Forside Co.,Ltd.

Because the prize business relies mainly on character-based merchandise, sales trends are subject to significant risk from shifts in consumer preferences. In addition, since merchandising rights require contracts with licensors, failure to secure rights to popular characters could adversely affect business performance. Although product development and procurement are based on forecasts of consumer needs, the rapid pace of change in tastes constitutes a structural risk factor.

Since a large portion of procurement for the prize business depends on imports from China, sudden fluctuations in exchange rates could have a direct and significant impact on procurement costs. In a yen-depreciation environment, import costs increase, putting pressure on profit margins. The securities report does not describe any specific hedging measures against foreign exchange risk.

The areas in which the Group operates are highly competitive, with new entrants continually emerging from various industries. Although the Group is working to accumulate know-how and strengthen its organizational capabilities to respond to intensifying competition, failure to respond in a timely and efficient manner could adversely affect business performance. The rapid pace of change in the market environment heightens the risk of delayed response.

In the course of business operations, the Group handles a large amount of personal information, and there is a risk that such information could leak externally due to unauthorized access from outside or deficiencies in internal management systems. Should an information leak occur, it could lead to claims for damages and loss of social trust, potentially having a material impact on business performance. Although internal management systems have been established for strict control, it is difficult to guarantee complete prevention.

Cybercrimes such as computer virus infections and unauthorized external access, as well as human error by personnel, could result in the alteration of programs/software or the destruction of data. Should such events occur, they could lead to service interruptions and a decline in reliability, adversely affecting business performance. For group companies operating digital services, stable system operation forms the foundation of business continuity.

In the areas where the Group operates, new technologies and services are being introduced one after another, and change is extremely rapid. A delayed response to technological innovation could lead to a decline in competitiveness and require additional spending to keep pace with new technologies, which could put pressure on business performance. Continuous technology investment and the establishment of a system for rapid response are required.

While there are currently no laws or regulations that would have a materially significant impact on business continuity, future legislative developments could subject the Group's business to some form of regulation. The introduction or strengthening of regulations may force changes to the business model or impose additional costs, raising concerns about the impact on business performance. Particular attention needs to be paid to regulatory trends related to digital content and personal information protection.

To avoid infringing on third-party intellectual property rights in the course of business operations, the Group has established an in-house legal department and conducts investigations using external specialists (patent attorneys and lawyers); however, it is difficult to guarantee the completeness of such investigations or the validity of their conclusions. Should an intellectual property rights infringement be found, it could result in injunctions, claims for damages, and license fee payments, adversely affecting business performance. This is a risk requiring particular attention in the prize business, which handles a large number of character-based products.

The Group is pursuing business expansion through M&A, and while goodwill arising at the time of acquisition is amortized over a set period, unexpected deterioration in business performance could require impairment processing, affecting results. In addition, under fixed asset impairment accounting standards, impairment losses may need to be recognized if the value of held assets declines or profitability deteriorates. These impairment risks are an important financial consideration for group management as it actively pursues an M&A strategy.

In the event of a large-scale natural disaster such as an earthquake, terrorism, an epidemic, or similar occurrence, normal business activities may become difficult. Although the Group has formulated a business continuity plan (BCP) and established a system for immediate response to major crises, adverse effects on business performance may be unavoidable in situations that exceed expectations. The state of dispersion of business locations and the readiness of alternative means are key to mitigating this risk.