Q&A on the Performance Results through the Second Quarter of the Fiscal Year Ending March 31, 2026 (FY2026.3) (Held on November 4, 2025)

A1: For the first half, the audio equipment business exceeded its initially challenging forecast, but the musical instruments business fell short of expectations due to weak market conditions. Overall, the company slightly underperformed its plan. For the full year, while positive factors like foreign exchange rate and easing of tariff impacts exist, we face weakness in European market conditions and reduced sales of high-margin product categories like entertainment PA equipment. We will rigorously control SG&A expenses to achieve the core operating profit target of ¥33 billion. Regarding additional U.S. tariffs, even as their impact diminishes, we will advance countermeasures as planned to maximize the recovery rate.

A2: First, there are positive factors totaling approximately ¥1.5 billion. These include price adjustments in markets outside the U.S. and cost reductions achieved through productivity improvements, including partial production increases in the second half. Conversely, the main factors are a significant decline in revenue from audio equipment for professional use, particularly in Europe. This region generates high gross margins, and the decline in sales of high-margin products has led to a deterioration in the regional and product mix.

A3: For musical instruments, we will implement various promotions in the second half to boost sales. Additionally, the fourth quarter of the previous fiscal year saw disruptions due to core system replacement, and we anticipate revenue growth in the second half, including recovery from that disruption. Audio equipment sales in the previous fiscal year were supported by carryover orders from the year before last, combined with high demand for large-scale events. This fiscal year, demand is slowing down, and public investment has been delayed in some countries, leading to a decline. However, the entertainment market remains robust.

A4: We implemented several price revisions during the first half, segmented by model and category. However, in the U.S., there still doesn't appear to be any significant movement of others toward price revisions at this time. Nevertheless, both actual sales and sell-in for our musical instruments are slightly above our previous projections, so we will proceed with the planned price revisions as scheduled.

A5: Considering that high-priced products are showing some weakness amid strong consumer thriftiness due to rising prices, we are forecasting sales for this period to be on par with last year.

A6: Approximately half of the increase is due to foreign exchange effects, while the other half stems from higher inventories of finished goods, components, and work-in-process. While the increase in finished goods inventory partly reflects lower sales, it also includes elements such as maintaining production capacity to improve profitability and securing inventory for new products launching in the second half. Although we recognize inventory levels remain high relative to our mid-term goal of reducing inventory to pre-COVID levels, we aim to achieve an optimal outcome by swiftly adjusting production in line with sales conditions while also considering overall operating profit.

A7: This aligns with our policy of achieving a total return ratio of 50% or higher, as outlined in our mid-term management plan. Rather than focusing on a single fiscal year, we are aiming for the target level over the three-year mid-term plan period. This move is intended to enhance shareholder returns and improve capital efficiency.

A8: This includes elements such as restructuring costs incurred in the previous fiscal year, with a portion carried forward to the current period related to the closure of the Indonesian factory.