DyDo : Corporate Govenance Report

This document has been translated from the Japanese original, as submitted to the Tokyo Stock Exchange, for reference purposes only. in the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. DyDo Group Holdings, Inc. assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translation.

CORPORATE GOVERNANCE

DyDo Group Holdings, Inc.

Last update: June 16, 2021

DyDo Group Holdings, Inc.

Tomiya Takamatsu, President Inquiries: Corporate Communication Department [phone] Share code: 2590

https://www.dydo-ghd.co.jp/en/

This document describes the Company's approach to corporate governance.

I. Basic approach to corporate governance, capital structure, corporate attributes, and other general information

1. Basic Approach

Taking into consideration the provisions and spirit of the Corporate Governance Code issued by the Tokyo Stock Exchange, we have formulated a Basic Approach to Corporate Governance that our basic approach and policies in the area of corporate governance in order to facilitate sustained growth and improve our corporate value over the medium and long term.

[Basic Policy]

1. Basic Approach to Corporate Governance

"Creating happiness and prosperity, together with people and with society. To achieve this goal, the DyDo Group will continue to embrace new challenges in a dynamic way."

Our corporate philosophy inspires us in our ongoing quest to ensure proper, upstanding business practices and rigid compliance with relevant laws and regulations. It motivates us to constantly improve management efficiency and transparency, and to promote the group's mutual benefits with all of our stakeholders, including our customers, our employees, our business partners, our communities, and our shareholders. It is the very cornerstone of our corporate governance, which is geared toward generating sustainable growth and improving corporate value over the medium- to long-term.

[DyDo Group Philosophy]

Creating happiness and prosperity, together with people and with society. To achieve this goal, the DyDo Group will continue to embrace new challenges in a dynamic way.

[DyDo Group Vision] Together with our customers.

With our high-quality products, we will offer our customers excitement and enhanced wellness, with distinctive delicious flavors that only DyDo can.

Together with society.

Bringing together all DyDo's resources in the entire Group's product development and corporate activities, we will help build a rich and vibrant society.

Together with the next generation.

We will create a "DyDo Standard" for the next generation that transcends national borders and conventional frameworks.

Together with our people.

We will tirelessly embrace the "DyDo Challenge" of bringing happiness to all whose lives are touched by the DyDo Group.

The core business of the DyDo Group is Domestic Beverage Business, and considering the fact that 80% or more of our sales for this segment come from vending machines in the local community, it is fair to say that our soft drink products are a familiar part of consumers' everyday lives. Moreover, our operations are conducted under a "fabless management" system, which means we have no plants of our own and instead work in close cooperation with producers and distributors nationwide, to whom we outsource the manufacture and delivery of our products. We concentrate our resources on more specific roles, such as product planning and development, and vending machine operations. We have one of the industry's most extensive networks of vending machines, which are maintained by DyDo Group employees and the "Kyoeikai" (special vending machine operators that handle DyDo products).

It is a rather unique model that depends on the trust of our stakeholders. As such, we believe "happiness and prosperity together with people and society as a whole" is more than just a nice phrase for a corporate philosophy-it is our duty, and the overriding objective of our business activities. To that end, our "dynamic efforts" are founded on bedrock of corporate governance, a steadfast platform of transparent, fair, swift, and bold decision-making. Moreover, we continually work to improve that foundation in order to contribute to the benefit of our shareholders.

2. How We Put the Japan's Corporate Governance Code

1. Securing the rights and Equal Treatment of Shareholders

At the DyDo Group, our corporate philosophy guides us to work in close partnership with a broad range of stakeholders. For instance, we endeavor to effectively secure the rights of our shareholders, and to prepare an environment in which they can exercise those rights appropriately.

(2) Appropriate Cooperation with Stakeholders Other Than Shareholders

We are keenly aware that our efforts to generate sustainable growth and improve corporate value over the medium- to long-term (as enshrined in our corporate philosophy) are reliant on the valuable resources and contributions of a broad spectrum of stakeholders, including our customers, our employees, our business partners, and our communities. Moreover, we are proud to work in close partnership with our stakeholders, and we proactively incorporate their feedback into the running of the DyDo Group. The executives and board of directors are charged with leading the creation and maintenance of a corporate culture that demands respect for the rights and positions of stakeholders and firm adherence to corporate ethics.

1. Ensuring Appropriate Information Disclosure and Transparency
   In line with our policy of transparency, fairness, and long-term focus, we provide shareholders,

investors, and all other stakeholders the information they need to make informed decisions. This includes information on our companies' finances, business performance, management strategies and issues, risks, and other matters relating to governance. Indeed, we consider our legal obligation to disclose pertinent information promptly and appropriately to be a serious matter. In addition, however, we are also eager to publish information that encourages correct understanding of the DyDo Group to the furthest possible extent.

(4) Responsibilities of the Board

The board of directors seeks to discharge its responsibility and accountability to shareholders by pursuing a three-pronged strategy for consistent improvement of the group's earning power and capital efficiency so as to achieve sustainable growth and improve corporate value over the medium- to long- term. Those three facets are: 1) set the direction for implementation of the group's corporate strategy; 2) establish a platform for executives to take calculated risks; and 3) institute effective, independent, and objective oversight of executives and directors.

(5) Dialogue with Shareholders

Constructive dialogue with shareholders is an integral part of our IR strategy, which is geared toward our goal of sustainable growth and improved corporate value over the medium- to long-term. Such communication not only fosters correct understanding of the DyDo Group, but it also generates valuable feedback that serves as a frank appraisal of our true trustworthiness and corporate value.

[Reasons for not implementing certain principles of Japan's Corporate Governance Code]

Supplementary Principle 1.2.5

Treatment of institutional investors who own shares in the name of a trust bank (shintaku ginko) and/or custodial institutions and express a wish in advance to exercise their voting rights at the General Meeting of Shareholders

Because voting rights at the General Meeting of Shareholders are held by entities that are included in or registered on the list of shareholders as of the date of record, we do not allow institutional investors who own shares in the name of a trust bank or other institution to attend, exercise their voting rights at, or pose questions at the General Meeting of Shareholders.

Due to the large number of administrative issues associated with implementation of this principle, we have decided to study it in the future after clarifying future trends.

Principle 1.4

Cross-Shareholdings

We annually assess whether or not to hold each individual cross-shareholding.

The results of the most recent assessment, which was conducted at the February 15, 2021, meeting of the Board of Directors with regard to conditions as of January 20, 2021, confirmed the Company's policy of continuing to hold some shares that can be expected to help increase the Company's value over the medium and long term but considering selling or otherwise disposing of others.

With regard to "methods for specifically assessing whether or not the purpose of, and the benefits and risks from, holding each individual cross-shareholding is appropriate and covers the company's cost of capital," as required by this principle, the Board of Directors recognizes this as an issue requiring further discussion.

Principle 1-4-1

Response to Cross-Shareholder Indication of Intent to Sell

When cross-shareholders indicate their intention to sell their shares, we do not hinder the sale of the cross-held shares by, for instance, implying a possible reduction of business transactions.

However, in cases where parties which are cross-shareholders for the purpose of business cooperation indicate their intention to sell their shares, we recognize the need to consider revising cooperative relations based on economic rationality.

Principle 2-6

Roles of Corporate Pension Funds as Asset Owners

Because the management of corporate pension funds impacts stable asset formation for employees and our own financial standing, we ensure that potential conflicts of interest between pension fund beneficiaries and our company are appropriately managed by entrusting fund operation to a management institution and by receiving regular reports on the status of fund management and stewardship activities.

However, with regard to the involvement of human resources and operational practices, as required by this principle and including recruiting or assigning outside qualified persons, discussion of this issue will be revisited in the future as warranted based on careful monitoring of developments.

Supplementary Principle 4.1.3

Proactive engagement in the establishment and implementation of a succession plan for the CEO and other top executives, and appropriate oversight of the systematic development of succession candidates

Since assuming the position in April 2014, Tomiya Takamatsu, the Company's president, has demonstrated strong leadership by managing the company with rapid, decisive decision-making in line with its medium- and long-term management posture based on the perspective of all stakeholders and in keeping with the newly formulated Group Philosophy and Group Vision.

Although we do not currently have a specific succession plan for positions such as president, we

recognize that the cultivation of corporate officers and management positions that support the Company's executive team is an important priority, and we launched DyDo Innovation Academy, a long-term training program for mid-level employees, in order to cultivate and identify the next generation of leaders who will be responsible for driving the organization's sustained growth going forward. We are working to foster problem-solving skills, strengthen leadership, and facilitate management literacy through a combination of off- and on-the-job training.

For the future, the Board of Directors will appropriately supervise the implementation of initiatives aimed at medium and long term improvement in corporate value, including a strategic development plan for the next generation of corporate officers and managers.

Supplementary Principle 4.2.1

Use of objective and transparent procedures for remuneration system design and determination of actual remuneration amounts

While we have not established an independent external director-led advisory committee, the members of the Board of Directors do incorporate the advice of independent external directors as appropriate when deliberating about remuneration system design. The Board of Directors adopted policies governing the scale of executives' compensation packages and the methods used to calculate them on March 15, 2021. Bonuses for individual directors are determined by multiplying the individual's basic compensation by a coefficient that is calculated based on the company's performance during the previous business year (defined as the extent to which the consolidated-basissales and operating income forecasts at the beginning of the business year as announced in financial briefings have been achieved). This method of calculation applies to executive bonuses paid during the business year starting on January 21, 2022.

Additionally, the Board has ensured objectivity and transparency by disclosing an overview of the performance-linked incentive program that offers shares of company stock to directors (excluding outside directors and non-managing directors) apart from director compensation amounts along with details about the method used to calculate the number of shares offered to eligible recipients.

Supplementary Principle 4.3.2

Appointment of the CEO through objective, timely, and transparent procedures

Although we have not established an independent external director-led advisory committee, given that the appointment of the CEO is the most important strategic decision for a company, the Board of Directors makes appropriate use of the involvement and advice of independent, outside directors to ensure the appointment of a qualified CEO.

Supplementary Principle 4.3.3

Establishment of objective, timely, and transparent procedures for dismissal of the CEO

We have not established uniform evaluation standards for the dismissal of the CEO, nor conditions for dismissal.

In the unlikely event that a situation arises which is deemed objectively worthy of dismissal, such as legal or corporate by-law violations by the CEO which significantly harm the value of the company, a decision will be made after thorough discussion by the Board of Directors with independent, outside directors in attendance.

Supplementary Principle 4.8.2

Election of a head independent external director

Three of the six positions on our Board of Directors are occupied by independent external directors, but we do not elect a head independent external director.

In addition to the support offered to external directors by the Board of Directors Secretariat to facilitate clear communication and coordination with the rest of the Company's executive team, we foster collaboration with auditors and the Kansayaku Board by means of such measures as regular meetings that are attended exclusively by independent external officers.

Supplementary Principle 4.10.1

Involvement and advice from independent directors in the examination of such important matters as nominations and remuneration by establishing an independent advisory committee

Three of the six positions on our Board of Directors are occupied by independent external directors in order to increase the accountability of the executive team and increase transparency, and important matters such as executive and director appointment, stepping down, and compensation require the approval of the Board of Directors, on which these independent external directors sit. While we have not established an independent external director-led advisory committee, the members of the Board of Directors do incorporate the advice of independent external directors as appropriate when deliberating about important matters.

Principle 4.11

Creation of Board Balanced in Knowledge, Diverse in Gender and International Experience and of an Appropriate Size

Our Articles of Incorporation require seven or fewer directors and four or fewer auditors. Currently, our Board of Directors consists of six seats. We believe this size maintains the potential for meaningful deliberation while bringing together members with different backgrounds in terms of characteristics such as expertise and experience, for example directors who possess extensive knowledge of the Company's businesses as well as external directors who can help enhance the Company's corporate governance by offering highly effective oversight of the executive team and advice concerning appropriate decision- making by the Board from an independent perspective. While there are currently no female or non-Japanesedirectors, the current group of directors possesses the necessary skill-setand diversity to address the challenges involved in implementing the basic policies of the Group Mission 2030, i.e., innovation in the Domestic Beverage Business, expansion in overseas business development and development of a second major source of revenue through non-drinkbusinesses, and we believe that current structure of the Board, 50% of whose members are independent outside directors, allows us to ensure an additional level of independence and objectivity.

With regard to the composition of the Board of Directors in the medium- to long-term, our priority moving forward is considering the recruitment of persons who will bring added diversity that strengthens the functioning and effectiveness of the Board of Director in line with our business strategy development and the changing needs of society.

Principle 5.2

Identification of Company's Cost of Capital, Articulation of Earnings Plans and Capital Policies, Presentation of Targets for Profitability and Capital Efficiency, Review of Business Portfolio and Clear Explanation to Shareholders about Fixed Asset Investment Policies and Plans and Other Matters

The Group formulated the Group Mission 2030 by incorporating issues addressed to date by the current mid-term business plan and analyzing these and other medium- and long-term changes in the business environment as either risks or business opportunities that will exert a serious impact on its business model, and it is currently implementing the Mid-term Business Plan 2021, a three-year action plan that began in FY2019. While the COVID-19 pandemic is having an effect on short-term results, the Company's long- term direction remains unchanged. The mission, which has been formulated to facilitate the implementation of the Group Philosophy and Group Vision as the Company moves toward and beyond 2030, identifies the Group's mission and direction in each of four areas, providing a roadmap for the achievement of each.

Specifically, it divides the run-up to 2030 into three phases-aplatform-strengthening and investment stage, a growth stage, and an achievement stage. By developing highly competitive business models through the implementation of business strategies in each stage, the Group will build a robust business portfolio characterized by high growth, profitability, and efficiency.

Based on a recognition that two significant challenges for improving the Group's capital productivity are improving profit margins and increasing total asset turnover, we have established clear standards within the basic policies of the Group Mission 2030 for business segment operating profit margin targets and, as part of the Mid-term Business Plan 2021 governing the first phase of the Mission, we are cultivating sustained growth and medium- to long-term corporate value enhancement via a strategy focused on improving profitability and active investment in future growth.

The Mid-term Business Plan 2021 represents a platform-strengthening and investment stage intended to lay the foundation for realizing the vision set forth in the Group Mission 2030. Through a combination of