Yamaha Corp

TSE:7951

Earnings Call Transcript 2021-Q1

[Satoshi Yamahata, executive]

Thank you very much for participating in Yamaha's briefing for the FY March 2021 first quarter results. I'd like to start the presentation. Please refer to Page 1 of the presentation.

First, regarding the results of the first quarter of FY March 2021, due to the COVID-19 pandemic that led to the decline in sales and the factory shutdown, both the revenue and profit declined sharply year-on-year. We recorded a net loss due to a JPY 2.5 billion loss resulting from the suspension of operations, which is booked as other expenses or extraordinary loss in Japanese GAAP.

As for the full year forecast, the market conditions are expected to recover from the third quarter, but our production and supply shortage are expected to continue until the third quarter. So the full year revenue is projected to decline sharply. The core operating profit is also likely to fall sharply as the cost control efforts will not be able to offset the impact of declined first half revenue and production. However, in accordance with a stable dividend policy, we're planning to provide the annual dividend of JPY 66 per share, which is the same as the previous year. The dividend payout ratio is 73%.

Now please turn to Page 3. Here is the summary of numerical results. The first quarter revenue was JPY 71.8 billion. The core operating profit was JPY 1.1 billion. The core operating profit ratio was 1.6% and the net loss, to our regret, was JPY 1.8 billion. We suffered a great decline in both the revenue and profits year-on-year.

Moving on to Page 4. Here's the GAAP analysis of the core operating profit. Compared against the previous year, the profit dropped JPY 9.7 billion, including the impact of exchange rates, which was JPY 0.7 billion and the continued labor cost increase at overseas factories, which was JPY 0.3 billion. Most of all, the negative impact of JPY 14.1 billion from the decline in sales and production was tremendous. On the other hand, we reduced the SG&A cost, including the variable cost, which led to the improvement of JPY 5.7 billion. The cost reduction did not progress much under the circumstances, and it was only JPY 0.1 billion. These factors so far were from the Musical Instruments and Audio Equipment segments. And in addition, the factories for Industrial Machinery and Components declined JPY 0.4 billion.

Please turn to Page 5. Here are the revenue and core operating profits by business segments. The Musical Instruments revenue was JPY 46.6 billion. Core operating profit was JPY 2.5 billion and the core operating profit ratio was 5.4%. The Audio Equipment's revenue was JPY 19.5 billion and the core operating loss was JPY 1.1 billion. The IMC Business and Others revenue was JPY 5.6 billion and the core operating loss was JPY 0.3 billion. The year-on-year differences in exchange rate impacts are as shown here.

Please refer to Page 6. Here is the full year outlook. We are forecasting the revenue to be JPY 355 billion, the core operating profit to be JPY 25 billion. The core operating profit ratio to be 7.0% and the net profit to be JPY 16 billion. Unfortunately, the revenue and profits will drop drastically from the previous year. As for the foreign exchange rates used in this assumption, $1 is JPY 108 and the euro is JPY 120, as shown in the bottom half of the slide.

On Page 7, we are showing the GAAP analysis of the full year core operating profit. The profit is expected to decline JPY 21.4 billion, including JPY 2.4 billion negative impact of exchange rates. JPY 1.6 billion increase from the labor cost at overseas factories and JPY 29.2 billion decline in sales and production. Meanwhile, there will be improvements of JPY 10.4 billion from SG&A and JPY 1.4 billion from reduced cost.

Moving on to Page 8. Here's the outlook by business segments. For the Musical Instruments, the expected revenue is JPY 228 billion. The core operating profit is JPY 20 billion and the core operating profit ratio is 8.8%. As for the Audio Equipment, expected revenue is JPY 100 billion, the core operating profit is JPY 5 billion and the core operating profit ratio is 5.0%. As for the IMC Business and Others, expected revenue is JPY 27 billion, and the core operating profit is 0, the same as the previous year. The difference from the previous year and the exchange rate impacts are as shown here.

Please turn to Page 9. Here are the 3 key management figures that we are using in our midterm plan. According to our forecast for FY March 2021, the core operating profit ratio will be 7.0%, the ROE will be 4.8%, and the EPS will be JPY 91. Again, to our greatest regret, these figures show drastic declines from the previous year.

Now please refer to Page 11. From here on, I'd like to give you the details of each segment. First, regarding the Music Instruments. During the first quarter, the e-commerce sales were strong, but the impact from temporary closures of the stores were greater. The Piano sales were sluggish due to the store closures. The digital musical instruments were doing well, namely in North America, but the sales dropped unfortunately due to the supply shortage. Demand for the wind, string and percussion instruments were sluggish due to school closures. Meanwhile, the Guitars achieved robust sales worldwide, driven by the stay-at-home demand and e-commerce. The revenue from music schools and software products became half of a year ago level, impacted by the closures.

As for the full year outlook, we're expecting the market conditions to recover and the supply shortage to be resolved in the second half of the year. The Piano's market condition shall recover in the second half. The digital musical instrument supply shortage will also be resolved in the second half. However, as for the wind, string and percussion instruments, the market itself is likely to shrink. As for the guitars, we're expecting the sales to increase. By regions, especially in China, we're expecting a year-on-year sales growth. But in all the other regions, they are likely to drop, unfortunately. Please refer to the bar charts and the red numbers in brackets.

During the first quarter, the musical instruments' revenue dropped 28% year-on-year. For the full year, it is estimated to drop 14%.

Moving on to Page 12. Here, we are showing the results and forecast of the revenues of major product categories. The Piano's revenue dropped 32% year-on-year during the first quarter. Since the severe situation prolonged, especially in Japan and China, the drop was as big as 32%. Yet, we are expecting some recovery throughout the rest of the year. So the full year decline is expected to be 8%. The digital music instruments dropped 15%. The digital pianos were performing relatively well, but the synthesizers, the stage pianos and the high end portable keyboards used by the live performers, were sluggish. So the category saw a drop of 15% in the first quarter. The full year drop is expected to be 10%.

As for the wind, string and percussion instruments, it was especially severe in Japan, and it went down 40%. For the full year, it's down 23%. The guitars had some supply issues, but it was generally doing well worldwide. So the first quarter revenue was the same as the year ago level, and the full year is expected to increase 1%.

Continuing on Page 13, we are showing the results and forecasts of the revenues by regions. In Japan, since the pianos and wind instruments struggled, especially in the revenue dropped 46% during the first quarter and will drop 27% for the full year. In North America, down 16% in Q1 and down 10% full year. In Europe, down 19% in Q1 and down 10% full year. In China, the pianos are sold through the stores, and they were not performing well due to the store closures. So the revenue dropped 19%. But for the full year, we are expecting 3% increase. In the other regions, especially since the COVID-19 impact was severe. In emerging countries, the revenue dropped 31% in the first quarter and will drop 18% for the full year.

Moving on to Page 14. I'd like to talk about the Audio Equipment segment. During the first quarter, the AV products enjoyed the stay-at-home demand, but the PA equipment struggled very much because most of the live concerts had to be canceled under the pandemic. Among the AV products, the sales of sound bars and earphones, which were launched in Japan prior to the other areas were particularly good. The receivers continually suffered a declining trend overall.

As for the PA equipment, again, the live performance market and the CA equipment sales slumped. But during the first quarter, the equipment installation in Japan was robust. As for the ICT equipment, the conference system sales were strong.

Now regarding the full year forecast, the stay-at-home related demand is likely to grow, but the PA equipment will continue to face a difficult situation. The AV product's growth is expected to be strong as we are planning to launch the earphones globally. The receivers are likely to face continued shortage of supplies. In fact, the market for the receivers has been shrinking. But since the competitors cannot supply the products, we are increasing our market share. So we are facing a temporary supply shortage, even though we have been suffering from the overall decline of the receiver revenues. Anyway, this shortage of supply is likely to be resolved during the second half of the year.

As for the PA equipment, even though the music production is doing well, the sales would decline because the live performance market is not recovering. The ICT equipment is enjoying the strong sales of conference systems, so we are expecting double-digit growth. To sum up, the audio equipment revenue went down 19% in Q1 and the full year will be down 11%.

On Page 15, we're showing the revenues by product categories. First, the AV products performed relatively well, and the year-on-year decline was only 7% in the first quarter and will be 6% for the full year. The PA equipment has been facing a very severe situation, as I said. And the first quarter drop was 40%, and the full year drop is expected to be 20%. The ICT equipment has been performing well. Excluding the sales of OEM products, the revenue increased 13% during the first quarter and will increase 17% for the full year.

Page 16 shows the revenues by regions. But before going into that, please once again check Page 15. As it is noted there in small letters, the PA equipment sales, which dropped 40% year-on-year in the first quarter did not include the engineering and installation services. Yet, back on Page 16, you see that the first quarter sales in Japan achieved 25% increase year-on-year, and this includes the engineering and installation. Since it performed well, the first quarter growth in Japan was so big for the full year, it is expected to decline 4%.

In North America, the revenue declined 5% in the first quarter, but the AV products were doing well. The full year is down 9%. In Europe, the AV products were doing fairly well, but the PA equipment struggled especially and went down 38% in the first quarter. The full year is down 14%. In China, the first quarter drop was at 16%, but it will be flat growth for the full year. In the other regions, namely in emerging countries, the situation is as bad as the Musical Instruments. The revenues are down 43% in the first quarter and down 24% full year.

Page 17 shows the Industrial Machinery and Components business and Others. During the first quarter, in-vehicle electronic devices and automobile interior wood components struggled due to the automobile market conditions. However, although it is not mentioned here, the shipment of electronic devices for the amusement equipment was good. Yet, in the full year projection, the electronic devices for the amusement equipment is likely to drop a little. And the in-vehicle electronic devices are facing uncertainties, so the outlook is bleak. The FA equipment is also likely to face a delay in the market recovery due to the uncertainties of capital expenditures under COVID-19 crisis. On a year-on-year comparison, the first quarter revenue dropped 21% and the full year is likely to drop 11%.

So that was all for the details of each segment. And now moving on to Page 19, I'd like to touch on the balance sheet. As of the end of the first quarter, the total assets were JPY 466.9 billion, and the total equity was JPY 331.1 billion. By the end of March 2021, the total assets are projected to be JPY 474.5 billion, and the total equity, which is the net asset in J GAAP is projected to be JPY 343.1 billion. There's nothing more to note here much. But even though the cash flow has been tough, we are trying to manage by minimizing the investments as much as possible. As I said at the beginning, we're planning to pay out the dividend of JPY 66 per share, and that is already included in this projection. Still yet, the cash and cash equivalents at the end of the March 2021 is projected to be JPY 89.2 billion, and the total equity is expected to stay at the level of JPY 343.1 billion.

Finally, Page 20 shows the investment plans. In the last fiscal year, we spent JPY 20.5 billion as the capital expenditure, but that will be JPY 14.8 billion this year. Under the critical circumstances, we postponed some of the investment plans, so as to squeeze the investments during this year as much as possible.

Likewise, the R&D expenses, which we spent JPY 24.8 billion last fiscal year will be JPY 24 billion. As such, by cutting the spending as much as possible, we would like to overcome the current situations. That is all from me. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]