THE opinions of children are of great importance to Playmates Toys Holdings. As a developer, marketer and distributor of toys, their tastes are crucial to the company's success. Playmates is better-known as the maker of the hit Teenage Mutant Ninja Turtles, based on the cartoon series of the same name. In the coming year, it will continue with its strategy of producing so-called promotional toys; that is, toys based on cartoon or movie characters. Playmates Toys Holdings executive vice-president Ian Forsyth said it was difficult to establish a new toy concept in the market if no one had heard of it before. 'It is a lot easier to sell a toy if it is based on entertainment property, as the children will have a better awareness of the product, having seen the character on TV or the movies.' However, he also cautioned that awareness was no guarantee that a toy would sell. 'We still have to do lots of advertising and promotions.' Sales of toys based on entertainment properties also depend on how a particular show fares with the public. There is always a lag time between signing a licence to produce a toy based on entertainment properties and the show going on air. It is therefore difficult to know whether a company is picking a winner when it negotiates to obtain a licence to produce a toy of a particular show, as there is no knowing how successful the show will be. Included on the new toy line that Playmates will be introducing this year are action figures from the cartoon series WildCats and Earthworm Jim, as well as basic toys such as dolls named Baby So Beautiful. Analysts described the new toy lines as colourful and interesting - but were quick to point out the all-important generation gap between themselves and the company's target market. Wardley James Capel analyst Abbott Lawrence said: 'The toys look good, I like them; but I cannot tell whether a 10-year-old child will like them.' The United States is the largest market for the group, accounting for 74 per cent of its total market. This is followed by Canada at six per cent, Europe 10 per cent, Japan five per cent and the Far East one per cent. Mr Forsyth said the US and Canada would continue to be the main market for Playmates, despite a recent drop of a few percentage points in the two countries' market shares. The fall was compensated for by improvement recorded in other markets, such as Japan. International sales outside of the US and Canada grew 30 per cent in 1994. Japan, for example, grew from zero in 1993 to five per cent in 1994. Mr Forsyth also expected to see growth from countries like Singapore and Malaysia, where the cartoon series Teenage Mutant Ninja Turtles is screened and commands an enthusiastic following. China was not expected to generate high growth for the time being, but it held tremendous potential in the long term. Mr Forsyth forecast that Europe would continue to see sluggish sales, owing to the prolonged recession. 'The market in Europe is difficult, not just for toys but for the entire retail market, as the recession hit retailers particularly hard,' he said. Playmates reported a 13.8 per cent fall in attributable profits to $301.48 million for the year ended December 31, 1994, which it attributed to the fall in sales in US and the start-up costs of a video games business, which ate into profitability. Analysts were divided on the outlook for the group. Mr Lawrence believed there was a lot of upside to the group's performance for this year. 'People are looking for steady but not exciting growth, and Playmates has the right toy line. Its sales to Japan have been remarkably successful, and much of its market outside of North America will continue to grow,' he said. While the rising costs of plastic resins in the past year had affected toy-makers, Mr Lawrence said Playmates would be protected to a certain extent. 'They sub-contract all of their products to manufacturers, so it will not really affect them,' he said. Sun Hung Kai Securities analyst Lawrence Chan believes the outlook for the group in the coming year is uncertain, mainly because of the highly competitive toy market in the US. 'The group had a mega-hit in the Teenage Mutant Ninja Turtles, which gave them good profit. Since then, however, they have been searching for another mega-hit.' He said the group's sales to the US would increase slightly this year, particularly because the US had removed import duties from toys produced in China on January 1. As the bulk of Playmates toys are made in China, the group stands to benefit from the removal of duties. 'Other than that, the profit growth of the group will depend on its new product line. The new toys are colourful, but I don't know whether children will like them or not,' he said. Mr Chan said Playmates had to continue producing promotional toys as they offered the producer a higher profit margin. 'Its largest expense will be in research and development, where you have to spend money and time to produce a new toys. 'That is a very important aspect,' Mr Chan said. Cost control was one aspect that the group kept a close eye on, according to Mr Forsyth. 'These costs have been fairly carefully managed to remain a consistent percentage of our sales. 'In any given year, there may be a slight increase or decrease, but we have been very, very successful in maintaining our costs as a percentage of sales,' he said. He declined, however, to give the percentage of costs over sales. Mr Forsyth expected Playmates' futher diversification into the video business to book more significant earnings for the group this year.