Kanro : FY2020 Presentation material

FY2020 Presentation material (Jan. to Dec. 2020)

February 17, 2021

(TSE Code: 2216)

Contents

			Page
Kanro Inc. Overview	Corporate vision	-	Overview-1
	Corporate overview and History	-	Overview-2
FY2020
Presentation material	Slide 1 to 36	-	1 - 18

Corporate vision

Overview-1

Corporate overview and History

[Corporate overview]							As of end December 2020
Company name	Kanro Inc.
Date founded	May 6, 1950					President and CEO		Kazuyasu Misu
Head office	3-20-2, Tokyo Opera City Building 37F, Nishishinjuku, Shinjuku-ku, Tokyo		Telephone		[phone]
location
Business activities	Manufacture and marketing of confections and food				Fiscal year-end		December 31
Exchange listing	Tokyo Stock Exchange, Second Section (securities code:	2216)		Number of shares		7,657,802
	issued
Capital stock	¥2,864 million	Equity ratio		56.5%		Number of		601
		employees
Recent performance	Net sales: ¥23.3 billion; Operating income: ¥0.84 billion; Ordinary income: ¥0.86 billion; Net income: ¥0.61 billion
(Annual)
Major shareholders	Mitsubishi Corporation approx. 30%; Kanro Kyoei Kai approx. 7%; Enomoto Buhei Shoten K.K. approx. 6%; Sumitomo Mitsui Trust Bank, Limited approx.
(Top 5)	5%; Sumitomo Mitsui Banking Corporation approx. 4%;
[History]
1912	Company founder Masaichi Miyamoto establishes a confectionery manufacturing business in Hikari city, Yamaguchi Prefecture.
1950	Business is restructured into a joint-stock organization with capital of ¥1 million under the name of Miyamoto Seika Co., Ltd.
1955	Kanro Ame is launched, using a secret ingredient - soy source. Becomes the first candy to be individually wrapped in cellophane.
1959	Matsumoto Plant is established in Matsumoto City in Nagano Prefecture.
1960	Company name is changed to Kanro Co., Ltd.
1962	Head office is relocated to Toshima-ku, Tokyo. Stock listed on the second section of the Tokyo Stock Exchange.
1963	Head office is relocated to Nakano-ku, Tokyo.
1968	New plant is constructed in Hikari city, Yamaguchi Prefecture (first phase).
1972	Consolidated subsidiary, Hikari Seika Co., Ltd. (former HIKARI Seika Co., Ltd), established in Hikari City, Yamaguchi Prefecture.
1973	Business alliance and sole sales agent agreement concluded with Mitsubishi Corporation.
1981	Launch of the first cough drop in the confectionery segment.
1982	New plant constructed in Matsumoto City, Nagano Prefecture, to which existing Matsumoto Plant is relocated.
1988	New Shimada Plant constructed in Hikari City, Yamaguchi Prefecture. (Leased to former HIKARI Seika Co., Ltd.)
1989	Head office is relocated to Shinjuku-ku, Tokyo.
1992	"Non-sugar" products launched.
1995	New plant constructed in Hikari City, Yamaguchi Prefecture, with facility name changed to "Hikari Plant" on the occasion of the relocation from the existing
plant.
2002	Puré Gummy launched.
2011	New Asahi Plant constructed in Aasahi village, Nagano Prefecture. ISO 14001 (environmental management systems) certification is obtained for the Hikari Plant (2000),
Matsumoto Plant (2001), head office and branch offices (obtained in 2003, surrendered in 2014), which together with the registration of the Asahi Plant means that all
	facilities are certified.
2012	Kinno Milk launched.
2012	To commemorate the 100th anniversary of the founding of the company, the first directly operated Hitotsubu Kanro store is opened in Tokyo Station.
2015	Head office R&D department is relocated to Koto-ku, Tokyo, and renamed the Toyosu Institute for R&D. Asahi Plant obtains FSSC 22000 (Food Safety System Certification).
2016	"NewKANRO 2021" medium-term management plan is announced.
2018	Head office is relocated to Tokyo Opera City building in Shinjuku-ku, Tokyo.
2018	Hikari Plant obtains FSSC 22000 (Food Safety System Certification).
2018	Consolidated subsidiary Hikari Seika Co., Ltd. is merged into parent company.
2019	New gummy product line at Matsumoto Plant begins full-scale operation. Matsumoto Plant obtains FSSC 22000 (Food Safety System Certification).
2021	Kanro Vision 2030 is announced.

Overview-2

2021/3/31 16:37

FY2020 Presentation material

Kanro Inc.

1

Contents

			Slide #
	About Kanro Inc.	：	3- 7
1.	Review of FY2020	：	8-14
2.	Mainstay brand status	：15-17
3.	Business strategy for FY2021	：18-23
4.	Forecast for FY2021	：24-30
	Appendix：Kanro Vision 2030	：31-36
	（Summary）

2

1

About Kanro Inc. (1/5)

◼

◼

Kanro is a confectionery manufacturer involved primarily in the manufacture and marketing of

candy such as Kanro Ame, Kenko Nodoame, Kinno Milk and Puré Gummy.

Kanro aims to become the No.1 candy manufacturer by leveraging its "Digging deeper

to further implement and strengthen brand-centric management" which

generates strong brands by focusing development on functionality and on using ingredients

themselves to the full, and working on "Digging deeper to further implement and

strengthen sustainable management" initiatives that use a business based on

"sweetness" to support people's healthy lifestyles and to contribute to the realization of a

sustainable society.

3

About Kanro Inc. (2/5) Candy Market (Jan. to Dec. 2020)

Others

(incl. caramel)

17.4%		¥72.3 billion
Tablet	FY2020	Hard
candy/	candy
Candy
Refresh
	40.3％

entire market -ingcandy ¥179.5 billion*1

20.4%

¥39.2 billion

Gummies

21.9%

• Market environment (Jan. to Dec. 2020）
• • Due to the impact of COVID-19, the candy market began to decline in March and remained on a downtrend in all categories: down 10.0% YoY
  • Hard candy: Mask-wearing lifestyle resulted in reduced demand for cough drops, etc.
  • Gummies: Decline in demand for consumption in offices and outings, etc.
  • Tablet candy: Decrease in situations where candy is eaten, etc.

Jan. to Dec. 2020 Market sales amount/YoY	Unit: billion yen
	FY2019*2	FY2020*1	YoY
Hard candy	77.7	72.3	-7.0%	Our main
Gummies	42.4	39.2	-7.4%	market
Tablet candy/	46.9	36.7	-21.8%
Refreshing candy
Others (incl. caramel)	32.5	31.3	-3.7%
Total	199.5	179.5	-10.0%

*1 (Source) INTAGE Inc. SRI Candy and caramel market Jan. - Dec. 2020 total, sales amount and YoY change by category *2 (Source) INTAGE Inc. SRI Candy and caramel market Jan. - Dec. 2019 total, sales amount and YoY change by category

4

2

About Kanro Inc. (3/5) Composition of sales

63.0 ％

4.7 ％

32.3 ％

FY2020

（Increased composition of gummy sales）

	FY2020	FY2019
Net sales	23.3 bil. yen	24.0 bil. yen
Hard candy	63.0％	65％
Gummies	32.3％	29％
Healthy snacks *	4.7％	6％

• Healthy snacks: products containing healthy ingredients such as sour plum, laver, seaweed stems, and natto soybeans that have been processed for easy consumption.

Hard candy

Healthy snacks

Gummies

5

About Kanro Inc. (4/5) Market share

Hard candy market share: No.1	19.8 ％ *1	Gummy market share: No.2 16.5 ％ *1
（ Previous year 19.3%）*2			（ Previous year 13.5%）*2
※Candy market as a whole: No.1 share （11.6 %） *3	* 1 INTAGE Inc. SRI Hard candy and Gummy market Jan-Dec. 2020 total, Kanro sales amount share by category
* 2 INTAGE Inc. SRI Hard candy and Gummy market Jan-Dec. 2019 total, Kanro sales amount share by category

* 3 INTAGE Inc. SRI Candy and Caramel market Jan-Dec. 2020 total, Kanro sales amount share

6

3

About Kanro Inc. (5/5) Our business

Manufacture and sales of Candy and others

"HITOTUBU KANRO" directly operated stores (GRANSTA Tokyo, LUCUA osaka stores and Shinjuku MYLORD store for a limited time)

The HITOTUBU gift shops are based on the concept of "HITOTUBU connects people to people," embodying the joy of giving and receiving in the form of drop candy.

Their purpose is to support the corporate brand and product brands through the test marketing of high value-added products and new products, and so on.

7

1. Review of FY2020

(Jan. to Dec. 2020)

8

4

Market environment/status of business in FY2020

◆Market environment

• Market diminished with declining demand for consumption in offices and outings, etc. due to COVID-19 pandemic
• Hard candy market down 7.0%, gummy market down 7.4%

◆Status of company business

◼ Downward revision of initial forecast, withdrawal of numerical targets set out in the

medium-term management plan "NewKANRO 2021"
◼ Re-launch of e-commerce business (sales of directly operated store products)
◼ Capital market-related:
-	Reduction of strategic shareholdings
	Dec. 31,	Dec. 31,	Dec. 31,
-	Increase in the number of unit shareholders		2018	2019	2020
Number of	2,068	4,480	6,043
		shareholders
		YoY change	̶	+2,412	+1,563

9

Summary of FY2020 performance (vs. revised forecast/YoY)

								Unit: million yen
			FY2020				FY2019		FY2018
	Actual	vs. forecast*1	vs.	YoY	YoY %		Actual		Actual
	forecast %*1
Net sales	23,321	-178	-0.8%	-717	-3.0%		24,039		22,949
Operating	836	+36	+4.6%	-87	-9.5%		923		1,003
income
Ordinary	860	+60	+7.6%	-146	-14.6%		1,007		1,045
income
Net income	610	+60	+11.0%	-41	-6.4%		651		1,011
Basic earnings per	86.58	+8.58	－	-5.78	-6.3%		92.36		141.19
share (Unit: yen)

• The values displayed in these materials are truncated at the million-yen level, so the breakdowns and totals may not always match completely.
• 1 Revised forecast announced on July 22, 2020

10

5

Main factors behind changes in FY2020 performance (vs. revised forecast/YoY)

• vs. revised forecast (decrease in net sales, increase in incomes)
• • Net sales (decrease): continued impact of COVID-19 pandemic
  • Operating income/ordinary income (increase): reduction in selling, general and administrative expenses
• Year on year (decreases in net sales and in incomes)
• • Net sales (decrease): hard candy was down > gummies were up
  • • Hard candy: heavy decrease in cough drops and other products sold via the convenience store channel.
    • Gummies: achieved increase in net sales in the face of COVID-19 crisis with gains in products that responded to COVID-19 issues as well as new products that benefited from expansion of production lines.
    • • Several products contributed to the growth, including Puré Gummy Pokemon, a collaboration product, and Asobon! Gummy, a new product
  • Operating income/ordinary income (decreases): decrease in marginal profit due to lower net sales > reduction of selling, general and administrative expenses
  • Net income (decrease): net income decreased but only marginally due to gain on sales of investment securities, combined with absence of impairment loss recorded in the previous fiscal year

11

Factors behind change in FY2020 operating income

									Unit: million yen
			FY2020				FY2019		FY2018
	Actual	vs.	vs. forecast	YoY	YoY %		Actual		Actual
	forecast*1	%*1
Net sales	23,321	-178	-0.8%	-717	-3.0%		24,039		22,949
Cost of sales	12,457	+56	+0.4%	-222	-1.8%		12,680		12,015
Freight/warehousing	1,353	-30	-2.2%	-32	-2.3%		1,385		1,327
costs
Sales promotion	681	-75	-10.0%	-157	-18.8%		838		744
expenses
Advertising	360	-8	-2.3%	-24	-6.3%		384		426
expenses
Agent fees	3,139	-28	-0.9%	-55	-1.8%		3,195		3,042
Personnel	3,076	-26	-0.9%	+51	＋1.7%		3,025		2,783
expenses
General expenses	1,415	-101	-6.7%	-188	-11.8%		1,604		1,605
Operating income	836	+36	+4.6%	-87	-9.5%		923		1,003

*1 Revised forecast announced on July 22, 2020

12

6

Factors of changes in OP (FY2020 Forecast * vs. FY2020 Result）

	* Revised forecast on July 22, 2020	Unit: million yen
Forecast vs. Result

	Increase factors
	Decrease factors
(V) :	Variable cost
(F) :	Fixed cost

*FY 2020

Forecast 800

FY 2020

Result 836

13

Copyright ©2020 Kanro Inc.

13

Factors of changes in OP (FY2019 Result vs. FY2020 Result）

FY2019 vs. FY2020

Unit: million yen

Increase factors

Decrease factors

1. : Variable cost

1. : Fixed cost

FY 2019

Result 923

FY 2020

Result 836

14

Copyright ©2020 Kanro Inc.

14

7

2. Mainstay brand status (Jan. to Dec. 2020)

15

Mainstay brand status: hard candy

Compact size

A premium milk candy for grown-ups, that uses carefully selected ingredients in pursuit of a sense of high-class luxury.

These throat drops have a gentle and mellow flavor that comes from slow-steeped plum honey made with no added coloring.

Salty-sweet◼ Japanese deliciousness An even simpler, gentler taste.

◼

◼

◼

Throat drops containing manuka honey and propolis in addition to 29 herbs. .

Kinno Milk candy

(No.1 milk candy brand by sales*)

• Struggled due to drop in sales through the convenience store channel
• • INTAGE Inc. SRI "Milk-flavor Candy Market" May. 2019

- Apr. 2020, cumulative sales amount brand ranking for

"Kinno Milk brand"

Kanro Ame

(a long-selling brand in its 66th year from launch)

• Opened "Kanro Ame Shokudo" recipe site on our company website
• Vegan certification mark acquired

Kenko Ume Nodoame

Kenko Nodoame Tatakau Manuka Honey

• Product that is doing well in the face of the COVID-19 crisis

16

8

Mainstay brand status: gummies

◼ Puré Gummy

A refreshing gummy candy with an enjoyable sweet-and- sour fruit taste, in which the acidity of the powder is followed by the spreading sweetness of the gummy.

17

An addictively chewable gummy candy with a springy texture and a unique shape.

Gummies which are fun for both kids and adults, in ten cute shapes. Containing Japanese- grown fruit juice, with no artificial colors.

• • Collaboration products and new products both doing well
• Candemina
• • Continues to grow as the second brand
  • Taste, shape, texture, entertainment value
• Asobon! Gummy
• • Continues to grow as the third brand
  • Gummies that fulfill the instinct for playfulness even while staying at home

3. Business strategy for FY2021

18

9

2021: Cultivation of products adapted to the "new lifestyle" with coronavirus

• "Using candy to support anxious consumers whose activities are restricted"
  Product rollout aligned to the 4 keywords taken from the 3 measures adopted in the new lifestyle.
• • Communication: Whether working remotely or observing social distancing, we still cherish communication
  • Self-care: We have to protect our own health. From cure to care
  • Value: Our choice must be things that are truly of value
  • Social and ethical: Let's think not only of ourselves but also others around us as well as the environment because the society is connected
• SCGs （Sustainable Candy Goals）

• Propose candy/gummy corners to provide sustainable support for retail businesses (from the two approaches of leveraging the qualities of the materials + functionality)

20

Product rollout for a deeper engagement in adapting to the "new lifestyle"

Communication	Self-care
(Communication among family members, pleasure of	(Caring for one's health)
home life)

Value	Social and ethical	• Biomass ink
• Mechanical Recycling
(Environmentally friendly,	PET packaging material
(Convincing	(next slide)
using candy to support people)
value
proposition)

21

10

Digging deeper to further implement and strengthen sustainable management: Mitigation of environmental load through business

• Changing packaging materials to mitigate environmental load
• • Adoption of biomass ink*1
  • • Applicable products: to be adopted in phases to products that will be launched in and after 2021
    • Environmental load: reducing CO2 emissions; reducing consumption of

oil resources

*1 Ink that is made partly from plant-based resources.

• Adoption of Mechanical Recycling PET*2
• • Applicable products: Kinno Milk candy (80g-type and 27g-type) from 2021
  • Environmental load: reduce CO2 emissions; reduce consumption of oil resources

*2	In comparison with conventional PET material, this material allows approximately 24% reduction in CO2 emissions
	and reduction in consumption of oil resources

• Reduction of food loss through extension of best-before dates and other measures
• • Best-beforedates of hard candies
  • • Starting autumn 2020, best-beforedates are being extended in phases for selected products, from 12 months to 24 months.

22

Overseas business development

- Signed an Exclusive Distributorship Authorization Agreement with AMOS

Type of	Products	AMOS company profile
business
Import	Started import and sales of 4D	Shenzhen Amos
Started in	gummy (4D stands for 3D (three-	Sweets & Foods Co., Ltd.
dimensional) + Delicious), a core
Nov. 2020
brand of Amos.
	A candy maker whose product development
	4D gummy features a three-
	guidelines are "Happy & Healthy products with
	dimensional shape and is
	innovative technology." AMOS is actively
	gaining popularity all over the
	developing its export business around the world,
	world.
	and has recently focused on domestic business in
		China as well, expanding its distribution mainly
Export
	through CVS and drugstore channels. Its technical
	Started export to Amos with	capabilities are highly evaluated within and outside
Started in	Iro Enpitsu and Kinno Milk Candy,	of China.
Feb. 2021	both of which have been selling
	well in China.

23

11

4. Forecast for FY2021

24

Forecast for FY2021

							Unit: million yen
		FY2021			FY2020		FY2019
	Forecast	YoY	YoY %		Actual		Actual
Net sales	24,600	+1,278	+5.5%		23,321		24,039
Operating	840	+3	+0.4%		836		923
income
Ordinary	860	-0	-0.1%		860		1,007
income
Net income	590	-20	-3.4%		610		651
Basic earnings per	83.67	-2.91	-3.4%		86.58		92.36
share (Unit: yen)

* The values displayed in these materials are truncated at the million-yen level, so the breakdowns and totals may not always match completely.

25

12

Forecast for FY2021 (Factors behind changes from FY2020)

• Year on year
• • Net sales (increase):
  • • Rebound in sales of hard candy by the launch of new products from the decline in the previous fiscal year resulting, etc.; continued increase in gummy sales
  • Operating income/ordinary income (flat):

• • Increase in marginal profit due to increased net sales
  • Cost reduction due to changes in packaging materials, etc.
  • Increase in personnel in line with business expansion
  • Increase in IT investment in such areas as the new core systems, smart factory, and digital marketing
• Net income (decrease):
• • Decrease reflecting the absence of gain on sales of investment securities in the previous fiscal year

26

FY2021 operating income forecast （ｖｓ. FY2020）

							Unit: million yen
		FY2021			FY2020		FY2019
	Forecast	YoY	YoY %		Actual		Actual
Net sales	24,600	+1,278	+5.5%		23,321		24,039
Cost of sales	12,782	+325	+2.6%		12,457		12,680
Freight/warehousing costs	1,455	+102	+7.5%		1,353		1,385
Sales promotion expenses	850	+168	+24.8%		681		838
Advertising expenses	447	+86	+24.2%		360		384
Agent fees	3,280	+141	+4.5%		3,139		3,195
Personnel expenses	3,270	+193	+6.3%		3,076		3,025
General expenses	1,676	+260	+18.4%		1,415		1,604
Operating income	840	+3	+0.4%		836		923

*The amounts given in these materials are rounded down at the million-yen level, so the breakdowns and totals may not always completely agree.

27

13

Factors of changes in OP (FY2020 Result vs. FY2021 Forecast )

2020 vs. 2021 forecast

Unit: million yen

Increase factors

Decrease factors

1. : Variable cost

1. : Fixed cost

FY 2020

Results 836

FY 2021

Forecast 840

28

FY2021: dividend forecast

				Unit: Yen
		Annual dividend		Dividend
	2nd quarter-end	Year-end	Total	payout ratio

FY2020	15	17	32	37.0%
FY2021 (forecast)	15	15	30	35.9%

• The return of profits to shareholders is an important policy, and our basic stance is to provide sustainable and stable dividends to shareholders.
• The current medium-term management plan sets dividend at ¥30+ for the period covered by the plan
• For FY2021, dividend is forecast at ¥30 to reflect the forecast for a year-on-year decrease in net income as the COVID-19 crisis continues.

29

14

30

Appendix

31

15

Kanro Vision 2030

- Creating a healthy future filled with smiles -

(summary)

32

Materialization of long-term vision

Long-termvision (announced in 2017)

Sweeten the Future

Kanro Vision 2030

1. Value creation

A company that creates new values and contributes to health and a better society through its pursuit of "ingredients" and "functionality," and with its passion for candies cultivated over 110 years of history and tradition.

2. Expansion of business areas

A company that continues to grow through diversified business development with domestic candy business at the core and with an eye on overseas, digital and future markets.

3. ESG management

A company that addresses social issues by creating values through its business, as a company that cherishes harmony with society, that the society needs, and is chosen by people.

33

16

Kanro Vision 2030 - the big picture

Vision 2030	Creating a healthy future that is filled with smiles by offering products and
	services focusing on ingredients and functionality.
Priority strategies	Value creation, ESG management, and expansion of business areas
Business areas	CORE	GLOBAL	DIGITAL	FUTURE
Strengths of	Trust, brand, R&D capabilities, and quality assurance system
Kanro

Financial targets Sales ¥55.0 bil., operating income ratio 8% or higher, and ROIC 10% or higher

34

Business areas and their respective KPIs

		Business purposes	Business concept	KPI
①		Firmly secure the No. 1 share of the domestic
CORE	Bring health to people's daily lives	candy market with Kanro technologies in	Net sales ¥35.0 billion
sweetness to address health issues, guided by the
		with candies
		development policy of "leveraging ingredients" and
			"functionality that candies have to offer."
②
GLOBAL		Spread Kanro quality globally and contribute to a	Percentage of net sales in
		Smile Around the world	healthy life filled with smiles for people around the	overseas operations 25% or
		world.	higher
③			Propel digital marketing and make it a pillar of our	Percentage of net sales in
	Create and provide special-	operations, using owned media including e-	digital operations 5% or
DIGITAL
	experience value by incorporating	commerce, SNS and other means to implement	higher
		customer feedback obtained directly	integrated communication, for nurturing fans of	Unaided recall rate among
		through digital contacts.	Kanro and growing into a brand of choice.	candy makers 30% (up 8
				percentage points)
④			Support a healthy life in which people can have a
FUTURE		Design for well-being of the future	Percentage of net sales in
	sense of well-being by creating innovative
		future businesses
		as Kanro sees it through food	products and businesses without being
		5% or higher
			constrained by the existing business frameworks.

35

17

Main KPIs

		FY2021 (plan)	FY2030 (target)
			Core businesses
	Net sales	¥24.6 billion	¥35.0 billion
	New businesses
Financial			¥20.0 billion
	3.4 %
indicators	Operating income margin	8% or higher
	ROIC	4.8 %	10% or higher
	CO2 emissions (*)	FY2019 / 308.6t / ¥100 million	(vs. FY2019) down 30%
	(Total of Scope 1, 2 and 3)
Non-	Activities to provide education	FY2019 / 480,000
financial	15 million people
on the value of sugar	people
indicators
	Employee engagement score	FY2020 / 47%	70 ％

(*) Per unit of net sales

36

18

MEMO

Disclaimer

Forward-looking statements related to Kanro's current plans, outlook and strategy, etc. contained within these materials are based on judgments made by Kanro management using information available at hand at the time of writing. A variety of material factors that could result in actual performance differing significantly from earnings forecasts include, but are not limited to, economic conditions, particularly trends in personal consumption, as well as the industry environment in which the company conducts its business activities.

The information contained within these materials is provided to facilitate understanding of Kanro, and does not necessarily constitute encouragement to invest.

Moreover, information contained herein is not continuously updated, and the reader should be aware that the content may be revised or withdrawn without prior notice.

Inquiries related to these materials should be directed to Kanro Inc. at tel. [phone]

■ Company URL:	https://www.kanro.co.jp/en/
■ QR code for the above: