A1 : We are planning for substantial growth in the professional audio business. Also, we believe that changes are occurring in the musical instrument business, even though the market for large keyboard instruments is continuing to shrink, as evidenced by the first increase in music school students in 14 years and other developments. We also believe there is ample room to strengthen Yamaha's presence even in the North American and European markets. In addition, we are looking for growth in China, which is a new market. While our outlook is more aggressive than in the past, we believe we can implement our plans.
Q&As at the Briefing on the Musical Instruments Business
Q1 : Compared to previous growth rates, your outlook for the increase in sales is high. Could you please comment on your views of the prospects for attaining these targets? In particular, what are the differences from the past with regard to product policy?
Q2 : If sales of the professional audio business expand, what will be their contribution to overall profit growth?
A2 : At present, fixed costs, such as development expenses, are running ahead of sales. However, we believe we can attain a sufficient level of profitability if we can reach the target of ¥30.0 billion in sales under our medium-term plan.
Q3 : If you attain ¥30.0 billion in sales in the professional audio business, will the margin in this business rise to the average margin for the musical instruments segment as a whole?
A3 : It will be difficult to reach the average margin for musical instruments as a whole, but we believe it is a business that will generate sufficient profits.
Q4 : How does the music school business contribute to product sales and marketing?
Also, please provide some information on the profitability of the music school business?
A4 : We are developing our music school business to create demand for musical instruments, and it is contributing to product sales. Recently, we have entered the musical instrument rental business, thus expanding the range of choice for customers beyond purchasing instruments. In terms of profitability, we are reporting satisfactory earnings in the music school business. At present, we are refurbishing our music schools, and related investment costs are increasing temporarily, but we think profitability will stabilize in the medium term.
Q5 : You are looking for a substantial increase in piano sales in the last year of the medium-term plan. Do you think this is really possible?
A5 : We cannot attain this increase just by doing what we have in the past. In Europe and North America, we are looking not just at acoustic pianos but are also aiming to expand sales of electronic pianos, hybrid pianos, and piano-type keyboards. Therefore we are aiming to increase sales in line with customer needs.
On the other hand, in China and other new markets, we are looking for further expansion in demand for acoustic pianos.
Q6 : What are the reasons for the delay in cost reductions in the acoustics business?
What measures do you intend to take to accelerate cost cutting?
A6 : In the acoustics business, the positive effects of our TPM (Total Production Management) activities are steadily emerging in the wind instrument business. Progress in the piano business is behind schedule, but we intend to use our experience in the wind instrument business and implement cost reductions. The key to this cost reduction will be production and procurement at our new factory in Hangzhou, China. Regarding personnel, our employees belonging to the “baby boom” generation, who are now aged between 55 and 60, are reaching retirement. As a result, the composition of personnel will change dramatically over the next 5 to 10 years. In our TPM activities we are working to standardize operations. We are making a distinction between work that requires special skills and work that is less skill-intensive, and will thereby keep hiring of full-time employees to a minimum level. We are also assigning work that does not require special skills to temporary employees and thereby making substantial reductions in costs.
Q7 : Your assumptions about the yen/dollar rate change from ¥105 to the dollar for the year ending March 2006 to ¥110 for the year ending March 2007. Are you forecasting a decline in the yen’s value?
A7 : We are forecasting an average yen/dollar rate of ¥105 for the fiscal year ending March 2006. For the year ending March 2007, we are using the exchange rate forecast we made when the medium-term plan was prepared.
Q8 : In what product category within the musical instrument segment are revenues from the musical instrument rental business included?
Also, please provide us with information on the size of the rental business. Do you provide rental services only in Japan?
A8 : We began musical instrument rentals two years ago. In the first year, we began rentals in the middle of the fiscal year, and we recorded revenues of about ¥100 million on 3,500 rentals. Last year, these figures rose to ¥310 million and 5,900 rentals. This fiscal year, we are aiming for revenues of ¥650 million on 10,000 rentals. At present, we are almost on track to attain this target. Going forward, we are planning to expand the number of stores that can provide rentals and the range of instruments we offer for rental.
Our instrument rental business is limited to Japan. In Europe and North America, musical instrument stores provide rental services. We believe we will be able to expand this business to other countries in Asia. Rental revenues are included under Other Musical Instruments.
Q9 : Please comment on the level of difficulty of attaining your sales goals. Also, please comment on how difficult or easy cost reductions may be.
A9 : In the string and percussion instruments businesses, Yamaha’s market share is relatively low. While we believe this offers possibilities for increasing sales, U.S. manufacturers have strong positions and this will be most difficult area for achieving our sales goals. In pianos, we intend to draw fully on the breadth of our product lineup and marketing capabilities to increase sales, including sales of digital pianos.
In manufacturing, as we are working to transfer the skills of experienced employees while also standardizing operations, reducing costs in the acoustic instrument fields will be more difficult than reducing costs in the manufacturing of digital instruments.