Q&As on the Presentation of Performance Results for the Fiscal Year Ended March 31, 2016 (FY2016.3) (Held on May 2, 2016)

Q1 : If we examine the year-on-year status of sales by region in local currency terms, it appears that sales of musical instruments and audio equipment have decelerated in the fourth quarter (Q4), compared with sales through the third quarter (Q3). Could you please comment on this?

A1 : Conditions differ by region. For example, sales of musical instruments in North America and China in Q4 of the previous year expanded substantially as we actively increased shipments of products to authorized dealers, especially in March 2015. However, in view of the slowdown in April 2015, we restrained shipments in Q4. This was a factor behind slower expansion in sales than in the prior year.

Also, sales of audio equipment in North America slowed in Q4, because, in addition to accelerated or postponed shipments of AV products, shipments of new professional audio equipment did not proceed smoothly. We are expecting that sales of audio equipment will make a comeback in FY2017.3.

Q2 : Please explain the impact of exchange rates by currency. Also, please tell us whether you have made any price changes in response to these fluctuations?

A2 : The income and expenses in U.S. dollars balance one another, and exchange rates have almost no impact on operating income. In the case of euros, if the yen appreciated ¥1, this has a negative impact of ¥0.44 billion on operating income. For Chinese yuan, appreciation of the yen has a negative impact on income, but for the Indonesian rupiah and Malaysian ringgit, yen appreciation has a positive impact on income.

We are making increases in prices as appropriate. The item “improved gross profit +¥3.0 billion” in the operating income analysis projections in Slide 16 includes improvements in profitability due to changes in the product model mix and improvements in sales terms and price increases, which have a positive impact on profitability.

Q3 : Under the new medium-term management plan (“NEXT STAGE 12”), we understand you will be making strategic investments, including expenditures for strengthening the Yamaha brand. What strategic investments will you be making during the current fiscal year?

A3 : The principal investments will be made to increase the number of dealers to expand our sales network and expansion of the related dealer support systems. We will also make expenditures to strengthen in-store and mass media exposure of MusicCast, our strategic network audio product in the AV products business, and improve support for our audio contractors.

Q4 : What were the reasons for the increase in selling, general and administrative (SG&A) expenses in Q4?

A4 : Thus far, there has been a trend toward showing a shortfall between the actual levels and the level of the expected SG&A expenses gathered from various divisions. For this reason, we estimated the total for SG&A expenses after making adjustments. This time also, the divisions were showing favorable profit performance, and accelerated expenses for sales in FY2017.3 were incurred. These factors resulted in the increase in SG&A expenses. In view of these developments, we are working to increase the accuracy of supervising these expenses.

Q5 : What will be the impact of the write-offs of goodwill in the previous year (FY2016.3) related to Line 6 and Revolabs on the profit of the current period?

A5 : Line 6 : ¥1.1 billion; Revolabs : ¥0.8 billion.

Q6 : You explained that the OEM business of Revolabs will undergo change; could you provide further detail on this topic?

A6 : We did not mean that the operating environment for the OEM business would change, but that we would be pushing more profitable business activities under the Revolabs brand, which will have higher margins than in the OEM business.

Q7 : We understand that you will be focusing on guitars during the current fiscal year, but, within the guitar industry, Yamaha is challenging the positions of strong competitors. How do you intend to increase sales and income?

A7 : With the guitar market, in the acoustic guitar field, we are strengthening our position year by year in the moderately priced segment for electric acoustic guitars with microphones, amplifiers, and other features. We are also implementing sales network measures to expand sales of medium-priced guitars.

In addition, we are working to expand sales by launching new products, including our new Revstar series of electric guitars and TransAcoustic™ guitars that apply our original TransAcoustic technology. Please refer to the materials handed out for further details.

Q8 : In Slide 16, you presented the factors that will influence operating income analysis projections. Could you please explain the “increase in sales of ¥4.2 billion?”

A8 : On a real basis, after excluding the effects of foreign currency fluctuations, we are assuming that sales from musical instruments (hardware) will be 1.03 times higher year on year and sales from audio equipment will be up 1.06 times. Those are the two main factors influencing gross profit.

Q9 : You showed a figure of ¥42.0 billion for operating income in FY2017.3. Is this a target figure for the first year that assumed the target of the final year of the new medium-term management plan with any prior basis or is this a figure you compiled by adding individually estimated components of income?

A9 : This figure was calculated by adding individually estimated components of income.

Q10 : Please explain the current conditions in and the outlook in the Chinese market for musical instruments.

A10 : We think that recent sales at retail stores are continuing at the expected levels. However, sales from bidding activities, which expanded in FY2016.3, are now difficult to forecast, and this may be a risk factor going forward.

Q11 : The operating income analysis projection in Slide 16 shows the “impact of exchange rates –¥6.5 billion.” Could you please explain this amount?

A11 : Since we are assuming that the yen will appreciate, the strongest effect of this will be on figures denominated in euros and will amount to about –¥4.0 billion on profitability.

As we explained previously, the impact of the appreciation of the yen on figures denominated in rupiahs, the local currency of Indonesia, and in ringgits, the local currency of Malaysia, will be positive for operating income because these figures are for costs. On the other hand, appreciation of the yen on sales figures denominated in Australian dollars, Canadian dollars, Brazilian reals, and Russian rubles will have a negative effect on profitability. The net effect on income will be –¥6.5 billion.