Earnings Call: Q1 2021

Aug 5, 2020

Thank you very much for participating Yamaha's briefing for the FY March 2021 Q1 results. I would like to start the presentation. Please refer to Page 1 of the presentation. First regarding the results of the Q1 of FY March 2021, due to the COVID-nineteen 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 2,500,000,000 yen 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 3rd quarter, but our production and supply shortage are expected to continue until the Q3. 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 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 71,800,000,000 yen. The core operating was 1,100,000,000 yen the core operating profit ratio was 1.6% and the net loss to our regret was 1,800,000,000 yen 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 9,700,000,000 yen including the impact of exchange rates, which was 700,000,000 yen and the continued labor cost increase at overseas factories, which was 300,000,000 yen Most of all, the negative impact of 14,100,000,000 yen from the decline in sales and production was tremendous. On the other hand, we reduced the SG and A cost, including the variable cost, which led to the improvement of 5,700,000,000 yen. The cost reduction did not progress much under the circumstances and it was only 1000000000. These factors so far were from the Musical Instruments and Audio Equipment segments. And in addition, the factors for Industrial Machine and Components declined 400,000,000 yen. Please turn to Page 5. Here are the revenue and core operating profits by business segments. The musical instruments revenue was 46,600,000,000 yen core operating profit was 2,500,000,000 yen and the core operating profit ratio was 5.4%. The Audio Equipment revenue was 19,500,000,000 yen and the core operating loss was 1,100,000,000 yen The IMC Business and others revenue was 5,600,000,000 yen and the core operating loss was 300,000,000 yen 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 355,000,000,000 yen the core operating profit to be 25,000,000,000 yen the core operating profit ratio to be 7.0% and the net profit to be 16,000,000,000 yen Unfortunately, the revenue and profits will drop drastically from the previous year. As for the foreign exchange rates used in this assumption, a dollar is 108 yen and the euro is 120 yen 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 21,400,000,000 yen including 2,400,000,000 yen negative impact of exchange rates, 1,600,000,000 yen increase from the labor costs at overseas factories and 29,200,000,000 yen decline in sales and production. Meanwhile, there will be improvements of 10,400,000,000 yen from SG and A and 1,400,000,000 yen from reduced cost. Moving on to Page 8. Here is the outlook by business segments. For the Musical Instruments, the expected revenue is 228,000,000,000 yen the core operating profit is 20,000,000,000 yen and the core operating profit ratio is 8.8%. As for the audio equipment, the expected revenue is 100,000,000,000 yen the core operating profit is 5,000,000,000 yen and the core operating profit ratio is 5.0%. As for the IMC business and others, the expected revenue is 27,000,000,000 yen 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 percent, the ROE will be 4.8% and the EPS will be 91 yen Again, to our greatest regret, these figures showed 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 musical instruments during the Q1, the e commerce sales were strong, but the impact from temporal 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 are 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 are 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 Q1, 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 forecasts of the revenues of major product categories. The piano's revenue dropped 32% year on year during the Q1. 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 musical 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 Q1. 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 Q1 revenue was the same as a year ago level and the full year is expected to increase 1%. Continually 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 Q1 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-nineteen impact was severe, in emerging countries, the revenue dropped 31% in the Q1 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 Q1, 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 the 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 Q1, 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 products 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 temporal 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 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 are showing the revenues by product categories. First, the AV products performed relatively well and the year on year decline was only 7% in the Q1 and would be 6% for the full year. The PI equipment has been facing a very severe situation as I said and the Q1 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 Q1 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 Q1 did not include the engineering and installation services. Yet back on Page 16, you see that the 1st quarter sales in Japan achieved 25% increase year on year and this includes the engineering and installation. Since it performed well, the Q1 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 Q1, 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 Q1. The full year is down 14%. In China, the Q1 drop was 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 Q1 and down 24% full year. Page 17 shows the Industrial Machinery Components business and others. During the Q1, 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-nineteen crisis. On a year on year comparison, the Q1 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 would like to touch on the balance sheet. As of the end of the Q1, the total assets were 466,900,000,000 yen and the total equity was 331,100,000,000 yen. By the end of March 2021, the total assets are projected to be 474,500,000,000 yen and the total equity, which is the net asset in JGAAP is projected to be 343,100,000,000 yen There is 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 are planning to pay out the dividend of 66 yen 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 89,200,000,000 yen and the total equity is expected to stay at the level of 343,100,000,000 yen. Finally, Page 20 shows the investment plans. In the last fiscal year, we spent 20,500,000,000 yen as the capital expenditure, but that will be 14,800,000,000 yen 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 and D expenses, which we spent 24,800,000,000 yen last fiscal year, will be 24,000,000,000 yen 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.