JVCKENWOOD : QA at the earnings results briefing for the Q1 of FYE3/'26

Q&A session at the earnings results briefing

for the Q1 of Fiscal Year Ending March 2026 (FY2025)

Q: Please explain the increase or decrease in each sector compared to expectations, given that the first quarter results were as expected for the company as a whole.

A: We expected core operating income for the full year to be at least ¥20.0 billion, and progress toward this target came in as forecasted. In the Mobility & Telematics Services Sector (M&T), price increases were implemented smoothly in response to the U.S. tariff measures. In the Safety & Security Sector (S&S), the impact of components supply shortages from the previous fiscal year-end has caused production resumption, which had been expected in early June, to be slightly delayed, resulting in lower-than-expected results. In the Entertainment Solutions Sector (ES), the Media Business struggled more than expected due to the negative impact of tariff on earphones and headphones, but a recovery in the Entertainment Business prevented a significant decline. Results were almost in line with expectations as a Group because the recovery in the M&T offset the challenges faced by the S&S.

Q: Is there any change in the direction of increasing core operating income from Q2 onwards? A: In the Communications Systems Business of the S&S, a full-scale recovery will begin in Q3 onwards, and we will steadily increase core operating income. Since the M&T had a strong start in Q1, we aim to significantly exceed our full-year core operating income

forecast of ¥1.9 billion.

Q: In Q1, the tariff impact on core operating income was 0.6 billion yen as expected. The full-year tariff impact is forecasted to be 5.0 billion yen. How should we view this forecast? Since conditions such as tariff rates for China have changed, please explain the current estimates of the tariff impact, if available.

A: The negative impact of 13.0 billion yen on sales and 5.0 billion yen on core operating income is factored into the full-year earnings forecast. We assumed a 145% tariff rate for China, halted the production and shipments of Chinese products, and factored the resulting revenue decline into the forecast. Currently, the M&T is transferring production from China to Malaysia. We will complete the production transfer between August and September and expect to resume sales in October. While we announced price increases effective from May, these increases have been reflected in retail prices since June. We will closely monitor the response to the price increases going forward.

In the ES, due to the reduction of the tariff rate for China from 145% to 30%, we have resumed production and sales of Chinese products. As a result, sales are expected to increase as the impact of the suspension of shipments of Chinese products will no longer exist. However, we will estimate how much we can improve the impact of 5.0 billion yen on the Company-wide core operating income for the full year. We would like to wait and see how the situation develops before making an announcement.

Q: While the tariff rate for China will decrease, the tariff rate for Japan is rising from a uniform rate of 10% to 15%, and the tariff rate for Malaysia will rise from a uniform rate of 10% to 19%. As a result, does it not mean the tariff impact of 5.0 billion yen will remain unchanged? Will the full-year impact amount decrease?

A: In Japan, we mainly manufacture professional radio terminals and projectors. Our projectors are higher-priced products with prices of several million yen, and the impact of the tariff increase on professional radio terminals from 10% to 15% is not significant. Therefore, the tariff impacts can be absorbed by a price increase of each product. On the other hand, the reduction of the tariff rate for China is sure to have a positive impact. We are currently estimating the extent of this impact.

Q: In the graph showing "Number of Production of Main Models" in Communications Systems Business on page 20 of the Results and Forecast Briefing, does "initial plan" refer to the number of production units that is the basis for the published figures?

A: This is not the basis for the published figures but is the number of production units estimated on the assumption that there is no impact from component shortages.

Q: Does that mean the published figures include the impact of components supply shortages and, therefore, a simple comparison cannot be made?

A: Exactly. In terms of published figures, although the number of production units in Q1 was affected by component shortages, production is expected to nearly catch up over the full year. On a unit basis, production is expected to reach about 98-99% of the initial plan. We aim to achieve our sales plan through product mix by increasing production of higher-priced models such as the VP8000, for which orders are increasing.

Q: It is stated that production in Q2 is projected to be 99.6% vs. the plan. Will some impact from component shortages remain in Q2?

A: Since supply is still insufficient for some models, the impact will remain to some extent.

A full recovery is expected in the second half of the current fiscal year.

Q: Compared to the initial full-year production plan that accounted for component shortages, to what extent did the actual figures fall short? How much recovery is expected from Q2 onwards, compared with the plan, considering the component shortages? Furthermore, should we be concerned about opportunity losses or a decline in market share due to suppressed activities to win orders etc., caused by production delays?

A: The production plan was based on the assumption that there would be no impact from component shortages, and the plan was made evenly on a quarterly basis. Although the production plan for Q1, based on the published figures, was lower, the actual number of production units was even below that.

We planned to resume production substantially in early June. However, since production was resumed after June 20, this was not reflected in production results.

Additionally, the number of production units was approximately 38% of the initial plan, and the timing of shipping the produced units to the U.S. was delayed compared to the publicly announced plan, resulting in an even greater impact on sales.

As for lost opportunities and sales, all items that should have been sold remain in the backorder. Assuming that the products remaining in the backlog will be sold steadily in Q2 and beyond, there will be no opportunity loss and no significant change in market share.

Q: Were there any negative effects on activities to win orders? I would also like to confirm whether there were any effects from cuts in the U.S. government budget.

A: In the enterprise markets, orders indeed slowed down due to factors such as government restrictions on capital investment. However, the school demand, which represents a significant portion of our sales, remains strong as in the previous fiscal year and orders are currently on backorder, with no significant changes. Orders in the public safety market have been recorded in the backlog without any particular constraints. There were no sales restrictions caused by the impact of component supply shortages on operating activities.

Q: Regarding the competitive environment of M&T. Competitor A has acquired by a Taiwanese company. Will this cause any changes in the competitive environment? Please let us know if there are any points, we should pay attention to.

A: There is currently no significant impact on the Aftermarket. Japanese manufacturers have mostly responded to price increases caused by the tariff impacts in May and June. We have not noticed any major changes in the past three months. We expect some changes to occur going forward, so we will keep a close watch.

Q: Regarding the perspective described on page 20 of the Results and Forecast Briefing. I understand that production in Q2 will focus on models for enterprise markets due to seasonal factors, but are there differences in how to handle component shortages depending on the model? If production in Q2 will focus on models for enterprise markets, can we expect margins to increase in the second half of the current fiscal year due to an increase in production of the high value-added VP8000 in the second half?

A: The Q2 production plan covers both the enterprise markets and the public safety market. Due to school demand, production volume for the enterprise markets will be higher on a unit basis. We expect profit margins to increase from Q3 to Q4 as the models already ordered for the public safety market are scheduled to be shipped, and especially because the production volume of VP8000 will also rise. The supply of components that had been in short supply has considerably recovered and is expected to almost return to normal in Q2. However, some models for both the enterprise and public safety markets still have not fully caught up with addressing the component shortages. To address the issues and avoid future production risks, we have procured alternative components and have secured the relevant components from three companies.

Q: I understand that the tariff impacts were almost as expected, and price increases have been implemented. Could you please share your thoughts on the impact based on sell-through and the unit price situation of competitors? In the ES, even under the same conditions for all companies, some companies have lowered prices for Chinese products, while others have raised prices for them, resulting in inconsistent approaches and making the situation unclear. In the M&T, you said that the Company successfully implemented price increases. I believe that there was a last-minute rush of orders before the price increases and the repercussions after the price increases. Could you please share again your latest assessment and perspective on the tariff impacts?

A: In the M&T, price increases were implemented smoothly. Although there was a last-minute spike in demand, demand remained steady even after the price increases. The Company announced price increases effective May 1, and competitors subsequently announced price increases effective June. I believe that price increases are expected to be reflected in the actual selling prices at stores from July onwards, so it is necessary to monitor how the impact develops in the future. On the other hand, it is still undecided when the 25% tariff rate on automobiles will change, but we will continue to see whether competitors will lower prices to gain market share when the tariff rate is reduced to 15%. In the M&T, Japanese manufacturers hold a certain degree of market share, except for some products such as speakers, so I believe that we are able to respond under the same conditions as our competitors.

In the ES, we have successfully implemented price increases for projectors, as our competitors are also Japanese manufacturers, and unit prices are high. However, due to the high unit prices, we need to carefully assess the impact of a potential slowdown of the U.S. economy. Even at the same retailers, we were able to raise prices for products in the M&T, but not for headphones and earphones. We believe this is undoubtedly due to the difference in the Company's position in the market for those products. Headphones and earphones face competition from companies in various countries other than Japan, resulting in a low market share and difficulties in raising prices. However, we have decided to raise prices starting in July and August, so the new prices will take effect from Q2. We will continue to check the situation after the price increases.

Q: How much will prices rise?

A: In the M&T, the average increase will be approximately 20%. Prices for projectors in the ES will rise by approximately 10% as they are manufactured in Japan. Headphones and earphones are expected to have a price increase of approximately 20%, assuming a 30% tariff rate for Chinese products.