BASE CO.,LTD. Q4 FY2025 earnings call

• Overall Financial and Growth Performance

• The company has maintained consecutive double-digit operating income growth since its 2019 listing on the Tokyo Stock Exchange, with an average annual growth rate of 22% over this period. The company's 7.7% sales growth outpaced the average 5.6% sales growth for TSE Prime Market companies, and its 10% operating income growth outpaced the Prime Market average of 5%.
• The financial base is very strong, with an equity ratio exceeding 75%. Operating margin and ordinary income margin both reached 26% in 2025, maintaining the company's consistent track record of 25% operating margin.
• Net sales for the standalone parent entity grew 8.9% year-over-year, and total headcount increased by a net 100 employees to approximately 1,300.

• Operational Milestones and Strategic Initiatives

• Customer Base Expansion: The company expanded beyond its four historic core clients (Fujitsu, Mizuho Securities, NRI, NTT Data) to successfully build relationships with leading Japanese enterprises including Hitachi, NEC, and Itochu Techno Solutions (CTC), creating a more balanced customer portfolio. The company has received high partner rankings from multiple major clients: it earned a top-tier business partner rank from NTT Data in October 2025, achieved Core Partner status with Hitachi Systems quickly after starting partnership, and was named a company-wide Prime Partner for two consecutive years at NEC Solution Innovators.
• AI Capability Building: The company held its third consecutive internal AI contest in 2025, with 140 participants across 45 teams submitting 45 entries (up from 35 participants in 2024). Entries were voluntarily submitted by employees, and all finalist entries demonstrated high technical quality, building strong internal AI capabilities organically.
• Infrastructure and Quality Improvements: The company opened a new development center in Toyosu that can accommodate up to 200 employees, bringing total group capacity across three facilities (Tokyo HQ, Akihabara Development Center, Toyosu Development Center) to 1,500 employees to support future growth. The company also obtained ISO9001 quality certification in 2025 to meet the strict quality requirements of major enterprise partners.
• Shareholder Return: For the second consecutive year, the company completed share repurchases with an upper limit of 1.2 billion yen, nearly fully exhausting the approved amount.
• Organizational Restructuring: The company overhauled its organizational structure to support the new 5-year mid-term plan "BASE 2030": it abolished 4 existing headquarters, created 7 new controlling divisions (including the Business Promotion Division), with 8 departments per division. All former executive officers now serve as controlling division heads, while former headquarters leaders take on cross-company functional roles. A new AI Promotion Office was established, led by a senior executive officer, to accelerate AI-related initiatives.

• Mid-Term Strategy "BASE 2030"

• The prior 5-year plan "NEXT STAGE" (2021-2025) has been largely achieved: it met goals of expanding SIer customer development, growing the solutions business, and shifting decision-making authority down to lower organizational levels, with internal departments expanded from 44 to 48.
• The core strategic theme of BASE 2030 is transitioning from a traditional "manufacturing-focused" project-based system development model to an IT service-oriented model, with the tagline "From manufacturing to IT services". The core goal is to provide IT services that stay close to customers at the last mile.
• The core strategic pillars are "AI Native Development" (staying at the cutting edge of AI technology and embedding AI across all operations) and "AI Empowerment" (using AI to empower current and future business). The company will assetize existing knowledge and experience, and focus on new service areas including AMO, PMO, BPO, and shared services. The long-term target is to increase the solutions segment share from the current 35% to 50% by 2030, achieving a 50/50 split between SI services and solution services, and shifting into higher-margin business areas.
• The company is pursuing gradual transformation to avoid the risks of abrupt change, and will shift incrementally toward the new business model over the 5-year period.

For the full year 2025 (ended December 2025), consolidated net sales totaled 21.7 billion yen, an increase of 7.7% year-over-year. Operating income was just over 5.7 billion yen, up 10% year-over-year. Net income was 4.2 billion yen, up 9.1% year-over-year. All financial metrics reached all-time record highs. By business line: System development and solutions segments make up the company's core revenue. The solutions segment accounted for 35% of total revenue in 2025, up from 29% in the prior year. SAP-related business accounts for 23% of total revenue. The system development segment has grown more resilient, with steady growth in recurring revenue streams including operation, maintenance, and staff support services. By geography: Japan accounts for 97% of consolidated revenue, while the Chinese subsidiary accounts for approximately 3% of consolidated revenue. The Chinese subsidiary's revenue declined year-over-year, and the company reduced headcount by 12 employees to 86, eliminated all offshore development activities, and focuses on local onshore business, so the impact on the group is minimal. The Chinese subsidiary maintains profitability and continues a gradual growth strategy under a "defensive" positioning.

• For the 2026 December fiscal year, the company guided for 10.4% operating income growth. The internal stretch target remains 20% growth, which management believes is achievable; the 10% published guidance is a tactical choice to avoid repeated investor questions after the 2025 20% target miss, and management will pursue upward guidance revision if performance allows. The delayed SAP projects that negatively impacted 2025 results are expected to deliver a slight positive contribution to 2026 results.

• The company plans to increase total annual dividend from 117 yen to 186 yen per share, including a 30th anniversary special dividend of 60 yen per year (30 yen for each half-year) plus a regular dividend of 126 yen per year (63 yen for each half-year). This will bring the projected payout ratio above 70%.
• The company maintains its long-term dividend policy: a minimum 50% payout ratio until operating income reaches 10 billion yen, and the company will not reduce the payout ratio below this level. Management commits to fully delivering the published dividend guidance regardless of minor earnings fluctuations.
• Share repurchases will continue to be considered as part of the shareholder return policy alongside dividends.
• The company targets to exceed 35% IT services (solutions) revenue share in 2026, on track to reach 50% by 2030.

• The company missed its 2025 target of 20% operating income growth, ending at 10% growth. The main causes were:

• Two troubled projects created specification and evaluation disputes. While the projects were resolved without generating net losses, they tied up key senior talent and 2 executive officers through the second half of 2025, leaving insufficient resources for corporate-level management and sales activities. Both issues are now fully resolved and will have no impact on 2026.
• Schedule delays for SAP-related projects in Q3 and Q4 2025 created a larger-than-expected negative impact on full-year results. These projects are now completed, and the delays are expected to benefit 2026 results.
• Sino-Japanese political tensions have no material impact on BASE's business: 97% of revenue is generated in Japan, the Chinese subsidiary operates independently with no offshore development for Japanese projects, and there is no impact on local operations or cross-border personnel travel. The company views recent Japanese corporate withdrawals from China as an opportunity to hire highly experienced Japanese-speaking SEs with offshore project experience, and sends executives and department heads to China weekly for recruitment, successfully securing talent.
• The company's main challenge at present is its low price-to-earnings (PER) ratio, which stood at around 12x as of the week before the call. Management has taken responsibility for this undervaluation, and is launching an aggressive new IR initiative to improve market recognition of the company's value.
• Revenue from Fujitsu has declined recently, but this is due to Fujitsu's own business model shift from large long-term projects to agile short-cycle development, not a deterioration in the partnership. Both parties have agreed to strengthen relations amid the transition, and the company is still adapting its operating model to align with Fujitsu's new approach, which has caused a temporary alignment gap that has impacted sales volume.

Q: Regarding the financial plan for the mid-term strategy BASE 2030, do you have plans to publish a formal financial plan, and what are your target numbers, to the extent you can share?

A: While we have developed internal financial plans for BASE 2030, we have no plans to publish these financial targets publicly at this time.

Q: Is the correct understanding that you aim to reach a 50/50 split between system development and IT services (solutions) by 2030? What is the current ratio, and what target do you have for 2026?

A: The current ratio of IT services is just under 30% as of the start of 2026. We aim to reach 50% by 2030, and we target to grow the ratio above 35% in 2026.

Q: AI strategy is a core focus of the mid-term plan. What KPIs do you plan to use to measure progress on the AI strategy, if you have set any?

A: We have set KPIs internally at the newly established AI Promotion Office, but we have not published these KPIs externally yet. The main KPI we are tracking is the share of work related to AI, which matches the understanding of AI-related projects. We have no plans to publish these KPIs publicly at this point.

Q: You mentioned IT services currently make up just under 30% of revenue, with a 2026 target of over 35%. What specific types of business are included in your definition of IT services, and what are you currently operating?

A: IT services as we define it includes AMO, PMO-related work, BPO-related operations, and SAP development-related services.

Q: Based on the short-swing disclosure, sales to Fujitsu have declined quite significantly. It seems that overall growth would have been higher without this decline. What is happening with the relationship with Fujitsu?

A: Our relationship with Fujitsu remains very good. We have reached a management-level agreement to further strengthen our relationship, even after the unwinding of policy-held shares, so the relationship has not deteriorated. The sales decline is due to two factors: first, we had internal troubled projects that impacted delivery, and second, Fujitsu itself is transforming its business model, shifting from large long-term projects to agile short-cycle development. We are still adapting to this new approach, which has created a temporary misalignment that has impacted sales. This transition is impacting all of Fujitsu's partners, not just us, and the shift in our resource allocation to other new major clients has also contributed. The relationship itself remains healthy, but we are in a period of transition that has temporarily reduced sales volume.

Q: You are pursuing last-mile service delivery and growing solutions. Wouldn't it be more effective to serve end customers directly, rather than working through major SIers as intermediaries? How do you plan to address the challenges of working through intermediaries to reach end users?

A: You are absolutely correct. While we have built a strong business working as a subcontractor for SIers, we recognize that we need to increase our direct outreach to end users in the AI era. We have already set numerical targets for end user acquisition as part of the unpublished portions of the BASE 2030 plan, and we are already executing against these targets. This transformation will take time, as the AI era is expected to shift the industry away from dependence on large SI-led projects toward a greater volume of smaller projects, and we will leverage our agility to work directly with end users at the last mile. We are already prioritizing increasing the share of direct end user business, and progress will become visible gradually over the course of the plan.