Yamaha - Musicial Instrument Plan 2013

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Accelerating Growth ofMusical Instruments Business

November 26, 2010



2

1. Positioning of musical instrumentsbusiness within Yamaha

2. Musical instruments market and Yamaha'sposition

3. Yamaha's business strategy• Turning acoustic musical instruments

business into profit

• Growth in Chinese and emergingmarkets

Contents



Positioning ofMusical Instruments Business

within Yamaha



4

Musical Instruments Segment

Core Business Domain Focused on“Musical Instruments, Music, and Audio"

Products Services

Musical instruments

Professional audioequipment

Audio products

Music school

Music software

Musicalinstruments

segment



5

Musical Instruments Segment – Sales & Operating Income

The musical instruments segment accounted for 67% of sales and

75% of operating income for the period ended March 31, 2010.

Operating Profit

-10

0

10

20

30

FY2007.3 FY2008.3 FY2009.3 FY2010.3 FY2013.3

Billions of yen

25.0

5.1

18.5

6.8

Sales

0

100

200

300

400

500

600

FY2007.3 FY2008.3 FY2009.3 FY2010.3 FY2013.3

Billions of yenLifestyle-Related Products

Other than musical inst.

Musical Instruments

276.3

309.0

427.0414.8



Musical Instruments Marketand Yamaha’s Position



7

Size of Global Musical Instruments Market

Estimated size of global market by product(unit: Billions of yen, at wholesale price)

Yamaha's share:

18% *Based on our own estimation.

PA

equipment

370

Wind

instruments

150

Piano120

Guitar/Drum240

Digital

keyboard

130Market size:Approx.

¥1,010 billion



8

Past Trend in Musical Instruments Market

Sign of recovery from

demand contractionfollowing economic crisis

Changes in distribution

– Increasingly low price – Reduced public expenditure – Cutbacks in capital expenditures

by private sector – Slow recovery in economy

– Increasing sales through webshops

– Reducing number of specialtyshops, rise of volume retailers

Trend indeveloped countries

– Small impact of economic crisis

– Growing BRICs market

– Increasing middle-incomepopulation in Asia

Steady increase in demand

Trend inemerging countries



9

Projection of Musical Instruments Market Growth(by product group)

Estimated growth for the next 5-year period: 11.2% (2.2% per annum)

Estimated market size in 2015: ¥1,130 billion

US$ =93Euro=131

represents impact ofexchange rate attributable toyen appreciation. Figures donot reflect the impact ofexchange rate.

US$ =87Euro=112

0

200

400

600

800

1,000

1,200

1,400

FY2010.3 FY2013.3 5 years later

Billions of yen

PA equipment

Digitalkeyboard

Wind

instruments

Guitar/Drum

Piano

1,010

1,080 1,130



10

Projection of Musical Instruments Market Growth(by region)

US$ =93Euro=131

China and Asia-Pacific countries will lead the growth, while Japan, U.S., Europe,and other developed countries will remain almost flat.

US$ =87Euro=112

0

200

400

600

800

1,000

1,200

1,400

FY2010.3 FY2013.3 5 years later

Billions of yen

China

Asia Pacific

Europe

North America

Japan

represents impact ofexchange rate attributable toyen appreciation. Figures donot reflect the impact ofexchange rate.

1,010

1,0801,130



11

Market Environment Recognition andYamaha

Market Condition and OutlookShare(2010)

Category

8%

20%

7%

49%

33%

The market is growing further. Yamaha has beenchallenged by fierce competitors in each product category,but has advantage in terms of input devices (mixers) over

them.

PAequipment

Stable market. Further growth is expected in emerging

countries. Chinese manufacturers are growing fast.Yamaha has a leading position in various productcategories.

Windinstruments

The market is stable in developed countries andexpanding in emerging countries. Each product category isconsisted of a few leading brands and many small-sizedpure-play manufacturers. Yamaha aims to increase itsshare focusing on electric acoustic guitar.

Guitar/ Drum

Demand is increasing mainly in emerging market. Theelectronic keyboard market is dominated by a smallnumber of Japanese companies, incl. Casio, Roland, andKorg. Yamaha has the largest share in the world.

Digitalkeyboard

The world-largest Chinese market will grow further. Salesin developed countries will gradually decrease in the future.Yamaha has the No.1 position in the global market.

Piano



12

Market Size and Yamaha's Share by Product Group

0 100 200 300 400

Piano

Digital keyboard

Guitar/Drum

Wind instruments

PA equipment

Yamaha

Other than Yamaha

Estimated 2010 market sizes and shares.

Yamaha has a 23% share of the musical instruments market (excl. PA).

33％

Yamaha's share49％

7％

20％

8％

2010

2013

2010

2013

2010

2013

2010

2013

2010

2013

Billions of yen



Yamaha's Business Strategy



14

Musical Instruments Business:Medium-Term Sales & Operating Income Targets

Targeted sales growth for the next 3-year period: 12%

Achieve operating income margin of 6% in 3 years and 10% orhigher in the future.

270.0276.3

309.0

5.17.0

18.5

0

10

20

30

40

-FY2013.3FY2012.3FY2011.3FY2010.3

0

50

100

150

200

250

300

350

(Billions of yen)Sales Operating income

US$ =93Euro=131

US$ =90Euro=127

US$ =87Euro=112

5 years later



15

10.1

6.4

3.5

10.6

2.1

276.3

309.0

By business domain

(unit: Billions of yen)

By region

7.3

8.8

16.6

China(+50%)

AsiaPacific

(+21%)

N. America/ Europe/Japan

(+8%)

+ 3 2. 7 ( +

1 2 % )

Breakdown of Changes in Sales for Medium-Term Plan

Piano/Digitalpiano

FY2010.3 FY2013.3

Digitalkeyboard

Guitar/Drum

Windinst.

PAequipment



Turning Piano Business

into Profit



17

Turning Piano Business into Profit

• Premium pianos

• Prestige pianos

• Affordable pianos

• Pianos made inIndonesia

Reductionin

manufacturingcost

• Locally-sourcedparts

• Review of woodprocurement

• Review of operationsand functions

• Review of operationvolume

Strengtheningproduct

competitiveness

Structuralreform of

Piano Division



18

Turning Piano Business into Profit –Enhancing Operational Effectiveness

Review of Piano Division functions

Achieve equidistance between Piano Divisionand three factories.

Transfer indirect functions (incl. product development) from PianoDivision (HQ) to three factories.

Piano Division should perform minimum-necessary functions.

Enhance independence and operational efficiency of manufacturing

bases.

HangzhouFactory(China)

JakartaFactory

(Indonesia)

MarketingSCM

DevelopmentDesigning

Qualitycontrol

Productiontechnology

AdministrationPurchasing

KakegawaFactory

Piano Division



19

ｼﾞｬｶﾙﾀｲﾝﾄﾞﾈｼｱ

営業SCM

開発設計

品質管理

productio

n

技術

管理購買

Kakegawafactory

業SCM

開発設計

品質管理

productio

n

技術

管理購買

Kakegawa

factory

Kakegawa

Factory

JakartaFactory

(Indonesia)

Turning Piano Business into Profit –Enhancing Operational Effectiveness

Piano Division

MarketingSCM

DevelopmentDesigning

Qualitycontrol

Productiontechnology

AdministrationPurchasing

Indirect Function Indirect Function

Review of Piano Division functions

Achieve equidistance between Piano Divisionand three factories.

Transfer indirect functions (incl. product development) from PianoDivision (HQ) to three factories.

Piano Division should perform minimum-necessary functions.

Enhance independence and operational efficiency of manufacturing

bases.

HangzhouFactory

(China)

Indirect Function



20

Turning Piano Business into Profit –Manufacturing Cost Reduction

Overseas Factories

(China/Indonesia)

Kakegawa

FactorySupply of knock down parts

Increase

profitability

・Reduce cost and strengthenprice competitiveness by usingparts and components made inChinese and Indonesianfactories.

・ Increase Kakegawa Factory's

overseas parts procurementratio from the current 3% to15% in 3 years.

・ Reduce cost and strengthen

price competitiveness by usingparts and components made inChinese and Indonesianfactories.

・ Increase Kakegawa Factory's

overseas parts procurementratio from the current 3% to15% in 3 years.

• Accelerate in-house manufacturing andlocal procurement of parts

• Transfer wood processing (preprocess) tothe two overseas factories

• Accelerate in-house manufacturing andlocal procurement of parts

• Transfer wood processing (preprocess) tothe two overseas factories

Reduce cost byincreasing

productivity and localprocurement ratio



21

Enhancing Product Competitiveness andIncreasing Profitability of Kakegawa Factory

UP made in Kakegawa

Grand Piano made inKakegawa

CF series Premium piano

Prestige Piano (GP)

Prestige Piano (UP)

Affordable PianoNewly introduce low-end pianos to

the market

Flagship model "CFX" → Premium Piano series

Development of new productswith attributes inherited from CFX → Prestige Piano series

Use of low-cost parts made inoverseas factories → Affordable Piano

Respond to polarizing demand for “individualpreferences-oriented” and “price-oriented”

Upright Piano made inKakegawa



22

Turning Piano Business into Profitability –Manufacturing Base Strategy

36,000

24,000

37,600

Kakegawa

Indonesia

China

→ 130,000 unitsin 5 years

Increase the ratio of overseas production (primarily China)Keep the production volume of Kakegawa at 20,000 units

20,00026,000

Partial review of the medium-term plan – Change in the productionvolume at Kakegawa from 18,000 units to 20,000 units in March 2013.

82,000 units

129,100 units

83,000 units

39,000

20,000

20,000

19,000

34,000

63,000

116,000 units

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

FY2007.3 FY2010.3 FY2013.3 5 years later



23

Increasing Piano Business Profitability

Logistics cost

Energy cost

Effect of consolidatingJapanese Factories:¥0.8 billion

Greater use of overseasmanufactured parts

Disposition of unprofitable models

Improvement of productivity

Lowering Kakegawa'sbreakeven point:

¥2.6 billion

Increase production inChina/Indonesia

(In-house manufacturing of partsat overseas factories)

Increase production ofhigh-grade GPs

Effect of productionincrease:

¥1.6 billion

Improve the Operating Income by ¥5billion from FY2010.3 to FY2013.3



24

Piano Business – Numerical Targets

+0

45.0

FY2013.3Target

negativeOperating

income

40.3Sales

(Billions of yen)

FY2010.3Result

Operatingincome margin

5%

50

Target forthe 5th

year



Strengthening Profitability of

Wind Instruments Business



26

Strengthening Profitability ofWind Instruments Business

Accelerate cost reduction efforts

Consolidate domesticmanufacturing bases(To be completed in FY03/2012)

Transfer processes to overseasproduction bases

Increase the number of materialsources(Increase use of overseasmaterials)

Implement manufacturing reform ahead of the original schedule

Increase market competitiveness& profitability

Drastically boost sales in China Regain share in the U.S &

European markets Introduce lower-cost models

New Xiaoshan Factory→

Wi d I B i



27

Wind Instruments Business –Manufacturing Base Strategy

Increase overseas production to achieve400 k units/year in 5 years

38%

27%

35%31%

310 k units

400 k units

63%

14%

23%

350 k units

330 k units

34%

25%

0

100

200

300

400


k (thousand) units

Indonesia• Woodwindinstruments

production base• Full production ofwoodwind instrumentparts

China• Brass instrumentsproduction base for all

markets except forJapan• Local materialprocurementfunctions

Toyooka• High value-addedproducts

• Skill transfer

Wi d I t t B i



28

Wind Instruments Business –Numerical Targets

10%

34.5

FY2013.3

Plan

3%Operating

incomemargin

31.0Sales

(Billion of yen)

FY2010.3

Results

>10%

36.0

Target for

the 5thyear



Growth in Chinese Market

M i l I t t S t S l Pl f



30

Musical Instruments Segment Sales Plan forChina and Emerging Countries

Achieve a 30% growth in 3 years and a 60% growth in 5 years.

0

10

20

30

40

50

60

90

FY2010.3 FY2011.3 FY2013.3 - 5 years later

Billions of yen

52 57

6870

80

85

S. Korea, Taiwan,Australia,Singapore, etc.

Russia, CIS, India,

ASEAN, LatinAmerica, MiddleEast, and Africa

Mature Market

Growth Market

China



31

Chinese Musical Instruments Market

0

2

4

6

8

10

12

14

FY2010.3 FY2013.3 FY2015.3

PAequipment

B&O

Guitar/Drum

DigitalKeyboard

Piano

The market is led by piano products: As of 2010,40% of the market is accounted for by pianoproducts.

12.0

Billions of RMB

9.8 Price range

Volume

Domains covered by Yamaha

The market has a pyramidstructure with a wide base. Thebottom part is dominated by

Chinese local manufacturer.

5 years later

7.0

Growth Strategy: Promoting Market Tailored



32

Tianjin Factory(Digital musical instruments)

Hangzhou Factory

(Piano/Guitar)

Xiaoshan Factory(Wind instruments)

There is a plan to introduce China-exclusive models by making use of localmanufacturing bases.

Suzhou Factory(Electronic parts/AV)

Number of pianos sold in

retail market by price range

0 2 4 6 8 10 12

5-10

10-15

15-20

20-25

25-30

30-35

35-40

Price range

(1,000 RMB)

10,000 units

Up to 2008, Yamahalowest price was set at20,000 yuan.

In 2009, a 17,800yuan model wasintroduced.

The target price levelfor the next period willbe 15,000 yuan.

Increase sales of musical instruments segment to 1.5 billion yuan in 3years and 2.3 billion yuan in 5 years.

Growth Strategy: Promoting Market-TailoredProducts



33

March 20101,000 stores

2010 → 2013Piano 350 500

Wind instruments 170 260

Digital keyboard 250 500

Others 230 240

Total 1,000 1,500

March 20131,500 stores

In local cities, Yamaha aims to open a generalmusical instruments store as a starting point.In large cities, Yamaha will expand andupgrade specialty stores.

Growth Strategy: Expansion of Sales Network



34

Yamaha in Growing Chinese Market

370310Wind instruments

670500Guitar

460370Portable keyboard

140100Digital piano

280250Piano

20132010(1,000 units)

Projection of market growth (number of units)

430

800

530

160

300

5 years later

3017Wind instruments

5013Guitar

180112Portable keyboard

4022Digital piano

5032Piano

20132010(1,000 units)

50

100

300

60

65

5 years later

M ar k e t

Y

am ah a



Growth in Other Emerging Countries



36

Sales Plan for Other Regions

In the next 5 years, "emerging market" will account for 48% oftotal sales in the Asia-Pacific region.

0

10

20

30

40

50

60

Emergingmarket

Medium-growthmarket

Mature market

Billions of yen

39.741.2

48.3

54.8+38%

15.7 15.1 15.3 17.9

8.3 9.0 10.810.8

15.6 17.421.8

25.8




37

Sales Plan for Emerging Countries

In emerging markets, achieve a growth rate of 40% in 3 yearsand 66% in 5 years.

1.9 2.4 3.0 3.40.5 0.8 1.1 1.73.3 3.54.9 5.3

0

5

10

15

20

25

30

Billions of yen

15.6

3.9

4.1

1.8

FY2010.3

Russia

India

Indonesia

Brazil

Middle East/

Africa/CIS

Other developingmarkets

25.8+66%

5.56.0

5.16.4

2.1

3.2

FY2013.3 5 years later

4.4

4.4

1.9

FY2011.3



38

Increasing Middle-Income Population

Upper-income population: 1-5%

Middle-incomepopulation: 10-35%

Low-priced electric guitar

FG/Nylon string guitar

Local-taste modelsLow-priced keyboard

CIS-compliantPA equipment

Low-priced digitalpiano

Increase sales by introducing low-priced products

Middle-income population is rising in rapidly-growingemerging countries.



39

Yamaha's Presence in Emerging Markets

Taiwan (1996)

China (2002)

S. Korea (2001)

Singapore (1966)Malaysia (1974)

Indonesia (1990)

Australia (1986)

Thailand (1989)

Dubai (1997)

India (2008)

Russia (2007)

Mexico (1958)

Panama (1975)

Brazil (1973)

Russia and India: Establishoperational bases and shiftto the sales network

expansion phase.

Completion of operational base establishment in everyemerging market ⇒ Shift to the full profit-maximization phase

Increase the number of sales base in emerging countries from 2,000 sites in 2010 to 3,400 in2013 to 4,400 in 5 years.

Strengthen music promotion activities by increasing the number of music school students from130,000 in 2010 to 180,000 in 2013 to 200,000 in 5 years.

Support various music activities for the youth.

Key Points of Strategies for China and



40

y gEmerging Countries – Wrap up

● Introduce strategic products to the expandingmiddle-income population – Shift the primary target of product development from

developed countries to China and emerging markets.• Develop new piano models that target most selling price

range in China.• Low-price guitars and local-taste PKs for emerging

countries

• Wind instruments that can compete with Chinese products

● Expand sales network

● Increase the number of people who play music,

using Yamaha music schools – Attract middle-income population by deploying the

Yamaha Business Model



In this report, the figures forecast for the Company’sfuture performance have been calculated on the basisof information currently available to Yamaha and the

Yamaha Group. Forecasts are, therefore, subject torisks and uncertainties.

Accordingly, actual performance may differ greatlyfrom our predictions depending on changes in theeconomic conditions surrounding our business,demand trends, and the value of key currencies, suchas the U.S. dollar and the euro.

Yamaha - Musicial Instrument Plan 2013

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