President Message

Message from the management of Yamaha Motor

Business Results for 2017 and Forecasts for 2018

To All Staff: Figures shown in brackets indicate increases and decreases / fluctuation rates on the previous fiscal year.

The consolidated management accounts for 2017 were net sales of 1,670.1 billion yen (an increase of 167.3 billion yen or +11.1% over the previous fiscal year), and an operating income of 149.8 billion yen (an increase of 41.2 billion yen or +37.9%). The HQ unit accounts were net sales of 678.1 billion yen (an increase of 63.0 billion yen or +10.2%), and an operating income of 44.8 billion yen (an increase of 19.4 billion yen or 76.3%). The consolidated operating income increase of 41.2 billion yen on the previous fiscal year is attributable to the following: Effect of sales increases of 30.8 billion yen, cost reductions of 11.9 billion yen, foreign exchange effects of 15.4 billion yen, increased raw material costs of -6.5 billion yen, and increased expenses of -10.3 billion yen.

Developed and emerging markets are showing a moderate economic upturn, and we are experiencing a stable exchange rate and business environment. Revenue and earnings increased across many regions and in many businesses, such as motorcycles in both the ASEAN region and Brazil, marine, robotics, and SPV, resulting in an operating income ratio of 8.97%, almost reaching the 9% target in the Medium-Term Management Plan. As a result of initiatives to improve profitability - such as platform development, cost reductions, and pricing - operating income reached its highest level ever over each of the income indicators below. I thank you all for the hard work and effort you have put in to make this possible.
However, on the other hand there have also been some large losses due to divergences from sales plans due to delays in launching new models along with other factors. In this regard, I ask that the sales-related divisions please make further effort in trying to achieve sales targets, and that the Monozukuri-related divisions please work harder in order to improve quality and to meet scheduling requirements.

In terms of the company’s financial resilience, we emphasize two KPIs. The first is ROE (Return On Equity), which was 17.6%, a significant improvement of 5.2 points compared to the previous year. Regarding the three elements of ROE, the net income ratio was 6.1% (+1.9 points), the total asset turnover - even while the finance business expanded - was 1.22 (+ 0.08 times) and equity was 622.8 billion yen (+88.6 billion yen). Another KPI, free cash flow was 73.1 billion yen, a large increase for the second consecutive year. This improvement was achieved by restricting the increase of working capital tied up (in inventory held and accounts receivable due to increased sales) to an appropriate level through SCM initiatives, as well as restricting regular investment. As a result, net borrowings (total borrowings of 353.5 billion yen minus cash on hand of 155.6 billion yen) decreased to 197.9 billion yen, and with the exception of 248.7 billion of loans related to the finance business, the financial structure improved to be debt-free in reality. Moving forward, we will continue to improve the efficiency of our working capital, and prepare for more flexible growth investment.

The status of each of our main businesses are as follows. (Operating income ratio is based on management account values)

Motorcycle Business
- In the ASEAN region (including Taiwan), sales increased (115%) in the healthy markets of the Philippines, Vietnam, Thailand, and Taiwan; in Indonesia, sales decreased slightly (97%), though the long decline in demand seems to be bottoming out. This resulted in an overall sales increase (107%). Further progress was made in the high-profit structure, with an operating income ratio of 11% achieved thanks to the expansion of high-priced product lineups and cost reductions.
- In India, the market showed some confusion due to sudden changes in taxation and emissions regulations, and sales flattened (99%) due to their impact. We will continue our efforts to lower the break-even point while actively expanding sales as we work towards developing the next profit-contributing business.
- In Brazil, although demand continues to decline, sales have increased (112%) thanks to scooter launches, which together with structural reforms have brought the business back into the black. We will continue to work toward building a stable profit structure by not relenting in our structural reform efforts.
- In China, sales decreased slightly (98%) under continued harsh demand conditions, but inventory was reduced by SCM reform, optimized to reach 100,000 units lower than the end of 2015. We will continue to progress with our structural reform initiatives.
- In developed markets, sales decreased (90%) due to delayed introduction of new models, declining demand in Europe and the U.S., and the suspension of some shipments. In addition, these businesses remained in deficit despite improvements in currency effects and cost reductions. We are progressing with initiatives in terms of expanding the finance business and further structural reforms.

Marine Products Business
The popularity of large outboard engines and water vehicles in the European and US markets has driven seen sales increases (110%), which has helped to increase revenue and income (106%), transitioning to solid profitability even with the negative impact from unrealized income. We will respond to production challenges and aim to increase revenue and income through greater sales this year also. For further growth, we will promote initiatives towards realizing the system supplier concept to maintain and improve the high-profitability structure in both the "hard" and "soft" aspects.

Recreational Vehicles Business Segment
Initiatives to reduce inventory of Recreational Off-Highway Vehicles (ROV) in North America are underway, and even though a deficit was recorded for the second consecutive year, inventory normalization was achieved as planned. The first platform model has been launched, and we will expand our product lineup to counterattack in the market.

Robotics Business (IM Business + UMS Business)
Building on the global trends of automation and labor saving, the sales of both surface mounters (146%), and robots (140%) have greatly increased. The new factory which started operation in March has also become fully operational. In the IM business as a whole, the operating income ratio improved 6 points from the previous year to 24%, further advancing the high-profitability structure. We will expand our high-speed surface mounter lineup, and in turn expand our customer base by providing business solutions such as through the Advanced Robotics Automation Platform.
This year will also see the integration of the unmanned helicopters and drones UMS (Unmanned Systems) business into the Robotics Business Unit, beginning a new challenge for this Business Unit to offer "outdoor" as well as "indoor" robotics options.

SPV Business Segment
For electrically power assisted bicycles, both Japanese domestic and European markets continued to show strong sales increases on a drive-unit basis (109%), moving the business to a highly-profitable model with an operating income ratio of 18%. We will continue to increase our product lineup and expand our customer base.

Power Products Business
Sales of golf cars increased (102%), while sales of generators decreased (95%). Multi-purpose engines showed a sales increase (181%) thanks to new model releases, and incorporation of the SUBARU business. Despite an increase in sales in the business overall, income declined due to expenses relating to quality measures in the golf car market. For golf cars, we aim to expand business areas in low-speed mobility, and for multi-purpose engines, we will work on developing new customers and new fields, aiming to reach a production level of one-million units.

CS (Customer Service) Business Segment
Our roll-out of time commitment services in emerging markets is progressing, with the introduction already complete in 1,869 stores, and preparations underway for the next 475 stores to follow. In developed markets, analysis is underway in a system to be used for marketing and product development based on customer vehicle maintenance information being obtained and analyzed from the sales stores. Using points of contact with customers, we are working to create value with the unique style of Yamaha. Sales of YAMALUBE genuine lubricants have exceeded a total of 100 million liters worldwide, and we will endeavor to expand sales further.

Automotive, Overseas Market Development Operations, Pool Business
In the automotive business, sales and income improved as a result of more models being equipped with Yamaha engines and increased sales of chassis products. We are beginning to develop new technologies in preparation for the transition of automobiles to electric power.
In the overseas market development business, sales of motorcycles expanded in South Asian regions, although sales in the African market decreased year on year due to the impact of lower crude oil prices and currency depreciation.
In the pool business, we have increased our market share to 55% (+3%) while starting production innovation based on theoretical values.

The forecast for FY2018 is for consolidated net sales of 1,750.0 billion yen, and for consolidated operating income of 150.0 billion yen (Publicly announced: 1,700.0 billion yen / 150.0 billion yen). This is a reflection of recent foreign exchange trends, with the U.S. dollar forecast to trade at 105 yen and the euro at 130 yen. Although this represents a slight increase in sales and income compared with the previous year, this figure incorporates the risk of the yen appreciating against the U.S. dollar, and additional costs of growth strategy expenses. If the U.S. dollar trades at 110 yen, on par with the previous year, operating income would increase 6.5 billion yen, which is the level that achieves the profitability targets in the Medium-Term Management Plan. This year, let's work to maximize the results from previously-implemented platform transitions, cost reductions, and SCM reform etc., and improve development schedules and quality issues in order to achieve our targets.

This year is the last year of the current Medium-Term Management Plan. At the same time as we aim to achieve this year's plan, this is also a year that will shape the future ahead. Taking up the challenge to create new value in the unique style of Yamaha, leads to growth for everyone individually, and in turn, the company. In order to realize a future like this, let us all combine our experience and work forward together.

Yoshihiro Hidaka