A1: We made a bullish forecast for sales in the third quarter, based on favorable sales performance in the first half of the fiscal year, but competition in the European market became more intense, and performance did not reach the forecast levels. We did not think that market conditions would show such major changes.
Q&As on the Presentation of Performance Results through the Third Quarter of the Fiscal Year Ending March 31, 2017 (FY2017.3)
Q1: Was the slowdown in the overall market the principal reason for net sales falling below the previous outlook? Or was the cause a decline in market share?
Q2: Please explain your views on foreign currency trends in the fourth and later quarters.
A2: For the fourth quarter, we are forecasting the U.S. dollar will trade at ¥110 and the euro at ¥120. Compared with the same period of the previous year, the impact of foreign currency fluctuations will be as follows.
Net sales: –¥4.0 billion (U.S. dollars: –¥1.2 billion, –0.9 euros, other currencies –¥1.9 billion)
Operating income: –¥1.5 billion (U.S. dollars: –¥0.2 billion, –0.9 euros, other currencies –¥0.3 billion)
Q3: Your activities toward bringing prices of the musical instruments to their proper levels did not proceed as you had assumed. Was this because of changes in market conditions?
A3: In the European market, our competitors did not make price increases, and movements are anticipated to postpone increases into the fourth quarter. We put off the price increases we were scheduled to make in January. We are planning, however, to proceed with measures to bring prices to the proper levels.
Q4: You explained that capital investment this period in China would be lower than you had assumed. Have you made any changes in your capital investment policy?
A4: The planned increase in floor space at our factories in China is behind schedule and will slip into next year. This is a factor behind the reduction in capital investment this period.
Q5: What are the reasons for the growth in sales and income in the PA equipment business?
A5: Within the PA equipment business, sales of CA (commercial audio) equipment are expanding steadily. The margins on CA products are high, and they are making major contributions to profitability in the PA equipment business.
Q6: You indicated that competition is becoming more intense in Europe. Could you explain this in more detail, including the products and companies you are competing with?
A6: In Europe, developments included a price offensive by other Japanese companies competing with us in the digital piano business during the year-end demand period. As this suggests, competition became more intense, and this had some influence on our sales.
Q7: Could you please give us the amounts by segment for the item "Revision of selling prices: ¥3.5 billion" cited in slide 14? Also, do you plan to continue your initiatives to bring prices to their proper levels next fiscal year?
A7: The breakdown of the item "Revision of selling prices: ¥3.5 billion" is as follows: musical instruments: ¥3.0 billion and audio equipment: ¥0.5 billion. Since we have proceeded with detailed adjustments in prices at the product level and in many regions, we think we have the leeway for further adjustments to bring prices to their proper levels.
Q8: Your figure for inventories at the end of the period is higher than the previous outlook. What are your views about this level of inventories? Also, will this level of inventories have any effect on production during the first half of the coming fiscal year?
A8: We think our inventory levels are somewhat high in the piano, digital piano, AV products, and certain other businesses. We believe this level of inventories will have a slight impact on production during the next fiscal year, but we will be introducing new products next year, and we will proceed with various measures to sell the current inventory at an early date in preparation for the introduction of new products.
Q9: What are the reasons for the decline in the operating income margin of musical instruments business in the third quarter compared to the second quarter?
A9: There were no major differences from the second quarter to the third quarter as regards bringing prices to their proper levels, cost reductions, and amortization of goodwill, but there were differences as regards the rate of incurring of expenses and the impact of foreign currency fluctuations.
In the second quarter, we restrained selling and administrative expenses in the musical instruments business, but, in the third quarter, we made expenditures in this area as planned. In addition, as relates to forward foreign exchange cover, the impact of foreign currency fluctuations on operating income compared with the impact on net sales was much greater in the third quarter than in the second quarter.
Q10: Although the outlook is for a decline year on year in sales in the fourth quarter, you are forecasting an increase in income. What is the explanation for this?
A10: In the fourth quarter, we are forecasting a decline in sales compared with the previous year, due mainly to the impact of –¥4.0 billion caused by foreign currency fluctuations. However, at the operating income level, we are expecting improvement because of measures to bring prices to their proper level, cost-reduction activities, and other factors, which will exceed the –¥1.5 billion impact of foreign currency fluctuations.
Q11: What is the ranking in the market of MusicCast products, which are AV products with network compatible functions?
A11: Just looking at the wireless streaming speaker market, the gap in market share between MusicCast and the two top companies in this field is still large. However, we think that MusicCast products that incorporate network functions are gradually becoming more widely known in the markets for AV receivers, sound bars, and other products.
Q12: What are the reasons why sales of AV equipment, which were below the previous year in the third quarter, will show major growth in the fourth quarter?
A12: In comparison with the previous year, when new product introductions were concentrated in the third quarter, sales in the third quarter this year were below the prior year.
The main reasons are that in the fourth quarter this year we are expecting an increase in shipments of the second round of MusicCast-related products. Also, we are planning clearance sales of current models in the fourth quarter in advance of introduction of new mainstay AV receivers this spring.
Q13: MusicCast has a new product concept, and, according to previous explanations, you want to increase in-store displays to make a stronger appeal for them, but this is not proceeding as expected. What is the status of this sales effort now?
A13: We are making progress gradually, mainly in Europe, with in-store displays by setting up store corners dedicated to MusicCast products.
Q14: I believe you will also be introducing new digital piano products next fiscal year. Will these new products bring significant increases in sales?
A14: In the previous fiscal year, we introduced products in the high-priced range and during the current period in the low end of the price range. Next fiscal year, we will be introducing new products in price ranges where we can make the most of Yamaha’s strengths. We anticipate that these new products will also make significant contributions to expanding sales.
Q15: Sales in the third quarter were below the expected level. What was the status of production in the latter half of the fiscal year?
A15: In the musical instruments business, for the third quarter, production showed a decline of 1% from the previous outlook (actual), and the outlook for the fourth quarter is for a 3% decline from the previous outlook (outlook).
Q16: In the PA equipment business, what are the reasons why the sales of MI-PA category (through the musical instrument store channel) are expanding?
A16: Many of the MG series of analog mixers and similar products are sold through the musical instruments store channel and have won a good market reputation. We think the steady increase in sales of these products is contributing to the sales growth of the MI-PA as a whole.