KITO : Corporate Governance Report 20210702

Corporate Governance Report

Date last modified: July 2, 2021

KITO CORPORATION

President & CEO: Yoshio Kito

Contact: Legal Affairs Office.

TEL: [phone]

TSE Code: 6409

https://kito.com

The status of corporate governance of the Company is as follows.

I. Basic Concept on Corporate Governance, Capital Structure, Corporate Attributes and Other Basic Information

1. Basic Concept

The Company will, with the aim of achieving sustainable growth and improvement of corporate value on a medium to long-term basis, make efforts to enhance corporate governance in accordance with the basic concepts described below based on the belief that the essence of corporate governance lies in increasing the dynamism of management by securing the transparency and fairness thereof and making management decisions in a prompt and decisive manner.

1. To respect the rights of the shareholders and secure equality among them.
2. To consider the interests of the stakeholders including the shareholders and cooperate with them in an appropriate manner.
3. To disclose corporate information in an appropriate manner to secure transparency of management.
4. To have the board of directors, taking into account the fiduciary responsibility and accountability to shareholders, enhance separation of the execution of management from the supervision thereof and the function of management supervision by outside directors to ensure the sustainable growth of the Company, enhancement of corporate value on a medium to long-term basis, and improvement of profitability and capital efficiency.
5. To have constructive dialogue with the shareholders.

[Reasons for Non-compliance with the Principles of Corporate Governance Code.]

The Company has implemented each principle in the Corporate Governance Code.

[Disclosure Based on the Principles of the Corporate Governance Code.]	UPDATED

The Company's Basic policy on Corporate Governance is disclosed on the Company's website, in addition to this report.

(https://kito.com/ir/governance)

[Principle 1.4 Cross-Shareholding]

1. Policies for Holding of Shares for Political Purposes
   The Company will hold listed shares of its business partners for political purposes only in the cases that the holding of the shares including the number of shares to be held is deemed rational when its importance in the Company's business strategies and business relationship with the trading partners are comprehensively considered. The rationality for holding such shares will be verified on a regular basis. Also, as a result of the verification, the basic policy is to promptly dispose of and reduce the number of shares held for political purpose that it is considered that the significance of its possession is weak.
2. Exercise of Voting Rights
   The Company will make a decision concerning the exercise of its voting rights in terms of each agendum after confirming, while respecting the management policies of the companies it invests in, the attitude toward returns to its shareholders, corporate governance, contribution to the increase in the Company's corporate value on a medium to long-term basis as well as the prospect of its business relationship with the Company in the future and its corporate social responsibility.
3. Sale the Company's Shares by the cross-shareholders

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When cross-shareholders (i.e., shareholders who hold a company's shares for the purpose of cross- shareholdings) indicate their intention to sell their shares, the Companies will respect their intention.

1. Do not engage in transactions that harm the interests of the shareholders of the Company between the cross-shareholders and the Company
   Regardless of whether the client is a cross shareholder or not, the Company has sufficiently verified the economic rationality in transactions, and the Company has not made any transactions that would harm the interests of the company or its shareholders.

[Principle 1.7 Related party transactions]

Conflict-of-interest transactions between the Company and its director, executive manager or controlling shareholder or competing transactions by the Company's director or executive manager, if any, will be subject to presentation to the board of directors for approval pursuant to the provisions of the Regulations of the Board of Directors

[Principle 2.6 Roles of Corporate Pension Funds as Asset Owners]

The Company acknowledges the fact that the operation of the reserve fund of corporate pension plans affects the financial condition of the Company in addition to the stable asset formation of employees.

Based on the acknowledgement, in order to enhance the expertise in the management of corporate pensions and to demonstrate the functions as the asset owner to be expected, the Company will work on the improvement of the operation of corporate pension by developing planned human resource and planned placement of that human resource.

[Principle 3.1 Full Disclosure]

1. We disclose our business philosophy, business strategy and business plan on our website, securities report, etc. (https://kito.com/ir/library)
2. Basic concept and basic policy on corporate governance
   The basic concept of corporate governance is described in "1. Basic concept" of "I. Basic concept and capital structure of corporate governance, corporate attributes and other basic information" in this report. Please refer to it. The basic policy is also disclosed on our website.
   (https://kito.com/ir/governance)
3. Policies and procedures for the Board of Directors to determine the remuneration of senior executives and directors
   The policies and procedures for determining executive compensation are disclosed in "II.1. [Director Relationship] and [Director Compensation]" in this report and the securities report. (https://kito.com/ir/library)
4. Policies and procedures for electing and dismissing executives and nominating director and auditor candidates
   The Company is convinced that diverse human resources, regardless of gender or nationality, will bring new ideas and ideas to the Group's businesses and drive innovation.
   
   (Election)
5. 1. With regard to internal directors, persons with experience in business divisions such as sales and manufacturing, and persons with experience in planning, development and management will be elected.
   2. With regard to outside directors and outside corporate auditors, they are expected to be appointed

based on their knowledge, experience, ability, and personality, as well as those who can proactively make recommendations and raise issues regarding the Company's decision-making.

(Dismissal)

If there is an unfair act or a violation of the law or the Articles of Incorporation in relation to the execution of duties, the dismissal of the director and / or the auditor is considered.

The board members will be recommended to the Board of Directors after deliberation by the Nomination and Compensation Committee, and will be proposed to the Ordinary General Meeting of Shareholders after resolution by the Board of Directors.

After the deliberation of the Nomination and Remuneration Committee, the Board of Directors will get the consent of the Board of Corporate Auditors, and the Board of Directors will make a resolution prior to the Ordinary General Meeting of Shareholders.

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When dismissing a Corporate Auditor, the Company will propose it to the Ordinary General Meeting of Shareholders.

1. Explanation of the appointment and nomination of individual directors and corporate auditors
   The reasons for the appointment and nomination of Directors and Corporate Auditors are described individually in the Notice of the General Meeting of Shareholders. (https://kito.com/wp/wp-content/uploads/Notice-of-the-77th-Ordinary-General-Meeting-of-Shareholders.pdf)

[Supplementary Principle 4.1.1 Scope and content of the matters delegated to the management]

The Board of Directors, as a decision-making body for the management of the Company, resolves legal matters, determines and approves basic management policies and important matters in business execution and supervises directors' execution of duties. In addition, it is positioned as the highest decision-making body of the Group, and makes important decisions regarding group companies and controls the entire group. The Company has introduced a division system and delegated the execution of operations within the scope of division of duties of each director.

[Principle 4.9 Independence standards and qualification for independent directors]

In order to objectively judge the independence of outside directors and outside corporate auditors, the Company independently defines and determines the independence criteria based on the independence criteria established by the Financial Instruments Exchange. In addition, we will judge based on not only independence, but also from the perspective of knowledge, experience, ability, personality, and from the perspective on whether candidates for directors and corporate auditors can expect to make proactive proposals and issues for the Company's decision-making.

[Supplementary Principle 4.11.1 A view on the appropriate balance between knowledge, experience and skills of the board as a whole, and also on diversity and appropriate board size]

In terms of the composition of our board of directors, we believe that it is desirable for directors to have a good balance of knowledge, experience, and ability, and to have diversity in genders and nationality, and to have the board of directors in a proper size. The policies and procedures for the election of Directors of the Company are as described in "Disclosure based on the principles of the Corporate Governance Code" of "I. Basic Policy and Capital Structure for Corporate Governance, Corporate Attributes and Other Basic Information" section of this report,. Please refer to 3-1: Full Disclosure (iv).

[Supplementary Principle 4.11.2 Major concurrent positions in other organizations of directors/corporate auditors]

The important concurrent positions of the Company's directors and corporate auditors are described in the Notice of the General Meeting of Shareholders. (https://kito.com/wp/wp-content/uploads/Notice-of-the-77th-Ordinary-General-Meeting-of-Shareholders.pdf)

[Supplementary Principle 4.11.3 Analysis and evaluation on effectiveness of Board of Directors ]

Below are the results of the most recent (fiscal 2020, the fiscal year ended March 31, 2021)evaluation of the effectiveness of the Company's Board of Directors.

1. Evaluation method
   A questionnaire was sent to all seven Directors and three Corporate Auditors to obtain their opinions on the following items, with a five-point scale for each item and a column for free entry of opinions. The evaluation items for fiscal 2020 year are the same as the evaluation items for fiscal 2019 (based on the TSE Corporate Governance Code revised in June 2018).
   Questionnaire items (5 categories, 35 questions)
2. 1. Structure of the Board of Directors (composition, number and ratio of outside officers, diversity, term of office, etc.)
   2. Operations of the Board of Directors (roles of the Board of Directors, contents of materials, delegation of authority, degree of active discussion, etc.)
   3. Agenda items of the Board of Directors (discussions on remuneration, election, dismissal, compliance, etc., status of response to previous issues, etc.)
   4. System to support the Board of Directors (opportunity and frequency of information exchange, cooperation with departments, information access, etc.)
   5. The Nomination and Compensation Committee (composition, status of discussions on remuneration, dismissal, succession planning, etc.)
3. Evaluation results (summary)
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As a result of the evaluation, the effectiveness of the Board of Directors as a whole was assessed to be adequately ensured. In particular, at the Board of Directors meeting where the evaluation results were reported, it was reconfirmed that each Director and Corporate Auditor can freely and openly engage in constructive discussions and opinions, and that any meeting has become a forum for transparent, fair, prompt and decisive decision-making. On the other hand, positive evaluations of "(iii) Selection of agenda items" and "(iv) System to support the Board of Directors" remained at around 70% this year. This is because the three issues recognized as a result of the effectiveness evaluation in fiscal 2018 and 2019 have not yet been resolved in fiscal 2020, although it was unavoidable due to the Covid-19 outbreak, and we have reached a common understanding that they will continue to be addressed in fiscal 2021.

(3) Issues to be addressed

As explained in "(2) Evaluation Results (Summary)" above, based on the results of this evaluation, the Board of Directors has come to the conclusion that the three issues identified as a result of the effectiveness evaluation for fiscal 2018 and fiscal 2019 need to be continued to be addressed. In fiscal 2021, the Company will continue to address and improve the issues identified in order to further enhance the effectiveness of the Board of Directors as it formulates the next medium-term management plan.

The three issues identified as a result of the effectiveness assessment and the policy for addressing them are as follows:

1. Deepen discussions on medium- and long-term strategies, product strategies, and regional strategies Response Policy: Discussions started in FY2020, but still halfway through due to the Covid-19 outbreak; quality of discussions will be improved in FY2021 and discussions will be deepened in conjunction with the formulation of the next medium-term management plan (scheduled to start in FY2022).
2. Increase the frequency of risk discussions and conduct regular reviews
   Response Policy: Based on what we experienced in the Covid-19 outbreak, we will share the risks of our business and conduct sufficient analysis and consideration.
3. Specifically discuss management's succession plan
   Response Policy: While progress has been made in the development of management succession, we will continue to discuss and advance a succession plan for the President and Representative Director.

[Supplementary Principle 4.14.2 Training policy for directors and corporate auditors]

In order to achieve sustainable growth and medium- to long-term improvement of corporate value, the Company needs directors and corporate auditors from the perspective of securing human resources who can ensure management transparency and fairness and make quick and decisive decisions. When he/she takes office, heshe has an opportunity to explain the company law, management issues, corporate governance, and finance. In addition, when outside directors and outside corporate auditors take office, in addition to explaining our corporate philosophy, history, and business content, we set up opportunities for plant inspections and overseas subsidiary inspections.

[Principle 5.1 Policy for Constructive dialogue with shareholders]

In order to achieve sustainable growth and medium- and long-term corporate value improvement, we aim for shareholders, institutional investors, analysts, the media, and all other stakeholders, including IR executives and other management executives, and through dialogues and exchanges involving employees, we will promptly and accurately disclose company information.

1. The director in charge of IR and the IR department will deal with dialogues and interviews with shareholders and investors. Depending on the purpose of the dialogue, the department in charge of IR works organically with each department in the company to enhance the dialogue.
2. We have prepared briefing sessions for institutional investors, analysts, media and factory tours, and held briefings on business strategies and business content as appropriate. In addition, we hold shareholder exchange meetings and factory tours for individual shareholders and provide opportunities for dialogue. In addition, a dedicated page has been established on the website to make it easy to understand business results, business content, and business strategies.
3. The contents of dialogues with shareholders and investors are shared on a regular basis by utilizing the Board of Directors, Board of Directors meetings, internal intranet, etc.
4. In the dialogue, we will not communicate insider information (important undisclosed facts). The four weeks before the announcement of financial results is considered as the "silent period".

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2. Capital Structure

	Ratio of Shares Held by Foreign Shareholders	30% or more
	UPDATED
[Status of Major Shareholders]	UPDATED

	Name / Company Name			Number of shares			Percentage
			Owned			(%)
	MISAKI ENGAGEMENT MASTER FUND		2,045,000	9.96
	The Master Trust Bank of Japan, Ltd. (Trust account)		1,784,600	8.69
	THE BANK OF NEW YORK-JASDECNON-TREATY ACCOUNT	993,900	4.84
	GOVERNMENT OF NORWAY		940,110	4.58
	Custody Bank of Japan, Ltd. (Trust account)		918,600	4.47
	YK CAPITAL		740,000	3.60
	Custody Bank of Japan, Ltd. (Trust account 9)		724,300	3.52
	Sumitomo Mitsui Banking Corporation		670,400	3.26
	RE FUND 107-CLIENT AC		414,700	2.02
	Custody Bank of Japan, Ltd. (Securities investment trust account)	410,300	1.99
	Controlling Shareholders(except for		N/A
	parent company)
	Parent Company	N/A

	UPDATED
Supplementary Information
1.	The status of major shareholders is as of March 31, 2021. In addition to the above, there are 528,427
	treasury shares owned by the Company.
2.	Percentage (%) is rounded down to two decimal places.
3.	The large shareholding report filed by Sumitomo Mitsui DS Asset Management Co., Ltd. and Sumitomo
	Mitsui Banking Corporation on August 7, 2020, which is available for public inspection, stating that they
	own the following shares as of July 31, 2020. However, as the Company can not confirm the actual number
	of shares held as of March 31, 2021, it has not been included in the above Status of Major Shareholders.
	The contents of the report are as follows.
	Name / Company Name	Number of shares Owned	Percentage
					(%)
Sumitomo Mitsui DS Asset Management Co., Ltd.	691,600	2.56
Sumitomo Mitsui Banking Corporation	670,400	2.48

4. The amendment to the large shareholding report filed by Asset Management One Co., Ltd. on April 7, 2021, which is available for public inspection, stating that it owns the following shares as of March 31, 2021. However, as the Company can not confirm the actual number of shares held as of March 31, 2021, it has not been included in the above Status of Major Shareholders.

The contents of the amendment report are as follows.

Name / Company Name	Number of shares Owned	Percentage
(%)
Asset Management One Co., Ltd.	1,494,100	7.10

5. The large shareholding report filed by SPARX Asset Management Co., Ltd. on April 2, 2021, which is available for public inspection, stating that it owns the following shares as of March 31, 2021. However, as the Company can not confirm the actual number of shares held as of March 31, 2021, it has not been included in the above Status of Major Shareholders.

The contents of the report are as follows.

Name / Company Name	Number of shares Owned	Percentage
(%)
SPARX Asset Management Co., Ltd.	1,092,400	5.19

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