Q&As on the presentation

Q&As on the Presentation of Performance Results for the First Quarter (Ended June 30, 2011) of FY2012.3 (Held on August 2, 2011)

Q1: What impact did the Great East Japan Earthquake have on your operations during the first quarter?

  • A1: The earthquake brought a decline of ¥3.0 billion in sales in the first quarter. For the fiscal year as a whole, sales will be ¥11.7 billion lower than they would have been otherwise.

    Operating income in the first quarter was ¥1.2 billion lower as a result of the earthquake. For the full fiscal year, operating income is estimated to be ¥4.0 billion lower than it would have been otherwise.

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Q2: Could you please comment on the sales and operating income in musical instruments, AV/IT, and electronic devices in the first and second quarters?

  • A2: I will answer your question by giving comparisons with the same period of the previous year for the first quarter and the second quarter.

    In the first quarter, sales after excluding the effects of foreign currency fluctuations in the musical instruments segment increased ¥1.8 billion, but operating income decreased ¥0.9 billion because of changes in the product mix and the impact of foreign currency fluctuations. In the AV/IT segment, sales rose ¥0.8 billion, while operating income was up ¥0.2 billion. In electronic devices, sales dropped ¥1.2 billion and operating income was down ¥0.8 billion.

    In the second quarter, we are looking for an increase in sales of musical instruments of ¥0.2 billion, but as a result of the effects of the earthquake and the increase in SG&A expenses, we expect a decline in operating income of ¥0.5 billion. In the AV/IT segment, we are forecasting a decline in sales of ¥0.5 billion, but because the impact of the earthquake on production will be relatively small in this business, we are anticipating a rise of ¥0.2 billion in operating income. In the electronic devices segment, we are forecasting a decline in sales of ¥0.5 billion, but, as a result of the shift in the model mix away from higher margin products, we expect a decline in operating income of ¥1.1 billion.

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Q3: What is the status of difficulties related to the procurement of electronic components? What is the outlook?

  • A3: The effect, or in other words, whether we can produce or not, depends on the model. In some cases, our overseas subsidiaries have inventories that we can draw on. Although the situation is improving, in the case of certain models in our core digital piano CLP Series and the low-priced YDP Series, production has been affected and the impact on performance will continue into the second and third quarters. We are planning to sell from inventories at overseas subsidiaries and expand sales of alternative models.

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Q4: You indicated that the impact of the earthquake in the first quarter on operating income was minus ¥1.2 billion. Is this amount included in the improvement of ¥2.0 billion that you initially forecast for the full fiscal year after the earthquake?

  • A4: Our initial estimate of the impact of the earthquake in the first quarter was ¥1.5 billion; so, this will mean an improvement of ¥0.3 billion. Looking ahead, we are expecting quarter-by-quarter improvements.

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Q5: Your outlook is for a 6% decline in sales of digital musical instruments from the second quarter through the fourth quarter. Will this be due to the effects of the earthquake?

  • A5: Sales of digital musical instruments are forecast to decline about ¥6.0 billion because of the adverse impact on our production levels due to difficulties in procuring parts. However, we are responding by pushing sales of models whose production has not been affected by the part procurement issue. Taking this and other factors into account, our outlook is for a 6% decline in the second through the fourth quarters.

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Q6: What are your reasons for forecasting that musical instrument sales in China and other areas will slow for the full fiscal year compared with the pace in the first quarter?

  • A6: There were no special factors that accounted for the growth in performance in the first quarter. The forecast for sales growth of 11% for the full year, we think, is somewhat cautious. In addition, the impact of the earthquake will be small compared with Europe and the United States.

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Q7: Operating income for the first quarter was ¥2.6 billion above the previous forecast. Was the improvement due to the effects of the earthquake being less than initially estimated and only ¥0.3 billion?

  • A7: The improvement compared with estimates of the direct impact of the earthquake is ¥0.3 billion. Operating income was ¥2.6 billion higher than the previous forecast, in part because of the sale of inventories, favorable piano sales in Europe, and the firm performance of musical instruments in Japan.

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Q8: After excluding the effects of the earthquake, operating income in the first quarter was ¥2.3 billion above the previously forecast level, but I wonder if you are taking account of a deterioration in the second and subsequent quarters of the full fiscal year?

  • A8: From the second quarter onward, our outlook calls for a slight slowdown in musical instrument sales in Europe and for a challenging environment with low gross profit ratios in electronic devices. We are forecasting operating income for the full fiscal year of ¥12.5 billion which will be ¥2.5 billion higher than in the previous forecast.

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Q9: It appears you are generally adopting a cautious stance, even in the performance outlook this time. Could you please comment?

  • A9: Our stance may differ by region and by business, depending on whether we are being aggressive or cautious, and we will consider the status of individual markets and businesses to forecast performance. For example, we are preparing management plans reflecting the following factors; namely our somewhat aggressive outlook for the North American market, but our more cautious stance regarding the Chinese market. In the semiconductor business, we will aim for comeback in sales because of the recovery in the amusement equipment market that is expected during the third and fourth quarters.

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Q10: Please comment on the actual production levels in the musical instruments and electronic devices segments and the impact of the earthquake.

  • A10: The effects of the earthquake on production are as follows. In the first quarter, it had a negative effect of ¥3.7 billion on production. The outlook is for a negative effect of ¥3.2 billion in the second quarter, a positive effect of ¥1.3 billion in the third quarter, and a negative effect of ¥0.5 billion in the fourth quarter. For the full fiscal year, the outlook is for a negative effect of ¥6.0 billion.

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Q11: Your change in the assumed foreign exchange rates that calls for a ¥5 weakening in the value of the yen against the euro seems to go contrary to the most-recent trend toward yen appreciation. Could you please explain the impact of movements in the euro and dollar exchange rates again?

  • A11: A change of ¥1 in the foreign exchange rates has a ¥390 million effect on operating income in the case of the euro and a ¥70 million effect in the case of the dollar. We have bought forex forward contracts at ¥116 for the euro for the second quarter, and this is close to the forecast ¥115 rate for the second-quarter accumulation (through the end of the second quarter).

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Q12: We are concerned about changes in conditions and their effects in Germany, which is the central country in the European market for the musical instruments business. What are your views on this?

  • A12: In Germany, which is the driver of the European market, thus far, dealers have been active in purchasing from us, but between this spring and into the summer, there are signs that customer traffic has slowed somewhat and sales may be weakening. However, we believe that the market is basically stable; so, as we introduce new products going forward, we will implement the necessary sales policies and will be able to keep inventories at the proper level.

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Q13: What is your outlook for production levels going forward?

  • A13: In the musical instruments segment, actual production in the first quarter amounted to ¥29.7 billion. We are forecasting production of ¥31.1 billion in the second quarter, ¥31.4 billion in the third quarter, and ¥28.9 billion in the fourth quarter. Production of electronic devices amounted to ¥3.5 billion in the first quarter, and the outlook is for production of ¥4.1 billion in the second quarter, ¥5.5 billion in the third quarter, and ¥6.7 billion in the fourth quarter.

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Q14: What is Germany’s share in the composition of your sales in Europe?

  • A14: Germany and the surrounding central European market account for slightly less than half of total sales in Europe. Germany alone accounts for about 30% of the market.

    Causes for concern in Europe (Supplementary Comment)
    Sales of digital pianos and portable keyboards, which have been affected by the earthquake, account for about one-third of musical instrument sales in Europe. In addition, last year, we launched Tyros, which is a portable keyboard and one of our major products, and sales have been favorable. However, this fiscal year we believe sales will slow.

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