A1: As the musical instruments businesses have a high marginal profitability, our income ratios increase when sales of these products rise. Even though progress of cost reduction is lagging, we are continuing our efforts to optimize sales prices to appropriate levels in each market and this contributes to profitability. We believe that the increase in earnings power is sustainable going forward.
Q&As on the Presentation of Performance Results through the Third Quarter of the Fiscal Year Ending March 31, 2019
Q1: The operating income ratio of the musical instruments segment was strong in the third quarter, rising to more than 18%. Please comment on the background and reasons for this performance as well as its sustainability.
Q2: Double-digit growth of musical instruments has continued in China. What are your views of market conditions? Also, do you think the reason for this growth is that the market is expanding or that your share of the market is rising?
A2: At present, sales in the high-priced range product segments are slowing down, but sales in the high-volume zones have not been influenced substantially. Also, our dealer stock is at a healthy level. Another factor is that the musical instruments business is rooted in children’s educational demand, so demand is less influenced by trends in economic conditions compared to other consumer goods. However, if the slowdown in China continues, we believe this will have an impact on the musical instruments segment. Our understanding is that our sales expansion in pianos, rather than being just a result of growth in the market, is due to the dropping out of small and medium-sized manufacturers, which is leading to an increase in our market share.
Q3: Sales of musical instruments in North America are favorable, but do you think this will be sustainable? Sales of pianos and guitars seem especially strong. What are your views of the background and reasons for this? Your outlook for Q4 appears to be relatively weak. What are the reasons for this?
A3: Sales in North America are supported by favorable economic conditions in the United States. Sales by marketing channel are also progressing favorably and the dealer stock is at a healthy level. In the piano business, new products are contributing to sales growth, and sales of guitars have been boosted by the expansion of wall displays, which is one of our marketing measures. In addition, sales are being driven by our Trans-Acoustic guitars and other products based on Yamaha’s unique technologies, and the unit sales price is rising. We have prepared a conservative sales forecast for Q4 because we have filled new piano back orders through Q3. The forecast is not due to any special factors, such as changes in the market.
Q4: Sales of musical instruments in Europe are stagnant. What is the status of progress in reviewing sales conditions in sales channels?
A4: We are making progress in reviewing sales conditions in the case of large dealers, and small to medium-sized dealers are showing better understanding of our position. Factors that lowered sales in Europe through the third quarter (nine months) included Brexit, protest demonstrations in France, fiscal issues in Italy, and a deterioration of economic conditions in Turkey and elsewhere. In addition, in the previous third quarter, sales of high-priced Genos portable keyboards, which have been upgraded and newly launched for the first time in five years, contributed to the sales increase. If factors leading to a reactionary decline are excluded, sales through Q3 have risen by 1% over the previous year.
Q5: Why will sales in the audio equipment segment be so strong in Q4?
A5: Reasons will include shipments of AV products mainly to mass merchandisers in anticipation of the Super Bowl campaigns in the United States to push sales. Within the PA equipment business, favorable sales of commercial audio equipment are expected, led by strong performance of Yamaha’s flagship digital mixers. Another factor will be the expected rise in sales due to the concentration of audio equipment installations in Japan in the fourth quarter.
Q6: Performance of the Industrial Machinery/Components and Others segment deteriorated in Q3 and Q4. What products and markets were responsible for this? Please comment on how Yamaha will respond to this.
A6: The principal reasons will be a slowdown in sales of electronic devices for amusement equipment and consumer audio products for the Chinese market. Regarding factory automation (FA) equipment, sales will be down as expected in the second half, but the outlook for the full fiscal year will be for a year-on-year gain. Yamaha’s countermeasures will include a shift to emphasis on car-mounted devices, such as emergency call system, to replace demand for amusement equipment, which is expected to show further declines in demand.
Q7: Capital investment this period was lower than the previous outlook. What are the reasons for this and will lower investment have an impact on planned factory automation to increase productivity?
A7: Reviews of the new factory in Indonesia, which will supply rapidly expanding demand for piano in China, are taking more time than expected. Plans for the new factory in India are proceeding according to schedule, and the new factory in Indonesia are moving ahead according to our revised plan. At other factories, capital investments are running somewhat behind schedule. While no impact is expected on the shift to automation in overseas factories as a result of this, slight delays may be seen in shifting some production processes from Japan to overseas locations. In any event, our understanding is that these various circumstances will not have an impact on management performance as a whole.
Q8: Please explain your reasons for the timing of the acquisition of treasury shares.
A8: We keep the acquisition of treasury shares in mind at all times so as to maintain flexibility in providing a return to shareholders and to increase capital efficiency. The treasury share acquisition this time is based on the judgment that the timing would be appropriate, since this is the final year of the medium-term management plan and in view of progress in performance.