Q1:Could you discuss the direction of Yamaha's next medium-term business plan, which will commence in the fiscal year ending March 31, 2008, in terms of sales, operating income, and other numerical targets?
A1:We have yet to establish specific targets and other details; however, we plan to take up where the current medium-term business plan (YSD50) leaves off and continue to strive to achieve stable growth.
Q2:How do you plan to showcase Yamaha's unique strengths?
A2: If you take, for instance, our keyboard instruments, we offer everything from concert grand pianos to portable keyboards, covering both the acoustic and digital realms. We are looking to leverage this strength to offer customers even better product suggestions. In the past, each division developed products independently. By completely breaking down this wall, we aim to create a more robust lineup of products that meet customer needs.
Q3:A key reason that Yamaha was not able to achieve its YSD50 targets appears to be sluggish sales in Japan; however, that does not seem to be the sole cause. Could you comment on this?
A3: We believe that we did not meet our targets because we were not operating in tune with customer needs with regard to sales, product development, and other corporate activities. Going forward, we will push ahead with structural reforms to fix this problem.
Q4:Are there any major changes in expectations for the profitability of individual products in YSD50 and the next medium-term business plan?
A4: There are not any substantial differences. Basically, we are targeting an operating profit margin of more than 10% for mid- to high-end products and will strive to boost the profitability of moderately priced products, which face fierce competition, through such initiatives as working to enhance operational efficiency.
Q6:Could you share with us performance results by product and market?
A6: I cannot give you specific figures because such factors as the allocation of Companywide expenses and total expenses for the musical instruments business have to be taken into account. However, looking at the musical instruments segment's average operating income to sales, products with a higher-than-average profit ratio in the fiscal year ended March 31, 2006, included digital pianos, portable keyboards, and wind instruments. In addition, pianos, synthesizers, and professional audio equiptment performed on par with the segment average. On the other hand, string and percussion instruments as well as Electone™ were among products with a lower-than-average profit ratio. Turning to performance by region, although we saw a prominent decline in the profit ratio in Japan, the ratio of operating income to sales in North America, Europe, and other regions remained fundamentally unchanged.
Q7:Is it correct to attribute the difference in the YSD50 plan and the new projection for the fiscal year ending March 31, 2007 to weak performance in Japan and that in the profit targets to the decline in Japanese sales coupled with lower profits in Europe and the United States due to falling prices spurred by the rise of products manufactured in China?
A7: Yes. Profits have declined as a result of Japanese sales falling short of targets, lower unit prices and market shares stemming from the growing presence of products manufactured in China, and a underutilization of capacity due to production cutbacks associated with inventory reductions in the previous fiscal year.
Q8:Why did Japanese sales fall so far behind targets, considering that Yamaha has traditionally exhibited overwhelming competitive strength in this area?
A8: In a nutshell, we failed to meet changing customer needs. As for products, sales of Electone™ , pianos, string and percussion instruments fell short of expectations. Demand for Electone™ did not grow as much as we had hoped and, although we introduced an entry model grand piano priced below ¥1 million with the aim of expanding our customer base, this did not lead to an increase in sales. In addition, the decline in digital piano prices progressed amid fierce competition. Furthermore, our response to changes in sales channels was not adequate.
Q9: Yamaha originally targeted an operating profit margin of 10% for the fiscal year ending March 31, 2007 under YSD50 and now the Company is aiming for 5.8%. Could you provide an overview of why the original target was not met from the viewpoint of products and markets?
A9: In terms of products, the domestic performance of Electone™ is largely to blame. Sales were on target when we launched the STAGEA™ two years ago, but a series of production cutbacks have been implemented since. In addition, profit margins for digital pianos declined as sales of mid- and high-end Clavinova® series digital pianos, which enjoy relatively high profit margins, slowed in the wake of price erosion not only in Japan, but also in Europe and the United States. Regarding markets, performance was below initial projections in Japan, North America, and Europe. However, Yamaha generated profits that outstripped initial forecasts in Asia, excluding Japan, and other regions.
Q10:How do you intend to boost earnings going forward? Will you strive to achieve a uniform rise in profits across all product categories or will you focus on shoring up less profitable product categories?
A10:Our goal is to bolster the profitability of each product category. We will focus in particular on raising the profitability of string and percussion instruments, which are not very lucrative, by implementing production reforms and enhancing product strength. Regarding pianos, we are moving ahead with manufacturing reforms and taking measures to further augment our earnings power. In addition, we will work to enhance the earnings power of our professional audio equipment by making these products even more attractive. In the same way, we will strive to shore up the profitability of our wind instruments by reinforcing mid- to high-end products.
Q11:Could you discuss the organization driving the musical instruments business?
A11:Regarding products, the piano, the wind, string and percussion instruments, and the PA/DMI divisions are responsible for functions ranging from product planning through manufacture, sale, and marketing. As for our regional organization, sales and marketing divisions in Japan, North America, Europe, and the Asia- Pacific region are responsible for marketing functions in their respective areas.