A1: Plant operations in Indonesia recovered to over 90% in the third quarter and are expected to remain at this level into the fourth quarter.
Q&A on the Presentation of Performance Results through the Third Quarter of the Fiscal Year Ending March 31, 2021
Q1: Please provide an update on the status of plant operations in Indonesia.
Q2: Can you outline the current situation and the outlook in regard to the impact of the fire at the parts supplier plant.
A2: The situation has improved due to the rapid progress of design changes, and the impact is expected to be ¥4 billion in the current fiscal year (fiscal 2021), and ¥5 billion in the next fiscal year (fiscal 2022). The breakdown by product for this period is ¥3 billion for musical instruments focused on digital pianos and ¥1 billion in the audio equipment business. The impact of the fire is expected to remain mainly in the audio equipment business in fiscal 2022.
Q3: Is there any impact from the shortage of semiconductors and electronic components at suppliers other than the specified supplier.
A3: There is no expected significant impact on sales in the current fiscal year. In fiscal 2022, there is a possibility that there will be an impact from future semiconductor supply, but the outlook is unclear at this point.
Q4: Please explain the impact on transportation costs due to the recent shortage of containers and tight supply and demand conditions for shipping.
A4: A significant impact is not expected in the current fiscal year, but logistics costs are expected to rise in fiscal 2022.
Q5: Please outline the status of order backlogs, the factors behind them, and the prospects for resolution.
A5: At the end of the third quarter, the backlog increased to ¥28 billion in addition to the normal order backlog. The main causes are the decrease in plant operations in Indonesia due to COVID-19 and logistical disruptions including the shortage of containers. The issue is improving and we believe that it will decrease by about ¥10 billion in the fourth quarter. We believe that the issue will be resolved by the first quarter or first half of fiscal 2022.
Q6: Is the market share for musical instruments declining due to the lack of supply? Please outline your efforts to bring about a recovery.
A6: We recognize that our market share is declining due to supply shortages in highly competitive fields such as guitars and low-priced digital pianos. However, as supply recovers, we will regain our market share.
Q7: Please outline your medium-term thinking on changes in demand due to COVID-19 and how to respond to them.
A7: To reliably grasp demand from people staying at home and make longer ties with our customers, in addition to selling hardware, we will also focus on the software side, which includes lessons. Moreover, in the current medium-term management plan, we predict that we will enter an era in which people are seeking greater emotional satisfaction and authenticity brought about by transformations caused by accelerated digital technologies and greater diversity in lifestyles and senses of value. Such changes are accelerating due to COVID-19, and we believe that after the pandemic is over there will be ample opportunities for further business expansion in the medium term.
Q8: Please comment on the favorably performing industrial machinery and components (IMC) and other segments.
A8: As for electronic components, we believe that it is time to create new demand as shipments have started for products such as brand audio for automobile manufacturers. On the other hand, we are experiencing firm sales of automobile interior wood components for the North American market, and orders for FA equipment are strong due to increased capital investment.
Q9: Please provide any supplementary information pertaining to the background of the upward revision of full year forecast.
A9: The revision came about due to the combination of three factors: higher than expected sales, an improvement in gross profit, and ongoing reduction in SG&A expenses.
Q10: Please explain the situation in relation to prices in the third quarter and price optimization for fiscal 2022.
A10: As supply is tight, we are trying to avoid discounts as much as possible and continuing to work on price optimization. For example, from November 1, we raised the price of pianos in a single move all across China. We are making such efforts in each product category and region, and the gross profit margin is increasing. Price optimization is a key policy that we will continue to implement well going forward.
Q11: Will the SG&A reduction effect continue after fiscal 2022 when the impact of COVID-19 undergoes normalization?
A11: The review of expenses, which made little headway before, has progressed all at once due to the impact of COVID-19. Taking this opportunity, we will shift expenses into improving customer value, use expenses that will contribute to firm future growth, and reduce other operational expenses. We would like to work to ensure that overall expenses are kept in a balanced low manner going forward.
Q12: Cost reductions for the fiscal year ending March 31, 2021 will be smaller than in the past. Could you please outline when cost reductions will return to previous levels.
A12: The breakdown in cost reductions cover three major areas: reduction in procurement costs, improvement of factory productivity, and allowing natural attrition through non-replenishment such as mandatory retirement. However, as we have taken a supply-first approach, we have not been able to improve factory productivity in the current fiscal year. After things normalize, we will work on cost reduction again across the above three major areas.