Q&As on the presentation

Q1:Operating income for the third quarter (October to December 2009) was down ¥2.5 billion compared with the same quarter of the previous year. Could you please provide a breakdown of the factors that accounted for this decline?

  • A1: Factors accounting for the decline in income in the third quarter (three months) compared with the same quarter of the previous year were as follows. Foreign currency movements accounted for about ¥5.0 billion. Losses on retirement severance payment obligations were responsible for ¥0.9 billion. In addition, companies newly consolidated from the period under review contributed losses of ¥0.3 billion, and the decline in sales and cutbacks in production lowered income another ¥5.5 billion.

    On the other hand, factors contributing to income included reductions in material expenses of ¥0.8 billion. In addition, structural reforms implemented in the previous period contributed ¥1.1 billion, and increases in product prices raised income by ¥2.3 billion. Also, reductions in selling, general and administrative expenses of ¥5.0 billion contributed to income. As a result of these various factors, operating income declined ¥2.5 billion.

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Q2:Your forecast for operating income for the full fiscal year is for a year-on-year decrease of ¥7.8 billion. Could you provide a breakdown of the factors that will account for this decline?

  • A2: For the full fiscal year, factors expected to account for the decline in operating income include the following. Losses due to foreign currency movements are forecast to amount to ¥13.0 billion and losses on retirement payment severance obligations will be ¥3.5 billion. In addition, companies newly consolidated from the fiscal year under review will contribute losses of ¥0.1 billion, and the decline in sales and cutbacks in production are expected to lower income another ¥22.6 billion.

    On the other hand, factors contributing to income included reductions in material expenses of ¥3.3 billion. Structural reforms implemented in the previous period are expected to result in an improvement of ¥4.8 billion to income, and increases in product prices will raise income by ¥8.0 billion. In addition, reductions in selling, general and administrative expenses of ¥15.3 billion will contribute to income. As a result of these various factors, operating income is forecast to decline ¥7.8 billion.

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Q3:According to page 9 of the materials handed out, among the measures to implement business structural reforms, the integration and consolidation of the wind instruments plant will require three years. Please explain why so much time will be necessary.

  • A3: We are going to close the Saitama Plant and integrate its production lines into the Toyooka Plant (in Shizuoka Prefecture), but, at the same time, we are going to step up the shifting of production, including that of the Toyooka Plant, to overseas production facilities. We are also moving ahead with related measures that include expanding the procurement of parts from overseas. We believe that implementing all these measures will require about three years. However, we will aim to complete this integration and consolidation as quickly as possible.

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Q4:Are you forecasting any changes in the musical instruments business, on a market-by-market basis, between conditions through the third quarter and the outlook for the fourth quarter?

  • A4: Through the third quarter (nine months), the Japanese market was down 9% compared with the same period of the previous year, but we are forecasting that the market will be down 2% in the fourth quarter (three months). The low-priced silent piano that we introduced to the market at the end of last year is performing well. In addition, deliveries of professional audio equipment by subsidiary Yamaha Sound System Inc. are concentrated at the end of the fiscal year. Therefore, our view is that sales are going to move upward in the fourth quarter.

    In the United States, signs emerged in the third quarter that keyboard instrument sales were bottoming out. However, in December, retail sales of large volume retailers to final customers were below the level of the same period of the previous year. In addition, in part because of our aggressive sales activities to retail stores prior to price revisions in the same period of the previous year, we are forecasting that sales for the fourth quarter this year will be down 4% compared with the same period of the previous year.

    In China, in part because of an increase in sales due to a surge in demand during the fourth quarter of the previous year, which was related to a scheduled price increase in April 2009, we are taking a more-cautious stance and have lowered the forecast for the fourth quarter to 3% over the same period of the previous year, compared with double-digit growth during the previous nine months. However, we believe we can raise sales somewhat more.

    In the European market, sales in Germany have held relatively firm, but conditions in Eastern Europe, Southern Europe, and the United Kingdom are harsh. For this reason, we implemented price policies and various sales promotion policies, but, in part because of favorable conditions in the same period of the previous year, conditions were tough, and we ended the third quarter of this year with sales down 18% compared with the same period of the previous year. During the fourth quarter, in part because performance was not good in the same quarter a year earlier, we have set a more ambitious objective and are forecasting performance at about the same level as for the fourth quarter of the previous fiscal year.

    In other regions, there are clear signs of recovery overall, and we are looking for sales to increase 21% over the previous year in the fourth quarter.

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Q5:Could you please comment on conditions of the retail sales in North America?

  • A5: At Best Buy, a leading volume retailer in the United States, year-end sales (in November and December) of our products were 95% of the level in the same period of the previous year. Factors accounting for this were the continued trend toward lower-priced products in the sales mix and the more-cautious attitude of U.S. consumers toward buying consumer durables.

    Also, sales of Yamaha products at Guitar Center, a leading musical instruments retailer, for the year-end were 90% of the level a year earlier. Selling conditions were particularly tough for more-expensive items, and it was difficult to generate a profit.

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Q6:Could you please comment on the pricing policies of your competitors and other related matters?

  • A6: We took the initiative to raise prices at a relatively early date to make adjustments for the appreciation of the yen. Our competitors adopted various measures by market and by product to maintain competitiveness and maintain market share, but recently they have all raised prices, and we are all finally on the same footing.

    In addition, in the North American market for AV products, our competitors have adopted drastic pricing policies, and competition is more intense in that market than in musical instruments.

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Q7:Are you anticipating any extraordinary losses for this fiscal year along with the transfer of the lifestyle-related products business and the structural reforms in the piano business?

  • A7: In the lifestyle-related products business, we are currently proceeding with negotiations, but, at present, we are not in a position to make any comments.

    In the piano business, we are proceeding with structural reforms, including the conduct of a review of the roles of our production plants in Japan; however, at this point, we do not think we will incur any extraordinary losses at the end of the current fiscal year.

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