Daifuku : Corporate Governance Report

Corporate Governance Report

Translated from the original Japanese-language document

Last update: April 11, 2022

Daifuku Co., Ltd.

Representative: Hiroshi Geshiro, President and CEO

Contact: Hideaki Takubo, Managing Officer, Corporate Functions Head Tel: [phone]

Stock code: 6383www.daifuku.com

The corporate governance of Daifuku Co, Ltd. (the Company) is described below.

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

Basic Information

1. Basic Views

The Daifuku Group (hereinafter, the "Group") emphasizes the fulfillment of its corporate social responsibility (CSR) based on the following management philosophy:

Automation that Inspires

Inspire society, deliver prosperity and enhance well-being through our core competence―automated material handling technology.

We will

• 1. strive to realize a sustainable society that minimizes burdens on people and the environment, respects human rights, and encourages responsible manufacturing.

• 2. work together with customers around the world to create optimal smart logistics solutions that incorporate innovative technologies.

• 3. ensure a fair and open corporate culture that respects diversity and allows each individual to excel. Further, we will strengthen our fundamental management practices globally to have a high level of transparency.

Daifuku is a company with an Audit & Supervisory Board. The Company enhances its corporate governance framework by developing a Board of Directors consisting of nine members, including four independent outside directors, and an Audit & Supervisory Board consisting of four members, three of whom are elected from outside the Company. More than one third (or 44%) of the Board of Directors are independent outside directors. The composition indicates that the Company considers diversity. To supplement the functions of the Board of Directors, the Company has an Advisory Committee, which deliberates on the nomination, election and dismissal, and remuneration of the management team members. The Audit & Supervisory Board members strengthen cooperation with the Audit & Supervisory Board Office, which assists the duties of the Audit & Supervisory Board members, further strengthen cooperation between the Audit Division and the accounting auditor to deepen and streamline audit work. Under the direct control of the Board of Directors, the Audit Division audits the appropriateness of the development and operation of internal control systems within the Group.

To encourage rapid decision-making on business execution, the Company has introduced a corporate officer system. The Company has also introduced an audit officer system to strengthen auditing functions.

The President and CEO (hereinafter, the "CEO") directs each Global Business and the Corporate Functions and identifies and addresses issues common to the entire Group through the committees under the direct control of the CEO.

[Reasons for Non-Compliance with the Principles of Japan's Corporate Governance Code]

Daifuku complies with all of the Principles of Japan's Corporate Governance Code revised on June 11, 2021.

[Disclosure Based on the Principles of Japan's Corporate Governance Code] Updated

The Group actively strives to enhance its corporate governance with the aim of ensuring the sustained growth of the Group and improved its medium- to long-term corporate value. Accordingly, the Daifuku Group's Basic Policy for Corporate Governance (hereinafter, the "Policy") has been clarified, and the Group's status of efforts for all items of the Japan's Corporate Governance Code (hereinafter, the "Code") revised in 2021 has been summarized. The Policy is created as a reorganization of the conventional Daifuku Corporate Governance Guidelines and shows our basic approach to corporate governance at the beginning, organizes the specific response status in code order, and introduces reference points for the latest securities report (in Japanese) and Daifuku Report as integrated reporting.

See our website for the Daifuku Group's Basic Policy for Corporate Governance. The Policy includes contents for the Prime Market that will be applicable in April 2022.www.daifuku.com/ir/policy/governance

Disclosures based on the Principles that specific matters should be disclosed are as follows:

[Principle 1.4 Cross-Shareholdings]

Our basic policy is to limit shareholdings, including shares held as cross-shareholdings, to the minimum necessary and to reduce them, and the Board of Directors confirms the status of individual holdings every year. In principle, we will no longer hold new shares for strategic purposes. On the other hand, Daifuku has established a firm relationship of trust with its customers through after-sales services as well as the delivery of products. Circumstances including these trade relations will also be taken into consideration when the economic rationale of cross-shareholdings, such as market capitalization, book value, transaction amounts, dividends, ROE, and risk of shareholdings, is examined. Shares, which the Board of Directors regards as having no significance, will be sold on a timely basis.

With respect to the voting rights attached to cross-shareholdings, we will make decisions individually with an emphasis on improving the corporate value of the cross-shareholding partners over the medium to long term. At the time of the assessment, special attention will be paid to whether the cross-shareholding partner has been tarnished by scandals or has committed an antisocial act. If the cross-shareholding partner has been involved in such circumstances, itsmanagerial approach to improvement shall be scrutinized. Audit reports concerning that partner shall also be scrutinized.

When a cross-shareholder indicates its intention to sell the Company's shares, Daifuku shall not hinder the sale of the cross-held shares.

[Principle 1.7 Related Party Transactions]

The rules of the Board of Directors stipulate that, with respect to a conflict-of-interest transaction between a director and the Group, the director shall seek prior approval for the transaction from the Board of Directors and report it to the Board of Directors even after the fact. With respect to transactions with directors, Audit & Supervisory Board members, and their close relatives, we conduct a survey on the existence of transactions at the beginning of every fiscal year and report findings of material facts about related-party transactions to the Board of Directors. Any transactions between related parties are disclosed in accordance with applicable laws and the rules established by the Tokyo Stock Exchange.

[Supplementary Principle 2.4.1 Ensuring diversity in the core human resources of a company]

1. Concept of ensuring diversity, policies for human resource development and internal environment development to ensure diversity

We are promoting the employment of diverse human resources based on our management philosophy and the development of an environment where each employee is able to work actively with a sense of "motivation" and "ease of work." Under the three-year business plan Value Transformation 2023, with the themes of adopting diverse human capital management systems and creating a global corporate culture, we are working to develop and promote human resources and improve employee engagement.

2. Status of ensuring diversity

1) Policies and goals for promoting women to managerial positions

To facilitate the active participation of women, we are developing and expanding a time, economic, and reinstatement support system that enables us to fully demonstrate our abilities and grow while striving to balance childcare and work. In addition to increasing the ratio of female employees, the number of female employees working as practical leaders and section managers is increasing and their field of activity is expanding. In addition, in the general employer action plan based on the Act on Promotion of Women's Participation and Advancement in the Workplace, we have set a target of increasing the number of female managers to 30 or more by April 1, 2023, compared with the previous target of 24 or more by March 31, 2025, as below. We will increase the number of female executives who are involved in management decision-making in the future.

Changes in the number of female managers and targets

18 as of April 1, 2020

20 as of April 1, 2021

26 as of April 1, 2022

30 as of April 1, 2023 (target)

* Three-Year Business Plan Value Transformation 2023 (April 1, 2021 - March 31, 2024)

2) Policies for promoting foreign nationals to managerial positions

With the globalization of our business, the number of foreign employees is increasing each year through both regular hiring and mid-career hiring. In addition to graduates of Japanese universities, we also carry out regular recruitment of graduates of overseas universities. Of the regular hires infiscal 2022, 8.6% are foreign employees. We will continue to actively hire foreign employees. Four foreign managers are employed as of April 1, 2022. We expect that the number of foreign mangers will continue to increase in line with globalization.

3) Policies for promoting mid-career professionals to managerial positions

We are actively hiring mid-career personnel, and the ratio of mid-career hires among full-time employees is 44.3% as of April 1, 2022. The same applies to the promotion to managerial positions. Mid-career hires accounted for 45.8% of assistant managers and 36.2% of managerial positions, as of April 1, 2022. Going forward, we will continue to introduce a professional system (a system different from the conventional remuneration system) in response to the sophistication of duties and actively hire mid-career personnel as qualified managers.

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

Daifuku's basic policy on the investment of reserves to be applied to its defined benefit pension plan (hereinafter, "pension assets") is to achieve the total returns that are deemed necessary in the long term while taking medium-term downside risks into consideration, to ensure the payment of pension benefits to pension scheme members, recipients, etc. in the future.

• - Daifuku shall appoint, evaluate, and manage asset managers in accordance with this basic policy.

• - Daifuku shall seek the safe and efficient management of its pension assets by establishing the Pension Assets Management Committee.

• - The Pension Assets Management Committee shall be chaired by the officer responsible for finance (the finance and accounting division manager). Committee members shall be the officers responsible for operations, such as personnel affairs, general affairs, finance and accounting, the chairperson of the labor union executive committee, and the head of the health insurance society. If a suspected conflict of interest might arise as a result of such members' participation in deliberations, such members shall be excluded from deliberations as appropriate.

[Principle 3.1 Full Disclosure]

i) Company objectives (e.g., business principles), business strategies and business plans

We have formulated and disclose our management philosophy, business strategies, and business plans. See our website for the management philosophy, business strategies, and business plans.

www.daifuku.com/company/philosophy

www.daifuku.com/jp/ir/policy/plan

ii) Basic views and guidelines on corporate governance based on each of the principles of the Code Daifuku Group's Basic Policy for Corporate Governance summarizes the basic views and guidelines on corporate governance based on each of the principles of the Code.

iii) Board policies and procedures in determining the remuneration of senior management and directors

We disclose these policies and procedures in securities reports (in Japanese), etc.

iv) Board policies and procedures in the appointment/dismissal of senior management and the nomination of directors and kansayaku candidates

We use the Advisory Committee. See Supplementary Principle 4.10.1.

v) Explanations with respect to individual appointments/dismissals and nominations based on iv). We summarize the background of each candidate and the reasons for their selection as a candidate in the proposal for the election of directors in the convening notice.

[Supplementary Principle 3.1.3 Sustainability initiatives]

1. Disclosure on sustainability initiatives

The Group positions its three-year business plan Value Transformation 2023, which started in April 2021, and the Sustainability Action Plan (hereinafter, the "Plan") as the two wheels of its business strategy. We will contribute to realizing a sustainable society through our business activities. The Board of Directors receives status reports from the Sustainability Committee chaired by the CEO, which manages the progress of the Plan, to achieve the goals, and provides effective supervision. We regularly disclose details of our initiatives in the Daifuku Report, our website, CSR reports, etc.

See our website for details:www.daifuku.com/sustainability/management/plan

2. Investing in human capital

To realize the reform of the personnel system and the transformation of internal perceptions set forth in the three-year business plan, we will work to develop and appoint human resources through global talent management and improve employee engagement across the Group.

1) Human resources management

We are building a human resources management platform across the Group, working to unify the evaluation, compensation, and development policies common to the Group, and building a talent management system for the promotion of human resources that transcends the boundaries of global business units. In addition, our employee engagement is defined as a relationship (career realization) that allows employees and the company to grow together based on employees' willingness to contribute voluntarily (motivation to work) and an environment where employees can demonstrate their abilities (ease of work). We will foster a sense of unity and improve productivity for the entire Group, and work to promote detailed and considerate human resources management that responds to the diverse features of individuals.

2) Promoting diversity

We are promoting the development of an environment where each employee is able to work with a sense of "motivation" and "ease of work." As part of work style reforms, we have introduced a work-from-home system for all employees to improve productivity and harmonize work-life balance. See Supplementary Principle 2.4.1 for the appointment of female managers. In addition to the target number of female managers, in the Plan we have set a target for the acquisition rate for male childcare leave (10% in fiscal 2023) and a target for the employment rate of persons with disabilities (statutory employment rate to achieve in fiscal 2023).

3) Human resources development

We encourage our employees by providing self-motivated learning opportunities and a position-specific training system, as well as a global leadership training program for the next generation including candidates for senior management of non-Japan Group companies. In addition, the training attendance record is managed by the talent management system (human resources database), due to promotion requirements.

3. Investing in intellectual property