Hi, I am Kazuhiro Ogura, the CEO of HENNGE. Thank you for watching our video today. Today, our Director, Haruo Amano, will explain our full year financial results for the fiscal year ending September 2022. I will explain the full-year forecasts for the fiscal year ending September 2023 and our growth strategy.
Hi, I am Haruo Amano. First, let me explain our full-year financial results for FY 2022. This is a summary of our full year consolidated financial results. As explained in the third quarter's earnings call, sales for HENNGE One business resulted slightly lower against the forecast. Therefore, our overall consolidated net sales for FY 2022 are slightly under the forecast. However, each profit line exceeded our forecasts. Our quarterly trends for consolidated net sales is as shown in the slide. Sales for HENNGE One business is composed of recurring revenue, and it is growing steadily quarter-on-quarter. Year-on-year fluctuation for consolidated net sales is as shown in the slide.
Sales for HENNGE One business were slightly under the forecast because we saw a lower number in new deal closing in the first quarter, which mainly came from the longer hours which were required for the explanations and consultations to the existing customers in relation to the new license lineups. However, it increased steadily from the second quarter, resulting in a steady progress year-on-year. Our quarterly trends for gross profit and gross profit margin are as shown in the slide. Year-on-year fluctuation for gross profit and gross profit margin are as shown in the slide. Gross profit margin remained high and consistent to the previous quarters. Our year-on-year fluctuation of operating expenses by nature is as shown in the slide.
As for advertising expenses, it remained at the same level as the previous year as a result of conducting advertisements related to HENNGE One's new features, creating contents like TV commercials, and holding various events. For the business consignment and staffing expenses, it has increased due to promoting sales of new licensed lineups and making up for shortage of the people in each division. The chart in the slide shows quarter-on-quarter fluctuation of operating expenses. During the fourth quarter, in accordance with our policy for FY 2022, we continued to focus on investing in the activities which are expected to contribute for the further growth. Advertising expenses significantly increased as a result of launching a new campaign from August 2022 and conducting out-of-home advertising around major stations in Tokyo, Nagoya, Osaka, Hiroshima, and Fukuoka.
For the personnel expenses, it increased due to the revision of internal policy in July 2022. As for the other SG&A, it increased quarter-on-quarter, mainly due to the energetic recruitment activities and an increase in transportation expenses along with eased restrictions regarding COVID-19. This chart shows quarterly trends in the net sales and operating expenses. The number of employees and its breakdown by function as of the end of FY 2022 is as shown in the pie chart. The transition in the number of employees is as shown in the bar chart. In this fiscal year, as we had a gradual lifting of the immigration restrictions from March 2022, our prospective employees from overseas, mainly for R&D, were able to join our company.
In addition, as we explained in the earnings call of the third quarter, the number of employees increased by 30 from the end of FY 2021, and we could not reach our goal of increasing more than 50 headcounts. This is due to the changes in the employees joining and leaving ratio while the recruitment for both new graduates and mid-careers progressed well. We still have a challenge in fulfilling the sales force. Now, let's move onto the cash flow status. Operating cash flows increased significantly year-on-year due to an increase in the number of HENNGE One's new contracts. Cash and cash equivalents grew steadily year-on-year. Now, I will explain our business activities during this fiscal year. This is an overview of our business highlights. In the fourth quarter, we carried out our advertising activities as shown in the slide.
We participated in Japan IT Week Nagoya, which was held in July. We have intensified the marketing campaign featuring Ultraman and conducted out-of-home advertising around major stations in Tokyo, Nagoya, Osaka, Hiroshima, and Fukuoka from August 2022. In addition to these activities, we also carried out multi-layered advertising activities that contribute to ARR growth from the next fiscal year onwards. Next, I would like to explain our result of KPIs. This slide shows the progress of KPIs for HENNGE One from the previous fiscal year. This slide shows the year-on-year fluctuation of KPIs for HENNGE One. This slide shows the average monthly churn rate. It is continuously very low, and the theoretical average contract period is over 30 years. This slide shows the quarterly trends in the number of contracted companies and users.
Although we are still facing challenges to fulfill our salesforce, the number of new contracted companies has been increasing. Like as in the previous quarter, we acquired a number of contracts with relatively small companies as a result of strengthened relationships with resellers. For that reason, the number of contracted users has increased with the number shown in this slide. The quarterly trends in ARR and ARPU are shown in the slide. An increase in output during the quarter is brought from several factors. Firstly, it is a contribution from newly acquired customers with the new license lineup since October 2021. Another factor is that slightly under 30% of existing customers out of circa 2,000 have moved to the new licensed lineups by the end of FY 2022. As a result, ARR had grown steadily.
Next, turning to our full-year outlook for FY 2023. This slide shows our policy for FY 2023, which is to accelerate mid-term growth in HENNGE One ARR by continuously carry out active marketing activities and build a more solid organization by enhancing our talent acquisition capability. As for HENNGE One business, we aim to achieve sustained annual growth of more than 20% for the ARR by increasing the number of contracted companies and ARPU. As for the marketing investments, we will hold interactive events which are focused on the specific target, such as large companies, resellers, existing customers, and so on. Carrying out a wide variety of advertisements such as web, print advertisements, out-of-home advertising, TV commercials, and so on to raise recognition of our company and our services will be continued.
As for the personnel plan, we will actively recruit in each function and aim to increase more than 45 headcounts. In order to strengthen the organization for acquiring new customers more, we will focus on increasing the number of experienced IT sales members. We will keep considering various actions which will contribute to our talent acquisition enhancement. This slide shows our forecast for FY 2023. As for HENNGE One business net sales, we will aim for above 20% annual growth for the midterm. In FY 2023, we will continuously carry out active marketing activities and enhance our talent acquisition capability. As a result of these activities, we expect an increase in operating income and net income for FY 2023. These charts show the transition of our sales by business over the last three years and forecasts for FY 2023.
This slide shows the actual advertising expenses and operating expenses excluding advertising expenses until FY 2022 and the forecasts for FY 2023. For the advertising expenses, as stated in the FY 2023's policy, we will invest at the same level as before by conducting a wide range of advertising activities to raise recognition of our company and services. As for the operating expenses excluding advertising expenses, we plan to actively invest expenses for growth from FY 2023 onwards, mainly for increasing employees and enhancing our talent acquisition capability. Finally, please let me explain our growth strategy. Our corporate philosophy is liberation of technology. We believe in the power of technology, we love technology, and we strongly believe that technology will make our life better. We want to deliver the power of technology to as many people as we can and to change the world to be a better place.
We established HENNGE more than 25 years ago, and since then, we set our philosophy as liberation of technology, which we actually have demonstrated in various areas. From the experience we gained, we think that SaaS is the most fair and sophisticated approach to liberate technologies. This is one of the reasons why we're providing SaaS, and we want to promote the use of cloud services among our customers as well. Total amount of technology that we provide to the customers and total amount of liberated technology are the measure to prove our progress on our philosophy, and this is expressed as LTV. LTV, or lifetime value, is a total value arising from the current contracts with the customers. Our growth strategy is to maximize this LTV. Our average contract period and gross profit margin is already in a high number.
Therefore, in order to maximize LTV, we think that it is essential to maximize ARR. For this reason, we do not focus that much on the result of short-term operating profit, but rather invest aggressively for the future and aim to accumulate the ARR as much as possible. ARR can be broken into three factors: Large N, small n, and ARPU, which represents the number of contracted companies, average number of users per contracted company, and average revenue per user respectively. The progress of three KPIs for HENNGE One is as shown in the slide. Including our main service, HENNGE One, our group mainly operates a subscription model business. Barring any cancellations, the contracts secured this year will continue to generate sales and become the foundational sales from next year onwards. You can see HENNGE One's ARR is steadily and stably increasing year-on-year.
While ARR has been growing steadily, our challenge was that the ARR growth rate kept decreasing due to the denominator getting larger. COVID-19 pandemic has changed the ways of working, and we believe that there definitely will be a situation where cloud adoption will be expanded. In order to capture such an opportunity, we are now taking a three-step tactic to create an inflection point for the ARR growth, which would create an accelerated upward trend of the ARR. The first step took place during FY 2021. We invested aggressively on marketing activities, which led to the acknowledgement of the strength of HENNGE One and our brand value to the company's decision-makers, resellers, and more. We also announced new features of HENNGE One together with new license lineups. A second step took place during FY 2022.
We approached aggressively mainly to the new customers with new features and new license lineups. The growth rate of the ARR was slightly under 20% due to the shortage of members impacted by the change in the employees joining and leaving ratio. However, we could increase large N and ARPU steadily by introducing new license lineups to not only new customers but also to some of our existing customers. The third step, which is taking place during FY 2023, we will approach our existing customers and introduce these new features and new license lineups. Through these three steps, our assumption is to create a growth cycle that will affect both Large N and ARPU. By proceeding these steps, we will achieve midterm ARR growth in the mid-20% CAGR. Our aim is to achieve and exceed JPY 10 billion for HENNGE One's ARR.
We would like to establish a sustainable growth model by continuing the business cycle to increase the acknowledgment of our brand and increasing the number of potential customers. At the same time, we will also keep strengthening our Sales force and the relationships with resellers, developing and releasing new features, and creating additional values of HENNGE One. Since launching HENNGE One as a service with a single feature in 2011, we have gradually added new features in response to the customer's needs and grown it as an IDaaS consisting of five main features and one option. We've added three new features in October 2021. In addition, we've launched the new feature, HENNGE Connect, in April 2022. This is not the end of HENNGE One's evolution.
In FY 2023, besides releasing new features of HENNGE One, we are planning to provide new service that meets the needs of HENNGE One user companies. We will continuously add more and more essential features that will help our customers transformation led by cloud utilization. We will maximize the amount of technology that we liberate and provide to our customers in accordance with our corporate philosophy. HENNGE One is mainly composed of IDaaS, which brings higher and higher value to the customers as those customers get powered by more and more SaaS. We will continuously stimulate further expansion of cloud adoption in Japan, and at the same time collaborate more and more with other cloud companies to form a platform bringing further growth in the market. This concludes our explanation for the FY 2022. Thank you for taking your time to watch our video.