■ Growth strategy 1. Business environment Considering the business environment surrounding the "AIAI Three Education Zones" developed by the AIAI group <6557>, AIAI NURSERY in the field of licensed nursery schools is expected to experience a large shift in nursery policies from 2024, as the organization responsible for child and family services was established in April 2023 with the aim of improving the quality of early childhood education and care, and as a response to the "unprecedented decline in the number of children" in Japan. However, despite the encouragement from the government, the saturated market feeling cannot be ignored due to the declining birth rate and the significant reduction in the number of newly opened nursery schools, taking into account factors such as the resolution of the waiting list problem in the industry. We also believe that the elimination of small-scale operating companies, considering the shortage of childcare workers, is a possibility to consider. On the other hand, the number of children with developmental disabilities is increasing even in the declining birth rate, and the demand for facilities for disabled children (child development support, medical child development support, after-school day services, visit support for nursery facilities, etc.) is rapidly increasing. Considering this situation, we believe that, not only is the business environment for AIAI PLUS and AIAI VISIT positive, the business environment for the "AIAI Three Education Zones", which provides integrated child care, therapeutic care, and education, is also favorable. 2. AIAI Group Mid-term Management Plan 2023-2025 The company formulated the AIAI Group Mid-term Management Plan 2023-2025 in May 2023, which incorporated a reconsideration of the position of the tech field, the construction of new business models such as nursery school visit support (AIAI VISIT) and early childhood education programs. The target figures are listed as sales of 12-13 billion yen and operating profit of 300-500 million yen in the final fiscal year ending March 2026, and cumulative investment of 680 million yen over three years. In the first term of the plan, ending in March 2024, sales and operating profit exceeded the final year target value, and the total number of children, the total number of visits to nursery facilities, and the total number of internal license holders all exceeded the plan. The growth strategy is progressing smoothly, and there is no major change in the basic strategy of maximizing group synergy through the "AIAI Three Education Zones". Regarding AIAI NURSERY, considering the situation in which the speed of opening licensed nursery schools is slowing down throughout the industry due to the resolution of the waiting list problem, the company will slow down the speed of opening new facilities with the maturity of the market in mind. However, in addition to continuing to expand into regions with high needs and high investment efficiency, the company will promote efforts to reorganize the industry. On the other hand, due to the growing demand for facilities for disabled children, AIAI PLUS will be developed as a pillar of growth after AIAI NURSERY, and the expansion of AIAI VISIT will be fully implemented in the Tokyo metropolitan area as a new business model. Regarding the expansion of AIAI VISIT, securing specialized visiting support personnel is an important point, so we will strengthen our approach from a variety of channels and promote the excavation of potential qualified persons. 7. Corporate-related initiatives In terms of financial and capital aspects, the company will continue to improve its self-capital and aim to support the stable growth of its business from a financial perspective. In terms of human capital, we will promote the creation of a work environment in which all employees at the facilities and offices can work comfortably and foster human resources. In AIAI NURSERY and AIAI PLUS, we will increase the options for work styles based on the preferences and stages of life of the employees working in the facilities, and establish a workplace environment where work and family can be balanced.

Concrete initiatives.

Kanro <2216> is deploying a comprehensive strategy to enhance brand value and maximize market share and profit. At its core is "brand-centered management and customer-centricity," aiming to expand the market share of core brands. At the same time, it plans to strengthen sales activities from store fronts utilizing digital media and efficiently approach consumers. The establishment of production facilities is also an important pillar. Specifically, starting from October 2024, the gummy building at the Matsumoto Factory will be expanded, increasing the company's annual gummy production capacity by 14%. Additionally, it will promote personnel increase, automation, and streamlining to enhance production efficiency. Furthermore, it is considering the possibility of further increasing gummy production. To address cost increases, it aims to improve productivity to absorb cost increases and respond to rising raw material prices, energy, and logistics costs. This includes refining SKU (stock-keeping units). Price revisions and changes in contents will also be implemented to ensure appropriate profits.

(1) Core Business

In the core business, it has been collaborating closely with the Z generation, a young consumer group, to develop new candies. This initiative, named the 'Z Generation Candy Original Experience Co-creation Project,' started in August 2022. Through internal discussions and dialogues with active high school students, focusing on high school students in product development, it created a new candy called 'I Want to Live with a Transparent Heart.' This candy is designed to allow teenagers to reflect themselves and gain emotional comfort. In May 2023, this new product was launched in convenience stores and station kiosks. Furthermore, the company values interaction with fans, and in July 2023, it held fan meetings through a complex owned media platform called 'KanroPOCKeT.' Here, it plans to collect feedback from fans, incorporate it into future marketing strategies, and refine digital marketing methods. Through such initiatives, the company plans to strengthen its connection with customers and enhance its presence in the market. In the fiscal year ending December 2024, it plans to focus on developing products that pursue high added value deliciousness utilizing its unique features and technologies.

(2) Global Business

As part of its global business, the company aims to expand its business in the Chinese market. It has signed a total dealership agreement with a renowned candy maker in China, Jingduodu Food Co., Ltd. (hereinafter referred to as Amos), to introduce popular Japanese products such as 'Golden Milk' and 'Colored Pencil Candy' in the Chinese market. In Japan, it handles Amos' '4D Gummy,' promoting product deployment between the two countries. In the Chinese market, focusing on the increasing health-consciousness and diabetes patients, it launched a new sugar-free brand '0 Sugar 1 Moment,' and is selling it on the Alibaba Group's EC site 'Tmall.' Additionally, to enhance brand awareness in China, it conducts marketing activities using social media platforms such as 'Weibo' and 'RED.' To challenge the US market in the next medium-term business plan, it is developing product strategies, marketing strategies, and sales strategies to identify and solve challenges. To deliver the company's cultivated brand and product value to the world, it is launching cross-departmental internal projects and working across the entire company.

(3) Digital Commerce and Hitotsubu Business

The company focuses on providing premium products through its directly managed store 'Hitotsubukanro' and deepening relationships with individual customers. This store sells specially designed packaging and high-quality products. In addition, they have started a subscription service and e-gift service through the digital platform 'KanroPOCKeT', where customers can freely choose products. With this service, customers can easily send gifts to people they don't know the address of. On the other hand, through the 'Amazing Kanro' series, they propose new fun and charm of candies. This series develops unique products that provide unique experiences, and in 2023, they released a new product called 'Cucumber Jelly Gummy'. In April 2024, they opened new stores, 'Hitotsubukanro Harajuku Store' and 'KanroPOCKeT Lab', in Harajuku, Shibuya-ku, Tokyo. They have also implemented a price revision for the 'Hitotsubukanro' products in the same month.

(4) Future Design Business

The company's Future Design Business focuses on promoting products and initiatives that contribute to a sustainable society and the health and happiness of individuals, with 'Sustainable' and 'Well-being' as important keywords. Specifically, they have launched the 'Hitotsubukanro earth' series, which is environmentally friendly, from their directly managed store 'Hitotsubukanro'. This lineup includes candy with non-standard specifications that are not normally sold, wet wipes made with alcohol refined from unused rice fields, and hand towels made with plant-derived biodegradable materials such as sugar cane and corn. In December 2022, they released a new type of gummy called 'Li Mikangumi', which is made from fruit residue. This product uses the fiber 'Seimi pulp' remaining from the squeezing of Seimi oranges and fruit juice, and is a product that brings out the original flavor of oranges. In 2023, they started an upcycling project in collaboration with design firm Paper Parade as a sustainable initiative. In this project, they create upcycled goods and carry out crowdfunding projects. For the fiscal year ending December 2024, they plan to continue developing new products and services from a new perspective through collaboration with other companies.

4. Efforts in the second half of fiscal year ending December 2024

To expand the market share of core businesses in the second half of fiscal year ending December 2024, it is necessary to strengthen the production and sales capabilities. First, they aim to improve the efficiency of production and sales and increase sales per product. Specifically, they will concentrate on promotional activities to increase the sales composition ratio of key products and carry out sales activities starting from the store using digital media. It is also important to enhance production capacity, and they are increasing manufacturing personnel and expanding the gummy building at the Matsumoto factory. This gummy building is scheduled to start operation in October, and discussions are underway for expanding production scale during the 'Kanro Vision 2030' period.

The challenges of the new business are expanding the business area and scaling. As a countermeasure, they are focusing on deepening the overseas market and making early investments for the next medium-term management plan. Specifically, they will implement sales promotion activities by country and region and expand exports. In addition, they are selecting and developing strategic brands for the US market and promoting collaboration with Amos in the Chinese market. Furthermore, to strengthen the sales of the 'Hitotsubu' business and improve the customer lifetime value (LTV), they will enhance product development and promotion that capture customer needs. They also collaborate with co-creation partners to launch new products and expand sales channels, conducting market acceptability surveys and considering OEM partners.

(Reported by FISCO guest analyst Hiroshi Nakayama)