Bridge Report:（3998）SuRaLa Net Fiscal Year ended December 2022

President Takahiko Yunokawa	SuRaLa Net Co., Ltd. (3998)

Company Information

Stock Information

* Share price as of closing on April 6. All figures are taken from the financial statements for FY 12/22

Earnings Trend

* Estimates are those of the company. Unit: million yen, yen. The company adopted consolidated accounting from FY 12/22

This report includes the corporate profile and business performance trend of SuRaLa Net Co., Ltd., the interview with President Yunokawa, etc.

Table of Contents

Key Points
1. Company Overview
2. Fiscal Year ended December 2022 Earnings Results
3. Fiscal Year ending December 2023 Earnings Forecasts
4. Future Priority Measures
5. Interview with President Yunokawa
6. Conclusions
<Reference: Regarding Corporate Governance>

Key Points

• Under the corporate ethos: “Bringing transformation to education and empowerment to children,” SuRaLa Net supplies “Surala” and “Surala Drill,” which are adaptive teaching tools based on AI and information & communication technology (ICT), to over 300,000 pupils and students of schools, cram schools, etc. The company also gives learning opportunities to children with developmental disabilities, truant children, and underprivileged pupils and students. The company is pursuing growth by entering overseas markets, too, and solving more educational issues.

   

• “Surala” is an adaptive e-learning tool that helps pupils and students learn 5 major subjects (the Japanese language, arithmetic/mathematics, the English language, science, and social studies) from elementary to high school together with animated characters serving as their teachers according to the comprehension level of each child. With its unique systematic curricula, “Surala” aims to facilitate the “understanding of the fundamentals” and the “acquisition of basic academic skills.”

   

• SuRaLa Net has established an unrivaled unique position with “Surala,” an advanced digital teaching tool, targeted at a broad range of children with a deviation value of 30-60. In addition to the development and provision of “Surala,” the company possesses consultation skills to propose solutions to the problems with the management and affairs of cram and ordinary schools and support them in adopting the solutions. This is their primary characteristic that cannot be imitated by competitors. The company’s competitiveness is derived also from the adoption of cutting-edge technologies, including the installation of AI functions of leading-edge enterprises, the utilization of big data on learning activities, and so on.

   

• In the term ending December 2023, sales are projected to grow 8.1% from the previous term to 2,322 million yen and operating income is forecast to drop 17.7% from the previous term to 391 million yen. The sales of the e-learning business are expected to increase 7.1% from the previous term to 2,212 million yen. It is forecast that the sales from schools and BtoC business will rise, but the sales from cram schools will decline. Although sales are expected to grow, profit is projected to decrease, due to investments in development, personnel for development, recruitment of support staff, etc. as well as the augmentation of operation and maintenance costs in the wake of release of new functions.

   

• In the cram school market, which is becoming mature, the company will make efforts to expand its markets aggressively in several fields, based on its “AI,” “adaptive tools,” and “online systems.” As schools are faced with difficulty in utilizing the equipment and software they have installed, the company will give proposals and strengthen its support system. By taking advantage of the GIGA School Scheme targeting high schools, the company will try to find new client public high schools and create a new pillar of revenue. In the BtoC market, the company will strengthen its unique position of offering the only service that allows even children with developmental or learning disabilities and truant children to understand each subject in a systematic manner, with the aim of solving social issues and growing the company. In developing and emerging countries, where there are significant problems with academic skills, the company will promote the adoption of ICT in education and aim to grow in the medium/long term.

   

   

• We interviewed President Yunokawa about competitive advantages, future growth strategies, his message toward shareholders and investors, etc. He mentioned, “Our company’s existence in society becomes meaningful, when we support children with learning disabilities, truant children, and children with low academic skills and solve the social issue of educational inequality, and such activities will lead to the improvement in our corporate value. It has been nearly 20 years since our company was established, but we will keep endeavoring to do something new without losing our venture spirit, so we would appreciate your support from the medium/long-term viewpoint.”

   

• So that SuRaLa Net will remain full of the venture spirit, President Yunokawa makes efforts to develop an environment in which employees can express their opinions without considering their superior-inferior relationships while sharing a common mindset in a flat organization. In addition, he encourages employees to ponder by themselves and give proposals without sticking to previous cases, and have discussions thoroughly to make decisions.

   

• The originality and advantage of the company are derived from the concept of “even without studying in school, students can understand each subject from scratch.” However, in order to keep its pioneering position amid the intensifying competition, the company needs to continue development with unique ideas competitors do not have. We would like to pay attention to the release and progress of new functions and services, as well as the variations in the number of schools that have adopted its services and the number of IDs, which are KPIs.

   

1. Company Overview

Under the corporate ethos: “Bringing transformation to education and empowerment to children,” SuRaLa Net supplies “Surala” and “Surala Drill,” which are adaptive teaching tools based on AI and information & communication technology (ICT), to over 300,000 pupils and students of about 2,500 schools, cram schools, etc. While these tools are increasingly used in public schools, famous private middle and high schools, and leading cram schools around Japan, the company gives learning opportunities to children with developmental disabilities, truant children, and underprivileged pupils and students. The company is pursuing growth by entering overseas markets, too, and solving more educational issues.

*This figure is created by Investment Bridge Co., Ltd. based on disclosed materials.

【1-1 History】
When Mr. Takahiko Yunokawa (the current representative director and president of SuRaLa Net Co., Ltd.) was supporting the franchise business and direct management of tutoring schools in CatchOn Co., Ltd., which is a group company of C&I Holdings Co., Ltd. (the former Venture Link Co., Ltd.) in 2004, he was struggling to improve the academic skills of low-performing students although the marketing for attracting students progressed well. In 2005, the company started developing ideal e-learning tools.
During the development, he noticed that there were no effective solutions to improve the academic skills of low-performing students in the world, and started business operation on a full-scale basis, while believing that it is socially meaningful to improve the academic skills of such students and the market is a blue ocean where large companies had not yet started business.
In 2007, the “Surala” for junior high school students was released, targeting the cram and ordinary school markets. In 2008, SuRaLa Net Co., Ltd. was established mainly for the purposes of offering educational services with e-learning systems, supporting the operation of e-learning systems, marketing, promotion, and managing websites.
In the same year, the “Surala” for high school students was released, and in 2010, the number of students using “Surala” exceeded 10,000.
In the same year 2010, SuRaLa Net Co., Ltd. took over the e-learning business “Surala” for cram and ordinary schools throughout Japan from C&I Holdings Co., Ltd. through an absorption-type split contract, and all shares of SuRaLa Net Co., Ltd. were transferred from FC Education Co., Ltd., which is a subsidiary of C&I Holdings Co., Ltd., to Mr. Takahiko Yunokawa, as a management buyout (MBO). Then, the company released “Surala” for entrepreneurs and home-learners (2011 and 2012), and obtained a patent with the “adaptive learning” function in 2013.
The company brushed up “Surala,” increased sales, and expanded its business domains, including the support for the opening and independence of cram schools. These activities accelerated its growth, raising sales and profit steadily. In 2017, the company got listed on Mothers of TSE. In 2022, it was listed on the Growth Market of TSE through stock market structuring.

[1-2 Corporate Philosophy]
Under the corporate ethos of “Bringing transformation to education and empowerment to children,” the company aims to offer optimal “educational opportunities” to all kinds of children without being swayed by the environment.

The mission and strategy of “SuRaLa Net” are to solve the global social problem of educational inequality for children suffering from poverty and disabilities and low-performing students with cutting-edge technologies and then eliminate the educational inequality.

[1-3 Market Environment]
According to the reference material of the Ministry of Economy, Trade and Industry (Jan. 2018), “the scale of the Japanese educational industry in the private sector is around 2.5 trillion yen per year. As a whole, the market is shrinking due to the decline in birthrate.” “The difference in growth rate of the educational market between Japan and other advanced countries is increasing.” “In many advanced countries, the growth rate of the scale of the educational industry exceeds that of GDP. In particular, those in the U.S. and South Korea are about two times the GDP growth rate.” “Meanwhile, the educational market scale per capita is the lowest among advanced countries, and the market growth rate per capita is lower than that of GDP in Japan, and this gap is expanding.”

(Taken from the reference material of the Ministry of Economy, Trade and Industry)

That reference material also mentions the growth potential of EdTech (Education × Technology), which is a business field aimed at innovating conventional educational scenes with technology, and introduces pioneering cases in Japan.

The company enumerated the following three concrete points to revise educational guidelines, etc., with the aim of “realizing educational curricula open to society” so that students can share the goal of creating a better society through better school education and acquire necessary qualities and skills for leading the future, while recognizing the problems with education in Japan that need to be dealt with for enhancing competitiveness and cooperating with society.

*What students will become able to d To nurture necessary qualities and skills for the new age and enrich learning assessment
*What students will learn: To establish new subjects, courses, etc. for acquiring necessary qualities and skills for the new age, and revise goals and contents
*How students will learn: To improve learning processes from the viewpoint of “active learning” (proactive, interactive, profound learning).

Recognizing this status quo, the Ministry of Education, Culture, Sports, Science and Technology issued the new educational guidelines for “elementary schools” in 2020, those for “junior high schools” in 2021, and those for “high schools” in 2022.
In accordance with the “GIGA School Scheme,” a five-year plan for adopting ICT in education, terminals and WiFi were installed in elementary and junior high schools throughout Japan by the end of fiscal 2020, and are scheduled to be installed in high schools throughout Japan by the end of fiscal 2022.
Furthermore, the Ministry of Economy, Trade and Industry partially subsidizes the costs for adopting EdTech tools for “EdTech providers,” so that schools can try ICT-based educational services through the “subsidy for installing EdTech,” and they are conducting a demonstration experiment of a “Future Classroom” in which students design their learning processes by themselves.

Like this, Japan hopes to reform and grow its educational environment and market by proactively adopting ICT.
In particular, it is expected that ICT will fulfill a significant role in the above-mentioned item “How students will learn: To improve learning processes from the viewpoint of active learning (proactive, interactive, profound learning),” and it is forecast that the Japanese EdTech market will keep growing amid the declining birthrate.

(Taken from the reference material of the company)

[1-4 Business Description]
(1)Outline
The company’s business segments are the e-learning business, the commissioned development business, and the app development business.
In the e-learning business, the company offers services, including the online learning tools “Surala” and “Surala Drill,” etc. to mainly elementary school pupils and middle and high school students. In addition, the company gives proposals for educational curricula utilizing its services to clients adopting the services, supports the clients in starting business, and regularly holds charge-free study sessions, to support business administration, and also provides contents in collaboration with other companies.
In the commissioned development business, the company undertakes the entrusted development of educational contents and offers maintenance services.
In the app development business, the company develops learning contents based on gamification by itself, and provides intellectual training apps, which can be downloaded from Apple Store, etc.

*The e-learning business accounts for over 90% of total sales and profit, while the commissioned development and app development businesses make up only small percentages, so they are not significant as information to be disclosed. Accordingly, the company omits the results of each segment in disclosed material, etc.

(2)e-learning business
①AI × adaptive learning tool “Surala”
The following section describes the outline, strengths, and features of the AI × adaptive learning* tool “Surala,” which is the mainstay of the e-learning business.

*Adaptive learning
This is a method of providing individuals with optimal learning contents for more efficient learning. It enables meticulous teaching and guidance, and leads to the enrichment of learning activities based on the comprehension level, interest, etc. of each learner.

◎Outline
The AI × adaptive learning* tool “Surala” is an adaptive e-learning tool that helps pupils and students learn 5 major subjects (the Japanese language, arithmetic/mathematics, the English language, science, and social studies) from elementary to high school together with animated characters serving as their teachers according to the comprehension level of each child. With its unique systematic curricula, “Surala” aims to facilitate the “understanding of the fundamentals” and the “acquisition of basic academic skills.”

(Taken from the reference material of the company)

“Surala” is composed of the following five functions, which are reflected in its features and merits as an adaptive learning tool.

With the lecture, exercise, and test functions, the cycle of “comprehension → memorization → utilization” is repeated according to the proficiency of each student, so that students can master learning contents on one-stop basis.
As even novice learners can proceed with learning by themselves, the system is increasingly utilized in elementary, middle, and high schools, cram schools, afterschool day-care centers, etc.

Based on “Surala,” the company also offers “Surala Drill,” “Pitadori,” and “Surala Ninja!”

◎Strengths and features
As SuRaLa Net pioneered in utilizing ICT for teaching materials in this industry, “Surala” has many strengths and features. In particular, it has the adaptive learning function, and have a significant lead over competitors’ products as a teaching tool that can optimize contents according to each learner’s status.

(Taken from the reference material of the company)

②Business model
◎Clients/users of the company’s products
“Surala” are supplied to mainly cram schools, ordinary schools, and consumers (BtoC) (individual learners).

The company is also operating overseas business. At present, the company offers “Surala Ninja!,” the overseas version of “Surala,” to elementary schools in Indonesia, Sri Lanka, and Egypt.

◎Revenues
The company collects service usage fees from schools, cram schools, and individual learners.

(Taken from the reference material of the company)

*Business model targeted at cram and ordinary schools (BtoBtoC)
The company issues administrative IDs (teachers’ IDs) for using “Surala” at schools that have adopted it, and students’ IDs for students of the schools. Students use “Surala” via their schools.
The schools give follow-up lectures to students by using the functions of “Surala,” which curtails personnel expenses and management costs.

<Cram School>
The company earns revenues mainly from a monthly “serve usage fee” charged for each building of schools using this service and a monthly “ID usage fee” charged for each student’s ID registered in the Surala system.

<School>
The company earns revenues mainly from the “initial installation fee” at the time of conclusion of a contract and a monthly “ID usage fee” charged for each student’s ID registered in the Surala system.

*(BtoC) business model targeted at individual learners
The company issues students’ IDs for “Surala” to individual learners. The teachers of cram schools that have adopted “Surala” (Surala coaches), which have cooperative relationships with the company, “set monthly goals” for learning and conduct “follow-up activities, such as the check of progress by contacting students by telephone or email about once a week,” for students who have IDs.
The company earns revenues mainly from a monthly “ID usage fee” charged for each student’s ID. In addition, the company pays the remuneration for follow-up lectures to school teachers so that the revenues of cram schools will grow in parallel with the increase of end users. Like this, the company has established a business model based on win-win relationships with schools.

The number of clients, the number of IDs, and the sales composition in the term ended Dec. 2022 are as follows. The company considers that the ratio of sales from schools will increase through the progress of the GIGA School scheme.

*As of the end of Dec. 2022

(Taken from the reference material of the company)

③Effects of adoption of “Surala”
As a “demonstrative project for future classrooms” in local public standard schools, “Surala” was adopted in three major subjects (the English and Japanese languages, and mathematics) in Sakaki High School in Nagano Prefecture, and the effectiveness of learning improved remarkably as mentioned below.

(Taken from the reference material of the company)

In recent years, the reform of workstyles of teachers has been a significant issue. According to the questionnaire survey targeted at teachers of Naniwa School in Osaka Prefecture in December 2020, the time required for a test was shortened to one sixth, and 42% of teachers using “Surala” replied that “their workloads have decreased somewhat/slightly.”
“Surala” helps reform the workstyles of teachers by streamlining the process of acquiring fundamental academic skills and realize an environment in which teachers can concentrate on the nurturing of students’ capabilities of thinking, judging, expressing, and learning things, and humanity.

(Taken from the reference material of the company)

④Growth potential and future developments of “Surala”
As mentioned in the section “1-3 Market Environment,” the Japanese EdTech market is expected to keep growing despite the declining birthrate. The above-mentioned effects of adoption were highly evaluated, and the number of clients and the number of IDs for “Surala” and “Surala Drill” increased. As of the end of December 2022, the market penetration rates of “Surala” and “Pitadori” are 2.3% for cram schools (1,204 schools) and 3.5% for ordinary schools (1,191 schools). The company is also actively cultivating overseas markets, so there is significant room for growth.

⑤Active formation of alliances
The company is striving to improve contents by actively forming alliances with external enterprises.

SuRaLa Net plans to cooperate with Fantamstick in developing new services, and aims to increase personnel for strengthening the system for commissioned development, whose transactions are increasing, increase users of existing app services by enhancing marketing and brand development activities, and release new services utilizing gamification.

[1-5 Features and Strengths]

(1)Positioning
The company has established an unrivaled unique position with “Surala,” an advanced digital teaching tool, targeted at a broad range of children with a deviation value of 30-60.

(Taken from the reference material of the company)

(2)Source of competitiveness
The competitive advantage of the company is attributable to mainly the development and provision of “Surala,” which is based on AI and adaptive learning and has significant advantages over competing products. In addition to them, the company possesses consultation skills to propose solutions to the problems with the management and affairs of cram and ordinary schools and support them in adopting the solutions. This is their primary characteristic that cannot be imitated by competitors.
The company’s competitiveness is derived also from the adoption of cutting-edge technologies, including the installation of AI functions developed by leading-edge enterprises, such as AI chatbots and AI speaking functions, in “Surala” with patented functions, the utilization of big data on learning activities to evolve and upgrade teaching materials, and so on.

[1-6 ROE Analysis]

*ROE was taken from the brief financial report. The figures until FY 12/21 are nonconsolidated, while the figures in FY 12/22 are consolidated. Until FY 12/21, total asset turnover and leverage were calculated from the average of values of total assets and equity capital at the beginning and end of each term. In FY 12/22, the values at the end of the term were used, as consolidated accounting was adopted.

The ROE of SuRaLa Net, which is an ICT enterprise, has been high, but it is considered that there remain room for further improvement in profitability, asset efficiency, and leverage.

[1-7 Sustainability]

As mentioned in the section “1-2 Corporate Philosophy,” the company recognizes that its existence will become socially meaningful if it solves the social issue of “educational inequality” with ICT, and considers it as a business opportunity, to achieve mid/long-term growth.

The company started issuing “impact management reports,” including impact assessment, to logically visualize the social issues they want to solve through their business and the outcomes they hope to achieve.
These reports cover the four social issues: “truancy,” “developmental and learning abilities,” “poverty,” and “low academic skills,” and try to qualitatively and quantitatively evaluate the impact of the company’s business on them.
The company considers that its endeavor to assess the impact is quite unique and new among IT venture firms.

Impact Management Report 2020　　https://surala.jp/img/ir/suralanet_impactreport.pdf

2. Fiscal Year ended December 2022 Earnings Results

[2-1 Consolidated Business Results]

*Unit: million yen. The figures for FY 12/21 are non-consolidated, while the figures for FY 12/22 are consolidated. YoY rates were calculated by Investment Bridge Co., Ltd. for reference.

Sales increased, and profit dropped, but exceeded the revised forecast.
Sales grew 10.0% from the previous term to 2,147 million yen. The sales in the cram school market declined due to the decrease of students, the diversification of EdTech teaching materials, etc., but the sales in the school and BtoC markets increased.
Operating income declined 8.7% from the previous term to 475 million yen. Sales rose, but it was not enough to offset the augmentation of expenses for developing contents and systems, depreciation, online ad costs, and website upgrading expenditure, the costs for relocating the headquarters, etc.

[2-2　Trend of the e-learning business in each market]

(Profit and loss of the e-learning business)

*Unit: million yen.

(Sales in each market)

*Unit: million yen.

(Trends of KPIs)

*Sum of the values of “Surala” and its twin version “Surala Drill”

(1)Cram school market
Due to the impact of the novel coronavirus and the diversification of EdTech-based teaching materials, the number of students of existing cram schools that have adopted the company’s product is decreasing, but the number of business inquiries is increasing due to the popularization of online education and the improvement in online marketing. The distribution of the products to afterschool day-care centers for kids is increasing steadily.

(2)School market
The number of cases in which the subsidy for adopting EdTech was granted decreased from the previous year.
The number of client schools and the number of IDs dropped from the end of the previous term, but multiple municipalities have been using the product since the conclusion of contracts in August 2021, so sales are healthy.
Based on the track record of practical application in institutions for higher education, such as vocational schools, sales channels are expected to expand.

(3)BtoC market
Learning at home by using online systems has been increasing.
The company responded to the growth of the truancy market and proactively made efforts to diffuse the system in which truant students can be deemed to have attended classes, establishing its unique position.
There are an increasing number of pupils who use the product to study subjects for higher grades in advance, and an increasing number of children living abroad who use the product.

(4)Overseas market
Schools were continuously closed in Indonesia and the Philippines due to the spread of COVID-19, and in Sri Lanka due to the instability.
The joint large-scale pilot project with Asian Development Bank Institute (ADBI) is ongoing in Indonesia.
In Sri Lanka, the government decided to adopt “Surala Ninja!” for public schools.

[2-3　Financial Condition and Cash Flow]

◎Financial Condition

*Unit: million yen. The figures as of the end of Dec. 2021 are nonconsolidated, while the figures as of the end of Dec. 2022 are consolidated. Increase/decrease amounts were calculated by Investment Bridge Co., Ltd. for reference.

The capital-to-asset ratio as of the end of Dec. 2022 was 76.0%.

*Unit: million yen. The figures in FY 12/21 are nonconsolidated, while the figures in FY 12/22 are consolidated. Increase/decrease amounts were calculated by Investment Bridge Co., Ltd. for reference.

3. Fiscal Year ending December 2023 Earnings Forecasts

[3-1　Earnings Forecast]

*Unit: million yen. Estimates are those of the company.

Sales are expected to grow, but profit is projected to drop.
Sales are forecast to increase 8.1% from the previous term to 2,322 million yen, while operating income is projected to decline 17.7% to 391 million yen.
The sales from the e-learning business are expected to grow 7.1% from the previous term to 2,212 million yen. The sales from schools and BtoC businesses are expected to grow, and the sales from cram schools are projected to drop.
Although sales are expected to grow, profit is projected to decrease, due to investments in development for differentiating their products further from competitors’ products, increase of personnel for development of contents and systems, recruitment of support staff in response to the emergence of problems with on-site use, etc. as well as the augmentation of operation and maintenance costs in the wake of release of new functions.

【3-2　Initiatives】

The trends of the e-learning business, etc. are as follows.

(Sales in each field)

*Unit: million yen.

(KPI)

Due to the termination of the subsidy for adopting EdTech, the numbers of school buildings and students in the school market will decrease, but in order to deal with the emergence of problems with use in school under the GIGA School scheme, the company will increase marketing staff for enhancing support, with the aim of increasing sales by 10% or more in the school market. The performance in the cram school, BtoC, and overseas markets is expected to be healthy.

4. Future Priority Measures

The basic policies of the business plan are “response to the acceleration of adoption of ICT in educational scenes,” “utilization of big data and adoption of cutting-edge technologies,” and “initiatives for sustainability.” Under these basic policies, the company will implement the following priority measures in each market.

【4-1 Cram School】

Despite the declining birthrate, the market scale has been stable. However, the cram school market is becoming “mature,” so the company considers that cram schools will undergo the full-scale “competition to survive.”

Under these circumstances, the company will strive to expand business in multiple fields, based on “AI,” “adaptive tools,” and “online systems.”

For entrepreneurs who hope to expand business with new business models, which solved the problems with conventional franchised tutoring schools, the company will support their low-cost management by setting initial fees and loyalties at zero and doing without part-time lecturers. The company will support a broad range of cram schools, including private small-sized ones, afterschool childcare centers, English conversation schools, and facilities for truant pupils.

Leading cram schools, too, have been merged or integrated, indicating fierce competition. For local medium-sized and leading cram schools, which face difficulty in differentiation and promotion of enrollment, the company will propose original exercises with E-Te Editor and strategies for attracting students in the post-pandemic era amid the declining population. The company will also support clients in transforming into an organization that can use EdTech.

As offices and users are increasing year by year and competition is intensifying, the company will support afterschool day-care centers, which need to differentiate their services, in transforming into facilities where school subjects can be learned, while giving operation consultation services by proposing the use of ICT and educational plans to make students employed.

In April 2023, the company will revise the area management system, to introduce its services to more cram schools.

【4-2 School】

Regarding the GIGA School scheme for elementary and junior high schools, schools face the difficulty in actually using the installed equipment and software, so the company will give proposals for solutions, and strengthen its support system.

On the other hand, the company aims to increase client public high schools and create a new pillar of revenues, by utilizing the GIGA School scheme for high schools.
In detail, they will concentrate on the development of contents and marketing, and aim to achieve the linkage and connection with e-portal sites for utilizing learning data, accumulate experiences in growing fields, including vocational schools and high schools offering correspondence courses, and conduct marketing. The company will focus on the improvement in the know-how to fully utilize them in schools, academic skills, and non-cognitive abilities. In addition to “learning programs for students with low academic results,” the company will enhance its capability of dealing with each of new educational values.

【4-3 BtoC】

It is said that there are about 600,000 children with developmental disabilities, including learning disabilities, and about 24 truant students. In addition, the company aims to grow its business by grasping the characteristics of the BtoC market, in which the demand for learning at home has grown due to the coronavirus pandemic and the product is increasingly used by Japanese children living abroad, and solving social issues.

The company will strengthen its unique position of offering the only one service that enables children with developmental and learning disabilities and truant children to learn systematically from scratch.
The company will offer comprehensive support to customers facing trouble in learning, including “Surala Coach” to coach guardians, “Homebility” to train guardians, and mental and educational assessment services.

【4-4 Overseas】

The company will promote the adoption of ICT in education in developing and emerging countries, where populations have grown and the ratio of young people is high, but educational infrastructure has not been developed and there are significant problems with the number and quality of teachers, with the aim of achieving mid/long-term growth.

In detail, the company will enrich content and target junior high schools as well as elementary schools.
In Indonesia, the company will make efforts to introduce ICT to 100 public middle schools and produce good results.
In Sri Lanka, the company will strive to expand the BtoC business and cement the cooperation with international NGOs.
In Egypt, full-scale commercialization targeted at private schools started.

【4-5 Other/company-wide】

*Alliance
As mentioned in the section “1. Company Overview,” the company is proactively forming alliances with external enterprises, and multiple projects are ongoing.
The company aims to generate synergetic effects with Fantamstick, which was acquired as a subsidiary, as soon as possible.

*Development
The company will develop content and platforms for new educational issues and values, such as inquiry-based learning and Japanese-language content.
The company will work on the development of a next-generation learning management system (LMS) by utilizing cutting-edge technologies. The company will continue active investment, for further optimizing learning programs for respective students.

5. Interview with President Yunokawa

In our interview with President Takahiko Yunokawa, we asked about his company's social significance, strengths, characteristics, future growth strategies, and initiatives and requested him to give a message to shareholders and investors.

Q: First of all, please tell us about the social significance of your company.

We focus on four social issues: “poverty,” “developmental and learning disabilities,” “school refusal,” and “children with low academic skills.”
By distributing Surala domestically and overseas, we will provide all children worldwide with the opportunity to receive high-quality education at a low cost, thereby resolving these issues, which is our social significance. This also presents a business opportunity that we believe can lead to growth.

Q: What are the strengths and competitive advantages that lead to your company's growth?

There are many adaptive learning materials that are based on AI these days, but our company's concept differs greatly from other companies.
Many of our competitors create learning materials that are considered supplementary for the classes the students are supposed to attend in school.
On the other hand, our company has created its learning materials based on the concept of “even without studying in school, students can understand each subject from scratch.” This is our great strength and competitive advantage as it allows the children who refuse to go to school and those in developing countries that do not have the opportunity to get an education to understand the material.
We believe that this concept, which aims to eradicate educational disparities under the corporate philosophy of "Bringing transformation to education and empowerment to children," is unique to our company.

Let me explain in more detail. The teaching materials consist of lectures and drills (exercises). We ask students to solve problems that are made adaptively for understanding and acquiring knowledge, but the lecture part is also a significant feature.
For example, many other companies create video lectures with charismatic teachers, but in our case, we create interactive animations. Other companies also use animation, but we are the only company involved in interactive animation because it is time-consuming and costly.
In addition, classes by famous teachers are fine for students with high academic ability. However, students with low academic ability, no matter how good the lectures are, will not be able to concentrate in one-way classes and will fall asleep during class.
In our company, we teach using detailed visuals and voices rich in emotional expression by voice actors so that even such students can continue to concentrate. Also, the animation asks questions here and there to confirm that students have understand the class content and tells them "Great job!" when the answer is correct and "Hard luck!" when incorrect. Such reactions help the student maintain their focus.

So, as I have mentioned, our concept, which is based on the corporate philosophy, is "teaching from scratch, so even students with low academic abilities can understand the material." Our competitive advantage and its sources lie in adopting this concept, having it as the foundation of all our business strategies, product, and service designs, and continuously refining it since our founding.

Q: Please tell us about your initiatives and ideas for further enhancing these strengths and competitive advantages.

E-learning consists of two components: content and LMS (Learning Management System).

We have accumulated a wealth of know-how in content creation.
For a long time, “paper” was the main medium in the educational industry, so there was almost no feedback. You could not know, for example, whether “the learning materials were easy to understand or difficult to understand” or whether “students at a certain level could understand them.”
Now, ICT enables us to obtain such feedback in an extremely precise manner. Other companies do not have this kind of essential expertise in content creation, and we will continue to accumulate more of it in the future.

Regarding LMS, which is the engine that drives content creation, we always focus on incorporating the latest technologies, such as AI, VR, and AR. In addition to increasing the number of internal development personnel and enhancing their capabilities, we are also actively developing alliances with external parties. One example is the acquisition of Fantamstick, which develops educational apps and educational content for children.

There is much talk about the shortage of ICT engineers globally, but we have been able to recruit them relatively smoothly.
I think that keywords such as "education," "ICT," and "overseas" are appealing to young people these days.

Q: Please tell us about your company's growth strategy and what you should focus on.

In the educational industry, the GIGA school program, which started in 2020, has had a significant impact, and our company, whose primary customers are cram schools and private schools, entered the public school market for the first time. In addition, due to the spread of the novel coronavirus in the same year, students were forced to study at home for three months, which changed everything, increasing the importance of online education rapidly and making the notion that it is impossible to study without digital learning materials.

However, after that, although the GIGA school program introduced digital devices, there were cases where they were not adequately utilized. So, we must avoid the spread of the notion that “digital devices are no good and hard to use.” For that reason, I think it is essential to produce concrete results about the usage of digital learning and the students' academic ability improved by using digital teaching materials skillfully. In other words, as we move from the introduction phase to the operation/outcome phase, we are beginning to focus on thorough support for schools, cram schools, and teachers.
We will focus on developing new markets related to cram, private, and public schools and following up on existing ones.

Results are not limited to student academic achievement. Self-affirmation, that is, the mindset that "I can do it if I try," is also one of the achievements we focus on.
E-learning allows you to visualize how many hours, minutes, and seconds you have learned. Therefore, you yourself can see the connection between your efforts and results. Empirical data show that students improve their self-esteem by receiving such feedback, so we regard this as a positive outcome.
Another significant achievement of e-learning is the realization of teachers’ workstyle reform.
The overwork of teachers has become a problem. The academic ability required of students has changed from the memorizing skill to the self-thinking skill, which led to an increase in teachers' working time as they have to conduct group discussions and inquiry-based learning outside school.
Therefore, there is a growing trend to use digital materials for basic learning to save time. As for the test implementation, until now, teachers have had to create questions themselves, print them out, and distribute them. And they have had to collect, score, and summarize the results after the completion of the tests, but now it can be done with simple operations on a PC. In fact, teachers' workload has been greatly reduced because of it, which is also a significant outcome of using “Surala.”

In terms of growth, overseas markets are promising over a longer span.
Currently, we are expanding our business in Indonesia, Sri Lanka, and Egypt. We are using the math teaching material, "Surala Ninja!," which has improved children's arithmetic skills drastically. Because of the high recognition of Japanese education, we would like to expand the market from Asia to the Middle East and Africa and eventually pursue growth to surpass the growth of the Japanese market.

Now, the adoption rate of “Surala” is about 2-3% for both cram schools and schools, so there is much room for growth. For the time being, we believe that we will be able to increase it to around 10-15%.

Q: On the other hand, are there any challenges you are aware of in pursuing sustainable growth?

Developing new content and new functions is still a significant challenge.
In addition to increasing the number of development personnel, we have made efforts such as making Fantamstick a subsidiary, and I believe it significantly enhanced our development capabilities. The challenge is how to improve our development capabilities while keeping costs in mind to maintain and expand our competitive advantage.

Also, as I mentioned earlier, as we move from the introduction phase to the operation/outcome phase, it is essential to follow up closely with cram schools and schools. In some cases, it may be necessary to follow up on the management issues and personnel systems of the cram schools, so increasing the number of members with high consulting skills and providing training are also important issues to be addressed.

Q: Thank you for answering my questions. Finally, could you give a message to shareholders and investors?

To reiterate, we have created the adaptive learning material, "Surala," by using AI with the concept of "even without studying in school, students can understand each subject from scratch,” which is our competitive advantage and what makes us unique.
Through "Surala," we support children with learning disabilities, school refusal, and low academic ability to solve the social problem of educational disparity. This is our social significance, and will lead to improving our corporate value.
It has been nearly 20 years since our founding. We will continue to take on new challenges without losing our venture spirit. So, we hope you will support us from a medium/long-term perspective.

6. Conclusions

President Yunokawa is making efforts to develop an environment in which employees can actively express their opinions while sharing the same mindset in a flat organization without a hierarchical relationship, in order to keep the company full of the venture spirit. In addition, he encourages employees to ponder without sticking to previous cases, give proposals, and have discussions thoroughly with one another, to make a decision.
The originality and advantage of the company are derived from the concept that “even without studying in school, students can understand each subject from scratch.” However, in order to keep its pioneering position amid the intensifying competition, the company needs to continue development with unique ideas competitors do not have. We would like to pay attention to the release and progress of new functions and services, as well as the variations in the number of schools that have adopted its services and the number of IDs, which are KPIs.

<Reference: Regarding Corporate Governance>

◎Organizational structure and composition of directors and auditors

In order to further enrich the corporate governance structure by improving the objectivity and transparency of procedures for nominating directors and determining their remuneration amounts, the company established a nomination and remuneration committee as a discretionary advisory body of the board of directors. The committee is composed of 3 or more members selected through a resolution of the board of directors, and no less than half of them shall be independent outside directors.

◎Corporate Governance Report (Update date: March 28, 2023)
Basic policy
The company believes that in order for an enterprise to keep growing and advancing amid the rapidly changing business environment, it is indispensable to enhance the efficiency and effectiveness of business administration and develop a fair, transparent management structure, and considers thoroughgoing corporate governance as an important mission. In addition, the company plans to enhance risk control and supervision function to realize more effective corporate governance, in response to the changes in the social environment, the enforcement of laws, regulations, and so on.

<Reasons for Non-compliance with the Principles of the Corporate Governance Code>
The company follows all of the basic principles of the Corporate Governance Code.