Q&A on the Presentation of Performance Results through the Second Quarter of the Fiscal Year Ending March 31, 2021 (FY2021.3)

Q1: Can you give us as much details as possible about the impact of the fire that occurred at the parts supplier plant?

A1: We do not expect the impact to be insignificant. It is possible that this event could have an impact across a broad range of businesses. In musical instruments, the impact could be felt mainly for digital pianos, portable keyboards, synthesizers and hybrid pianos, and in audio equipment it could impact AV products, PA equipment and ICT equipment. The impact on sales is expected to emerge at the end of the third quarter and into the fourth quarter. We believe that there will not be any reimbursement from insurance.

The countermeasures include switching to parts made by other manufacturers, but as the parts range from relatively easy to replace to those that require design changes, the impact of the changes, including the time it takes to make them, cannot be determined until the changes are carefully examined. We will disclose the information as soon as it becomes clear.

Q2: What is the operational status of your plant in Indonesia?

A2: The operating status recovered to 85% in the second quarter and about 90% in October.

Q3: What is the current status of the order backlog, which at the end of June was about 10 billion yen in addition to the normal order backlog?

A3: Demand is brisk and the order backlog is growing further, with approximately 20 billion yen at the end of the second quarter.

Q4: Do you expect sales to catch up once special factors such as plant operations in Indonesia and the fire at the supplier plant are resolved?

A4: The products themselves have not lost their competitiveness at all and have been well received by the market, and we expect that they will recover once the supply problem is resolved. If the problem is prolonged, we anticipate that other companies will take advantage, and we are looking into countermeasures as soon as possible.

Q5: What is the reason for the strong performance in the second quarter?

A5: In China, sales of pianos achieved double-digit growth year on year with the reopening of bricks-and-mortar stores. Guitar sales are strong all over the world, with North America, Europe and China growing in the high single digits and Japan achieving double digit growth. Wind instruments and PA equipment have been struggling, but are improving. Demand for ICT equipment was strong as telework becomes widespread, and although we were not able to immediately increase production in the first quarter, we could respond to the increased production in the second quarter, resulting in significant growth.

Q6: Do you have any medium- to long-term businesses that you think can built up post COVID-19?

A6: The most expected business area is guitars business. Guitars are performing well in the face of the COVID-19 with increasing market presence, and we intend to further strengthen this area. ICT equipment is also gaining recognition due to increased demand, and we expect to continue to grow in this area after COVID-19.

Q7: The bricks-and-mortar stores reopened in the second quarter. Please outline the status of the e-commerce business?

A7: With the reopening of bricks-and-mortar stores, large products such as acoustic pianos have grown and other products are continuing to grow driven by e-commerce.

Q8: What is your outlook for North America, where sales declined markedly in the second quarter?

A8: We expect that wind instruments and PA equipment will continue to struggle, but other product groups are expected to recover steadily. Although the impact of the presidential election remains uncertain, at this point in time, orders from dealers for the year-end sales season are firm, and as long as we can supply them, we expect them to be on par with the previous year. However, the fire at the plant of our parts supplier could have an impact in the fourth quarter.

Q9: Profit margins on the musical instruments are recovering. If the supply of digital musical instruments returns to normal, will you be able to aim for profit margins that are higher than before COVID-19?

A9: Sales of digital musical instruments declined due to a shortage of supply, but we were able to secure a profit. In addition, the profitability of pianos and guitars is recovering, and overall profit margins are recovering. We are also working to reduce costs at our plants even in the COVID-19 environment and we believe that this will be effective once supply is restored.

Q10: What are the details of your efforts to control SG&A expenses?

A10: Variable costs are down slightly less than 20% compared to a year earlier. Travel and transportation costs are unchanged from the first quarter, although we had expected to resume business activities. We are monitoring sales trends and, in line with this, controlling advertising and promotional expenses.

Q11: Of the SG&A cost reduction plan of 10.4 billion yen for the current fiscal year, please explain the amount of fixed costs and how the fixed costs will change toward next year.

A11: The fixed costs in the projected reduction in SG&A expenses of 10.4 billion yen this fiscal year are about 7 billion yen. This represents the sum of those that are reduced due to the absence of activity and those that are reduced with intent, including personnel expenses, travel costs, unnecessary and non-urgent repairs and maintenance costs, and other items. Of this, we believe that travel costs will continue to be reduced to some extent in the next fiscal year and beyond. On the other hand, we believe there is a possibility that personnel expenses may return to some extent.

Q12: Would you please explain the infringement of competition law in the musical instrument industry in Europe and whether there are any obstacles to the Company’s price optimization measures?

A12: It is true that the musical instrument industry has been investigated by the CMK (UK Competition and Markets Authority) for alleged breaches of UK competition law by engaging in resale price maintenance. As the Company took responsibility itself to make a proactive report and cooperated with the CMA under its leniency program, Yamaha Music Europe received full immunity from any financial penalty. While we take such action seriously, there is no serious financial impact. We do not anticipate any impact on price optimization either.