Business Risk

Among the matters related to business conditions, accounting conditions, etc., stated in the Annual Securities Report, the following are the principal risks that management recognizes as having the potential to materially impact the financial position, operating results, and cash flow of consolidated companies.
Forward-looking statements in this text are based on our group’s judgment as of March 31, 2025.

1. Risk due to changes in economic conditions

In the event of a sudden decline in consumer spending due to economic recession in Japan, Europe, the US, China, and other markets where our group conducts business, our group's business results may deteriorate due to reduced demand for the products and services we provide and intensified price competition.
We closely monitor changes in global economic conditions and take measures to respond to situations as they arise.

2. Foreign exchange risk

In the musical instrument business, our group's mainstay business, many of our customers are overseas, and we also import lumber, one of our main raw materials, and many musical instrument parts.Therefore, fluctuations in exchange rates can affect selling prices and raw material prices, which can in turn affect our group's business performance.
We engage in hedging transactions such as forward exchange contracts in major currencies with financial institutions.

3. Risk from internationalization

Changes in the business environment in the major musical instrument markets of Europe, the US and China, major changes in the political situation in Indonesia and China, where our piano and digital piano factories are located, and unexpected developments related to taxation and other laws and regulations specific to each country, may have an impact on our group’s business results.
In addition to information gathering in the relevant divisions, our group responds by seeking the opinions of accounting auditors and lawyers, etc., in each country.

4. Research and development risk

We conduct technical research to differentiate ourselves from other companies, but there is a possibility that the products we develop will not be accepted by the market, or that other companies will develop innovative new products that will dominate the market.In that case, our group's business results may be affected.
We are constantly gathering market information so that we can conduct technological research that meets market needs.

5. Risk related to capital investment and alliances, etc.

Our group is making business investments such as capital investments in order to expand our business.We also conduct business alliances, equity investments, and joint ventures with other companies, etc.In carrying out these capital investments, business alliances, equity investments, and joint ventures, we consider their profitability and the likelihood of recovering our investment from various perspectives in advance. However, depending on the circumstances, changes in the business environment may not produce the initially expected effects, or those assets in which we have invested may be subject to impairment.In that case, our group's business results may be affected.
Our group arranges meetings and decision-making bodies so that important matters can be deliberated, decided and monitored.

6. Risk of intensifying market competition

Competition in the popular price range of pianos and digital pianos is intensifying.We will continue to bring competitive products to the market, but if we fail to demonstrate sufficient competitiveness, our group's business results may deteriorate.
We will carefully consider whether or not our products are competitive before launching them in the market.

7. Risk of increased costs

Our group's business results may be affected by increases in various costs, such as increases in raw material costs due to changes in market conditions for wood, copper and other metals, resins and other components that are the raw materials for our products, increases in logistics costs due to rising oil prices etc., and increases in labor costs etc., due to higher overseas labor costs, etc.
We are promoting the selection and diversification of suppliers by checking changes in market conditions and balancing cost increases.

8. Risk due to dependence on business partners

Contract production in the metal business, coating business, etc., is affected by the performance of contractor companies, and if our group is unable to meet their requirements in terms of quality, delivery, and other factors, our results may deteriorate.In addition, our results may be impacted by production delays or shutdowns due to deterioration, etc., in the business conditions of companies to which we outsource either the production of our musical instrument parts etc., or OEM production, or by fluctuations in orders received from our major clients.
Our group is constantly collecting information on contractors and subcontractors in order to respond to changes in business conditions.

9. Risk of natural disasters

If our group's production and sales activities are directly or indirectly affected by natural disasters, which are increasing in frequency and impact in recent years due to earthquakes and climate change, or by epidemics, war or terrorism, etc., or indirectly affected by the disruption, etc., of a supply chain, our business results may deteriorate.In particular, since our major domestic facilities are concentrated in the vicinity of Hamamatsu in Shizuoka Prefecture, a future Tonankai earthquake and tsunami could damage our Head Office and factories and have a huge impact on our sales activity.
Our group has built a system to ensure an appropriate response in the event of a disaster, by specifying our initial response, our reporting methods, and the establishment and roles of various task forces.

10. Risk related to securing and training human resources

The average age of our group is high, so securing and training the next generation of human resources is an important issue.If we fail to secure the personnel needed to develop our business, or if the transfer of technology by employees in the production division does not proceed smoothly and human resource development does not go according to plan, our group's business results may be affected.
In addition to hiring new graduates, we are also promoting mid-career recruitment of specialized personnel.We regularly conduct training for young engineers to pass on their skills, too.

11. Risk of technology and skills outflow

In our musical instruments business, we are developing overseas production to reduce costs and diversify risk.As a result, if our production technology is leaked or similar or counterfeit products emerge due to infringement of intellectual property, our group's business results may be affected.
We have set up a department to manage intellectual property and deal with technology leaks and infringements.

12. Risk of accidents, etc., related to products and services

Accidents involving product liability caused by our products result in higher costs and loss of public reputation.In addition, damage to our brand image due to a fire, accident or incident in one of our stores or classrooms, or a crime involving a student or instructor in one of our classrooms, for example, could harm our group's business results.
Our group has developed a management system for product safety measures and has security measures in place at its operating properties to avoid accidents and crime, etc.

13. Risk related to environmental legislation

The majority of pianos manufactured by our group consist of parts made from wood, and most of this raw material is procured overseas. If any changes in environmental legislation overseas affect the procurement of raw materials, our group's business performance may be affected.
We make every effort to regularly review our procurement in consideration of the environmental impact.

14. Risk of infectious disease outbreak

In the event of an epidemic of a highly contagious infectious disease such as a novel coronavirus or influenza, there is a possibility of a temporary shutdown of factories or a reduction in production in the domestic and overseas markets where our group operates due to lockdowns or government requests for voluntary restraint of activities, etc., in various countries.In addition, our group may be forced to refrain from operating its stores, cancel music and physical education classes, and cancel concerts and other events. Depending on the scale and duration of such an epidemic, our performance may deteriorate due to a decrease in revenue and other factors.
The group has established a reporting system and other procedures for employees and others who may become infected, and makes every effort to gather information and implement infection prevention measures.

15. Risk of declining birthrate

If Japan's birthrate declines faster than expected, it may worsen the performance of our group’s music schools and physical education schools.In addition, a shrinking market due to the declining birthrate may also reduce musical instrument sales, adversely impacting our business performance.
Our group is constantly considering ways to broaden our overall target age group and meet the needs of each generation.

16. Risk related to stock price fluctuations

Our group holds marketable stocks, primarily of its business partners, and thus bears the risk of stock price fluctuations.Accordingly, our group's results may be affected depending on stock price trends.
We therefore collect information on the performance etc., of investee companies and review our holdings.

17. Risk related to information systems

Information systems and networks are an indispensable foundation for our group's business activities.Any disruption in the functioning of an information system due to computer virus infection or unauthorized access, etc., could adversely impact our group's business performance and financial condition.
We keep abreast of the ever-changing information security situation and examine and promote appropriate information security measures.

18. Risk related to personal information leaks

Our group obtains and uses information such as customer names, addresses, telephone numbers, and e-mail addresses in order to facilitate our business operations.Any unintentional breach of the European Union's General Data Protection Regulation (GDPR) or other leak of personal information handled by our group could lead to a loss of trust in our group, etc., adversely impacting our business performance.
We have established policies and a management framework regarding personal information and are taking measures to prevent any leaks.

19. Risk related to reputational damage via the Internet, etc.

Although our group strives to maintain and improve trust through press releases and timely disclosure of information, our business performance may be adversely impacted by any incorrect information regarding our group that is posted on the Internet or other media, or by rumors or gossip about such information that are spread via mass media reports, etc.
We have a Risk Management Committee and an Information Security Committee in place, and maintain a system for dealing with information-related contingencies.

20. Risk related to retirement benefit obligations and expenses

Appropriate amounts for our group's retirement benefit obligations and expenses are calculated based on assumptions such as discount rates set by actuarial calculations.These assumptions may differ from actual results due to the impact of market interest rates, which may increase our retirement benefit obligations.Such a case could negatively impact our group's business performance and financial position.
We calculate discount rates, etc., based on proper information so that they do not deviate from actual rates.

21. Risk related to the Russia-Ukraine situation

Our group has a consolidated subsidiary in Russia, Kawai Piano (Russia) LLC, so our financial position, etc., may be adversely impacted by developments in the Russia-Ukraine situation.

22. Risk related to inventory

Our group maintains inventory with the aim of maximizing production efficiency and sales opportunities; however, changes in market conditions may lead to an increase in inventory levels and storage costs, which could adversely affect our group’s business performance.

23. Risk related to laws and regulations in countries of business partners

Our group handles products that are closely connected to education and culture. Accordingly, changes in laws and regulations related to education and culture in the countries of our business partners may have an impact on our group’s business performance.

24. Risk of rising interest rates

If our group's business performance deteriorates significantly due to the occurrence of any of the above phenomena 1 through 23, or if the environment surrounding financial institutions changes substantially, the terms and conditions for borrowing funds from financial institutions may become stricter.Higher interest rates on borrowings could adversely impact our group's business performance.
We have entered into commitment line and overdraft agreements covering possible borrowing of funds.