Q&A on the Presentation of Performance Results through the Third Quarter of the Fiscal Year Ending March 31, 2025 (FY2025.3) (Held on February 5, 2025)

A1: We have been advancing structural reforms in response to the decrease in demand. However, the acoustic piano market in China has abruptly shrunk to about one-fourth of its size over the past three years, making it difficult to assess the future demand scale. Although the recovery of the acoustic piano market in China is not expected in the long term, we still recognize it as the largest market. Therefore, we decided to close the factory in Indonesia to optimize the global production scale in line with future demand forecasts. The recording of the series of restructuring costs is now completed, and we will swiftly implement this reorganization and work quickly to improve profitability.

A2: Currently, acoustic pianos are produced in four factories located in Japan, China, and Indonesia. We believe that the optimal production scale for future demand is two factories, and there is no need to reduce the number of factories or facilities further. We consider the recording of structural reform costs to be completed. Given the product lifecycle and durability, acoustic pianos do not significantly lose their value within 1 to 2 years, so we do not foresee any risk of write-down of inventory.

A3: First, we plan to strengthen the function of Japan as a core mother factory with excellent technological capabilities. While we do not expect a recovery in China for a long time to come, it remains the largest market. Additionally, the manufacturing facilities are well-equipped, allowing a transfer from Indonesia without additional investment. We believe that we can address tariffs and geopolitical risks by expanding the lineup at the Japanese factory.

A4: Thanks to marketing initiatives, price adjustments, and the highly evaluated new Clavinova series launched during the current fiscal year, we are regaining market share. Our products are ranking high in the EC sales rankings, and we feel a positive response. We are also effectively communicating value through specialty store channels, and our position is recovering. Distribution inventory has been on a downward trend across all regions since peaking in the first quarter. Profit margins temporarily decreased due to price adjustments made to regain market share, but we believe we can recover them in the future.

A5: Distribution inventory has increased slightly, and retailers are currently holding back on purchases. However, there is individual demand that has increased due to ESSER, so we do not anticipate a significant decline in sales going forward.

A6: While the Yamaha brand guitars are performing well, the main products of guitar accessories from brands other than Yamaha are in a transitional period due to model changes. As other companies are aggressively launching new products, sales in the United States are facing some challenges.

A7: We have decided to narrow down the product lineup and sales regions of HA. We will focus on mid- to high-end products with a greater emphasis on personal taste, centering on the business’s main markets in Europe and the United States. As a result, there is a possibility that inventories of some components may become surplus. Currently, we are examining the potential for future use of these components in upcoming products or their repurposing for other models, but we have anticipated a provision as a risk.

A8: This is primarily due to the struggles faced in automobile interior wood components and golf products.

A9: In musical instruments, we expect sales growth particularly from the recovery of digital pianos (DP) and guitars. In terms of region, we will focus on the growth in emerging markets, especially in India and ASEAN countries like the Philippines. In audio equipment products, we will continue to expand in the B2B market, which continues to perform well, particularly in entertainment PA equipment, as well as in B2C PA equipment. Additionally, we see automotive sound systems as a key area for future growth. Regarding profits, it is crucial to realize the effects of structural reforms in acoustic pianos, and we will be actively working on increasing production efficiency and reducing fixed costs.

A10: Effects will be seen in the reduction in personnel costs and depreciation expenses. During the current fiscal year, we temporarily suspended production at our factory in China, but we believe operational efficiency will improve as a result of the addition of models exported outside China following to the future transfer of production from Indonesia.

A11: We forecast the ROE for the current fiscal year at the very low level of 2.7%. In contrast, we recognize the cost of equity at 7.5%, and we believe it is essential to restore the ROE to that level as soon as possible. While improving performance is our top priority, we will also focus on enhancing capital efficiency to work towards improving ROE.