Owners of the parent 2,902,764  3,997,565 
 Non-controlling interest 178,222  186,761 
 Other comprehensive income for the year 3,080,986  4,184,326 
     


Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)        
For the year ended March 31, 2019               
                
 Owners of the parent’s shareholders’ equity Non-
controlling
interests
 Total
equity
 Share capital Share premium Retained
earnings
 Other
components of equity
 Treasury shares Total  
 Thousands of yen Thousands of yen Thousands of yen Thousands of yen Thousands of yen Thousands of yen Thousands of yen Thousands of yen
Balance, March 31, 2018               
 Profit for the year- -  3,520,566  -  -  3,520,566  178,222  3,698,788 
 Other comprehensive income- -  -  (617,802) -  (617,802) -  (617,802)
 Total comprehensive income- -  3,520,566  (617,802) -  2,902,764  178,222  3,080,986 
Transactions with owners               
 Issuance of common stock6,908 (6,901) -  -  -  7  -  7 
 Purchase of treasury stock- -  -  -  (4) (4) -  (4)
 Dividends paid- -  (1,216,801) -  -  (1,216,801) (48,550) (1,265,351)
 Stock-based compensation- 56,740  -  -  -  56,740  -  56,740 
 Transfer from other components of equity to retained earnings- -  352,449  (352,449) -  -  -  - 
 Total transactions with owners6,908 49,839  (864,352) (352,449) (4) (1,160,058) (48,550) (1,208,608)
Balance, March 31, 201925,518,712 36,225,775  12,335,035  4,088,704  (1,896,788) 76,271,438  848,172  77,119,610 
                
                
For the year ended March 31, 2020               
                
 Owners of the parent’s shareholders’ equity Non-
controlling interests
 Total
equity
 Share capital Share premium Retained
earnings
 Other
components of equity
 Treasury shares Total  
 Thousands of yen Thousands of yen Thousands of yen Thousands of yen Thousands of yen Thousands of yen Thousands of yen Thousands of yen
Balance, March 31, 201925,518,712 36,225,775  12,335,035  4,088,704  (1,896,788) 76,271,438  848,172  77,119,610 
Cumulative impact of adopting IFRS 16 (Note)- -  (33,728) -  -  (33,728) -  (33,728)
Comprehensive income               
 Profit for the year- -  4,006,773  -  -  4,006,773  186,761  4,193,534 
 Other comprehensive income- -  -  (9,208) -  (9,208) -  (9,208)
 Total comprehensive income- -  4,006,773  (9,208) -  3,997,565  186,761  4,184,326 
Transactions with owners               
 Issuance of common stock11,909 (11,895) -  -  -  14  -  14 
 Purchase of treasury stock- -  -  -  (133) (133) -  (133)
 Dividends paid- -  (1,217,082) -  -  (1,217,082) (53,405) (1,270,487)
 Stock-based compensation- 57,515  -  -  -  57,515  -  57,515 
 Transfer from other components of equity to retained earnings- -  1,409,995  (1,409,995) -  -  -  - 
 Total transactions with owners11,909 45,620  192,913  (1,409,995) (133) (1,159,686) (53,405) (1,213,091)
Balance, March 31, 202025,530,621 36,271,395  16,500,993  2,669,501  (1,896,921) 79,075,589  981,528  80,057,117 
(Note)  This line shows impact from adopting IFRS 16 "Leases."            


   
Condensed Consolidated Statements of Cash Flows (Unaudited)  
     
  For the year ended For the year ended
  March 31, 2019 March 31, 2020
  Thousands of yen Thousands of yen
Cash flows from operating activities:    
 Profit (loss) before tax 5,842,984  7,158,987 
 Adjustments    
  Depreciation and amortization 15,628,567  28,520,131 
  Loss on sales of property and equipment 303,072  470,789 
  Shares of loss (profit) of investments accounted for using the equity method 318,244  805,780 
  Finance income (569,387) (259,463)
  Finance expenses 430,176  592,186 
  Other 21,166  (8,075)
  Changes in working capital    
   Decrease (increase) in trade receivables (1,758,343) 344,940 
   Decrease (increase) in inventories (1,857,488) 919,349 
   Decrease (increase) in prepaid expenses (1,275,117) (929,537)
   Decrease (increase) in other assets 557,337  245,625 
   Decrease (increase) in other financial assets 2,333,483  (322,857)
   Increase (decrease) in trade and other payables 5,499,957  (4,052,514)
   Increase (decrease) in contract liabilities 2,725,069  1,590,073 
   Increase (decrease) in deferred income 158,109  (42,085)
   Increase (decrease) in other liabilities 156,096  1,150,317 
   Increase (decrease) in other financial liabilities 29,211  (83,898)
   Increase (decrease) in retirement benefit liabilities 275,019  271,746 
 Sub total 28,818,155  36,371,494 
 Interest and dividends received 182,174  211,312 
 Interest paid (427,199) (578,252)
 Income taxes paid (3,420,784) (2,610,803)
 Cash flows from operating activities 25,152,346  33,393,751 
Cash flows from investing activities    
 Purchases of tangible assets (7,080,371) (7,196,952)
 Proceeds from sales of tangible assets 3,070,798  2,771,031 
 Purchases of intangible assets (5,400,380) (4,641,964)
 Proceeds from sales of intangible assets 1,579  273,773 
 Purchase of investments accounted for using equity method -  (867,842)
 Purchases of other investments (44,013) (136,429)
 Proceeds from sales of other investments 565,477  2,750,245 
 Payments for leasehold deposits and guarantee deposits (20,848) (196,716)
 Proceeds from collection of leasehold deposits and guarantee deposits 56,224  21,527 
 Payments for refundable insurance policies (56,355) (56,340)
 Proceeds from subsidies 230,000  - 
 Other (9,700) 14,833 
 Cash flows from investing activities (8,687,589) (7,264,834)
Cash flows from financing activities    
 Repayment of  long-term borrowings -  (1,500,000)
 Net increase (decrease) in short-term borrowings 2,000,000  2,500,000 
 Proceeds from other financial liabilities 697,863  1,473,000 
 Payments of other financial liabilities (7,322,252) (20,556,388)
 Dividends paid (1,216,801) (1,217,082)
 Other (48,560) (53,551)
 Cash flows from financing activities (5,889,750) (19,354,021)
Effect of exchange rate changes on cash and cash equivalents 62,778  (60,951)
Net increase (decrease) in cash and cash equivalents 10,637,785  6,713,945 
Cash and cash equivalents, beginning of year 21,320,004  31,957,789 
Cash and cash equivalents, end of year 31,957,789  38,671,734 
       

Notes to Condensed Consolidated Financial Statements (UNAUDITED)
Going Concern Assumption (Unaudited)
Nothing to be reported. 

Changes in Accounting Policies (Unaudited)
The Company applied the following standard starting from the first quarter of the fiscal year ended March 31, 2020.

IFRSOutline of a new standard and amendments
IFRS 16LeasesAmendment concerning accounting treatment for leases

The Company adopted IFRS 16 “Leases” (issued in January 2016) from the first quarter of the fiscal year ended March 31, 2020.

According to the transition approach, the Company has adopted IFRS 16 retrospectively and the cumulative effect of applying this standard was recognized as adjustment of retained earnings at the beginning date of the first quarter of the fiscal year ended March 31, 2020. In applying IFRS 16, the Company chooses the practical expedient in IFRS 16 paragraph C3 and assesses whether contracts contain leases in accordance with IAS 17 “Leases” (hereinafter, “IAS 17”) and IFRIC 4 “Determining whether an Arrangement contains a Lease.”

The Company recognized right-of-use assets and other financial liabilities related to leases previously classified as operating leases under the principles of IAS 17 were recognized at the date of initial application of IFRS 16. These liabilities are measured at present value of the remaining lease payments discounted using the lessee’s incremental borrowing rate at the date of initial application. Right-of-use assets are measured retrospectively as if IFRS 16 had been applied from the inception date. Right-of-use assets are depreciated using the straight-line method.

For leases that were previously classified as finance leases as a lessee under the principles of IAS 17, the carrying amount of right-of-use assets and other financial liabilities as of the date of initial application has been measured based on the carrying amount of right-of-use assets and other financial liabilities, respectively, under IAS 17 as of the day immediately before that date.

The following is the reconciliation of non-cancellable operating lease contracts disclosed applying IAS 17 as of March 31, 2019 and other financial liabilities related to leases recognized in the consolidated statement of financial position at the date of initial application.

 (Thousands of yen)
Non- Cancellable operating lease contracts disclosed as of March 31, 201911,305,119
Operating lease contracts discounted using the incremental borrowing rate as of April 1, 201911,292,343
Finance lease contracts disclosed as of March 31, 201918,033,862
Cancellable operating lease contracts, etc.27,745,102
Other financial liabilities related to leases as of April 1, 201957,071,307

As a result of the adoption of IFRS 16, the Company recorded right-of-use assets of JPY38,988,207 thousand and other financial liabilities of JPY39,037,445 thousand at April 1, 2019. In addition, retained earnings decreased by JPY33,728 thousand primarily due to having adopted the method where the cumulative effect of applying this standard is recognized at the date of initial application.

The following practical expedients are used in the adoption of IFRS 16.

  • A single discount rate is applied to portfolios of leases with reasonably similar characteristics.
  • Leases for which the lease term ends within 12 months of the date of initial application are accounted for in the same way as short-term leases.
  • Initial direct costs are excluded from the measurement of the right-of-use asset at the date of initial application.
  • The Company uses hindsight to calculate the lease term for lease contracts including options to extend or terminate the lease.

The balances of other financial liabilities related to leases are as follows:

 

 
As of March 31, 2019 As of March 31, 2020
Thousands of yen Thousands of yen
Classification under IAS 17   
Finance leases18,033,862 18,062,638
Operating leases 34,591,850
    

Segment Information (Unaudited)
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.”

Intersegment transactions are based on market price.

Segment information for the Company is as follows:

Fiscal year ended March 31, 2019

 Reportable segments     
Network service and systems integration business ATM operation
business
 Adjustments Consolidated
Thousands of yen Thousands of yen Thousands of yen Thousands of yen
Revenue       
Customers188,278,660 4,151,525  192,430,185 
Intersegment transactions354,990  (354,990) 
Total revenue188,633,650 4,151,525 (354,990) 192,430,185 
Segment operating profit4,599,187 1,622,517 (198,717) 6,022,987 
        
Finance income      570,004 
Finance expense      (431,763)
Share of profit (loss) of investments accounted for using the equity method      (318,244)
Profit before tax      5,842,984 
        
        

Fiscal year ended March 31, 2020

 Reportable segments     
Network service and systems integration business ATM operation
business
 Adjustments Consolidated
Thousands of yen Thousands of yen Thousands of yen Thousands of yen
Revenue       
Customers200,392,157 4,081,358  204,473,515 
Intersegment transactions287,262  (287,262) 
Total revenue200,679,419 4,081,358 (287,262) 204,473,515 
Segment operating profit6,728,906 1,644,629 (148,363) 8,225,172 
        
Finance income      349,965 
Finance expense      (610,370)
Share of profit (loss) of investments accounted for using the equity method      (805,780)
Profit before tax      7,158,987 
        

Earnings per share (Unaudited)
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, 2019 and 2020 were as follows:

  For the year ended
March 31, 2019
 For the year ended
March 31, 2020
Numerator:    
 Basic earnings attributable to owners of the parent ( thousands of yen ) 3,520,566 4,006,773
     
Denominator:    
 Weighted average number of shares ― basic(shares) 45,070,469 45,080,402
 Dilution arising from stock options (shares) 178,915 200,666
 Weighted average number of shares ― diluted(shares) 45,249,384 45,281,068
     
Earnings per share attributable to owners of the parent    
 Basic (yen) 78.11 88.88
 Diluted (yen) 77.80 88.49
     

Subsequent Events (Unaudited)
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, 2020 (“FY2019”) in the form defined by the Tokyo Stock Exchange.


Consolidated Financial Results for the Fiscal Year ended March 31, 2020 [Under IFRS]

May 14, 2020

Company name: Internet Initiative Japan Inc.

Exchange listed: Tokyo Stock Exchange First Section

Stock code number: 3774

URL: https://www.iij.ad.jp/

Representative: Eijiro Katsu, President and Representative Director

Contact: Akihisa Watai, Managing Director and CFO

TEL: (03) 5205-6500

Scheduled date for annual general shareholders’ meeting: June 24, 2020

Scheduled date for dividend payment: June 25, 2020

Scheduled date for filing of annual securities report (Yuka-shoken -houkokusho) to Japan’s regulatory organization: June 30, 2020

Supplemental material on annual results: Yes

Presentation on annual results: No

(Amounts of less than JPY one million are rounded)

1. Consolidated Financial Results for the Fiscal Year ended March 31, 2020
    (April 1, 2019 to March 31, 2020)

                                                                                 

 (1) Consolidated Results of Operations(% shown is YoY change) 
 RevenuesOperating profitProfit (loss) before
tax
Profit (loss)
for the year
Profit (loss)
attributable to
owners
of the parent
Other
comprehensive
income
 JPY millions%JPY millions%JPY millions%JPY millions%JPY millions%JPY millions%
Fiscal Year ended  March 31, 2020204,4746.38,22536.6 7,15922.5 4,19413.4 4,00713.8 4,18435.8 
Fiscal Year ended March 31, 2019192,4309.26,023(11.0)5,843(15.0)3,699(19.5)3,521(20.4)3,081(60.6)


 Basic earnings per
share
Diluted earnings per
share
Rate of return
on equity
Ratio of profit before
taxes to total assets
Ratio of operating
profit to revenues
 JPYJPY%%%
Fiscal Year ended March 31, 202088.8888.495.23.84.0
Fiscal Year ended March 31, 201978.1177.804.73.63.1

(Reference) Equity in net income (loss) of equity method investees
Fiscal year ended March 31, 2020: JPY(806) million, Fiscal year ended March 31, 2019: JPY(318) million


(2) Consolidated Financial Position     
 Total assetsTotal equityTotal equity
attributable to owners
of the parent
Ratio of owners'
equity
 to total assets
Owners' equity
per share
 JPY millionsJPY millionsJPY millions%JPY
As of March 31, 2020206,52480,05779,07638.31,753.97
As of March 31, 2019167,28977,12076,27145.61,692.27


(3) Consolidated Cash Flow    
 Operating activitiesInvesting activitiesFinancing activitiesCash and cash equivalents
(end of the period)
 JPY millionsJPY millionsJPY millionsJPY millions
Fiscal year ended March 31, 202033,394(7,265)(19,354)38,672
Fiscal year ended March 31, 201925,152(8,688) (5,890)31,958


2
Dividends

 Dividend per SharesTotal cash
dividends
for the year
Payout
Ratio
(consolidated)
Ratio of Dividends to Shareholder's Equity
(consolidated)
 1Q-end2Q-end3Q-endYear-endTotal
 JPYJPYJPYJPYJPYJPY millions%%
Fiscal Year Ended
March 31, 2019
13.5013.5027.001,21734.61.6
Fiscal Year Ended
March 31, 2020
13.5013.5027.001,21730.41.6
Fiscal Year Ending
March 31, 2021
 (forecast)
17.0017.0034.00 30.7 


3Targets of Consolidated Financial Results for the Fiscal Year ending March 31, 2021
     (April 1, 2020 through March 31, 2021)
                                                                

     (% shown is YoY change)
 RevenuesOperating profitProfit (loss) before taxProfit (loss) for the
year attributable to
owners of the parent
Basic earnings per
share
 JPY millions%JPY millions%JPY millions%JPY millions%JPY
Fiscal Year Ending
March 31, 2021
210,0002.78,7005.88,00011.75,00024.8110.90

(Note) Because it is difficult to reasonably predict when COVID-19 pandemic will be stamped out, we only disclose full-year financial target. FY2020 financial targets announced today are based on assumption that state of emergency related to COVID-19 will be lifted by September 2020 and along with that economic activities should gradually resume and be back to normal. Please note that our financial targets are subject to change if COVID-19 pandemic situation changes.

* Notes:
(1) Changes in significant subsidiaries: None
(2) Changes in accounting policies and estimate

  1. Changes in accounting policies required by IFRS: Yes
  2. Other changes in accounting policies: None
  3. Changes in accounting estimates: None
    (As for the details of the above (2)-i, please refer to the page 17 of this document)

(3) Number of shares issued (common stock)

  1. Number of shares issued (inclusive of treasury stock):
    As of March 31, 2020: 46,734,600 shares
    As of March 31, 2019: 46,721,400 shares
  2. Number of treasury stock:
    As of March 31, 2020: 1,650,950 shares
    As of March 31, 2019: 1,650,911 shares
  3. Number of weighted average common shares outstanding:
    For the fiscal year ended March 31, 2020: 45,080,402 shares
    For the fiscal year ended March 31, 2019: 45,070,469 shares

* 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 14, 2020. 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 “Considered Factors for FY2020 Financial Targets” written on page 9 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
We will not hold a presentation on FY2019 results in order to prevent COVID-19 further spread as well as to secure safety. FY2019 presentation material will be disclosed on TDnet as well as posted on our website on Thursday, May 14, 2020. We plan to post frequently asked questions received from analysts and institutional investors about our earnings on our website.

[English Translation]

May 14, 2020

Company name: Internet Initiative Japan Inc.

Company representative: Eijiro Katsu, President and Representative Director
(Stock Code Number: 3774, The First Section of the Tokyo Stock Exchange)

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

Information Pertaining to Our Largest Shareholder


1. About Our Largest Shareholder (As of March 31, 2020)

NameRelationshipIts Ownership Percentage (%)Securities Exchanges
where its Shares are Listed
Direct
 ownership
Indirect
ownership
Total
Nippon Telegraph and Telephone Corporation (“NTT”)IIJ is NTT's affiliate  company22.44.526.9Tokyo Stock Exchange (First Section)

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, 2020, 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 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 JPY36,228 million for the fiscal year ended March 31, 2020.

4. Policy Concerning Measures to Protect Minority Shareholders in Transactions with NTT Group
Business transactions with the NTT Group are within the scope of normal business practices and there is no special contract made in relation to the investment by NTT Group.