Yamaha Corp

Now I'd like to start a briefing on the highlights of the first three quarters of FY March 2023. During the first three quarters, although we faced challenges such as semiconductor shortages, reduced demand for entry-level models, and COVID-related disruption in China, the revenue increased year-on-year partly due to the favorable exchange rates. The profit also increased year-on-year due to the increased revenue, including the price adjustments in response to rising costs and the impact of exchange rates. As for the full-year forecast, due to the continued COVID-related disruptions in China and the further decline of consumption in Europe, we revised it downward from the previous forecast. However, on the year-on-year comparison, we are expecting increase in both the revenue and profit. Please turn to page 3. Here are more specific results for the first three quarters. The revenue was 338.2 billion yen, the core operating profit was 38.7 billion yen, the core operating profit ratio was 11.5% and the net profit was 30 billion yen. This is including the boost from the exchange rates, but we achieved ear-on-ear increase in the revenue and profits. Moving on to page 4, the previous year's profit was 34.9 billion yen, but it increased by 3.8 billion yen to 38.7 billion yen this year, and here is the breakdown. The positive impact of exchange rate was 5.5 billion yen, and while various costs were rising, we tried to pass them on to the prices. As a result, the increase in sales, production, model mix and price optimization was 7.8 billion yen, which more than offset the cost increase. The SG&A increased by 3.4 billion yen, and they were mainly the costs for shipping, IT, and advertisement. During the past years under the pandemic, we refrained from spending some of these costs, but we finally resumed the spending as investments for the future. Moreover, the IMC business and others increased by 0.4 billion yen. On page 5, we are showing the results by each business segment. The musical instrument segment revenue was 230.4 billion yen, and the core operating profit was 31.4 billion yen, both of which were higher than the previous year. However, these results are including the exchange rate impact shown on the right, so they were actually boosted very much by the favorable exchange rates. In fact, the strength of US dollars impacted the revenue very much, but not so much on the core operating profit. so that is the reason why the profit ratio declined by 0.6 points year-on-year to 13.6%. The audio equipment segment revenue was 76.1 billion yen, and the core operating profit was 1.7 billion yen, which were also slightly higher than the previous year. However, as you can see, the exchange rate impact on the audio equipment was not so favorable, since the ICT business in Japan is relying partially on imports. In fact, the weakening yen had a rather negative impact on the core operating profit, but despite that, after observing the negatives, the segment realized a slight increase of the profit year on year. As for the industrial machinery and components, IMC business and others, the revenue was 31.6 billion yen, the core operating profit was 5.6 billion yen, and the profit ratio was 17.8%, which were the increase in both the revenue and profit. It was partially boosted by the exchange rate, but also through various internal efforts, the profit ratio was improved by 2.3 points year-on-year. Moving on to page 6, I'd like to explain the full year outlook. We are now forecasting the revenue to be 450 billion yen, the core operating profit to be 48 billion yen, the profit ratio to be 10.7%, and the net profit to be 37 billion yen. In an year-on-year comparison, we are still expecting higher revenue and core operating profit, although the net profit may be slightly lower. However, from the previous forecast, the revenue is revised down by 20 billion yen, and both of the profits are revised down by 4 billion yen. At the bottom right, we are showing the currency sensitivity per 1 yen difference. Page 7 shows the core operating profit analysis of the full year forecast. The profit, which was 43 billion yen in the previous year, is expected to grow by 5 billion yen to 48 billion yen, and here is the breakdown. It is almost the same as what you saw for the first three quarters, but we have the positive impact of exchange rates and the negative impact of various costs. As we are passing on the increased cost to the selling price, the improvement in sales and production, model mix and price optimization will be 8.9 billion yen, offsetting the cost increase. Meanwhile, the SG&A will increase by 3 billion yen, but the IMC business and others will improve by 0.6 billion yen. In the bottom half of the slide, we are showing the difference from the previous projection of 52 billion yen, and you can see the reasons why we revised it down by 4 billion yen. The ocean freight charges are gradually getting lower, so we can expect 1 billion yen improvement for the full year. Moreover, we are reducing the SG&A and expecting improvements in the IMC business and others. However, due to the disruption in China from the turnaround of zero-COVID policy and the continued deterioration of the economy in Europe, we are anticipating a decrease in sales and production, model mix, and price optimization by 6.9 billion yen. This impact is actually the greatest. On page 8, you can see the full year outlook by each business segment. The musical instrument segment is expected to achieve 303 billion yen in revenue and 39 billion yen in core operating profit. Just like the first three quarters, the segment is expected to achieve increase in both the revenue and profit year-on-year, but they are uplifted very much by the exchange rate, so the profit rate would actually decline by 0.6 points to 12.9%. The audio equipment segment is expected to achieve 106 billion yen in revenue and 3 billion yen in core operating profit. As you can see, the exchange rate will have a negative impact on the profit, but the segment will absorb the negatives and still achieve a year-on-year profit improvement. Actually, in the fourth quarter, the further improvement is expected, so the projected core operating profit is 3 billion yen. The profit ratio will also improve by 1.2 points. The IMC business and others segment is expected to achieve the revenue of 41 billion yen, the core operating profit of 6 billion yen, and the profit ratio of 14.6%, which are a year-on-year increase in both the revenue and profit. Now, page 9 also shows the outlook by business segment, but in a comparison against the previous projection. We revised down the musical instruments revenue by 17 billion yen and the core operating profit by 5 billion yen. In the audio equipment, we revised down the revenue a little but kept the profit forecast as they were. As for the IMC business and others, we revised down the revenue a little but actually revised up the core operating profit by 1 billion yen. This is because we were a bit cautious before due to the various uncertainties. But the actual core operating profit for the first three quarters turned out to be 5.6 billion yen. And we're confident that the fourth quarter will also be profitable. So we revised it up by 1 billion yen to 6 billion yen. Now, from here on, I'd like to give you the details of each business segment. Please turn to page 11. First, the musical instrument segment performances for the first nine months. Due to the COVID-related disruption in China and the reduced demand for entry-level models, it turned out to be about the same as the previous year. The piano sales declined due to the COVID impact in China. The digital musical instruments saw a drop of demand for the entry-level models, but the sales were on par with the previous year. The wind, string and percussion instruments enjoyed a double-digit growth driven by the strong sales in North America, and the guitar sales also increased due to strong demand for electric guitars. Furthermore, the demand for mid-range and high-end models remained robust. As for the full-year projection, due to the deteriorating market conditions in China and Europe, the sales are expected to fall year-on-year. The piano sales are likely to decline due to the continued COVID impact in China. The digital musical instrument sales are likely to decline as the demand for entry-level models are falling continually. The sales of wind, string and percussion instruments are expected to grow double-digit driven by North America, and the sales of guitars are also expected to grow. Please also note the bar chart on the left. As the red figures show, the first nine-month revenue was on par with the previous year, but the full-year revenue is expected to decline by 1%. Moving on to page 12, let me explain the breakdown of revenues by major product category. The pianos are facing tough business conditions in China, so the revenue is expected to drop 15% for the full year. Likewise, the digital musical instruments are likely to drop 2%. The windstring percussion instruments are likely to rise 20% driven by the great demand in North America. and the guitars are likely to rise 1%. On page 13, you can see the revenue breakdown by regions. In Japan, the revenue is expected to decline by 3% for the full year. In North America, driven by the continued momentum, we are expecting 13% increase. In Europe, as the entry model demand continues to be weak, we are expecting 4% drop. In China, since the pianos are especially sluggish, we are now anticipating 17% drop for the full year. As for the other regions, we are expecting 4% increase as the performances are continually robust. However, this is including the impact of the suspension of shipments to Russia and Ukraine. Yet, even without these revenues, the air-on-air growth would be 14% as the rest of the regions are actually performing very well. Now, please turn to page 14. Here are the details of the audio equipment segment. During the three-month period of the third quarter, the sales turned upward, but due to the cumulative negatives from the first half, the first nine-month sales were lower than the previous year. The AV products struggled with the semiconductor shortage and the headwinds for entry models, so the sales went down. The PA equipment sales went up due to the improved supply of digital mixers. The ICT equipment achieved double-digit sales growth from the healthy demand for network devices. for the full year with the recovery of pa professional audio equipment we are expecting to achieve the same level of revenue as the previous year the semiconductor shortages are expected to be almost resolved by the fourth quarter so the pa cells are likely to increase the ict equipment is continually enjoying strong demand for network devices and also with the increased corporate demand for the conference systems the category is expected to achieve a double digit growth Please also note the bar chart on the left. As you can see here, the first three quarters revenue was down by 3% year-on-year, but with the expectation of PA recovery in the fourth quarter, we are projecting a flat growth for the full year. Page 15 shows the revenue breakdown by major product categories. The AV products are continually facing difficulties, so we are anticipating a drop by 16% for the full year. The PA equipment is expected to rise by 5%, and the well-performing ICT equipment is expected to rise by 15%. Page 16 shows the regional breakdown. As for Japan, since this is the main market for the ICT equipment, and since the categories perform very well, we are expecting the full-year revenue to be up 7%. Yet the projection in North America is down 2%, and in Europe, down 3%. China is also down 4% since it is struggling, and the other regions are also down 2%. However, as I explained earlier, even without Russia and Ukraine, the other regions would actually be up 9%, so they are continually doing well. Moving on to page 17 for the IMC business and the others segment. For the first nine months, with the improvement of semiconductor supplies, the electronic device sales are increased. Yet, the sales of automobile interior wood components and factory automation equipment declined. For the full year, we are expecting the sales to increase with the further expansion of the automotive-related products of electronic devices. The supply of semiconductors are improving, and as I said earlier, we were a bit more cautious about various uncertainties previously, but the actual gross profit has been improving, so we revised up the full-year profit forecast by 1 billion yen. Please also note the bar chart on the left. We are expecting 7% revenue increase year-on-year for both the first three quarters and the full year. Now, please turn to page 19 for the other financial figures. Here is the balance sheet summary. As of the end of December 2022, the total asset was 577.1 billion yen and the total equity was 441.6 billion yen. You can also see the difference throughout the nine months since the end of March 2022. And namely, the cash and cash equivalents dropped very much. This is partially because the inventory increased. And also, as I have explained many times in the past, because we sold some of our shares of Yamaha Motors in the previous year, and we paid the corporate tax for the proceeds this year. So such cashouts led to decrease of cash balance by 58.4 billion yen. Moreover, the inventories increased. We're taking this seriously as a big challenge in the business management, so we are now making every effort to reduce the inventory balance. Current liabilities also declined, but this is because we paid up the tax that I mentioned earlier, and the total equity increased by 25.6 billion yen. The expected balance as of March 31, 2023 is as shown here on the very right. Next, please turn to page 20. As we announced yesterday on February 7th, we are going to acquire our treasury shares. The reason is to enhance the shareholder returns and capital efficiency. The acquisition period is from February 8th to July 31st. The total acquisition at the maximum will be 5 million shares or 15 billion yen worth of shares, and we are going to purchase them on the Tokyo Stock Exchange market. Page 21 shows the capital expenditure and R&D expenses. It is almost the same as the previous projection, but the expected full-year capital expenditure is 25.5 billion yen, and the R&D expense is also 25.5 billion yen. Finally, I'd like to touch on some recent topics, so please turn to page 23. According to the priority themes of our midterm plan, we're executing various activities, and in an effort to develop closer ties with our customers, we participated in a VR event for the first time. We also hosted an online concert performed by the students of Yamaha Music Schools. As such, we're trying to connect to our customers much more through the utilization of digital technology. Moreover, page 24 shows sustainability-related activities, and in the area of environment, one of the topics among many things we are doing is the prototyping of upcycling guitars. In the area of culture, we are proactively engaged in the instrumental music education initiatives in emerging countries, and this is making a good steady progress. Through an effort to value and engage Yamaha colleagues, we were awarded the highest ranking of gold in the Pride Index 2022 for four consecutive years, and we also launched a DE&I section on the corporate website. These were some of the recent topics. The remaining pages are the appendix for your reference. That is all from me. Thank you very much.