Among items related to the conditions of our business and financial information, etc., as stated in our Annual Securities Report, the main risk factors that corporate management is aware of and could impact the financial status, management results, and cash flow conditions of our consolidated companies are listed below.

Any forward-looking statements in this text are based on the understanding of the Group as of the end of the current consolidated fiscal year.

1. Market risks

Because the Group develops our business globally, we are impacted by the economic conditions of the countries and regions in which our products are sold.
Because our products are not necessarily essential to the everyday lives of our customers, we may not achieve sales due to various market impacts.

2. Foreign exchange risks

The Company orders around 80% of our products from overseas, mainly from China.
However, overseas sales account for around 30% of total net sales, and around 30% of our gross profit is generated in overseas regions.
Because the majority of these sales and profits are from the licensing businesses at overseas subsidiaries, they are impacted by foreign exchange fluctuations in consolidated accounting of the overseas subsidiaries and in the recording of foreign currency-denominated earnings at our headquarters.
Therefore, we adjust our receivables and payables based on foreign currency earnings forecasts, but this does not entirely eliminate the foreign exchange risk. Furthermore, depending on the foreign exchange rate applied in creating our consolidated financial statements, items in those statements including sales, cost of sales, and selling, general and administrative expenses are impacted by the foreign currency conversions.
As such, foreign exchange risks can impact our financial results.

3. Risks including the ability to develop new characters and to secure personnel

Characters account for the majority of the Group’s sales.
In developing and cultivating our characters, the Company’s management policy is focused less on achieving short-term, explosive popularity and more on achieving long-term, stable popularity.
We are constantly working to develop new characters.
However, the popularity of each of our characters fluctuates, which in turn can impact our financial results.

In principle, our employees are responsible for the Company’s character development.
The characters that we develop are brought to market with the cooperation of all the Company’s divisions.
All copyrights for our characters belong to the Company.
We do our best to ensure the stable employment of key personnel in our character development divisions by providing various incentives, however this does not guarantee their long-term, continuous employment.
Because of this, the Company’s character development capabilities could decline.
Moreover, if our employees move to another company, it could disadvantage the Company in terms of development competition.

4. Defective product risks

To reduce product procurement costs to combat price competition with rival companies, the Group orders our products not only from manufacturers within Japan, but also from overseas manufacturers mainly in China.
We encourage each of our manufacturers to conduct their manufacturing and inspections in accordance with the Company's designated quality standards, and work with utmost care to improve the safety and quality of our products through our product divisions.
However, where unexpected quality issues occur, they can impact the Group’s financial conditions and financial results by decreasing sales from recall costs and diminished brand strength.

5. Risks from natural disasters and accidents

The Group operates two theme parks in Japan, and there is the possibility of personal injury at these theme parks due to natural disasters and accidents.
While we do our best to ensure thorough safety management including ensuring earthquake resistance at our facilities, we are not necessarily able to respond to all unforeseen circumstances.
In these cases, the Group’s financial conditions and financial results could be impacted.

6. Risks related to intellectual property rights

To ensure that we do not violate third-party intellectual property rights, and to diversify ourselves from competitors and ensure our superiority, the Group has a system in place to ensure and protect our intellectual property rights.
However, we cannot eliminate the possibility of a lawsuit being filed by a third party for violating their intellectual property rights, or the possibility of a third party violating our intellectual property rights, and in the event such incidents occur, they could impact the Group’s financial results.