Annual Report 2019 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 2019 01 PUBLISHING ANNUAL REPORT 2019 Takuya Nakata President and Representative Executive Officer In April 2019, the Yamaha Group commenced its new medium-term management Scope of This Report Information in this report covers 62 com panies plan, Make Waves 1.0. Prior to commencing this plan, the Group established the (as of March 31, 2019): Yamaha Corporation, its 59 consolidated subsidiaries, and its 2 new brand promise Make Waves, and has been promoting a variety of efforts equity-method affiliates. In cases where it is necessary to specify the scope of reporting, to further enhance its brand with the aim of realizing its management vision of this report lists the applicable institution individually. becoming an indispensable, brilliantly individual company. Reporting Period We have an unchanging desire to create an affluent society where an even This report primarily covers fiscal 2019 (April 1, greater number of people enjoy music and understand the joy that music brings. 2018 to March 31, 2019). However, certain sections of this report include information This desire has been unchanging since Yamaha’s inception as a company. I believe from April 1, 2019, and onward. that the numerous innovations we have achieved with our products and services centered on our sound and music expertise, which we have cultivated in our over Disclaimer on Forward-Looking Statements The forward-looking statements such as data 130 years of history, symbolize this desire. I also believe this desire is reflected in and forecasts included in this report are based on assumptions and information available at our music education businesses, which we operate in Japan and overseas. the time of publication and are subject to change due to various factors. These state- Starting in 2018, we reorganized our conventional annual report to also include ments are not guarantees that Yamaha will achieve its targets and forecasts or realize its information commonly found in our CSR report, thereby transforming the report anticipated future business results. In addition, into a medium for communicating the Group’s medium- to long-term value cre- the content of this report may be changed without prior notice. Accordingly, Yamaha cau- ation vision to our stakeholders, starting with our shareholders and other inves- tions readers not to place undue reliance on these forward-looking statements, which are tors. Annual Report 2019 represents the second time we have issued such valid only as of the date thereof, and under- takes no obligation for any negative impact a report. caused by the use of this report. When creating Annual Report 2019, 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 in sincerity with the cooperation of each division of the Company. I therefore declare the creation process and the content of this report to be appropriate. Going forward, we will utilize our annual 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 sustain- able society and elicit their understanding and support of our long-term corporate value creation. November 2019 02 Yamaha Group Annual Report 2019 CONTENTS I. Our Vision and Value Creation 04 III. Foundation for Growth 62 Becoming an Indispensable, Human Resources 64 Our Vision and Value Creation Brilliantly Individual Company 06 Sustainability 66 History of Growth 08 Special Feature 70 Yamaha’s Business 10 Corporate Governance 74 Management Vision and Value Creation Story 12 Directors 74 Performance Highlights 14 Reasons for Director Appointment 76 Executive Officers and Operating Officers 77 Corporate Governance 78 II. Management Strategy 16 Risk Management 88 Message from the President 18 New Medium-Term Management Plan 26 IV. Financial and Corporate Information 90 Review of NEXT STAGE 12 27 Approach to Formulating the New Medium-Term 11-Year Summary 92 Management Strategy Management Plan 28 Financial Review 94 Positioning of the New Medium-Term Consolidated Financial Statements and Notes 98 Management Plan 30 Independent Auditor’s Report 127 Four Key Strategies 32 Main Networks 128 Financial Strategies 39 Stock Information 130 Strategies by Business 42 Company Information 131 Musical Instruments Business 42 Audio Equipment Business 46 Industrial Machinery and Components Business 48 Strategies by Function 50 Production 50 Sales 52 Growth for Foundation Research and Development 54 Branding 59 Design 60 Disclosure Structure Overall Corporate Activities Corporate website: https://www.yamaha.com/en/ Financial and Corporate Information Information for Investors Sustainability Information Integrating https://www.yamaha.com/en/ir/ https://www.yamaha.com/en/csr/ financial and non-financial information Annual Report 2019 Securities Reports Sustainability Reports Corporate Governance Reports Environmental and Social Data Yamaha Group Annual Report 2019 03 I. Our Vision and Value Creation Becoming an Indispensable, Brilliantly Individual Company 06 History of Growth 08 Yamaha’s Business 10 Management Vision and Value Creation Story 12 Performance Highlights 14 04 Yamaha Group Annual Report 2019 Yamaha Group Annual Report 2019 05 06 Becoming an Indispensable, Brilliantly Individual Company Boosting brand power to become a highly profitable enterprise In April 2019, we commenced the new medium-term management plan Make Waves 1.0. In light of the accomplishments we have made thus far, our new plan aims to realize our vision and further improve corporate value through the creation of social value. Yamaha Group Annual Report 2019 07 HISTORY OF GROWTH 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 contribute to the enriched lifestyles of people while centering its business on sound and music. Guided by this aim, Yamaha has continued to move forward with a history that spans over 130 years and three centuries. 1887 1900 1950 1960 1970 Founding Period and the Spread of Music Culture and Major Leap as a Comprehensive Realization of Domestic Venture into New Businesses Musical Instrument Production Manufacturer • Ventures into the domestic production of • Starts efforts to popularize music education • Expands product domains to include acous- organs with the desire to communicate the joy of tic musical instruments and digital musical • Commences the production of pianos and music to an even greater number of people instruments. In addition, extends lineup of builds the foundation for the musical instru- • Leverages the technologies and sensibilities musical instruments to include various ments business, the Company’s core busi- cultivated through the development of musi- instrument types, from wind instruments ness to this day cal instruments to pursue product develop- to string instruments and drums ment in new fields, thereby expanding • Becomes involved in the production of a Yamaha’s business domains diverse range of musical instruments, thereby becoming a globally unique and comprehen- sive musical instruments manufacturer 2 2 1 2 1 3 1 3 3 4 1887 Manufactures first organ made in Japan 1 1954 Commences organ classes (predecessor 1959 Develops the world’s first electronic organ 1897 Establishes Nippon Gakki Co., Ltd. of the Yamaha Music School) 1 with an all-transistor design (currently Yamaha Corporation) Develops audio products 2 (Electone™ D-1) 1 1965 Begins production of wind instruments 2 1900 Begins production of upright pianos 2 Creates prototype of the YA-1 motorcycle 3 1914 Begins production of harmonicas with 1955 Establishes Yamaha Motor Co., Ltd. 1966 Expands product domain to include guitars and drums 3 trademark butterfly logo 3 1958 Begins production of sports equipment using fiber-reinforced plastics (FRP)