Taiheiyo Cement : Corporate Governance Report

(Translation)

Corporate Governance Report

Note: This document has been translated from a part of 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.

Last Update: May 20, 2021

Taiheiyo Cement Corporation

President and Representative Director

Masafumi Fushihara

Contact: General Administration Dept.

Securities code: 5233

https://www.taiheiyo-cement.co.jp/english/index.html

The corporate governance of Taiheiyo Cement Corporation (the "Company") is described below.

1. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and

Other Basic Information

1. Basic Views

The mission of the Taiheiyo Cement Group is to contribute to social infrastructure development by providing solutions that are environmentally efficient, enhance our competitive position and bring value to our stakeholders. Based on this mission, the Company will, in accordance with the provisions of the "Taiheiyo Cement Corporation Basic Policy on Corporate Governance," strive to improve corporate governance by ensuring the separation of the management's decision-making and supervisory functions from business execution to satisfy the expectations of stakeholders including stockholders and to realize sustainable growth and increase of its corporate value over the medium to long term.

The "Taiheiyo Cement Corporation Basic Policy on Corporate Governance" was established based on a resolution of the Board of Directors of the Company and is published on the website of the Company in its entirety.

Japanese URL https://www.taiheiyo-cement.co.jp/company/corpgov.html

English URL https://www.taiheiyo-cement.co.jp/english/company/corpgov.html

[Reasons for Non-compliance with the Principles of the Corporate Governance Code] [Supplementary Principle 4.2.1 Management compensation as an incentive]

Compensation of internal directors and executive officers of the Company consists of fixed compensation as a consideration for the execution of duties and variable compensation that is linked to the financial performance of the Company for the relevant single fiscal year. As such, it is not linked to medium- to long- term results. However, the Company believes that the officers' shareholding association, which is the arrangement under which officers of the Company share common interests with the Company's stockholders through the holding of the Company's own shares, is functioning as an incentive for sustainable growth and the increase of the corporate value of the Company over the medium to long term.

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(Translation)

The Company has been considering how to provide more effective and sensible incentives for sustainable growth, and now plans to introduce a new compensation system in fiscal 2021, the first year of the medium- term management plan.

[Disclosure Based on the Principles of the Corporate Governance Code] [Principle 1.4 Cross-Shareholdings]

Please refer to Article 23 (Basic Policy concerning Cross-Shareholding and the Exercise of Voting Rights Pertaining to Shares Held as Part of Cross-Shareholdings) of the "Taiheiyo Cement Corporation Basic Policy on Corporate Governance." As a result of verification, the Company sold 6 issues in FY2020.

[Principle 1.7 Related Party Transactions]

Please refer to Article 24 (Transactions with Related Parties) of the "Taiheiyo Cement Corporation Basic Policy on Corporate Governance."

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

The Company has established a basic investment policy for management of the assets under its corporate pension plan to ensure future payments of pension benefits to beneficiaries, and asset management institutions control and manage the plan assets in accordance with the basic investment policy.

The Pension Committee regularly monitors the investment status of the plan assets and reviews the portfolio composition of the plan assets as necessary.

The Pension Committee consists of personnel who belong to the accounting and finance, human resources, and other divisions with a thorough knowledge of asset management and pension plan, such as officers in charge of accounting, human resources, and corporate planning.

[Principle 3.1 Full Disclosure]

(1) Company objectives (e.g., mission), management strategies and management plans

Please find the mission, management strategies and management plans of the Company in the applicable sections of the Company's website.

Mission of the Taiheiyo Cement Group

Japanese URL https://www.taiheiyo-cement.co.jp/company/pol.html

English URL https://www.taiheiyo-cement.co.jp/english/company/pol.html

23 Medium-Term Management Plan

Japanese URL https://www.taiheiyo-cement.co.jp/ir/manage.html

English URL https://www.taiheiyo-cement.co.jp/english/ir/manage.html

(2) Basic views and guidelines on corporate governance

Please refer to "1.1 Basic views" of this Report.

1. Board policies and procedures in determining the compensation of the senior management and directors

Please refer to Article 16 (Policy and Procedure for the Determination of Officers' Compensation) of the "Taiheiyo Cement Corporation Basic Policy on Corporate Governance."

1. Board policies and procedures in the appointment and dismissal of the senior management and the nomination of director and corporate auditor candidates
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(Translation)

Please refer to Article 6 (Nomination Policy, etc. for Candidates for a Director), Article 10 (Appointment Policy, etc. for Executive Officers), and Article 13 (Nomination Policy, etc. for Candidates for a Corporate Auditor) of the "Taiheiyo Cement Corporation Basic Policy on Corporate Governance."

1. Explanation with respect to the individual appointment and dismissal of the senior management and the individual nomination of director and corporate auditor candidates

Please refer to the reference documents of the Notice of the Ordinary General Meeting of Stockholders published on the website of the Company.

Japanese URL https://www.taiheiyo-cement.co.jp/ir/kabunushi.html English URL https://www.taiheiyo-cement.co.jp/english/ir/kabunushi.html

[Supplementary Principle 4.1.1 Board of Directors' decisions and the scope of the matters delegated to the management]

Please refer to Article 3 (Roles and Responsibilities of the Board of Directors) of the "Taiheiyo Cement Corporation Basic Policy on Corporate Governance."

[Principle 4.9 Independence criteria for independent outside directors]

Please refer to Article 4 (Composition of the Board of Directors) of the "Taiheiyo Cement Corporation Basic Policy on Corporate Governance" and the "Independent Officers" section of "2.1 Matters Concerning Organizational Structure, Organizational Operation, etc." of this Report.

[Supplementary Principle 4.11.1 Views on the appropriate balance between knowledge, experience and skills of the Board as a whole, as well as on diversity and appropriate board size]

Please refer to Article 4 (Composition of the Board of Directors) of the "Taiheiyo Cement Corporation Basic Policy on Corporate Governance."

[Supplementary Principle 4.11.2 Status of concurrent positions at other listed companies held by directors /corporate auditors of the Company]

Please refer to Article 8 (Concurrent Positions of Directors) and Article 15 (Concurrent Positions of Corporate Auditors) of the "Taiheiyo Cement Corporation Basic Policy on Corporate Governance."

[Supplementary Principle 4.11.3 Analysis and evaluation of the overall effectiveness of the Board of Directors and the summary of the results]

As stipulated in Article 20 (Evaluation of the Overall Effectiveness of the Board of Directors) of the "Taiheiyo Cement Corporation Basic Policy on Corporate Governance," the Company is supposed to conduct the analysis and evaluation of the overall effectiveness of the Board of Directors each year.

Assessment for FY2019, following the previous fiscal year, was implemented through a questionnaire format for self-evaluation of all Directors, and analysis and assessment were executed by the Chairperson of the Board and Outside Directors based on the results. In addition, upon reporting the contents of analysis and assessment to the Board of Directors, the improvements as compared to the previous year and future issues were deliberated and confirmed.

As a result, the overall assessment for FY2019 resulted in better outcome and therefore it was evaluated that the Board of Directors of the Company was generally appropriately managed and that the overall effectiveness of the Board of Directors was secured. With regard to the composition of the Board of Directors, which was presented as a point for improvement over the medium term in the previous assessment, the Company has been taking measures to improve the effectiveness of the Board of Directors, which include a reduction in the number of Directors intended to improve management supervisory functions and expedite decision-making. In the future, based on the results of assessment of effectiveness and a wide diversity opinions come up with by each Director, the Company will work to make required improvements with the intent of further improvement of the functions of the Board of Directors.

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(Translation)

[Supplementary Principle 4.14.2 Training policy for directors and corporate auditors]

Please refer to Article 19 (Training Policy for Directors, Corporate Auditors, etc.) of the "Taiheiyo Cement Corporation Basic Policy on Corporate Governance."

[Principle 5.1 Policy for constructive dialogue with stockholders]

Please refer to Article 25 (Policy for Constructive Dialogue with Stockholders) of the "Taiheiyo Cement Corporation Basic Policy on Corporate Governance."

2. Capital Structure

		Foreign Shareholding Ratio	More than 30%
[Status of Major Stockholders]
		Name / Company Name				Number of Shares			Percentage (%)
					Owned
		THE MASTER TRUST BANK OF JAPAN, LTD. (TRUST ACCOUNT)	11,746,000		9.87
		CUSTODY BANK OF JAPAN, LTD. (TRUST ACCOUNT)	6,031,700		5.07
		STATE STREET BANK AND TRUST COMPANY 505001	3,505,306		2.94
		THE BANK OF NEW YORK MELLON 140044	2,267,142		1.90
		MIZUHO BANK, LTD.			2,000,000		1.68
		NORTHERN TRUST CO. (AVFC) RE U.S. TAX EXEMPTED PENSION FUNDS	1,908,000		1.60
		CUSTODY BANK OF JAPAN, LTD. (TRUST ACCOUNT 5)	1,815,500		1.52
		STATE STREET BANK WEST CLIENT-TREATY 505234	1,741,187		1.46
		CUSTODY BANK OF JAPAN, LTD. (TRUST ACCOUNT 6)	1,609,400		1.35
		MEIJI YASUDA LIFE INSURANCE COMPANY	1,527,300		1.28
		Controlling Stockholder (except for Parent	-------
		Company)
		Parent Company	None

Supplementary Explanation

(1) In the Change Report made available for public inspection as of March 5, 2021, Mizuho Bank, Ltd. and one other company were reported to hold the following shares as of February 26, 2021. However, as the Company is unable to confirm the number of shares effectively held by these four companies as of March 31, 2021, these shareholdings are not included in the table above.

The shareholdings reported in the Change Report are as follows:

Mizuho Bank, Ltd.	Number of	2,000 thousand	Shareholding	1.57%
	shares held		ratio
Asset Management One Co., Ltd.	Number of	4,691 thousand	Shareholding	3.69%
	shares held		ratio
Total	Number of	6,691 thousand	Shareholding	5.26%
	shares held		ratio

(2) In the Change Report made available for public inspection as of August 19, 2020, Marathon Asset Management LLP was reported to hold the following shares as of August 14, 2020. However, as the

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(Translation)

Company is unable to confirm the number of shares effectively held by this company as of March 31, 2021, this shareholding is not included in the table above.

The shareholding reported in the Change Report is as follows:

Marathon Asset Management LLP	Number of	9,895 thousand	Shareholding 7.78%
	shares held		ratio

1. In the Change Report made available for public inspection as of April 21, 2020, Sumitomo Mitsui Trust Bank, Limited and three other companies were reported to hold the following shares as of April 15, 2020. However, as the Company is unable to confirm the number of shares effectively held by these four companies as of March 31, 2021, these shareholdings are not included in the table above.
   The shareholdings reported in the Change Report are as follows:

Sumitomo Mitsui Trust Bank, Limited	Number of	359 thousand	Shareholding	0.28%
	shares held		ratio
Sumitomo Mitsui Trust Asset	Number of	3,839 thousand	Shareholding	3.02%
Management Co., Ltd.	shares held		ratio
Nikko Asset Management Co., Ltd.	Number of	2,312 thousand	Shareholding	1.82%
	shares held		ratio
Total	Number of	6,510 thousand	Shareholding	5.12%
	shares held		ratio

1. In the Change Report made available for public inspection as of March 22, 2016, BlackRock Japan Co., Ltd. and seven other companies were reported to hold the following shares as of March 15, 2016. However, as the Company is unable to confirm the number of shares effectively held by these eight companies as of March 31, 2021, these shareholdings are not included in the table above.
   The shareholdings reported in the Change Report are as follows:

BlackRock Japan Co., Ltd.	Number of	21,162 thousand	Shareholding	1.71%
	shares held		ratio
BlackRock Investment Management	Number of	1,323 thousand	Shareholding	0.11%
LLC	shares held		ratio
BlackRock (Luxembourg) S.A.	Number of	6,135 thousand	Shareholding	0.50%
	shares held		ratio
BlackRock Life Limited	Number of	2,804 thousand	Shareholding	0.23%
	shares held		ratio
BlackRock Asset Management Ireland	Number of	5,507 thousand	Shareholding	0.44%
Limited	shares held		ratio
BlackRock Fund Advisors	Number of	18,925 thousand	Shareholding	1.53%
	shares held		ratio
BlackRock Institutional Trust	Number of	17,328 thousand	Shareholding	1.40%
Company, N.A.	shares held		ratio
BlackRock Investment Management	Number of	2,373 thousand	Shareholding	0.19%
(UK) Limited	shares held		ratio
Total	Number of	75,559 thousand	Shareholding	6.10%
	shares held		ratio
(Note) The Company conducted a reverse stock split at a ratio of one for 10 on October 1,	2017. The

number of shares held shown above are presented in the number of shares prior to the reverse stock split.

1. The Company holds 8,248,450 shares of treasury stock as of March 31, 2021, but is not included in the major stockholders shown above.
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