3836.T

• Corporate Philosophy & Strategic Framework

  • Corporate Purpose: "Creation of 100-year enterprises", aiming to build sustainable long-term enterprises for both Avant Group and its clients.
  • Mission: "Democratization of management information", focused on delivering necessary corporate management information to clients to help improve their enterprise value.
  • Vision: "BE GLOBAL", aiming to become a software company with growth and profitability comparable to global top-tier software firms, not just focused on global market expansion.
  • Core Strategy: Software-driven strategy centered on becoming a software company that supports improvements in client enterprise value.

• Review of Previous Mid-Term Plan (BE GLOBAL 2023)

  • Operational and financial KPIs (revenue, operating profit, ROE, dividends) were all achieved. Over the 5-year plan period, revenue grew 1.8x and operating profit grew 2x, and share price tripled during the plan period.
  • The aggressive strategic KPI of increasing stock revenue share from 33% to 70% was not achieved. The plan was overly ambitious, lacked bottom-up business unit validation, and relied too heavily on M&A to shift the business mix, which did not deliver the expected outcome. This failure informed the design of the current mid-term plan.

• Current Mid-Term Plan (BE GLOBAL 2028, Year 2 Progress)

  • Overall targets: Double total revenue, triple net income, and triple software gross profit by the end of the plan. The plan is built from bottom-up business unit targets, balanced with top-down strategic goals.
  • ESG & People Targets: The plan includes commitments to maintain a recognized great workplace via the Great Place to Work (GPTW) certification, and deliver average annual salary increases exceeding prevailing inflation rates.
  • Year 1 Progress: Overall revenue and profit came in slightly ahead of plan, but software gross profit growth has not yet met plan targets, so the company is currently adjusting its go-to-market strategy to accelerate software growth.
  • New Product initiatives: The company has launched TRINITY BOARD, a DX product for board of directors information management, which has secured 10 clients as of January, but adoption is below internal targets. It is also positioning AVANT Cruise as a new core management software product to follow DivaSystem LCA, aiming to shift to a less consulting-dependent packaged software model.

• Growth drivers per segment:
  • For Consolidated Financial Statement Disclosure Business: The company targets growth through BPO expansion (currently growing at ~20% annually), cloud migration of legacy software, unit price increases for existing clients, and productivity improvements driven by technology to boost margins. The explicit target is to increase current BPO productivity by at least 1.5x by the end of the mid-term plan.
  • For DX Promotion Business: Growth depends on expanding supply capacity by hiring and training more experienced project managers, focusing on securing larger 1 billion yen+ scale projects to improve margins, and increasing cross-selling with Business Management Solutions to access larger opportunities.
  • For Business Management Solutions Business: Growth focuses on expanding sales of the in-house AVANT Cruise software product to increase software gross margin, which will drive overall segment margin improvement as software has better cost leverage than consulting, alongside increasing the unit price of high-value consulting services.
• Overall BE GLOBAL 2028 plan is maintained, with overall revenue and profit targets currently tracking slightly ahead of plan, though software gross profit growth needs acceleration.

1. Consolidated Financial Statement Disclosure Business (M1): This is the company's core legacy business, with flagship product DivaSystem LCA holding 43.8% domestic market share, over 1,200 cumulative enterprise clients and 1,000 active users. It holds leading positions among large-cap Japanese companies, with 28 of Japan's top 50 companies by market capitalization and 73 of the top 100 as clients. The business offers both software licensing and consolidated financial statement disclosure BPO services, both of which are recurring stock-type businesses. The recurring revenue ratio for this segment exceeds 90%. The BPO sub-segment is growing at ~20% annually, while the core software market is mature. Growth in this segment comes from cloud migration of on-premise software, unit price improvements, and BPO expansion.
2. DX Promotion Business (M2): This is a system integration (SI) business led by group subsidiary ZEAL, focused on data platform construction and BI services. Almost all revenue comes from project-based services. It often collaborates with large software vendors (Microsoft, Amazon, Google) to deliver implementation services to end clients, with contracts either direct with end users or as a subcontractor to vendors. Cross-selling opportunities with the group's other business segments are still being developed, and supply capacity (especially a shortage of experienced project managers) is the main constraint on growth.
3. Business Management Solutions Business (M3): This business provides EPM/CPM software and supporting implementation consulting, focused on management accounting use cases such as budgeting, forecasting, and advanced analytics (e.g., segmented ROIC reporting). It leverages the group's core strength in consolidated data visualization for enterprise groups. Revenue is split between software sales and consulting services, with consulting making up the majority. The recurring revenue ratio is less than 30%, so it is primarily a flow-based business. The main target clients are enterprises with revenue of 10 billion yen to 200 billion yen, with current product capabilities only able to support clients up to 1 trillion yen in market capitalization.

• The existing software product line is not yet competitive enough to serve large global enterprises over 1 trillion yen in market capitalization, limiting the company's access to the largest client segment.
• DX Promotion Business faces a structural shortage of experienced project managers, which limits supply capacity and growth, and intense industry competition makes sharp margin improvements difficult.
• Generative AI poses a long-term threat to the SI business, as clients may be able to complete more development work in-house without external support, and could commoditize general software applications. The company will need to shift its value proposition to high-value input data management and governance to remain relevant.
• Large SI projects carry inherent execution risk, as demonstrated by the recent multi-hundred million yen project cancellation in the DX segment, which impacts near-term results.
• Current new product adoption (specifically TRINITY BOARD) is below internal targets, which is delaying software gross profit growth required by the mid-term plan.

Q: What caused the recent large DX project cancellation in Q3, what is its impact on the mid-term plan, and what changes are being made to prevent recurrence? / A: The cancellation stemmed from the company failing to meet the client's expectations on committed deliverables. The cancellation created a gap in resource allocation that will impact Q4 results, as the team assigned to the project had to be reallocated to new opportunities. To prevent recurrence, the company is implementing a new company-wide cross-functional review process for large contracts, with formal phase-gate checks to assess risk based on project size and contract structure. This failure has provided a useful lesson to improve the company's large project delivery capabilities, which are core to the DX growth strategy, so the mid-term plan remains on track after corrective actions.

Q: Where is the company in the process of leveraging generative AI for BPO, how much productivity improvement can be expected, and what stage of adoption is it at? / A: The company is currently testing and identifying use cases for generative AI in BPO, with an explicit mid-plan target of 1.5x productivity improvement, though specific implementation methods are still being refined. Generative AI is already capable of producing good draft disclosure documents, but cannot deliver 100% accurate output and still requires human review. The timeline for large productivity gains depends on how quickly AI can reach consistent 85/100 quality for draft output, which remains uncertain at this stage, but full integration into workflows could lead to rapid step-change productivity improvements once the use case is refined.

Q: What is the long-term impact of generative AI on Avant's business model and growth? / A: In the near term, generative AI improves cost efficiency for both programming and financial document creation, which will help improve margins and support the productivity improvement goals in the current mid-term plan. Over the longer term, generative AI poses a threat to both SI and traditional software businesses, as clients can complete more simple work in-house and generic applications can be generated directly from AI prompts. However, AI output is only as good as its input data, so the demand for high-quality business information management and governance will increase. Avant's long-standing expertise in this area positions it to shift its value proposition to this high-margin area, turning AI disruption into an opportunity if it adapts proactively.