A1 : One contributory factor to the increase in operating income in the first quarter was the delay in incurring SG&A expenses, but delayed SG&A expenses incurred will be a major contributory factor in the second half. In addition, due to the changes to the product mix in the fourth quarter, it is also assumed that the gross margin will be slightly lower than the previous forecast.
Q&As on the Presentation of Performance Results for the First Quarter of the Fiscal Year Ending March 31, 2016 (FY2016.3)
Q1 : Although you have revised upward the FY2016.3 operating income forecast in line with the increase in operating income in the first quarter, in the case of the second half, please tell us about the factors contributing to the downward revision in comparison with the previous forecast.
Q2 : You do not seem to have revised the second half sales by region forecast, so, on the basis of the recent situation, could you please explain about the current situation particularly in China and other emerging markets?
A2 : China
Following the deterioration in the macroeconomy, the market conditions are not good as well, and we cannot consider that the market will suddenly improve in the second half. However, based on the awareness that we are raising the effects of our sales network development and sales promotion policies, I believe that we will be able to continue sales at favorable levels in the second half. In addition, with regard to audio equipment, there is the influence of the laws regulating expenditures and the ongoing harsh environment, but we are expecting signs of a slight recovery to emerge in the second half.
Emerging markets
Conditions remain harsh in Latin America and Russia, but overall sales were firm due to the successes of the Company’s marketing policies mainly in Southeast Asia. There is concern over the impact of the macroeconomy, but we believe the favorable trend can continue in the second half.
Q3 : Can you also tell us about the progress made with cost reductions?
A3 : In general, we are making progress as planned.
Net cost improvement in FY2016.3 is expected to be ¥3.6 billion. Over the three-year duration of the medium-term management plan, which equates to ¥7.7 billion against a target of ¥7.0 billion, I believe that we can achieve above-target cost improvements.
Q4 : Of the factors contributing to the increases and decreases in operating income for FY2016.3, an increase in SG&A expenses will amount to ¥2.0 billion. Has there been any change in the way you utilize SG&A expenses?
A4 : Overall, the increase in expenses is in line with the substantial increase in revenue. In addition, the expectation is that we will use the additional ¥400 million to ¥500 million in expenses for increased sales centered on audio equipment.
Q5 : The delay in incurring SG&A expenses was approximately ¥1.3 billion, but over what kind of time frame will they be incurred from the second quarter onward?
A5 : We are assuming approximately ¥500 million in the second quarter and about ¥700 million in the second half.
Q6 : Please tell us about the first quarter results for Line 6 and Revolabs and their forecasts for the full year.
A6 : Line 6
In the first quarter, sales performance was almost as planned. We changed European distribution to our local subsidiary, a move that contributed to robust shipments. We are assuming that sales performance for FY2016.3 will also be essentially as initially planned.
Revolabs
In the first quarter, there were differences in some initial forecasts with regard to the ratio of company branded products and OEM products, but overall sales performance was almost as planned. We are assuming that Revolabs sales performance for FY2016.3 will also be essentially as initially planned.
Q7 : The profit of the electronic devices segment improved in the first quarter due to such factors as the recovery in LSIs for amusement equipment. The full-year income is not being revised, but will there be a reactionary decline from the second quarter onward?
A7 : Because the application of new regulations starts in early autumn, there was an element of rush demand for high-margin amusement equipment LSIs in the first quarter that contributed to an earnings improvement far greater than expected. However, any improvement from the second quarter onward will not extend to the level of the first quarter. Based on the trends seen in other products, we have left the previous forecast unchanged.
Q8 : The first quarter performance was strong, and the FY2016.3 forecast also revised upward, but the impact of foreign exchange left a big impression. In terms of your product base, are there any that are actually growing?
A8 : In the musical instruments segment, sales of digital pianos were favorable in almost all markets. In audio equipment, professional audio equipment continued to show double-digit growth.