Earnings Call: Q4 2021

May 11, 2021

This is Nakata. Thank you for your participation. I would like to start the presentation on Yamaha's FY March 2021 results. First, on the cover page, we are showing the pictures of our new products released during the past fiscal year. And on Page 1, we are showing the highlights of FY March 2021 results. To give you the conclusion, We achieved the results that exceeded the previous forecast. However, both the revenue and profit declined in an year on year comparison. The main reasons are the same as the 1st 9 months, but we suffered from the lowered demand due to COVID-nineteen, especially during the first half of the year. And we also faced a shortage of supplies, namely semiconductors, in the second half. Regarding the revenues, the recovery trend in China has been remarkable, and the market sales exceeded the previous year's level. But the overall drop of revenues in the first half of the year was too big to offset. As for the core operating profit, The reduction of costs contributed well. Now regarding the FY March 2022 outlook. Although we are continually facing an uncertainty of the business environment, we are forecasting both the revenue and profit to increase year on year, expecting a recovery in the market conditions. Now please turn to Page 3 so that I can give you the explanation in more details. The full year revenue turned out to be 3,72,600,000,000 yen which was about 9% lower than the previous year. To give you the quarterly breakdown, the Q1 was down 25%, 2nd quarter was down 14% and the Q3 was down 5% year on year. As for the Q4, partially because the previous year's Q4 was already low, It was up 8% year on year. The core operating profit was 40,700,000,000 yen and the core operating profit ratio was 10.9%. So after all, we managed to achieve a profitability that was fairly close to the previous year's level. The net profit was €26,600,000,000 and the foreign exchange rates were as shown here. Moving on to Page 4. Let me explain the major factors in the profit analysis. First, in comparison against the previous year, the biggest negative factor was the decrease in sales and production due to COVID-nineteen, which was minus 23,300,000,000 yen In the meantime, we reduced the SG and A costs substantially. So that helped to offset the drop to a certain extent, but the profit still turned out to be lower than the previous year. Of course, there were some other factors as you see here too, but they were much smaller in the level of impact. Furthermore, in a comparison against the previous forecast, the sales turned out to be slightly higher than what we expected, and the gap in the SG and A was far greater. We had anticipated much more business activities and the increase in SG and A costs. But because of the continued COVID impact, our activities were restricted, and therefore, we did not spend as much as we had thought. Including this saved SG and A cost of 4,200,000,000 yen that profit turned out to be 5,700,000,000 higher than the previous forecast. On Page 5, you can see the performance by each business segment: Musical Instruments, Audio Equipment and iMC, Industrial Machinery and Components and others, all these three segments achieved positive profits. The Musical Instruments segment achieved a core operating profit of 32,400,000,000 yen and a profit ratio of 13.6%, which was only 0.4 points lower than the previous year. Likewise, the Audio Equipment segment's core operating profit ratio was 6.8%, which was only 0.7 points lower. With regards to the IMC Business and Others segment, the core operating profit ratio turned out to be 4 0.1%, which was a remarkable improvement despite the difficult business environment. Next, please turn to Page 6. Here is our forecast for FY March 2022. The revenue is forecasted to be 400,000,000,000 yen which is going to be about 8% higher year on year, excluding the foreign exchange impact. Accordingly, we are forecasting the core operating profit to be 47,000,000,000 yen and the net profit to be 41,000,000,000 yen On the following page, we are showing the factors that are likely to affect the core operating profit. It is going to be quite the opposite of the past fiscal year, and we're expecting a substantial contribution from the increase in sales and production at the level of 12,700,000,000 yen On the other hand, the SG and A costs will increase. In the past year, it decreased more than 17,000,000,000 yen But since various business activities will resume and various investments will have to take place, we're expecting the SG and A to increase 8,300,000,000 yen In addition, there are some other factors as shown here. But all in all, we are expecting this year's core operating profit to be 47,000,000,000 yen On Page 8, you can see the forecast by each business segment from top, musical instruments, audio equipment and IMC Business and others. For all of these three segments, we are expecting improved revenues and profits. The projected core operating profit ratio for the musical instruments is 14 1% and that of the audio equipment and the IMC business and others are both 7.4%. Page 9 shows the key management figures and the trend. First, regarding the core operating profit ratio, It was 10.9% in the last fiscal year, and it is expected to be 11.8% this fiscal year. In fact, the profit ratio was 11.2% in FY March 2020 and 12.1% in FY March 2019, which was the final year of the previous midterm. So it means we are now expecting to almost return to the level that we enjoyed in the past. The ROE dropped substantially during the last fiscal year, but we're expecting it to go back to the 10% level this fiscal year. Likewise, EPS will go back to or even exceed the level of FY March 2019. Moreover, as the non financial management figures, we are showing 2 charts. 1 is the promotion of musical instrument education at schools, especially in Southeast Asia and South Asia and more recently in Africa. Our midterm target for the total number of participating Students is 1,000,000, and we already achieved 700,000 students by this March. Despite the global pandemic, We have successfully increased the number of students by finding effective ways to promote and implement. As for the utilization of certified timber, we have already almost achieved the midterm target by this March, which was the end of the 2nd year. But we would like to continue to make steady efforts to improve this ratio. Now please turn to Page 11 so that I can give you further details of each business segment. First, as for musical instruments segment, there were both positive and negative impacts coming from COVID-nineteen. The guitars and the digital pianos especially enjoyed very strong demand increase. In fact, the digital musical instruments faced supply shortage issues, but the guitars performed very well. On the other hand, the wind instruments struggled continually because of the suspended broadband activities in Japan and the prolonged lockdown of schools in the United States. With regards to the core operating profit helped by the 4th quarter performance that exceeded our forecast, The full year profit of FY March 2021 turned out to be 32,400,000,000 yen The forecast for the FY March 2022 is as shown here. Due to the prolonged pandemic, We are anticipating the wind instruments to stroke continually. However, in the meantime, we're expecting all the regions to recover. So especially with the guitars, the digital pianos. And the pianos, we'd like to make sure to achieve good sales growth. The details of each product category are shown on Page 12. The pianos performed almost as good as the year before, only lower by 2%, and we expect it to increase this fiscal year. The digital musical instruments dropped in the past They are very much due to the supply shortage issue, but we are expecting a double digit growth this year, recovering to the level that is close to FY March 2020. As for the wins, strengths and percussion, again, it is likely to struggle continually. We are expecting it to achieve 10% increase year on year. But compared against FY March 2020, it is still going to be much lower. The guitars are expected to achieve steady growth continually. Page 13 shows the revenue by region. Most of all, in China, we achieved a good growth of 8% in the past year and another 8% year on year growth is expected for this year. In North America and Europe, we are expecting the sales this year to recover to the level of FY March 2020. On the other hand, in Japan, we are likely to face continued difficulties with the wind instruments. The music schools are also likely to struggle continually, so we can only expect a modest improvement. Moving on. Pages 14 and 15 are showing our products with distinctive individuality, which were developed in line with our midterm plan. As a track record, we wanted to introduce you to some of the actual products that we released into the market. Especially, please note the new products on Page 15. This digital saxophone is highly appreciated by the market. And even though the wind instruments are struggling, it is expected to make some positive contributions. The guitar amp is also pioneering kit despite the expensive pricing. It is actually sold at around $500 but the added values seem to be attracting new users. Next, on Page 16, you can see the details of the Audio Equipment segment. Helped by the stay at home demand in general, The sound bars in the AV product category and the personal music production systems in the PA equipment category performed very well. Also, in the ICT equipment category, especially the teleconference systems called Unified Communications achieved a great growth. On the other hand, the PA equipment category as a whole struggled very much due to the restrictions in the live performance events. Yet, thanks to the great growth of the ICT equipment that contributed to offset the negatives, The year on year revenue decline was minimized. The core operating profit this year is expected to recover to the level of FY March 2020. Page 17 would give you further details for each product category. The AV products faced some difficulties, including the supply shortages, but it was almost flat year on year, and it is expected to improve a little this year. On the other hand, The PA equipment shown in the middle dropped tremendously in the past fiscal year. This year, it is expected to improve 9%. But just like the wind instruments, it is likely to struggle continually and will still be far lower than the level of FY March 2020. Now the ICT equipment includes products such as the network devices and the telecommunication devices, And this category is likely to achieve another double digit growth this year. Please turn to Page 18 for the revenue by region. The most notable one here is the other regions. Due to the negative impact of the PA equipment and others, This year's projection would still be far lower than the level of FY March 2020. As for the rest of the regions, we are projecting seeing the sales to go back to the level of FY March 2020. In Japan, we have been enjoying a tremendous growth of the communication device, So it is going to be much higher than the level of FY March 2020. Actually, because the growth in the last fiscal year was so big, The projection for this year seems to drop a little, but this is because of the extraordinary demand for engineering and installation services in the last fiscal year. Due to the rebound decline in the year on year comparison, it may seem like a drop, but the total market has been growing steadily. Page 19 shows the track record of audio equipment products that we released. Especially, the earbuds, which were newly added to our portfolio, have been appreciated by the increasing number of users in the domestic market and the sales are growing. The sound bars and the monitor speakers are also achieving good sales growth helped by the stay at home demand. Moreover, the products in the bottom half are the communication devices. They are highly rated by the market and good sales were achieved. Especially the new remote conferencing system shown at the bottom left is well received by the market and we have great expectations this year. On Page 20, we are showing some of our network devices, which we have had from before and have been highly rated by the customers. In fact, Yamaha was awarded the 1st placed in the network device category of the partner satisfaction survey of Nikken Computer Magazine for 3 consecutive years. Page 21 shows the revenue and core operating profit of the IMC, Industrial Machinery and Components Business and Others segment. The revenue improved during the Q4 with the recovering demand, and the full year revenue turned out to be only 1% lower than the previous year. As for this fiscal year, with expectations for further demand growth, especially in the automotive areas, We are forecasting 14% increase year on year. The core operating profit has also been improving steadily, and we are expecting the profit ratio to be 7.4% this fiscal year. Moving on to Page 22. Please note some of our products that we have been keenly developing for years that are finally beginning to bear fruit in the market. Both of these SIMs are for Chinese automobile manufacturers, and they are installed in their latest EV models. As you can see, They're having Yamaha's brand logo on the speaker grille, and such EVs are going to be soon launched into the market. I heard that the market response upon the product launch announcement has been very good. Now please turn to Page 24. Here is the balance sheet summary. The cash and cash equivalents have increased as we steadily achieved core operating profits. Another thing to note is the noncurrent assets, and this increase is mainly due to the rise in the market value of Yamaha Motors securities that we hold. Page 25 shows the capital expenditure, the depreciation and the R and D expenses. As you see, during the FY March 2021, the capital expenditure was especially squeezed considering the impact of COVID-nineteen. But this fiscal year, we're planning to spend about 18,200,000,000 yen As for the R and D expenses, We reduced it slightly during the last fiscal year, but it will be back to the pre COVID level this year. Next, regarding ESG. As shown on Page 27, we're working on various initiatives. So So as you contribute to the sustainability of music culture, we are promoting the instrumental music education in emerging countries, as I mentioned earlier. The number of students are rising steadily. Also, as shown on the far right, We are utilizing sustainable timber more and making good progress in reducing the greenhouse gas emissions. Such efforts were recognized and CDP awarded us A- in their climate change report. So these were some examples of our ESG efforts. As shown on Page 28, We have also been selected as a DX certified business operator, and our annual report won an award of excellence at the Nikkei annual reports awards. Furthermore, our Vocaloid Technology won the selection committee's special award at the Technology Management and Innovation Awards by Jades. As such, we have been building up good track records in various areas. Finally, regarding the return to shareholders, please refer to Page 30. Here, we are showing the historical trend. In FY March 2022, we are planning to pay 66 yen annual dividend per share, which means the dividend payout ratio will be 28 0.3%. In fact, our midterm target for the total payout ratio has been 50%. So as we carry on, we think the total payout ratio for the 3 year average will be roughly around 50%. Page 32 and on are the appendix, and we are showing the 4th quarter's results on Page 32 for your reference. The shipment progressed very well and cost reduction continued. So due to such two reasons, the core operating profit was 11,700,000,000 yen and the profit ratio was 11.6%. In fact, this 11.6% must be the record high profit ratio for us for the 4th quarter. And Page 33 shows the 4th quarter results by each segment. So that is all from me. Thank you.