Business risks
The main risks that could affect our group's operating results and financial condition are as follows:
Our group recognizes the possibility of these risks occurring and will strengthen its risk management system, including measures to prevent their occurrence and responses in the event that they materialize.
Particularly important risks
- Regarding the impact of hit products
Our group's core business, the toy business, tends to be affected by the success or failure of specific products or content.
To mitigate these effects, our group is implementing measures such as strengthening development capabilities to continuously create hit products, enriching our product lineup, and cultivating content. However, the presence or absence of hit products may affect our group's financial condition and operating results. - Product safety
Our group strives to improve product quality and ensure safety based on strict quality control standards. However, if a serious safety or quality issue occurs with any of our products, or if product liability claims or recalls arise, it could lead to a decline in our group's brand value, incur significant costs, and potentially impact our financial condition and operating results. - Regarding risks such as disasters
Our group operates businesses in Japan and around the world. In the event of natural disasters such as earthquakes, floods, and typhoons, or cyberattacks, wars, acts of terrorism, global pandemics, or disruptions to infrastructure such as power lines, our business activities, in part or in whole, may be significantly affected.
While our group is working on developing a business continuity plan (BCP), material and human damage in situations like this could result in significant costs and have a major impact on our financial condition and operating results.
Important risks
- Regarding fluctuations in quarterly performance
Our group's toy business typically sees increased sales in the third quarter, which coincides with the Christmas/year-end shopping season.
Our group is working to stabilize our performance by launching key products in other seasons and expanding our toy-related businesses, but we expect seasonal fluctuations in our performance to continue. - Regarding fluctuations in exchange rates
Our group imports the majority of the toys we sell domestically from overseas, paying in US dollars.
While our group hedges against foreign exchange risk through forward exchange contracts and other means based on our group foreign exchange risk hedging policy, if the risk mitigation effect weakens due to significant fluctuations in exchange rates, it could affect our group's financial position and operating results, including the profit and loss of our overseas consolidated subsidiaries and increases or decreases in the yen-denominated amounts of assets and liabilities at the end of the fiscal year. - Regarding overseas business expansion
Our group has made expanding our business in overseas markets one of its key strategies. In addition to globally expanding our sales bases, we produce the majority of the products we sell domestically and internationally overseas. Overseas, in addition to exchange rate risk, we face risks associated with international activities, such as unstable political situations, financial instability, differences in culture and business practices, unique legal systems and unpredictable changes in investment regulations and tax systems, labor shortages and rising labor costs, and inadequate intellectual property protection systems. Our group is proceeding with global business development while paying attention to overseas risks, such as restructuring our overseas base network, shifting production from a China-heavy production system to Vietnam and other countries, and strengthening measures against counterfeit products. However, rapid changes in the political, economic, and legal systems of each country may affect our group's financial condition and operating results. - Regarding the impact of fluctuations in raw material prices
Our group deals in toys made from materials such as plastics and zinc die-cast alloys, and our prices are affected by factors such as crude oil prices and metal material prices.
Our group is working to mitigate the impact by devising ways to procure raw materials, including through our contract manufacturers, and by streamlining our production and logistics systems. However, if raw material prices rise or supply shortages occur, it could affect our group's financial condition and operating results. - Regarding important contracts
Our group has entered into several important agreements with third parties. If, for any reason, these agreements cannot be continued in the future, it could have an impact on our group's financial condition and operating results.
(Important contracts, etc. are described in "Securities Report, Section 2: Business Overview, 5. Important Contracts, etc.") - Regarding the leakage of information
Our group holds important business information, confidential information of customers and business partners, and personal information.
Our group takes the utmost care to maintain the confidentiality of this information by strengthening and thoroughly implementing information security measures, but there is a possibility that information may be leaked to external parties due to unforeseen circumstances.
In the unlikely event that such a situation occurs, it could negatively impact our group's creditworthiness, financial condition, and operating results. - Valuation and impairment of intangible fixed assets
Our group has recorded a substantial amount of intangible fixed assets following the acquisition of the TOMY International Group.
We have been amortizing these intangible assets using the straight-line method and making necessary impairment losses each year, and at this time we do not believe that further impairment losses need to be recorded. However, if the performance of the business in question does not progress as expected, the possibility of future impairments will increase, which could affect the financial position and operating results of our group.