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We shall lead technological innovation of Internet and contribute to the development of a networked society.
President (Co-CEO & COO)
IIJ marks the 30th anniversary of its foundation this year. We have been taking the initiative in the field of Internet technology in Japan for 30 years, since IIJ was founded as the first full-scale commercial ISP in Japan in 1992. Internet is a technological innovation that changes the way things work in the world by bringing together the technological infrastructure of "information" and "communication." Its possibilities are infinite, and Internet continues to fundamentally change a social mechanism. Since our foundation, we have predicted a world in which everything is connected by and built on Internet. Now, that prediction has come true, and the technological development, operational, and proposal capabilities we have accumulated over the years are appreciated more than ever, leading up to our business expansion.
In recent years, IT utilization has penetrated every area of society, and a digital shift is underway around the world. In the midst of such a trend, the COVID-19 pandemic has accelerated the IT utilization among enterprises and government agencies in Japan, and we believe that this trend would last irreversibly. Under this market environment, we shall continue to take initiatives in technological innovation of Internet just as the company name of "Internet Initiative." We believe that the purpose of IIJ Group is contributing to the development of a networked society through the provision of innovative services and platforms which propose new ways of using Internet.
The networked society we are aiming for in the future is a society in which the necessary information and services are delivered whenever needed by connecting people and things with technologies such as IoT and AI. Moreover, by promoting digitalization, we can solve many social issues that are currently emerging. Some initiatives are already underway such as the promotion of high-quality education through the GIGA School Program, the introduction of remote maintenance of equipment in factories to improve efficiency, the planned production of smart agriculture to increase food production and to reduce food losses, labor savings through the adoption of IoT at stores and construction sites, the automation of food hygiene management (HACCP), the preservation of the safety of children and elderly people using IoT monitoring devices, and smart city initiatives to improve convenience and comfort in daily life. We shall provide the technologies and highly value-added IT services which solve social issues to support the networked society.
We have continued to grow since founded as an ISP by transforming its business model toward comprehensive network solution provider, offering various services including Cloud, security, outsourcing of network operation, WAN, mobile/IoT, and network system development, operations, and maintenance based on the accumulation of Internet technology and expertise. We aim to achieve further growth as a corporate group that can comprehensively respond to various demands for network utilization by expanding our business areas.
IIJ Group's greatest strengths is industry-leading network service development and operations capabilities. Since launching the first Internet connectivity service in Japan, we have continued to launch services, which capture market needs ahead of our competitors. Our capabilities of service development and reliable and stable operation have a high reputation among our customers and IT industry. The source of these outstanding technical capabilities lies in our professional Internet engineers who have the highest level of expertise. Approximately 70 percent of our consolidated employees are engineers, making us a diverse group of professionals with a high level of expertise. As both of service development divisions and operation divisions are cooperatively involved in service development from the beginning phase of service design, for example, which allows us to ensure stable operations after the launch of services. In addition, we are also actively involved in the development of network technology in cooperation with the domestic and international technological community, and incorporate the knowledge and new technologies gained through such activities into our service development, leading to the provision of advanced services.
The second strength is that one of Japan's largest backbone networks is developed and operated by us, and we have the network operation capabilities that ensure the stable network operation. We provide an exceptionally reliable high-speed communication environment based on our high-capacity and round-the-world backbone network. Our network services are used for a wide range of online services, from mission critical corporate systems to video streaming, online security trading systems, and large-scale e-commerce sites. We shall also work on developing services that can be rolled out worldwide.
The third strength is our customer base, which consists of around 13,000 corporate customers, including large and medium-scale enterprises and government agencies. Many of our customers who have been using our services from the early days of Internet are now using multiple services we provide, and we shall continue to promote cross-selling to meet customer needs. Many of our services are generating monthly recurring revenues and this recurring revenues account for over 80 percent of our total revenues and support our growth as a steady revenue base. Deepening relationships with our customers leads not only to revenues but also to the discovery of new needs and improvement of services. This, in turn, creates a positive cycle that increases customer satisfaction.
In FY2021, we took an advantage of the major trend toward digitalization and continued to enhance our revenue and profit growth model by accumulating enterprise recurring revenues, resulting in steady financial growth. We recognize that our businesses have entered a profit expansion phase in conjunction with the spread of IT utilization among Japanese enterprises. Enterprise network services revenues(*)such as Internet connectivity and outsourcing services increased 10.3% year on year, and mainly due to an increase in these gross profits, operating profit grew significantly, up 65.3% year over year. We have revised the FY2023 target of operating margin upward to 11.5%. We believe our consistent business model and technological capability accumulated over the 30 years since our foundation led to the expansion of our business scale and profitability, which are expected to further expand in the next stage from a medium- to long-term perspective.
Looking back on the previous year, which was the first year of the Mid-term Plan (FY2021 to FY2023), we saw the progresses of digital shifts such as digital workplace, and digital transformation such as the creation of new business models using IoT during the COVID-19 pandemic. We were able to develop network and security services based on our expertise in response to customer needs and bring them to market in a timely manner, which led to an increase in revenues and operating profit. We shall promote providing our various network services to large-scale enterprises that migrate their systems from on-premises to Cloud services to achieve revenue growth.
FY2022 is the second year of our Mid-term Plan, and we believe it is expected to be an extremely important year. In FY2021, we were able to accumulate recurring revenues in the enterprise Cloud market, in which digitalization was accelerated, leading to an increase in profits. Demand for IT utilization among enterprises is expected to continuously expand. In FY2022, in addition to continuing to firmly increase revenues in the enterprise Cloud market, we aim to strengthen our approach to the business Cloud market through targeting enterprises with Internet-based business domains. We seek for developing new customer relationships and creating customer demands by making proposals that include IT utilization in customers' business domains. Looking ahead to the next 30 years, it is necessary to dramatically expand the scale of the business in the future in order for us to establish a solid position in the IT industry and pursue growth. The three-year of the Mid-term Plan is an important period for achieving discontinuous growth in the future and the FY2023 targets of total revenues and operating margin are JPY270 billion and 11.5% respectively. (On May 12, 2023, we have updated our Mid-Term Plan, For details, please refer to this page.)
As for the outlook for the future, we aim to continuously provide high-quality and value-added IT services that foresee changes in the world and market needs in our core business areas of network, security, Cloud, data center, MVNO, and IoT. In addition to the video streaming platform we have already been working on, we shall also look into the development of platform-based services for new opportunities such as remote medical and nursing care and digital currency, which are expected to grow in the future, and consider the possibility of taking on the challenge of new business models and new business domains through M&As. Furthermore, as a Cloud (IaaS) service provider, we are the first company in the world to have received an approval for its BCRs, policies for protecting personal data obtained in the European Economic Area (EEA) per the EU's personal data protection law. We also provide Cloud services registered with the Information system Security Management and Assessment Program (ISMAP) of the Japanese government. We are leveraging these strengths to enhance support for customers handling personal information to address privacy protection regulations.
Our mission is to drive the progress of digitalization of society by tirelessly developing technologies for the world to come along with our business expansion.
Our group has created and been supporting Internet in Japan. We have contributed to bringing dramatic changes to social and economic activities and behavior pattern and thereby realizing the greater efficiency of society. Taking the initiative in Internet technology to achieve a more efficient networked society in the future is in line with the business philosophy. This is the very basis of our approach to sustainability. We believe that continuously taking sustainability related initiatives is an important theme in order to achieve sustainable growth and enhance corporate value.
We have supported solving social issues by providing innovative services that incorporate new technologies such as AI and IoT. For example, we are working on technological development for achieving a sustainable society consistent with SDGs, including smart agriculture, smart factories and improvement of efficiency of regional medical and nursing care utilizing IoT. Our various services have contributed not only to improving productivity and making efficiency at companies but also to generating innovation, including the creating added values and new businesses through IoT and other technologies.
Meanwhile, the use of electricity is essential in providing these services, and we recognize the importance of improving energy efficiency and using renewable energy in data centers where a large amount of severs are operated. As a measure to address global warming, we shall make efforts to use renewable energy and improve energy efficiency at data centers.
In addition, with regard to the diversity of our human resources, we have always welcomed diverse talents regardless of gender, nationality, disability, other personal attributes, while we have deployed and promoted them based on their ability and performance with respect for various perspectives and values. We shall continue to take initiatives in the diversity based on this policy.
We recognize the importance of implementing and enhancing corporate governance in order to consistently realize the business philosophy and enhance corporate value. When it comes to implementing and incorporating corporate governance into practice, we believe that the maintenance and advancement of the control environment is of utmost importance as an underlying principle. We believe that the officers and employees of our group make daily efforts to contributing to our customers and society with high motivation and pride in line with our business philosophy of supporting the Japanese Internet and developing the networked society, in the context of our historical background of creating Internet in Japan. We recognize that we are incorporating proper governance into practice in a multi-layered structure based on the human resources that are the source of our competitiveness: implementing “Code of Ethics" as the basis of the control environment and other internal rules for the management of subsidiaries, whistleblower protection, information disclosure, the prevention of insider trading, basic policy for internal control system, internal control related to financial reporting and anti-bribery, requesting for the strict compliance with them thorough communication by top management and auditors, monitoring and supervising by the Board of Directors, the Board of Company Auditors, and the Nomination and Remuneration Committee, which appointed directors who have extensive experience and high expertise in various fields, various committees, which assess risks and consider countermeasures according to the type of risk, and internal control and operational audits. We have appointed independent outside directors who have diverse backgrounds. We shall continue to work on maintaining and enhancing our corporate governance as we expand our business scale.
As mentioned at the beginning, IIJ marks the 30th anniversary of its foundation in December of this year. We are deeply grateful to our shareholders, investors, and other stakeholders for your support. We sincerely appreciate your continued understanding and support.
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