A1: As of April, our overall sales were about 70% of last year’s level. We expect sales in May and through the first quarter to continue at approximately the same level as in April and then to resume gradually recovering. By region, COVID-19 significantly impacted business in China and Japan in the previous fourth quarter, and sales declined markedly, but have been on a recovery track since then. Sales in Europe and the United States dipped in mid-March but are currently recovering. We expect sales in emerging economies to soon start showing the full impact of the virus. By product, sales were strong for digital musical instruments in affordable entry-level price ranges, especially for digital pianos. Guitar sales were also on par with a year ago supported by strong e-commerce sales. Demand grew for music production software and products as well as AV sound bars, which can be enjoyed at home.
Q&A on the Performance Results for the Fiscal Year Ended March 31, 2020 (FY2020.3)
Q1: How did the COVID-19 pandemic affect the Company’s performance in each region and business?
Q2: What are the reasons for not providing a full-year forecast for the current fiscal year?
A2: First, the impact of the COVID-19 made it very difficult to forecast demand. We are also presently reconsidering our cost cutting and investment plans and need a little more time to examine how any changes to those plans will affect our estimates for the year.
Q3: Have any new post-coronavirus businesses with growth potential emerged?
A3: Yamaha has many unique technologies, such as SYNCROOM, and we believe we can invent new platforms by using them, and we are accelerating projects in that direction. We are currently encouraging customers try some of our new ideas and conducting proof-of-concept testing of new business concepts to allow us to quickly pivot to develop promising new businesses in the new post-coronavirus world.
Q4: Please describe the production and inventory outlook by product.
A4: Although we curtailed production in the previous fourth quarter, year-end inventories were up moderately due to the decline in sales induced by COVID-19. Because of the uncertain sales conditions, we plan to adjust production volumes to match individual product sales trends. We are conducting make-to-stock production of items with ongoing strong demand due to stay-at-home requirements, such as digital musical instruments for the e-commerce market, guitars, products related to music production, conference systems and other products for which we anticipate steady demand.
Our general approach has shifted from focusing on the delays in production to tracking demand conditions, and we are paying closer attention to controlling our production activity and inventories. One point we are focused on is the smooth ramp up of operations for the Indonesian factories following the end-of-Ramadan holiday.
Q5: Please describe the current sales conditions and the outlook for a sales recovery for your product offerings in China.
A5: Sales in China reached a low point in February and gradually improved in March and April to the point that they are now back to about 70% of last year. Although a full recovery could take most of the first half of the current fiscal year, we expect sales to be back to normal in the second half. Piano sales, which make up the majority of sales in China, fell to about half the volume of the previous year in the fourth quarter, but are gradually rising again. E-commerce sales of digital musical instruments and guitars are holding firm.
Q6: What is driving the strong worldwide sales of Yamaha guitars?
A6: Guitar sales are up year on year in every region. Sales of Yamaha brand guitars have been particularly strong and are up by double digits. By region, sales in Japan are up by over 20% year on year, and for sales in Europe there is high double-digit growth. The success is the result of our product strategies over the past few years along with our digital marketing and e-commerce activities.
Q7: What is the status of the review of the sales network for wind instruments that began in the previous fiscal year?
A7: Most of reviewing the sales network was completed previous fiscal year. It’s difficult to discern how the revised sales network will benefit sales because the impact of COVID-19 forced so many shops to shut down in the fourth quarter. However, the benefits should start to appear soon.
Q8: How has COVID-19 impacted the professional and amateur markets for the musical instruments, audio equipment and other businesses?
A8: The impact of COVID-19 has been different for private and professional demand. The impact on private demand has been both positive and negative, with solid demand for home audio products during the stay-at-home period. Professional demand has been negatively impacted in the main market segments of live performances, band activities, and concerts as well as for audio equipment installations. From this point onward, outlook for demand will depend on how the COVID-19 conditions play out. We are receiving many inquiries from professionals about commercial use of the SYNCROOM, and we are very responsive to the possibility that developments may change the way music is shared and other aspects of the music industry in the future.
Q9: How is the AV receiver market changing, and what is the outlook for AV product sales?
A9: Our current medium-term management plan assumes a shrinking market for AV receivers and growing markets for connected audio products, sound bars, headphones and earphones; and we are transforming our product portfolios in line with this plan. The stay-at-home lifestyles have boosted demand for sound bars. Also, our new wireless headphones with Yamaha’s unique technologies have been receiving strong positive responses after their initial launch in Japan, and the outlook for these products is very promising.
Q10: How have the COVID-19 conditions affected the ratio of e-commerce sales for each product and region?
A10: The highest ratio of e-commerce sales is in China, where it’s usually near 40% of sales for digital musical instruments, guitars, and AV products. During the COVID-19 conditions, the ratio in China has risen considerably, and the ratios in other regions are also approaching the level in China. E-commerce sales at major online retailers in the United States dipped in March while priority was given to shipping necessities, but the ratio is currently on the rise again.
Q11: How much do you expect COVID-19 to increase labor costs?
A11: Labor costs have been consistently rising for a few years in China and Indonesia. We expect that trend to continue at a certain level in the current fiscal year, but on a cost basis we expect production adjustments and other factors to hold increases below the rises in recent years.
Q12: Do you anticipate any costs in the other expenses category this year?
A12: In other expenses that appears between core operating profit and operating profit and corresponds to extraordinary loss under Japanese accounting standards, a 3.3 billion yen of impairment loss on fixed assets was reported last year along with a 1.4 billion yen of loss from suspension of operations. At this point, we do not know what impairments will be incurred in the current fiscal year, but loss from suspension of operations may be about the same as last year since our factories and our shops and music schools in Japan were all closed temporarily during the year.