TOEI ANIMATION CO.,LTD.

The popularity of animation is influenced by economic conditions, market conditions, and consumer preferences, making advance prediction difficult, and popularity differences between works are large. Since production requires substantial upfront costs, if a work fails to become a hit, secondary usage revenue will not grow, causing significant adverse effects on business performance. If the Company fails to regularly and timely release attractive works, or if multiple new works fail to achieve certain results, this may affect operating results and financial condition.

While the number of content offerings is increasing due to media diversification and target expansion, competition for original works and talent is intensifying. Overseas, South Korean and Chinese companies are rising and expanding into the Japanese market, making the competitive environment increasingly severe. If competitors grow rapidly, the Company's competitiveness may decline, which may affect operating results and financial condition.

Rights infringements such as pirated goods, counterfeit products, and illegal streaming have been confirmed, and copyright protection may not always be sufficiently secured. Rights infringement not only impedes sales of legitimate products and services but also poses risks of future lost opportunities and copyright infringement claims from third parties. Although appropriate measures are taken on a case-by-case basis, complete prevention remains difficult.

In overseas business development, various risks exist, including geopolitical risk, uncertainty regarding local acceptance of works, troubles arising from differences in laws, business customs, and language, failed collaborations with local companies, and labor issues. If these risks materialize, overseas business operations may be disrupted, which may affect operating results and financial condition. The Company's group develops animation works both domestically and internationally, and as dependence on overseas markets increases, so does the associated risk.

Competition for talent such as animators is intensifying due to an increase in new entrants and the overall increase in production volume across the industry. Hiring, retaining, and developing excellent talent is key to sustainable business growth, but if measures fail to succeed and necessary talent cannot be secured, or if talent flows out to other companies, competitiveness will decline. The Company's group is implementing various measures for recruitment, retention, and development, but industry-wide supply-demand tightness continues.

Technological innovation affecting distribution methods and other aspects is progressing in the animation industry, and the Company is also working on developing new visual expressions such as the fusion of 2D and 3D technology. Introduction of new technologies may require additional regulatory compliance and talent acquisition, and if the Company fails to respond appropriately and in a timely manner, its competitiveness will decline. As the pace of technological change accelerates, delays in response may affect operating results and financial condition.

If a serious failure occurs in information systems or communication networks due to cyberattacks, unauthorized access, computer virus infection, or other events exceeding anticipated scope, the Company's social credibility and brand image may be damaged. The Company implements measures such as information security education for employees and strengthening of unauthorized access response systems, but complete defense is difficult due to the sophistication and diversification of threats. The Company continues to thoroughly manage information and develop related regulations.

Business relationships with a diverse range of third parties, including television broadcasters, film distribution companies, streaming platform operators, original work creators, publishers, licensees, and outsourcing partners, support the Company's business foundation. If relationships with these third parties deteriorate and business relationships are dissolved, this may cause significant disruption to business operations. Due to the nature of the animation business, dependence on external partners is high, and maintaining these relationships is an important management issue.

In business activities including overseas animation production and sales, foreign currency-denominated transactions exist with overseas companies (including overseas subsidiaries). Sharp fluctuations in exchange rates may affect operating results and financial condition. As overseas expansion increases, the scale of foreign currency-denominated transactions is increasing, requiring continuous management of foreign exchange risk.

The Company may implement M&A, alliances, or other transactions for further business growth, but there is no guarantee that the initially expected synergies or profits will be obtained, and there are risks of dissolution by the counterparty or discovery of unexpected problems after implementation. If such circumstances arise, this may affect operating results, financial condition, and other aspects. As a member of the Toei Group, the Company shares and addresses priority risks across the entire group within the risk management framework.