Q1:Could you please provide an update on sales of premium pianos and other instruments in the Chinese market?
A1:Piano sales account for about two-thirds of total sales in the Chinese market for musical instruments. The price level for pianos manufactured by Chinese companies in general is about 10,000 yuan, or about ¥150,000.
Our best-selling piano models in the Chinese market now are manufactured in China and sell for 18,000 yuan, or about ¥270,000. Looking ahead, along with economic growth, we believe prices will rise, and sales of pianos manufactured in Japan will increase. We are also selling grand pianos in China, but there is no significant trend toward growth in sales of premium pianos. We believe that will take more time.
Q2:One of the major factors leading to Yamaha’s past growth was the introduction of music education in Japan’s school system. Is something similar happening in emerging markets?
A2:Sales of recorders and keyboard harmonicas are expanding for educational use in Indonesia, Mexico, and elsewhere. In China, we are expecting growth in the market, but because of differences in national policy and systems, we believe that, currently, introducing music courses into China’s educational system will be difficult.
In general, musical instruments for educational purposes are introduced into school curricula, and, then, this leads to sales of wind instruments.
Q3:What were your sales results in the April-June period? How did this compare with plans for the first quarter of the fiscal year?
A3:Sales in local currencies in Japan and North America were below our planned levels and below the levels of the same quarter of the previous year, but we reported steady expansion in Europe as well as in China and other emerging markets.
By product category, pianos and other large keyboard instruments are experiencing tough conditions, but sales of wind instruments are firm. In overall terms, compared with the plan, sales are almost at planned levels, in part because of the weakening of the yen against other currencies.
Q4:We understand consumer spending is slowing in the European market. Is this having an effect on the musical instruments business? Also, what about conditions in the Chinese market?
A4:In Europe as a whole, sales were steady through the first quarter, but going forward, we will have to monitor developments closely. By country, conditions in the United Kingdom are somewhat difficult because of the depreciation of the pound.
In China, where pianos account for about two-thirds of the musical instrument market, our market share is still low, and this leaves us some leeway for expanding our share. We are looking for continued growth in excess of 20% over the previous period.
Q5:Yamaha’s R&D expenditures in the musical instrument business seem large. What do you view as an appropriate level for these expenditures? What is your view of future R&D cost levels?
A5:Our annual R&D expenditures have been running between ¥11 billion and ¥12 billion in recent years. We are scheduled to spend ¥12 billion this fiscal year, as development costs rise along with the implementation of our total piano strategy.
We believe the current level of R&D expenditures is about right, in part because we are increasing R&D on digital and network-related products, which are growth domains.
Looking ahead, we are forecasting that R&D costs will remain at about the current level, and, if there is a demand for development of new genres and other products, then we may increase our R&D expenditures.
Q6:Please provide us with information on professional audio (PA) equipment sales by region. Have sales been influenced by the economic slowdown? What is your outlook for future growth?
A6:In North America and Europe, we are aiming for continued growth in sales. We are also looking for growth in China and other emerging markets. In particular, Yamaha’s digital mixers are competitive, and, as the trend toward digitalization proceeds, we are expecting growth in sales.
Also, as a result of our collaboration with NEXO, we are strengthening our lineup of speakers and other output-side products and will be working to further improve our capabilities for offering proposals as a solution provider.
In Japan also, we want to create a higher profile for these activities, drawing on the benefits of the merger and integration of Fuji Sound, a company we acquired last year, into our activities.
Q7:An analysis of operating income in FY2009.3 compared with the previous fiscal year shows that you are planning for an improvement of ¥7.2 billion in gross profit on net sales. Why will this improvement be so much larger than the ¥1.0 billion gain reported in the previous fiscal year?
A7:Since we also realigned our manufacturing plants, we believe the figures would be clearer if you added together gross profit, manufacturing profit, and unrealized gains on inventories. If these three are combined, you will see an improvement of ¥9.9 billion compared with the prior year. There are three reasons for this. These are (a) our profit margin declined in the fourth quarter of the previous fiscal year because of the clearance of inventories and other factors, (b) in the current fiscal year, we are increasing sales of higher-margin digital musical instruments and PA equipment, and (c) we are expecting an increase in prices of our products.
Q8:Selling, general and administrative expenses for the previous fiscal year and this fiscal year are going to increase about ¥8.0 billion for these two years. How much of this can you cut, depending on trends in performance?
A8:About ¥1.0 billion in total personnel and promotional expenses are linked to performance and could be cut.
Q9:How much do you expect to be able to increase the operating profit margin from pianos going forward? Also, what measures are you going to take to do this?
At present, we are moving ahead with the realignment of the piano business in Japan and overseas. Capital investments are running ahead of actual results, and, particularly, until we complete the integration of production facilities in Japan, we believe that dramatic improvement in profit margins will be difficult over the coming few years.
In view of this situation, we are looking to increase sales of higher-priced grand pianos, with the aim of improving the overall profit margin, and working to improve productivity along with expansion in production at our plants in Indonesia and China, while the benefits of the integration of production facilities in Japan emerge. In the future, we believe we can increase the average operating profit margin on pianos to about the same level as that on the musical instruments business as a whole.
Q10:What strategy are you going to implement to expand the guitar business? Are you considering any M&A deals?
A10:Yamaha’s acoustic guitars have an established reputation, but, at present, our market share in electric guitars is relatively low. Therefore, we are thinking of strengthening our electric acoustic guitar offerings, which are, in fact, on the leading edge of acoustic guitars, and promoting these to expand electric guitar sales as a whole.
Although there would naturally be other parties involved in such business combinations, we will be looking at opportunities for M&A and strategic alliances as necessary.
Q12:Using the presentation materials you have distributed, we divided net sales by the number of units sold and calculated that the average price per piano will decline about 8% this period compared with the previous period. What are the reasons for this decline? Also, what will be the impact on profit margins of this decline in sales prices?
A12:The main factor accounting for the decline in average sales prices is foreign currency movements: namely, the appreciation of the yen.
In sales in Japan, the declining trend in upright pianos is continuing, while sales of grand pianos are holding steady at about 6,000 units, and, contrary to the general trend, average prices of pianos are increasing.
On the other hand, sales, especially in the Chinese and North American markets, of our pianos manufactured in China and Indonesia are rising. This is resulting in a decline in average sales prices.
Even if average sales prices decline, however, we believe this will not impact our profit margins because we will move forward with measures to reduce costs.
Q14:Could you provide some information on advancements in your supply chain management (SCM)?
A14:Creating the basic framework is taking time. Our approach is to manufacture standard products based on a sales plan, while our Head Office will maintain a specified inventory of made-to-order products and multiple-type, small-lot items.
Under this SCM approach, we will hold products that have long lead times in finished form. For products with short lead times, we will hold semi-finished products and begin final manufacturing after receiving firm orders.
The most important point in advancing our SCM systems will be maintaining a good record of on-time deliveries. If we can do this, we will be able to win the confidence and trust of our sales subsidiaries and dealers.