Yamaha Corporation

Motoki Takahashi - Director

Good morning. My name is Takahashi from Yamaha.

Thank you very much for coming to Yamaha Corporation's Financial Results Meeting, despite your busy schedule. Let me start the meeting using the presentation.

First, please turn to page 2. This is the overview of the performance in the first quarter.

First quarter sales increased year-on-year, and operating income was on a par with the previous year. Although sales were slightly lower than previous projections, operating income was broadly in line with expectations.

Musical instrument sales were generally robust, partly due to a rebound in the North American and Chinese markets but the Audio Equipment segment struggled due to defects in outsourced parts for AV products. Electronic devices lagged overall, especially in smartphone components.

Except for factory automation equipment, other business was broadly in line with previous projections. The next page shows the performance in the first quarter fiscal year March 2015.

As you can see, net sales were ¥99.6 billion, operating income ¥6.2 billion, ordinary income ¥5.9 billion and net income ¥4.1 billion. The reason why there is a significant difference between the previous year in ordinary income and net income is that we had a ¥1 billion gain coming from sales of marketable securities last year and we have booked currency related losses this year.

As for the exchange rate, it was ¥102 to the Dollar and ¥140 to the Euro for the first quarter. Going to the next page, this is a performance by business segment.

The Musical Instrument segment saw an increase on sales and profit year-over-year and versus previous projections. As for the Audio Equipment business, it booked a growth on sales year-over-year but profit declined.

Electronic Devices business recorded a decline both year-over-year and against previous projections with an operating loss of ¥0.2 billion. The impact of the exchange rate is shown at the bottom of the slide.

One thing I want to mention is that for the first quarter, the impact was more pronounced on the operating profit rather than on sales. This page shows the operating income analysis for the first quarter.

The upper half is versus the same period of last year and lower half is against previous projections. If you compare the difference for the previous year, starting with the yellow bars which are negative factors, first, we have a minus ¥0.3 billion impact coming from manufacturing cost, mainly increase in labor cost in overseas factories and minus ¥0.7 billion due to new consolidations, out of ¥0.7 billion, ¥0.6 billion is goodwill amortization.

There is ¥2.2 billion minus coming from the actual decrease in sales. On the positive side, we had a ¥2.2 billion positive impact coming from exchange rate, ¥0.1 billion decrease in actual SG&A and ¥0.9 billion due to improvement in manufacturing cost.

All-in-all, this led to a ¥6.2 billion operating income for Q1. Versus previous projections, although there was a ¥1.1 billion actual decrease in sales, we compensated for this through the positive impact of ¥1 billion from exchange rate and through reductions in SG&A and we were able to see ¥6.2 billion of operating income.

Going to each businesses, first let’s take a look at the Musical Instruments business. Net sales were ¥65.7 billion and operating income ¥5.8 billion.

Sales and income increased year-on-year and exceeded previous projections. It had become quite clear that the North American market was on a recovery trend.

The Chinese market rallied to achieve a double-digit growth for the first time after some years especially in the Chinese market sales of one of our major products, pianos were 115% year-over-year and this had a considerable impact on this business. Other markets continue to face challenging conditions.

As for the Japanese market, the impact of the consumption tax hike remained within predicted levels. We are struggling a bit in piano orders but overall the situation is within our expectations.

On the other hand sales of new Electone products that we have launched for the first time in 10 years, is showing a strong performance. Next is Audio Equipment business.

Net sales was ¥24.3 billion and operating income was ¥0.6 billion, basically in line with previous projections. Sales of AV products fell year-on-year in all markets.

As for the professional audio equipment, sales of digital mixers which we introduced ahead of other regions, were strong in the European market but overall results were on par with the previous year. In the ICT devices segment, router sales were robust.

This slide is about the Electronic Devices business. Net sales stood at ¥3.8 billion while we booked in operating loss of ¥0.2 billion.

Sales of smartphone component including geomagnetic sensors and codec products declined. Conditions remain challenging in the amusement equipment market despite the fact we have expected more activity.

These are the major reasons for the performance. Going to others segments.

Net sales were ¥5.8 billion with zero operating income. Automobile interior wood component sales were broadly in line with expectations.

In Golf products, we introduced new iron golf clubs which have basically leading to an increase of sales year-over-year. Resort sales fell from the same period of the previous year, although factory automation equipment sales declined, orders picked up.

Now I would like to refer to the full year outlook for the year ending in March 2015. First, let me touch upon the outlook for the second quarter to the fourth quarter.

We are anticipating an ongoing rebound in demand for musical instruments in the North American and Chinese markets. Although, recovery from the negative impact of defective AV product component is expected, conditions remain challenging in the audio market, which may lead to concerns to what extent we can recover through new products.

In the Electronic Devices segment, there maybe some concern into how much recovery can be seen in the amusement market, while the focus will be on expanded introduction of new products. Previous projections announced on April 30th, remain unchanged.

This is a forecast for the performance in fiscal year 2015 March. The outlook for each of the items is net sales ¥430 billion, operating income ¥29 billion, ordinary income ¥28 billion and net income ¥21 billion.

These figures aren’t changed from the previous projections. The exchange rate assumptions are again unchanged from the previous projections at ¥100 to the Dollar and ¥135 to the Euro.

This is a full year forecast for performance by business segments. As for the overall net sales and operating income, it is unchanged from the previous projections but there are some changes within segments.

Musical instruments, net sales and operating income will grow, while the outlook for audio equipment stays the same. In the Electronic Devices segment, we have revised both sales and income down for the full year.

This is analysis for the full year outlook for operating income. Last year was ¥26 billion while this year we have set the forecast at ¥29 billion.

Negative factors will be ¥1.2 billion of increase in manufacturing cost, ¥2.9 billion of increase of actual SG&A and ¥2.3 billion coming from new consolidations including goodwill amortizations. On the positive side, we are forecasting ¥3.3 billion actual increase in sales and production, ¥2.5 billion coming from the impact of exchange rates and ¥3.6 billion from improvement in manufacturing costs.

In total, our outlook is ¥3 billion increase of operating income year-over-year. Analysis versus previous projections has shown on the lower part of the slide.

On the negative side, we foresee ¥1.4 billion minus coming from actual decrease in sales and projection and ¥0.1 billion minus due to target unmet for improvement in manufacturing cost. These ¥1.5 billion of shuffle will be compensated by actual decrease in SG&A, ¥0.5 billion positive impact of exchange rates and ¥0.2 billion reduction in projected cost of increase in manufacturing cost.

This item will be netted off with the bars shown on the left hand side. All-in-all, this will lead us to a ¥29 billion of operating income and the target will be unchanged versus previous projections.

I will explain projections by each business, first, the Musical Instruments business. Net sales are projected to be ¥274.5 billion and an operating income ¥22.5 billion.

As explained before, the recovery trend in the North American market is expected to continue. The European market is projected to pick up after flat year-on-year first quarter results mainly through the good performance of portable keyboards to achieve actual growth.

The Chinese market is expected to grow in all product categories. Other markets are anticipated to recover due to introduction of new products.

Also as written in the last line in the slide, we had issues last year in guitar supplies due to the strike that took place but this year we can factor in recovery of sales. Slide 15 shows the musical instruments sales by region.

As you can see for the North American market, we are anticipating it to recover to 114% against the previous year excluding ForEx impact. On the other hand, the Japanese market will be 98% for the full year.

The impact of the new Electone products is strong however we think that the recovery of piano sales will still take some time. China will be 109% for the full year.

Going to the Audio Equipment business, net sales projections is ¥112 billion, operating income ¥6 billion. These figures are unchanged from previous projections.

Launch of new AV products such as sound bar speakers and connected audio products will keep actual results broadly in line with the previous year. We are anticipating growth in professional audio equipment sales in Europe and other markets, thanks to the launch of new products such as digital mixers.

Router sales will remain robust. This is audio equipment sales by region, among the regions you can see that China is showing a strong growth at 144% against the previous year.

This includes the OEM business in China of the newly consolidated Revolabs. If we exclude this factor and conduct an apple-to-apple comparison with the previous year, China is actually 96%.

This means that in the Audio Equipment business we are the most cautious about the China market. We are forecasting a strong third quarter in Japan at 121% year-over-year.

This is due to the recovery of audio equipment installation business and the professional audio equipment. We actually have received double the amount of orders in this business year-over-year and we expect this to be recorded a sales in this period.

Next, this is a sales by major product categories. For pianos and wind instruments and acoustic instruments, we expect sales to be basically the same as last year.

As for digital musical instruments, we have the new Electone products and digital piano products are well received throughout the world. Due to these factors, we are anticipating 107% of sales in this category.

String and percussion instruments will grow to 112% as the impact of the strike that took place last year for guitar productions will disappear this year. Going to the Audio Equipment business, while the first quarter for AV products were 83% with the introduction of new products we are forecasting that we will be able to be at 99% by the end of the year.

We’re also anticipating a growth to 107% for the full year for professional audio equipment. Going to the Electronic Devices business, ¥17.5 billion is a projection for net sales while the forecast for operating income is zero.

In the amusement business, there is trend to hold back buying of new pachinko units but we think sales will rally in the second half. The situation in this market holds the key.

Going to smartphone components, the outlook for demand remains uncertain, although we are struggling with the business with our main customer, we are taking initiatives to expand the customer base to Taiwan and China. We have incorporated these factors in our outlook.

This slide is the others business, projections are the same as the previous projections with net sales standing at ¥26 billion and operating income at ¥0.5 billion. Sales for automobile interior wood components are expected to be in line with previous projections.

For Golf products, sales are anticipated to rise year-on-year with a launch of new products. FA equipment saw a downturn of sales year-over-year in the first quarter but we think will recover in the second half as we see orders recovering.

We are expecting a ¥1.2 billion increase of sales for this business. Sales are predicted to be in line with previous projections.

This shows inventories; inventories at the end of the first quarter were ¥89.1 billion. If we stripped out currency impact, in reality inventories went down by ¥3.2 billion year-over-year, we consider this as an adequate level.

We anticipate inventories at the end of this fiscal year to be at ¥82.5 billion. The slide shows CapEx, depreciation and R&D expense.

Capital expenditure was ¥3.2 billion in the first quarter. We are forecasting ¥13.6 billion for the full year which will largely be in line with previous projections.

R&D spending in the first quarter was ¥5.9 billion. We are expecting this to be ¥25.3 billion for the full year which again is in line with previous projections.

This includes R&D of ¥2 billion of the newly consolidated companies Line 6 and Revolabs. This shows our balance sheet.

The recent cash and deposits and net assets will increase at the end of the fiscal year, is due to the fact that profits are going to increase. No major changes are anticipated.

This ends my presentation. Thank you very much.