Q&As on the Presentation of Performance Results for the Third Quarter of the Fiscal Year Ending March 31, 2015 (FY2015.3) (Held on February 5, 2015)

Q1 : Regarding your assumptions about sales in local currency terms in the North American market in the fourth quarter, the rate of growth over the same period of the previous year seems to be quite high compared to results in the third quarter. Could you please explain the factors you believe will account for this growth?

A1 : Our basic understanding is that conditions in the North American market are holding strong. Another reason for growth is that, at the musical instrument trade show on the U.S. West Coast in January, our new products met with positive acclaim and orders received for them have been favorable.

In the audio equipment business, we have experienced delays in achieving market penetration as high as in the European market, but we are assuming that new product launches will proceed smoothly. Based on a preliminary report in January for our U.S. subsidiaries, sales in local currency are expanding at double-digit rates as we had assumed. Along with this firm sales performance in the North American market, growth will also be supported both by expansion in the market overall and the positive impact of new product sales.

Q2 : I have a question about the effects of foreign currency fluctuations. Is your assumption of ¥140 to one euro for the fourth quarter supported by the level of your foreign exchange forward contracts and other indicators?

A2 : Concerning the euro, we have completed arrangements for forward cover during the fourth quarter based on an exchange rate of around ¥143, and that figure is the basis for our forecasts. Therefore, looking ahead, there will not be any major impact as a result of fluctuations in the value of the euro during the fourth quarter.

Q3 : Regarding your electronic device (semiconductor) business, we understand that, because of your structural reform measures, income will improve in the next fiscal year and you will report a profit. What is your estimate of income now that you have lowered your outlook for performance this time? Also, is there a possibility that sales in this business will decline further from the level of this fiscal year?

A3 : We are estimating a total improvement in profitability of about ¥2.8 billion as a result of the cost cutting measures. This will consist of about ¥1.5 billion due to reduction in fixed costs after the transfer of the Kagoshima semiconductor plant and about ¥1.3 billion owing to lower R&D costs. Along with the downward revision in our outlook for the current period, the hurdle to show a profit will be higher, but we are working toward a return to profitability. In addition, at this time, we are not forecasting a further decline in sales in this business next year in comparison with the current year.

Q4 : Could you please explain the current status of the factory automation (FA) business?

A4 : September sales in the FA business were at the highest level for a single month in our history, but, since that time, orders have declined rapidly. Nevertheless demand in overseas markets picked up again beginning in December, and orders are recovering. However, on a full fiscal year basis, the outlook is that sales will not rise to the level of our previously issued forecast.

Q5 : Please give us a breakdown of the impact of foreign currency fluctuations on the increase in income in the third quarter.

A5 : Compared with the previous forecast, the figure has increased ¥1.2 billion. In addition to the impact of the depreciation in the value of the yen against the euro, the effect of the appreciation of the U.S. dollar on overseas manufacturing companies was about ¥400 million. The effect of the restatements of overseas subsidiaries from various other currencies was about ¥400 million. The breakdown of the +¥1.3 billion compared with the previous year included the impact of the depreciation of the yen against the euro and the effect on manufacturing companies of the dollar appreciations was more than ¥200 million. For overseas subsidiaries around world, the impact of the restatement of operating income into yen was about ¥500 million.

Q6 : I believe you have lowered your outlook for the fourth quarter in Europe. Please explain the reasons behind this change.

A6 : Within the European market, the difficult situation in southern Europe is moving toward recovery, but conditions are tough in Germany, which is our principal market in this region. The economy of the United Kingdom is slowing, and overall conditions are severe. This is the reason for lowering our outlook this time. According to preliminary information for January, sales are at about the same level in the previous year, and our understanding is that actual performance is going according to our forecasts.

Q7 : Regarding sales in the European market, were actual sales of new products in the third quarter below your expectations?

A7 : New products, with digital pianos in the lead, are performing favorably overall. However, the high-end portable keyboard, which was introduced last year, seems to have lost momentum sooner than we had expected, and this is influencing performance.

Q8 : What is the current status of conditions in the AV products business? Also, what is the status of the professional audio (PA) equipment business?

A8 : There have not been any major changes in particular in recent market conditions for AV products. Over the past one and a half years, the demand structure has changed substantially, however, as there has been a transition from CDs and other existing recording media to download streaming. This makes enjoying music and other content easier, and lifestyle changes are occurring. We think one of the factors is that we have not been able to respond and adapt our products sufficiently to these changes.

Sales of PA equipment are expanding, but we want to speed up growth in our mainstay digital mixer QL series in the North American market and, looking to the next fiscal year, leverage new product launches to accelerate expansion.

We are aware that we also need to strengthen our marketing systems in the ASEAN region, and we are making plans to move forward in this area.

Q9 : Are you expecting recovery in the audio equipment business in the next fiscal year? What is happening to profit margins in the AV products, PA equipment, and commercial karaoke equipment businesses?

A9 : For the Company as a whole, the directions we are taking are to strengthen profitability in the musical instruments business and aiming for growth in the audio equipment business (especially PA equipment). However, we are aware that improving profit margins in the audio equipment business will be necessary. On an accumulated basis through the end of the third quarter of this fiscal year, our ratio of operating income to net sales of audio products were in the upper half of the single-digit range. Compared to the double-digit operating income ratios in PA equipment and commercial karaoke equipment, profitability of audio products is relatively weak.

Profit ratios in the PA equipment business have been rising from the results reported in the previous fiscal year, and we intend to continue to raise profitability.

Q10 : Turning next to expansion in the PA equipment business in Asia, what products are you expecting to show sales growth?

A10 : We are expecting growth not only in digital mixers but also in sales of other equipment for use in commercial establishments (e.g., restaurants, cafes, etc.), including ceiling-mounted speakers, etc. We also believe that the growth in the middle classes will increase demand for PA peripheral equipment for musicians.

Q11 : I would like to ask about the impact on your performance of the two newly consolidated companies. Performance has deteriorated since the interim results; so, could you explain the reasons for this?

A11 : The main reason for the deterioration in performance was the increase in losses, compared with the previous outlook, at Line 6. Performance at Revolabs is going as forecast.

Q12 : After excluding the effects of amortization of goodwill, are you assuming that the impact on the income of the newly consolidated companies will be at break-even levels, or will they show a profit?

A12 : We are aiming to show a profit in these companies after excluding the effect of goodwill amortization. In addition, we think that the positive impact of the realization of mutual synergies among Yamaha and these companies will emerge in the next period.

Q13 : You are working toward a goal that you set in your medium-term plan of 10% for ROE. What are your views on that now?

A13 : Although our assumptions about foreign exchange rates will differ, if we reach the numerical targets this time, we will attain the goals of ¥430 billion in net sales and ¥30 billion in operating income one year ahead of schedule. We are aware that the target ROE of 10%, stated as the objective of the final year of the medium-term management plan, is an important management theme. Since there is some distance between the outlook for the current fiscal year and this ROE objective, under our plan for the next fiscal year, we intend to work aggressively to attain this objective, including giving consideration to our policies for rewarding shareholders.