A1 : As a result of the impairment loss on Line 6, there will not be any amortization of goodwill in the fourth and subsequent quarters. The impact in the current period (fourth quarter) will be +¥400 million. We do not expect any impairment loss on Revolabs at this time.
Q&As on the Presentation of Performance Results through the Third Quarter of the Fiscal Year Ending March 31, 2016 (FY2016.3)
Q1 : What will be the extent of the impact on operating income for the current fiscal year of the impairment loss on Line 6, Inc.? Will there be an impairment loss related to Revolabs, Inc., which was acquired at about the same time as Line 6?
Q2 : What will be the effects of the new line of AV products? How will the positive impact unfold by region? In comparison with the third quarter, what are the reasons for the decline from the previous year in the fourth quarter?
A2 : The impact for AV products as a whole of the introduction of new products that incorporate new MusicCast functions will be an increase of 17% compared to the same period of the previous year. By region, there will be major increases in Europe, North America, and China. In part because of the acceleration of shipments in December 2015, there will be a reactionary effect of decreased shipment compared to the same period of the previous year in the fourth quarter.
Q3 : Could you please explain the reasons for setting the amount for acquisition of treasury stock at ¥20 billion? What will be the conditions for additional purchase of treasury stock? Please explain the rationale for selling the shares of Yamaha Motor Co., Ltd.
A3 : We decided at the time when the results for the current period became clear and set this amount at ¥20 billion on the basis of a calculation of the level of free cash flow in the current medium-term management plan through March 2016. At the present time, we are not in a position to disclose the amount of further stock buybacks or the sale of Yamaha Motor shares.
Q4 : Although your third quarter sales were close to the previous projection, operating income increased substantially above the expected level. What were the reasons for this?
A4 : The principal reasons were the improvement in the product mix, especially the favorable performance of digital pianos with higher profit margins and the decrease in selling, general and administrative expenses.
Q5 : What are your thoughts regarding the impact of foreign currency fluctuations?
A5 : We decided to review Yamaha Corporation’s method of calculating/conversion from foreign currencies.
Thus far, we have made calculations from U.S. dollars on a net basis, including non-operating income/expenses, but these expenses have risen to a level where they cannot be ignored. For this reason, beginning from this period, we decided to calculate the operating income/expenses separately.
As far as rates assumed are concerned, in the fourth quarter, we are expecting rates of ¥120 per U.S. dollar and ¥130 to the euro. If we take recent developments into consideration, our understanding is that currencies are running at the expected levels.
Turning to exchange rates of emerging countries, there are considerable divergences by currency. Among these, the impact of the Chinese and Indonesian currencies is major. When the Chinese yuan is appreciating and the yen is depreciating, this has a positive impact on profit (because of the excess of inflow), and when the Indonesian rupee is depreciating and the yen is appreciating, this has a positive impact on profit (because of the excess of outflows).
In the fourth quarter, our outlook is that the movement in various currencies will cancel out, and the overall impact of foreign currency fluctuations will be very small compared with the previous outlook.
Q6 : This time you announced an impairment loss on M&A deals and acquisition of treasury stock as your policy for providing returns to shareholders. Have there been any changes in your policy for allocation of cash?
A6 : Our basic policies remain unchanged. We are actively investing for future growth, including M&A deals. As a result of the investment, we want to provide a return to shareholders using our free cash flow.
Q7 : How do you analyze the factors accounting for the favorable performance of musical instruments and audio equipment in each region?
A7 : ■ Europe
Market conditions are firm for musical instruments and audio equipment. Our sales are also expanding mainly in digital musical instruments and PA equipment.
■ North America
The market for musical instruments overall is expanding, but there are divergences by product. There are severe conditions in the piano market, and this is having an effect on our piano sales. On the other hand, under the Obama administration’s policies, the education market is very active and the number of projects up for bidding is rising. These conditions are working in our favor.
Although market conditions are decelerating somewhat, the number of projects we are bidding on and our Internet-based sales are rising. In addition, by product, the increase in sales of guitars and other factors contributed to favorable performance in the third quarter.
■ Other regions
In tandem with the macro-economy, there are wide divergences by market. Conditions are severe in South America, Russia, Thailand, and Malaysia, but markets in Indonesia and India are on an upward trend.
Markets are basically level with a slight declining trend. Yamaha is maintaining its competitive strengths.
Q8 : Could you please give us your outlook for sales in the next fiscal year?
A8 : We are currently preparing our budget for the next fiscal year, and, at this time, we have no comments to make. Basically, we believe that the trends in the current fiscal year will continue.
Q9 : If you sell the shares of Yamaha Motor going forward, can shareholders expect a return?
A9 : Regarding the sale of Yamaha Motor shares, I have no comments to make on that topic at present. Regarding return to shareholders, as a result of investments we make for attaining future growth, we would like to provide an appropriate return to shareholders from our free cash flow.
Q10 : What are conditions like right now in the musical instruments business? In particular, do you see any differences in trends in the European and Chinese markets?
A10 : We see no changes in trends from the end of 2015 into 2016. The main reason we are being somewhat restrained in our outlook for Europe and China in the fourth quarter, where performance was favorable in the third quarter, is not because of changes in market conditions but because we are taking account of forward shipments at the end of the third quarter.
Q11 : What is the status of inventories in Europe?
A11 : We believe that inventories at the dealer level in Europe are somewhat high. Our inventories are slightly above targets, but we see no major problems such as stagnant inventories or dead stocks.
Q12 : Could you please provide more detail on the favorable conditions in the professional audio equipment business in the third quarter?
A12 : In Japan, the expansion in the installation business has had a substantial impact on growth in the PA equipment business as a whole. We are experiencing double-digit growth in Europe and China. Other regions are reporting smooth progress.
In North America, performance is slightly below the same period of the previous year. The commercial audio equipment business is experiencing difficulties, but we believe it will recover going forward.
Q13 : We think the conditions in the electronic devices market are becoming more severe. Could you please give us your outlook for the coming fiscal year?
A13 : We are currently preparing our budget for next fiscal year, and cannot disclose this at this time; however, we believe that, basically, sales will not show major declines.
Certainly, we see the markets for amusement equipment becoming more severe, but we are expecting increases in sales of other products.
We also believe there will be no major change in our breakeven point this period. Therefore, if sales are at the same level as over the current fiscal year, we will show a profit.
Q14 : What are your views on the improvement in profitability next fiscal year?
A14 : In our new medium-term management plan that we are preparing now, one of the major topics will be the improvement in profitability. We are now holding in-depth discussions on how we can continue to reduce costs and how we can add value to our products and services.