Q&As on the Presentation of Performance Results through the Third Quarter of the Fiscal Year Ending March 31, 2018 (FY2018.3)

Q1: Could you please explain the content of the item "Actual decrease in sales, product mix etc." compared with the previous projection, which was given in the operating income analysis in slide number five in the presentation file?

A1: The principal reason was the decline in sales, mainly in the audio equipment business. In the AV products sector, sales that we had expected to record through the mass-market route in North America slipped into the fourth quarter, and, in Europe, there were delays in shipments through the e-commerce route. In the professional audio equipment business, sales were adversely affected by the delays in completion of upgrades in the firmware version for flagship digital mixers as well as delays in shipments due to quality issues at a subsidiary (NEXO).

Q2: In your explanation of the outlook for the fourth quarter, you mentioned the postponement of audio engineering and installations until the next fiscal year. Could you please explain this in more detail?

A2: Some of the audio engineering and installation projects in Japan have been delayed at the customer’s request and will slip into the next fiscal year. Since this work has only been postponed for the time being, no special problems have arisen with these projects.

Q3: The Others segment reported a strong performance from the first through the third quarters of this fiscal year, but it appears you are expecting a slowdown in the fourth quarter. Is there some special reason for this?

A3: Since we did not revise our outlook for the full fiscal year, it appears that sales projection would be a marked slowdown in the fourth quarter. However, there are no specific factors that would have a significant negative impact on our performance in the fourth quarter. Since orders for factory automation (FA) equipment are favorable, we believe there will be no major change in the underlying tone of performance.

Q4: Please explain the impact of exchange rates accumulated through the third quarter, including the unrealized gains in the first half of the fiscal year.

A4: Foreign currency fluctuation has had an accumulated impact of +2.6 billion yen on operating income through the third quarter. Within that total, the unrealized gain (loss) on inventories amounted to -0.8 billion yen.

Q5: If the impact of exchange rates in the Musical Instruments segment is excluded, it appears that the income ratio on an accumulated basis through the third quarter has declined compared to the previous year. Please explain the reasons for this.

A5: The factors behind this are the special items included in "others" in the graph on slide number five, increases in selling, general and administrative (SG&A) expenses, and a rise in costs of raw materials. In addition we have experienced a delay in bringing sales prices to appropriate levels as recovery has progressed following the slowdown in sales in the first half in Europe and North America.

Q6: Could you please review conditions in the musical instruments market in China?

A6: Piano market sales are strong in China. Since customers are requiring higher quality products, small and medium-sized piano manufacturers are dropping out, and demand is focusing on the leading piano companies. Yamaha is continuing to report double-digit sales growth.

The market for digital musical instruments is also showing major growth. We believe that, rather than demand shifting from acoustic pianos in the market, new demand is expanding mainly due to consumer interest in music as a hobby.

In the guitar market also, demand is expanding among customers who are interested in playing guitars as a hobby, and sales are continuing to be favorable.

Q7: In your explanation of the operating income analysis in slide number 12, you mentioned that procurement costs rose. Please give us further details on this point. Also, will the effects of this rise continue into the next period?

A7: Procurement costs, mainly of electronic devices and plastics, have increased. At the present time, we are expecting that this trend will continue into the next fiscal year.

Q8: Will there be any impact on sales of guitars as a result of the revision of import restriction related to wood products (rosewood)?

A8: Shipments from our factories have almost fully recovered, and we are expecting expansion in sales in the fourth quarter.

Q9: In your slide number 12, where you compare SG&A expenses with the previous projection, you show a decrease of 2.1 billion yen. Won’t this reduction have an impact on sales?

A9: Since sales have not reached the expected level, we are restraining SG&A expenses to a certain level against the previous projections, but on a year-on-year comparison basis, we have made major increases in strategic expenses aimed at future growth. We are making steady and sufficient expenditures in areas where we should be making them, while also working at the same time to increase the efficiency and effectiveness of our general expenditures. We believe this policy will not have a negative effect on sales.

Q10: Sales of pianos in China continue to show strong performance. Could you please discuss the status of customers you are selling to in that market?

A10: Basically, sales are strong centering in the B-to-C (business-to-consumer) market.
In the contract bidding market, the number of major contracts for newly established music institutions has decreased, but small-to-medium-sized contracts are continuing to be firm.

Q11: As for the sales of musical instruments by region described in slide number 14, the other regions are continuing to show strong performance. Could you please provide an explanation of the status of sales by country ?

A11: There are disparities in performance by country. We are seeing very good performances in Brazil, Russia, and India. The next best performing regions are Indonesia and the Middle East, where we are expecting double-digit growth.

Q12: Your target for operating income in your Medium-Term Management Plan is 55.0 billion yen, and the next fiscal year will be the final year of the plan. Please comment on your views of operating income in the next fiscal year from your current perspective.

A12: What we can say at this time is that we are implementing a wide range of business measures to reach the target of our Medium-Term Management Plan.

Q13: How is the sales of Clavinova CLP, your new digital piano product?

A13: In the first half of the fiscal year, there was some slowing of sales as the new products replaced the previous ones, but sales in the third quarter were quite strong.

Q14: Please comment on the status of changes in transaction conditions in Europe and impact on your sales.

A14: In part because of the relaxation of restrictions on some transaction conditions and progress toward gaining the understanding of dealers, sales in November were almost back to a projected pace.