NH Foods : Corporate Governance Report

Corporate Governance Report

Last Update: December 14, 2018

NH Foods Ltd.

Yoshihide Hata

President and

Representative Director Contact: [phone]

Securities Code: 2282http://www.nipponham.co.jp/eng/index.html

The corporate governance of NH Foods Ltd. (the "Company") is described below.

I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information

1. Basic Views

Basic Views on Corporate Governance

1. In order to establish a corporate governance system which NH Foods Group (the "Group") considers most appropriate and in order to make such system functional so that the Company is able to exercise social responsibility for the Group and to realize the vision of the Group as the "World Leader in Delivering the "Joy of Eating"", the Company hereby presents its basic views on the corporate governance of the Group and will continuously strive to enhance such corporate governance.

2. The principles of corporate governance of the Group are to enhance its management transparency and efficiency, to ensure timely and proper decision-making as well as appropriate business operations, to enable proactive and courageous business judgments and to clarify its responsibility.

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

(Principle 4-6) (Oversight and Operation of Business)

As a company with an Audit & Supervisory Board (kansayaku board), the Audit & Supervisory Board Members (kansayaku) and the Audit & Supervisory Board (kansayaku board) oversee execution of the duties of the Board of Directors and the Management. Further, in order to ensure the transparency of the Board of Directors, the Company appoints multiple Independent Directors. Currently, multiple Independent Directors and Audit & Supervisory Board Members oversee the Board of Directors, while maintaining a certain distance from the business operations. The Company has not appointed any Inside Directors who do not carry out business operations, though the Board of Directors continuously examines the numbers of positions that non-Executive Directors should hold on the Board of Directors.

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

The Company has established a corporate governance system which the Company considers most appropriate and continuously strives to enhance its corporate governance system in order to realize a vision of the Group as the "world's leading company at providing the joy of eating". Further, the Company has enacted and announced the "NH Foods Group Fundamental Policy on Corporate Governance" setting forth its basic views on and framework of corporate governance of the Company.

"NH Foods Group Fundamental Policy on Corporate Governance"

(Japanese)https://www.nipponham.co.jp/ir/policy/pdf/20181214_01.pdf (English)https://www.nipponham.co.jp/eng/ir/policy/pdf/201801214_01.pdf

In addition, please see the following status of the Company's response to the 78 items of the General Principles, Principles and Supplementary Principles of "Japan's Corporate Governance Code".

Table for Implementation Status of the Corporate Governance Code (Japanese)https://www.nipponham.co.jp/ir/policy/pdf/20181214_02.pdf (English)https://www.nipponham.co.jp/eng/ir/policy/pdf/20181214_02.pdf

The contents of the matters required to be disclosed by the "Corporate Governance Code" are as follows.

(Principles 1-4) Fundamental Policy on Cross-Shareholdings and Guidelines for Securing Appropriate Measures to Exercise Voting Rights

For the purposes of maintaining and expanding our business relationships and stabilizing funding, we acquire and maintain shares of our business partners, etc. primarily upon their request to hold such shares.

We review all issues of our equity investments once a year in consideration of the benefit of holding shares, stock price fluctuation risk and credit risk, etc. of the issuing companies. We continue to hold only those shares that we determine to be essential for sustainable growth of the Group, such as for reinforcement of alliances, in order to maintain business transactions and expand our business. On the other hand, if we determine that the necessity of holding certain shares has become low, we implement disposal of such shares accordingly in consideration of the stock price and market trends.

Under this policy, in the previous consolidated fiscal year, there was one acquisition in a capital and business alliance, but five (5) cases of disposal were implemented.

The total market value of cross-shareholdings of the Company as of the end of the second quarter of the fiscal year ending March 31, 2019 is 29 billion yen and we recognize that the proportion of the cross-shareholdings is not high because of it is approximately only 3.9 percent of the consolidated total asset of the Company, but we will continue to periodically review all issues of our equity investments and proceed to reduce cross-shareholdings.

When exercising the voting rights of cross-shareholding, we deliberate on proposals offered by the companies and respect such proposals so long as they do not disregard the interests of shareholders. However, if any misconduct (including misconduct by any member of the management) or any antisocial behavior occurs at such companies, we exercise our voting rights so that the companies' corporate governance is improved.

(Principles 1-7) Framework in Connection with Engaging in Transactions between Related Parties

1) When we conduct competitive transactions or conflicting interest transactions, as stipulated by laws, with the Corporate Officers, we conduct such transactions only upon approval of the Board of Directors and report the result to the Board of Directors.

2) We inspect whether there have been are any transactions between us and major shareholders, the

Directors or Executive Officers and their family members, and the details of such transactions, if any, once a year. In addition, we also inspect such transactions, as necessary, during audits by the Audit & Supervisory Board Members and audits by the Accounting Auditor and during internal audits.

(Principles 2-6) Demonstrating the Function as the Asset Owner of the Company Pension

We manage a reserve fund of the corporate pension through NH Foods Pension Fund and establishes board of representatives, executive board and pension fund management committee within such pension fund. The pension fund management committee meetings held quarterly are attended by representatives of our financial department as well as an external consultant who possesses professional knowledge on management of reserve funds. At the meetings, the basic policy of the management, selection of invested products, and monitoring of the management status are carried out.

In addition, the management of the reserve fund of this pension fund is outsourced to one or more domestic or foreign management institutions, and the selection of each investment product and exercise of voting rights are all entrusted to each management institution so that there is no conflict of interests between the beneficiary of the corporate pension and each company.

(Principles 3-1) Appropriate Disclosure and Securing Transparency

• 1) Company Objectives (Management Principles, etc.) and Business Strategies and Business Plans

  • (1) Principles and Management Vision

    The Company's principles and management vision are disclosed in the following URLs:

    https://www.nipponham.co.jp/eng/group/vision/https://www.nipponham.co.jp/eng/group/vision/ci.htmlhttps://www.nipponham.co.jp/eng/group/vision/brand.html

  • (2) Mid-term Business Plans

    The Company's mid-term business plans are disclosed in the following URLs:https://www.nipponham.co.jp/ir/policy/plan.htmlhttps://www.nipponham.co.jp/eng/ir/library/briefing_session/pdf/2015/20150513.pdf

• 2) Basic Views and Fundamental Policy on Corporate Governance

(1) Basic Views on Corporate Governance

The Company's basic views on corporate governance are as stated in "I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information", "1. Basic Views" of this Report.

(2) Fundamental Policy on Corporate Governance

The Company's fundamental policy on corporate governance is as stated in "I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information", "1. Basic Views" of this Report.

3) Policies and Procedures for Board of Directors Determining Compensation of Senior Management and Directors

Please see Attachment 2 "Policy of Determination of the Compensation, etc., and the Method of Calculation" attached to the Fundamental Policy on Corporate Governance.

4) Policies and Procedures for Board of Directors Appointing/Removing Senior Management and Nominating Candidates for Directors and Audit & Supervisory Board Members

(1) Policies, Procedures, etc. for Nomination and Appointment

Candidates for the Directors, Audit & Supervisory Board Members, and Executive Officers must meet the requirements for executives who would contribute to realizing the corporate philosophies (Integrity, Devotion, Deliberation, Endeavor and Empathy) and should have appropriate extensive experience, deep insight, and high degree of expertise.

• (i) President and Representative Director

  With respect to the appointment of the President and Representative Director, the Executive Appointments Committee evaluates and discusses an individual with suitable performance, qualification and personal magnetism as the representative of the Group, and puts together a candidates recommendation proposal and submits a recommendation to the Board of Directors. The Board of Directors appoints the President and Representative Director after the deliberation, having regard to the recommendation of the Executive Appointments Committee.

• (ii) Directors

  The Board of Directors of the Company nominates candidates for Directors while taking into consideration of a good balance among the appointed Directors with diverse knowledge, experience and skills regardless of gender, nationality, ethnicity, sexual orientation etc., in order to fulfill their roles and discharge their responsibilities required as the Board of Directors and to maintain the diversity of the Board of Directors as a whole.

  The Executive Appointments Committee prepares an original draft of candidates and proposes it to the President and Representative Director. The President and Representative Director proposes a draft of candidates back to the Executive Appointments Committee, taking such proposal into consideration, and the Executive Appointments Committee submits the deliberated result to the Board of Directors. The Board of Directors determines candidates for the Directors to be

proposed at the general meeting of shareholders while respecting the submission of the Executive Appointments Committee.

• (iii) Audit & Supervisory Board Members

  The Board of Directors nominates candidates for Audit & Supervisory Board Members aiming at a good balanced appointment of an Audit & Supervisory Board Member with diverse knowledge, experience and skills.

  The Executive Appointments Committee prepares an original draft of candidates and proposes it to the President and Representative Director. The President and Representative Director proposes a draft of candidates back to the Executive Appointments Committee, taking such proposal into consideration, and the Executive Appointments Committee submits to the Board of Directors the deliberated result to which the Audit & Supervisory Board has consented. The Board of Directors determines candidates for the Audit & Supervisory Board Members to be proposed at the general meeting of shareholders while respecting the submission of the Executive Appointments Committee.

  The details of the appointment policy of candidates for the Audit & Supervisory Board Members, the procedures for determining proposals on appointment of the Audit & Supervisory Board Members, the necessity of appointing a substitute for any Audit & Supervisory Board Member, etc. are determined in advance upon prior consultation between the Audit & Supervisory Board and the Board of Directors.

• (iv) Executive Officers

  The President and Representative Director selects candidates of Executive Officers based on various aspects, such as skills, experience and performance, and those who are knowledgeable about our business, etc. The Board of Directors makes an appointment after discussing the reasons for selection.

(2) Procedure of Dismissal/Removal etc.

(i)President and Representative Director

If the President and Representative Director engages in any fraud or serious violations of laws, regulations or compliance, etc., in its performance of its duties, the President and Representative Director is dismissed by resolution of the Board of Directors having regard to the discussion in the Executive Appointments Committee.

(ii) Executive Directors and Executive Officers

If the Executive Directors and Executive Officers engage in any fraud or serious violations of laws, regulations or compliance, etc., in their performances of their duties, the Executive Directors are dismissed and the Executive Officers are removed by resolution of the Board of Directors having regard to the discussion in the Executive Appointments Committee.

5) Explanation for Each Appointment and Nomination