Yamaha Corporation (7951) Earnings Call Transcript & Summary

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 JPY 7.8 billion 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 JPY 13. As you can see in the footnotes, this translates to a year-end dividend of JPY 39 and an annual dividend of JPY 76 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 JPY 228.1 billion, up JPY 8.5 billion 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 JPY 20.4 billion, up JPY 5.1 billion year-over-year or an increase of 33%. Net profit came to JPY 5.3 billion, down JPY 9.7 billion 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 Hangzhou, 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 JPY 15.3 billion. The impact of exchange rates was positive JPY 6.8 billion. After considering several small negative factors included in the graph, this year's core operating profit came to JPY 20.4 billion. Next, let's look at our performance by segment. The revenue of musical instruments stood at JPY 145.2 billion, down JPY 3 billion year-over-year. Excluding the favorable impact of exchange rates of JPY 7.9 billion, revenue actually decreased by JPY 10.9 billion. The revenue of audio equipment came to JPY 64 billion, a significant increase of JPY 11.3 billion year-over-year, even after considering the impact of foreign exchange rates. IMC Business and Others recorded JPY 18.9 billion in revenue, up JPY 200 million year-over-year. However, this includes the favorable impact of exchange rates of JPY 1.1 billion. If this is excluded, revenue actually decreased by JPY 900 million 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 JPY 460 billion, down JPY 2.9 billion year-over-year. We have revised our forecast down by JPY 15 billion compared to the previous estimation owing to the further deceleration of the Chinese market. Core operating profit is expected to reach JPY 37 billion, up JPY 3.3 billion year-over-year. I will discuss more about this when we get to the next slide. Net profit is projected at JPY 18 billion. As I mentioned earlier, this is primarily due to write-down of our piano factories in Hangzhou, China and Jakarta. Net profit is significantly down JPY 11.6 billion versus the previous year and JPY 17.5 billion 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 JPY 33.7 billion. The impact of exchange rates and the absence of one-time expenses are positive JPY 8 billion and JPY 4.4 billion, respectively. However, lower sales of musical instruments and decreased production are negative JPY 5.3 billion. 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 JPY 37 billion. Compared to the previous projections, the biggest factor behind the change is lower sales of musical instruments and decreased production, which is negative JPY 8.3 billion. 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 JPY 292 billion, down JPY 13.2 billion 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 JPY 129 billion and JPY 13 billion, respectively. Revenue and profit of IMC business and others are expected to increase on a constant currency basis with revenue reaching JPY 39 billion and core operating profit reaching JPY 3 billion. 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 poor 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. Full year 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 JPY 164.1 billion. 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 JPY 24.1 billion to JPY 140 billion. 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 Hangzhou, 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 9, we announced the partial sale of Yamaha Motor's 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 canceled 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 in Minatomirai. 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 3 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 3 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 2 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 text 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. Our program to support the introduction of Japanese-style music education in India and Kenya was selected as a project for the Edu-Port 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.