Earnings Call: Q3 2021

Feb 5, 2021

This is Yamahata. Thank you very much for participating in Yamahata's results briefings during your precious time. I'd like to start the presentation on the 1st 9 months of FY March 2021. Please turn to Page 1. First, I'd like to give you the overview of the 1st 9 months. The stay at home demand fueled the recovery trend in the market conditions, but the supply shortages continued throughout the 1st 9 months. However, when you look at the 3rd quarter alone, Even though the revenue declined 6,600,000,000 yen year on year, the core operating profit decline was only 300,000,000 yen Therefore, the core operating profit ratio turned out to be 14.9%, which was an improvement of 0.7 percentage points year on year. As for the full year outlook, we are expecting the market conditions to recover and the supply issues to be resolved further because the negatives in the first half could not be fully set in the second half. The revenue and the core operating profit are likely to be lower than the previous year. However, compared against the previous forecast, All the segments are expected to outperform, so we are revising the full year forecast upward. The revenue is Up 15,000,000,000 yen the core operating profit is up 10,000,000,000 yen and the net profit is up 8,000,000,000 yen Please move on to Page 3. Here, we are showing the financial results for the 1st 9 months. The revenue was 2 172,300,000,000 yen The core operating profit was 29,000,000,000 yen The core operating profit ratio was 10.7% And the net profit was 17,600,000,000 yen As you can see, both the revenue and profits declined year on year. Next, on Page 4, we are showing the factors that caused the core operating profit to drop from 42,400,000,000 yen in the previous year to 29,000,000,000 yen this year. As you can see, the greatest detractor was the decrease in sales and production. And even though a part of it was offset by the SG and A reduction, the profit declined considerably. On Page 5, you can see the performances of each business segment. The musical instruments core operating profit was 23,000,000,000 yen and the core operating profit ratio was 13.1%. Both the revenue and profit declined year on year. The Audio Equipment's core operating profit was 5,100,000,000 yen and the profit ratio was 6.8%. Again, both the revenue and profit declined year on year. Now the Industrial Machine and Components, IMC Business and others achieved a core operating profit of 1,000,000,000 yen And the profit ratio of 4.4%. This segment saw a decline in the revenue, but an improvement of the profit year on year. Please turn to Page 6. Here is the full year outlook. Now this chart may look a bit different from the one you usually see because in addition to the comparison against the previous year, we also added the comparison against the previous projection as the difference was substantial. Now we are projecting the full year revenue to be 370,000,000,000 yen the core operating profit to be 35,000,000,000 yen The core operating profit ratio to be 9.5 percent and the net profit to be 24,000,000,000 yen Compared against the previous year, The revenue and profits would decline, but compared against the previous projection, the revenue and profits would increase. For your information, the foreign exchange rate assumed for the Q4 is 105 yen for 1 dollars and 1.23 yen for 1 euro. Moving on to Page 7. Let me explain the reasons for the difference of the full year of core operating profit forecast. First, in an year on year comparison, the factors that leads to the decline are almost the same as what I already explained for the 1st 9 months. The decrease in sales and production is the greatest factor. And even though it would be partially offset by SG and A reduction, the profit would be much lower than the previous year. However, compared against the previous projection, we have upgraded the core operating profit forecast from 25,000,000,000 yen to 35,000,000,000 yen It is mainly due to the sales increase of 5,800,000,000 yen and the further SG and A reduction of 2,500,000,000 yen Moreover, the IMC business and others, which we had assumed no profit previously, is now expected with 1,000,000,000 yen profit. So such factors led us to revise the forecast upward. Page 8 shows the outlook by each business segment. The musical instruments projected revenue is 237,000,000,000 The core operating profit is 28,000,000,000 yen and the core operating profit ratio is 11.8%. We are engaged in various efforts to improve the performances, but unfortunately, Both the revenue and profit would decline year on year, and the profit ratio would deteriorate. The Audio Equipment's projected revenue is 103,000,000,000 yen The core operating profit is 6,000,000,000 yen and the profit ratio is 5.8%. The situation is almost the same as the musical instruments. The IMC business and others projected revenue is 30,000,000,000 yen and the core operating profit is 1,000,000,000 yen As I said earlier, the profit Of the previous year, it was 0. So this segment would achieve an year on year increase in the profit despite the revenue decline, and the core operating profit ratio is expected to become 3.3%. Now Page 9 shows the segment outlook compared against the previous projections. The musical instruments is upgraded by 9,000,000,000 yen in the revenue, 8,000,000,000 yen in the core operating profit and 3 percentage points in the profit ratio. The audio equipment is upgraded by 3,000,000,000 yen in the revenue, 1,000,000,000 yen in the core operating profit and 0.8 percentage points in the profit ratio. The IMC business and others is upgraded by 3,000,000,000 in the revenue, 1,000,000,000 in the core operating profit and 3.3 percentage points in the profit ratio. Now please move on to Page 11. From here on, I'd like to give you further details on each business segment. First, Page 11 shows the musical instruments. During the 1st 9 months, the stay at home demand continued and the market has been on a recovery trend. But due to the supply shortage issues, that revenue declined year on year. The pianos enjoyed the market recovery. The digital musical instruments faced a strong demand, but the revenue declined due to the supply shortage. The wind, String and percussion instruments suffered from the sluggish market as the brass band activities were suspended. The guitars achieved robust sales from the strong demand as a lively e commerce business. By regions, in China, the sales recovered driven by the pianos. However, in the rest of the regions, the sales declined due to the ongoing supply shortages despite the improvement of market conditions. As for the full year outlook, although the supply situation is likely to improve in the Q4, the sales drop in the first half of the year was too big to offset. The rest of the details described here are almost the same as that of the 1st 9 months. Moving on, Page 12 shows the sales by each product category. The red numbers in the bracket are indicating this year's level, excluding the foreign exchange impact compared against last year's same period. During the Q3, the pianos were down 3%. By the way, that 88% in the bracket at the side indicates the 1st 9 month year on year comparison, which means minus 12%. It is likely to improve to only minus 2% for the full year. Likewise, the digital musical instruments were minus 6% in the 3rd quarter and expect it to be minus 8% for the full year. The wind, string and percussion instruments are continually struggling and it was minus 20% in the 3rd quarter it will be minus 24% full year. The guitars are doing well continually. During the Q3, it was minus 1% year on year only because the supply could not catch up with the overwhelming demand. In fact, the guitars outperformed the previous year during the 1st and second quarters. So the full year is expected to be 6% higher than the previous year. Page 13 shows the sales of each region. In Japan, the Q3 was down 3% year on year. Yet, you can see that we have steadily achieved improvements over the 1st and second quarters. However, since the negatives during the first half were too big, the full year is still expected to be minus 20%. In North America and Europe, the market conditions were good. But due to the serious supply shortage, the full year for each which is expected to be minus 12% and minus 9%. In China, we began to see the recovery since the second quarter. It was up 2% in the 2nd quarter and up 5% in the 3rd quarter. Now in the 4th quarter, Since China was already affected by the COVID-nineteen in the previous year, we are expecting a great year on year sales growth, which leads to 7% growth for the full year. In other regions, the pandemic impact has been very serious. So the full year sales are likely to be minus 13% year on year. Next, on Page 14, we are showing the results and forecasts for the audio equipment. During the 1st 9 months, AV products were boosted by the stay at home demand that faced a supply shortage, and the PA equipment and continually struggled from the difficult market conditions. In the AV product category, the sound bars and Hi Fi components were doing well, but the supply shortage of the receivers caused the sales decline. In the PA equipment category, the products for music production and online broadcast were robust, but the recovery was slow in the live performance and CA equipment markets. As for the ICT equipment, which is for the domestic telecommunications market, We continue to enjoy great sales of UC, the conference systems, with the growing demand for remote conferencing. Regarding the full year forecast, the stay at home demand has been strong, but the PA has been struggling, so the segment sales would decline year on year. The rest of the descriptions are basically the same as said of the 1st 9 months. Moving on to Page 15. Please note the sales of each product category. The AV product sales in the 3rd quarter recovered to the level which was only 3% lower than the previous year. For the full year, it is expected to be down 5%. The PA equipment has been facing a very tough market. So the Q3 was minus 16% year on year and the full year is still expected to be minus 21%. As for the ICT equipment, please note the numbers indicated in blue, which excludes the sales of OEM products. We achieved tremendous year on year sales growth throughout the 1st and second quarters and the 3rd quarter growth was also high at 48%. The full year growth is expected to be 31%. Next, Page 16 shows the sales by each region. The sales in Japan was driven by UC, the conference system, and the Q3 was up 15%. The full year growth is expected to be 6%. In North America and Europe, the situations are similar to that of the musical instruments. The supply shortage and the struggling PA equipment led North America to the 3rd quarter drop of 8% and the full year drop of 11%. Likewise, in Europe, The Q3 drop was 7%, and the full year drop is likely to be 13%. In China, we are expecting to achieve the same level of full year sales as last year. In the other regions, just like the musical instruments, the pandemic impact has been very serious. So we're expecting the full year sales to be down 20 On Page 17, we are showing the results of forecast of the iMC business and others. During the 1st 9 months, electronic device sales declined, but the sales of automobile interior wood components and factory automation equipment increased with the demand recovery. The full year projection is basically the same. Please note the chart on the left. The revenue for the 1st 9 months was minus 6% year on year and the full year is expected to be minus 1%. That was all for the details of segment performances. Please turn to Page 19. Here is the balance sheet summary. As of the end of December 2020, the total assets were 514,500,000,000 yen The total equity, which is equivalent to the net asset, was 3.62,000,000 yen In spite of difficult circumstances affected by COVID-nineteen, we have sustained a healthy balance sheet. The forecast for the end of March 2021 is as shown on the right. Page 20 shows the capital expenditure and R and D expenses. The full year capital expenditure, as shown on the top right, is expected to be JPY13 1,000,000,000. We spent JPY20.5 billion the previous year. But in face of the pandemic, we lowered the spending very much this year. In fact, although it is not described here, the previous CapEx Forecast was 14,800,000,000 yen but revised it downward as we are continually facing a tough time when we need to be patient. The R and D expenses would be 24,000,000,000 yen which is only slightly lower than previous year's level because we're continually investing in the necessary R and D activities. Next, I'd like to touch on some of the topics. Please refer to Page 22. Here are the ESG related topics. We're happy to report that our annual report received the Excellence Award in the 23rd Nikkei Annual Report Awards. Actually, they are the grand prize, the runner-up, special award and the Excellence Award. And 21 companies in total, including us, were awarded by Nikkei. In fact, Yamaha won the Excellence Award as the result of the nomination for the first time. And it was very rare for a company to win the prize upon the first nomination. So we enjoyed a considerable attention. The annual report is a very important tool in communicating with shareholders and investors. So we'd like to continually enhance the contents and strive to win the even higher prize in the future. Another topic is shown at the bottom. As of January 1, 2021, We newly established the Sustainability Committee and 5 working groups. Moreover, under the conventional Human Resources Development Committee, We created the working group for gender equality. With such initiatives, we'd like to accelerate our ESG efforts further. Now the rest of the pages are the appendix. But let me just touch on Page 24. Here are the results of the Q3 alone. The revenue was 107,500,000,000 yen the core operating profit was 16,000,000,000 yen The profit ratio was 14.9 percent and the net profit was 10,500,000,000 yen I have already referred to this at the beginning, But even though the co operating profit was 300,000,000 yen lower, we have almost recovered the previous year's profit level, and the profit ratio of 14.9% is even greater than a year ago level. So that is all for my brief presentation. Thank you very much.