Business Risks

Risks associated with the spread of COVID-19

If the spread of COVID-19 continues throughout the world, it may cause an impact on consumption due to factors including the closure of sales outlets, as well as the postponement or cancellation of events and an associated impact on promotion, an impact on the development and production schedules of products, services, and visual products, an impact on manufacturing schedules, etc., and the closure of amusement facilities.
The Group gives the highest priority to the safety of its various stakeholders such as employees, their families and the Group’s customers and will continue to take measures to prevent the spread of COVID-19, such as thorough hygiene management, business operations based on the requirements issued by the national governments and local governments of each country and region, and the introduction of flexible working systems. With regard to business operations, we will continue to gather information and take flexible measures to minimize the impact of COVID-19. In addition, we will actively address changes in lifestyles, such as by strengthening online events and e-commerce sales. Furthermore, in regard to various issues that the Group will need to address for sustained growth over the medium to long term, in accordance with the IP axis strategy, which is the Group's strength, Group businesses in all regions will work together even more closely under the ALL BANDAI NAMCO concept, and the Group will advance strategies to address issues under the next Mid-term Plan, which will start from April 2022. In undertaking these initiatives, the Company established a crisis management committee dedicated to preventing the spread of COVID-19, whose participating members include persons in charge of the related departments and the Company’s Directors, and the committee is regularly sharing information and holding discussions on future policies. The committee disseminates the results of its meetings throughout the Group, and each company is promoting initiatives in line with policies decided by the committee.

Risks to the key business model

The Group is carrying out business development centered on the “IP Axis Strategy” that aims to maximize IP value through the provision of the optimal products and services to optimal regions at the optimal possible times by taking advantage of the worldview and unique characteristics of the IP of characters, etc. In promoting the IP Axis Strategy, it is possible that performance will be impacted by the following types of risks.

(1) Risks related to changes in customers’ preferences and lifestyles, and intensification of competition

As a result of the evolution of technology, such as digitization, entertainment-related choices are becoming more diverse, the speed that customers’ preferences and lifestyles are changing is speeding up, and competition is intensifying on a global scale. Without being bound by previous business models, the Group will respond to customers’ preferences and lifestyles by addressing new value creation and platforms and actively changing its business models. In addition, the Group will swiftly grasp customer trends, and strengthen the creation of new IP and the development of high quality products and services. With the creation of IP and the development of products and services, the Group will collaborate closely with partner companies and creators in Japan and in each country and region.

(2) Risks of depending on specific IP and business

It is possible that performance will be impacted by changes in the market and the preferences of customers due to the dependence of on specific IP and businesses. For this reason, in developing IP, the Group is creating and developing from a medium- and long-term perspective. In addition, the Group is working to disperse risk by establishing IP and business as well as portfolios that strike a balance between target demographics and regions. Through these initiatives, the Group is working to realize stable revenue that is not easily affected by changes in the market and customers’ preferences.

(3) Risks regarding the relationships with external partners

The Group is promoting the development of the IP axis strategy through collaboration with external partners in various aspects such as planning and development, production, sales and marketing, and working with media. With this collaboration, the Group will further expand the possibilities of business development by collaborating with partners that conform with the characteristics of IP, products and services by building relationships where the Group can work openly with all external partners.

(4) Risks associated with the evolution of technology

The evolution of technology related to platforms and business that provide products and services is advancing in each business that the Group develops, and there is a risk associated with falling behind on addressing these changes. In addition to constantly researching new technologies, the Group will swiftly address the evolution of technology by collaborating with partner companies. In addition, accompanying the evolution of technology, it is possible that development expenses and production expenses for digital content and visual products will increase. The Group will work to implement long-term business development by having an efficient development system, conducting development of titles with a focus on quality, and implementing continued measures for customers, such as providing new versions and additional content after releases and holding events. In addition, to prevent damage from information leakage, etc., due to cyber-attacks or system failures, the Group will strengthen its cyber security systems by gathering information, strengthening oversight and monitoring, implementing regular systems inspections, conducting internal education activities, etc.

(5) Risks associated with intellectual property

The Group conducts business development centered on intellectual property (IP). To increase IP value without damage, the Group will advance initiatives facilitating the stable development of IP over the long term through the IP axis strategy. This strategy aims to maximize IP value through the provision of the optimal products and services at the optimal possible times by taking advantage of the worldview and unique characteristics of the IP. In addition, to conduct business activities that respect the IP itself and the worldview of the IP, the Group will collaborate with partner companies and government entities and conduct IP protection activities, such as initiatives to eliminate counterfeit products and educational activities.

Risks to overseas development

The Group is actively expanding business in overseas markets. A variety of risks exist in overseas development, including business risks due to regional characteristics such as the media and distribution, as well as counterfeit products and other risks related to intellectual property rights, currency exchange risks, risks associated with the revision of laws and regulations, etc. With regard to business operations, the Group will put effort into ALL BANDAI NAMCO to minimize these risks, and proceed with overseas development upon collaborating with external partners, focusing on regional headquarters that manage each region, developing an organizational structure that collects sufficient information and verification, and taking countermeasures. Regarding intellectual property, the Group uncovers counterfeit products and promotes the recognition of genuine products by cooperating with local government agencies, etc. In addition, regarding currency exchange risks, the Group reduces risks of short-term currency exchange rate fluctuations between major currencies with foreign exchange contract transactions when necessary. Furthermore, the Group provides an opportunity to share and discuss the risks in each region, etc. at the Group Business Report Meetings at which the Directors of the Company and Representative Directors of each of the regional headquarters attend.

Securing and developing human resources

In the entertainment industry, which changes rapidly, the Group considers human resources to be its most important asset for the continued achievement of sustained growth. The Group will develop systems and an environment that address diverse working styles, so that employees of various individual characteristics can work energetically with peace of mind, without regard to new graduates or mid-career hires or to their gender, age and nationality. In addition, the Group is actively exchanging personnel between regions and businesses, as well as putting energy into various initiatives such as the assignment of authority, systems to develop human resources that will support the next generation, systems for receiving proposals for enabling employees to take on new challenges, and systems to support their endeavors.

Problem of the falling birth rate in Japan

It is possible that the Group’s future performance will be affected by the progression of the issue of the falling birth rate in Japan. For this reason, the Group is working to expand business areas and targets in Japan, and is actively working on measures aiming to expand business areas and the regions for product and service roll-out in overseas markets.

Centralization of manufacturing and quality control

Many products, mainly toys, in the Group’s Toys and Hobby Business are manufactured in China, and there are risks of increasing manufacturing costs, country risks due to the centralization of manufacturing regions, risks related to the quality control of products, etc. For this reason, the Group is working to reduce manufacturing costs and disperse manufacturing bases to other regions in Asia. In addition, the Group is fulfilling its social responsibility as a company by taking extensive steps to ensure compliance with the applicable laws and regulations in each business area and the quality and safety standards set by the industry by enhancing quality and safety through various initiatives including the establishment of the Group’s own stricter quality standards and the implementation of periodic COC (Code of Conduct) audits on the factories of contracted manufactures.

Changes in the natural environment, such as climate change

To fulfill its responsibility as a member of society in realizing a sustainable society, the Group formulated the Bandai Namco Group Sustainability Policy. Under the IP axis strategy, we will work with fans to promote sustainability activities corresponding to social issues that should be addressed by the Group. Furthermore, as one part of those initiatives, the Group promoted the specification of material issues (reselect Important Themes) for activities in the Mid-term Plan. In addition, the Group established targets for reducing energy-related emissions of carbon dioxide.

Disasters such as natural calamities, accidents, etc.

It is possible that the Group’s future performance will be affected by disasters such as natural calamities or accidents. Anticipating the occurrence of situations that could cause drastic damage to the management of the Group through a major disaster or the like, the Group is formulating the basic policy for a Business Continuity Plan (BCP) for the Group, and is formulating specific measures and organizing a Business Continuity Management (BCM) system to achieve rapid recovery and restart of operations. Going forward, the Group believes it is necessary to strengthen its structure from an even broader viewpoint, and will continuously revise and organize the overall Group.

In addition to these risks, the Group also anticipates risks such as “the revision of laws and regulations, rules, etc.,” “flaws or defects in products and services,” “the leaking of customers’ information,” “lawsuits associated with business activities,” “the impact of fluctuations of crude oil prices on manufacturing costs, etc.,” and “the impact of changes in the economic environment on trends in consumption.” The Group is developing risk management systems, such as information management, and is making efforts to strengthen the management foundation in order to limit the impact on performance in the unlikely event that these occur.