A1: We were able to bring the plants in China, Malaysia, and India all up to 100% operating capacity in the fourth quarter. The Indonesia plant is still operating under restricted conditions, but we are producing at 100% of the planned capacity by using a shift system and increasing the number of workers.
Q&A on the Performance Results for the Fiscal Year Ended March 31, 2021 (FY2021.3)
Q1: Please provide an update on the operating status of each plant.
Q2: What is the status of the impact of the fire at the parts supplier plant on the company?
A2: The impact has been at ¥4 billion in the fourth quarter last year and ¥5 billion in the first quarter of this fiscal year generally as expected.
Q3: How much progress has been made in reducing the order backlog?
A3: The order backlog at the end of the third quarter last year was ¥28 billion above the normal backlog level. The backlog declined to ¥26 billion at the end of March, but is still high. Shipments improved in the fourth quarter, but supply was unable to keep pace with new orders.
Q4: Please explain how the tight supply and demand conditions for semiconductor parts are factored into the business outlook.
A4: At this point, because we are unable to increase production to meet the demand, we anticipate an impact of about ¥4 billion on AV products sales in the first quarter. Our production plans for the second quarter onward are based on a fairly cautious sales outlook, but the uncertain conditions prevent us from being able to provide any detailed projections.
Q5: What is the current situation for competition and outlook for the digital musical instruments market?
A5: Our market share declined in Europe and Japan in the previous fiscal year. We are increasing production with the aim of increasing supply and regaining the market share this year.
Q6: Please tell us about the strong guitar market and the outcome and synergies of the Line 6 and other acquisitions.
A6: Sales rose sharply for guitars in Japan and China in the previous year. Sales improved moderately year on year in North America and Europe while remaining essentially flat in other regions. Among individual products, Line 6 effectors garnered positive results. Overall profits were further boosted by the addition of bass amplifier maker Ampeg to the business portfolio, which filled out our lineup of product offerings for guitarists.
Q7: Please describe the conditions informing this year’s sales forecast for musical instruments.
A7: We expect demand to be higher than the reflected forecast figures. The constricted supply conditions for devices make it difficult to predict when supply will return to adequate levels again. We also believe it will take some time for the demand of wind instruments to recover. These are the backgrounds of our forecast.
Q8: How is the demand situation changing in countries that are mobilizing widespread COVID-19 vaccinations?
A8: In the United States, demand in March improved at a slightly better pace than we had been anticipating for wind instruments and PA equipment. These two product segments had been posting sluggish sales, but we expect sales to start recovering.
Q9: Logistics costs are rising, and prices for metal, wood, and semiconductor in general are trending upward. What is your outlook for costs?
A9: We project the rise in logistics costs to increase ocean freight costs by about ¥2 billion, and forecast costs for materials increasing by about ¥1 billion. However, the conditions are highly unpredictable, and costs will fluctuate depending on the market conditions.
Q10: What progress has been made in optimizing prices?
A10: The price optimization is continuing. Our aim is to cover, as much as possible, the overall upward pressure on costs from various factors, such as the rising logistics costs.
Q11: How do you see the profit recovery progressing on a quarterly and half-year basis this year?
A11: We were essentially at the breakeven point in the first quarter of last year, so we expect significantly better results in the first quarter of this year. Profits recovered quickly in the second half of last year and were particularly strong in the fourth quarter, but we expect fourth-quarter profits this year to maintain pre-COVID-year level.
Q12: What is the specific cause of the gain on sales of non-current assets to be booked between core operating profit and operating income under other income in the forecast this year.
A12: The gain reflects the sale of idle landholdings in Sapporo, which we sold as part of our ongoing asset restructuring.
Q13: What is management’s approach to cash allocation and the use of capital?
A13: We do not have specific spending plans at this time, but we believe it is necessary to secure funds for the capital investment plans that we postponed due to the COVID-19 pandemic.
Q14: Will any efforts be made to strengthen the skill matrix of directors?
A14: All of the newly-nominated candidates for outside director positions have technical backgrounds and are knowledgeable and deeply versed in digital or network technologies.