Yamaha 2006 Annual Report Download - page 49

Yamaha Annual Report 2006 49
Operating Income (Loss) by Business Segment
(Millions of Yen)
[1]: Musical Instruments
[2]: AV/IT
[3]:
Electronic Equipment and Metal Products
[4]: Lifestyle-Related Products
[5]: Recreation
[6]: Others
14,132
2,113
7,927
1,169
582
(1,789)
Fiscal 2005 Fiscal 2006
[1] [2] [3] [4] [5] [6]
Cost of Sales and SG&A Expenses
Ongoing cost reduction only partially offset an increase in material costs caused by factors
such as yen depreciation and higher crude oil prices. The overall cost of sales increased ¥6.2
billion, or 1.8%, compared with fiscal 2005. Gross profit declined ¥6.3 billion, or 3.2%, to
¥192.3 billion, with sales remaining basically on par with the previous year. The gross profit
margin declined 1.2 percentage points, from 37.2% to 36.0%.
Selling, general and administrative (SG&A) expenses increased ¥5.2 billion, or 3.2%, over
fiscal 2005, to ¥168.1 billion. The increase reflected a rise in expenses associated with yen
depreciation, a hike in costs related to newly consolidated subsidiaries, and a surge in distri-
bution costs. The ratio of SG&A expenses to sales rose 1.0 percentage point, from 30.5%
to 31.5%.
Operating Income
Operating income fell ¥11.6 billion, or 32.4%, from a year earlier, to ¥24.1 billion. Despite a
foreign exchange gain due to depreciation of the yen, there was a change in sales composi-
tion, notably with a decline in the proportion of high-profit-margin semiconductors, while ris-
ing raw materials prices, especially for crude oil, and higher transportation costs, also had a
negative effect.
Operating income in the musical instruments segment was largely unchanged, at ¥14.1
billion. The segment’s higher sales and currency translation gains were offset by a combina-
tion of higher raw material prices; adverse changes in the product sales mix; and corrective
inventory-related measures, which resulted in lower gross profit margins for the segment.
Operating income also declined in the AV/IT segment, by ¥1.5 billion, or 42.1%, to ¥2.1
billion, due to the effects of lower sales and of reduced gross profit margins as competition
intensified, despite continued efforts to cut production costs.
The electronic equipment and metal products segment recorded a second consecutive
substantial drop in operating income of ¥12.0 billion, or 60.3%, from ¥20.0 billion to ¥7.9
billion. This mirrored a significant fall in sales caused by lower demand for the LSI sound
chips used in mobile phones and by further price erosion.
Profitability, meanwhile, was restored at the operating level to the lifestyle-related prod-
ucts segment. This was due to a combination of increased sales and reduced manufacturing
and fixed costs.
Depreciation expenses were reduced in the recreation segment after the adoption of
asset-impairment accounting standards in the previous year resulted in a decline in deprecia-
ble assets. Although this helped to curtail losses, the business still recorded an operating
loss of ¥1.8 billion due to difficulties in stemming the decline in sales.
Operating income from others segment amounted to ¥0.6 billion, an increase of ¥0.4 bil-
lion, or 245.4%, compared with the previous year. The improvement came as a result of
higher sales and a lowering of manufacturing costs across the automobile interior wood
components, FA, and metallic molds and components businesses.