YAMAHA CORPORATION

With overseas revenue accounting for 76.0% of total revenue, economic downturns and demand declines in countries around the world directly affect earnings and business operations. The Company is enhancing resilience to environmental changes by expanding direct sales and strengthening a hybrid approach to customer value proposition that integrates digital marketing with physical locations, together with flexible inventory supply management and strengthened resilience in procurement and production.

Of the 57 consolidated subsidiaries, 46 are overseas entities, with major manufacturing sites located in China, Indonesia, Malaysia, and India, meaning that geopolitical issues or sudden changes in the business environment can affect product supply. In the event of a pandemic, societal and customer preferences may change rapidly, potentially leading to decreased sales due to a mismatch between products/services and demand. The Company addresses this through risk scenario analysis based on expert insight and by establishing agile response systems.

As dependence on information systems increases, cyber attacks or computer virus infections that destroy information systems or tamper with data could result in economic losses through damage to social trust and brand value. Based on Group IT regulations, the Information Security Subcommittee works to maintain and improve the security management system through identifying website vulnerabilities and providing guidance for improvement.

As the Company manufactures and sells products globally, foreign currency-denominated transactions are affected by exchange rate fluctuations; in particular, a ¥1 change in the euro/yen rate has a profit/loss impact of approximately ¥300 million. The Company mitigates this impact through global process relocation and pursues flexible pricing from the perspective of standardizing wholesale prices, aiming to maximize both volume and sales amount.

Difficulty in procuring materials and parts, including rare wood used in the Musical Instruments business, cost increases due to rising raw material prices, and supplier-caused quality problems or delivery delays could lead to production disruptions or decreased revenue. In addition, human rights violations or environmental destruction in the supply chain pose a risk of damaging brand value. The Company addresses these risks through strategic narrowing of suppliers, wood due diligence, and confirmation of compliance with supplier CSR codes of conduct.

With numerous group companies operating both domestically and overseas, inadequate organizational and system design could result in unclear authority, and important decisions made without prior approval could lead to deteriorated business performance or internal control issues. The Company addresses this through a prior approval system based on the Group Management Charter and Group Internal Control Regulations, as well as audits of overall governance and risk management by the Internal Audit Department.

Operations at sites worldwide are subject to a wide range of regulations, including foreign investment restrictions, import/export restrictions, trade regulations, antitrust regulations, and environmental protection laws. Unexpected regulatory violations could lead to restrictions on corporate activities, damage to social trust and brand value, and increased costs such as fines. The Company addresses this through the development of group regulations and regular monitoring, training based on the Compliance Code of Conduct, and the establishment of a global internal whistleblowing hotline.

Difficulty in recruiting and retaining highly specialized personnel necessary for global business expansion poses a risk of hindering future growth, while occurrences of workplace accidents or harassment could lead to deteriorated operational performance and damage to brand value. If a prolonged strike were to occur, it could disrupt business continuity due to the suspension of product/service supply. The Company addresses this through development and retention initiatives based on the Group Human Resource Management Regulations and the establishment of an occupational health and safety management system.

If accidents or quality misconduct caused by product quality defects occur, a decline in social reputation is expected to reduce revenue, and large-scale recalls could lead to increased insurance premium rates and substantial cost increases. Based on Yamaha Quality (quality guidelines) and the Group Quality Management Regulations, the Quality Strategy Committee works on building a system to ensure compliance with product regulations, preventing significant quality issues before they occur, and developing quality-focused personnel.

In strategic investments such as M&A for business expansion, there is a risk of being unable to recover the investment amount due to changes in the business environment or divergence from the conditions at the time of the investment decision, as well as the risk of losses arising from the emergence of potential risks that could not be identified prior to acquisition. In addition, business alliances and joint venture establishments carry the risk of not achieving the initially expected effects due to conflicts of interest with partners. The Company addresses this through careful investment decisions based on authority regulations and regular monitoring of management performance and progress after acquisition.