Roland Corporation

Electronic musical instruments are discretionary goods, and given the high proportion of overseas sales concentrated in Europe, North America, and China, demand is prone to decline when economic conditions worsen in key sales regions. Lower-priced products in particular are highly susceptible to economic trends, which could adversely affect the business, financial condition, and results of operations. As countermeasures, the Company is pursuing stable growth by strengthening outreach to potential customers, and under the Chief Sales Officer is conducting agile inventory supply management whereby strong-performing regions cover weaker-performing regions.

Advances in cutting-edge technologies such as AI and changes in market trends are accelerating, and if the Company fails to accurately reflect these in product and service development and business process improvements, there is a risk of declining competitiveness and profitability. Responding to changes in consumer preferences requires years of research and development and securing excellent researchers and engineers, and addressing intellectual property, data management, and ethical considerations is also an important challenge. As countermeasures, the Company is promoting cross-industry advancement of the "AI for Music" principles, advanced technology research through the "Future Design Lab," securing and developing specialized personnel, and strengthening collaboration with external partners.

If natural disasters such as earthquakes, tsunamis, or floods occur in Malaysia, where manufacturing and logistics functions are concentrated, or in Hamamatsu City, Shizuoka Prefecture, where the head office and domestic manufacturing and R&D facilities are concentrated, this could result in operational suspension, reduced production capacity, difficulty in procuring raw materials, and delays in product supply, which could have a material adverse effect on the business, financial condition, and results of operations. In particular, a Nankai Trough earthquake or an eruption of Mt. Fuji also carries the risk of soil liquefaction around the head office. As countermeasures, the Company has formulated a Business Continuity Plan (BCP), conducts safety confirmation drills and evacuation drills once a year, and is promoting the horizontal deployment of the BCP to overseas subsidiaries.

Some raw materials and parts, such as custom IC chips, lumber, metal, and plastic, are highly dependent on specific suppliers. If supply delays or interruptions or price increases occur due to a supplier's deteriorating business condition, disasters, or regulatory changes, this could result in manufacturing difficulties, higher procurement costs, and reduced price competitiveness, which could adversely affect the business, financial condition, and results of operations. As countermeasures, the Company is strengthening advance ordering and inventory stockpiling of key parts, promptly implementing design changes using alternative parts, and pursuing continuous cost reductions through VA/VE activities.

If the Company is unable to sufficiently recruit and develop highly specialized, excellent personnel, or if such personnel move to competitors, its competitive advantage could be undermined. In addition, there is a tendency toward an imbalanced age distribution among employees, which could lead to a personnel shortage over the medium to long term. As countermeasures, the Company is pursuing human capital management centered on "support for growth and enhanced engagement," "promotion of diverse working styles," and "incentives that reward effort," and is advancing the introduction of flextime and telework systems as well as the establishment of a performance-linked bonus system.

If unexpected defects occur in products or services, this could result in recalls, repairs, or design changes, which could adversely affect the business, financial condition, results of operations, and brand image. There is also a risk of being ordered to pay substantial damages or fines in lawsuits based on product liability. As countermeasures, the Company has established a quality policy through its "Quality Manual" and has built and operates a quality management system that includes ISO9001 external audits.

Due to global manufacturing and sales activities, the Company is affected by fluctuations in exchange rates, primarily the US dollar and euro, and as business expands in emerging market regions including China, the impact of currency fluctuations in these regions is also increasing. Since local currency-denominated assets and liabilities of overseas subsidiaries are converted into yen when preparing consolidated financial statements, this also affects the financial position. As countermeasures, the Company thoroughly settles receivables and payables in the same currency and conducts forward foreign exchange hedging transactions.

The Company earns the majority of its revenue outside Japan, and uncertain conditions continue, including the prolonged Russian invasion of Ukraine, the Israel-Palestine conflict, tensions in China-Taiwan relations, and US tariff policy. Changes in political and social conditions in various countries, as well as terrorism or social unrest, could lead to economic downturns and increases in raw material prices and logistics costs, affecting the logistics environment and adversely impacting the business, financial condition, and results of operations. As countermeasures, the Company maintains a backup system with multiple manufacturing sites, is building a balanced revenue-generating structure that avoids dependence on specific regions, and is implementing price optimization and production relocation in response to US tariff policy.

In addition to the difficulty of accurately forecasting consumer demand, changes in the supply chain environment, such as longer lead times for material procurement and transportation, could result in lost sales opportunities due to inventory shortages, or cash flow impacts and inventory valuation losses due to excess inventory, which could adversely affect the business, financial condition, and results of operations. As countermeasures, the Company has introduced a supply chain planning system that contributes to improved demand forecasting accuracy, and has consolidated personnel related to sales and production supply planning within the same organization to establish an agile decision-making structure.

If low-growth, low-profitability businesses are continued due to insufficient business portfolio management, or if post-M&A integration fails to achieve the expected revenue and synergy effects, the Company may be unable to generate cash flows commensurate with the value of business assets, resulting in impairment losses that could adversely affect the business, financial condition, and results of operations. As countermeasures, the Company conducts business portfolio reviews at the Board of Directors at least once a year, carries out thorough due diligence and clarifies post-merger plans during M&A, and regularly evaluates existing businesses based on criteria for determining whether to continue them.