Hitachi Metals : Corporate Governance Report

Note: This document has been translated from the Japanese original for reference purposes only.

In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

The Company assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translation.

Corporate Governance Report

Last Updated: June 30, 2022

Hitachi Metals, Ltd.

Mitsuaki Nishiyama

Chairperson and President

Securities Code: 5486

https://www.hitachi-metals.co.jp/e/index.html

The corporate governance of Hitachi Metals, Ltd. (the "Company") is described below.

1. Basic Views on Corporate Governance, Capital Structure, Corporate Attributes and Other Basic Information

1. Basic Views

The underlying basis for corporate governance at the Company is to ensure transparent, sound, and efficient management, meet the needs of our stakeholders, and increase corporate value. We believe increasing corporate value to be one of our most important management challenges.

Accordingly, it is imperative that we create an organizational structure in which management supervision and business execution both function effectively and are balanced. We also believe that timely, high-quality information disclosure contributes to the improvement of corporate governance. In pursuit of this philosophy, we go beyond simple financial disclosure, regularly publishing the details of individual businesses and medium-term management plans.

We acknowledge that compliance is the linchpin of corporate governance. Because of this, to go beyond mere compliance with laws and internal regulations we are striving to establish a corporate culture centered on "integrity." The Company established the "Hitachi Metals Group Codes of Conduct" (https://www.hitachi- metals.co.jp/e/corp/corp15.html), which materializes the above details and serves as specific standards to guide its Directors, Executive Officers, and employees on what is the appropriate conduct.

The Company's corporate governance framework is established in the Corporate Governance Guidelines ("the Guidelines") and the basic policy on the internal control system determined by the Board of Directors based on Japan's Companies Act. An overview of this basic policy is provided in "IV. Matters Related to Internal Control System, 1. Basic Views on Internal Control System and Progress of System Development." Furthermore, the Guidelines are also provided on the Company's website (https://www.hitachi-metals.co.jp/e/ir/ir-csr.html).

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

The Company implements all the principles of the corporate governance code.

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

[Principle 1-4] Holding Shares of Other Companies as Strategic-Shareholdings

In principle, the Company shall not hold the shares of other companies as strategic-shareholdings. The exception is if the Company believes these holdings contribute to the Company's corporate value. The Company would comprehensively take into consideration objectives of such holdings such as maintenance and strengthening of business relations, capital tie-ups, business alliances and joint development as well as associated returns and risks. The Company has been reducing such holdings through conducting an annual review of holding objectives by the Board of Directors primarily on the significance of holding and the cost of capital of each individual stock from qualitative and quantitative aspects. For other policies on our strategic-shareholdings, please refer to Article 7. Policies Concerning Holding Shares of Other Companies as Strategic-Shareholdings in the Guidelines.

As of March 31, 2022, the number of the strategic-shareholdings was 12. The number has decreased from 42 as of March 31, 2015, when the corporate governance code had yet to be implemented.

[Principle 1-7] Related Party Transactions

For policies and procedures on transactions with the Company's parent company, please refer to Article 8. Transactions with a Parent Company of the Company in the Guidelines

[Supplementary Principle 2-4-1] Ensuring Diversity in the Promotion of Core Human Resources (Views on ensuring diversity)

The Company has established the following Hitachi Metals Basic Policy on Diversity Management as its basic views on ensuring diversity.

1. We regard differences in gender, nationality, culture and so forth as unique qualities of the individual, and we ensure diversity through measures such as promoting the career development of women and utilizing global human resources. Such approaches allow us to promote innovation and enhance the flexibility and speed with which we respond to risks and changes.
2. We encourage the growth of the individual, enhance our ability to act as an organization and reinforce the basis for sustained growth by engaging in active communication and the sharing of values.
3. We aim to become one of the world's top companies in metal materials by designating diversity as a driver of growth, as we transform ourselves into a globally competitive business and challenge ourselves to meet new targets.

(Voluntary and measurable goals for ensuring diversity and the current condition)

Regarding the career development of women, the Company has established targets for the ratio of women among newly hired graduates (career-track positions) and the ratio of women in management positions. These targets and actual results are provided below. For actual results in the last five years, please refer to page 54 of Integrated Report provided on the Company's website (https://www.hitachi-metals.co.jp/e/ir/annual/anu_2021.html).

1) Ratio of women among newly hired graduates (career-track positions)

Target ratios: 10% or higher for technical positions, 40% or higher for administrative positions

Actual results in fiscal 2021: 7% for technical positions, 60% for administrative positions

1. Ratio of women in management positions Target ratio: 2.0%
   As of March 2022: 2.0%

In our annual hiring for career-track positions, the Company focuses on ensuring diversity by setting a target ratio of 50% or higher for our diversity hiring framework, which includes women, foreign nationals, and mid-career hires. The Company has not set a target for promoting foreign nationals and mid-career hires to management positions. For actual results of diversity recruitment ratio in the last five years, please refer to page 54 of Integrated Report provided on the Company's website (https://www.hitachi-metals.co.jp/e/ir/annual/anu_2021.html). As of March 2022, the number of women, foreign nationals, and mid-career hires in management positions and the ratio of each to the total number of management positions are as follows.

Women: 22 (2.0%)

Foreign nationals: 6 (0.5%)

Mid-career hires: 92 (8.2%)

(Policies for human resource development and internal environment development to ensure diversity, as well as the status of their implementation)

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1) Policies for human resource development and the status of their implementation

The Company aims to develop people of action with global perceptions and is striving to enhance and strengthen our integrated human resource development program linking OJT and OFF-JT. The foundation of our development program is to provide the necessary training to the necessary people at the necessary time. In addition to providing management position training, employee level-based training, and technical training, we also send employees based in Japan overseas for business training with the goal of developing global human resources.

Furthermore, we are working to improve our development program for the early selection of management candidates who will lead the next generation of management. For our management candidates, we engage in personnel rotations that include tough assignments, provide opportunities for the candidates to exchange opinions with the senior management including the President, and send candidates to management leadership training, including external training.

2) Policies for internal environment development and the status of their implementation

The Company believes that it is indispensable to create an environment in which diverse human resources can share different values and ideas, pursue highly productive workstyles and approaches to their jobs, and feel a sense of fulfilment and personal growth in their work. As such, the Group is working to improve operational efficiency and promote and establish work with no restrictions on time or location by pursuing ICT measures, and is engaged in activities to realize fundamental workstyle reforms so that each individual employee can have real job satisfaction and feel truly comfortable at work.

[Principle 2-6] Roles of Corporate Pension Funds as Asset Owners

The Company adopts a contract-type defined benefit pension plan. To manage the pension plan, the Company has established the Retirement Benefits Committee consisting of the officer in charge of Human Resources & General Administration, the officer in charge of Finance and others, and assigned personnel with appropriate qualifications required in the Human Resources & General Administration and Finance Division as the secretariat. In addition, the Company has established a basic policy on pension asset management to ensure pension benefits to beneficiaries in the future and secure the total returns necessary for payment over the long term. According to the policy, the Company sets a medium- to long-term strategic asset mix as well as selects and evaluates asset managing trustees, and monitors the status of pension asset management on a regular basis. The trustees manage conflicts of interest between such trustees and beneficiaries by complying with the defined criteria for the exercise of voting rights, taking into account that they exercise their voting rights solely for the purpose of increasing performance of asset management as defined in the basic policy.

Furthermore, to help employees ensure stable asset building, the Company adopts defined contribution pension plans in addition to the contract-type defined benefit pension plan, carries out the review of asset managing trustees and asset management products, and provides employees with educational sessions on asset management.

[Principle 3-1] Full Disclosure

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

For the Company's business principles, please refer to Article 1. Business Principles in the Guidelines. For the Company's business strategies and business plans, the Company released details of its business plan up to fiscal 2022, which aims to implement cost structure reforms to improve business performance at an early stage and to transform itself into a profitable basis that can secure the resources for future growth investments, in October 2020. Based on this business plan, the Group implemented a range of policies for future growth under the slogan "Set to Grow" in fiscal 2021. A particular focus was to construct a robust profit structure resilient to demand fluctuation through improving the cost structure and lowering the breakeven point. As a result, we were able to get back into positive earnings territory in fiscal 2021 by strengthening the earnings structure, while leveraging recovery in demand in automotive and semiconductor related areas.

The following are the focal points for fiscal 2022, under the slogan "Accelerating Transformation and Growth." A.Establish a safety-oriented corporate culture

B. Ensure a culture of "Integrity (sincerity and honesty)" C. Further strengthen the operating base for growth

C-1 Improve profitability and secure cash flows

C-2 Strengthen the monozukuri capabilities and capital efficiency D.Promote environmental management

Through these measures, the Group will build a business structure that enables generation of investment funding for future growth, and brings us closer to the goal of being a high-performance materials company that supports a sustainable society, the goal of our medium to long-term vision for the Company.

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ii) Basic views and policies on corporate governance

For the Company's basic views and policies on corporate governance, please refer to 1. Basic Views above and the Guidelines.

1. The Compensation Committee's policies and procedures in determining the compensation of the senior management and Directors
   As the Company is a company with nominating and other committees ("company with Nominating Committee, etc."), it sets forth the policy on the determination of compensation, etc. for each Director and Executive Officer in the Compensation Committee, with a majority of the members being independent Outside Directors, and determines the amount of individual compensation based on the policy. For the policy on the determination of compensation, etc. for each Director and Executive Officer, please refer to "II. Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Supervision in Management," "1. Organizational Composition and Operation," "Compensation for Directors and Executive Officers," "Disclosure of Policy for Determining Compensation Amounts or Calculation Methods Thereof" provided later in this document.
2. The Board of Directors' policies and procedures in appointing and dismissing the senior management and the Nominating Committee's policies and procedures in nominating candidates for Director
   As the Company is a company with Nominating Committee, etc., it determines candidates for Director in the Nominating Committee, with a majority of the members being independent Outside Directors. The Nominating Committee determines candidates for Director based on Article 12. Size of the Board, Article 13. Composition of the Board, Article 14. Qualifications of Directors, and Article 15. Criteria for Independence of Outside Directors in the Guidelines.
   The Board of Directors ensures that the appointment and dismissal of an Executive Officer are conducted in a fair manner based on Article 20. Policy on Appointment and Dismissal of Executive Officers in the Guidelines.
3. Reasons for appointing and nominating the senior management and candidates for Director

For the reasons for nominating candidates for Director at the 85th Ordinary General Meeting of Shareholders, please refer to Reference Document for the General Meeting of Shareholders on pages 7 to 13 in Notice of the 85th Ordinary General Meeting of Shareholders on our website: https://www.hitachi-metals.co.jp/e/ir/ir-stock.html. For the reasons for appointing Executive Officers, please refer to "Reasons for appointment as Executive Officer" provided later in this document.

[Supplementary Principle 3-1-3] Initiatives on Sustainability (Initiatives on sustainability)

For details on our sustainability initiatives, please refer to pages 20 to 25 and 45 to 51 of Integrated Report provided on the Company's website (https://www.hitachi-metals.co.jp/e/ir/annual/anu_2021.html).

(Investments in human capital)

Recognizing that human resources are the source of our competitiveness, the Company has worked to enhance and strengthen our human resource development program, believing it is important to develop people of action with global perceptions at Hitachi Metals. For details, please refer to pages 48 to 49 of Integrated Report provided on the Company's website (https://www.hitachi-metals.co.jp/e/ir/annual/anu_2021.html).

(Investments in intellectual property)

The Company creates assets to support the sustainable growth of the Group through the thorough management of our intellectual property knowhow and the acquisition and maintenance of intellectual property rights both in Japan and overseas for the appropriate protection and efficient use of our intellectual property. In our research and development to generate such intellectual property, the Company continues to invest in research and development on advanced materials that foster sustainable growth and contribute to society. The Company also focuses on the development of environmentally conscious products amid global initiatives being promoted to reduce environmental burden. For details on our research and development initiatives, please refer to pages 20 to 23 of Integrated Report provided on the Company's website (https://www.hitachi- metals.co.jp/e/ir/annual/anu_2021.html).

(Disclosure based on TCFD recommendations)

In June 2021, the Company made public its support for the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations which propose disclosure of climate change initiatives, and has been disclosing information based on the TCFD recommendations. For details, please refer to "Disclosure based on

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TCFD recommendations" on the Company's website (https://www.hitachi- metals.co.jp/e/press/news/2022/n0526.html).

[Supplementary Principle 4-1-1] Summary of Scope of Matters Delegated to the Management by the Board of Directors

The Company specifies items resolved by the Board of Directors in the Board of Directors Rules. They include items such as dividend of surplus; issuance of new shares and subscription rights to shares; acquisition, lending, borrowing and disposal of assets, debt guarantee, and organizational restructuring with value exceeding a certain threshold as well as items subject to approval by the board of directors under the Companies Act of Japan (including determination of basic management policy and basic policies for establishing internal control systems, appointment and dismissal of Executive Officers, and appointment and removal of Representative Executive Officer). Determination of items other than the above is delegated to the Chairperson.

[Principle 4-9] Criteria for Independence of Outside Directors

For the criteria for independence of Outside Directors, please refer to Article 15. Criteria for Independence of Outside Directors in the Guidelines.

[Supplementary Principle 4-11-1] Views on Appropriate Balance between Knowledge, Experience and Skills of the Board of Directors as a Whole, on Diversity and Appropriate Size of the Board of Directors

The Articles of Incorporation provides that the Company shall have not more than ten directors. For other matters on views on appropriate balance between knowledge, experience and skills of the Board of Directors as a whole, as well as on diversity and appropriate size of the Board of Directors, please refer to Article 12. Size of the Board, Article 13.

Composition of the Board, and Article 14. Qualifications of Directors in the Guidelines. Furthermore, for details on the skill sets of the Company's Directors, please refer to page 34 of Integrated Report provided on the Company's website (https://www.hitachi-metals.co.jp/e/ir/annual/anu_2021.html).

[Supplementary Principle 4-11-2] Concurrent Positions Assumed by Directors

For principal concurrent positions assumed by Directors, please refer to Reference Document for the General Meeting of Shareholders on pages 7 to 13 in Notice of the 85th Ordinary General Meeting of Shareholders on our website: https://www.hitachi-metals.co.jp/e/ir/ir-stock.html.

[Supplementary Principle 4-11-3] Analysis and Evaluation of Effectiveness of the Board of Directors

The Company conducted a questionnaire survey and an interview with the Directors on effectiveness of the Board of Directors as a whole for fiscal 2021. The major categories of the questionnaire survey consist of composition, decision-making process and contribution, operation and support systems, and others.

At the Board of Directors meeting held in May 2022, the effectiveness of the Board of Directors was discussed and evaluated based on each Director's evaluations and opinions obtained from the results of the survey and interviews, etc.

As a result, the Board of Directors has verified that effectiveness of the Board of Directors as a whole is ensured, as agendas are appropriately set, discussions regarding the strategic direction are deepened, and important agendas are reviewed in advance.

On the other hand, the Company has recognized room for further improvement on the following matters:

1. Deliberation on corporate direction and management strategy amid fluctuations of the market environment and business environment, and processes for the supervision of their implementation
2. Establishment of a systematic risk management system and supervision of its operation
3. Diversity in the Directors' skills

We will use the above findings for operation of the Board of Directors to further enhance its effectiveness looking forward. In addition, the executive part is improving and strengthening the quality assurance system, which includes its organization, operation and audits, and we will continue to closely monitor its progress and effectiveness at the Board of Directors.

The Company also conducted a questionnaire survey and an interview with the members of the Audit Committee on effectiveness of the Audit Committee for fiscal 2021.

At the Audit Committee meeting held in May 2022, the effectiveness of the Audit Committee was discussed and evaluated based on each Committee member's evaluations and opinions obtained from the survey and interviews. As a result, as in the previous fiscal year, the Audit Committee had lively important discussions on quality assurance issues, internal control, etc., and verified that the tripartite audit function related to accounting is basically operating smoothly, including improving the method for discussing with the executive parts, which indicated by internal audit, and that the effectiveness of the Audit Committee as a whole is ensured. On the other hand, the Company has acknowledged areas that need to be strengthened among the audit functions related to overseas operations and

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