Message from the President

Fiscal 2023, the first year of the Make Waves 2.0 medium-term management plan, presented an operating environment that was more difficult to navigate than any we have faced previously. Yet even under these challenging conditions, Yamaha was able to display its earning power. This fact gives me confidence in our future growth.

Looking back at the operating environment over the previous fiscal year, we see society attempting to return to the lifestyles that were viewed as normal prior to the COVID-19 pandemic, though there were some regional disparities in this regard. At the same time, however, the environment was plagued with adversity, including Russia’s military invasion of Ukraine, supply chain disruptions that stemmed from difficulties in procuring semiconductors, and global rises in commodity prices. In addition, the market in China, which was expected to relax pandemic-related activity restrictions around the same time as other countries and regions, was heavily impacted by the prolongation of its zero-COVID policy.

As a result, sales to the Chinese market in both the musical instruments business and the audio equipment business were down by about 20% in comparison to fiscal 2022.
We had braced ourselves for less-than-favorable figures in terms of revenue and profit as a result of such changes in the Chinese market, which should have been a strong driver behind the growth of our mainstay musical instruments business, and of rising material and other costs. Regardless, though, revenue was up 10.6% year on year, to ¥451.4 billion, and core operating profit rose 6.6%, to ¥45.9 billion. This impressive outcome can be attributed to success in raising product selling prices and strong sales in North America as well as in emerging markets other than China. Another factor was record-breaking performance in the industrial machinery and components business and the others business, which helped compensate for the decline in earnings in the musical instruments business.

Before we look at the progress of the medium-term management plan, I would like to take this opportunity to talk about how Yamaha creates value.

Yamaha’s value creation activities cannot be separated from our quest to create social value. This is something that has not changed since the Company was founded in 1887. Our roots can be traced back to founder Torakusu Yamaha and his repairing a single broken organ. This is the start that would lead him to attempt and succeed in producing organs in Japan. At the time, Japan was in the process of installing the infrastructure required for it to become a modern nation, and part of these efforts was introducing music education into elementary schools. The government had planned to import organs to be used in schools for this purpose. Yamaha saw the business opportunity this presented. Producing organs in Japan that could be supplied at lower prices than imported organs, we achieved growth by placing organs in elementary schools across Japan. Today, instrumental music education is commonplace at Japanese elementary schools. The role Yamaha played in cultivating this enriched music culture was in no means small. At the same time, we are keenly aware of how the passion, will, and drive to overcome challenges of our forebears, in their quest to provide children with musical instruments and spread the culture of enjoying music, drove the creation of value by Yamaha.

The passion, will, and drive to overcome challenges of our forebears has been passed down and consolidated in the form of Yamaha’s enduring corporate philosophy of “Sharing Passion & Performance,” which is shaped by our purpose of “Well-Being of People around the World.” A core characteristic of Yamaha can be seen in how we practice management emphasizing our brand in accordance with our management vision of “Becoming an Indispensable, Brilliantly Individual Company: Boost brand power to become a highly profitable enterprise.” To guide us in fulfilling this purpose and accomplishing this vision, we have defined material issues in the three areas of business foundation, environment and society, and human resources. These issues are being incorporated into our business activities based on concrete key performance indicators (KPIs) to ensure that we can succeed in creating Yamaha value and social value from a medium- to long-term perspective.

A number of members from the younger generations that will shape the future were involved in the formulation of our material issues as we engaged in a process of ongoing discussion to chart a road map for creating value over the medium to long term. The defined material issues provide a clear standard to be used by employees in making value judgments in their daily business activities. I also feel that these issues served to make employees more aware of the role they play personally in, for example, combating climate change and promoting respect for human rights. Furthermore, the definition of these priority issues has had a significant meaning in making it easier to explain our values to business partners and other external stakeholders to gain their under-standing and practice co-creation.

The medium-term management plan was formulated using a backcasting approach starting from our mission and management vision. Based on the main theme of enhance growth capability, the plan puts forth the three key policies of “further strengthen the business foundation,” “set sustainability as a source of value,” and “enable Yamaha colleagues to be more valued, more engaged, and more committed,” along with key themes based on these policies. I would now like to discuss the plan’s progress in fiscal 2023, its first year.

The themes under the policy of further strengthen the business foundation are (1) Develop closer ties with customers, (2) Create new value, and (3) Be more flexible and resilient.
The February 2023 acquisition of U.S. guitar manufacturer Cordoba Music Group, LLC, is an example of our initiatives based on theme (1). The guitar business has been positioned as a business to be fostered, which means we will be aggressively investing in this business to grow its scale and improve its profitability. Moreover, the addition of Cordoba Music Group to the Yamaha Group has bolstered our product lineup while also allowing us to strengthen our operating foundation by utilizing this company’s strengths in planning, product development, and brand communication.

This acquisition was conducted through Yamaha Guitar Group, Inc., a U.S subsidiary that is well-versed on the local market and is located in close physical proximity to Cordoba Music Group. Yamaha Guitar Group also spearheaded the post-merger integration process based on its past experience in this area. Specifically, Yamaha Guitar Group has the experience of leading the smooth completion of the post-merger integration process with regard to the 2018 acquisition of the globally recognized Ampeg brand for bass amps, and this experience has helped keep the process for Cordoba Music Group advancing on schedule.

In managing overseas Group companies, we plan to continue positioning individuals who are highly knowledgeable about the respective markets in management positions and empowering them to exercise autonomy whenever possible. Given this approach, I think that corporate governance should function as a catalyst for generating synergies behind the unifying role of the Japanese headquarters and the autonomous drive for expansion of the management of subsidiaries. Specifically, we should take appropriate steps to verify whether Group governance is functioning as intended and whether the internal regulations necessary for this functionality are being effectively implemented, and frameworks should be flexibly revised as needed to accomplish these objectives.

We are also expanding our business domain as part of our efforts under theme (1). For example, we are accelerating the growth of the automotive sound system operations developed as part of the industrial machinery and components business. These operations entail the supply of surround sound systems and speakers for use in vehicles. The atmosphere within vehicles is not ideal from the perspective of acoustics. Yamaha, however, possesses insight into signal processing technologies and acoustics control that can be used to overcome challenges faced in regard to in-vehicle environments. In-vehicle products developed utilizing Yamaha’s distinctive strengths have earned high praise, and six Chinese and other automobile manufacturers had adopted these products for use in their vehicles as of fiscal 2023. In these operations, we seek to go beyond simply producing and supplying components to create high-quality audio systems that match the vehicle concept shaped by the manufacturer’s values. Through this approach, we aspire to earn a position as a partner working together with automobile manufacturers.

As for theme (2), we are enhancing Yamaha Music Connect, a service that truly exemplifies this theme. Based on our Yamaha Music ID customer data platform, Yamaha Music Connect is a service that supplies individual users with the apps and content that best match them. There is a lot of competition in the field of online music services as a diverse range of offerings are already available from a variety of providers. However, there still has yet to emerge a service that can be a clear market leader. Yamaha is bolstering the range of functions offered through its service with the goal of sup-plying functions that can be enjoyed with ease by users ranging from beginners to experienced musicians. This will include accommodating a wide range of needs, including those of individuals wanting to play with their colleagues in remote environments, people wanting to receive online lessons without having to worry about time, and musicians looking for a simple way to share their performances.
The development of this service is being led by the Music Connect Department, a new organization placed under my direct jurisdiction, to guide the formulation of unprecedented new business schemes, including those for collaboration with start-ups, and to thereby create new value through open innovation.

For Yamaha Music ID, our service platform for forging broader, deeper, and longer ties with customers, we have set the target of issuing five million IDs by fiscal 2025. In fiscal 2023, we reached nearly half of this amount with 2.4 million registered IDs, a number indicating the high interest in this service among customers.

Theme (3) relates to raising the resilience of our supply chains, and will thus be an ongoing focus in the future. Our previous approach toward supply chains entailed placing efficiency as our top priority. This led us to emphasize minimizing inventories of components and works in progress. However, the supply chain disruptions seen over the past two years have made it clear that a supply chain focused purely on efficiency will require a substantial amount of time to recover when disrupted by extreme circumstances. It is for this reason that it is so important for us to reassess our supply chain based on the assumption that unpredictability will be a constant in the operating environment. With this perspective, we must examine what exactly constitutes the ideal supply chains for Yamaha and how supply chains should be matched to the coming times. We must not be hasty in this process. Rather, we must take the time to carefully discuss these matters and build the best possible supply chains.

For the policy of set sustainability as a source of value, we have defined the themes of (1) Build a value chain that sup-ports the future of the earth and society, (2) Enhance brand power and competitiveness by contributing to comfortable lives, and (3) Expand market through the promotion and development of music culture. These three themes relate to the environment, society, and culture, respectively.

Theme (3), in particular, is a uniquely Yamaha initiative. Based on this theme, the medium-term management plan sets the non-financial target of offering instrumental music performance experiences to an aggregate total of 2.3 million students in 10 countries through the School Project, our pro-gram for supporting the introduction of instrumental music education in public schools centered on emerging countries. The demand for the project in emerging countries has proven to be even greater than we had anticipated, and in fiscal 2023, the first year of the plan, the School Project had already offered instrumental music performance experiences to an aggregate total of 2.0 million students in seven countries. This success is even more satisfying given our aspiration to spread the efforts of forebears at our founding to popularize music in Japan to the rest of the world and to help children experience the joy of music and instrumental music performance.

Meanwhile, we are working to reduce our environmental impact in accordance with theme (1). Two non-financial targets have been set with this regard, one for increasing the rate of sustainably sourced timber use and the other reducing CO2 emissions by conserving energy. In regard to sustainably sourced timber, the reductions in demand for certain products seen amid the pandemic lowered the amount of timber used from certified sources on a volume basis. Nonetheless, we continue to make steady progress in efforts to increase our use of timber from sources newly certified under Yamaha’s standards. Similarly, progress was slower than anticipated with regard to efforts to reduce CO2 emissions by conserving energy. This outcome was a result of lower electricity efficiency following massive changes in the utilization rates of factories. At the same time, we are introducing electricity monitoring systems and moving forward with other new energy conservation measures. Accordingly, we anticipate that reductions in emissions, and consequently progress toward our target, will be seen going forward as our supply chains return to normal. Other initiatives based on theme (2) include human rights due diligence activities across our supply chains as well as the development of the Daredemo Piano (Auto-Accompanied Piano) employing universal design principles to make instrumental music performance some-thing that is accessible to everyone.

The policy of set sustainability as a source of value was formulated to send a clear message, both inside and outside of the Company, about how we are continuing to exercise the aforementioned passion, will, and drive to overcome challenges of our forebears toward creating value for society and how we are placing sustainability at the heart of our management. This key policy also embodies my desire to, and the need to, change how we work by encouraging shifts in thinking. If we only attempt to address the risk of our difficulties procuring the timber we normally use when these risks arise, we will always be playing catch-up to the issues. It is there-fore important for us to get ahead of major changes to social and economic frameworks, such as the move toward carbon neutrality, and to position sustainability as a core aspect of our products and services. I am confident that this will allow us to create unprecedented new value and thereby secure an even more significant competitive edge. In this manner, the reasoning behind including the policy of set sustainability as a source of value in the medium-term management plan is that we want employees to become aware of this potential of sustainability now so that they can boldly transform how they work accordingly.

Looking ahead, we recognize that it will be more important than ever for Yamaha to communicate to customers the social value of our sustainability-oriented products and production processes as well as of initiatives such as the School Project. Of course, we have long viewed sustainability and quality assurance as priorities. However, the meaningfulness of our initiatives in relation to these priorities and their results had not been effectively communicated to customers and society. When we do tell external stakeholders about our initiatives, they often ask why we are not more active in broadcasting this information. I believe that this increase in opportunities for us to be reminded of the importance of changing how we communicate, to earn a better appraisal from customers of the value of the contributions to sustain-ability made by our products and services, is indicative of a shift in the expectations of stakeholders.

The themes for the key policy of enable Yamaha colleagues to be more valued, more engaged, and more committed, which pertains to human capital management, are as follows: (1) Increase job satisfaction, (2) Promote respect for human rights and diversity, equity, and inclusion (DE&I), and (3) Foster open organizational culture where people can proactively take on challenges.

Themes (1) and (3) are shaping initiatives for supporting autonomous career development and improving our work-place environment. Human resource development and corporate culture reforms are not areas where significant progress can be made on a single-year basis. Nevertheless, we will remain dedicated in our efforts to energize our organization while verifying the feedback received through employee engagement surveys.

For theme (2), one area of our efforts is the empowerment of female employees. An indicator for these efforts is the per-centage of female managers, for which we target a global ratio of 19% during the period of the medium-term management plan. In fiscal 2023, we witnessed an increase of 0.8 percentage point year on year, to 17.3%. This noteworthy improvement demonstrates the results of our steady initiatives on this front.

Yamaha may have its headquarters in Japan, but less than 30% of our consolidated employee base is comprised of Japanese nationals. In this manner, the Yamaha Group’s employee base incorporates a multitude of nationalities.

It goes without saying that, if we are to draw out the true meaning of diversity, it will require us to promote inclusion to ensure that our differing values are respected and incorporated into decisions at various levels. To this end, we are periodically revising our frameworks for positioning and evaluating employees for career development and other purposes, delegating authority, and making decisions to guaran-tee that we can better capitalize on the collective capabilities of employees around the world.

To be frank, we may have achieved increases in revenue and profit in fiscal 2023, the first year of the medium-term management plan, but these results were still not satisfactory. In fiscal 2024, the plan’s second year, we will need to get back to the basics, namely, pursuing top-line revenue growth. Through this pursuit, we will seek to return to a growth track by increasing our customer numbers by means of the manufacture and sale of products that match market needs. The outlook for the market remains opaque. Nevertheless, we project recovery in markets such as China and Europe, which struggled in fiscal 2023, beginning in the second half of fiscal 2024, which should result in year-on-year increases in revenue and profit.

At the moment, inventories for certain products are rising, but there are other products for which the tight supply and demand balance has created a situation in which we are unable to deliver products to customers, and backlogs are growing. Accordingly, we seek to increase the resilience and flexibility of our supply chains while alleviating such inventory unbalances to ensure robust growth. Fortunately, I think that we have plenty of potential to take advantage of the high marginal profit ratio of existing businesses that represents a strength of Yamaha in order to grow core operating profit.

Looking at our business portfolio, the audio equipment business has been positioned as an area needing to be rebuilt given its low growth and low earnings. We are devoting our full effort to reinforcing the earnings foundations of this business. Specifically, the structure of this business was revised in April 2023 based on a market-oriented perspective to target consumer and business customers. Under the new structure in this business, a major focus for fiscal 2024 will be our ability to create products that win the favor of both consumer and business customers in order to take advantage of opportunities to expand our business domain. Through this process, we need to work to transform the audio equipment business into an area that produces high growth and high earnings in the future.

As for our regional approach, we will continue to target double-digit growth in emerging countries, particularly India and those in Southeast Asia. India, specifically, is a growth market that ranks right after China in terms of growth potential. In this country, we set up a new factory in 2019, and smooth increases are being seen in production levels at this factory. Elsewhere, we established a sales subsidiary in the Philippines in April 2023. This subsidiary will act as the main proponent for our business in the Philippines, which is expected to accelerate the speed of revenue growth in this country.

Yamaha is constantly strengthening its corporate governance systems. As a recent change to our governance system, we appointed Naho Ebata to fill the position made vacant by the resignation of Taku Fukui, who has served as an outside director at Yamaha since 2017. I would like to thank Mr. Fukui on behalf of the entire Board of Directors for the contributions he has made over the years. I also want to welcome Ms. Ebata, who is a lawyer with specialized expertise pertaining to intellectual property management. Together with Ms. Ebata, I hope to further build upon discussions at meetings of the Board of Directors. The addition of Ms. Ebata brings the number of women among our eight directors to two, making for an even more diverse Board membership. We also made progress in improving the effectiveness of our corporate governance systems by appointing outside directors to chair the Nominating Committee and the Compensation Committee in fiscal 2024.

In terms of the executive team, the more the scale of our business grows, the more cases there will be in which it is not rational for the me, as president, to remain fully up-to-date on everything as I make decisions. This means that we will need frameworks in which I can gain advice based on the ideas and opinions of others. This is why we have established the Managing Council and a number of committees related to specific themes requiring ongoing, Companywide discussion as advisory bodies to myself. The Risk Management Committee, the Sustainability Committee, the Brand Strategy Committee, the Human Resources Development Committee, and other committees discuss policies and measures related to their respective themes and report to me on these matters while also monitoring the progress of Companywide measures in their specific areas.

Our brand strategy is one area overseen by these committees, and this is an area where you can really see the unique characteristics of Yamaha’s management. Brand value is not merely the result of end products and logo marks, it is some-thing that we need to build through a perspective that looks at all steps of the value chain, spanning from development to sales. Based on this recognition, we do not limit ourselves to discussions by the Brand Strategy Committee; the Company also arranges joint brand committee meetings with Yamaha Motor Co., Ltd., with which we share the Yamaha brand, so that we can coordinate and pursue synergies for creating new value for the Yamaha brand.

Yamaha has no peers anywhere in the world that share its scale and business model as a comprehensive musical instruments manufacturer. As such, there are no external standards that we can benchmark against, which means the only way to verify the appropriateness of targets and strategies is through ongoing introspection. In this process, I think it is important that we avoid becoming overly conservative, rather being bold in taking risks while accelerating the speed of execution and decision-making. Based on this belief, we will continue to hone our risk management capabilities while identifying the risks to be taken. In this manner, Yamaha is committed to growing and constantly improving its corporate value through preemptive response to major social and economic changes.

I look forward to ongoing engagement with shareholders, investors, and other stakeholders. I would also like to ask our stakeholders for their continued support going forward.