YAMAHA CORPORATION Briefing on the Musical Instruments Business Mitsuru Umemura Senior Executive Officer General Manager, Musical Instruments Group Hiroo Okabe Executive Officer Deputy General Manager, Musical Instruments Group June 28, 2005 1 Outline of Today's Presentation I. Progress in Implementation of the YSD50 Management Plan II. Sales Expansion Plan III. Cost Reduction Measures 2 I. YSD50’s Musical Instruments Business Strategy Sales expansion Revitalizing the domestic market Growth strategy (China and Commercial Audio) Expanding sales of highhighvaluevalue-added products Building strengths to enable continued generation of profits through major reforms in business structure and stable sales growth Cost reduction Reforms in manufacturing Development of human resources Reforms in business processes Goals for fiscal year ending March 31, 2007 Net sales: ¥334.0 billion Operating income: ¥31.0 billion 3 Medium-term Management Plan Progress in Implementation of the Management Plan and Plans Going Forward （B i l l i ons of y en） YSD50 3-Year Plan Net sales Increase Operatin g income Improvement F03/04 Actual 293.4 40.6 10.5 20.5 F04/05 F05/06 F06/07 Actual Projection Projection 302.6 313.0 334.0 9.2 10.4 21.0 14.2 21.5 31.0 3.7 7.3 9.5 YSD50 3-Year Plan 14.6 F04/05 Actual 2.6 F05/06 Projection 4.5 F06/07 Projection 7.5 (0.9) (1.7) 0.8 0.0 Reforms in manufacturing 3.2 1.3 0.9 1.0 Reforms in personnel composition 3.6 1.5 1.1 1.0 20.5 3.7 7.3 9.5 Operating income Growth in sales /improvement in gross margins Decrease in SG&A Total 4 II. Sales Expansion Plan 5 Total Demand for Musical Instruments (Excluding Professional Audio Market) (Billion of yen) 800 699.1 50% 732.7 725.3 40% Total demand 600 30% 400 26% 26% 27% Yamaha’s market share 200 20% Yamaha’s net sales 183.0 189.8 10% 196.5 0% F03/04 F04/05 F05/06 (Projection) Total demand of F04/05 expanded 3.7% from the previous fiscal year. The trend toward lower prices is continuing, and, the unit volume of sales increases, demand for high- and medium-quality models is firm. The movement toward bipolarization is continuing. Demand for digital pianos is increasing worldwide (on a unit volume basis). On the one hand, prices are declining and there is a continuing trend to move up-market from purchases of portable keyboards. At the same time, we are seeing expansion in demand as a result of efforts to diversify designs in response to customer tastes. Yamaha's market share in the acoustic product group declined 1.2 percentage points, as competition became more intense. However, Yamaha's share in the digital musical instrument group rose 1.2 percentage points, leaving overall market stable at 26%. (Total demand was revised by reviewing the expanded EU) 6 Sales by Product (Worldwide) Other ¥334.0 billion ¥293.4 billion ¥302.6 billion ¥313.0 billion Professioal Audio Equipment Music Production Equipment String and Percussion instruments W ind and Educational instruments Home-use Keyboards 52.0 43.3 41.3 40.7 40.7 Yamaha’s Share 49.8 50.5 49.5 20.2 11.2 21.4 21.6 10.5 22.2 25.4 11.7 25.2 36.7 36.6 37.0 55.8 26% 56.7 26% 59.7 Music School 29.8 13.0 27.9 Electone Pianos 37.4 27% 59.4 6.7 13.3 10.6 12.2 51.2 50.5 52.3 59.0 F03/04 (Actual) F04/05 (Actual) F05/06 (Projection) 29% F06/07 (Projection) 7 Sales Plan by Product (Worldwide) （Billions of Yen） Music Instruments Segment: ＋31.4 (From F04/05 to F06/07) Music production equipment Professional audio equipment Home-use keyboards Piano （117%） Electone (1.1) 8.5 （105%） 2.7 （102%） （106%） （138%） String and percussion instruments Wind and educational instruments Music School Other （103%） 1.5 2.6 8.2 （124%） （126%） 2.5 5.7 0.8 （92%） Musical Instruments +19.1 *Figures in parentheses represent changes from F04/05 to F06/07. 8 Sales Plan by Geographic Region (Worldwide) (Billions of yen) Others (114%) China (182%) North America (116%) Europe (107%) 4.7 5.8 4.2 Japan (105%) 6.7 10.0 Musical Instrument Segment ＋31.4 (From F04/05 to F06/07) *Figures in parentheses represent changes from F04/05 to F06/07. 9 Sales Plan by Product (Japanese Market) ¥134.4 billion ¥147.0 billion ¥140.2 billion ¥136.8 billion Other Music School Professional Audio Equipment Music Production Equipment String and Percussion instruments W ind and Educational instruments 45.9 45.4 Yamaha’s Share 10.1 9.0 5.9 19.0 F03/04 (Actual) Home-use Keyboards 43.5 Electone Pianos 37.3 2.3 1.1 4.3 47.2 47% 37.4 37.6 2.3 1.2 4..6 10.1 9.4 9.8 1.0 4..1 10.4 9.1 12.6 17.4 F04/05 (Actual) • A continuing falling birthrate • Increasing leisure time of baby boomers 39.2 3.6 1.3 2.9 51% 18.1 F05/06 (Projection) 51% 5.6 9.9 9.0 11.4 53% 19.7 F06/07 (Projection) • Expanding market accelerated by an increase of Electone sales 10 Sales Expansion Plan by Product (Japanese Market) （Billions of Yen） Music Instruments Segment: ＋6.7 Other Music School (From F04/05 to F06/07) （103%） 1.3 （105%） Music production equipment Wind and educational instruments Piano Electone （113%） String and percussion instruments Home-use keyboards （137%） Professional audio equipment 1.8 （157%） 1.3 （130%） 0.3 (1.2) 2.3 （90%） (0.1) （99%） 1.5 (0.5) （95%） Musical Instruments +2.3 *Figures in parentheses represent changes from F04/05 to F06/07. 11 Growth in the Japanese Market Investment: Business expansion to match customer lifestyles • Develop new business models for music schools and stores through the creation of renewed value Develop new customer groups • • Adult market Musical instrument rental systems Work to expand EL performance population • • Appeal to young people Model rental program for EL beginners 12 Sales Plan by Product (North American Market) ¥64.7 billion ($1=¥113) ¥64.4 billion ($1=¥108) 1.6 2.1 Yamaha’s Share 16.5 6.4 10.1 11.9 11.4 25% 23% 22% 24% 17.6 Music School 10.9 10.0 11.3 Other 1.1 0 0.1 9.1 5.3 8.0 11.8 ¥74.4 billion ($1=¥110) 2.6 0.1 7.5 5.3 0.1 7.4 5.5 7.2 16.6 ¥70.2 billion ($1=¥105) 16.6 Professioal Audio Equipment Music Production Equipment String and Percussion instruments W ind and Educational instruments Home-use Keyboards Electone Pianos 14.5 F03/04 (Actual) 13.6 F04/05 (Actual) • Market value of pianos and wind instruments decreasing slightly 13.7 F05/06 (Projection) 17.4 F06/07 (Projection) • Sales of pianos made in China expanding 13 Sales Expansion Plan by Product (North American Market) （Billions of Yen） Music Instruments Segment: ＋10.0 (From F04/05 to F06/07) String and percussion instruments Wind and educational instruments Electone Home-use keyboards （0%） （101%） Piano （128%） 3.8 0 （0%） （145%） 0.1 Music production equipment 3.4 (0.1) Music School （52%） (1.0) Other （121%） （126%） 1.1 2.1 （105%） Professional audio equipment 0.6 Musical Instruments +7.7 *Figures in parentheses represent changes from F04/05 to F06/07. 14 "Total Piano" Demand in the United States (Unit basis) 293K Piano-type keyboards Digital pianos Player pianos Other pianos Pianos (made in China) 213K 98K 94K 1996 The expansionary trend in demand for digital pianos will continue. As unit prices decline, the greater diversity in functions and design is expected. Demand for player pianos has been on a recovery trend since 2001. As a result of improvement in functions and playability, demand is expected to expand. 154K 1995 Since 2002, the market for pianotype keyboards sold in mass merchandise outlets has expanded. Further growth in demand is forecast. 1997 1998 1999 2000 2001 2002 2003 2004 Total demand for upright pianos will continue on a gradual downward trend. While the inflow of extremely lowpriced types will begin to decline, the increase in pianos made in China, especially grand pianos, will continue 15 Yamaha's "Total Piano" Product Policy Multifunction pianos Price (high) Multifunction, high value added Expand sales of high value added models with sophisticated design Traditional pianos Multifunction digital pianos Instruments to compete with pianos/digital pianos made in China Yamaha will develop products to meet increasingly diverse "total piano" demand, by drawing on its distinguished combination of technology in acoustic and digital instruments, while working to expand sales channels. Single function digital pianos Traditional design Single function piano-type keyboards Leadingedge design Increase sales by expanding sales channels for simple, low-priced models with an emphasis on design Single function Price (low) 16 Growth in the North American Market Expand innovative, high-quality products and services • • • Introduce innovative, high-quality products: DKV-Mark IV, CLP-F01, Artist Model wind instruments, etc. Draw on relationships with artists: Yamaha Artist Services Inc. (YASI) Propose new customer services: Internet Direct Connection (IDC), Digital Music Notebook (DMN) Strengthen product competitiveness and expand sales network • • Pursuing “Total Piano” strategy Strengthening sales capabilities and expanding sales channels for string and percussion instruments Accelerate growth of commercial audio business • • • Strengthen personnel resources Improve communication about product value Relocate facilities for YCATS and R&D 17 Sales Plan by Product (European Market) ¥57.5 billion (E1=¥133) ¥59.1 billion (E1=¥135) 3.8 1.3 0.2 7.9 3.5 6.6 6.8 10.1 9.9 1.3 0.2 7.0 18.9 19.4 ¥63.3 billion (E1=¥127) Other Music School 2.1 0.4 9.1 2.4 0.2 9.8 4.4 4.3 7.6 8.2 10.4 10.0 22% 21% 21% Yamaha’s Share ¥64.8 billion (E1=¥134) 20.4 22% 19.2 Porfessional Audio Equipment Music Production Equipment String and percussion instruments W ind and Educational instruments Home-use Keyboards Electone 9.6 F03/04 (Actual) 10.1 10.4 F04/05 (Actual) • Demand for electronic keyboards reducing slightly • Especially in the wind instruments, expansion of E-commerce fueling price competition 9.2 F05/06 (Projection) Pianos F06/07 (Projection) • Piano sales are expanding slightly 18 Sales Expansion Plan by Product (European Market) （Billions of Yen） Music Instruments Segment: ＋4.2 (From F04/05 to F06/07) Other Professional audio equipment Music School （124%） （100%） Music production equipment String and percussion instruments Home-use keyboards Wind and educational instruments Piano Electone (0.9) 1.1 0 1.9 （123％） 0.8 1.4 （101％） 0 (0.2) （%0） （91％） （121％） （185％） （99％） 0.1 Musical Instruments +1.2 *Figures in parentheses represent changes from F04/05 to F06/07. 19 Growth in the European Market Expand innovative, high-quality products and services • • • Increase sales of innovative, high-quality products and services: Silent Piano, CLP-F01, medium to high-quality wind instruments, etc. Draw on relationships with artists: Paris (pianos), London (guitars), Frankfurt (wind instruments) Propose new customer services: IDC, DMN Enhance sales systems in growth markets • • • Established YMCE branch in Poland (August 2004) Set up representative office in Moscow (April 2005) Making preparations for direct sales in the expanded EU (Czech Republic, Slovakia, Hungary, Slovenia) Step up initiatives in the growing commercial audio (CA) business • • • Established commercial audio support center for the EU (in London, April 2005) Training professional staff teams in each country Conducting training to improve product knowledge Expand sales channels to include mass sales of electronic keyboards (EKB) 20 Sales Plan by Product (Chinese Market) ¥12.9 billion Other Music school 2.4 ¥8.7 billion 0 . 2 1.3 ¥7.1 billion ¥6.5 billion Professional audio equipm ent Music production equipm ent String and percussion instrum ents Wind and educational instrum ents Hom e-use ketybords 0 . 3 0.3 2.1 0.4 1 . 1 0.2 0.3 0 . 3 1.1 Electone 0 . 4 0 . 1 0 . 2 1 . 0 0.6 0 . 1 0 . 2 0 . 1 0.4 0.7 0 . 8 0.9 2.5 2.8 F03/04 (Actual) 15% 3.2 F04/05 (Actual) 1.0 Piano 19% 2.6 0 . 7 2.2 3.6 0.9 1.3 0.2 1.3 0.2 14% 13% 6.3 4.1 F05/06 (Projection) F06/07 (Projection) • China recording rapid market expansion, especially in the piano market 21 Sales Expansion Plan by Product (Chinese Market) （Billions of Yen） Music Instruments Segment: ＋5.8 Wind and educational instruments (From F04/05 to F06/07) Home-use keyboards Electone Piano （197%） （-%） （164% ） 1.5 （122%） 0.3 String and percussion instruments （300%） 0.2 Music production equipment （-%） Music School （217% ） 0.7 （-%） 0 Other （-%） 0 0.3 Professional audio equipment 0 2.8 Musical Instruments +5.1 *Figures in parentheses represent changes from F04/05 to F06/07. 22 Expand Sales in the Chinese Market Accelerate growth through improvement in the business infrastructure • • • • Improve human resource capabilities (especially of local staff) Build the YAMAHA brand Establish and strengthen the sales network Enhance manufacturing strengths at Hangzhou Yamaha Strategy for strengthening the sales network of pianos in China YDACC in Beijing •Opened the first piano shop in Shanghai •Opening 40 shops nationwide by the end of July 23 Other Growth Markets Korea: Expected to grow ¥0.5 billion, from ¥4.0 billion in F04/05 to ¥4.5 billion in F06/07 As demand for pianos recedes, Yamaha will strengthen its brand and artist relations Establish Artist Center Expand the music school business The Gulf States: Expected to grow ¥0.4 billion, from ¥4.1 billion to ¥4.5 billion Step up marketing in major markets, including Iran, UAE, Saudi Arabia Strengthen the sales base in markets under development, including the CIS and Khazafstan Russia and Eastern Europe: Expected to grow ¥1.8 billion, from ¥5.4 billion to ¥7.2 billion Russia: Established a representative office in April 2005; will expand sales through developing a marketing base Eastern Europe: Will expand sales by establishing a direct marketing base in Vienna India: Expected to grow ¥0.4 billion, from ¥1.6 billion to ¥2.0 billion Will build a sales network along with implementation of market opening measures 24 Sales Plan of Professional Audio Equipment ¥29.8billion ¥25.4billion ¥20.2billion 10% ¥21.6billion 9% 16.6 13.6 11.2 8.8 Yamaha’s Share Commercial Audio Market Musical Instrument retailers 7% 7% 11.4 F03/04 (Actual) 10.4 F04/05 (Actual) 11.8 F05/06 (Projection) 13.2 F06/07 (Projection) Scale of targeted market is expected to increase steadily at the level of ¥300 billion. Trends for digitalization, systemization and networking is accelerating. 25 Sales Expansion Plans of Professional Audio Equipment by Region （Billions of Yen） Other North America China （127%） Europe （217%） 0.9 （124%） 0.7 1.9 （145%） 3.4 Japan （157%） 1.3 +8.2 (From F04/05 to F06/07) *Figures in parentheses represent changes from F04/05 to F06/07. 26 Growth Strategy for the Professional Audio Equipment Market Make the transition from a "mixer manufacturer" to a "solutions provider" for the professional audio equipment market • Establish a strong competitive position in applications • Become a "one-stop" supplier for offering solutions • Get closer to the market ¾ Establish support centers in Europe and North America • Achieve results through M&A strategy ¾ Steinberg ¾ NEXO 27 Acquisition of Steinberg Hardware Software Studio Connections • • Seamless technological fusion for musica production software and hardware (YAMAHA's digital mixers and synthesizers + Steinberg's software) Expand sales in the market for commercial music production software • Enliven the musical production market and expand market share • Expand sales through YAMAHA's sales channels in North America • Cover customers from hobby users to commercial studios Impact of the Acquisition (Compared with March 2005, ¥ billion) March 2007 March 2009 Sales ¥4.0 ¥4.5 Technology Alliance with and Investment in NEXO $10000 GOT NEXO ALFA GOS PS $2000 IS System solution YAMAHA $500 CLUB AX /BR Line-array speaker Conventional speaker S Utility Speaker • Joint development of products for system solutions (YAMAHA digital mixers/amplifiers + NEXO speakers) • Full-scale entry into the commercial speaker business Development of speakers for the YAMAHA sales network Acquired sales right for NEXO products in North America Impact of the Alliance and Investment (Compared with March 2005, ¥ billion) March 2008 March 2010 Sales ¥4.0 ¥6.0 III. Cost Reduction Measures 30 Musical Instruments Production Network Xiaoshan Xiaoshan (Piano (Piano parts, parts, Wind) Wind) Hangzhou (Pianos, Guitars) Hangzhou (Pianos, Guitars) Guangzhou Guangzhou (Pianos) (Pianos) Kemble & Co. (Pianos) Kemble & Co. (Pianos) Tianjin Tianjin (DMI*) (DMI*) Hamamatsu Hamamatsu (Grand (Grand Piano) Piano) YMP YMP (Wind, (Wind, String) String) Kakegawa (Upright Piano) Kakegawa (Upright Piano) YMM YMM (Pianos, (Pianos, PA） PA） Toyooka Toyooka (Wind, (Wind, PA・DMI) PA・DMI) Saitama (Wind) Saitama (Wind) Taiwan Taiwan (Piano) (Piano) Kaohsiung Kaohsiung (Guitars, (Guitars, PA) PA) YI YI (Piano) (Piano) YMMI YMMI (Guitars, (Guitars, Drums) Drums) YMMA YMMA (PA, (PA, DMI) DMI) YMPI (Wind, YMPI (Wind, Educational) Educational) *DMI: Digital Musical Instruments. 31 Manufacturing Base Strategy by Product Group of Musical Instruments YSD-50 Expanding production innovation as mother factories Group Market Manufacturing Base Japan Electronic musical instruments PA Stable China Indonesia Expand Wind and educational instruments Guitars Drums Gradual decline (China growing) Stable (YAMAHA share low) Strengthen production capability in Japan, China, and Indonesia Started Production at Hangzhou YAMAHA for Chinese market Expansion of production, nurturing of skill at Xiaoshan YAMAHA Accumulate technology/skill in Japan F06/07 Selection and concentration of production items (low-price Clavinova, high-price PK) Concentrating low-price production of PA mixers (including OEM) in Indonesia Start-up and development at Hangzhou YAMAHA Stable F05/06 Expand Electone production by establishing cell production Evolution of cell manufacturing system Evolution of cell manufacturing system Piano F04/05 Export to the U.S. and European markets Recorder production shifted to Toyooka Selection and concentration of production base in Japan Consolidating highgrade production factories Saitama Factory concentrated on production of lowpitched brass instruments Started Production at Hangzhou YAMAHA Start-up and development at Hangzhou YAMAHA Expand production Expand production items Cost down of hardware procurement Stable (YAMAHA share low) Expand share through differentiation Developed bases Under development No corresponding 32 Establishment of New Bases in China Hangzhou Yamaha Musical Instruments Co.,Ltd. (Established in November 2004) 33 Establishment of New Bases in China (2) Piano production at Hangzhou Yamaha ↓ ↑ Guitar production at Hangzhou Yamaha 34 Improving profitability of Musical Instruments and Plans Going Forward Decrease in production costs （¥100 million） Cost down Effects YSD 50 Estimated effects (F03/04 vs.F06/07) F04/05 Actual effects (against previous year) F05/06 Estimated effects F06/07 Estimated effects (against previous year) (against previous year) 3-Year Compound effects (against previous year) Fixed costs 16.7 5.0 8.2 5.2 18.4 Various costs 32.0 12.8 9.0 10.2 32.0 Total 48.7 17.8 17.2 15.4 50.4 Amid a trend toward increases in production in the first year of the plan, we proceeded with cost reductions and were able to absorb ¥620 million in higher materials costs. Personnel Composition Production (Yamaha Corporation only) (162) (Number of employee) (51) (16) (60) (127) 35 Reforms in Personnel Composition ■Strengthening human resources 9 Recruit personnel with necessary skills 9 Training for core personnel 9 Installing a educational program for manager in the new plant in China Substantial improvement in overhead productivity 9 Production process reform for improving productivity, operational process reform 9 Organization reform of wind, string, and percussion instruments for integration effect z YSD50’s goal for improvement in efficiency through reforms in personnel +¥3.6 billion for 3 years (Production: ¥1.7 billion + Domestic sales & other: ¥1.9 billion) 36 Reduction in Inventories due to SCM Strict observance of delivery schedules Establish methods of global inventory management ¾ Develop supply system responding to orders ¾ Pull inventories of sales companies to the Head Office ¾Make weekly delivery response possible Reduce lead times ¾Pianos: Reduce 3 months ¾Other: Reduce 2 months Elimination of dormant/excess inventories ->Goal of one months inventory overhead for sales companies Delay in production and sales adjustments for electronic keyboard products in Europe and North America （Billions of Yen） Goods in process/materials Products 14.8 13.8 13.9 40.8 37.5 41 F02/03 F03/04 F04/05 13.1 13.4 36.3 36.3 F05/06 F06/07 37 Appendix 38 Musical Instrument Sales in the Japanese Market YAMAHA’s Wholesale Amount Wholesale Amount (By category, excluding PA) (By category, excluding PA) % Change from the previous year 120 104.9 107.9 (103%) 103.7 (96%) （Billions of Yen） 106.9 (103%) Musical 54.6 (111%) production equipment 100 String and percussion instruments 53.2 (97%) 49.4 Musical production equipment String and percussion instruments Wind and educational instruments 80 Wind and educational instruments Home-use keyboards Home-use keyboards Electronic organs Electronic organs Pianos 60 40 56.9 (107%) 20 Pianos F03/04 F04/05 F05/06 (Estimation) F06/07 F03/04 F04/05 F05/06 F06/07 (Estimation) （Projection） 39 Musical Instrument Sales in the U.S. Market YAMAHA’s Wholesale Amount Wholesale Amount (By category, excluding PA) (By category, excluding PA) % Change from the previous year 2500 1, 980 2,092 (106%) 2,103 (101%) 2000 Musical production equipment String and percussion instruments 1500 Wholesale Amount （Millions of U.S. Dollars） 2,138 (102%) 600 500 448 460 (103%) 494 (107%) Wind and educational instruments Home-use keyboards 500 Electronic organs Musical production equipment String and percussion instruments 400 1000 507 (103%) 300 Wind and educational instruments 200 Home-use keyboards 100 Pianos Pianos 0 0 F03/04 04/3 F04/05 05/3 F05/06 06/3 (Estimation) F06/07 07/3 F03/04 04/3 F04/05 05/3 F05/06 06/3 F06/07 07/3 （予想） （計画） (Estimation) （Projection） 40 Musical Instrument Sales in European Market YAMAHA’s Wholesale Amount Wholesale Amount (By category, excluding PA) 2000 1,692 1,733 (102%) 1,756 (101%) (By category, excluding PA) % Change from the previous year 1,792 (102%) Musical production equipment String and percussion instruments 1500 1000 Wind and educational instruments Home-use keyboards 500 Pianos Wholesale Amount （Millions of Euro） 500 400 382 375 (98%) 400 (107%) 422 (106%) Musical production equipment String and percussion instruments 300 Wind and educational instruments 200 Home-use keyboards 100 Pianos 0 0 F03/04 04/3 F04/05 05/3 F05/06 06/3 (Estimation) F06/07 07/3 F03/04 04/3 F04/05 05/3 F05/06 06/3 F06/07 07/3 (Estimation) （Projection） 41 Musical Instrument Sales in Chinese Market YAMAHA’s Wholesale Amount Wholesale Amount (By category, excluding PA) % Change from the previous year 5,000 4,245 (114%) (By category, excluding PA) 3,739 (117%) 4,000 Wholesale Amount （Millions of Yuan） 4,577 Musical production (108%)equipment 3,199 3,000 String and percussion instruments 900 Wind and educational instruments 800 Home-use keyboards 700 825 (138%) 600 (121%) 600 Pianos 2,000 495 (138%) String and percussion instruments Wind and educational instruments Home-use keyboards 500 400 Musical production equipment 358 Pianos 300 1,000 200 100 0 0 F03/04 04/3 F04/05 05/3 F05/06 06/3 (Estimation) F06/07 07/3 F03/04 04/3 F04/05 05/3 F05/06 06/3 07/3F06/07 (Estimation) （Projection） （予想） 42