A1 : We are scheduled to issue an outlook for performance in the first year of the new medium-term plan on April 28 at the time we announce results for the year ended March 2010.
Q&As on the Presentation of the Yamaha Medium-Term Management Plan YMP125
Q1 : Please give us a general image of Yamaha’s performance during the first fiscal year under the new medium-term plan.
Q2 : Please provide a summary of the costs associated with the structural reforms in production, including the relocation of facilities, under the new medium-term plan.
A2 : Under the new plan, we will be spending about ¥2 billion annually to increase capacity in China. In addition, we will make investments to increase capacity in Indonesia.
Q3 : On page 32 of the presentation, you state in your plans that the European market will expand, and Yamaha will increase its market share. Please explain the background factors that will support this planned growth.
A3 : Although in the German market, performance was relatively better than the rest of Europe, sales in Europe as a whole last fiscal year (ended March 31, 2010) were quite difficult. In particular, sales of commercial audio equipment showed a major decline because of reductions in investments among customers.
In FY2013.3, the new plan calls for growth from that point onward; therefore, it appears to be a plan for major growth. The major factor here will be recovery in Western Europe. Although some recovery is expected in the Eastern European markets, they are still not major markets.
Q4 : According to page 31 of the presentation, Yamaha will be aiming for growth under its Total Piano Strategy. However, under your previous medium-term plan, I believe you were also aiming for an increase in revenues from pianos by implementing a Total Piano Strategy. Over the past three years, was Yamaha’s growth in this business higher than that of the industry as a whole? Or was it below the level for the industry? Please explain.
A4 : In the previous medium-term plan also, we were expecting substantial growth, but the impact of the decline in demand, especially for higher-priced products, had a serious impact. As a result, our growth was only at about the same level as the market as a whole.
Under the new medium-term plan, we are aiming for an increase in sales to ¥80 billion, from the ¥69.4 billion we expect to report for FY2010.3. We want to aim for growth by strengthening our product lineup by adding models that emphasize good design and hybrid models.
Q5 : For the next three years, your plans call for an increase in income of ¥13 billion in the musical instruments segment. Are you planning for a return to profitability in the piano business?
A5 : To improve profitability in the piano business, we are proceeding with the integration of our domestic factories, but we are behind schedule in reforming optimal production systems to cope with changes in demand.
In our factories in Japan, we have traditionally manufactured all pianos we sell in Japan, medium-quality and higher-grade pianos we market overseas, and core parts and components. Going forward, however, we will modify this production system to lower costs.
First, in our factories in Japan, we will focus on producing medium-quality and higher-grade pianos and reduce the number of units we produce annually in Japan from 33,000 in FY2009.3 to 18,000 by FY2013.3.
Also, we will have our factories in China and Indonesia manufacture the core parts and components that they use, and we will begin to import some of these for use in our factories in Japan. We will aim to reduce costs by using these parts and components manufactured overseas in the pianos we produce in Japan.Beginning in June this year, we will import about 1,500 pianos manufactured at our factory in Indonesia into Japan for test marketing. As a result of cutbacks in production in Japan, we estimate that personnel redundancies in Japan will be about 300 persons. However, there will be natural attrition of about 200 staff members, mainly personnel who will reach retirement age, and we are scheduled to reassign about 100 staff members to other positions.
Q6 : You are planning for growth in emerging markets. For this purpose, you are planning to launch some new products, such as those for the mass market, and low-priced products, but will you be able to secure profitability this way? Do you have any assurance that you will be able to reduce costs? Also, what will be the reasons for increasing your market share in China?
A6 : Our portable keyboards and digital pianos are manufactured mainly in China and Indonesia. In addition, most of our AV products are produced in Asia outside Japan, and these products at present are cost-competitive with those of Chinese manufacturers. Also, we have room for further improvement in costs by increasing our local procurement ratios. We believe that further major cost reductions are also possible by reviewing and taking appropriate measures for the production of our acoustic musical instruments, including pianos and wind instruments.
The year before last, we launched a piano made in China selling for less than 20,000 yuan, and, by introducing a piano for 17,800 yuan last year, our sales have exceeded 30,000 units.
Next year, we are planning to launch a much lower-priced piano. Therefore, we think we can aim for improvement in profitability by expanding our market share and reaping the benefits of increased production.
Q7 : If Yamaha increases its market share, what effects will this have on the situation of your competitors?
A7 : The wave of pianos made in China is gathering strength. (These include pianos manufactured by local Chinese companies, by U.S. and European manufacturers in China, and OEM units ordered by U.S. and European retailers). Our main competition will be pianos manufactured in China, but we are also manufacturing pianos in China and Indonesia. We believe we can establish competitive superiority in terms of quality and cost and will therefore be able to expand our market share.
Q8 : In the information on page 50 of the presentation, concerning structural reforms in production, is it correct for us to understand that the Hangzhou factory will contribute fully in FY2013.3, producing above 90,000 components in that year? Or, do you mean that the systems at that factory will be capable of producing up to 90,000 units at that time? Also when do you expect positive benefits to emerge?
A8 : Our target is to bring the production capacity at the Hangzhou factory up to 90,000 components a year in FY2013.3, and we are aiming to have production facilities in place by then for this level of output.
Positive effects on Yamaha’s profitability coming from the realignment of piano factories will be ¥800 million, resulting from the completion of the integration of domestic factories in August this year, and a further plus effect of about ¥1.1 billion from the shifting of some production overseas.
Q9 : Your target ratio is ROE of 7% in FY2013.3, but my impression is that this is a low goal, only slightly above the cost of capital. Did you arrive at this ROE figure internally by combining forecasted results for various divisions?
A9 : The ROE figure of 7% was calculated internally from forecasts for various divisions.
We will aim for two-digit ROE in the medium term, but we have positioned the period under the current medium-term plan as a phase for creating a platform for growth. Therefore, 7% is an interim goal on the way toward recovery in profitability.
Q10 : What assumptions are you making about foreign currency exchange rates in the medium-term plan this time?
A10 : We have assumed exchange rates of ¥90 per U.S. dollar and ¥127 per euro.
Q11 : Your plans call for recovery in the electronic devices segment. Could you please explain how you will improve performance in this business?
A11 : We are aiming to increase sales from ¥20 billion in FY2010.3 to ¥26 billion three years later. In addition to sound and graphics LSIs for CODECs, digital amplifiers, and pachinko machines, we are developing products that meet customer requirements for LSIs for use in automobile applications.
In addition, we have had a good response from customers to our activities to meet their specific requirements, and we believe this will lead to an increase in sales. We are also engaged in the development of new sound sources (new sources that generate sounds that cannot be obtained from using software and sound-generator products suited to the Chinese market).
Q12 : Is Yamaha Corporation planning to participate in the capital increase of Yamaha Motor that was announced recently?
A12 : We have not decided as of this date. We will not base our decision on maintaining our current shareholding percentage, but will make a decision that takes account of our sharing a common brand with Yamaha Motor; however, we are conducting business in a difficult operating environment and have limited leeway in our cash position.