A1 : The reason for the slowdown in the second quarter, in comparison with the first quarter, particularly in August and September, was the impact of the surge in demand prior to the price increase that we implemented in the first quarter. As a result, inventories in retail stores were at a high level. Our understanding is that other factors included the fact that sales in overseas markets did not meet our expectations due to the slowdown in Europe, especially in the German market.
After the exclusion of foreign currency effects, in the second half of this fiscal year, we are expecting 10% sales growth in North America, 6% in Europe, and 18% in China. Sales of digital pianos will play a major role in driving this growth. Last year, we were not able to supply a sufficient volume of products because of parts supply issues, but, this year, provided there is a steady supply of our products, we believe we can attain these sales targets.
Q&As on the Presentation of Performance Results for the Second Quarter (Ended September 30, 2012) of FY2013.3 (Held on November 1, 2012)
Q1 : Sales of musical instruments in the second quarter slowed. What is your reason for forecasting high sales growth in the second half of the fiscal year? If you have a specific forecast, could you please provide it?
Q2 : What have been the effects of the boycotting of Japanese products in China because of anti-Japanese sentiment?
A2 : Through the second quarter, there were almost no effects of the boycotts due to anti-Japanese sentiment on Yamaha product sales in China. Our expectation is that there will be differences by product, with some being affected and others not influenced.
Specifically, there are some movements toward excluding Japanese products in the areas of wind instruments and professional audio equipment, where sales activities are based on open bidding. There is a possibility that effects may emerge in these product areas. However, the ratio of open bidding for wind instruments in domestic sales in China is only between 5% and 10% of the total. Therefore, even if Yamaha is excluded from all bidding, we believe the impact will not be very substantial. However, we expect that the effect may be somewhat greater in the professional audio equipment area.
On the other hand, we are not expecting any impact and are seeing steady growth in sales of digital pianos and guitars in China.
In the case of Yamaha music schools, there have not been any movements toward the cancellation of registered pupils, and our activities to solicit new students are proceeding normally.
Overall, the growth rate in China is slowing, and our understanding is that the impact of slowing expansion in consumer spending is having more of an effect that anti-Japanese sentiment.
Q3 : In the AV products area, merchandise of other Japanese companies in China was removed from the store shelves. Was that the case for musical instruments?
A3 : Immediately after the anti-Japanese demonstrations in mid-September, some products, including our AV products, were removed from the shelves in retail stores and large volume retailers, but nothing like that happened in the case of Yamaha musical instruments.
Q4 : Why is the margin of revision in the forecast for ordinary income the same as the reduction in the net income forecast? Usually the margin of revision in net income is smaller because of the effects of taxation.
A4 : The level of taxes paid differs from one company to another. In the case of the Yamaha parent company, we have losses carried forward and, therefore, are not incurring taxes. This time, we were forecasting deterioration in ordinary income, and a deterioration in net income of almost the same amount.
On the other hand, as a result of the reductions in expenses, some of our overseas subsidiaries are expecting improvement in profitability. However, in those companies, taxes have been incurred on the margin of improvement in ordinary income. For this reason, the balance has become deranged in some cases.
Q5 : Could you please provide information on trends in inventories by region and by product? Is there a possibility that some products may become dead stock or that merchandise in inventory may become obsolete?
A5 : The increase in inventories has been mainly in musical instruments. AV product inventories are virtually as forecast, and there are no problems. Inventories are rising in both overseas sales subsidiaries and business divisions, but there are no signs that the rise in inventories is concentrated in one particular area. We are proceeding with the clearing of inventories as necessary, and the resulting declines in sales and income have been taken into consideration in the latest forecast. Most of the increase in inventories is accounted for by the rise from the first quarter onward, and has not been due to the piling up of dead stock from previous periods.
Q6 : When do you think the electronic devices business, which is undergoing restructuring at present, will move into the black?
A6 : Our business structural reforms are proceeding on schedule.
Kagoshima Semiconductor Inc. has expected that 70 employees would take early retirement, but the number rose to 97. Therefore, our activities to streamline operations are proceeding. In addition, we are moving toward outsourcing the production of those items in which we have had difficulty generating a profit. We are also reporting progress in investments in Kagoshima Semiconductor. We cannot say definitely that these operations will return to profitability next fiscal year, but we are accelerating our reforms aimed at returning to profitability at an early date.
Q7 : In the electronic devices business, if you enter the next fiscal year with the current level of sales and product mix, will it be possible to return to profitability?
A7 : We expect that it would be difficult to return to the black in the next fiscal year with the same level of sales and the same product mix. The products of our customers change in a half-year cycle. Within this cycle, we also have to develop new products and make new proposals for products. These initiatives are necessary for returning to profitability.
Q8 : Would you say that the reason for the increase in inventories of musical instruments through the second quarter was that new products will occupy center stage in the third quarter?
A8 : Inventories of current products, including some new products, are mainly responsible for this increase.
Q9 : What is happening in Yamaha’s music school business?
A9 : The number of music school pupils is decreasing. The number in Japan in the second quarter was about 465,000, slight lower than previously. Worldwide, the number of pupils is about 638,000. Performance of the music school business in Asia outside Japan is favorable, but, on a worldwide basis, the decline in pupils in Japan is having an adverse impact. Conditions in Japan continue to be difficult because of the decline in the birthrate as well as because of the decline in new pupils solicited since the Great East Japan Earthquake.