A1 : We reduced SG&A expenses in the first half on a real basis, after excluding foreign currency effects, by ¥10.5 billion compared with the same period of the previous fiscal year. The principal items were cuts in transportation costs of about ¥2 billion, reductions in advertising and promotion expenses of approximately ¥4 billion, and cuts in personnel costs of about ¥1.5 billion. During the second half, we believe that cuts of the magnitude of those in the first half will be difficult, because in the second half of the previous year we had already begun to cut costs on a Companywide basis. However, we intend to continue to reduce those costs that we deem to be unnecessary or not of an urgent nature.
Q&As on the Presentation of Performance Results for the Second Quarter (Ended September 30, 2009) of FY2010.3
Q1 : Could you please tell us the principal items among selling, general and administrative (SG&A) expenses that you cut during the first half of the fiscal year? Also, could you provide some information about your plans for the full fiscal year?
Q2 : Please give us a breakdown of the increases and decreases in operating income in the musical instruments business in the first half.
A2 : Operating income in the musical instruments business in the first half amounted to ¥4.9 billion, which represented an ¥8.9 billion decline from the ¥13.8 billion reported for the same period of the previous fiscal year. Of this total decline, about ¥7.2 billion was due to foreign currency effects and approximately ¥6.0 billion was because of declines in sales and cutbacks in production. These declines were partially offset by reductions in SG&A expenses of about ¥5.0 billion.
Q3 : This time, you have not changed your initial outlook, but could you please tell us by segment whether Yamaha will exceed or fall short of its forecasts in any of its businesses in the second half of the fiscal year.
A3 : In the musical instruments segment, sales are gradually recovering in the emerging markets. If all goes well, sales may exceed our initial forecasts, but conditions in the North American market continue to be uncertain. Recovery in demand supported by sales of premium-quality grand pianos and other products will be difficult. Moreover, along with the severe weakness in the PA equipment market, the growth of which we had anticipated, churches and other potential customers are postponing investments in these items. In the AV/IT segment, sales of front-surround speaker systems in the Japanese market are holding firm, but in the European and U.S. markets, even though Yamaha’s new AV receivers have won a strong reputation, price competition with units of competitors is becoming more intense. In the lifestyle-related products segment, we are working to improve profitability by cutting costs, but the harsh environment is making it difficult to increase sales. In the electronic devices segment, tough conditions are continuing in the market for sound generators for mobile phones, but we are anticipating recovery through the introduction of new products, including digital amplifiers, codecs, and other items. In the others segment, the operating environment continues to be harsh in the recreation business, but we have confidence in the new products we are introducing in the golf products business. In addition, orders for automobile interior wood components from our principal customers for these items have increased above our forecast.
Q4 : How would you analyze operating income in the second half, particularly as regards the effects of cuts in SG&A expenses, materials cost reductions, and other factors?
A4 : While sales in China are proceeding smoothly, conditions elsewhere are mixed, with no signs of recovery yet, for example, in North America. Turning to operating income, the appreciation of the euro is contributing slightly to an increase in income, and we are still continuing to cut SG&A expenses. Overall, we believe conditions are harsh at the sales level, but we want to do our best to maintain operating income at the level of our initial forecast.
Q5 : The decline in the operating income ratio in the musical instruments segment concerns us; so, could you comment on the current competitive environment and demand trends in this business? If the economy recovers, will sales make a comeback?
A5 : In the U.S. market, sales of medium- to high-quality goods are generally favorable, but because of the tightening of lending criteria for individuals by credit card companies and other factors, these developments are having an adverse effect on customer purchasing behavior. Also, as a result of the deterioration in the economy, retail sales prices are down across the board. In general, one factor is the price warfare being undertaken by Chinese and other manufacturers, but, more than this, we believe the cause of the decline in sales is the deterioration in the macroeconomy. In Japan, there are also signs of a shift from purchasing new pianos to buying digital pianos and used pianos. Thus, the decline in consumer disposable income is leading to a decline in sales.
Q6 : During the first half, your net sales were ¥8 billion lower than your initial outlook, but the decline in income was a substantial ¥5.7 billion. Please comment on this.
A6 : On a real basis, after excluding foreign currency effects, the decline in sales was ¥13.7 billion. The decline in income was due to the decline in sales and cutbacks in production.
Q7 : In the AV/IT segment, profitability in the first half was better than your initial outlook. Are you still expecting to show a net loss of ¥500 million for the full fiscal year, as initially forecast?
A7 : The increase in income in the first half was due to foreign currency effects, and, as a result, profitability was better than our initial forecast. We have not changed the forecast for the full fiscal year, but we are aiming for an increase in income.
Q8 : Although Yamaha has a high market share in the musical instruments field, its operating income ratio is relatively low, standing at about 3%. Could you please explain your business strategy going forward in the musical instruments business? Are you going to expand sales by increasing your range of low-priced products, or will your strategy be to specialize in high-quality products and secure profitability, even if your sales decrease?
A8 : At present, we are expanding sales of high-value-added, medium- to high-quality products in the mature markets, mainly in Europe and North America. In the emerging economies, we are developing our business activities focusing on entry-level models. This time, as we were implementing this strategy, the unit volume of sales of medium- to high-quality products in the developed country markets declined, and this led to a decline in income. Looking ahead, we want to accelerate growth in sales, as we move ahead with structural reforms in production systems in Japan. We are planning to accomplish this by offering our customers products with new value, such as the AvantGrand hybrid piano that we launched recently, and, in the emerging economies, we will not offer low-priced models of the products we are selling in the mature markets, but, instead, develop and sell products that match the needs of customers in respective emerging markets.