Q&As on the Presentation of Performance Results through the Second Quarter of the Fiscal Year Ending March 31, 2016 (FY2016.3)

A1 : Although there are some signs of a slowdown in retail sales of pianos, which are the main factor supporting favorable sales performance of musical instruments in China, we believe the current favorable conditions will continue as in the first half, since the number of tender biddings we are winning from schools and other customers there is rising.
Also, another factor is that the ratio of digital piano sales, which has been lower than the ratio of acoustic piano sales, has recently been increasing.

A2 : The principal factors are
-In the first half, we accelerated the shipments of semiconductor products with high profit margins, and this resulted in improvement in profitability.
-Shipments of new digital piano products that have high profit margins were shifted forward from the second half into the first half.
-Some selling, general and administrative (SG&A) expenses to be incurred in the first half were shifted to the second half.

A3 : As a result of expansion in sales, compared with the previous fiscal year, the outlook is that SG&A expenses in the first half was ¥700 million higher, SG&A expenses in the second half will be ¥800 million higher, for a total of ¥1.5 billion higher SG&A expenses for the full fiscal year.
However, we think the SG&A expenses that we expected to incur in the second half will not be as high as in the previous forecast. Therefore, the outlook is for a decline in SG&A expenses in the previous forecast.

A4 : The principal factors will be
-Progress toward reducing costs of digital piano manufacturing,
-Changes in the product mix of semiconductors (an increase in high-margin products), and
-An increase in manufacturing profit due to expansion in sales of wind instruments.

A5 : The income ratios of musical instruments are expected to be somewhat lower in the second half compared with the first half. The principal factors accounting for this will be
-High shipments of high-margin digital pianos and wind instruments in the first half and
-In the second half, income due to factory utilization rates will not be as high as in the first half.
In the long term, in addition to initiatives taken thus far to reduce costs in acoustic musical instruments, we have further plans for reduction, and we believe we have room for increasing profit ratios going forward.

A6 : We believe the rate of growth in piano sales is on a declining trend.
However, conditions differ from one region to another, and, although there may be a trend toward slower growth in urban areas, growth trends are still apparent in surrounding areas, and we will proceed with activities to expand sales.
On the other hand, since the digital piano market is growing rapidly, we will implement initiatives suited to market expansion.

A7 : In the PA equipment business, the European market is showing the firmest trends.
On the other hand, the North American market is the area where we are not reaching our expectations. This has been due in part to effects following right after changes in our sales systems; sales were tough in the first half, but we are expecting recovery in the second half.
The Chinese and other markets also are showing firm expansion.
Also, we are scheduled to introduce a new large-scale digital mixer in the second half, and this will contribute to sales expansion.

A9 : Yamaha Motor was formed through a spin-off of a division of Yamaha Corporation, and, initially, Yamaha Corporation owned 100% of its shares. However, the percentage ownership was reduced thereafter, and Yamaha Motor was excluded from the scope of equity method affiliated companies in 2007. Subsequently, there have been no changes.

Yamaha Motor is regarded as an important partner of Yamaha Corporation, and it shares the Yamaha brand jointly with Yamaha Corporation throughout the world. We have established a Joint Brand Committee and are undertaking many joint initiatives. Also, through the ownership of shares, we are able to appropriately monitor each other’s sustainable growth and are working to maintain and strengthen the Yamaha brand.

As regards the appropriate percentage of shareholdings, we are looking into this issue from many perspectives and continuing to discuss further going forward.

A10 : The profit margin in the musical instruments business has exceeded 10%. However, there are divergences by product category, and we believe there is sufficient room at present for increasing profit ratios in those areas where margins are low.

In the next medium-term management plan now under preparation, from a medium- to long-term perspective, we believe it is possible to increase profitability further by continuing to increase brand value and create value in our products that fully differentiates them from those of competitors. This is the approach we are considering at this time.

A11 : We want to continue to be a unique company.
Rather than try to expand sales willy-nilly, we want to provide products that have no close substitutes and are needed by society. We believe that this approach will lead to rising profit as a result.
As regards ROE, we are aiming for income at or above a certain level, but we are also giving attention to other indicators, such as EPS (earnings per share), P/E ratio (price-to-earnings ratio), and total market capitalization, and want to take initiatives in those areas.
Also, at present, more than 90% of our sales and income are generated in the musical instruments and audio equipment businesses; so, our stance toward future growth is to aim to
-Further increase the profitability of the musical instruments business,
-Expand the audio equipment business to a scale that will be comparable to the musical instruments business, and
-Create other pillars of our business to stand along musical instruments and audio equipment.

A12 : To respond to changes in the business environment, we are considering the following:
-Establish second and third pillars of our business operations,
-Proceed with cost reductions, and
-Adopt a flexible pricing policy to reflect to some degree fluctuations in foreign exchange rates.