QAs from earnings release meetings and others

May 12, 2023: FY22 Financial Results Briefing (Online)

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

Question: You updated your FY21-FY23 mid-term plan targets of revenue JPY270 billion and operating margin 11.5% which was updated twice from original target of over 9%. FY23 revenue target is JPY286 billion which is bigger than the mid-term plan target while operating margin has been updated to 11%. Please explain these differences.

Answer: As for revenue, we updated it based on the stronger than expected revenue growth due to the constant accumulation of enterprise network (NW) services revenues as well as the increasing number of opportunities to make proposal and acquire large-scale projects requiring both NW services and Systems Integration (SI). (Year over year revenue growth rate: FY20 +4.2％, FY21 +6.3％, FY22 +11.7％）As for operating margin, we took strong SI revenue growth, the costs of which are valuable, and an increase in costs due to wage increase and weaker yen into consideration. As for operating profit, we updated to JPY31.5 billion from JPY31.05 billion as we expect greater revenue volume to absorb cost increase factors.

Question: Please comment on the outlook for CAPEX.

Answer: While we expect FY23 CAPEX for our own data centers (DC) to temporarily increase as we are expanding the capacity to meet the growing demand for our services and migrating leased DC spaces to our own DC (CAPEX for own DCs: FY22 result JPY5.4 billion, FY23 outlook: approximately JPY7 billion), the remaining CAPEX such as for usual NW facilities expansion has been around JPY15 billion to JPY16 billion. Going forward, we expect our CAPEX to gradually increase along with business expansion.

Question: Please comment on the outlook for the share of loss of investments accounted for using equity method related to DeCurret Holdings.

Answer: We expect the loss to increase in FY23 due to an increase in operating costs required for the launch of digital currency settlement service. (FY22 result: loss of JPY0.38 billion, FY23 outlook: loss of JPY0.8 billon). As for FY24 onward, although specific revenues and costs have not yet been finalized, we assume that fixed costs would be absorbed through the accumulation of revenues over the medium to long term, depending on the degree of revenue growth after the service launch.

Question: What are IIJ's initiatives toward carbon neutral?

Answer: The use of electricity is essential for the provision of NW services, and we recognize the importance of reducing greenhouse gas emissions by improving energy efficiency and using renewable energy in DCs, where a large amount of electricity is consumed. Our own DCs use an outside air-cooling system, etc. to achieve very low PUE (*). In addition to promoting the use of renewable energy, we plan the supply of electricity derived from virtually renewable energy to our customers as our services through direct procurement of non-fossil certificates from this summer. Also, recently we began the field trial of placing micro DCs using 100% renewable energy in Iceland.

(*)PUE: Abbreviation for Power Usage Effectiveness, is a metric that shows how efficiently electricity is used at a data center. The closer to 1.0 is considered to be good.