People co.,ltd

Approximately 70% of OEM-outsourced products depend on production and material procurement in China, exposing the Company to supply disruption risk from changes in the China situation. In Vietnam production as well, there is a risk of rising labor costs. As a countermeasure, the Company is promoting diversification of manufacturing locations, taking the opportunity of some China-based contracted factories expanding into other countries.

The sharp rise in crude oil prices stemming from the situations in Ukraine/Russia and the Middle East affects raw material prices, labor costs, transportation costs, and procurement prices in general for product manufacturing. In addition, there is a dual risk in that rising prices of daily necessities reduce the proportion of consumption allocated to toys, and risks to the Company and the overall market are expected to continue for the time being.

Since payments for manufacturing outsourcing fees to overseas factories and procurement costs are settled mainly in US dollars, a progression of yen depreciation/dollar appreciation results in higher costs, squeezing profits. In addition, fluctuations in the Chinese yuan's exchange rate against the US dollar affect procurement prices directly, and in export sales, there is a risk that a year-on-year dollar depreciation would directly lead to a decline in sales.

Due to the progress of distribution consolidation, only about three companies, including Happinet Corporation, account for approximately 60% of domestic sales. Excessive dependence on specific business partners carries the risk that deterioration in the business environment of such partners or changes in transaction terms will directly affect the Company's business performance. As a countermeasure, the Company seeks mutual understanding of the business environment and strengthens relationships through continuous dialogue with major business partners.

While the Company strives to minimize bad debt losses through the establishment of credit management rules and the use of trade credit insurance, there are cases where the transaction amount is not sufficiently covered by trade credit insurance. Therefore, the Company states that continued vigilance is required for the portion not covered by insurance.

In the course of conducting business, the Company may handle personal information and confidential information, and if unintended information leakage occurs, there is a risk of loss of trust from customers and society, as well as liability for damages. As a countermeasure, the Company is continuously working to strengthen information security measures and provide employee training.