Q&As on the Presentation of Performance Results through the Second Quarter of the Fiscal Year Ending March 31, 2020 (FY2020.3)

A1: In addition to growth on a volume basis such as an increase in demand supported by children’s educational needs in China, sales are growing along with progress on price optimization. Products offering new value, such as our TransAcoustic guitars, also contributed to the sales growth.

A2: In the first quarter, there were signs of slowing growth for pianos and digital pianos, but piano sales ultimately experienced double-digit growth year on year in line with market developments in inland China and recovering demand in coastal regions. Digital piano sales of lower-priced entry-level models produced in Chinese factory were temporarily impacted by digital pianos made by Chinese manufacturers during an e-commerce event in the first quarter, but sales growth remained strong for middle and upper level models. Wind instruments and guitars are also performing well, and the overall market is firm.

A3: Profitability is improving because of the increased revenue, price optimization, and cost reductions.

A4: In South Korea, consumer activity began slowing dramatically from August, and the pace of growth up to the second quarter leads us to expect full-year sales to decline year on year. Sales are erratic overall in ASEAN, but we anticipate strong year-on-year growth in Indonesia and Vietnam. We expect sales in Latin America to recover from the sluggish pace to date. In India, the pace of sales growth is slowing due to the impact of macroeconomic factors.

A5: It’s a difficult situation with several factors involved. We plan to revitalize sales by shifting our marketing resources to the mid- and high-end product market. We will also take steps to invigorate the market for sales of brass band instruments to schools, although it’s difficult for one company to sway the market.

A6: Our share of the guitar market in North America is still in single digits. We believe that sustaining our double-digit growth in sales will soon raise our market share into double digits. Profitability has improved sharply recently through the growth in sales of mid-level models and TransAcoustic guitars, price optimization, and cost reductions, and we expect it to continue improving.

A7: In AV products, we expect strong sales of soundbar shipments to mass merchandisers in North America following the delayed shipments in the first quarter. In PA equipment, we have high expectations for our new products for portable PA systems and powered loudspeakers. In ICT (Information and Communication Technology) devices, we expect progress with inventory adjustments to lead to a year-on-year increase in shipments in the second half.

A8: The factor behind the revised forecast was almost exclusively the updated exchange rate assumption.

A9: Both products reflect Yamaha’s unique strengths, which are highly regarded in the market. We plan to apply our ability to realize technical innovation to grow these product lines. The markets are growing for both PA equipment and ICT devices, and we are very confident that we can increase sales in those markets. We are also looking to combine our PA and ICT technologies to create new markets. The markets for PA equipment and ICT devices appear to correlate more closely to economic conditions than musical instruments.

A10: We had been anticipating the level of demand in the second half of last year, but we lowered our estimate due to the ongoing deterioration in market conditions. Demand largely comes from makers of substrates used in smartphones.

A11: We measured the rush in demand in Japan ahead of the consumption tax hike at 1.1 billion yen in total; 800 million yen for musical instruments and 300 million yen for audio equipment. We expect a reactionary decline in demand in the second half but do not anticipate a significant impact on a full-year basis. We think the impact on overall profits will be limited to a few hundred million yen.

The sanctions on customs duties between the United States and China will increase our tariff-related costs in the United States by about 1.0 billion yen, but we can pass about 80% of that into our products prices, so we estimate the final impact will be about 200 million yen. These figures are already incorporated into our full-year outlook.

A12: The Chinese yuan and the Canadian dollar, Australian dollar, South Korean won, Indonesian rupiah, and other currencies versus the U.S. dollar are currently weak, and this is lifting our conversion assumption above our expectations. The euro forward rate for the third quarter is 120 yen.

A13: About half of the decline in SG&A in the second quarter was due to delayed timing, and the rest was due to cost reductions. For the full year, we will continue to lower overall costs another notch from the cuts in the second quarter, but plan to keep strategic spending as close to the planned level as we can.

A14: Due to solid reductions in procurement costs, we expect to reduce overall costs by about 400 million yen more this year than we previously anticipated. The cost reduction is progressing generally in line with our medium-term plan, but the pace of the cost reductions is being slowed somewhat by spending to construct new factories and renovate existing factories. We expect the improvement in productivity from these investments to start appearing in two to three years.

A15: The Indian factory is up and running and in its first fiscal year will produce portable keyboards and guitars. Production of portable keyboards has already begun and output is being incrementally increased. We plan to start producing guitars this fiscal year. The medium-term management plan is to boost sales in India by 50%, and the new factory will provide the majority of the products to achieve this goal.