Manuals+

Analyst and Investor Briefing on the First Half of the Fiscal Year Ending March 31, 2007 (FY2007.3)

November 1, 2006

YAMAHA CORPORATION

Overview of Performance in the First Half

First Half Results

Net sales were higher than the same period of the previous year while operating income was lower. Operating income exceeded initial projections made on April 28.

Expenses associated with dissolution of Kaohsiung guitar factory (- ¥1.7 billion) posted as an extraordinary loss.

Net income was higher year-on-year and against initial projections owing to increased equity method investment returns.

Inventories at the end of the first half remained at the same level as the same period of the previous year (excluding the impact of exchange rates, however, actual inventories dropped by ¥3.6 billion).

2Q Results

Second quarter net sales were higher than the previous year, while operating income was lower.

Performance in the First Half

Compared to the same period of the previous year, net sales increased while operating income decreased. Sales were lower than initial projections but operating income was higher.

FY2006.3 (1H) FY2007.3 (1H) Change from same period of previous year FY2007.3 (1H) Initial Projections Change from Projections 2Q Results
Net sales 257.2 264.5 + 2.8% 265.0 - 0.2% 137.8
Operating income (Operating income ratio) 14.4 13.8 (5.2%) - 3.7% 11.0 + 25.8% 7.1
Recurring profit (Recurring profit ratio) 21.3 22.9 (8.7%) + 7.5% 17.0 + 34.9% 10.2
Net income (Net income ratio) 16.5 17.5 (6.6%) + 5.7% 14.0 + 24.8% 7.5
Equity Method Income 8.5 10.2 7.8 3.8

Currency Exchange Rate

US$ EUR
Net sales 110 136
Operating income 110 134

Note: The table above shows rates for FY2006.3 (1H) and FY2007.3 (1H) and FY2007.3 Initial Projections. Specific values for each period are detailed in the original document.

Performance by Business Segment in First Half

Net Sales

Bar chart showing Net Sales by business segment for FY2006.3 (1H) and FY2007.3 (1H), including initial projections for FY2007.3 (1H). Segments include Recreation & others, Lifestyle-related products, Electronic equipment & metal products, AV/IT, and Musical instruments. Figures in parentheses represent changes from the same period of the previous year or from initial projections.

Impact of exchange rates:

  • Year-on-year: + ¥7.7 billion (musical instruments + ¥5.9 billion, AV/IT + ¥1.8 billion)
  • Versus initial projections: + ¥4.2 billion (musical instruments + ¥3.2 billion, AV/IT + ¥1.0 billion)

Operating Income

Bar chart showing Operating Income by business segment for FY2006.3 (1H) and FY2007.3 (1H), including initial projections for FY2007.3 (1H). Segments include Recreation & others, Lifestyle-related products, Electronic equipment & metal products, AV/IT, and Musical instruments. Values are in billions of yen.

Impact of exchange rates:

  • Year-on-year: + ¥2.6 billion (musical instruments + ¥2.5 billion, AV/IT + ¥0.2 billion, electronic equipment & metal products - ¥0.1 billion)
  • Versus initial projections: + ¥1.6 billion (musical instruments + ¥1.2 billion, AV/IT + ¥0.4 billion)

Forecast for Performance in FY2007.3 (Full Year)

Full-year forecasts for net sales and operating income remain unchanged. Upward revision of recurring profit and net income forecasts.

FY2006.3 Actual FY2007.3 New Projections Change from previous fiscal year (Initial projections)
1H 2H Total 1H 2H Total
Net sales 257.2 276.9 534.1 264.5 281.5 546.0 +2.2% (546.0)
Operating income (Operating income ratio) 14.4 9.7 24.1 (4.5%) 13.8 11.2 25.0 (4.6%) +3.7% (25.0)
Recurring profit (Recurring profit ratio) 21.3 13.9 35.2 (6.6%) 22.9 15.1 38.0 (7.0%) +8.0% (35.0)
Net income (Net income ratio) 16.5 11.6 28.1 (5.3%) 17.5 11.5 29.0 (5.3%) +3.2% (28.0)
Equity Method Income 8.5 6.3 14.8 10.2 7.1 17.3

Currency Exchange Rate

US$ EUR
Net sales 110 136
Operating income 110 134

Note: The table above shows rates for FY2006.3 Actual and FY2007.3 New Projections and Initial Projections. Specific values for each period are detailed in the original document.

Forecast for Performance by Segment in FY2007.3 (Full Year)

Net Sales

Bar chart showing Net Sales by business segment for FY2006.3 and FY2007.3 (New projections and Initial projections). Segments include Recreation & others, Lifestyle-related products, Electronic equipment & metal products, AV/IT, and Musical instruments. Values are in billions of yen. Figures in parentheses represent year-on-year change.

Impact of exchange rates:

  • Year-on-year: + ¥6.2 billion (musical instruments + ¥4.7 billion, AV/IT + ¥1.5 billion)
  • Versus initial projections: + ¥6.1 billion (musical instruments + ¥4.5 billion, AV/IT + ¥1.6 billion)

Operating Income

Bar chart showing Operating Income by business segment for FY2006.3 and FY2007.3 (New projections and Initial projections). Segments include Recreation & others, Lifestyle-related products, Electronic equipment & metal products, AV/IT, and Musical instruments. Values are in billions of yen.

Impact of exchange rates:

  • Year-on-year: + ¥3.8 billion (musical instruments + ¥3.2 billion, AV/IT + ¥0.6 billion)
  • Versus initial projections: + ¥2.9 billion (musical instruments + ¥2.2 billion, AV/IT + ¥0.7 billion)

Musical Instruments

1H Overview

  • Sales and income both increased compared to the same period of the previous year. Sales were lower than initial projections but income was higher.
  • Excluding the effect of exchange rates, actual sales were broadly at the same level as first half sales in the previous year. Sales continued to decline in Japan, largely due to falling Electone™ sales.
  • Sales were 3.6% lower than initial projections. In particular, the US market fell short of expectations partly due to the effect of trade inventory adjustments at the beginning of the fiscal year. Sales in China and South Korea remained strong.
  • Wind instruments and professional audio equipment continue to sell well.
  • In spite of rising prices for materials, operating income exceeded both last year's figures and initial projections. This was due to factors including the beneficial effect of exchange rates, improved gross profit margins thanks to changes in the makeup of sales, and the effects of cost-cutting.
  • Excluding the impact of exchange rates, inventories at the end of the first half were broadly at planned levels.

Full Year Overview and 2H Priorities

  • Full year projections revised to ¥323.5 billion for sales and ¥20.0 billion for operating income.
  • Expand sales of big-ticket products (player piano, grand pianos) in the European and U.S. markets.
  • Steadily launch new products in time for the year-end sales rush in Europe and the U.S.
    • Digital mixing console LS9 series
    • Low-priced silent pianos
    • Clavinova models with black polyester finish
  • Revitalize Japanese market
    • D-Deck dual manual keyboard
    • Upright Piano YUS series
  • Speed up manufacturing structure reforms including reorganization of production bases.

Bar chart showing Net sales and Operating income for Musical Instruments across FY05.3 to FY07.3 (Initial projections and New projections). Values are in billions of yen.

AV/IT

1H Overview

  • Sales fell but operating income rose slightly year-on-year. Sales and income were both higher than initial projections.
  • Excluding the effect of exchange rates, actual sales fell 6.8% year-on-year. Although AV products sold well, especially in North America, network karaoke equipment sales dropped sharply.
  • Actual sales were 1.2% below initial projections, largely due to the sluggish AV market in Japan.
  • Operating income exceeded initial projections, partly owing to the effects of the strong euro.
  • Solid shipments of YSP speakers, particularly in Europe and the U.S. (First half sales totaled ¥3 billion, twice the 1H figure for the previous year).
  • Excluding the impact of exchange rates, actual inventory at the end of the first half was broadly at the levels forecast in the initial projections.

Full Year Overview and 2H Priorities

  • Full year sales projections revised downward by ¥1 billion to ¥75.0 billion. Operating income revised upward to ¥2 billion.
  • Maintain growth in AV business
    • Further increase sales with launch of new YSP models
    • Boost AV receiver sales
    • Increase sales of new Soavo series of speakers
    • Launch products in new fields
  • Strengthen and expand router business.
  • Secure smooth launch of IP conferencing systems by raising awareness and developing sales channels.

Bar chart showing Net sales and Operating income for AV/IT across FY05.3 to FY07.3 (Initial projections and New projections). Values are in billions of yen.

Electronic Equipment & Metal Products

1H Overview

  • Year-on-year decline in sales and income chiefly due to lower demand for LSI sound chips for mobile phones.
  • Income exceeded initial projections thanks to growth in relatively high-margin items due to changes in product makeup.
  • Sales of electronic metals were higher than both last year's 1H figures and initial projections due to price changes accompanying increased materials prices.

Full Year Overview and 2H Priorities

  • Secure market share by increasing sales of high-performance sound chips for mobile phones.
  • Increase sales of existing LSI chips for applications other than mobile phones, such as pachinko machines.
  • Develop and launch new devices.
  • Boost profitability in electronic metals segment by further reducing production costs.

Bar chart showing Net sales and Operating income for Electronic Equipment & Metal Products across FY05.3 to FY07.3 (Initial projections and New projections). Values are in billions of yen.

Lifestyle-related Products

1H Overview

  • Sales levels remained unchanged year-on-year.
  • System kitchen sales remained strong thanks to the success of the marble products strategy. Price competition heated up in the system bathroom market.
  • Operating income was lower than both last year's figures and initial projections due to reduced gross profit margins associated with lower unit prices for system bathroom products.

Full Year Overview and 2H Priorities

  • Full-year projections revised upward for sales and downward for income.
  • Draw new customers to remodeling sales channels with new low-priced system kitchens launched in October.
  • Enhance and more widely apply the "marble craft" strategy, a key Yamaha strength.
  • Boost cost competitiveness by further promoting manufacturing reforms.

Bar chart showing Net sales and Operating income for Lifestyle-related Products across FY05.3 to FY07.3 (Initial projections and New projections). Values are in billions of yen.

Recreation

1H Overview

  • Although sales were lower than expected, overnight stays and day trips both increased year-on-year. Wedding business decreased.
  • Tsumagoi™ and Katsuragi™ did solid business, chiefly due to overnight stays.
  • Operating income improved year-on-year due to lower depreciation, but losses were still far greater than initially projected.

Full Year Overview and 2H Priorities

  • Full year projections revised downward.
  • Attract customers by proposing plans that make the most of each facility's special features and boost income by improving operating efficiency.

Bar chart showing Net sales and Operating income for Recreation across FY05.3 to FY07.3 (Initial projections and New projections). Values are in billions of yen.

Others

1H Overview

  • Sales increased year-on-year for the segment as a whole. Sales were also higher than initial projections, but income was lower.
  • Sales of golf products and magnesium molded parts were higher than both last year's 1H figures and initial projections. Sales of golf products grew substantially in the South Korean market, while orders of magnesium molded parts for digital camera applications were steady.
  • However, sales of automobile interior wood components were well below initial projections due to postponement of orders by major finished product manufacturers.
  • Operating income was higher than initial projections for golf products and metallic molds and components. Income from automobile interior wood components declined sharply due to reduced production and deteriorating yields.

Full Year Overview and 2H Priorities

  • Full year operating income projection revised downward.
  • Automobile interior wood components: Respond to demand for increased production and improve yields.
  • Metallic molds and components: Reduce production costs and enhance capability to respond to fluctuations in orders.
  • Golf products: Further enhance brand awareness and steadily launch new products.

Bar chart showing Net sales and Operating income for Others across FY05.3 to FY07.3 (Initial projections and New projections). Values are in billions of yen.

Inventories

Excluding the impact of exchange rates, actual inventories at the end of the first half are lower than the previous year. Actual inventories are ¥3 billion higher than initial projections due to increases in goods in process and materials.

End of 1H

Bar chart showing inventory breakdown (Goods in process/materials, Other products, AV/IT, Musical instruments) for FY05.3 to FY07.3 (Initial projections). Values are in billions of yen.

End of Fiscal Year

Bar chart showing inventory breakdown (Goods in process/materials, Other products, AV/IT, Musical instruments) for FY05.3 to FY07.3 (New projections and Initial projections). Values are in billions of yen.

Balance Sheet Summary

As of March 31, 2005 As of Sept. 30, 2005 As of March 31, 2006 As of Sept. 30, 2006 As of March 31, 2007
Cash and bank deposits 51.2 31.3 36.4 35.0 35.7
Accounts and notes receivable 71.6 81.4 70.3 85.7 74.0
Inventories 78.4 90.7 77.9 91.0 74.3
Other current assets 24.4 24.6 24.8 25.5 21.6
Fixed assets 280.0 293.8 310.6 319.2 328.0
Total assets 505.6 521.8 520.0 556.4 533.6
Accounts and notes payable 37.7 41.8 37.2 43.5 35.2
Short- and long-term borrowings 46.6 46.8 28.5 39.2 25.5
Other liabilities 142.3 130.6 133.8 130.7 132.8
Shareholders' equity 279.0 302.6 320.5 337.0 340.1
Total liabilities and shareholders' equity 505.6 521.8 520.0 556.4 533.6

2H Priority Products (1)

2H Priority Products (2)

Appendix

First Half Non-operating Income (Loss)/ Extraordinary Income (Loss)

FY2006.3 (1H) Actual FY2007.3 (1H) Actual FY2007.3 (1H) Initial Projections (Billions of yen)
Non-operating Income (Loss)
Equity method income 8.5 10.2 7.8
Net financial income (loss) 0 0.2 - 0.2
Other - 1.6 - 1.3 - 1.6
Total + 6.9 + 9.1 + 6.0
Extraordinary Income (Loss)
Income from (loss on) disposal of fixed assets 0.5 - 0.6 - 0.1
Other 0.3 - 1.5 0.1
Total + 0.8 - 2.1 0
Corporate Income Tax and Other Expenses
Corporate income tax, etc. 5.3 3.0 2.7
Minority interests in consolidated subsidiaries 0.3 0.3 0.3
Total 5.6 3.3 3.0

Note: An expense associated with the dissolution of Kaohsiung Yamaha of -1.7 billion is noted for Extraordinary Income (Loss).

Full Year Non-operating Income (Loss)/ Extraordinary Income (Loss)

FY2006.3 Actual FY2007.3 New Projections FY2007.3 Initial Projections (Billions of yen)
Non-operating Income (Loss)
Equity method income 14.8 17.3 14.8
Net financial income (loss) - 0.2 - 0.2 - 0.7
Other - 3.5 - 4.1 - 4.1
Total + 11.1 + 13.0 +10.0
Extraordinary Income (Loss)
Income from (loss on) disposal of fixed assets -0.2 - 0.6 -0.3
Other 0.8 - 1.4 0.3
Total + 0.6 - 2.0 0
Corporate Income Tax and Other Expenses
Corporate income tax, etc. 7.2 6.5 6.4
Minority interests in consolidated subsidiaries 0.5 0.5 0.6
Total 7.7 7.0 7.0

Note: A gain on sales of investment securities of 0.5 and expenses associated with the dissolution of Kaohsiung Yamaha of -1.7 are noted.

Capital Expenditure/Depreciation/R&D Expenses

Capital Expenditure/Depreciation

Bar chart showing Capital Expenditure/Depreciation for 1H and Full Year across FY2006.3 to FY2007.3 (Initial projections and New projections). Segments include Others, Electronic equipment & metal products, AV/IT, and Musical Instruments. Values are in billions of yen. Parentheses indicate specific figures or changes.

R&D Expenditure

Bar chart showing R&D Expenditure for FY2006.3 to FY2007.3 (Initial projections and New projections). Segments include Others, Electronic equipment & metal products, AV/IT, and Musical Instruments. Values are in billions of yen.

Interest-bearing Liabilities

Free Cash Flows

Bar chart showing Free Cash Flows for FY2006.3 (1H, 2H) and FY2007.3 (1H, 2H New projections). Values are in billions of yen.

Interest-bearing Liabilities

Bar chart showing Long- and short-term borrowings, less cash and deposits, for specific dates from March 2005 to March 2007 (New projections). Values are in billions of yen.

Balance of resort security deposits (not included in above): Table showing values from March 2005 to March 2007 (New projections).

As of Mar. 31, 2005 As of Sept. 30, 2005 As of Mar. 31, 2006 As of Sept. 30, 2006 As of Mar. 31, 2007 (New projections)
Balance of resort security deposits 28.9 28.0 27.6 27.0 26.8

Yamaha Musical Instrument Sales in the Japanese Market

Electone™ sales continued to decline, with first half sales at about 99% of the previous year's 1H figures. The new YU and YUS piano series and the D-Deck new-concept keyboard are expected to reverse this falling sales trend.

Bar chart showing Yamaha Musical Instrument Sales in the Japanese Market for First Half and Full Year from FY03.3 to FY07.3 (Projection). Values are in billions of yen. Figures in parentheses are year-on-year comparisons.

Yamaha Musical Instrument Sales in the U.S. Market

While the piano market remains tight and sales targets for the first half were not met, the market is slowly looking up. Trade inventories have also fallen gradually and expectations are high for year-end sales. Portable keyboards and wind instruments are selling well, with sales amounting to 110% of the previous year's 1H figures. Sales of professional audio equipment – a priority product – continued to grow, reaching 126% of the previous year's 1H figures.

Bar chart showing Wholesale Amount (Millions of US$) for Yamaha Musical Instrument Sales in the U.S. Market for First Half and Full Year from FY03.3 to FY07.3 (Projection). Figures in parentheses are year-on-year comparisons.

Yamaha Musical Instrument Sales in the German Market

The German market continues to be stable. Sales of pianos and wind instruments were at 105% compared to the same period of the previous year. Looking ahead to year-end, sales promotion efforts are being boosted for the Tyros2 high-performance keyboard. Orders for high-end products are expected to pick up ahead of next year's increase in VAT.

Bar chart showing Wholesale Amount (Millions of euro) for Yamaha Musical Instrument Sales in the German Market for First Half and Full Year from FY03.3 to FY07.3 (Projection). Figures in parentheses are year-on-year comparisons.

Yamaha Musical Instrument Sales in the U.K. Market

The market is picking up. Although products such as pianos, electronic instruments and guitars continue to sell well, with sales at almost 110% year-on-year, professional audio equipment sales are languishing at just 90% of the previous year's 1H figures. Looking ahead to year-end, sales of new products such as the LS9 digital mixer are expected to reverse this trend.

Bar chart showing Wholesale Amount (Millions of pounds) for Yamaha Musical Instrument Sales in the U.K. Market for First Half and Full Year from FY03.3 to FY07.3 (Projection). Figures in parentheses are year-on-year comparisons.

Yamaha Musical Instrument Sales in the Chinese Market

Even though the Chinese economy continues to show strong growth, expansion in the musical instrument market is limited to certain areas. Piano sales are recovering thanks to bulk orders from schools, etc. and the new KB280/220 portable keyboards are selling well. Professional audio equipment sales are also robust, at 119% of the previous year's 1H figures, and Yamaha products are gradually penetrating the broadcasting studio and theater facility markets.

Bar chart showing Wholesale Amount (Millions of yuan) for Yamaha Musical Instrument Sales in the Chinese Market for First Half and Full Year from FY03.3 to FY07.3 (Projection). Figures in parentheses are year-on-year comparisons.

Scale of Home Theater Market

Home Theater Systems

Bar chart showing market size for Home Theater Systems from 2003 to 2007 (Projection). Segments include N. America, Europe, Japan, and Other. Values are in million units.

AV Amplifiers and Receivers

Bar chart showing market size for AV Amplifiers and Receivers from 2003 to 2007 (Projection). Segments include N. America, Europe, Japan, and Other. Values are in million units.

AV Market Share

Japan

Home Theater Systems: Share of Total Sales Amount (GfKJ)

Line chart showing market share percentage for Home Theater Systems in Japan from '02 to '06 (Jan. - Sept.).

AV Amplifiers: Share of Total Sales Amount (GfKJ)

Line chart showing market share percentage for AV Amplifiers in Japan from '02 to '06 (Jan. - Sept.).

U.S.

Home Theater Systems: Share of Total Sales Amount (INTELECT)

Line chart showing market share percentage for Home Theater Systems in the U.S. from '02 to '06 (Jan. - Aug.).

AV Receivers: Share of Total Sales Amount (INTELECT)

Line chart showing market share percentage for AV Receivers in the U.S. from '02 to '06 (Jan. - Aug.).

Forward-Looking Statements

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 operating and economic conditions, demand trends, and the value of key currencies, such as the U.S. dollar and the euro.

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