Q&A on the Presentation of Performance Results through the Second Quarter of the Fiscal Year Ending March 31, 2025 (FY2025.3) (Held on November 1, 2024)

A1: Due to the economic stagnation and structural changes in the Chinese market, the decline in piano demand has lasted longer than expected, and we have determined that growing current as well as future sales will be increasingly challenging. Therefore, we have decided to suspend operations at our piano factory in China for four months, and we also plan to suspend operations at our Indonesian factory, which manufactures piano parts in the preceding process. As part of the account closing procedure this quarter, we have reached the conclusion to implement impairment on certain piano manufacturing facilities and other assets that are not expected to be used in the future and for which investment recovery is regarded as difficult. The decrease in depreciation expenses due to the booking of impairment is expected to be approximately ¥600 million for the current fiscal year and double that amount for the next fiscal year. We will carefully consider the necessity of further business restructuring in the future, but there are no specific plans at this time.

A2: The machinery, equipment, and facilities of the piano factory in China have all been included in the impairment decision this quarter. The land and buildings are not subject to this impairment as they have resale value. Acoustic pianos are very long-lasting products with a lower likelihood of becoming obsolete, and therefore, the risk of inventory valuation reduction is relatively low compared to electronic products.

A3: Demand has shrunk to about a quarter of pre-COVID levels, and we are seeing store closures among dealers, including competitors, leading to market confusion. Hence, we do not expect a recovery in the near term and have revised our outlook more severely. We anticipate taking about two and a half years to bring the currently high inventory levels in the market back to a more appropriate level, and we will adjust by temporarily halting production to curb supply in relation to the actual demand. Production is expected to remain at a low level in the next fiscal year, but we believe it is crucial to establish a new business plan based on future demand forecasts and to stabilize production levels.

A4: The impact of policies such as the Double Reduction Policy on the piano market is significant, and we believe there are few positive effects. On the other hand, if there is a certain level of economic surplus, spending will also shift to musical instruments, so I think effects will be seen a bit later for products other than pianos. Additionally, in the audio equipment area, we receive a certain amount of business from government tenders, and are thus closely watching how stimulus measures in the EV sector will affect automotive sound systems.

A5: The market inventory of digital pianos has been improving as expected, particularly in Europe and the United States. Even in Europe, where there was a slight delay in the first quarter, major dealers are resuming their purchases in preparation for the sales season. In the highly competitive entry-model segment, we have implemented pricing strategies, and are seeing positive results. Additionally, the mid- to high-end series of Clavinova that we introduced this period has received high praise, and preparations are underway for the sales season, with our market share also recovering.

A6: The U.S. government's financial support (ESSER) ended at the end of September, and demand is showing a softening trend, but this is in line with our expectations. ESSER has revitalized overall wind band activities, and there are still backorders for mid- to high-end products. Therefore, we believe that the sales decline will be gradual and will settle at the initially anticipated sales level.

A7: Due to the influence of the anime "BOCCHI THE ROCK!,” the demand for electric guitars is increasing in Japan and China, and our sales are also growing. While the U.S. remains the primary market in terms of market size, we are focusing on the development of mid- to high-end products and aim to enhance the strength of our brand to expand our sales globally.

A8: After the easing of stay-at-home measures, the home audio (HA) market has been sluggish and continues to struggle. However, we are continuing restructuring in the B2C business, and the deficit is steadily decreasing. We will target customers who are particular about sound quality and actively listen to music, and by carefully selecting highly profitable mid- to high-end products, we aim to achieve profitability in our business.

A9: Automotive sound systems are increasingly being adopted in EVs of Chinese manufacturers, driving growth in the electronic device business. The expansion started in China, and recently, equipped vehicles have also been spreading in Japan. Since this is a B2B business, it is important to align with the strategies of our client companies, and we aim to continue increasing our orders in the future.

A10: This fiscal year, the mismatch between demand and manufacturing capacity has significantly impacted profits. However, we aim to correct this mismatch through business restructuring to recover profits. In terms of growth areas, in the musical instruments, we plan to return to a double-digit growth trajectory for guitars, which have a large market size and significant growth potential, in line with pre-COVID levels. Additionally, we believe it is crucial to regain market share and achieve renewed growth in digital pianos especially to offset the decline in acoustic pianos. In the audio equipment business, we aim to further expand our B2B business by establishing new sales channels, such as IT installers. In the industrial machinery/components and others business, we plan to continue to grow our automotive sound systems. Furthermore, while it may require some time, we are also focusing on software and service businesses, and we expect Yamaha Music Connect to become a new growth opportunity.

A11: The current forecast is influenced by exchange rate factors, but we are further reducing the inventory of musical instruments. Before the COVID-19 pandemic, our inventory was around ¥100 billion, with a further increase of approximately ¥30 billion due to exchange rates. To return to that level, we need to reduce inventory by about ¥10 billion. We will use this as a benchmark and aim to avoid inventory excess by balancing the changes in demand for each product with our production capacity.