The major risks to TOMY Group that may affect its consolidated operating results or financial position are as described below.
Recognizing that the following risks could potentially occur, TOMY Group shall continue to strengthen its risk management system, which includes measures to avoid the occurrence of such risks and response plans in the case such risks occur.
- Effect of hit products
In the toy business, the mainstay business of TOMY Group, operating results tend to be affected by the success or failure of specific products and specific contents.
In order to soften such impacts, TOMY Group strives to create continuous hit products such as by strengthening development, enriching product lineup, and fostering content. Nevertheless, the presence or absence of a hit product may affect TOMY Group’s financial condition and operating results.
- Fluctuation of quarterly operating results
In the toy business of TOMY Group, there is normally a trend of net sales growth in the third quarter due to the Christmas and year-end shopping season. Although TOMY Group works to even out operating results by introducing key products in other seasons and expanding the toy peripheral business, we expect seasonal fluctuation in operating results to continue.
- Fluctuation of exchange rates
The proportion of TOMY Group consolidated sales accounted for by overseas sales is increasing, while majority of the toys sold in Japan are accounted by imports denominated in US dollars. Group companies hedge exchange risk by such means as forward exchange contracts pursuant to the Group’s foreign exchange risk hedging policy, however in the event that the risk-reduction effect thereof is diminished for reasons such as substantial fluctuations in exchange rates, the Group’s financial condition and operating results may be affected, for example by increases or decreases in the profits or losses or assets and liabilities at fiscal year-end of overseas consolidated subsidiaries when converted into yen.
- Overseas business expansion
The expansion of business in overseas markets is one of TOMY Group’s priority strategies, and the Group is not only establishing sales bases globally but is also undertaking the production in China of the majority of the products it sells both in Japan and overseas. In addition to foreign exchange risk, the Group is exposed to risks associated with the conduct of global activity, including unstable political circumstances, financial instability, differences of culture and commercial practices, peculiarities of legal systems and unpredictable changes in investment regulations and tax systems, labor shortages and rises in labor costs, and the lack of development of systems for protecting intellectual property rights.
TOMY Group is proceeding with the global development of its business in a manner that pays close attention to overseas risks, including restructuring its overseas network, reforming its China-reliant production system by such means as accelerating the shift of production to Vietnam and other countries, and strengthening measures to counter the production of imitation products. Nevertheless, abrupt changes in individual countries’ political, economic, or legal systems or other circumstances may affect the Group’s financial position and operating results.
- Effect of price fluctuations of raw materials
TOMY Group handles toy varieties made of materials such as plastic and zinc die-cast alloys. It is therefore affected by the prices of crude oil and metal materials. Aiming to soften the impacts of such fluctuations, the Group conducts various initiatives such as devising methods of procuring raw materials that also involve companies that provide consignment-based manufacturing to the Group and making the production-distribution system more efficient. Nevertheless, in circumstances such as sharp increases in prices of raw materials or supply shortages, the Group’s financial position and business results may be affected.
- Product safety
TOMY Group carries out measures to enhance product quality and ensure product safety based on stringent quality-control standards. However, if an event such as a serious problem related to the safety or quality of a product handled by the Group, payment of product-liability compensation, or recall were to arise, causing the Group product prices to decline and giving rise to a major cost burden, the Group’s financial position and operating results may be affected.
- Important business contracts
TOMY Group enters into important business contracts with third parties, as described in the Securities Report of TOMY Company, Ltd. However, if for some reason in the future it is no longer possible to continue a contract, this may affect the Group’s financial position and operating results.
(For a description of important business contracts, see "5. Important business contracts, etc." in A. Corporate Information, II. Review of operations stated in the Securities Report, which is in Japanese only.)
- Leakage of information
TOMY Group holds important business-related information and confidential, personal, and other information concerning customers and other entities with which it does business.
Owing to its measures to enhance and ensure thorough adherence to information security, the Group takes great care to maintain the confidentiality of this information, however it is possible that information could leak outside the Group as a result of unforeseen circumstances.
If such a situation were to arise, it may diminish the trust held in the Group and may affect the Group’s financial position and operating results.
- Disaster risk
TOMY Group engages in business both in Japan and elsewhere around the world, and in the event of the occurrence of natural disasters such as earthquakes, floods, typhoons or of other events such as cyber attacks, wars, terrorist acts, global pandemics, or power failures or other infrastructure stoppages, its business activity may be severely impeded either wholly or partially.
The Group takes steps such as devising business continuity plans (BCPs), but if circumstances such as the aforesaid were to give rise to significant costs resulting from physical damage or human casualties, the Group’s financial position and operating results may be materially affected.
- Evaluation and impairment of intangible assets
TOMY Group has a considerable value of intangible assets including goodwill, which were ariseing from the acquisition of TOMY International Group. Such assets have already been annually amortized based on straight-line method and necessary impairment losses were recognized . At this point we foresee that no additional significant impairments would be necessary. However, if the performance of the TI Group does not improve to the extent that has been assumed, impairments of such assets in the future will be more likely, and may materially affected Group’s financial position and operating results.