A1: During the fourth quarter of FY2015.3, in all honesty, there were times when we raised sales through the implementation of year-end sales measures, but, during the fourth quarter of FY2016.3, since sales through the third quarter of that fiscal year were proceeding on track, no extra sales measures were needed, and we made a natural, soft landing on our target numbers. In the fourth quarter of FY2017.3, conditions may differ according to sales company. In North America, we made some sales pushes, but, overall, this did not place any burden on the sales network, and, in general, we were able to realize a natural increase in sales.
Q&As on the Presentation of Performance Results for the Fiscal Year Ended March 31, 2017 (FY2017.3)
Q1: I would like to confirm some points concerning the slight decline in performance in the third quarter of FY2017.3, which was followed by a favorable comeback in the fourth quarter. Please take account of the trends, during the past several years, for Yamaha’s sales performance to take a turn for the better in the fourth quarter.
Q2: Please give us your views regarding the level of inventories at the end of FY2017.3 and the influence that may have on production and profitability from the fourth quarter of FY2017.3 and into the first half of the current fiscal year.
A2: In the fourth quarter of FY2017.3, even though we made reductions in production, our efforts up to that time to level out our production over the course of the year had achieved positive results, and the negative impact on profitability was less than the effect on production. The inventory level at the end of the period was still somewhat higher than initially planned, but this was in part due to advance production for the introduction of new products to the market. We plan to continue to take a more cautious stance to maintain the appropriate level of inventories.
Q3: The performance of digital pianos ran into difficulties during the year-end selling season last year, but performance recovered in the fourth quarter. Please explain these developments and give us your outlook for digital pianos this fiscal year.
A3: Sales of digital pianos in the third quarter were below the level of the same quarter of the previous year, but this was in part because of favorable sales in the previous quarter. When working to adjust prices to their proper levels, there were some times when we misread the market and competition. But we were able to make corrections immediately. Specifically, our sales promotion measures for existing product line items were successful, and we were able to achieve sales turnover. For products we are scheduled to introduce this period, we have already displayed these at musical instrument trade shows, and we are anticipating good results for these products, which can be differentiated from those of competitors, including the introduction of newly designed keyboards.
Q4: Your outlook for Yamaha’s tax burden in FY2018.3 is low. What are the reasons for this?
A4: We are forecasting an effective tax rate of 19% in FY2018.3. There are two temporary factors that will account for this. In the previous period, we reported 13.5 billion yen in deferred tax assets, but some other such assets can be included, and we will report another 2.0 billion yen this fiscal year. In addition, losses carried over at Yamaha Corporation were exhausted as of the end of FY2017.3, but there are some losses that can be carried over in subsidiaries.
Going forward, these two factors I mentioned will no longer exist, but a continuing factor to reduce the tax rate will be tax deductions for R&D expenditures, and we think that, in future periods, our tax rate will be slightly lower than the statutory tax rate of 30%.
Q5: Please provide your views on the issue of revision of selling prices, the outlook from the previous period into the current fiscal year, the market environment, competitive conditions, and other matters.
A5: The meaning I want to convey is that revision of selling prices does not mean just increasing prices. If we examine the status of the product lineup, there are cases where price reductions are appropriate. This period, we are going to introduce powerful new products in our digital piano lineup with a new keyboard design for the first time in 20 years. We are taking this as an opportunity to move forward to review our pricing and are anticipating a positive impact of about 2.5 billion yen through raising prices to suitable levels.
Q6: Regarding revision of selling prices, do you think this will continue to be possible going forward?
A6: During previous times when the yen was strong against other major currencies, we found it quite difficult to revise selling prices to proper levels, but we went about this gradually. For example, we gradually moved forward with revision of selling prices in wind and other instruments, and the competitors followed us, thus skillfully adjusting our prices. In the next stage, we want to move ahead with reviewing our prices taking account of the timing of new product introductions. Therefore, looking ahead, we are considering a review of the expression "revision of selling prices."
Q7: To pose another question regarding revision of selling prices, do you think the pricing policies of competitors will be influential? Or, do you think Yamaha can accomplish this objective on its own initiative?
A7: Revision of selling prices is a very sensitive subject. To be quite frank, I believe the reason for the slowdown in performance in the third quarter was that we raised prices a bit too much. It is important to have a grasp of market conditions and the movements of competing companies. This was something of an issue in the third quarter last fiscal year, but we immediately got a grasp of what was going on and were able to take the proper measures.
Q8: You indicated that the performance of guitars in the Chinese market was favorable. What about conditions for other instruments?
A8: In the Chinese market, while sales of pianos are expanding steadily, the performance of guitar sales is outstanding. In addition, sales of digital pianos grew 120% over the previous fiscal year. Sales of many other musical instruments are also showing high growth in real terms, and we believe that we can look forward to double-digit growth going forward.
Q9: Please comment on conditions in the emerging economies.
A9: Macroeconomic conditions in some of these countries are not good, but, regarding the current fiscal year, we think that India and Indonesia can grow at the same rate as in the previous year. In addition, conditions in Russia are on a recovery trend, and we have similar expectations for that country.
Also, as regards Yamaha’s organizational systems, formerly, the sales divisions gave directions to the sales companies, but Yamaha created an organization for overall management in the Asia-Pacific region and it will be in charge of steering growth in the region. We are expecting good results from this new organizational system.
Q10: It appears that Yamaha is mostly utilizing its selling, general and administrative (SG&A) expenses to strengthen its marketing. How much of these expenditures are used to strengthen the brand and how much on promoting products?
A10: Half of the increase in SG&A expenses in FY2018.3 is scheduled to be used to cover higher variable expenses accompanying the increase in sales. The remainder is earmarked to cover the increase in expenses accompanying the strengthening of marketing activities. Along with strengthening the corporate brand, these activities will include raising awareness of network audio products, and strengthening the sales network of commercial audio as well as marketing products in the guitar domain, where growth is expected.
Q11: I believe that awareness of the Yamaha brand is strong in China also. However, could you please explain your views on how the Yamaha brands are recognized?
A11: We believe that Yamaha has established a reputation in China as a supplier of high-quality products. Thus far, the awareness of Yamaha has been centered around acoustic piano; some progress has been made in strengthening awareness of Yamaha brand guitars, and this is generating a positive impact, with medium-priced and higher-priced guitars enjoying good sales performance, where U.S. brands are not as strong in China as in certain other markets.
The Yamaha brand, if we had to say, would have the aspects of a premium brand and a relatively familiar brand. For example, in the case of pianos, Yamaha is regarded as a high-quality, luxury brand. On the other hand, Yamaha portable keyboards are quite familiar to many people because Yamaha has taken initiatives to develop keyboard classes in China for about 30 years.
Q12: Performance of audio equipment, especially commercial audio equipment, is favorable. Is this because of improvement in the market or is it because Yamaha’s initiatives have been effective? Please explain the background for this performance.
A12: One of the reasons is that the market for professional audio equipment is expanding, but other factors include improvements in internal systems related to audio equipment systems. From our point of view, we believe it is also a result of initiatives to continue to expand Yamaha’s sales network.
In addition, we are expanding the product and service offerings in the equipment installation market, including the installation of ceiling-embedded type speakers. These initiatives are also contributing to results.