A1 : We are not thinking of any particular company as a benchmark or model, but we have examined the examples of Apple Inc., bicycle gear changer manufacturer Shimano Inc., and Hamamatsu Photonics K.K., which is located in the vicinity of the Yamaha Headquarters. These companies are distinctive as corporate entities, have high profitability, and are close to the future corporate image we have for Yamaha.
Q&As on the Presentation on the New Medium-Term Management Plan NEXT STAGE 12
Q1 : Your new management vision mentions strengthening Yamaha’s brand power. Do you have another company that you will be taking as a benchmark or model for implementing this vision?
Q2 : Regarding the changes in sales of musical instruments business in Slide 18, you show the amounts of increases in sales of digital instruments, pianos, and other items. How much growth are you expecting by region? How will you achieve these increases in sales? Will it be through contributions of changes in unit volume, increases in unit prices, and other factors?
A2 : During the term of the new medium-term management plan, we are assuming that musical instruments sales overall will grow at about 10% in North America and Europe. In China and the emerging countries, we are expecting 20% growth. In China, not only are we anticipating growth in sales of acoustic pianos, but also the ownership of digital pianos is spreading rapidly in urban areas and we want to identify these trends clearly to capture the increases in demand.
We will not comment on unit volume, price increases, or other quantitative matters, but increases in prices of individual products will depend on our judgment of market conditions. Assuming we can make our new products attractive through strong brand power and their value, as we deem necessary, we will review and revise some prices
Q3 : Regarding the growth in profit under the new medium-term management plan, how do you see trends in growth over the coming three years? Please tell us what you can, including the effects of foreign currency and other factors.
A3 : We are assuming that growth in actual profit over the three years of the plan will be linear, but, for the current period, comparisons with the previous year will be influenced by the appreciation of the yen, and, for this and other reasons, growth in the first year of the medium-term plan is likely to be moderate.
Q4 : Some of the issues carried over from the previous medium-term plan include Yamaha’s response by market, especially in the emerging countries, and the development of new businesses, and I believe you may have some issues to reflect on. In the midst of an uncertain operating environment, under the new medium-term plan, how will you take initiatives in addressing these issues?
A4 : Reflecting on the previous medium-term plan, the items we want to change the most is marketing and sales development. We will, therefore, implement strategies by type of consumer product, review our sales network, and take new initiatives for sales channel development. Under the previous medium-term plan, results of M&A did not contribute to profitability. But, since we made considerable progress in reforms, we believe that these acquisitions will contribute to profit during the current fiscal year. To realize synergies in new product development, we are taking the initiative to send development personnel to overseas locations, and we believe we will see positive results during the new medium-term management plan.
As regards new M&A deals, we are thinking mainly of acquisitions in the audio equipment field within the professional audio equipment domain, in particular. However, we will not confine our attention just to that area, and also consider business alliances from a broad perspective.
Q5 : Looking at your target EPS for the third fiscal year under the plan, we think that, compared to the growth in operating income, growth in EPS seems low. What are your reasons for this?
A5 : During the fiscal year ending March 2017, we will bring some losses in previous periods into the current period, and this will bring a decrease in the effective tax rate. However, beginning in the next fiscal year, assuming this special factor will not be available, the effective tax rate will rise.
Q6 : I have a question about optimal pricing. Are changes, etc., in the market environment likely to make it easier for pricing optimally?
A6 : Some products show more upward and downward price elasticity, but, for the industry as a whole, we were postponing some price increases. In the wind instruments business, after we took measures to optimize prices in the U.S. market, competitors followed our lead, and, as a result of the change in prices, had no impact on competitiveness.
We want to actively review our pricing, as we give sufficient attention to market and competitive conditions.
Q7 : Please tell us what initiatives you will be taking to lower manufacturing costs.
A7 : We have four manufacturing bases in China, five in Indonesia, and one in Malaysia. Previously, these bases were vertically structured under product business groups, but we are in the process of standardizing operations across these locations based on the formation of production groups by function. By moving forward with these initiatives, we believe there is still substantial room for lowering manufacturing costs.
Regarding the realignment of production processes, at present, we are still relying on specific production bases to supply parts for use in other bases. Going forward, we will be working to shift to integrated production at each base. In addition, we are moving ahead with reforms in production processes and the mechanization of operations.
Q8 : I have a question about your providing flexible returns to shareholders. Could you please give us your thoughts regarding the pace of providing such shareholder returns and what conditions should be in place?
A8 : As we implemented the previous medium-term plan, we generated more cash flow than we had expected. In principle, we are giving priority to investments for future growth, and, under the previous plan, we were able to develop specific assumptions regarding revenue and expenditures. Therefore, as we balance shareholder returns with growth investments, our position is that paying returns to shareholders is necessary, and, recently, have implemented buybacks of Yamaha’s shares. Going forward, although we do not have a specific schedule at this point, we will be flexible in returning profit to shareholders, especially in conducting share buybacks.
Q9 : How will your investments in strengthening the Yamaha brand change under the new medium-term plan compared with the previous plan?
A9 : We have not decided on a figure for investments in the brand, but we believe we could spend several billions of yen on such investments. Thus far, we have provided some support to Yamaha dealers given certain sales terms and conditions, and we are aware that Yamaha may view providing for some of these expenses as necessary. Going forward, our basic idea is that we should give priority to making expenditures to increase brand value.
Q10 : Regarding your collaboration with Yamaha Motor Co., Ltd., could you please give us some specific examples of this?
A10 : For example, Yamaha Motor holds traffic safety classes in various parts of India and operates shops on wheels. In these and other activities, Yamaha provides support by dispatching musicians and providing support for audio equipment. This provides Yamaha with opportunities to have children enjoy music, and we believe this is leading to increasing the awareness of the brand and is drawing customers. Also, in Vietnam, Yamaha displays its musical instruments at stores that are directly operated by Yamaha Motor.
In the emerging countries, in many cases, Yamaha Motor enters the market before Yamaha and contributes to raising awareness and helping to build the Yamaha brand. Afterward, Yamaha thinks that it can contribute also from a cultural perspective, and, to further raise brand value, we want to actively pursue collaboration.
Q11 : What will be your basic policy going forward regarding cross-holdings of shares between Yamaha Corporation and Yamaha Motor?
A11 : Both companies have confirmed that they are working together to increase the value of the Yamaha brand, and directors of the two companies sit on boards of the other company and actively monitor their operations. The current level of cross-holdings is not necessarily intended to be final, and we wish to continue to discuss this issue going forward.
Q12 : I would like to confirm what you meant when you referred to ROE at the 10% “level” and EPS at the ¥200 “level” in the financial targets. How should we interpret this?
A12 : You can interpret the meaning of “level” to be that our targets are 10% ROE and EPS of ¥200.
Q13 : Under the new medium-term plan, what assumptions are you making about trends in tax rates?
A13 : In Japan, we still have losses carried forward from the previous period, and, as a result of this deduction, the rate in Japan will be about 10%. Overseas, it will be about 25%; so, combined, the overall tax rate will be over 20%, which is the current rate. However, since all the loss carryforwards will be used up this fiscal year, we are assuming that the rate will begin to rise this period, and then return to normal next fiscal year and thereafter.
Q14 : In the event that ROE rises above 10% for the fiscal 2016 year ended March 31, how will this affect the targets of the medium-term plan?
A14 : Since the results for this fiscal year are being calculated now, we cannot comment on that, but you may assume that the targets under the new medium-term plan will be based on the levels for the year ended March 31, 2016.
Q15 : You mentioned expanding the domain of the professional audio equipment business; what specifically do you have in mind? What is the current state of product development for the corporate conferencing equipment market?
A15 : In the corporate conferencing equipment market, the main products are TV-conferencing systems. We will be focusing on further developing the conference systems of Revolabs, Inc., which became a member of the Yamaha Group, and the web-linked microphone and speaker conference systems that Yamaha has developed.
Q16 : Will it be possible for Yamaha to further increase its market share in digital musical instruments?
A16 : We have considerable know-how we have accumulated in developing acoustic musical instruments for enhancing digital musical instruments, centering on digital pianos in particular, which will enable us to improve the actual playing experience of these instruments. We can apply this know-how to digital instruments, and, thereby, make them stronger, differentiated products.
Moreover, we take pride in our experience in developing sound generator LSIs and believe we are highly competitive in the sound area. We can also effectively apply our proprietary technologies related to networks and smart devices. Some other companies are following after us, but we will move further ahead and use this competitive edge to increase our market share.