A1: The economy is recovering and the number of customers in stores is recovering. But the market inventories of pianos weigh on our turnover and we expect a full recovery on a shipment basis from Yamaha in the second half of the current fiscal year. In addition, consumption for travelling and eating out is growing at the moment, and e-commerce is also a little sluggish. Although we expect 116 % year-on-year sales growth in the current fiscal year, in light of the previous year’s negative figure, we believe that the recovery is still halfway through. We believe that inventories including those on the market will normalize during the current fiscal year and sales will be back on the previous pre-COVID-19 growth path from the next fiscal year onward. In addition to the piano market, demand for digital pianos is also growing, and we believe there is still room for growth in China.
Q&A on the Performance Results for the Fiscal Year Ended March 31, 2023 (FY2023.3) (Held on May 10, 2023)
Q1: What was the situation in China in the fourth quarter of the previous fiscal year and what is your view on the future?
Q2: Could you comment on situations in Europe and North America and your forecast for the current fiscal year?
A2: In Europe, we expect a recovery in entry-level models, on which we experienced difficulty in sale in the previous fiscal year, and an improvement in supply in the mid- to high-end price range products, for which demand is strong, such as pianos made in Japan. We also see that sales of guitars can grow. In North America, sales of wind instruments grew substantially in the previous fiscal year. In the current fiscal year, in addition to the continued strong sales of wind instruments, demand for low-priced models is on the recovery trend. In our view, we will be able to sustain strong sales, as the market inventories of entry-level digital musical instruments and guitars become more appropriate. We also expect supply of audio equipment to recover as the semiconductor procurement difficulties are being removed, and we anticipate growth in both regions.
Q3: What is the background of the increase of about ¥2 billion in SG&A expenses in the previous fiscal year compared to the previous forecast?
A3: Expenses that were not included in the previous forecast are: approximately ¥500 million related to the acquisition of Cordoba Music Group, LLC; approximately ¥700 million for a rise in the number of months which forms the basis of a bonus and an increase in allowance for higher rate of paid leave taken, etc.; and several hundred million yen for increasing expenses for inland transportation and others. The acquisition cost of Cordoba was one-time expense.
Q4: Could you comment on a factor analysis of the increase or decrease in core operating profit between the previous and the current fiscal year, including price optimization?
A4: In the previous fiscal year, the cost increase of ¥8.0 billion was offset by ¥8.7 billion generated from increased revenue and production, product mix, and price optimization. But since revenue was flat in real terms, price optimization covered the cost increase. In the current fiscal year, of the ¥15.3 billion from increased revenue and production, product mix, and price optimization, approximately ¥10 billion is from increased profit due to higher revenue, and the rest is mainly from price optimization, which will offset the cost increase. The rough estimate is that the upturn impact of ocean freight rates and the downturn effect of SG&A expenses will be offset, leaving ¥10.0 billion brought about by the revenue increase.
Q5: Recently, it has been easy to raise prices amid rising costs. How will you advance price optimization in the future?
A5: We intend to continue price optimization by enhancing the value of our products and services offered and making customers feel that they are valuable, while keeping a close eye on market trends.
Q6: What is the path from a core operating profit ratio of 10.2% in the fiscal year ended March 31, 2023, to the medium-term goal of 14%?
A6: In the previous fiscal year, the core operating profit ratio deteriorated significantly due to increased losses from factory operations caused by reduced production of pianos and guitars in musical instruments business, and semiconductor procurement difficulties for audio equipment business. Going forward, in our view, we can improve the core operating profit ratio by putting sales growth on a recovery track by normalizing the supply of mid- and high-end musical instruments and audio equipment as a result of the removal of semiconductor procurement difficulties. In addition, the core operating profit ratio of the industrial machinery/components and others business has improved more than expected, contributing to raising the company-wide profit margin.
Q7: Can we expect factory operations to improve in the current fiscal year compared to the previous year?
A7: The difference between a monthly production plan and actual production is important for the impact on profit and loss from factory operations. Even if annual production were the same, repeated increases or decreases in production during a term would result in a loss from the operations. Although production of pianos will continue to decrease in the current fiscal year, we have adjusted our production plan from the beginning of the fiscal year, and this will contribute to improving our profit or loss situation.
Q8: Yamaha plans to improve operating cash flows by more than ¥100 billion in the current fiscal year. Please provide the background and breakdown.
A8: In the previous fiscal year, increased inventories and payment of corporate income taxes on a portion of holdings of Yamaha Motor Co., Ltd. we had sold in the fiscal year before last weighed on our cash flow significantly. In addition, sales in China, where the majority of transactions are made on an advance payment basis, declined, while those in other regions increased, which resulted in increased accounts receivable and a deterioration in operating cash flows. In the current fiscal year, these factors will be normalized, and cash flow will be improved by reducing inventories.
Q9: What is the purpose of the change in the disclosure of the audio equipment business to consumer and B2B products?
A9: In the audio equipment segment, the customer needs, sales channels, and other aspects of the business for consumer and B2B products are quite different. In our view, we can generate synergies in product development and sales by reorganizing the business and the organization into market-oriented. In line with the business restructuring, we will also make disclosures in two groups.