Takuya Nakata - General Manager, Corporate Planning Division

Good morning. Thank you for your support towards the business activities and participating today’s telephone conference for Yamaha’s First Quarter Results. My name is Takuya Nakata, General Manager of Corporate Planning Division and I will be in charge of the financial results briefing from this quarter. Let’s start with Slide 2. This is an overview of the performance in the first quarter. In the first quarter, sales increased year-on-year and all the profit lines increased sharply. This is the fourth consecutive year of rising first quarter sales and operating income. Both sales and income exceeded previous projections. Let me explain by each segment. In the musical instrument segment, the Chinese market grew double digit, the European market despite causes outlooks posted by sales and made up with a slow recovery of the Japanese market. Both sales and income increased from the same period of the previous year. In the audio equipment business, despite ongoing headwinds for AV products, the professional audio business continued to maintain a strong momentum in Europe. China and other markets also generated strong sales resulting higher year-on-year sales. Although the electronic devices sales declined year-over-year, income improved from Black, as structural reforms took effect and sales of components for amusement equipment rebounded. Higher sales of factory automation equipment were the main factor behind increased year-on-year sales and income for other business, sales robust in all business segments. Let us come from the performance in the first quarter. Net sales were 105.5 billion yen, operating income 8.9 billion yen, ordinary income 8.5 billion yen and net income was 6.3 billion yen. Each income line increased strongly. I will explain the factors behind the increase of operating income later. As with the exchange rate, U.S. dollar was 20 yen weaker compared to the previous year on sales and operating income. Euro was 6 yen stronger on the sales line and 7 yen stronger for operating income. Against previous projections, euro was 4 yen weaker for sales and 3 yen weaker for operating income. Next, I would like to go to the sale and income by business segment for the first quarter. We only disclosed a total amount for previous projections. The breakdown is not noted. Increase of sales and income in the musical instrument business is driving the overall business; improved profitability of the electronics business puts another driver. At the bottom of the slide, we show the impact coming from exchange rates both for sales and operating income. The next slide is the operating income analysis. Last year's operating income for the first quarter was 6.2 billion yet, negative impact this year for bidding came from increase in labor cost at overseas factories. To the right, we show positive factors starting with the positive 1 billion yen positive impact coming from continued effort to improve manufacturing cost, 1 billion yen plus coming from increase in sales and gross margin, 0.7 billion positive contribution coming from improved profitability as structural reform, 0.3 billion coming from impact of exchange rates. The bottom half of the slide is a comparison against previous projections showing the analysis has changed from 7 billion to 8.9 billion yen. The biggest impact is coming from the actual decrease in SG&A which is 1.3 billion yen due to the delay of the spending followed by 0.7 billion yen impact coming from exchange rates. Improvement of profitability of electronic devices and improvement of manufacturing costs were factors of increasing income by the gross profit in that which are expected levels to increase of operating income versus projections plus 1.9 billion yen. I would like to explain the performance by business segment for the first quarter. First, the musical instruments business. Both sales and income increased year-over-year for this business. As a transfer of the musical school business for Yamaha Foundation is from the second quarter. There was no impact for the first quarter. Sales in North America were strong at 101% year-over-year in local currency and in line with our expectations. Sales in Europe were 105% exceeding our expectations. We’re able to maintain a double-digit growth in pianos in the Chinese market. Digital musical instruments grew double-digit in this market with a robust 114% growth overall. Other markets grew 105% and excluding the domestic market where the recovery of piano sales has been slow, we were able to see overall a healthy situation. This slide is the audio equipment business, both sales and income rose year-over-year in this segment. Despite the fact that sales were tough for AV products and sales of online karaoke equipment fell, due to the changes in supply structure. Actual professional audio equipment sales showed double-digit growth in all markets excluding North America. Products of Revolabs which are used in ICT devices achieved strong sales with sales growing year-over-year. For this quarter, the composition ratio of professional audio equipment exceeded that of AV products and online karaoke equipment resold from last year. As for the electronic devices, although sales declined over the previous year, operating income improved largely and was in the Black by the effect of structural reforms and valuing sales of devices for amusement equipment. We’ll go fabulous on the second half of this year. We have already produced devices that we have responsibility to supply it in the first quarter. We will prepare to handover the plant facilities in the second quarter. Sales and income increased year-over-year for the others business too. The major reason behind this is that in the factory automation business, strong taking in the previous had led to the delivery of these products which will shows better performance of the segment overall. In other areas of business, sale of automobile interior with components declined as it was just before model changes. Sales of components declined slightly year-over-year as well because South Korea which is a major export market was going through economic stagnation. I will next explain our outlook for the second quarter to the fourth quarter and the full year. As for the musical instruments business in light of the fairly healthy sales in each of the markets results, we feel that there is no necessity to change our projections for the following quarters. We will maintain our sales outlook. The audio equipment business was drive for continues growth in professional audio equipment business with a focus on new products and aim to recover the sales of AV products paying attention to the change of consumer trend and introducing new products. In the electronic device business, building on foundations laid by the effects of structural reform will tap in to the recovery trend of amusement equipment and attain profitability in a stable manner. Exchange rate forecast remains unchanged at 120 yen to the dollar and 130 yen to the euro. Full year projections have been revised upwards in light of increased sales and higher operating ordinary and net income in the first quarter from the previous projection of 435 billion yen of sales and operating income of 34 billion yen to 437 billion and 35 billion respectively. Operating income grew strongly in the first quarter but this has been mainly due to detail of spending SG&A. From the second quarter onwards, the remained that will be spend. This slide is a full year forecast. I have already mentioned the figures so please confirm. Slide 12 is a big turn of the full year forecast by business segments. We have revised up the sales and operating income for the musical instruments business against previous projections by 1.5 billion and 1 billion yen respectively. We have revised up the forecast for audio equipment sales by 0.5 billion yen. For other business segments, we have not changed our outlook for both sales and income. This slide is a full year operating income analysis for this year’s outlook. Against the previous year, we are forecasting 1.6 billion negative impacts coming from an increase in labor cost of overseas factories as we are planning to increase SG&A, this will be a minus to 2 billion yen. On top of that we are forecasting that there will be a negative impact coming from exchange rates of 2 billion yen. These negative factors will be offset by positive factors such as 4.2 billion of actual increase in sales, 2.5 billion from increase and profitability of electronic devices business and 3.8 billion improvements in manufacturing cost. In total, our forecast is 4.9 billion yen increase of operating income versus previous projections, major differences will be coming from the impact of the exchange rates of 1.1 billion yen. Others include improvement and factoring cost and higher labor cost at overseas factories and gross profit. Next, a full year projection of the musical instrument business, income is projected to increase year-over-year and sales and income are both expected to exceed previous projections. As I have explained in the outlook for the second quarter to fourth quarter, despite some concerns we are anticipating that the momentum of sales that we have seen in the first quarter can be maintained and we will maintain our sales projection. By product, we anticipate sales of digital pianos and wind instruments showing strong momentum in North America will grow. I would like to explain the outlook for the musical instrument sales by region and by each quarter. Although there had been slight adjustments from previous projections there has been no major changes. This slide is a full year projection of the audio equipment business sales and income are projected to rise against the previous year. We’ve increased our sales projection by 0.5 billion from precious projection will aim to full recovery in the AV products business through the full fledge introduction of new products in the second half. As for the professional audio equipment business on top of the affordable price digital mixer products that we have launched in the first half by the introduction of flagship model in the second half that we have announced in the previous year, we will target to accelerate growth. As a supply system has been changed for the online karaoke equipment business, sales will decline, however we are assuming that we’ll be able to maintain profit. Robust sales of ICT equipments such as routers and conferencing systems are anticipated. This is a sales projection of the audio equipment business by a market and quarter. Overall, we have not changed our full year forecast compared to previous projections. Next sales by major product categories for musical instruments and audio equipments, there is no major change from previous projections. We had made - I just mentioned, just increasing our forecast by 1%, this is the music instruments, wind instrumented AV product were reducing professional audio equipment by 1 point. This is a full year forecast for electronic devices, previous projections will remain unchanged. We’ve leveraged our recovery for demand of devices for amusement equipment while taking advantage of the effects of fixed cost reduction through structural reforms. Through this we want to secure profits for the full year. This is the full year projections for the others business. Previous projections remained unchanged. We are anticipating an increase in factory automation equipment sales for the full year, although the demand seems to have full circle. Sales for automobile interior components were expected to decline from previous projections. We’ll target to increase result sales through the increase of operating income on facilities and by focusing on capturing imbalance [ph] in individual travel demand on top of robust group travel demand. This slide is about inventories. Inventories stood at 97.4 billion at the end of first quarter basically the same level against the previous year excluding ForEx impact. We considered this level adequate. Inventories are forecasted at 90.1 billion yen at the end of this fiscal year. Next, I would like to explain about capital expenditure and R&D expenses. Capital expenditure declined year-over-year in the first quarter but it is anticipated to be 13.8 billion for the full year which is basically the same level as the previous year and previous projections. R&D the same as the previous year for the first quarter result and full year outlook. R&D for the electronic device business is expected to decline for the previous year due to the completion of a major project. Lastly, this is our balance sheet. Cash and deposits are at a high level reflecting the robust business performance. Going forward, we look into M&A opportunities investing and expanding sales networks overseas and investing to reduce manufacturing cost. Investment for growth is a priority while consideration will be given to shareholders’ return in light of effective use of our assets. This ends my presentation. Please feel free to ask questions for clarifications. Thank you.