Q1:Are you thinking of taking ¥30 per share as your base regular dividend for next fiscal year?
A1:Regarding dividends for the coming fiscal year, as we announced last year, we are scheduled to pay a special dividend of ¥20 per share from the gains on the sale of our shares in Yamaha Motor Co., Ltd. We will decide on the regular dividend based on Yamaha’s performance.
Therefore, we are not in a position at this time to make announcements about next year’s dividends.
Q3:What will be the level of profitability for next fiscal year? What is your stance regarding the revisions in the forecast for performance this fiscal year? Also, what business policy responses do you think will be necessary to improve profitability?
A3:Next year will be the third year of our medium-term management plan, “YGP2010.” We were targeting operating income of ¥45.0 billion, but we now believe it will be extremely difficult to reach this goal and must review our target for the coming year. However, we are experiencing difficulty in deciding on a target level at the present time.
We have made substantial downward revisions in our forecasts for performance and our understanding is that we are confronting an emergency situation as regards the conduct of management. For this reason, we are making distinctions between the short-term measures we will take and medium-to-long-term policies. In the short term, we are proceeding with measures to reduce expenses and cut costs, bringing our inventories down to optimal levels, and implementing other measures.
For the medium-to-long term, in each of our businesses, we are currently confirming current conditions, issues to address, and the state of the operating environment. Next, we will formulate policies to improve profitability. However, at the present time, we have not completed our information gathering and policy formulation sufficiently. Our first concern is what to do next fiscal year; after dealing with this concern, we intend to prepare medium-to-long-term strategies as quickly as possible.
Q4:I believe that this period’s operating income of ¥14.5 billion will be a minimum. Do you hold the view that this is a level that you must maintain?
A4:We have a sense of crisis that this period’s operating income of ¥14.5 billion, which is about 3% of sales, must be near the bottom level. If this trend continues, we would forecast for the next fiscal year that there could be further substantial declines in income, depending on foreign currency movements, especially the value of the euro. We cannot promise that this will be the minimum level of income, but we are preparing management measures to improve profitability as soon as possible.
Q5:As competition becomes more intense, what are your thoughts regarding the AV/IT business, electronic devices, and other businesses?
A5:In the case of both AV/IT and electronic devices, trends are not moving as we expected in our scenario in our medium-term management plan. It will be necessary for us to reformulate our strategies for these businesses.
In the AV business, the market is saturated and competition is becoming more intense. However, in certain niche markets within the AV receiver business, which is the core of this product area, we believe growth will still be possible in those areas where we have a low market share and in newly emerging markets that we have not yet entered, provided we strengthen our product lineup for these areas.
In the semiconductor business, demand for LSI sound chips for mobile phones is declining, and our development of new devices to make up for this decline is lagging. As a producer of musical instruments, we have developed our semiconductor products on an in-house basis. Going forward, we intend to continue to draw on our strengths, specializing in sound-related semiconductors and focusing on the development of new electronic devices.
Q7:Among emerging markets, the percentage of piano sales seems high in the Chinese market. What are your views regarding piano sales in other markets?
A7:In Russia and Eastern Europe, the size of the piano market shrank because changes in political conditions seem to have diverted funds to other uses. However, in the coming years, we are looking for expansion in these markets as this region has a deep-rooted classical music culture.
On the other hand, in the Middle East and Latin America the piano markets are relatively small.
The Chinese market resembles the Japanese market in the past, with an orientation toward promoting education and strong demand for pianos. Going forward, we believe that growth will continue, focused on pianos, but, thereafter, expansion will decelerate, as growth in the number of children in the population slows. Thereafter, we believe sales of digital musical instruments will increase.
Q8:Could you please explain the factors that led you to reduce your forecast for operating income in the musical instruments segment by ¥10.0 billion from the previous forecast of ¥28.0 billion announced on August 1, to ¥18.0 billion?
A8:Compared with the previously announced forecast, the differences include a foreign currency loss of ¥3.3 billion; a decline in gross profit of ¥4.2 billion owing to a decrease in real sales, excluding foreign currency effects, and lower production levels; and an increase in selling, general and administrative expenses of ¥2.5 billion (of which ¥1.7 billion has been due to the inclusion of additional companies in the consolidated accounts).
Q9:Also, what are the factors accounting for the decline in operating income of the musical instruments segment from ¥27.9 billion in the previous fiscal year to ¥18.0 billion for this fiscal year?
A9:The increase in real sales, excluding the effects of foreign currency factors, and increase in gross profit as a result of higher production levels are ¥3.4 billion. However, operating income will decline ¥9.9 billion overall. This is due to a loss of ¥7.2 billion owing to foreign exchange factors and an increase in selling, general and administrative costs of ¥3.6 billion due to the inclusion of additional companies in the consolidated accounts as well as a total increase of ¥2.5 billion in other costs, including those associated with retirement benefit liabilities, utility-related expenditures, and transportation costs.
Q10:Please explain the impact of the reduction in production levels in the latter half of the fiscal year and the effects of the higher costs of raw materials.
A10:We are assuming that the total impact of increases in the prices of raw materials and other items will be a rise of ¥3.3 billion over the previous year (with an increase of ¥1.5 billion in the first half of the current fiscal year). The increase for the musical instruments segment for the full year will be ¥2.4 billion (with an increase of ¥1.1 billion in the first half).
Also, compared with the previous forecast, we are scheduled to decrease production of the musical instruments segment by ¥5.6 billion, which will result in a deterioration in manufacturing profitability of ¥2.8 billion.
Q12:Has the increase in income of the musical instruments segment in recent years been due mainly to foreign currency factors? Or has the increase been a result of structural reforms?
A12:Foreign currency factors have certainly played a role in the increase in income in recent years. However, at the same time, the improvement in income has also been a result of our activities to strengthen our product development capabilities and lower manufacturing costs. This has been evident in the increase in profitability of our professional audio equipment and other products. In the case of pianos and certain other products, the closure of production facilities in the United States has also had a positive impact, but cost reductions owing to realignment of our global production network are taking longer.
We believe the positive effects of our measures to increase the efficiency of piano production will begin to appear during and after the fiscal year ending March 2011.