Nippon Aqua : 2023 Corporate Governance Report

Corporate Governance Report

CORPORATE GOVERNANCE

Nippon Aqua Co., Ltd.

Last Update: March 29, 2024

Nippon Aqua Co., Ltd.

Fumitaka Nakamura, President and Representative DirectorContact:

Masahiko Komuro, General Manager of Corporate Planning Department

Securities code: 1429https://www.n-aqua.jp

The corporate governance of Nippon Aqua Co., Ltd. (the "Company") is described below.

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

Key Information

1. Basic Views

The basic concept of our corporate governance is to aim for a stable increase in corporate value while maintaining a high level of integrity and transparency, and fulfilling our social responsibilities as a listed company.

Specifically, we will actively disclose information about our business and pursue growth in performance and financial soundness by quickly reflecting our management and business policies in our business activities. In addition, we believe it is important to deepen engagement with stakeholders and effectively operate our internal control system to eliminate judgments and decisions based on our internal circumstances and build an effective governance structure.

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

We have implemented all the principles of the Corporate Governance Code.

Disclosure Based on each Principle of the Corporate Governance Code

[Principle 1-4 Cross-Shareholdings]

We may acquire shares of our business partners if we judge that it will contribute to the improvement of our corporate value through the creation of business opportunities and the strengthening of transaction relationships. On the other hand, if we judge that holding shares is not appropriate, we will, in principle, sell them. For listed shares, the Board of Directors verifies the consistency with the purpose of holding each individual stock and the medium- to long-term economic rationality (including capital costs) once a year, and judges whether to continue holding. Regarding the exercise of voting rights of held shares, we scrutinize the contents of the agenda of the general meeting of shareholders based on whether the proposal is in line with the medium- to long-term improvement of our corporate value. Based on this review within the company, we make a judgment and exercise the rights.

[Principle 1-7 Related Party Transactions]

We ensure that transactions involving competition among directors, transactions that conflict with the company's interests, and significant related party transactions are approved in advance by the Board of Directors in accordance with laws and regulations and the related party transaction management rules. We also verify the fairness and rationality of related party transactions and report the results to the Board of Directors. Please refer to the following for the procedures when dealing with our parent companies (YAMADA HOLDINGS CO., LTD., Hinokiya Group Co., Ltd.) and their subsidiaries, which are described later.

4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder

5. Other Special Circumstances which may have a Material Impact on Corporate Governance

[Supplementary Principle 2-4-1 Ensuring Diversity in the Appointment of Core Personnel] This is disclosed in the "Integrated Report".

https://www.n-aqua.jp/ir-en/stock/bizreport/

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

Our company does not have a defined benefit corporate pension system, so this does not apply.

[Principle 3-1 Full Disclosure]

(1) Company's goals (Management Philosophy, etc.), business strategy, and business plan Our Management Philosophy, etc. is disclosed in the "Integrated Report".https://www.n-aqua.jp/ir-en/stock/bizreport/

On February 14, 2024, we formulated the Medium-Term Management Plan "3 Pillars of Stability" for the fiscal years 2024 to 2026, which is disclosed on our website.

https://www.n-aqua.jp/ir-en/library/result/

(2) Basic thoughts and policies on corporate governance As stated in this report.

(3) Policies and procedures for the Board of Directors to determine the remuneration of management executives and directors Disclosed in the Securities Report Section 4 "Status of the Company" 4 "Corporate Governance". (Provided in Japanese.)https://www.n-aqua.jp/ir/library/securities/

(4) Policies and procedures for the Board of Directors to nominate and dismiss management executives and to nominate candidates for directors and audit & supervisory board members.

Disclosed in the Securities Report Section 4 "Status of the Company" 4 "Corporate Governance". (Provided in Japanese.)https://www.n-aqua.jp/ir/library/securities/

(5) Explanation for each nomination and dismissal of management executives and nomination of candidates for directors and audit & supervisory board members by the Board of Directors based on the above (4).

The reasons for the appointment of the current directors (excluding directors who are audit & supervisory board members) and directors who are audit & supervisory board members are as stated in the notice of the ordinary general meeting of shareholders.https://www.n-aqua.jp/ir-en/stock/resolve/

[Supplementary Principle 3-1-3 Disclosure of Sustainability, etc.]

Our company supports the international framework for reducing greenhouse gas emissions, the "Paris Agreement", and the Japanese government's "2050 Carbon Neutral Declaration".

(1) Environmental Initiatives

In May 2023, our company established the ESG Committee to analyze the impact of climate change risks and opportunities on our business, consider countermeasures, and disclose information based on the TCFD recommendations in our "Integrated Report".

https://www.n-aqua.jp/ir-en/stock/bizreport/ (2) Human Capital and Diversity

Our company recognizes the establishment of a robust construction system and the stable acquisition of excellent human resources as key factors for future growth. As specific measures, we disclose our initiatives related to "Response to the Construction Industry 2024 Issue", "Acceptance of Technical Intern Trainees", "Support for Women's Active Participation", "Hiring Foreigners and Mid-career Recruits", and "Certified Contractors System" in our "Integrated Report".https://www.n-aqua.jp/ir-en/stock/bizreport/

[Supplementary Principle 4-1-1 Scope of Directors' Delegation]

The Board of Directors makes decisions on important matters in accordance with laws, articles of incorporation, and internal regulations. For business execution, we delegate to the director in charge of operations and the Executive Officer to ensure quick and accurate execution judgments.

[Principle 4-9 Independence Standards and Qualification for Independent Directors] As stated in the notice of the annual shareholders' meeting.https://www.n-aqua.jp/ir-en/stock/resolve/

[Supplementary Principle 4-10-1 Utilization of Optional Mechanisms]

Our company has a majority of independent outside directors on the Board of Directors. We have also established optional Nomination Committee and Remuneration Committee, and the details are disclosed in the Securities Report Section 4 "Status of the Company" 4 "Corporate Governance". (Provided in Japanese.)

https://www.n-aqua.jp/ir/library/securities/

[Supplementary Principle 4-11-1 Thoughts on the Balance of Knowledge, Experience, and Ability of the Board of Directors as a Whole, Diversity, and Scale]

Our company does not discriminate based on gender, age, or nationality, and selects director candidates based on their experience, achievements, abilities, and personal character. The skill matrix of the current Board of Directors is disclosed in the "Integrated Report".

https://www.n-aqua.jp/ir-en/stock/bizreport/

[Supplementary Principle 4-11-2 Concurrent Positions of Directors] As stated in the notice of the annual shareholders' meeting.https://www.n-aqua.jp/ir-en/stock/resolve/

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

Our company conducts an effectiveness evaluation of the Board of Directors by conducting a named questionnaire with the cooperation of an external consultant to confirm whether the Board of Directors is functioning properly. For the fiscal year ending December 2023, we conducted the following questionnaire to all directors (11 people) in January 2024.

(1) Items of the questionnaire

The main items of the questionnaire are as follows.

We use a method of evaluating each explanation on a five-point scale and provide a free comment section for the relevant item.

• i. Role and function of the Board of Directors

• ii. Composition of the Board of Directors

• iii. Operation of the Board of Directors

• iv. Discussion status of the Board of Directors

• v. Others

(2) Summary of evaluation results

It has been confirmed that the Board of Directors is operating effectively through deliberations. In particular, we received high evaluations for the points where feedback to the Board of Directors on the dialogue situation with shareholders (investors) is properly conducted, conflicts of interest with management and controlling shareholders and other related parties are properly managed by the approval of the Board of Directors, and free and constructive discussions and exchanges of opinions are being held.

[Supplementary Principle 4-14-2 Training of Directors and Audit & Supervisory Board Members]

Our company conducts various training sessions at least once a year for directors, directors who are audit & supervisory board members, and executive officers. We also periodically conduct lectures on compliance led by our advisory lawyer. In addition, our company facilitates the participation of directors and audit & supervisory board members in external seminars and membership in external organizations for the purpose of acquiring necessary knowledge and information and self-improvement, and bears the cost thereof.

[Principle 5-1 Policy for Constructive Dialogue with Shareholders]

Our company will continue to enhance sustainable growth and long-term corporate value through constructive dialogue with shareholders. The Management Planning Department serves as the point of contact for dialogue with shareholders, but depending on the purpose and content of the dialogue, the President, the responsible Board of Directors member, or the responsible Executive Officer may also participate in the dialogue. Opinions and concerns of shareholders and investors identified in the dialogue are compiled by the Management Planning Department and, if necessary, reported and shared at the Board of Directors meetings.

Please note that we strictly manage insider information in accordance with internal regulations.

2. Capital Structure

Foreign Shareholding Ratio

10% or more but less than 20%

Status of Major Shareholders

Name or Company Name	Number of Shares Owned	Percentage (%)
Hinokiya Group Co., Ltd.	17,700,000	56.36
Fumitaka Nakamura	1,005,800	3.20
Custody Bank of Japan, Ltd. (Trust Account)	1,004,400	3.19
The Master Trust Bank of Japan, Ltd. (Trust Account)	914,600	2.91
NORTHERN TRUST CO. (AVFC) SUB A/C NON TREATY	804,600	2.56
KIA FUND 136	691,600	2.20
Goldman Sachs Bank Europe SE, Luxembourg Branch	667,700	2.12
JP Morgan Securities Japan Co., Ltd.	472,860	1.50
GOVERNMENT OF NORWAY	466,200	1.48
THE CHASE MANHATTAN BANK, N.A. LONDON SPECIAL ACCOUNT NO.1	425,700	1.35

Name of Controlling Shareholder, if applicable (excluding Parent Companies)	-
Name of Parent Company, if applicable	YAMADA HOLDINGS Co., Ltd. (Hinokiya Group Co., Ltd.) (Listed Stock Exchange: Tokyo Exchange) (Code) 9831

Supplementary Explanation

The status of major shareholders is as of the end of December 2023.

As of March 15, 2023, according to the change report made available for public inspection on March 22, 2023, Schroder Investment Management Limited is reported to hold 1,371,800 shares (holding ratio of 3.95%). Also, as of May 13, 2021, according to the change report made available for public inspection on May 18, 2021, VIS Advisors, LP is reported to hold 1,393,500 shares (holding ratio of 4.01%). However, we have not been able to confirm the actual number of shares held by these companies as of December 31, 2023, so they are not included in the major shareholders mentioned above.

3. Corporate Attributes

Listed Stock Exchange and Market Segment	Prime Market
Fiscal Year-End	December
Business Sector	Construction
Number of Employees (Consolidated) as of the End of the Previous Fiscal Year	500 or more but fewer than 1,000
Net Sales (Consolidated) for the Previous Fiscal Year	¥10 billion or more but less than ¥100 billion
Number of Consolidated Subsidiaries as of the End of the Previous Fiscal Year	Fewer than 10

4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling

Shareholder

Our company is a subsidiary of Hinokiya Group Co., Ltd., which is a wholly-owned subsidiary of YAMADA HOLDINGS CO.,

LTD. As of the end of December 2023, Hinokiya Group Co., Ltd. holds 56.36% of our company's voting rights.

Although we do not have a business relationship with YAMADA HOLDINGS CO., LTD., we do have transactions such as insulation construction sales with Yamada Homes Co., Ltd. and Hinokiya Group Co., Ltd., which are subsidiaries of the company.

These transactions are carried out after obtaining approval from the Board of Directors in advance, in accordance with our related party transaction management regulations. The actual transaction prices are determined through discussions each time, taking into account our estimated prices and market prices, and we conduct transactions that do not harm the interests of our company and our minority shareholders.

5. Other Special Circumstances which may have a Material Impact on Corporate Governance

1. Parent company's thoughts and policies on group management

(1) Parent company's thoughts on group management

YAMADA HOLDINGS CO., LTD., our parent company, is expanding its business related to "living," including home appliance sales, under the concept of "whole life." Each company aims to improve corporate value while independently striving to improve corporate value, and aims to improve corporate value by demonstrating group synergy.

(2) Thoughts on the significance of having listed subsidiaries in the parent company

Under the policy of (1), we believe that maintaining our listing will make it easier to attract excellent personnel, maintain our brand, secure credibility, expand orders, and even improve employee motivation, thereby contributing to the value improvement of the parent company group.

2. Thoughts and measures on independence from the parent company (1) About the personal relationship with the parent company, etc.

None of our 11 directors are from YAMADA HOLDINGS CO., LTD., Hinokiya Group Co., Ltd., or their subsidiaries, or are seconded.

(2) Establishment of the Nomination Committee

We have set up a voluntary Nomination Committee to consult with the Board of Directors on the nomination of candidates for directors (excluding directors who are audit and supervisory committee members) and directors who are audit and supervisory committee members, and the appointment and dismissal of the president and other officers. The committee consists of one internal director and three independent external directors, ensuring independence from the parent company in the selection of management.

(3) About the transaction relationship

As described in the above 4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder.

II.

Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight

1. Organizational Composition and Operation

Corporate Governance System

Company with Supervisory Committee

Directors

Number of Directors Stipulated in Articles of Incorporation	13
Directors' Term of Office Stipulated in Articles of Incorporation	1 year
Chairperson of the Board	President
Number of Directors	11
Election of Outside Directors	Elected
Number of Outside Directors	6
Number of Independent Directors	6

Outside Directors' Relationship with the Company (1)

Name	Attributes	Relationship with the Company*
a	b	c	d	e	f	g	h	i	j	k
Yoshiaki Takahashi	From another company
Takeshi Kenmochi	From another company
Junichi Tamagami	From another company
Yuki Matsuda	Lawyer
Naofumi Higuchi	CPA
Hidetaka Nishina	Lawyer

*Categories for "Relationship with the Company".

(Use "○" when the director presently falls or has recently fallen under the category; "△" when the director fell under the category in the past; "●" when a close relative of the director presently falls or has recently fallen under the category; and "▲" when a close relative of the director fell under the category in the past.)

• a. Person who executes business for the Company or its subsidiary

• b. Person who executes business for a non-executive director of the Company's parent company

• c. Person who executes business for a fellow subsidiary

• d. Person/entity for which the Company is a major client or a person who executes business for said person/entity

• e. Major client of the Company or a person who executes business for said client

• f. Consultant, accounting expert, or legal expert who receives large amounts of cash or other assets from the Company in addition to remuneration as a director/company auditor

• g. Major shareholder of the Company (in cases where the shareholder is a corporation, a person who executes business for the corporation)

• h. Person who executes business for a client of the Company (excluding persons categorized as any of d, e, or f above) (applies to director him/herself only)

• i. Person who executes business for another company that holds cross-directorships/cross-auditorships with the Company (applies to director him/herself only)

• j. Person who executes business for an entity receiving donations from the Company (applies to director him/herself only)

• k. Other

Outside Directors' Relationship with the Company (2)

Name	Membership of Supervisory Committee	Designation as Independent Director	Supplementary Explanation of the Relationship	Reasons for Appointment
Yoshiaki Takahashi	✓	-	Mr. Yoshiaki Takahashi served in important positions at companies such as The Daiei, Inc. and Frontier Management Inc., and has a wealth of experience in corporate management and organizational operations. He served as an Outside Auditor of the Company for three years from March 2014, and is well versed in the business of the Company. He has been participating in management as an Outside Director since March 2023, and the Company expects that he will continue to provide advice on the management of the Company and appropriately supervise it from an objective perspective, and has therefore nominated him as a candidate for Outside Director.
Takeshi Kenmochi	✓	-	Mr. Takeshi Kenmochi has a wealth of experience and broad insight as a business manager, including serving as Representative Director and Vice President of TAKAYOSHI, INC., in addition to professional knowledge, experience, etc. cultivated as a certified public accountant. He has been participating in management as an Outside Director since March 2023, and the Company expects that he will continue to provide advice on the management of the Company and appropriately supervise it from
an objective perspective, and has therefore nominated him as a candidate for Outside Director.
Junichi Tamagami	✓	✓	-	Mr. Junichi Tamagami has served in important positions in the administration department of the Bridgestone Cycle Corporation Group and has a wealth of experience and advanced insight. He served as Full-time Outside Auditor of the Company for six years from March 2017, and is well versed in the business of the Company. Based on this experience and insight, the Company expects that he will supervise overall management and implement appropriate audits if he assumes office as Director who is an Audit and Supervisory Committee Member, and has therefore nominated him as a candidate for Outside Director who is an Audit and Supervisory Committee Member.
Yuki Matsuda	✓	✓	-	Ms. Yuki Matsuda has a wealth of experience and advanced insight and expertise as an attorney, and is well versed in corporate law. She has provided beneficial and honest opinions and suggestions as an Outside Director of the Company since March 2017, and has contributed to the soundness and transparency of the decision-making of the Company. Based on these achievements, the Company expects her to supervise the overall management of the Company and implement appropriate audits, and has therefore nominated her as a candidate for Outside Director who is an Audit and Supervisory Committee Member.
Naofumi Higuchi	✓	✓	-	Mr. Naofumi Higuchi has been involved in corporate accounting audits as a certified public accountant and serves as a professor at Tohoku University Accounting School, and has a high degree of knowledge and broad experience regarding finance and accounting. He has provided beneficial and honest opinions and suggestions as an Outside Director of the Company since March 2020, and has contributed to the soundness and transparency of the decision-making of the Company. Based on these achievements, the Company expects him to
supervise the overall management of the Company and implement appropriate audits, and has therefore nominated him as a candidate for Outside Director who is an Audit and Supervisory Committee Member.
Hidetaka Nishina	✓	✓	-	Mr. Hidetaka Nishina has a wealth of experience and advanced insight and expertise as an attorney, and is well versed in corporate law and fields related to securities law. He has served as an Outside Auditor of the Company for six years from March 2017 to the present, and has implemented audits of the Company from an objective and professional point of view and contributed to the soundness and transparency of the decision-making of the Company. Based on these achievements, the Company expects him to supervise the overall management of the Company and implement appropriate audits, and has therefore nominated him as a candidate for Outside Director who is an Audit and Supervisory Committee Member.

Supervisory Committee

Composition of Supervisory Committee and Attributes of the Chairperson

All Committee Members	Full-time Members	Inside Directors	Outside Directors	Committee Chair
Supervisory Committee	4	1	0	4	Outside Director

Appointment of Directors and/or Staff to Support the Supervisory Committee

Appointed

Matters Concerning Independence of Said Directors and/or Staff from Executive Officers/Reasons for Adopting Current System

When a director who is a member of the Audit Committee requests an employee to assist in their duties, the employee will work under the command of the director who is a member of the Audit Committee. The appointment, transfer, personnel evaluation, and personnel-related matters such as rewards and punishments of the employees who should assist the duties of the director who is a member of the Audit Committee require the prior consent of the director who is a member of the Audit Committee. This is to ensure independence from the Board of Directors.

Cooperation among the Supervisory Committee, Accounting Auditors and Internal Audit Department

Disclosed in the Securities Report Section 4 "Status of the Company" 4 "Corporate Governance". (Provided in Japanese.)https://www.n-aqua.jp/ir/library/securities/

Voluntary Established Committee(s)

Voluntary Establishment of Committee(s) equivalent to Nomination Committee or Remuneration Committee

Established

Status of Voluntarily Established Committee(s), Attributes of Members Constituting the Committee and the Committee

Chairperson

Committee's Name	All Members	Full-time Members	Inside Directors	Outside Directors	Outside Experts	Other	Chairperson
Voluntarily Established Committee Equivalent to Nomination Committee	Nomination Committee	4	0	1	3	0	0	Outside Director
Voluntarily Established Committee Equivalent to Remuneration Committee	Remuneration Committee	4	0	1	3	0	0	Outside Director

Supplementary Explanation

The outline and activity status of the optional Nomination Committee and Remuneration Committee are disclosed in the Securities Report Section 4 "Status of the Company" 4 "Corporate Governance". (Provided in Japanese.)https://www.n-aqua.jp/ir/library/securities/

Matters Concerning Independent Directors

Number of Independent Directors

6

Other Matters Concerning Independent Directors

-

Incentives

Implementation Status of Measures related to Incentives Granted to Directors

Introduction of Performance-linked Remuneration Scheme / Other

Supplementary Explanation for Applicable Items

Disclosed in the Securities Report Section 4 "Status of the Company" 4 "Corporate Governance". (Provided in Japanese.)https://www.n-aqua.jp/ir/library/securities/

Persons Eligible for Stock Options

-

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