Kawai Musical Instruments Mfg. Co., Ltd.

New Medium-term Management Plan
Consolidated Achievement for FY2017.3 to FY2019.3
October 1st, 2016

Contents
Summary of the 4th Medium-termManagement Plan

• Basic Principles

・・・・

4

• Main Achievement

・・・・

5

• Business Trend

・・・・

8

FY2014.3 to FY2016.3• Plan and Actuals

・・・・

9

• Vision・・・・

11• Positioning of the Medium-term Management
Plan

・・・・

12

• Road Map to the 100-Year Brand

・・・・

13

• Basic Principles

・・・・

14

• Issues for Objective Achievement• To Achieve the Objective• Key Strategies and Building Foundation

・・・・

15

・・・・

16

・・・・

18

1. Challenge for further growth of core business

・・・・

20

2. Manufacturing innovation

・・・・

22

3. Expansion of material processing business

・・・・

23

4. Investment and capitalization policy

・・・・

24

5. Establishing the brand

・・・・

27

6. Enhancing employee competence

・・・・

28

• Business Objectives

・・・・

29

• Performance Objectives - Segment Profit and
Loss

・・・・

31

New Medium-term Management Plan
FY2017.3 to FY2019.3

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

2

Summary of the 4th Medium-termManagement Plan
FY2014.3 to FY2016.3

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

3

Summary of the 4th Medium-term Management Plan (Basic Principles)

Basic Principles
 Steady growth
By performing a selection and focus ofbusiness, attain steady growth andsecure profit.
 Objective values
Objectives in the 89th fiscal year of the whole corporate(FY2016.3)

Sales :

60 billion yen and over

Operating income : 3 billion yen and over
(Secured 5% of Sales)
Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

4

Summary of the 4th Medium-term Management Plan (Main Achievement)

1. Key Strategies : Growth Strategies
Strategy

Main achievement

Branding• Mr. A. Gadjiev won the first place playing a Shigeru Kawai SK-EX fullconcert grand piano in the 9th Hamamatsu International Piano Competition.
• Held various events using "Shigeru Kawai" pianos.
• Supported activities of Maestro Mikhail Pletnev and YOSHIKI.

Business in China• Established "Kawai Music Education / China-Japan Friendship Foundation",and expanded Kawai brand recognition.
• Made a plan to establish a core company unifying business activities in
China.

Musical instruments
business in Japanesemarket• Renewed the stores in core cities such as Sapporo, Omiya, Yokohama,
Hiroshima, etc.
• Conducted lead generation activities through events in the stores with amusic salon facility.

Overseas music school
marketing• Opened the music school in Indonesia under the direct management of
Kawai.
• Implemented a plan to increase the number of franchise music schools inSoutheast Asian region such as Thailand, etc.

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

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Summary of the 4th Medium-term Management Plan (Main Achievement)

Strategy

Main achievement

Business developmentin emerging markets• Established Kawai Piano (Russia) LLC for full scale business operation.
• Introduced models such as "GL Series" to meet the market needs.

Expanding physicaleducation schools• Promoted diversification through contracting with the designatedadministrator business with local governments.

Expanding precision
metals business• Increased orders received by enhancing production capacity such as newlines in the Hamamatsu plant.

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

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Summary of the 4th Medium-term Management Plan (Main Achievement)

2. Key Strategies : Structure Innovation
Strategy

Main achievement

Improving efficiency
through drastic revision of
the sales system forJapanese market• Innovated the sales system for Japanese market and focusing on the sales
activities emphasizing regional business through the unit system.
• Deployed efficient sales activities with enhanced management power.
• Reduced the fixed cost by outsourcing distribution operation.

Manufacturing cost
reduction throughestablishing the global
production system• Reduced cost by opening the 4th plant in Indonesia.
• Took measures for market changes and foreign exchange fluctuations byutilizing the production system in multiple locations.

3. Key Strategies : Business Continuity
Strategy

Main achievement

Formulation of BCP for thecentral functions of the
Headquarters and plants
against earthquake
disasters.

• Promoted the aseismic performance enhancement, and after evaluating
conditions carefully for location transfer, transferred only a significant part offunctions.

Transfer of production
facilities• Transferred the core servers.
• Transferred a part of Shigeru Kawai Piano R&D Laboratory facilities andthe warehouse of main wood parts to inland area.

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

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Summary of the 4th Medium-term Management Plan (Business Trend)[Unit: Billion yen]

Business
Trend

3rd

4th Medium-term Management Plan

86th

87th

88th

89th

ActualPlan

ActualPlan

ActualPlan

Actual

Sales

54.74

57.00

60.39

60.00

66.34

64.00

69.25

Operating income

1.17

1.80

1.91

2.30

1.56

3.20

2.66

Ordinary income

1.69

1.60

2.52

2.10

1.94

3.00

2.62

Current net income

0.94

1.10

1.55

1.40

1.05

1.70

1.79

The current net income is this term's net profit attributing to the shareholders of the parent company.

Sales andOperatingincome trend[Unit: Billion yen]

Sales - Plan
Operating income - Plan

Sales - Actual
Operating income - Actual

80

4

60

3

40

2

20

1

0

0
[Sales]86th Actual

87th Actual

88th Actual

89th Actual[Operating income]Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

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Summary of the 4th Medium-term Management Plan (Plan and Actuals)

Sales[Unit: Billion yen]

3rd intermediate 86th FY2013.3 Actual

89th Plan

89th Actual

50.0

38.64

40.0

32.00
30.0

25.77
17.37 17.70 16.60

20.0

8.86 11.30

10.0
0.00

Operatingincome10.28
2.74

Musical instruments[Unit: Billion yen]

Education relatedMaterial processing

3rd intermediate 86th FY2013.3 Actual

3.00

3.72

Information
related/others

89th Plan

89th Actual

2.0

1.5

1.34

1.25
0.99

1.0

1.43
0.89

0.88
0.65
0.47

0.5

▲0.30

▲0.34 ▲0.13 ▲0.11

0
0.0

Musical instruments

Education related-0.5

Material processing

Information
related/others
Adjustments

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

9

New Medium-term Management Plan
FY2017.3 to FY2019.3

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

10

VisionTowards the 100th Anniversary

To Remain as the Top Brand
Resonate denotes "to expand the KAWAI fans throughproviding practical user experience in pursuit of relianceand innovation, while aiming to become the top piano brandthrough continuous promotion of music culture".

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

11

Positioning of the Medium-term Management Plan

Engendering business foundation toward
a 100-year brand
Strive for a 100-year brand establishment through piano manufacturing as thesource (center) of Kawai foundation and origin of business focusing to be amember of world eminent brands with accumulating expertise, experience andknow-how.

Establishment

0th

Development

Globalevolution

90th

Establishmentof the 100-year
brand

100th

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

12

Road Map to the 100-Year Brand

SteadygrowthImprovementof profitability

Stability offinancialfoundation

Accelerationof growth

Evolving
towardthe next
generation

2025-2027
2022-2024

2019-2021

2027

2016-20182013-2015

100th anniversary
Establishment of the 100-year brand

2013

2016

2019

2022

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

2025

2027

13

Basic Principles

Promote improvement of the corporate value
as the 100-year brand,
and aim to achieve long-term stable growth.
Objectives in the 92nd fiscal year of the whole corporate(FY2019.3)(Target indicator)
5% or higher operating income margin

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

14

Issues for Objective Achievement
89th Actual

An issue is the operating income margin of core business(musical instruments and music education business)
3.8%

2.66 billion yen

69.25 billion yen■ Information related/others
3.72 billion yen(5.3%)■ Material
processing
10.28 billion yen(14.9%)■ Education
related16.60 billion yen(24.0%)■ Operating income margin:■ Operating income:■ Sales:■ Information related/others,[Unit: %]and adjustments▲0.11 billion yen(▲4.2%)■ Material
processing
5.0
0.88 billion
yen■ Musical(33.1%)
instruments■ Musical
instruments
38.64 billion yen(55.8%)

8.6
5.4
3.8
2.6

0.99 billionyen(37.5%)

0■ Education related
0.89 billion yen(33.6%)

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

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To Achieve the Objective
92nd Plan

Aim for improvement of the operating income margin onmusical instruments business and music education business.
■ Sales:■ Operating income margin:■ Operating income:

74.0 billion yen

5.0%

3.7 billion yen■ Information related/others,■ Information related/others
and adjustments
3.42 billion yen▲0.08 billion yen■
Material(4.6%)(▲2.2%)■ Material
processing
processing
0.89 billion yen
9.88 billion yen(24.1%)(13.4%)■ Education
related17.90 billion yen(24.2%)

9.0[Unit: %]

6.1
5.0

5.0

4.2

■ Musical
instruments
1.80 billion
yen(48.6%)■ Musical
instruments
42.80 billion yen(57.8%)

0■ Education related
1.09 billion yen(29.5%)

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

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To Achieve the Objective

Close a gap between the objective andactual result■ Actual operating income margin■ Objective operating income margin

3.8％

5.0%

[Unit: %]5.0

Key Strategies

GAP

Building Foundation0
0.0[Operating income margin]

89th Actual
Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

92nd Plan
17

Key Strategies and Building Foundation

Key Strategies
Challenge for further growth ofcore business
Manufacturing innovation
Expansion of material
processing business
Investment and capitalization
policyBuilding Foundation
Establishing the brandEnhancing employeecompetence

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

18

Key Strategies and Building Foundation

Key strategies to promote improvement of the corporate
value, and aim to achieve long-term stable growth.
Key Strategies
Challenge for further growth ofcore business
Manufacturing innovation
Expansion of material
processing business
Investment and capitalization
policyBuilding Foundation
Establishing the brandEnhancing employeecompetence
Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

19

Key Strategies and Building Foundation (1)Challenge for further growth of core business

Enhancing the profit structure in musical instruments
business and education business.
Adding high additional value in Japanese market
Musical instruments business Expanding grand piano shares through Shigeru Kawai sales promotion.
 Engendering high profit structure by concentration and specialization on sales resources.
 Improving stores under direct management and structuring a new sales system with thearea marketing.
 Fulfilling after-sales service system enhancing the tuning experts "MPA" *.
*MPA: Master Piano Artisan = In-house license that is given only to highly skilled tuning experts.

Education related business Increasing the number of students in Kawai music schools with productive curriculum andexcellent teachers.
 Creating a new education value based on Gakken classrooms, and Kawai music schools
and physical education schools.
 Developing the franchise chain of "Kawai Music Education System".

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

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Key Strategies and Building Foundation (1)Challenge for further growth of core business

Enhancing the profit structure in musical instruments
business and education business.
Area strategies in overseas market
Musical instruments business Expanding shares in North America and Western Europe through direct management
development, and improving brand strength.
 Expanding further production and sales of pianos and digital pianos in China.
 Expanding and pioneering enhanced sales forces in the market of emerging countries
such as Southeast Asia, Central and South America, etc.
 Enhancing the after-sales service by establishing training institutions of tuning experts.

Education related business Training leaders for spreading music education in China and emerging countries.
 Increasing the number of students based on franchising in emerging countries such as
Indonesia.
 Expanding music schools and overseas development of physical education classes
through cooperative partnership with Gakken Group.

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

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Key Strategies and Building Foundation (2)Manufacturing innovation

Manufacturing through focusing on quality improvement
and future of piano as a musical instrument
Further deepening on "EVOLVING THE PIANO" Challenging for innovation such as pursuing sound quality, searching for
new materials, etc.
 Passing expertise of piano engineers to the next generation, andcultivation of human resources.
 Optimizing global logistics and production, and reducing cost by improving
production efficiency.

New challenge of digital pianos Pursuing genuine sound quality and touch feel for the keyboard using theknow-how acquired up to now.
 Developing new models with additional values through joint developmentwith Onkyo Corp. and supporting IoT.
 Challenging for share expansion especially in China and emerging
countries.

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

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Key Strategies and Building Foundation (3)Expansion of material processing business

Expanding order received and new business development
Deploying material processing business further
 Metal business:
Expanding "Kawai rolled step-sectioned-strips" utilizing enhanced production capability
in addition to the challenge for expansion of orders and new business field.
 Finishing business:
Acquiring new customers through establishing new technology to meet various needs
with applied finishing technology gained in piano manufacturing.

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

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Key Strategies and Building Foundation (4)Investment and capitalization policy

Growing capital efficiency furthermore
Capital investment
 Focusing investment on the growing and core businesses.
Capital investment amount
89th
ActualBusiness
Musicalinstruments
business

Production
facilities, store
remodeling, andothers0.59

Education
relatedbusiness

Establishing
new music
schools, etc.

0.28

90th
Plan

1.20

91st
Plan

1.10

92nd
Plan

0.85

3
years
total

Depreciation[Unit: Billion yen]
3.0

3.15
2.31

0.17

0.15

0.15

0.47

1.93

2.0
1.62

Material
processing
business

Others

Total

Metal businessproduction
facilities, etc.
Information
technology
investment, etc.

1.46

0.15

0.44

0.70

0.96

2.10

1.50

0.12

0.04

0.11

0.27

0.98

1.93

1.99

2.07

5.99

[Unit: Billion yen]

1.55

2.07

1.57

1.24
0.98

1.0

0.01

1.53

1.99

0.00

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

87th
Actual88th
Actual89th
Actual

90th
Plan

91st
Plan

92nd
Plan

24

Key Strategies and Building Foundation (4)Investment and capitalization policy

Growing capital efficiency furthermore
Return to shareholders Target the total return ratio 30% and over including treasury stock, etc. based on thecontinuous stable dividend policy.
Total return ratio[Unit: Billion yen]

0.5

Acquisition of treasury stock

21%

51%

25%

35%

23%

4 yen/
share

4 yen/
share

4.5 yen/share

45 yen/share

45 yen/share

85th Actual

86th Actual

87th Actual

88th Actual

89th Actual

Total dividend30%
and over

0.4
0.3
0.2
0.1
0

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

92nd Plan

25

Key Strategies and Building Foundation

Building the foundation to support, and promote the key
strategies.
Key Strategies
Challenge for further growth ofcore business
Manufacturing innovation
Expansion of material
processing business
Investment and capitalization
policyBuilding Foundation
Establishing the brandEnhancing employeecompetence
Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

26

Key Strategies and Building Foundation (5)Establishing the brandInspiring feelings together with our customers
The brand of choice for the next hundred years
 Challenging for producing attractive pianos chosen by pianists ininternational competitions.
 Internationalizing the Kawai Music Competition that many
pianists gather from all corners of the world.
 Setting up showrooms and schools to provide an opportunity toexperience Kawai piano domestically and internationally.

© Hamamatsu International Piano Competition

Contributing to popularization of music culture Supporting activities for music educators and pianists.
 Contributing to the society through music promotion activities(Continue holding the series of Kawai Concerts and China-Japan
Friendship Concert).

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

27

Key Strategies and Building Foundation (6)Enhancing employee competence

Enhancement of employee competence
Enhancement of expertise and diversity of employees
to attain their goals and adjust to changes
 Growing professional employees for building the trusted andreliable brand.
 Starting programs to provide training for the employees who canengage in global business.
 Training employees to gain diversified skills to adapt toenvironmental changes.

Mindset enlightenment to remain as the top brand Creating corporate culture to value "reliability", "challenge","pride" and "roots".
 Gaining corporate characteristics to foster each employee tothink and act independently.
 Fostering employees who can constantly provide ideas andactions to construct Kawai top brand.
Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

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Business Objectives

・Operating income margin
Sales

5.0%

74.0 billion yen

Operating income

3.7 billion yen

92nd(FY2019.3)

・Improvement of capital efficiency
ROE

8% and overTotal return ratio

30% and over

*Exchange rate: 1US$ = 115 yen, 1EURO = 125 yen

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

29

Business Objectives
Businessplan[Unit: Billion yen]

Sales
Operating income(Operating income margin)

89th Actual

90th Plan

91st Plan

92nd Plan

FY2016.3

FY2017.3

FY2018.3

FY2019.3(Compared to
89th)

69.25

64.50

71.00

74.00

+6.9%

2.66
2.40
2.90
KAWAIを支える各事業の戦略(3.8%(3.7%)(4.1%)

3.70+39.1%(5.0%))

Ordinary income

2.62

2.15

2.70

3.50

+33.6%

Current net income

1.79

1.40

2.05

2.10

+17.3%ROE (%)

9.3

6.8

9.1

8.6

－

121.1 yen
134.3 yen

108.0 yen
120.0 yen

115.0 yen
125.0 yen

115.0 yen
125.0 yenExchange rate

US$
EURO

The current net income is this term's net profit attributing to the shareholders of the parent company.

Sales andOperatingincome trend

Sales[Unit: Billion yen]
80

Operating income
4

60

3

40

2

20

1

0
[Sales]087th Actual

88th Actual

89th Actual

90th Plan

91st Plan

92nd Plan[Operating income]Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

30

Performance Objectives - Segment Profit and Loss
Sales
[Unit: Billion yen]

89th Actual

92nd Plan

Sales growth rate

■ Musical instruments

38.64

42.80

＋10.8%■ Education related business

16.60

17.90

＋7.8%

■ Material processing business

10.28

9.88

▲3.9%

■ Information related

3.53

3.20

▲9.3%

■ Others

0.19

0.22

＋15.8%

69.25

74.00

＋6.9%

Total

＋4.16

69.25
Musicalinstruments

＋1.30

▲0.40

▲0.33

＋0.03

74.00

Information Others
Education Material
processing related
related89th Actual

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

92nd Plan

31Performance Objectives - Segment Profit and Loss
Operating income[Unit: Million yen]

89th Actual

92nd Plan

Sales growth rate

■ Musical instruments

997

1,800

＋80.5%■ Education related

894

1,090

＋21.9%■ Material processing

881

890

＋1.0%

■ Information related

▲18

▲20

－

■ Others

▲15

▲10

－

■ Adjustments*

▲76

▲50

－

2,661

3,700

Total

＋39.0%* "Adjustments" are elimination of inter-segment transactions, and whole company expense not distributed to each segment.

＋803

＋196

＋9

▲2

＋5

＋26

3,700

Material Information Others Adjustments
Education processing related
related

2,661

Musicalinstruments

89th Actual

Copyright 2016 Kawai Musical Instruments Mfg. Co., Ltd.

92nd Plan

32

In this document, the current plans and business prospects of KAWAI are
included.
These future plans and estimated values are planned and predicted by
KAWAI based on the information that can be obtained at the present time.
Actual business results may differ from these plans due to unforeseen
various conditions and factors, and therefore, this document does notpromise and guarantee the actualization.

- Contact 200 Terajima-cho, Naka-ku, Hamamatsu, Shizuoka 430-8665 JAPAN
Kawai Musical Instruments Mfg. Co., Ltd.
Corporate Planning Division E-mail: koho@kawai.co.jp