YAMAHA GROUP ANNUAL REPORT 2020 Annual Report 2020 YAMAHA PHILOSOPHY The Yamaha Philosophy expresses the core framework of the Yamaha Group’s management and consists of four elements: the Corporate Philosophy, Customer Experience, Yamaha Quality (criteria for quality), and Yamaha Way (mindset and manners). We utilize the Yamaha Philosophy as a foundation to draw from, try to think from the customer’s viewpoint, and consistently provide high-quality products and services that exceed the expectations of our customers, and to create excitement and cultural inspiration together with people around the world. Diagram of the Yamaha Philosophy BRAND PROMISE A feeling of enthusiastic excitement lives in sound and music, through playing or simply listening. We at Yamaha want to inspire peoples’ passion and help them make a step forward to express their individuality, emotion and creativity. Make Waves Just a few notes or a simple melody can send out ripples that trigger an emotional bond with another person. Sound and music have a transformational impact on individuals and the world around us. The “Make Waves” concept focuses on our passions and what matters most to people, namely, expressing themselves and making an impact, to progress personally as a listener and player, and to come together with others. Yamaha is committed to empowering people to “Make Waves” with their sound and music. Yamaha Group Annual Report 2020 01 PUBLISHING ANNUAL REPORT 2020 Since 2018, the Yamaha Group has been integrating its prior annual reports and corporate social responsibility (CSR) reports to publish integrated reports that communicate the Group’s medium- to long-term value creation initiatives to shareholders, investors, and all of our other stakeholders. This report is our third such integrated report. When creating Annual Report 2020, we referenced the International Integrated Reporting Council’s International Integrated Reporting Framework as well as the Ministry of Economy, Trade and Industry’s Guidance for Integrated Corporate Disclosure and Company-Investor Dialogues for Collaborative Value Creation. Summarizing the policies we adopt on a Groupwide basis, this report was created thanks to the cooperation of each division of the Company. As such, I believe the creation process and the content of this report to be appropriate. Going forward, we will utilize our integrated reports as engagement tools as we pursue constructive dialogue with our stakeholders. It is our hope that these reports help our stakeholders feel confident about our efforts to realize a sustainable society and elicit their understanding and support of our long-term corporate value creation. October 2020 Takuya Nakata Director, President and Representative Executive Officer Key Points of Annual Report 2020 Annual Report 2020 provides details on Yamaha’s progress during the first year of its Make Waves 1.0 medium-term management plan. It also offers information on concrete initiatives for creating social value while leveraging the accumulated strengths and technologies of the Yamaha Group and identifying business risks and opportunities based on the perspective of medium- to long- term growth. We encourage readers to focus on the following key points to help deepen their understanding of the content of this report. Fully leveraging the technologies and sensibilities centered on sound and music that Yamaha has POINT 1 continued to cultivate since its founding, we aspire to cater to new demand and to help resolve the social issues arising in the contemporary business environment and to create new value that Creation of New Value through enriches people’s lives. Sound and Music Management Vision and Value Creation Story (Pages 10–11), Special Feature: Enactment of Yamaha’s Value Creation Story (Pages 12–17) The changes to social structures that will represent the new normal after the global COVID-19 POINT 2 pandemic has been brought under control are something that we can address by following the path we have walked thus far. While responding to the issues brought to light by the pandemic, we will Progress in the First Year of Make steadily advance the key strategies of Make Waves 1.0 as we nurture the seeds of future growth in Waves 1.0 and Preparations for the order to capitalize on the opportunity to act ahead of the times presented by the current adversity. New Normal Message from the President (Pages 24–31), Make Waves 1.0 Medium-Term Management Plan (Pages 32–43), Financial Strategies (Pages 44–47) One facet of the Company’s efforts to reinforce the management function of the Board of POINT 3 Directors was to establish the new position of audit officer, effectively enhancing the auditing Reinforcement of Oversight function. Meanwhile, the Company improved and revised its risk management measures and Function and Highly Transparent entrenched compliance throughout the organization for the purpose of practicing healthy and highly transparent management. Management Corporate Governance (Pages 70–95) 02 Yamaha Group Annual Report 2020 CONTENTS I. Value Creation by Yamaha 04 V. Financial and Corporate Information 96 Yamaha’s Path of Ambition 06 11-Year Summary 98 Yamaha Creation by Value Yamaha’s Business 08 Financial Review 100 Management Vision and Value Creation Story 10 Consolidated Financial Statements and Notes 104 Special Feature: Independent Auditor’s Report 153 Enactment of Yamaha’s Value Creation Story 12 Main Networks 156 Performance Highlights 18 Stock Information 158 Sustainability Priorities and Progress 20 Company Information 159 Scope of This Report II. Management Strategy 22 Information in this report covers 66 companies (as of March 31, 2020): Yamaha Corporation, its 61 consolidated subsidiaries, and its 4 affiliates. Management Strategy Message from the President 24 In cases where it is necessary to specify the scope of reporting, this report lists the applicable institution individually. Make Waves 1.0 Medium-Term Management Plan 32 Positioning of the Makes Waves 1.0 Medium-Term Reporting Period Management Plan 32 This report primarily covers fiscal 2020 (April 1, 2019 to March 31, 2020). However, certain sections of this report include information from April 1, Approach to Formulating the Medium-Term 2020, and onward. Management Plan 33 Major Medium-Term Management Plan Measures Disclaimer on Forward-Looking Statements The forward-looking statements such as data and forecasts included in for Accomplishing Our Management Vision 34 this report are based on assumptions and information available at the Strategies by Business and Function Strategies by Four Key Strategies 36 time of publication and are subject to change due to various factors. These statements are not guarantees that Yamaha will achieve its targets Financial Strategies 44 and forecasts or realize its anticipated future business results. In addi- tion, the content of this report may be changed without prior notice. Accordingly, Yamaha cautions readers not to place undue reliance on III. Strategies by Business and Function 48 these forward-looking statements, which are valid only as of the date thereof, and undertakes no obligation for any negative impact caused by the use of this report. Strategies by Business 50 Musical Instruments Business 50 Names, including those of products and services, used in this report are trademarks or registered trademarks of Yamaha Corporation or of the Audio Equipment Business 54 respective rights holders. Industrial Machinery and Components Business 56 Strategies by Function 58 Disclosure Structure Sales 58 Overall Corporate Activities Corporate Governance Production 60 Corporate Website: https://www.yamaha.com/en/ Research and Development 62 Design 66 About Us https://www.yamaha.com/en/about/ Human Resources 68 Research and Corporate Profile Business Activities Development IV. Corporate Governance 70 Information for Investors Sustainability Information Directors 72 https://www.yamaha.com/ https://www.yamaha.com/ Financial and Corporate Information en/ir/ en/csr/ Reasons for Director Appointment 74 Executive Officers, Operating Officers, Securities Reports Sustainability Reports and Audit Officers 75 Corporate Governance Environmental and Messages from the Outside Directors 76 Reports Social Data Corporate Governance 78 Risk Management 90 Compliance 94 Annual Report 2020 Yamaha Group Annual Report 2020 03 OUR VALUE CREATION I. Value Creation by Yamaha Yamaha’s Path of Ambition 06 Yamaha’s Business 08 Management Vision and Value Creation Story 10 Special Feature: Enactment of Yamaha’s Value Creation Story 12 Performance Highlights 18 Sustainability Priorities and Progress 20 04 Yamaha Group Annual Report 2020 Value Creation by Yamaha Creation by Value Yamaha Group Annual Report 2020 05 YAMAHA’S PATH OF AMBITION The origins of the Yamaha Group date back to 1887, when company founder Torakusu Yamaha repaired an imported reed organ. Since then, Yamaha has aimed to create excitement and cultural inspiration together with people around the world while centering its business on sound and music. This spirit has continued to live on in the Yamaha Group throughout the course of its history that spans over 130 years, granting it strength and con- stantly driving it toward growth. 1887 1887 Domestic Production of Musical Instruments Beginning with Organ Repair Following the repair of a single organ, Company founder Torakusu Yamaha succeeded in creating the first domestically produced organs in Japan. This success prompted him to establish Nippon Gakki Co., Ltd. (currently