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MAY 2008 W4 ALERT Yamaha Makes Dramatic Shift - Company to Focus on "Musical Operations" Business
Move seen as retrenchment after unsuccessful diversification program <Nikkei-HAMMAMATSU><May 21, 2008>The Nikkei reported today that Yamaha Corp. is realigning its focus on its “musical operations” or the musical instrument business, long the largest segment for the company contributing more than 60% of Yamaha’s total sales volume. This move is seen as a rejection of their failed business diversification program which had been launched by the late Genichi Kawakami, a former company executive credited with making Yamaha a major business player.
In a mid-term management plan covering the period between last year and 2010, the company, using the phrase “The Sound Company,” will invest ¥32 billion (approx. $307 million at today’s exchange rate of 104.2  yen-to-dollar) in new factories and equipment for the musical instrument division. This is an increase of more than 30% and the highest capital investment in this division in at least a decade.
The company has taken other actions to distance itself from the previous administration’s diversification strategy. Most notably, the company, in October 2007, sold off the firm’s poorly performing resort facilities…one of the diversifications that failed to integrate well within the company.
The company also reduced its holdings in Yamaha Motor Co., from a previous 22.7% to its current 14.9% ownership. Aside from raising capital, this move means that Yamaha is no longer a majority owner of the motorcycle maker. Yamaha will no longer include results from Yamaha Motor Co. in its consolidated financials.
The company has also initiated a stock buy-back program which is designed to “enhance the return to shareholders” in the wake of the sale of its ownership stake in Yamaha Motor. Yamaha’s Board of Directors has approved a buyback of up to ten million shares of Yamaha stock between now and September. All shares acquired will be cancelled thereby reducing dilution.
All of these moves were taken in the wake of their FY2008.3 results in which the company reported that sales declined .3% to ¥548.8 billion (about $5.3 billion) from last years ¥550.4 billion. Consolidated net income, however, increased 42% to ¥39.6 billion (about $380 million) from ¥27.9 billion ($268 million)previously…primarily due to the gain from the sale of their shares in Yamaha Motor.
Yamaha’s audio business, which is recorded in Yamaha’s AV/IT division, showed a sales decline of 2.8% to ¥70.8 billion (about $678 million) from ¥72.8 billion (about $699 million) last year. Operating income declined a significant 14% to ¥1.8 billion ($17.2 million) from last year’s ¥2.1 billion ($20 million). According to the company, it is experiencing “more-intense” competition in the segment.
Yamaha’s business shifted geographically with their sales in North America declining from ¥93.7 billion to ¥89.9 billion or from 17% of sales to 16.4% of sales. However, Europe and Asia both showed increases from 17.7% and 12.4% of sales respectively to 19% and 14.2% of sales. These gains were driven largely by an economic slowdown in North America and strong growth in emerging markets.
In issuing its forecast for the 2009 fiscal year, the company anticipates another year of consolidation as sales are expected to decline another 1.6% to ¥540 billion with net profits declining 48% to ¥20.5 billion. The company does expect operating profits to increase 6.7% to ¥35 billion mostly due to a significant contribution from the musical instrument division. Charts from Yamaha financial presentation to investors... |
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