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QAs from earnings release meetings and others

February 8, 2023:3Q FY22 Financial Results Briefing (Online)

(*) This is a summary of questions and answers took place at the Briefing.

Question: Year over year revenue growth rate for 1Q-3Q22 was 11.9% which is stronger than FY22 financial target’s year over year revenue growth rate of 10.9%. Please explain what is driving stronger-than-expected revenue growth.
Answer: It is mainly because systems integration (SI) revenue is largely increasing and projects are becoming large scale.
Question: Regarding the newly acquired large complex projects, please tell us how much and when you expect those revenue to be recognized.
Answer: The following 3 projects’ revenues are to be recognized mainly in SI: core information network (NW) infrastructure for a broadcaster (approximately JPY6.0 billion, including NW services, to be launched from FY24 in phases), data center construction (approximately JPY3.0 billion, to be launched in FY23), and core system platform for a financial group (approximately JPY3.0 billion in total, 5 years contract, monthly revenues to be recognized from FY24). Regarding the large-scale NW replacement project for a major manufacturing company with a fixed multi-year contract (over JPY3.0 billion, 5 years contract), we expect its revenue to be mainly recognized in NW services on a monthly basis from the first half of FY23. Of these 4 projects, only the data center construction project was recognized in 3Q22 as orders received for systems construction and equipment sales. The others are the projects we confirmed by 3Q22 financial results announcement date.
Question: What is the reason you have been continuously acquiring large-complex projects?
Answer: Along with the penetration of cloud, remote-working, the concept of zero-trust and others, both private and public sector clients are shifting from closed NW systems to more open type and comprehensive systems by incorporating Internet, cloud, security, remote-access and others to internal network. This trend has led us to increase the number of opportunities to propose and acquire large-complex projects that require both in-house developed various NW services and SI.
Question: Please comment on the outlook for SI’s outsourcing-related cost.
Answer: We have been keeping a close eye on the rising labor cost for engineers. As of now, we believe that we should be able to absorb the increase in cost such as personal cost to some extent by passing them onto SI construction’s quotations which are prepared for each project.
Question: You updated the monthly salary table for new graduates starting at FY23. Could you reiterate IIJ's strategy for hiring and developing human resources?
Answer: We have long been consistently updating HR systems including salaries as a way to give back to our employees along with the company expansion e previous revision was in FY19). By continuously executing IIJ Group's human resource strategy which is to continuously hire and train new graduates mainly, with mid-career hires providing the immediate workforce, the number of employees is increasing and the turnover rate is blow the industry average.
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