A1: We are forecasting strong market conditions in North America to support a brisk market. Sales in Europe recovered in the fourth quarter after ending the review of sales conditions, and we expect sales to continue improving through the current fiscal year. In the Middle East and Latin America, we anticipate some impact from deteriorating macroeconomic conditions but forecast solid sales growth due to higher sales of audio equipment.
Q&A on the Presentation of Performance Results for the Fiscal Year Ended March 31, 2019 (FY2019.3)
Q1: Please comment on the outlook for sales in Europe, the United States, and emerging economies?
Q2: The growth in China is forecast to slow, but could you explain this impact of market conditions and your earnings in somewhat more detail?
A2: Although our sales growth is likely to slow due to macroeconomic conditions, we expect it to maintain a double-digit pace. We plan to increase market share through achieving sales growth at a faster pace than market. In first-tier cities, while we forecast slowing growth for acoustic pianos, we anticipate continuing sales growth for digital pianos and guitars along with strong growth in inland cities for acoustic pianos and other products.
We plan for rising sales of higher-margin digital pianos and other products to support ongoing growth in profit.
Q3: When do you expect the industrial machinery and components and others segment to recover from the temporary declines in sales and profits?
A3: We have been shifting our business domain from amusement equipment to in-vehicle devices for several years. The transition this year will incur some up-front cost and weigh heavily on profits temporarily. However, we forecast profits to recover in fiscal 2020.
Q4: In-vehicle devices need to respond to risk associated with automobile safety. How is the company incorporating that aspect of the business?
A4: We have many years of experience and abundant expertise in automobile interior wood components. We are now building up our expertise in automobile electronic components. In the others business, plans to establish the in-vehicle components as a mainstay for the segment are running slightly behind schedule.
Q5: Why does it appear as if the pace of profit growth will decline in the current fiscal year?
A5: The profit growth in the current fiscal year appears to be slower for two reasons. First, last year’s profit growth looks high due to the recording of one-time expense in the year before. While, in the current fiscal year, we anticipate a negative impact from exchange rates and from a temporary deterioration due to the business conversion in industrial machinery and components.
Q6: The increase in SG&A expenses appears to be smaller. Does the figure include strategic spending?
A6: The strategic spending in the past few years has been focused on strengthening our brand power. However, there was also an adjustment phase with emphasis on better profit management. We are budgeting for strategic spending for the current fiscal year with higher accuracy than in the past.
Q7: How is the outlook for the procurement environment and reducing costs?
A7: Cost reduction did little more than offset a rise in labor costs because of the rise in procurement costs in the previous year. We anticipate costs to come down further in the current fiscal year due to improved procurement conditions and better productivity.
Q8: Does the plan include the contributions and cost increases associated with the new factory?
A8: Though our estimates include a negative impact on profits from a low operating rate when operations begin at the new factory, we have incorporated this impact into the plan.
Q9: What is the outlook for forex sensitivity and the impact from specific foreign currencies on earnings?
A9: Our earnings are highly sensitive to the euro, which we are forecasting to account for 470 million yen. The euro occupies a large portion of our currency exposure, and the currencies of emerging economies also have a certain degree of impact.
Q10: Why did capital expenditure decline by 8 billion yen in FY2019.3?
A10: The main reason capital expenditure declined was slower than anticipated progress related to production from the previous fiscal year to the fiscal year under review.
Q11: What are your views on internal and external risk factors this year?
A11: The main external risks we see are macroeconomic conditions, US-China trade friction, exchange rates, and changes in market sentiment. The internal risk we see relates to our seventh consecutive year-on-year increase in income. This streak was achieved through great Companywide effort, and we need to guard against complacency and ensure everyone in the Company understands that increasing profit is no easy task.