Integrated Report 2021

It happened at the Board of Directors meeting on January 31, 2022, where the company sought a resolution to announce its financial results for the second quarter. An outside director from the U.S. said, "The decline in stock prices over the past three months indicates a critical situation. I can't approve the results without analysis and countermeasures. I don't feel that the chairman (that's me) has any sense of crisis about the stock price. That's how strongly he approached me.
We have often exchanged strong opinions about stock prices, but this time it is as if we are on the verge of bankruptcy. I was able to get through by proposing discussion on countermeasures on other occasion and seek approval of financial statements. It was an experience that made me keenly aware of the fact, while I'm proud that I was doing my best, I still hadn't learned how to deal with corporate value. There is a difference between understanding something in your head and experiencing it in a field like this, in terms of the impact on your subsequent actions.
“But it's tough.” While talking to myself, I chuckled as I remembered an episode in an entrepreneur's "My resume (Nihon Keizai Shimbun)" where he once attended a management training, which was called a boot camp of hell, in search of growth as a manager. This is because the current board of directors is what I wanted for myself as an environment for growth as a manager.

Avant Group is celebrating its 25th anniversary this year. The desire to create an ideal company that is useful as a public institution in society, and the desire to be useful to society by promoting management information systems that are useful for the sound development of companies. I have tackled my job as president with these two thoughts in mind.
From the beginning, our main customers were listed companies with a large number of stakeholders, and we started our business with a system for creating consolidated accounting information, which is disclosure information that top management must be involved in. However, at the time of establishment, I had no idea what kind of management information would be useful for a listed company.
“I think I need to experience it for myself.” With this awareness of the problem, I took my company public and have continued to search for what is the management of a listed company and what kind of information supports that management.
After 15 years of being listed on the stock exchange and four years of being listed on the first section of the Tokyo Stock Exchange, I have finally come to understand with my heart, rather than my head, that such things converge into "corporate value. (It took me a long time because I had no experience in managing a large company or overseas). The creation of corporate value is not just about stock prices and profits, but about continuing to create an environment that generates profits over the long term, and it is about contributing not only to customers, but also to employees, society, and the environment. The bottom line is that the more thoroughly we focus on improving corporate value, the more valuable our contribution to society will be. (I like the idea of Hirofumi Uzawa, an economist, that pursuing profits by considering the indirect costs of business activities to society and the environment will maximize profits in the long run.)
I remember about 10 years ago, when I was having dinner with a manager who joined from a financial institution to a company listed on first section of the Exchange, I told him that I didn't care about the stock price, and he admonished me that for a listed company, raising the stock price is the only way to make everyone happy. At the time, I didn't really understand the connection between stock prices and corporate value (laughs).
However, improving corporate value from a long-term perspective is not an easy task. This is because the stakeholders of the company's activities are expanding to a different level than in the past. It is impossible, at least in the long term, to solemnly develop a business without affecting stakeholders in any way. In order to design the future and take action to shape it, dialogue with relevant stakeholders is indispensable, including reconciliation of various interest.
“Oh, I'm not interactive enough." The episode at the beginning of this article was a test of this ability to interact.
The more we broaden our dialogue partners, the more we need to go beyond the ideological discussion of Japanese management and public institutions, to include measurement and visualization of future profits, social costs, and capital efficiency, and to do so in a variety of creative ways. We believe that this information is important not only for management to understand the business situation and make decisions, but also as a tool to fulfill accountability in order to create the ideal environment for dialogue with diverse stakeholders.
Meanwhile, when I read through our old management policies and other documents, I found that in 1999, in response to the question "What kind of business do you do? In response to the question, "What kind of business do you do? I had forgotten it myself, but it seems that they have been using the term "corporate value" since that time. I couldn't help but laugh at how he said it without knowing what it meant.

Now, the main theme of this integrated report is "What is corporate value?
I picked the theme because, although there are definitions in terms of finance, I believe it is necessary to understand from various perspectives in order to relate it to actual business activities. How to express the theme in the paper? I tried to combine it with anime-style expressions to express the virtual world of corporate values in a sense.
Up until now, the Company has provided information systems, SI, and outsourcing services related to corporate management, but we ourselves have concentrated on solving individual problems based on the perspectives and experiences of our management team. However, if you look at what management information is ultimately useful for listed companies, it converges on improving corporate value as well as management. The more I engage in dialogue with customers and investors from this perspective, the more I am convinced that improving corporate value is an extremely important management issue and that by helping to solve this issue, we can be more useful to society than ever before.
The reality is, however, that for customers and employees, it is difficult to connect with the image of the company because the services and products they actually provide are not directly related to the improvement of corporate value. Also, in terms of our own capabilities, there is a considerable gap between what we are aiming for and what we have.
Therefore, using the process of creating this integrated report, I tried to unravel corporate value from the different perspectives of customers, academia, and investors. They are all leading experts in their fields whom I personally respect. I received a lot of living inspiration from this dialogue. Due to the limited space, I have only been able to describe a few of them, but I hope they will help you think about what it means to enhance corporate value as a social good.
In the dialogue with the executive members of the company, the direction of the future business strategy was clarified and verbalized as strategic materiality. This time, we were able to finalize the plan, despite the twists and turns, with the support not only of our internal management team but also of outside experts.
The strategic materiality that emerged from this was "to be a software company that helps improve corporate value. This materiality incorporates two management issues that need to be resolved. One is that we will be able to provide solutions that help our customers increase their corporate value, and the other is that we will be able to promote our business around this theme in the form of know-how and experience in the form of software.
The clarification of the materiality was the first step in planning the next medium-term strategy and starting to link it with organizational activities. The biggest achievement of this integrated report was the identification of strategic materiality.

The current business activities are in the fourth year of the mid-term plan that started in the fiscal year ended June 2019. The current mid-term plan is the first half of our challenge to become a world-class software company over ten years. For the first ten years of our history, we tried to steer the ship with the theme of the establishment and development of DIVA CORPORATION, and for the following ten years, we tried to steer the ship with the theme of the development of our business through group management in order to create an environment where we can take on the challenge of becoming a world-class company. At the beginning of the third challenge, the path was not clear at all. However, the first step in business activities is a will. Rather than spending a lot of time making arrangements and drawing up a safe plan, we prioritized making decision to take on challenges and formulated a medium-term plan.
The basic idea of the current mid-term plan is to focus on actions that work on two points: the perspective of how to increase earnings per share and how to increase its sustainability. In my mind, I always have the image of maximizing EPS (Earnings Per Share) x PER (Price Earnings Ratio).
For EPS improvement, we have set a five-year CAGR of 18% or more for operating income, the source of EPS improvement. On the other hand, with regard to improving PER, we are trying to increase the ratio of recurring sales, or in our expression, the recurring sales ratio (RSR) to 70 points. The KPI that links the two is the minimum performance required of a SaaS company in the U.S., which is to be able to achieve a stable performance of 40 points or more in the GPP index, which is the sum of the sales growth rate and the operating profit margin. We also emphasized the importance of improving our organizational strength as an intangible asset, and set an index to achieve the top level without discovery in an employee satisfaction survey using an external research organization. In terms of capital efficiency, we have set a target of maintaining ROE of 20%.
The scale of the business had grown, and I found there is a limit to how much I could think and lead by myself. A series of different issues were exposed, such as the gap between goals and actual business, and the level of understanding as a management team, and it became necessary to change my own management style and adapt to discontinuous changes by identifying new growth areas and evolving as a management team. To begin with, the current mid-term plan was positioned as a way to increase the pressure for change in order to set up the necessary arrangements to run the next five years, and was based on the premise that a great deal of trial and error would be conducted, but it was all in my head, and the accountability for this was overwhelmingly lacking.
This trial-and-error approach to management, or in other words, agile management, has created a situation that is quite difficult to understand not only for internal members, but also for external directors and investors. What is difficult to understand cannot be realized as an organization. As a result, progress on GPPs and RSRs, which are critical for future value creation, has been very challenging.
Therefore, in this fiscal year, we began early on to formulate the next mid-term plan together with the group management members, and are working to increase dialogue with internal and external stakeholders and improve the transparency of our activities, while clearly indicating the final form of our current initiatives. Identifying strategic materiality, which I mentioned earlier, is one of the actions we can take to achieve this. With this materiality as our pillar, we will continue to engage in dialogue with people inside and outside the company, and based on our reflections on the formulation and implementation of the current medium-term management plan, we will create a higher level of social significance and viability that will lead to increased corporate value.

Our mission is "Spreading Accountability" in English. It contains the hypothesis that corporate value can be improved by sharing accountability. In the context of a listed company, we are still little more than a venture company. However, if we take advantage of our own experience and expand our activities to not only provide information systems to our more than 1,100 blue-chip clients, mainly listed companies, but also to help them create information environments that help improve their corporate value, it will be difficult for us to double or triple the value of our contribution by utilizing our knowledge and business assets. It is not difficult to double or triple our current contribution value. In addition, the number of customers will double. Not only that, but through the expansion of the value we contribute to our customers, we can also realize the growth of our members, and in other words, increase their value to society. As a result, we believe that our business growth can be realized in a different dimension than before. Moreover, with this theme, we can eventually aim for the global market.
It is a thought that I always hold in my heart. There's no point in hiding it, so you have to say it first. This is also a step toward Spreading Accountability. Believing in the power of dialogue, we will continue to aim for healthy business growth beyond our own limits.
This preface is becoming a bit long. Please enjoy the full story here and our efforts to improve corporate value.
Now, I will start working on the next mid-term plan.

Tetsuji Morikawa,
President and Group CEO