Avant : Financial Results Briefing for the Fiscal Year ended June 2020

Financial Results Briefing

for the Fiscal Year

ended June 30, 2020

This is an unofficial translation. In case of any difference in meaning between the original Japanese text and the English translation, Japanese text shall prevail

AVANT CORPORATION

(Code：3836 TSE1）

August 3, 2020

Contents

Ⅰ . Summary of financial results

for the fiscal year ended June 30, 2020 Ⅱ. Earnings and Dividend Forecast

＊Figures in this material are rounded down to the unit of display

The information contained in this material regarding the business outlook and other forecasts and strategies etc. are forward-looking statements and are determined within the range that could normally be predicted based on the information reasonably available to the Company at the time of preparation of this material. Investors should be aware of the risks, however, that actual results may differ from the business prospects described in the material due to the occurrence of extraordinary circumstances that cannot usually be predicted or the occurrence of results that cannot usually be predicted. The Company will proactively disclose information that is considered material to investors, but investors should be advised not to make judgment based entirely on only the business prospects described in this material. This material should not be copied or transferred for any purpose without permission of the Company.

© 2020 AVANT CORPORATION. ALL RIGHTS RESERVED.	1

I. Summary of financial results

for the fiscal year ended June 30, 2020

© 2020 AVANT CORPORATION. ALL RIGHTS RESERVED.	2

Results Highlights

Improved results for the 5th consecutive year, net income setting new record

• The impact of COVID-19 can be seen in some orders towards the end of the fiscal year, but revenue exceeded expectations due to an additional order in a large-scale project in the consolidated accounting-related business.
• Operating income margin improved due to efforts to control fixed-expenses and absence of provision for loss on orders. Combined with a tax effects realized at the end of the fiscal year, net income increased 16.1% year on year.

						(millions of yen)
	FY19/06		FY20/06		Year-on-Year
					Variance	%CHG
Revenue	14,077		15,691		+ 1,613	+ 11.5%
Cost of Revenue	7,779		8,525		+ 746	+ 9.6%
SG&A expenses	4,332		4,888		+ 556	+ 12.8%
Operating Income	1,966		2,277		+ 310	+ 15.8%
OP Margin	14.0%		14.5%		-	+ 0.5 point
Ordinary Income	1,972		2,280		+ 308	+ 15.6%
Net Income	1,317		1,529		+ 212	+ 16.1%
EBITDA	2,133		2,505		+ 371	+ 17.4%

© 2020 AVANT CORPORATION. ALL RIGHTS RESERVED.	3

Results by Business Segment

• Revenues were driven by Business Intelligence business and Outsourcing business. The outsourcing business, which boasts a high proportion of recurrent revenue, expanded to 13% of consolidated revenues
• Consolidated accounting-related businesses drove growth in operating income represented by expenses reduction Initiatives in the second half.

							(millions of yen)
		FY19/06		FY20/06		Year-on-Year
						Variance	%CHG
	Revenue	8,034		8,485		+ 451	+ 5.6%
Consolidated
Operating Income	1,293		1,616		+ 323	+ 25.0%
Accounting
	OP Margin	16.1%		19.1%		-	+ 3.0 point
	Revenue	4,990		5,767		+ 776	+ 15.6%
Business
Operating Income	636		692		+ 55	+ 8.8%
Intelligence
	OP Margin	12.8%		12.0%		-	0.8 point
	Revenue	1,629		2,062		+ 432	+ 26.5%
Outsourcing	Operating Income	318		364		+ 45	+ 14.4%
	OP Margin	19.5%		17.7%		-	1.9 point

© 2020 AVANT CORPORATION. ALL RIGHTS RESERVED.	4

Consolidated Accounting Business

Stable earnings, exceeding Company forecasts

• Additional orders in large-scale projects and new orders for legal consolidated accounting and profit management solutions also achieved higher sales, and the recurrent revenue ratio also increased
• Operating income margin improved by 3 percentage points due to a shift to highly profitable projects, control of fixed expenses, and absence of provision for loss on order received
• We delivered cloud-based Diva System LCA and other new solutions such as Compass that should contribute to the sophistication of group management of our clients

					(millions of yen)
	Consolidated	FY19/06	FY20/06	Year-on-Year
	Accounting			Variance	%CHG
	Revenue	8,034	8,485	+ 451	+ 5.6%
	Operating income	1,293	1,616	+ 323	+ 25.0%
	OP Margin	16.1%	19.1%		+3.0point
	New Orders	7,774	8,313	+ 539	+ 6.9%
	Outstanding Orders	2,173	1,999	173	8.0%

© 2020 AVANT CORPORATION. ALL RIGHTS RESERVED.	5

Business Intelligence Business

Strong demand for DX confirmed, despite somewhat slower orders toward the end of the fiscal year

• Double-digitrevenues growth achieved on the back of strong investment demand for DX
• Operating income margin decreased slightly, as higher compensation levels and higher fixed expenses associated with opening of a new office were only partially offset by an increase in revenues
• As the business has high susceptibility to the economic environment, the order backlog fell by double digits. Recently inquiries are recovering, and new services based on proprietary IPs were launched.

				(millions of yen)
Business	FY19/06	FY20/06	Year-on-Year
Intelligence			Variance	%CHG
Revenue	4,990	5,767	+ 776	+ 15.6%
Operating income	636	692	+ 55	+ 8.8%
OP Margin	12.8%	12.0%		0.8point
New Orders	5,265	5,417	+ 151	+ 2.9%
Outstanding Orders	1,204	854	350	29.1%

© 2020 AVANT CORPORATION. ALL RIGHTS RESERVED.	6

Outsourcing Business

Double-digit revenues and profit growth

• Steady growth of 20% in recurrent revenues due to steady new contracts in financial closing outsourcing and fund management solutions
• The operating income margin fell by about 2 points due to the increase in fixed expenses associated with the expansion of offices, as well as expenditures to improve the office environment to ensure the safety of employees.
• Concluded a partnership with Aptitude Software to diversify solutions

				(millions of yen)
Outsourcing	FY19/06	FY20/06	Year-on-Year
		Variance	%CHG
Revenue	1,629	2,062	+ 432	+ 26.5%
Operating income	318	364	+ 45	+ 14.4%
OP Margin	19.5%	17.7%		1.9point
New Orders	1,807	2,160	+ 352	+ 19.5%
Outstanding Orders	852	950	+ 97	+ 11.4%

© 2020 AVANT CORPORATION. ALL RIGHTS RESERVED.	7

Selected Quarterly Financial Data

• Operating margin in Q4 was 15.1%, a high level for the quarter

(Millions of Yen)

		FY16/06			FY17/06			FY18/06			FY19/06			FY20/06
	1Q	2Q	3Q	4Q	1Q	2Q	3Q	4Q	1Q	2Q	3Q	4Q	1Q	2Q	3Q	4Q	1Q	2Q	3Q	4Q
Revenue	2,175	2,389	2,420	2,627	2,272	2,685	2,756	2,817	2,544	3,144	3,095	3,326	3,180	3,752	3,631	3,512	3,714	4,019	4,050	3,906
Cost of Revenue	1,233	1,341	1,454	1,423	1,288	1,444	1,490	1,610	1,514	1,866	1,720	1,845	1,772	1,929	2,057	2,020	2,149	2,205	2,113	2,056
Gross Profit	941	1,047	966	1,204	984	1,241	1,265	1,206	1,029	1,277	1,374	1,481	1,408	1,823	1,574	1,492	1,565	1,814	1,936	1,849
SG&A expenses	744	822	698	784	703	930	847	910	781	865	898	986	1,027	1,188	982	1,133	1,050	1,239	1,338	1,260
Operating Income	197	224	268	419	280	310	418	296	247	412	476	494	380	634	592	358	514	574	598	589
OP Margin	9.1	9.4	11.1	16.0	12.4	11.6	15.2	10.5	9.7	13.1	15.4	14.9	12.0	16.9	16.3	10.2	13.8	14.3	14.8	15.1
Ordinary Income	196	222	268	425	280	315	416	296	248	415	472	495	380	633	593	364	520	573	598	588
Net Income	130	118	118	293	183	-0	250	230	162	269	311	318	237	403	389	286	334	339	344	511
EBITDA	251	283	328	483	341	370	481	359	300	436	514	534	417	673	634	408	557	621	658	668
EBITDA Margin (%)	11.5	11.9	13.6	18.4	15.0	13.8	17.5	12.8	11.8	13.9	16.6	16.1	13.1	17.9	17.5	11.6	15.0	15.5	16.3	17.1

© 2020 AVANT CORPORATION. ALL RIGHTS RESERVED.	8

Quarterly Trends in Major KPIs

(millions of yen)

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

1Q 2Q 3Q FY16/06

Revenue		Operating Income	OP Margin
			25%

20%

15.1%

15%

10%

5%

0%

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

FY17/06

FY18/06

FY19/06

FY20/06

© 2020 AVANT CORPORATION. ALL RIGHTS RESERVED.	9

Selected Quarterly Segment Data

(millions of yen)

			FY June 2018			FY June 2019				FY June 2020
		1Q	2Q	3Q	4Q	1Q	2Q	3Q	4Q	1Q	2Q	3Q	4Q
	Consolidated Accounting	1,343	1,906	1,557	2,924	1,611	1,890	1,693	2,579	1,893	2,008	1,944	2,466
New	Business Intelligence	998	1,030	1,118	1,073	1,235	1,223	1,439	1,365	1,565	1,347	1,191	1,313
Outsourcing	297	343	297	549	439	319	363	685		599	468	505	586
Orders		△	△	△	△	△	△	△	△	△		△	△	△
(Elimination of inter-segment transaction)	72	255	116	154	201	115	92	266		102	201	64	164
	New Orders	2,567	3,025	2,856	4,392	3,085	3,317	3,404	4,363	3,955	3,623	3,576	4,202
	Consolidated Accounting	1,913	1,876	1,576	2,433	2,261	1,927	1,611	2,173	2,143	1,910	1,689	1,999
Orders	Business Intelligence	762	791	895	929	1,004	958	1,044	1,204	1,340	1,245	926	854
Outstandin	Outsourcing	515	524	474	675	734	650	597	852		948	928	891	950
g		△	△	△	△	△	△	△	△	△		△	△	△
(Elimination of inter-segment transaction)	65	187	179	203	260	232	177	303		264	312	209	208
	Orders Outstanding	3,125	3,006	2,768	3,834	3,739	3,304	3,076	3,927	4,168	3,771	3,298	3,595
	Consolidated Accounting	1,392	1,942	1,857	2,068	1,783	2,225	2,008	2,017	1,922	2,242	2,165	2,154
	Business Intelligence	897	1,001	1,014	1,039	1,161	1,268	1,353	1,206	1,429	1,441	1,510	1,385
Revenue	Outsourcing	282	334	347	349	380	402	416	430		504	489	541	527
	△	△	△	△	△	△	△	△	△		△	△	△
	(Intra-segment elimination)
	27	134	125	130	144	143	147	141		141	153	167	161
	Revenue	2,544	3,144	3,095	3,326	3,180	3,752	3,631	3,512	3,714	4,019	4,050	3,906
	Consolidated Accounting	145	220	265	398	244	362	346	339		330	379	378	528
	Business Intelligence	21	81	122	98	102	210	233	89		180	171	209	130
Operating	Outsourcing													△
50	72	53	36	101	100	79	37		118	116	133	4
Income					△	△	△	△	△	△		△	△	△
(Elimination of inter-segment transaction)	29	37	34	39	68	39	67	106		114	93	122	65
	Opertating Income	247	412	476	494	380	634	592	358		514	574	598	589

© 2020 AVANT CORPORATION. ALL RIGHTS RESERVED.	10

Total Number of Group Employees

																			(person)
1,100																				1,055
1,000																	950	965	963
																938
900														855	874
													832
												806
800
										755
									735	734
								709
700
						649
					615	627
				603
600			570
560	554
500
400
300
200	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
		FY16/06			FY17/06			FY18/06			FY19/06			FY20/06

© 2020 AVANT CORPORATION. ALL RIGHTS RESERVED.	11

Financial Condition& Cash Flows

Financial Status

Total Assets

11.7 billion yen

Cash Flows

（millions of yen)

Operating CF

Investment CF

Free CF

Financial CF

	Jun 2020				Equity Ratios
		70	(%)
Total Liabilities											61.0
4.5		60								52.9	54.4	56.6
								49.4
billion yen	50	53.3				44.4	48.2
Net Assets	40	47.7
		43.7	39.3
7.1		30	FY10	FY11	FY12	FY13	FY14	FY15	FY16	FY17	FY18	FY19	FY20
billion yen
		Key Factors for change				(millions of yen)
FY19/06	FY20/06
1,320	1,890
(455)	(420)

864 1,470

1. (294)

© 2020 AVANT CORPORATION. ALL RIGHTS RESERVED.	12

Return on Equity (ROE) trends

Our goal is to maintain over 20% on average in the mid- to long-term

• We aim to improve ROE, while maintaining the Group's management principles, by enhancing profitability further and managing assets more efficiently

(mi llions of yen)

Net Asset

ROE ※ (%)

8,000

35%

7,000

30%

6,000

23.4% 25%

5,000

20%

4,000

3,000

15%

2,000

10%

1,000

5%

-

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

0%

FY15/06

FY16/06

FY17/06

FY18/06

FY19/06

FY20/06

※twelve month rolling

© 2020 AVANT CORPORATION. ALL RIGHTS RESERVED.	13

Ⅱ. Earnings and Dividend Forecast

© 2020 AVANT CORPORATION. ALL RIGHTS RESERVED.	14

Earnings forecast for the fiscal year ending June 30, 2020

We expect six consecutive years of growth in revenue and profit

• Both revenues and profits are expected to be at low levels in Q1, as economic activity stagnated around April and May due to the spread of COVID-19 and the accompanying announcement of the state of emergency.
• On the other hand, projects that were suspended or delayed at the time have gradually resumed and re-started as economic activities regain ground. The Group assumes that they will recover from the second quarter onward and expects both revenues and profit to increase slightly for the fiscal year.

				(millions of yen)
	2020	2021
	June	June	Variance	% CHG
	(Actual)	(Forecast)
Revenue	15,691	16,110	+ 418	+ 2.7%
Operating	2,277	2,330	+ 52	+ 2.3%
Income
OP Margin	14.5%	14.5%	―	―
Net Income	1,529	1,561	+ 31	+ 2.0%

© 2020 AVANT CORPORATION. ALL RIGHTS RESERVED.	15

Dividend Forecasts

For fiscal year ending June 2021 we forecast 10 yen per share dividends

• In line with the policy of continuing to pay stable dividends, we expect to increase dividends for the six consecutive fiscal year
• The DOE in Fiscal Year 06/2020 was 5.2%, which is expected to reach a level significantly higher than the average of 2.9% of the company listed on the TSE (12 months)

(yen/share)
						10.0
					9.0
				7.5
			6.0
		4.0
2.25	2.75
2015	2016	2017	2018	2019	2020	2021
	(Adjusted for stock splits)	(Plan) (Forecast)

＜AVANT's shareholder return policy＞

• Cash dividends are an important part of shareholder return policy
• AVANT plans to maintain sustainable growth in dividends, and rely on dividends on equities (DoE) rather than cash income which could fluctuate and unpredictable
• DoE ratios for AVANT should improve over time and always exceed average of all listed companies of Tokyo Stock Exchange

© 2020 AVANT CORPORATION. ALL RIGHTS RESERVED.	16

17