■ Outlook for the AIAI Group <6557>

● Overview of consolidated performance forecasts for the fiscal year ending March 2025

For the consolidated performance forecast for the fiscal year ending March 2025, the initial plan is maintained, with revenue expected to increase by 2.4% year-on-year to 12,100 million yen, operating profit expected to decrease by 6.1% to 500 million yen, ordinary profit expected to decrease by 31.5% to 600 million yen, and net income attributable to shareholders of the parent company expected to increase by 13.2% to 400 million yen. New openings include 3 facilities of AIAI NURSERY and 1 facility of AIAI PLUS, all of which were opened in April 2024.

In the fiscal year ending March 2025, an increase in revenue, a decrease in operating and ordinary profit, and an increase in final profit are expected. Regarding revenue, it is anticipated to see only a slight increase due to a decrease in the number of new openings of AIAI NURSERY compared to the previous period and the transfer of the nursing care business. For operating profit, a slight decrease is expected due to rising labor costs and upfront investment costs for the full-scale deployment of AIAI VISIT (such as hiring and training visiting support staff). Ordinary profit is expected to decrease due to a reduction in subsidy income, which is recorded as non-operating income, in line with the decrease in the number of new openings. An increase in net income attributable to shareholders of the parent company is anticipated. The progress rate for the interim period against the full-year forecast is 49.9% for revenue, 48.8% for operating profit, 34.7% for ordinary profit, and 46.3% for net income attributable to shareholders of the parent company.

■ 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.

The business environment of the "AIAI Saniku Region" is favorable.

1. Business Environment

Regarding the business environment surrounding the "AIAI Saniku Region" that the company is developing, in the area of licensed nursery schools (AIAI NURSERY), the Children and Families Agency was established in April 2023, and significant changes in childcare policy will be implemented from fiscal 2024 as part of efforts to address declining birthrates and improve the quality of education and childcare. While the government's "unprecedented measures against declining birthrates" may support this, along with the progress made in resolving the waitlist issue, it cannot be denied that there is a sense of market saturation as the new openings of nursery schools have rapidly slowed across the industry, and there is also a possibility of the elimination of small-scale operators.

However, on the other hand, the number of children with disabilities is continuing to increase despite declining birth rates (the number of children with disabilities has increased 5.46 times between 2003 and 2021), resulting in a rapidly growing demand for support services for children with disabilities (child development support, medical child development support, after-school day services, home visit support). Considering this situation, it is believed that the business environment is favorable not only for the company’s AIAI PLUS and AIAI VISIT but also for the "AIAI Education Sphere," which provides integrated care, education, and therapy.

The progress of the medium-term management plan for 2023-2025 is going smoothly.

2. AIAI Group Medium-term Management Plan 2023-2025

In May 2023, the company established the "AIAI Group Medium-term Management Plan 2023-2025." It reassessed its position in the tech sector and incorporated the construction of new business models such as home visit support for nursery and early childhood education programs. The target figures include revenue of 120 to 13 billion yen for the final fiscal year ending in March 2026, operating profit of 300 to 500 million yen, and a cumulative investment amount of 680 million yen over three years. By the first term of the plan in the fiscal year ending March 2024, the revenue almost reached the target figures for the final fiscal year, while the operating profit exceeded expectations. The number of users, the annual number of home visit services implemented, and the cumulative number of in-house license holders also exceeded the plan, indicating that the growth strategy is progressing well.

As a basic strategy, there are no major changes in the policy of maximizing inter-business synergy through the "AIAI Education Sphere." Regarding AIAI NURSERY, given the progress in solving the issue of waiting children and the overall slowdown in the new opening of nursery schools in the industry, the speed of new facility openings will be reduced with a view to the market entering a mature stage, while continuing to open stores focused on areas with anticipated demand and investment returns to promote stable growth in profits, and push forward with efforts in anticipation of industry reorganization. On the other hand, due to the rapidly increasing demand for support services for children with disabilities, AIAI PLUS will be developed as a second pillar of growth after AIAI NURSERY, while the rollout of AIAI VISIT as a new business model will be fully advanced in the metropolitan area. Regarding the rollout of AIAI VISIT, while securing visiting support staff is progressing smoothly, there is currently low recognition among parenting generations, so there is a plan to strengthen promotion in the future. In June 2024, a collaboration with Timee <215A> was announced to promote the use of spot workers in AIAI VISIT. Additionally, AIAI VISIT Tokyo (Sumida Ward, Tokyo) was opened in October of the same year.

Regarding M&A and alliances, the plan is to actively consider targets such as other companies in the same industry that contribute to the expansion of the scope of the "AIAI Education Sphere." In July 2024, a memorandum of cooperation was concluded with Storm Harbor Securities, a boutique investment bank. As a result, new M&A schemes and financing schemes associated with M&A will be devised and constructed.

As corporate-related initiatives, the goal is to continue to enhance equity in terms of finance and capital while supporting stable growth in the business from a financial standpoint. In terms of human capital, efforts will be made to promote the creation of a comfortable working environment for all employees and to foster talent. In AIAI NURSERY and AIAI PLUS, the aim is to increase work style options according to the life stages and preferences of staff working at the facilities, supporting the balance between work and family to create a workplace environment where employees can thrive for a long time.

(Authored by FISCO guest analyst Masanobu Mizuta)