Q&A on the Performance Results for
the Fiscal Year Ended March 31, 2024 (FY2024.3) (Held on May 8, 2024)

A1: The business restructuring expenses included the impairment of the acoustic piano frame manufacturing process in China in the third quarter, plus a partial impairment of the acoustic piano manufacturing process in Indonesia in the fourth quarter. With regard to the tax rate, the tax expense was about ¥2.5 billion lower due to the decision to liquidate a company acquired in the past and the recognition of deferred tax assets.

A2: The provision for product claims was about ¥1.5 billion, and the remaining ¥2.9 billion was a write-down of inventories of parts and some finished goods.

A3: Of the ¥4.8 billion due to increased revenue and production, model mix and others, we estimate that about ¥2 billion is the result of business restructuring implemented in the previous fiscal year, including personnel reductions at overseas factories. The remaining amount includes factors such as improved operational efficiency at factories and an improved model mix due to a recovery in sales of high-margin digital pianos. We also see an improvement of ¥4.4 billion from the elimination of one-time costs incurred in the previous fiscal year.

A4: We have been proactively adjusting prices and we believe that we have been able to pass on the cost increases to date. However, there are some products, such as digital pianos, for which our competitiveness has slightly declined, and we are implementing discounts and price revisions while monitoring the situation, so we do not expect price optimization to have a significant positive effect this fiscal year.

A5: Demand for keyboard instruments as a whole has fallen a little, and the fall is particularly large in China, where we believe it will take some time to liquidate market inventory. On the other hand, in regions other than China, inventory liquidation is progressing, with digital musical instruments taking the lead, and production seems headed toward recovery in the current fiscal year.

A6: We expect a 10% decline in revenue of wind, string, and percussion instruments in North America. ESSER will end in the first half of the current fiscal year, and we expect demand for school tenders to decline from the second half. However, we do not expect an extremely large decline as individual demand, stimulated by ESSER, remains high and we have information that new budgets will be set at the state level.

A7: In North America, there is an excess of inventory in the guitar market and we have not been able to achieve the desired growth due to other manufacturers’ discounts, but we are building a foothold for growth by introducing new products that are highly rated in the mid- to high-end price range, in addition to entry-level models where we have always been strong. In China, guitar has a high ratio of sales via e-commerce and has been affected by the current challenges of e-commerce itself, but we have not lost market share to other companies and will get back on a growth track as the economy recovers.

A8: In the Chinese acoustic piano market, market inventories remain high, including those of other companies, and we expect the full-fledged recovery to begin in the next fiscal year. We cannot rule out unexpected risks but, for the moment, we believe that the structural reforms have been completed.

A9: We believe that conditions will remain difficult for keyboard instruments due to changes in education policy, but as the optimization of market inventories continues, sell-in will gradually recover accordingly. As for other musical instruments and audio equipment, we can still grow in many areas, and sales of wind instruments and portable keyboards are increasing, especially to customers active in brass bands at schools and senior citizens’ universities. We believe that this demand from senior citizens and for hobbies and entertainment will be a growth driver going forward.

A10: There were no one-time positive factors in the fourth quarter, the high-margin business of B2B products continued to perform well and, excluding one-time costs, the profit margin was quite high. We have achieved very high growth in B2B products, particularly in digital mixers, and we expect to be able to maintain a high level of sales in the current fiscal year. In addition, reforms are underway to increase the profit margin of consumer products by downsizing the business through the narrowing down of models to mid- to high-end products.

A11: In the previous fiscal year, production of musical instruments as a whole was down by about 6%. In the current fiscal year, there will be no major change in guitars and wind, string, and percussion instruments, and digital musical instruments are expected to return to an increasing production trend towards the second half of the fiscal year. However, the overall production of musical instruments will remain reduced due to the continuing decrease in acoustic piano manufacturing.

A12: We expect inventories at the end of the current fiscal year to be ¥17 billion lower in real terms compared to the end of the previous fiscal year, excluding foreign exchange effects. The breakdown is ¥10 billion less in products and ¥7 billion less in parts, materials and work in progress. There is still a slight surplus, mainly in acoustic pianos, but we expect inventory to approach an appropriate level.

A13: President Yamaura would like to maintain the two pillars of music promotion, through school projects for example, and business development, with products in line with the music culture of each region. We also believe that we need to strengthen our service areas, such as community or environment creation, and content. We want to sow the seeds of new businesses and accelerate their development.

A14: We believe that there is still room for growth in the market for both musical instruments and audio equipment. However, it is difficult to continue to grow with hardware alone, and we hope to boost overall sales by adding services. The core operating profit margin fell considerably in the previous fiscal year, so it will be difficult to suddenly raise it to 14%, but we hope to get it into double digits as soon as possible by leveraging structural reforms.

A15: In terms of products, we expect growth to be driven by guitars, digital musical instruments and automotive sound systems. In addition, we expect considerable growth in services. In terms of regions, India is growing remarkably, and we will steadily capture growth in emerging markets with large populations where we expect economic growth and the spread of musical culture, such as the Philippines where we have established a new sales company.

A16: Factory investment has temporarily slowed down due to production cuts, but we have already secured sites in India and Indonesia, as we believe that investment for production increase will emerge as market conditions recover. We are also considering M&As and investments to increase sales in the area of services.