Q1:Could you provide us with an analysis, by causal factor, of the changes, compared with the previous fiscal year, in the operating income of the musical instruments business segment in FY2010.3?
A1: Operating income of the musical instruments segment declined ¥14.1 billion, from ¥19.2 billion to ¥5.1 billion.
In FY2010.3, factors reducing operating income included ¥10.4 billion due to foreign currency fluctuations, ¥2.2 billion due to losses on retirement severance benefit obligations, and ¥19.4 billion due to the decline in sales and production. These factors came to a total of ¥32.0 billion.
On the other hand, factors increasing operating income included ¥1.3 billion owing to cost reductions in materials, ¥0.2 billion owing to newly consolidated subsidiaries, ¥1.4 billion improvement in profitability because of structural reforms implemented in the previous fiscal year, ¥7.3 billion because of the positive impact of increases in product prices, and ¥7.7 billion owing to a reduction in selling, general and administrative expenses. These factors contributing to improvement in operating income were unable to compensate for the factors reducing operating income, and, thus, Yamaha reported a substantial drop in operating income.
Q2:Can you give us a similar analysis, by causal factor, of the changes between the operating income of the musical instruments segment in FY2010.3 and the forecasts contained in your plan for the fiscal year ending March 31, 2011 (FY2011.3)?
A2: Our forecast for FY2011.3 calls for an increase of ¥1.4 billion in operating income, from ¥5.1 billion in FY2010.3 to ¥6.5 billion in FY2011.3.
Factors reducing operating income are forecast to be ¥1.0 billion due to the appreciation of the yen, ¥1.3 billion owing to higher materials prices, and ¥1.2 billion because of increases in overseas transportation costs. These negative factors will come to a total of ¥3.5 billion.
On the positive side, we are forecasting a gain on retirement severance benefit obligations of ¥0.7 billion, positive effects from the consolidation of domestic piano manufacturing facilities of ¥0.4 billion, an increase in operating profit due to higher sales and production levels of ¥1.8 billion, and the positive effects of reductions in selling, general and administrative expenses of ¥2.0 billion. These positive factors will add up to ¥4.9 billion and lead to an improvement in operating income.
Q3:Was the global economic downturn the principal cause of the decline in net sales in FY2010.3? Or were there also some effects in the form of lower unit sales as a result of the implementation of ¥7.3 billion in price increases in some products? What should we assume will happen in FY2011.3?
A3: We believe that the principal cause of the decline in sales in FY2010.3 was weakness in the world economy.
In Europe, following price increases for some products, we had to make some subsequent readjustments because of strong competition. However, overall, we believe we were successful in keeping the decline in the unit volume of sales due to price increases to a minimum.
In FY2011.3, in China and other emerging markets, we are looking for continued increases in sales. In Europe, the Americas, and Japan, although sales will not return to the level of the year before last, there are signs of recovery, principally in the U.S. market. We are, therefore, anticipating an increase in net sales.
Q4:Your forecast for FY2011.3 calls for increases in sales and operating income in the electronic devices segment. Will the improvement in income be as a result of the rise in sales? Or will income rise because of cost reductions?
A4: The outlook is for a further decline in sales of sound generating LSIs for mobile phones in FY2011.3, but sales of other semiconductors are forecast to rise.
Our outlook is for increases in sales of CODECs, digital amplifiers, and geomagnetic sensors as well as sales of LSIs for pachinko machines and graphic LSIs for use in automobile applications. We are, therefore, forecasting a significant increase in sales in this field.
The improvement in profitability is expected to come not so much from reductions in fixed costs but from Yamaha’s capabilities for the development of products that offer higher value added and meet customer needs. We are, therefore, aiming for an improvement in gross profit and operating income.
Q5:Regarding the geographical segment information in the Flash Report, how much will total assets in Japan decline as a result of the transfer of the lifestyle-related products business and the withdrawal from magnesium molded parts business? Also, what will be the effect on total assets in Asia, Oceania and other areas as a result of the shift to production in other parts of Asia, including China?
A5: As a result of the transfer of a majority of the shares in our lifestyle-related products subsidiaries, we have already reported a decline of ¥16.8 billion in total assets for the FY2010.3 period. On the other hand, the impact on assets of the withdrawal from the magnesium molded parts business was not material.
Going forward, our assets in Japan will decline as we shift production to overseas locations and implement other related measures. Along with these realignment measures, we are proceeding with measures to substantially increase the productivity of our operations and will work to increase ROA in Japan.
Also, in Asia, total assets will rise because of capital investments along with the shift of production to this region as well as other factors. However, the products we manufacture in Asia will be supplied throughout the world. We will work to expand income and increase ROA also in our Asian operations outside Japan.
Q6:In the outlook for FY2011.3 on page 16, you mention that the increase in overseas distribution costs will be a factor influencing operating income. What kinds of costs does this refer to? Will these costs be incurred from the beginning of FY2011.3?
A6: We ship products to our sales companies overseas by container vessels and, so far as costs are concerned, we hold price negotiations with shipping companies once each year. Shipping costs are linked to the price of crude oil, but the principal factor is the demand for cargo carriage versus the supply of space. During FY2010.3, demand collapsed and, relatively speaking, cargo shipping prices were low. However, in FY2011.3, because of the rise in crude oil prices and the fast recovery in demand, prices have risen.
Please note that the price increases have been in effect since the beginning of the fiscal year.
Q7:Is the consolidation of Japanese piano factories moving forward according to your original plan? How are you thinking of using the land that will be left vacant by the relocation of the Hamamatsu Factory? Also, what is your schedule for consolidating the production of wind instruments into a single facility?
A7: We have not revised our scheduled date of August 2010 for completing the integration of our piano factories.
Also, we have not yet made a decision on how we will use the land that will be left vacant in Hamamatsu.
We are looking for a positive impact amounting to ¥0.8 billion annually as a result of this integration of piano production facilities. This effect will begin during FY2011.3, and we are anticipating the positive impact will be about ¥0.4 billion, or half the full effect we are anticipating.
In the wind instruments business, we are planning to close our Saitama Factory and integrate these operations into the Toyooka Factory in three years’ time. For this purpose, we are going to shift the parts production processes of the Toyooka Factory overseas, and then move the production lines of the Saitama Factory to the Toyooka Factory. To complete this relocation of production activities as quickly as possible, we are working to accelerate the integration.
Along with these realignments, we are moving forward with measures to expand our overseas procurement of materials.
Please note that the positive impact of the realignment in the wind instruments business will begin to emerge gradually in FY2012.3.