Yamaha Corp

I am Yamaura. Thank you very much for joining. I'd like to present the financial results of the second quarter for the fiscal year ending in March of 2025. I'd like to start by presenting the highlights of the first half of fiscal year ending in March of 2025. Despite the strong performance of B2B sales of audio equipment and the impact of yen depreciation, revenue decreased year-over-year in real terms due to weak sales of musical instruments caused by a prolonged sluggish market in China. Core operating profit increased due to a major rise in audio equipment and the impact of foreign exchange rates, more than offsetting the profit decrease of musical instruments. Given the further deceleration in the Chinese piano market, we have recognized an impairment loss of 7.8 billion yen for piano production facilities in China and Indonesia. The full-year revenue and profit forecasts were revised downward due to the further deceleration of the Chinese market. Our forecast for the year-end dividend per share remains unchanged at 13 yen. As you can see in the footnotes, this translates to a year-end dividend of 39 yen and an annual dividend of 76 yen before the stock split.

Next, let's look at our financial results in more detail.

Revenue for the first half of this fiscal year stood at 228.1 billion yen, up 8.5 billion yen, or an increase of 3.9%. As you can see in the footnotes, if the impact of foreign exchange rates is excluded, revenue actually decreased by 1.8%. Core operating profit came to 20.4 billion yen, up 5.1 billion yen year-over-year, or an increase of 33%. Net profit came to 5.3 billion yen, down 9.7 billion yen year-over-year. This significant decrease is due to the downward adjustment of our long-term sales outlook from the Chinese market and the write-down of our piano factories in Hanzhou, China, and Jakarta.

This page shows the core operating profit analysis versus the previous year.

Core operating profit in the first half of last fiscal year was 15.3 billion yen. The impact of exchange rates was positive 6.8 billion yen. After considering several small negative factors included in the graph, this year's core operating profit came to 20.4 billion yen. Next, let's look at our performance by segment. The revenue of musical instruments stood at 145.2 billion yen, down 3 billion yen year over year. Excluding the favorable impact of exchange rates of 7.9 billion yen, revenue actually decreased by 10.9 billion yen. The revenue of audio equipment came to 64 billion yen, a significant increase of 11.3 billion yen year over year, even after considering the impact of foreign exchange rates. IMC Business and others recorded 18.9 billion yen in revenue, up 200 million yen year-over-year. However, this includes the favorable impact of exchange rates of 1.1 billion yen. If this is excluded, revenue actually decreased by 900 million yen compared to the previous year. Please refer to the slide for core operating profit numbers. Next, I will present our full-year outlook for the fiscal year ending in March of 2025. Revenue is projected at 460 billion yen, down 2.9 billion yen year-over-year. We have revised our forecast down by 15 billion yen compared to the previous estimation owing to the further deceleration of the Chinese market. Core operating profit is expected to reach 37 billion yen, up 3.3 billion yen year over year.

I will discuss more about this when we get to the next slide. Net profit is projected at 18 billion yen.

As I mentioned earlier, this is primarily due to write-down of our piano factories in Hanzhou, China and Jakarta. Net profit is significantly down 11.6 billion yen versus the previous year and 17.5 billion yen versus previous projections for this year. Foreign exchange rates are shown at the bottom of the slide. This page shows year-over-year changes in core operating profit. Last year's core operating profit was 33.7 billion yen. The impact of exchange rates in the absence of one-time expenses are positive 8 billion yen and 4.4 billion yen, respectively. However, lower sales of musical instruments and decreased production are negative 5.3 billion yen. Considering other negative factors such as the increase in raw material costs, ocean freight charges, and SG&A including IT costs, this year's core operating profit is projected at 37 billion yen. Compared to the previous projections, the biggest factor behind the change is lower sales of musical instruments and decreased production, which is negative 8.3 billion yen. Moving on to our outlook by business segment. Musical instruments are expected to be unfavorable for the full year. We do not anticipate any recovery in Chinese market during this fiscal year. Our revenue outlook for this segment is 292 billion yen, down 13.2 billion yen year-over-year. The main reason behind the significant drop in both revenue and profit is the decrease in production. By contrast, audio equipment revenue and profit are expected to reach 129 billion yen and 13 billion yen, respectively. Revenue and profit of IMC business and others are expected to increase on a constant currency basis with revenue reaching 39 billion yen and core operating profit reaching 3 billion yen. I'll walk you through the details of each segment. Starting with musical instruments. In the first half, revenue decreased primarily due to the sluggish Chinese market. Sales of pianos decreased due to lower demand in China. Sales of digital musical instruments were also poorer in China. Demand for wind, string, and percussion instruments remained strong, but sales remained flat year over year due to the discontinuation of U.S. subsidies. Demand for guitars was strong in China and Japan, but sales decreased due to continued weakness in other markets. Full-year revenue is projected to decline due to further deceleration in China. Sales of pianos are projected to decrease due to market downturn primarily in China. Sales of digital musical instruments are projected to recover last year's level through our efforts to increase our market share despite the difficult market conditions. Sales of wind, string, and percussion instruments are projected to decrease as U.S. subsidies have expired. Guitar sales are projected to increase as electric guitars are performing well. This slide provides revenue by major product category. Sales of digital musical instruments and guitars are expected to grow year over year. Sales of wind, string, and percussion instruments are expected to be flattish. Piano sales are projected to decrease significantly year over year. In terms of revenue by region, there is no major change to trends in Japan, Europe and other regions compared to the previous year. North America is slightly down and China is significantly down year over year. Moving on to audio equipment, in the first half, revenue increased due to strong B2B sales. Consumer product sales declined due to shrinking home audio business despite strong sales of music production software. B2B product sales increased substantially due to continued robust demand. For the full year, audio equipment sales are expected to grow, driven by strong B2B sales. Consumer sales are expected to decrease due to shrinking home audio business despite strong demand for music production software. B2B sales are projected to achieve high growth driven by continued strong demand. Next, revenue projections by major product category. Consumer products are expected to decline because the market is shrinking. By contrast, B2B products remain strong. Our new digital mixer is getting great feedback about it from the market, and we are aiming to achieve 16% growth year-over-year. Moving on to revenue by region, in Europe and other regions, B2B audio equipment grew significantly driven by numerous live events. B2B business is driving the entire audio equipment performance. As for IMC business and others, in the first half, sales of electronic devices increased, driven by automotive sound systems. By contrast, sales of automobile interior wood components, FA, and golf products decreased. Foliar revenue is projected to increase, driven by automotive sound systems. As you can see from the slide, the core operating margin is expected to increase from last year's 5.3% to 7.7%. Let's look at other financial figures. This is our balance sheet. As of the end of last fiscal year, the level of inventories was extremely high at 164.1 billion yen. We will continue to normalize the level of product and part inventories. By the end of this year, inventories are expected to go down by 24.1 billion yen to 140 billion yen. Consequently, cash and cash equivalents are expected to slightly increase. Let's turn to indicators such as ROE and ROIC. As I mentioned before, in the first half of this fiscal year, we made a downward adjustment of our long-term sales outlook from the Chinese market and recognized an impairment loss on our piano factories in Hanzhou, China, and Jakarta. As a result, our net profit is expected to decrease year-over-year, and the ROE for the fiscal year ending in March of 2025 is projected to be 3.6%, which is far below the cost of shareholders' equity. We aim for an ROE that exceeds the cost of equity by improving revenue and profit and steadily providing returns to shareholders.

On September 9th, we announced the partial sale of Yamaha Motors shares. Please refer to this slide for the number of shares sold. We also announced our plan to buy back up to 18 million of our shares.

This corresponds to 3.7% of the outstanding shares of Yamaha Corporation, which will be fully cancelled after the acquisition. Next, let me share the details on capital expenditure, depreciation, and R&D expenses. Capital expenditure was high last year due to the construction of office buildings in the head office area at Minato Mirai. It is expected to go back down this year to the level before last fiscal year, and the progress is good. R&D expenses for this year have remained steady in line with last year's level.

Finally, I will share some recent news.

The current midterm plan has three priorities. Further strengthen our business foundation, set sustainability as a source of value, and enable Yamaha colleagues to be more valued, more engaged, and more committed. We have been implementing various measures based on these three pillars, some of which are shown in the next few slides, including this one. Firstly, to further strengthen the business foundation, we believe we need to develop closer ties with customers to expand our business domain. One area which is expanding, as you can see on the slide, is our automotive sound systems. We also need to create new value through continuing to develop products with individuality, building partnerships, and accelerating collaborations with new third parties.

Next, let me share two initiatives for setting sustainability as a source of value.

First, to enhance our brand and competitiveness by contributing to comfortable lives, we aim to develop universal designs for sound applications in public institutions. Omotenashi Guide is a service for converting audio announcements at public institutions into texts in multiple languages. The service is being introduced at all Tokyo metro stations. Second, to promote music culture, we have been working to expand music education in emerging countries. A program to support the introduction of Japanese-style music education in India and Kenya was selected as a project for the Eduport Nippon Support Project of MEXT of the Japanese government and is steadily expanding. Finally, in order to enable Yamaha colleagues to be more valued, more engaged, and more committed, we are working to foster an open organizational culture where people can proactively take on challenges. In October, we organized an internal event called Yamaha Day where participants reflected on our brand. Also, the company joined a group called Health Management Alliance to create a workplace environment where people can work enthusiastically. The rest of the presentation slides are for your reference. I will not go through them now, so please take a look at them at your earliest convenience. This brings us to the end of my presentation. Thank you very much for your attention.