A1 : The earthquake brought a decline of ¥3.0 billion in sales in the first quarter. For the fiscal year as a whole, sales will be ¥11.7 billion lower than they would have been otherwise.
Operating income in the first quarter was ¥1.2 billion lower as a result of the earthquake. For the full fiscal year, operating income is estimated to be ¥4.0 billion lower than it would have been otherwise.
A2 : I will answer your question by giving comparisons with the same period of the previous year for the first quarter and the second quarter.
In the first quarter, sales after excluding the effects of foreign currency fluctuations in the musical instruments segment increased ¥1.8 billion, but operating income decreased ¥0.9 billion because of changes in the product mix and the impact of foreign currency fluctuations. In the AV/IT segment, sales rose ¥0.8 billion, while operating income was up ¥0.2 billion. In electronic devices, sales dropped ¥1.2 billion and operating income was down ¥0.8 billion.
In the second quarter, we are looking for an increase in sales of musical instruments of ¥0.2 billion, but as a result of the effects of the earthquake and the increase in SG&A expenses, we expect a decline in operating income of ¥0.5 billion. In the AV/IT segment, we are forecasting a decline in sales of ¥0.5 billion, but because the impact of the earthquake on production will be relatively small in this business, we are anticipating a rise of ¥0.2 billion in operating income. In the electronic devices segment, we are forecasting a decline in sales of ¥0.5 billion, but, as a result of the shift in the model mix away from higher margin products, we expect a decline in operating income of ¥1.1 billion.
A3 : The effect, or in other words, whether we can produce or not, depends on the model. In some cases, our overseas subsidiaries have inventories that we can draw on. Although the situation is improving, in the case of certain models in our core digital piano CLP Series and the low-priced YDP Series, production has been affected and the impact on performance will continue into the second and third quarters. We are planning to sell from inventories at overseas subsidiaries and expand sales of alternative models.
A4 : Our initial estimate of the impact of the earthquake in the first quarter was ¥1.5 billion; so, this will mean an improvement of ¥0.3 billion. Looking ahead, we are expecting quarter-by-quarter improvements.
A5 : Sales of digital musical instruments are forecast to decline about ¥6.0 billion because of the adverse impact on our production levels due to difficulties in procuring parts. However, we are responding by pushing sales of models whose production has not been affected by the part procurement issue. Taking this and other factors into account, our outlook is for a 6% decline in the second through the fourth quarters.
A6 : There were no special factors that accounted for the growth in performance in the first quarter. The forecast for sales growth of 11% for the full year, we think, is somewhat cautious. In addition, the impact of the earthquake will be small compared with Europe and the United States.
A7 : The improvement compared with estimates of the direct impact of the earthquake is ¥0.3 billion. Operating income was ¥2.6 billion higher than the previous forecast, in part because of the sale of inventories, favorable piano sales in Europe, and the firm performance of musical instruments in Japan.
A8 : From the second quarter onward, our outlook calls for a slight slowdown in musical instrument sales in Europe and for a challenging environment with low gross profit ratios in electronic devices. We are forecasting operating income for the full fiscal year of ¥12.5 billion which will be ¥2.5 billion higher than in the previous forecast.
A9 : Our stance may differ by region and by business, depending on whether we are being aggressive or cautious, and we will consider the status of individual markets and businesses to forecast performance. For example, we are preparing management plans reflecting the following factors; namely our somewhat aggressive outlook for the North American market, but our more cautious stance regarding the Chinese market. In the semiconductor business, we will aim for comeback in sales because of the recovery in the amusement equipment market that is expected during the third and fourth quarters.
A10 : The effects of the earthquake on production are as follows. In the first quarter, it had a negative effect of ¥3.7 billion on production. The outlook is for a negative effect of ¥3.2 billion in the second quarter, a positive effect of ¥1.3 billion in the third quarter, and a negative effect of ¥0.5 billion in the fourth quarter. For the full fiscal year, the outlook is for a negative effect of ¥6.0 billion.
A11 : A change of ¥1 in the foreign exchange rates has a ¥390 million effect on operating income in the case of the euro and a ¥70 million effect in the case of the dollar. We have bought forex forward contracts at ¥116 for the euro for the second quarter, and this is close to the forecast ¥115 rate for the second-quarter accumulation (through the end of the second quarter).
A12 : In Germany, which is the driver of the European market, thus far, dealers have been active in purchasing from us, but between this spring and into the summer, there are signs that customer traffic has slowed somewhat and sales may be weakening. However, we believe that the market is basically stable; so, as we introduce new products going forward, we will implement the necessary sales policies and will be able to keep inventories at the proper level.
A13 : In the musical instruments segment, actual production in the first quarter amounted to ¥29.7 billion. We are forecasting production of ¥31.1 billion in the second quarter, ¥31.4 billion in the third quarter, and ¥28.9 billion in the fourth quarter. Production of electronic devices amounted to ¥3.5 billion in the first quarter, and the outlook is for production of ¥4.1 billion in the second quarter, ¥5.5 billion in the third quarter, and ¥6.7 billion in the fourth quarter.
A14 : Germany and the surrounding central European market account for slightly less than half of total sales in Europe. Germany alone accounts for about 30% of the market.
Causes for concern in Europe (Supplementary Comment) Sales of digital pianos and portable keyboards, which have been affected by the earthquake, account for about one-third of musical instrument sales in Europe. In addition, last year, we launched Tyros, which is a portable keyboard and one of our major products, and sales have been favorable. However, this fiscal year we believe sales will slow.