Q&As on the Presentation of Performance Results for the First Quarter of the Fiscal Year Ending March 31, 2014 (FY 2014.3)

A1 : First quarter musical instrument sales in Korea, Malaysia, Mexico, Brazil, etc. were harsh.
Growth rate forecasts for the full fiscal year have been revised downward from the 6% to the current 4%, however in other mature markets such as Korea, Malaysia, etc., the sales ratio of pianos and wind instruments for all products is high, and we predict a recovery in the future from the harsh conditions of temporary increased inventories

In addition, with a high ratio of professional audio equipment, we expect newly emerging markets such as Brazil to recover through the sale of new products in the future.
We are taking steps to strengthen sales networks in all regions and sales capability, and taking the results into account for the full fiscal year.

To achieve the full fiscal year forecast, hurdles that are never low are shared by the whole company, and by making efforts to expand the sales network and population of musical performers through upgrading music schools, we believe we can look forward to such results in the future. We plan to reveal the expansion of aggressive sales promotions and a pricing policy as we watch market conditions.

A2 : In the case of the level of inventory at the end of the first quarter, there was an increase of ¥13.1 billion by foreign exchange rates from last year. The level excluding the impact of foreign currency fluctuations declined by ¥3.1 billion year on year. Meanwhile, when compared with the previous forecast, sales in the overseas market fared poorly and the level rose slightly, therefore from now on, we plan to review the production schedules of certain products, as well as take other countermeasures.

A3 : First quarter sales of digital pianos have become more robust, so there are no problems in particular with the level of inventory held. We believe the strong performance will continue into the future.

A4 : Personnel costs and SG&A expenses decreased by ¥2.4 billion when compared with the previous forecast. However, because some expenses will be delayed in reporting in the financial statement, we anticipate increases in the second through the fourth quarters. The discrepancy between the first quarter SG&A expenses decrease of ¥2.4 billion and the full fiscal year decrease of ¥0.9 billion will occur in the future.

A5 : For income by quarter, second quarter musical instrument sales are predicted to stay in line with last year. Nevertheless, production will be lowered slightly and there will be delayed cost occurrence and also until the second quarter we will look at sales with caution.

As a result of business structural reforms and sales gains in the previous fiscal year, first quarter electronic device business has returned to profitability. In the future, as characteristics of the B2B business, although we have steady expectations in relation to our customers, we assumed break-even profits for the full fiscal year when taking future risks into account.

A6 : There are two reasons. One reason is that every year there are costs occurred or delayed in reporting in the fourth quarter. With operating income often either flat or in the red in the fourth quarter, there is a tendency for profitability in the second half of the fiscal year to be harsh.
The other is expected minor production adjustments from poor sales in the first quarter. Our outlook for operating income in the second half of the fiscal year is cautious for these two reasons.

A7 : Our leading CL series digital mixers have been the driver of the European market until now. However, we expect growth to slow somewhat from saturation in demand.
Moreover, regarding profitability, the cost of developing new PA equipment products occurs first, leading to the second through the fourth quarters becoming tough when compared with the first quarter.

A8 : We do not have the exact figures on hand. Nevertheless, although sales declines in June expanded from last year, there are signs of a slight recovery in July.

A9 : It depends on the market, but the performance surpassed that of the previous fiscal year in Indonesia, Russia and certain other emerging markets.

On the other hand, in China, it fell below compared to the same month of the previous year. Additionally, there were a large number of shipments for orders from the previous fiscal year’s first quarter trade show in Europe, causing the current fiscal year’s sales to fall short. Conversely, because of steady shipments in the first quarter of the previous fiscal year, inventory increased and the performance in the second quarters declined. In contrast, we foresee a recovery in the second quarter as no decline in sales due to the inventory increase will be anticipated in the current fiscal year.
In the U.S., it will remain at about the same level as the previous year.

A10 : There are no changes to our sensitivity to exchange rates. The effects on operating income of a ¥1 fluctuation are ¥60 million for the dollar and ¥380 million for the euro. The assumed impacts of exchange rates include the Canadian dollar, the Australian dollar, and other currencies.

A11 : One month has passed since first becoming president, and I have endeavored to understand the current situation of Yamaha’s businesses. As an issue, in businesses other than musical instruments, the feeling of uncertainty can’t be swept away.

While on the other hand, I am fully aware that digital musical instruments within the category of musical instruments and electronics products such as PA equipment, ICT equipment, audio products, etc. have the potential for growth.

On August 1, the organization was changed according to the function of development, production and sales. The consolidation of the musical instruments and audio equipment businesses’ marketing departments occurred last October, and this is the continuation. I anticipate the beneficial effects through strengthening of expertise, the development of human resources, the interaction between people who have never met until now, and other such outcomes.

I would like to make progress towards achieving the goals of the current plan and those of the next phase.