Analyst and Investor Briefing on the First Quarter of the Fiscal Year Ending March 31, 2008 (FY2008.3) August 2, 2007 YAMAHA CORPORATION Overview of Performance in the First Quarter Net sales increased ¥8.5 billion or 6.7% year-on-year, which is ¥4.4 billion or 3.3% higher than previous projections. On a real basis (discounting the impact of exchange rates), net sales increased ¥3.6 billion or 2.8% year-on-year, about on par with previous projections. Operating income increased ¥0.6 billion or 8.0% year-on-year, which is ¥1.3 billion or 21.2% higher than previous projections. Operating income from musical instruments, AV/IT products and semiconductors in “The Sound Company” business domain was higher than previously projected (¥5.6 billion->¥7.2 billion), and nearly on par with the first quarter of the previous year. The impact of exchange rates was ¥1.1 billion higher than previous projections and ¥2.0 billion higher yearon-year. Equity method income decreased due to selling a portion of Yamaha Motor shares, so recurring profit was down year-on-year. Net income increased year-on-year owing to gains on that sale. Term-end inventory levels were higher than previous projections and the first quarter of the previous year. Discounting the impact of exchange rates, finished musical instruments stayed at nearly the same level as previously projected. Goods in process and materials increased, mainly due to production delays at some overseas plants and valuation increases caused by higher prices for metallic materials. Performance in the First Quarter ¾Sales and operating income were higher year-on-year and against previous projections (May 23). Excluding Yamaha Motor from the scope of consolidation through the equity method resulted in a year-on-year decrease in recurring profit. Net income increased year-on-year owing to gains from the sale of Yamaha Motor shares. (Billions of yen) Change from same period of previous year FY2007.3 (1Q) Results FY2008.3 (1Q) Results 126.7 135.2 + 6.7% 130.8 + 3.3% 6.7 7.3 + 8.0% 6.0 + 21.2% Recurring profit 12.7 7.5 - 40.8% 5.2 + 44.3% Net income 10.0 23.2 +131.9% 21.0 + 10.7% 6.4 0 0 121 163 120 156 115 148 115 148 Net sales Operating income Equity method income Previous projections Currency exchange rates (yen) Net sales Operating income US$ EUR US$ EUR 115 144 115 139 Change from previous projections Results by Business Segment in the First Quarter Net Sales Recreation & others Lifestyle-related products Electronic equipment and metal products AV/IT Musical instruments 126.7 10.4 10.8 13.6 16.0 135.2 (+6.7%) 12.1 (+16.6) 11.4 (+5.6) 14.4 (+6.3) 15.2 (-4.7) 130.8 (+3.3%) 11.5 (+5.2) 11.9 (-4.0) 12.9 (+11.6) 15.0 (+1.6) (Billions of yen) Recreation & others Lifestylerelated products 82.0 75.9 Operating Income (+8.0) 79.5 (+3.1) Electronic equipment and metal products 7.3 6.7 0 1.3 0.3 Musical 5.8 instruments FY2008.3 FY2008.3 (Previous projections) Figures in parentheses represent yearon-year change or change against previous projections. Impact of exchange rates Year-on-year: +¥4.9 billion (musical instruments +¥3.8 billion, AV/IT +1.1 billion) Versus previous projections: +¥4.1 billion (musical instruments +¥3.2 billion, AV/IT +0.9 billion) Recreation & others -0.7 7.2 -0.3 -0.1 Recreation & others 6.0 0 0.5 Lifestylerelated products 0.2 0.2 AV/IT AV/IT FY2007.3 Electronic equipment and metal products 6.4 Musical instruments Lifestylerelated products AV/IT Electronic equipment and -0.7 -0.1 metal products FY2007.3 FY2008.3 FY2008.3 (Previous projections) Impact of exchange rates Year-on-year: +¥2.0 billion (musical instruments +¥1.9 billion, AV/IT +0.1 billion) Versus previous projections: +¥1.1 billion (musical instruments +¥1.2 billion, AV/IT -0.1 billion) Forecast of Business Performance in FY2008.3 (Full Year) ¾Full year totals for net sales and operating income expected to be higher than previous projections (May 23), with revising the euro exchange rate from ¥148=€1 to ¥155=€1. (Billions of yen) Change from same period of previous year Previous projections Change from previous projections FY2007.3 (Results) FY2008.3 (Projections) 550.4 557.0 + 1.2% 551.0 + 1.1% 27.7 32.0 + 15.5% 30.0 + 6.7% 42.6 30.0 - 29.6% 27.0 + 11.1% Net income 27.9 35.5 +27.2% 32.5 + 9.2% Equity method income 17.8 0 Net sales Operating income Recurring profit 0 Currency exchange rates (yen) Net sales Operating income US$ EUR US$ EUR 117 150 117 144 116 157 116 155 115 148 115 148 FY2008.3 (Full Year) Forecast by Business Segment Net Sales Recreation & others Lifestyle-related products Electronic equipment and metal products AV/IT 550.4 50.2 46.6 54.8 72.8 Operating Income 557.0 (+1.2%) 551.0 (+1.1%) 42.5 (-15.3) 49.0 (+9.0) (+5.2) 39.0 49.0 47.0 (-14.2) 46.0 (+2.2) 76.0 (+4.4) 79.0 (-3.8) (Billions of yen) (0) 32.0 27.7 1.2 3.1 2.1 Musical instruments (+5.1) 326.0 Figures in parentheses represent year-onyear change or change against previous projections. 1.0 1.5 1.0 2.5 (+1.3) 342.5 FY2008.3 30.0 Electronic equipment and metal products AV/IT 338.0 27.0 22.0 Recreation & others FY2007.3 0.7 1.5 1.5 1.3 Recreation & others Lifestyle-related products FY2008.3 (Current projections)(Previous projections) Impact of exchange rates Year-on-year: +¥4.8 billion (musical instruments +¥3.6 billion, AV/IT +1.1 billion) Versus previous projections: +¥9.3 billion (musical instruments +¥6.9 billion, AV/IT +2.4 billion) 24.0 Musical instruments - 0.7 FY2007.3 FY2008.3 FY2008.3 (Current (Previous projections) projections) Impact of exchange rates Year-on-year: +¥5.1 billion (musical instruments +¥4.1 billion, AV/IT +0.9 billion) Versus previous projections: +¥3.5 billion (musical instruments +¥3.2 billion, AV/IT +0.2 billion) Musical Instruments FY2008.3 Projections and Priority Policies 1Q Overview • Discounting the impact of exchange rates, real 1Q net sales increased 3.0% year-on-year, but fell slightly against previous projections. Sales in South Korea, China and Central and South America continue to be strong. Sales in the U.S. exceeded the first quarter of the previous year, but fell short of expectations. • Product-by-product, sales of pianos, electronic instruments and professional audio equipment were higher year-on-year and against previous projections. • Further strengthen profitability as the core business • Market new products without fail in time for Christmas sales push • Strengthen and expand commercial audio equipment business • Recover in the U.S. market, reinforce Japan market by accommodating market changes • Strengthen cost competitiveness (Hangzhou Yamaha, Indonesia, consolidation of production bases for piano business in Japan) • Promote sales in emerging markets (China, Russia, Eastern Europe, etc.) (Billions of yen) 75.9 Others Yamaha Musical instruments 82.0 24.0 57.5 55.5 24.2 51.7 5.8 7.2 FY2007.3 FY2008.3 326.0 79.5 24.5 6.4 FY2008.3 (Previous projections) (Billions of yen) Net sales 95.9 230.1 Operating income 22.0 FY2007.3 342.5 338.0 97.0 97.4 245.5 240.6 27.0 24.0 FY2008.3 FY2008.3 (Current projections) (Previous projections) AV/IT FY2008.3 Projections and Priority Policies 1Q Overview • Discounting the impact of exchange rates, real 1Q net sales declined year-on-year and against previous projections. Sales of karaoke equipment were half of year-ago 1Q. • YSP sales edged down year-on-year to ¥1.3 billion due to dealer stock adjustments. • Downward revision of full-year targets due to delay in developing sales channels for IP conferencing systems and other factors • Build AV business in line with market changes • Strengthen and expand front surround products, including new products • Promote sales of two-channel Hi-Fi centering on middle- and highend products • Promote sales of products in new categories • Reduce manufacturing costs by revising product numbers, etc. (Billions of yen) 16.0 15.2 Routers 1.3 0.04 1.3 AV Karaoke 14.7 13.9 0.3 FY2007.3 -0.3 FY2008.3 15.0 IP conferencing systems 0.1 1.3 Net sales 13.6 -0.7 FY2008.3 (Previous projections) Operating income (Billions of yen) 72.8 0.1 6.3 76.0 0.8 6.0 79.0 3.0 6.3 66.4 69.2 69.7 2.1 FY2007.3 1.3 2.5 FY2008.3 FY2008.3 (Current projections) (Previous projections) Electronic Equipment and Metal Products FY2008.3 Projections and Priority Policies 1Q Overview • While first quarter sales and operating income exceeded previous projections, operating income was half of yearago 1Q • Secure sales through shift to high added-value LSI sound chips for mobile phones • Demand for LSI sound chips for mobile phones continued to fall. Sales volumes came in at previous projections, but sales increased thanks to an improved product mix. • Shipments of digital amplifiers increased for flat-panel TV and mobile phone applications. • Sales and operating income from electronic metal products exceeded previous projections due to price changes accompanying increased material prices. (Billions of yen) • Promote sales for amusement equipments (pachinko machine and et.), digital amplifiers, etc. • Continue shipments of silicon microphone samples for mobile phone vendors • Aim to secure operating income from electronic metal products by lowering manufacturing costs and increasing yields to counteract the impact of falling nickel prices. Prepare for business transfer on September 30. (Billions of yen) *Impact on sales from transfer of electronic metal products business: ¥8.9 billion 54.8 Electronic metals 13.6 14.4 3.6 4.7 Semiconductors 10.0 FY2007.3 Sales 4.2 9.7 1.3 12.9 16.3 47.0 46.0 9.7 8.5 38.5 37.3 37.5 8.7 0.5 FY2008.3 -0.1 FY2008.3 (Previous projections) Operating income 3.1 FY2007.3 1.5 FY2008.3 1.0 FY2008.3 (Current projections) (Previous projections) Lifestyle-Related Products 1Q Overview FY2008.3 Projections and Priority Policies • First quarter sales fell short of previous projections, and an operating loss was stated. • Aim for securing full-year sales and operating income on par with previous projections. • System kitchens continued to sell well, but unit prices are falling. System bathroom sales decreased year-on-year and against previous projections due to lower prices caused by intensified price competition. • Continue to launch differentiated products, centering on artificial marble and Sound ShowerTM (audio function for bathroom), etc. • Strengthen the remodeling business. • Cut production costs by improving production processes and strengthening buying power. (Billions of yen) (Billions of yen) 10.8 1.3 Other System bathrooms 4.6 System kitchens 4.9 0 FY2007.3 11.4 11.9 1.5 1.5 4.1 4.5 5.8 5.9 -0.1 FY2008.3 0.2 FY2008.3 (Previous projections) 46.6 5.9 Sales 17.3 23.4 Operating income 1.2 FY2007.3 49.0 49.0 6.1 5.9 17.1 18.0 25.8 25.1 1.5 FY2008.3 (Current projections) 1.5 FY2008.3 (Previous projections) Recreation FY2008.3 Projections and Priority Policies 1Q Overview • First quarter sales and operating income were below previous projections. • The transfer date for the four resort facilities was changed from the initially scheduled date of July 31 to October 1, so sales are forecast to be higher than previously projected. This will have a minor impact on operating income. • In terms of specific facilities, revenue increased from Tsumagoi, but decreased from Kiroro and Haimurubushi. • We continue to aim to shrink losses by attracting visitors and streamlining expenses. (Billions of yen) (Billions of yen) *Impact on sales from business transfer of four facilities: ¥6.2 billion Sales 4.1 -0.4 FY2007.3 4.0 -0.4 FY2008.3 17.8 4.3 -0.2 FY2008.3 (Previous projections) 11.5 Operating income -1.5 FY2007.3 10.0 -0.8 -0.5 FY2008.3 FY2008.3 (Current projections) (Previous projections) Others 1Q Overview • Sales and operating income increased year-on-year. FY2008.3 Projections and Priority Policies • In the metallic molds and components businesses, production of both magnesium and plastic parts increased. However, shipments of metallic molds and FA equipment declined. • Continue focusing on production cost reductions and yield improvements for automobile interior wood components, metallic molds and components. • Automobile interior wood components turned profitable at operating income in the first quarter thanks to increased production and improved yields. • Prepare to smoothly launch production of the next lineup of automobile interior wood components. • Golf products continued to perform well in domestic and overseas markets. • Continue to raise awareness of our golf products. (Billions of yen) (Billions of yen) 32.4 31.0 8.1 29.0 7.2 Metallic molds and components etc. Golf products Automobile interior wood components 6.2 3.6 3.2 3.1 1.4 1.0 3.1 3.0 15.9 15.0 13.5 3.9 4.2 3.8 12.6 11.8 11.7 Sales 0.9 2.2 0.5 0.4 -0.3 FY2007.3 FY2008.3 FY2008.3 (Previous projections) Operating income 0.8 FY2007.3 1.5 1.5 FY2008.3 FY2008.3 (Current projections) (Previous projections) First Quarter Non-operating Income (Loss) / Extraordinary Income (Loss) FY2007.3 1Q (Results) FY2008.3 1Q (Results) FY2008.3 1Q (Previous projections) (Billions of yen) Non-operating Income (Loss) Equity method income Net financial income Other Total 6.4 0.4 - 0.9 + 5.9 0 0.9 - 0.7 + 0.2 0 0.2 - 1.0 - 0.8 Dividend income 0.8 Extraordinary Income (Loss) 0.1 0 -0.1 27.9 + 0.1 + 27.8 Income from (loss on) disposal of fixed assets Other Total Gain on sale of Yamaha Motor shares 27.8 0 27.8 + 27.8 Corporate Income Tax and Other Expenses Corporate income taxes, etc. Minority interests in consolidated subsidiaries Total 2.6 0.1 2.7 11.9 0.2 12.1 11.8 0.2 12.0 Gain on sale of Yamaha Motor shares 27.8 FY2008.3 (Full Year) Non-operating Income (Loss) /Extraordinary Income (Loss) FY2008.3 (Current projections) FY2007.3 (Results) FY2008.3 (Previous projections) Non-operating Income (Loss) Equity method income 17.8 0.1 Net financial income Other - 3.0 + 14.9 Total (Billions of yen) 0 2.4 - 4.4 - 2.0 Dividend income 2.7 0 1.6 - 4.6 - 3.0 Dividend income 2.5 Extraordinary Income (Loss) Income from (loss on) disposal of fixed assets Other Total - 1.1 - 8.4 - 9.5 - Impairment loss from resorts: -4.7 - Dissolution of overseas plants: -3.2 - Special retirement benefits: -0.7 - 0.8 29.8 + 29.0 Gain on sale of Yamaha Motor shares 27.8 - 0.7 30.5 + 29.8 Corporate Income Tax and Other Expenses Corporate income taxes, 4.7 etc. Minority interests in consolidated subsidiaries 0.5 Total 5.2 22.9 0.6 23.5 23.5 0.8 24.3 Gain on sale of Yamaha Motor shares 27.8 Inventories ¾ Inventories at the end of the first quarter increased against previous projections; goods in process/materials increased. Discounting the impact of exchange rates, inventories of finished musical instruments are at close to proper levels; AV/IT inventories are slightly high. We will seek to meet previous projections for year-end inventories. (Billions of yen) End-1Q Goods in process/ materials Other products AV/IT Musical instruments 84.5 28.6 Fiscal year-end 91.4 84.0 32.8 28.7 82.2 73.3 74.6 23.8 23.3 28.6 4.4 10.3 3.2 11.3 4.5 9.1 3.9 9.1 3.4 8.8 4.3 8.5 41.2 44.1 41.7 40.6 37.3 38.5 FY2007.3 FY2008.3 FY2008.3 (end of 1Q) (end of 1Q) FY2007.3 FY2008.3 FY2008.3 (Previous projections for end of 1Q) (Current projections) (Previous projections) Impact of exchange rates in 1Q Year-on-year: +¥5.7 billion (musical instruments +¥3.8 billion, AV/IT +¥1.3 billion) Versus previous projections: +¥5.4 billion (musical instruments +¥3.5 billion, AV/IT +¥1.2 billion) Capital Expenditure/Depreciation/R&D Expenses (Billions of yen) Capital Expenditure/Depreciation 22.9 Others Electronic equipment & metal products AV/IT Musical instruments 6.8 0.9 0.9 0.3 4.4 6.5 (4.8) 4.7 FY2007.3 (1Q) 0.9 0.6 0.6 (5.6) 4.4 FY2008.3 (1Q) 26.0 25.2 4.5 (18.9) 5.5 3.7 (20.0) 4.4 1.5 2.6 2.3 (22.1) 1.1 11.9 14.8 17.4 FY2006.3 FY2007.3 FY2008.3 (Projections) 24.1 24.2 24.5 6.1 2.5 2.5 2.5 0.6 1.2 0.5 1.3 5.3 5.4 5.0 4.9 4.9 4.7 1.2 1.3 2.8 3.0 11.4 11.4 12.3 FY2007.3 (1Q) FY2008.3 (1Q) FY2006.3 FY2007.3 R&D Expenses Others Electronic equipment & metal products AV/IT Musical instruments 5.8 FY2008.3 (Projections) Balance Sheet Summary (Projection) (Billions of yen) Cash and bank deposits Accounts and notes receivable Inventories Other current assets Fixed assets Total assets Accounts and notes payable Short- and longterm borrowings Resort deposits Other liabilities Total net assets Total liabilities and net assets As of June 30, 2006 As of March 31, 2007 As of June 30, 2007 29.4 70.4 84.5 26.4 316.5 527.2 42.2 30.1 27.2 99.8 327.9 527.2 46.7 76.6 82.2 25.5 328.0 559.0 43.2 25.6 26.7 112.1 351.4 559.0 92.2 76.9 91.4 30.9 366.1 657.5 46.3 30.7 18.7 157.8 404.0 657.5 As of March 31, 2008 106.3 73.2 73.3 26.6 357.5 636.9 37.0 20.8 17.1 162.7 399.3 636.9 Sale of Yamaha Motor Shares ¾Increase in the market value of Yamaha Motor shares held by Yamaha ¾Increasing impact of Yamaha Motor financial results on Yamaha’s consolidated results in the form of equity method income or loss. ¾ Yamaha removes Yamaha Motor from the scope of consolidation through the equity method by selling 7.8% of its total shares outstanding. ¾ Both companies will work to build a long-term and stable capital relationship under their shared “Yamaha” brand to further increase the corporate value and enhance the value of the brand. Specifically, Yamaha will hold 14.9% of Yamaha Motor shares and Yamaha Motor will hold 5% of Yamaha shares. ¾ Proceeds from the sale will be used to invest in the growth of “The Sound Company” business domain, and returned to shareholders. Return to Shareholders ¾ Based on a stable and ongoing dividend, Yamaha will strive to further return the profits to shareholders, targeting a consolidated payout ratio of 40%. ¾ Starting from FY2008.3, a special dividend totaling ¥12.0 billion will be paid out over three years (20 yen per share each year) and a share buyback worth ¥18.0 billion in aggregate will be conducted. 50 Per-share dividend (Yen) Special dividend 29.0 20 20 21.1 15 10 Consolidated payout ratio 22.5 (%) 16.6 14.7 Ordinary dividend 11.6 7.1 FY2003.3 FY2004.3 FY2005.3 FY2006.3 FY2007.3 FY2008.3 (Projection) Appendix Yamaha Musical Instrument and Professional Audio Equipment Sales in the Japanese Market First quarter sales were nearly on par with the first quarter of the previous year. Regarding piano sales, while orders of grand pianos have been solid thanks to the effects of new products, upright piano sales struggles. ElectoneTM sales continue to decrease. Figures in parentheses are year-on-year comparisons (Billions of yen) 134.4 140.2 150 136.8 136.5 133.2 (96%) (104%) (98%) (100%) (98%) 100 Music schools, etc. 38.5 39.7 37.8 37.2 37.7 (96%) (103%) (95%) (100%) (99%) 51.7 52.1 (92%) (110%) (92%) (99%) 15.4 First Quarter Results Full Year 00 8. 3 FY 2 00 7. 3 FY 2 00 6. 3 00 5. 3 FY 2 00 4. 3 FY 2 00 8. 3 FY 2 00 7. 3 FY 2 00 6. 3 FY 2 00 5. 3 FY 2 FY 2 15.8 Yamaha musical (98%) instruments 50.8 (103%) (93%) (93%) (97%) (93%) 00 4. 3 0 16.9 18.1 17.6 52.3 56.9 FY 2 50 (Projections) Yamaha Musical Instrument and Professional Audio Equipment Sales in the U.S. Market Last year’s downturn in demand caused by housing start stagnation and other factors has ended and the piano market is recovering. Going forward, sales of new electronic piano and synthesizer products are expected to increase and a strong performance is expected from commercial audio equipments. 600 Wholesale figures (Millions of US dollars) 532 (106%) 570 551 (103%) (103%) 545 581 (107%) (96%) 500 400 300 200 96 100 (94%) 98 (102%) 102 101 105 (104%) (99%) (104%) FY 20 04 .3 FY 20 05 .3 FY 20 06 .3 FY 20 07 .3 FY 20 08 .3 FY 20 04 .3 FY 20 05 .3 FY 20 06 .3 FY 20 07 .3 FY 20 08 .3 0 First Quarter Results Full Year (Projections) Yamaha Musical Instrument and Professional Audio Equipment Sales in the German Market Piano shipments made progress on the back of strong orders for new products, but dealer stock has temporarily increased. Audio equipments for facilities continue to perform well. Performance from the second quarter onward is expected to be even with the previous year owing to sales promotions for new electronic musical instrument products. Wholesale figures (Millions of euro) 150 101 (96%) 95 94 (93%) 100 50 25 (103%) 23 (96%) 21 22 (91%) (103%) 100 99 (101%) (101%) (104%) 22 (98%) FY 20 04 . 3 FY 20 05 .3 FY 20 06 .3 FY 20 07 .3 FY 20 08 .3 FY 20 04 .3 FY 20 05 .3 FY 20 06 .3 FY 20 07 .3 FY 20 08 .3 0 (Projections) First Quarter Results Full Year Yamaha Musical Instrument and Professional Audio Equipment Sales in the Chinese Market Piano sales remain strong on the back of sales growth of Hangzhoumade pianos and deliveries of high-priced Japan-made products to schools. Bidding opportunities are also increasing for instruments other than pianos like wind instruments and electronic keyboards thanks to increased education budgets at schools in rural areas. Wholesale figures (Millions of Chinese yuan) 807 (118%) 800 683 599 (109%) 550 600 460 (115%) (120%) (89%) 400 200 75 126 (168%) 137 (109%) 153 (112%) 172 (112%) (83%) F Y 20 04 .3 F Y 20 05 .3 F Y 20 06 .3 F Y 20 07 .3 F Y 20 08 .3 F Y 20 04 .3 F Y 20 05 .3 F Y 20 06 .3 F Y 20 07 .3 F Y 20 08 .3 0 First Quarter Results Full Year (Projections) In this report, the figures forecast for the Company’s future performance have been calculated on the basis of information currently available to Yamaha and the Yamaha Group. Forecasts are, therefore, subject to risks and uncertainties. Accordingly, actual performance may differ greatly from our predictions depending on changes in our operating and economic conditions, demand trends and the value of key currencies, such as the U.S. dollar and the euro.