Q1:In the analysis of changes in operating income for the first quarter on page 5 of the presentation materials, you state that the rise in operating income compared with the same quarter of the previous year that accompanied increases in real sales and production levels was ¥4.1 billion. However, on page 9, the rise attributable to increases in real sales and production levels for the entire fiscal year is only ¥8.3 billion. Is this because you are being conservative in your performance forecast? Please explain your views on this point.
In the first quarter, the rise in production levels compared with the same quarter of the previous year reflected the generally low level of inventories at the start of the quarter as well as the somewhat insufficient levels of inventories of certain items.
We do have some expectation or hope that the trend of increase in production levels will continue throughout the current fiscal year, but we are being somewhat cautious in our planning.
Q2:Your plan now projects that the rates of increase in musical instrument sales in local currency terms compared with the same period of the previous year, both in North America and Europe, will be higher than the previously forecast rates. Could you give us a concrete explanation of the background to this situation?
A2: In Europe, there is a basic trend of increase in sales that is more pronounced than originally anticipated, while North American sales have also shown a basic trend of recovery since early last autumn and continued to be stable even during the first quarter. Looking at rates of increase in the first quarter, European sales were rising at the high rate of 9% compared with the same period of the previous year; however, they were down 6% compared with the same period of two years ago.
Similarly, U.S. sales were up only 2% when compared with the same period of two years ago. Overall, we attained high growth rates because of the poor performance in the same period of the previous fiscal year.
Since smooth growth in Europe and North America is expected going forward, we made an upward adjustment to our previous performance forecast and performance targets.
Q3:On the other hand, you have made a downward revision to your forecast of domestic musical instrument sales. We know that you are implementing such strategic measures as those for the introduction of Indonesian-made pianos into the Japanese market, but could you explain any other strategies you may have for halting the downtrend in domestic sales?
A3: In addition to the economic conditions seen in recent years in Japan, the domestic market for pianos is being adversely affected by such structural factors as the declining number of children in Japan and the high level of the penetration rate. In view of this, we are working to implement measures for revitalizing the domestic market. These include measures within what we have dubbed our Total Piano Strategy, which seeks to offer new kinds of keyboard instrument value, as well as measures to stimulate demand through music schools and other approaches.
Currently, however, these measures have not yet reached the point where we can point to the generation of tangible results directly linked to contributions to earnings.
Q4:In the analysis of factors accounting for changes in operating income for the full fiscal year on page 9 of the presentation materials, you state lower raw materials prices accounted for a rise of ¥1.5 billion in operating income compared with the previous forecast. Could you explain this situation in detail? In addition, regarding inventory levels as of June 30, you are reporting an increase in inventories of parts and materials and work in process. Please explain the details of those increases.
A4: The lower raw materials prices situation mainly relates to metal materials for musical instruments and plastic materials used in keyboard products and other items. The prices of these materials did not rise as much during the first quarter as was originally forecast, and they are not expected to rise as much during the fiscal year as a whole as was originally forecast.
As for the inventory levels at the end of June, the increase in inventories of parts and materials and work in process reflects the rise in parts and materials and work in process that has accompanied the trend of increase in our production levels. It also reflects the special status of approximately ¥500 million of domestic PA equipment sales that could not be recorded as first quarter sales owing to project completion-based accounting standards and, therefore, continued to be accounted for as part of the work in process inventory.
Q5:You cite changes in product mix structure as a reason for improvement in semiconductor business profitability during the first quarter. Could you explain the types of products that are contributing to the improvement in profitability?
A5: We recorded robust sales of such products as graphics controllers for amusement equipment and automobile applications, geomagnetic sensors, and certain other products.
On the other hand, declines were seen in sales of such products as digital amplifiers and codecs which faced intense competition.
Q6:Regarding PA equipment, you are reporting signs of recovery in Europe. Could you be more specific about the regions and other features of this recovery? In addition, is the acquisition of NEXO generating benefits?
Looking at the professional audio equipment business, there has been a clear-cut recovery in the China market. In Europe, also, there has emerged a general perception of recovery, although cost competition with local manufacturers in the United Kingdom has become increasingly intense. In addition, there is a trend of recovery in Eastern Europe.
Regarding the benefits of the acquisition of NEXO, besides undertaking the global marketing of NEXO products, we are marketing those products in packages that combine NEXO and Yamaha products. In these and other ways, the benefits of the acquisition are gradually emerging.
Q7:How will you be inaugurating your new wind instrument factory in China? In addition, could you provide specific information about the factory’s contribution to performance and the time frame for that contribution?
A7: Our current medium-term management plan clearly defines the roles of our wind instrument factories in Japan, China, and Indonesia. The Xiaoshan factory in China is scheduled to begin operating this October as the base for supplying all markets throughout the world except the Japanese market with brass instruments.
Our plants in Japan will focus on medium- to high-quality products, while our plant in Indonesia is positioned as a base for manufacturing woodwind instruments. At the same time, we are taking measures to increase our plants’ local procurement ratios and make mutual component supply arrangements among the plants. This wind instrument manufacturing system will take shape within three years.
Regarding profitability, we currently are bearing the burden of investments that will make it difficult to show dramatic benefits, but we are aiming to make the new system start contributing to our performance in approximately three years.