Q&A on the Presentation of Performance Results for the First Quarter of the Fiscal Year Ending March 31, 2022 (FY2022.3) (Held on August 5, 2021)

Q1: How were the business results for each segment in the first quarter and what are the full-year outlooks for the segments?

A1: Musical instruments business results exhibited a recovery trend in the first quarter while audio equipment business results were weak owing to the decline of AV product sales from supply shortages. Results kept strong for the industrial machinery and components business and others, supported by firm demand. We have not changed our full-year outlooks because of three factors with high uncertainty – the potential impact on factory operations from a resurgence of COVID-19 cases, the difficulty of procuring components, particularly semiconductors, and the shortage of shipping containers.

Q2: What was the status of plant operations in the first quarter and at present and have there been any changes?

A2: The plants in Japan, China, and India are operating normally. The plant in Malaysia has an employee attendance rate of 80% due to government regulations related to the rising infection rate of COVID-19 there. The plant in Indonesia has an attendance rate of 50% but is operating on a dual shift system that technically makes attendance 100%; however, the government started tightening its policy in July so the operating rate could decline. Even if production is possible the three major uncertainty factors make the situation unpredictable, such as an inability to ship products because of the lack of shipping containers.

Q3: How did the semiconductor shortage affect sales in the first quarter, and what’s the future outlook?

A3: We had anticipated a ¥5 billion negative impact on sales in the first quarter, but the impact ended up being closer to ¥1.5 billion. We are taking various steps to mitigate the full-year impact, but the situation remains uncertain and could bring new parts supply shortages, so we cannot provide an outlook with any level of certainty. In May we were projecting the impact to be under ¥10 billion, but at this point we think it will more likely be about double that amount. Due to the increasing difficulty procuring any type of semiconductor, we are expecting all electric products to be impacted.

Q4: Last quarter you said you were expecting logistics costs to increase by ¥2 billion and the cost of materials to rise by ¥1 billion. Could you please provide updates on these costs?

A4: ‘It is unclear, but I would estimate that the costs will end up being about two times those levels.

Q5: In light of the rising costs, what is management’s approach at this time to price optimization?

A5: We want to incorporate as much of the increased costs as possible, and we are revising product prices while carefully considering the various conditions for each product and market, as well as the competitive conditions. Because of the tight supply, we are also endeavoring to increase profitability without resorting to selling at discount prices.

Q6: Sales of musical instruments and audio equipment have been recovering in the first quarter since last fiscal year when theCOVID-19 spread globally. How have their product model mixes changed over that time?

A6: E-commerce sales were brisk during the lockdown period and tended to center on products in the entry-level price range. We are seeing a return to the previous model mix balance with the reopening of stores. Sales of wind instruments and PA equipment have been slow to recover but are gradually improving.

Q7: What is the current status of the order backlog?

A7: The order backlog at the end of the previous fiscal year was ¥26 billion above the normal backlog level, and as of the end of June it had risen by about another ¥5 billion. The backlog continues to be mostly for digital musical instruments, pianos, and guitars, but it is also up moderately for AV products, for which there is a supply shortage, and for wind instruments and PA equipment, for which market conditions have recovered.

Q8: What changes have there been in the demand for musical instruments?

A8: Demand for digital musical instruments and guitars has been brisk due to the stay-at-home conditions and, although we are anticipating some slowdown, we expect demand to continue relatively firm. Demand for pianos is quickly recovering and is strong in China and other emerging economies. Demand for wind instruments has not fully recovered, particularly demand related to school brass bands in Japan, but is recovering in the United States with the reopening of schools.

Q9: How was the Company’s market share in the first quarter?

A9: Since we assume the semiconductor shortage affected our competitors as much as it affected us, we don’t believe our market share has declined any further.

Q10: During the pandemic, an increasing number of companies have been developing e-commerce sites. Is Yamaha going to launch its own e-commerce site?

A10: We need to carefully consider setting up our own e-commerce sites in countries and regions where we already have established sales networks. In areas like India where we do not have fully established sales networks, we are actively working to launch our own websites and are focusing on sales.

Q11: Has the education policy announced by the Chinese government affected the Company’s music school business?

A11: We are not seeing any impact currently, but we do not know what effect it might have in the future.

Q12: What is the outlook for ICT equipment?

A12: Demand is strong currently, but we expect the semiconductor shortage to have a moderate impact.

Q13: The industrial machinery and components business and others are currently performing well. What is the outlook for these businesses?

A13: These businesses are also being affected by the difficulty procuring semiconductors, and we expect to see an impact on sales. We also anticipate an impact on automobile interior wood components because of the production adjustments at automakers.

Q14: Is there any update about the Yamaha brand audio?

A14: Yamaha brand audio is also being affected by the semiconductor shortage, but we are steadily increasing the number of clients and car models.

Q15: In what areas have you been able to decrease SG&A expenses in the first quarter compared to before the pandemic?

A15: Expenses have been reduced in all categories, including for personnel, travel, transport, and repairs.