Yamaha Corporation (7951) Earnings Call Transcript & Summary

Good afternoon, everyone. I am Yamaura. Thank you for gathering on your busy schedule. I would now like to explain the results for the second quarter of FY 2026.3. I'd like to start by presenting the highlights of the first half of fiscal year ending in March 2026. Regarding the financial results summary for the first half of the fiscal year ending March 2026, revenue decreased due to sluggish market conditions in China, the absence of high demand for audio equipment for professional use and delayed recovery in European markets. Core operating profit decreased due to the impact of additional U.S. tariffs and a worsening product mix resulting from lower sales of high-margin audio equipment for professional use. Regarding the earnings forecast for the full fiscal year ending March 2026, we anticipate that revenue decrease due to the end of high demand for audio equipment for professional use and the sluggish market conditions in China. We also expect a decrease in operating profit due to the impact of U.S. tariffs and a deterioration in the product and regional mix. Next, I will explain the overview of the financial results. Here are the actual results for the first half. For the fiscal year ending March 2026, revenue was JPY 216.4 billion. Core operating profit was JPY 12.8 billion, a core operating profit ratio of 5.9% and net profit was JPY 9.8 billion. The exchange rates for the first half are shown on this slide. Revenue decreased by 5.2% compared to the previous period, but excluding the impact of exchange rates, the decrease was 2.9%. Next, this slide shows the factors contributing to the increase or decrease in core operating profit using a waterfall chart. In the first half of the previous fiscal year, core operating profit was JPY 20.4 billion. The decrease in sales, production and model mix, et cetera, amounted to JPY 6.5 billion attributed to factors such as entertainment PA equipment, which saw substantial revenue growth in the previous period, including the resolution of backlog orders and Europe, where high value-added models accounted for a high proportion. The impact of tariffs factored in this time amounted to a negative JPY 5.2 billion year-on-year. Approximately half of this, JPY 2.7 billion was covered through price increases and other measures. Other factors include the JPY 1.2 billion positive effect from the structural reforms we are implementing in piano manufacturing, resulting in a final core operating profit of JPY 12.8 billion. Next, here are the results by business segment. For the Musical Instruments business, revenue was JPY 140.4 billion. Core operating profit was JPY 7.7 billion, and the core operating profit ratio was 5.5%. For the Audio Equipment business, revenue was JPY 67.7 billion. Core operating profit was JPY 5.4 billion, and the core operating profit ratio was 7.9%. Others business performed as shown here. Next, let's look at our full year earnings forecast. For the fiscal year ending March 2026, our current forecast is revenue of JPY 458.0 billion, a decrease of JPY 4.1 billion compared to the previous year. Compared to the previous forecast, this represents an increase of JPY 6.0 billion. Core operating profit is forecast at JPY 33.0 billion with a core operating profit ratio of 7.2%. Compared to the previous fiscal year, this is a decrease of JPY 3.7 billion, but compared to the previous forecast, it is an increase of JPY 1.0 billion. Net profit is forecast at JPY 23.0 billion, an increase of JPY 9.6 billion compared to the previous fiscal year and an increase of JPY 0.5 billion compared to the previous forecast. The exchange rate assumptions are as shown here. This waterfall chart shows the factors affecting the change in core operating profit in the full year forecast. First, the upper section compares with the previous fiscal year. From the previous year's actual result of JPY 36.7 billion, factors, including a decrease in sales, production and model mix, et cetera, resulted in a decrease of JPY 2.9 billion. As mentioned earlier, the decline in sales of entertainment PA equipment was a major factor here. This is offset by tariff impacts of JPY 10.1 billion, offset by JPY 6.2 billion in countermeasures. The effect of structural reforms from the previous period of positive JPY 2.0 billion and a positive JPY 2.3 billion from onetime expenses recorded in the previous period. This results in a full year forecast of JPY 33.0 billion. Next, looking at the lower section, comparing with the previous forecast, impact of exchange rates added JPY 3.0 billion, while a decrease in sales, production and model mix, et cetera, primarily due to lower European revenue will push down the profit by JPY 3.7 billion, including a JPY 0.6 billion reduction in SG&A expenses from the previous forecast, the core operating profit is projected to be JPY 1.0 billion higher than the previous forecast of JPY 32.0 billion. Next, here the overview by business segment. This is the Musical Instruments business. For the full year forecast, revenue is projected to be JPY 299.0 billion; core operating profit, JPY 21.5 billion and the core operating profit ratio is forecast to be 7.2%. For the Audio Equipment business, revenue is projected to be JPY 139.0 billion; core operating profit, JPY 11 billion, and the core operating profit ratio is forecast to be 7.9%. For Others business, forecast is as shown here. Compared to the previous forecast, excluding the impact of exchange rates, the projection of the Musical Instruments business shows increased revenue. Next, let's go through the business segment overview. First, the Musical Instruments business. The upper right summarizes the first half results and full year outlook. For the first half, hardware product sales for musical instruments, excluding pianos, shifted to growth. Piano decreased due to sluggishness in China and delayed recovery in European markets. However, digital musical instruments revenue increased, driven by steady digital piano sales and a recovery in portable keyboards. Wind, strings and percussion instruments continued strong performance in Japan, leading to increased revenue. Gitar revenue increased, primarily driven by continued strong performance in acoustic guitars. Moving to the full year outlook. We maintain our forecast for revenue with recovery expected across all product categories, except pianos. Piano sales are expected to decline due to continued in China. Digital musical instrument sales are projected to increase as all regions except China recover. Wind, strings and percussion instruments as well as guitar sales are also expected to be solid, leading to increased sales. This shows the sales status and outlook by major product category. Excluding the impact of exchange rates, pianos are projected to decrease by 5% year-on-year. Digital musical instruments to grow by 5%, wind, strings and percussion instruments by positive 2% and guitars by positive 11%. Next, the sales status and outlook by region. Europe stands out with 6% growth compared to the previous period, but this is due to the impact of revenue declines caused by issues during the core system replacement in the fourth quarter of the previous period. North America and other regions are showing growth on a real basis, while China is projected at negative 5% compared to the previous period. Next, regarding the audio equipment business. For the first half, growth in audio equipment for professional use and mobility use has leveled off. Consumer use saw a decline in home audio. Audio equipment for professional use performed well in emerging markets, but Europe, which had high demand last year, saw a significant decrease. Audio equipment for mobility use doubled in Japan, but as expected, sales to China decreased. For the full year outlook, we anticipate that revenue to decrease in audio equipment for professional use in Europe and the U.S. coupled with a decline in automotive sound system sales in China, leading to a full year revenue decrease. Here is the sales outlook for these 3 categories. Audio equipment for consumer use and professional use are projected at negative 3% of the previous year, while mobility use is projected at negative 15%. Next, the sales situation and outlook by region. Japan is projected to show significant growth at 11%, driven by strong growth in audio equipment for mobility use for the Japanese market and robust performance in network equipment. Conversely, Europe is forecast to show a significant year-on-year decline due to reduced entertainment PA sales, while outlook for China also shows a significant year-on-year decline due to reduced sales of mobility audio to Chinese manufacturers. Regarding others business, automobile interior wood components continued to perform well, and we anticipate increased revenue from factory automation equipment in the second half. Next, other financial figures. First, the balance sheet. Changes at the end of the first half show cash and cash equivalents increased by JPY 7.7 billion. Other items, such as trade and other receivable and inventory show relatively large fluctuations, but these are largely due to seasonality of our business. Current liabilities decreased by JPY 5.3 billion, primarily due to progress in settling unpaid liabilities. For the forecast at the end of March 2026, cash and cash equivalents is projected at JPY 94.0 billion and inventory at JPY 147.0 billion, representing a slight decrease from the previous fiscal year-end. This slide summarizes ROE, ROIC and shareholder returns. First, ROE. We initially planned for 6.3%. But due to tariff impacts, the forecast now stands at 5.1%. There remains a gap to the cost of shareholders' equity of 6.8%. We will continue to pursue earnings improvement and the steady execution of shareholder returns. The ROIC forecast is 5.0%. Regarding shareholder returns, we are presenting an annual dividend of JPY 26 per share. Additionally, at today's Board of Directors meeting, we resolved matters concerning the acquisition of treasury shares. The acquisition period, total acquisition amount and other details are as shown on this slide. This treasury shares acquisition aims to enhance shareholder returns and capital efficiency. We plan to cancel all acquired treasury shares. Capital expenditures, depreciation and R&D expenses are as shown on this slide. Moving on to topics. I would like to introduce several initiatives we are pursuing as key themes of our midterm management plan. First, as part of rebuilding a strong business foundation, we are advancing efforts such as developing new products and enhancing intrinsic product value. As introduced here, we have launched new products that refine intrinsic product value in synthesizers, guitar amplifiers, effects processors, music production tools, network equipment and more. Next, I'd like to briefly introduce our challenges for evolving to create the future. First, we aim for revenue growth through proactive investment in key markets, particularly emerging markets. We have high expectations for India and the Philippines and have been advancing investments in each market. Additionally, as a challenge to create new businesses, we announced the launch of the Global Business Contest, the TRANSPOSE Innovation Challenge. Regarding our initiatives to set sustainability as a source of value, we are expanding our efforts to promote music education in emerging markets, as shown in the center. We present examples from Egypt, India and Vietnam here. Furthermore, we are steadily progressing our midterm plans, key themes, including strengthening the management foundation. The following is supplementary material. This concludes my presentation. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]