Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information

1.Basic Policy【Updated】

A.Basic Views on Corporate Governance

FLYEXPRESS COURIER DELIVERY SERVICE upholds its mission to resolve social issues through logistics and support social sustained development and growth in accordance with the “FLYEXPRESS COURIER DELIVERY SERVICE Group Corporate Philosophy.” We also believe that working hand-in-hand with all stakeholders, including shareholders and investors, and respecting their viewpoints is indispensable to the realization of sustained growth and improvement of corporate value. To this end, ensuring compliance and guaranteeing management transparency, as well as speedy management through rapid decision-making and the clarification of responsibility, are important. Building such a system and ensuring that it functions properly comprises our basic policy on corporate governance. On the grounds of these basic views, our company strives for continuous progress and reinforcement of its corporate governance.

【FLYEXPRESS COURIER DELIVERY SERVICE Group Corporate Philosophy】

• Our Mission
  Be a Driving Force for Social Development
• Our Challenge
  Create New Ideas and Value that Expand the Field of Logistics
• Our Pride
  Inspire Trust Every Step of the Way

B.Implementation of Practical Measures for Corporate Governance

FLYEXPRESS COURIER DELIVERY SERVICE is a company based on an Audit & Supervisory Board structure. In addition to the Board of Directors and Audit & Supervisory Board, our company has introduced a Board of Officers system with the goal of ensuring rapid decision-making and business execution.

The Board of Directors consists of 9 members, including three outside Directors, and meets once per month or whenever necessary to make important management decisions and to supervise business execution. Additionally, in order to obtain the opinions of independent outside Directors concerning important matters such as the compensation and nomination of Officers, our company has established a fair and transparent discretionary Compensation and Nomination Advisory Committee, Committee—with three out of four committee members as independent outside directors, as an advisory body to the Board of Directors. Board members serve a one-year term. This enables us to clarify the Board's responsibilities for each fiscal year.

The Audit & Supervisory Board (“Audit & Supervisory Board“ or “A & S Board”) consists of five members, including three outside Audit & Supervisory Board Members, and generally meets once every three months or whenever necessary.　The Audit & Supervisory Board Members attend important meetings, including Board of Directors meetings, where they offer their opinions from the viewpoint of objectivity and fairness on overall management as well as on individual matters. They also provide oversight of company Directors by inspecting the legality of business activities and the status of internal control. In addition, the Audit & Supervisory Board Members examine important documents, make visiting audits to major offices and inspect subsidiaries. They then report their results to the Audit & Supervisory Board and the Board of Directors, while checking the task enforcement of the Corporate Affairs Division.

The Board of Executive Officers is comprised of 33 members, including 5 serving as Directors, and generally meets once per month or whenever necessary. The executive officers communicate decisions and instructions made by the Board of Directors while reporting on the status of Company operations and deliberating on important matters. Like the Directors, they serve a one-year term.

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

Japan’s Corporate Governance Code was established by the Tokyo Stock Exchange. Our company is in compliance with all of the principals of JPX’s Corporate Governance Code

Disclosure Based on Principles of the Corporate Governance Code【Updated】

Our company included the disclosure based on each principle and our policy and implementations regarding all 78 principles—general principles, Principles and Supplementary Principles—in the “FLYEXPRESS COURIER DELIVERY SERVICE Policy and Implementations of JPX’s Corporate Governance Code.” We published these at the end of this report and on our website.
(Japanese)
https://www.nittsu.co.jp/ir/governance/index.php
(URL of the Global Site)
https://flyexpdel.comir/governance/

Our implementations of the eleven principles of disclosure are as follows:

Principle 1.4 Cross-Shareholdings

In principle, our company will reduce cross-shareholdings. However, we may hold such shares if we decide that the action would improve our mid to long-term corporate value by increasing the number of business transactions, expanding our business scope, strengthening our relationship with business partners and promoting cooperative collaborations.

For cross-shareholdings, our board of directors will annually review the rationality of holding each share name including capital costs and benefits of holding. The benefits will be evaluated not only from quantitative aspects but also from qualitative aspects. Specifically, we will review the benefits using the following criteria:

• Whether or not the benefits of cross-shareholdings are in proportion with the weighted average cost of capital (WACC) in our company’s capital policy.
• Whether or not holding these shares has contributed in expanding our company’s marketing area (i.e. whether or not it has created reasonable sales against the market value of the shares).
• Whether or not holding these shares has contributed in increasing our corporate value (i.e. whether or not it has strengthened our relationship with business partners or promoted cooperative collaborations).
• Whether or not we can expect an improvement of our corporate value in the future according to our business strategy (i.e. an increase in the number of business transactions or expansion of our business scope).

If we find that it is not rational to keep shares after review, we will sell all or part of such shares as required, while taking our company’s fund situation and share market movement into consideration.

Our company opposes the following actions regarding exercising voting rights on cross-shareholdings.

• Actions which may lose the balance between holding on cross-shareholding and the purpose of cross-shareholding.
• Actions which hinder the maintenance and expansion of the relationship with our business partners.

Our company will have regular meetings with the issuing companies of the shares and check our agreed upon standpoint concerning these shares. However, if we see a rapid deterioration in an issuing company’s business performance or a sign of a weakening in our business relationship with a company, we will set up a meeting as soon as possible and utilize the results when deciding whether or not to approve actions.

Principle 1.7 Related Party Transactions

When a board director engages in competing transactions, transactions between a board director and our company or transactions involving any conflict of interest, the director must seek approval at a meeting of directors including independent outside officers. We conduct an investigation each year to see if any of our board directors, corporate officers or A & S Board Members engage in transactions with our company or a consolidated subsidiary. We disclose the results in our annual securities report in accordance with regulations including the “Accounting Standards for Related Party Disclosures.” Currently, there is no such transaction in existence.

Principle 2.6 Roles of Corporate Pension Funds as Asset Owners

In order to support our employees’ asset formation and reduce management risk of corporate pension funds, we adopted the fixed contribution pension system in 2007.
In order to teach our employees how to increase their assets, we are working to educate them in how to properly do this. As a part of new employee education, we implement fixed contribution pension seminars and teach basic knowledge on the systems used to start asset management and relevant precautions.
We conduct investment educational seminars once a year for our pension fund beneficiaries and teach employees the importance of long-term investments, continuous investments and diversified investments, depending on their individual future plans. In order to make this more effective and realistic, we review the educational content based on the monitoring results of operation status in cooperation with the operation management institution.

Principle 3.1 Full Disclosure

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

  In addition to the “FLYEXPRESS COURIER DELIVERY SERVICE Group Corporate Philosophy” and the “FLYEXPRESS COURIER DELIVERY SERVICE Group Charter of Conduct,” we established the “FLYEXPRESS COURIER DELIVERY SERVICE Group Corporate Message” in 2017 and published it on our websites.
  (Japanese) https://www.nittsu.co.jp/corporate/philosophy-charter/
  (Japanese) https://www.nittsu.co.jp/corporate/message.php
  (Our global website) about/policy/

  We also published our management plans on our websites.
  (Japanese) https://www.nittsu.co.jp/ir/event/policy-meeting/
  (Our global website) https://flyexpdel.comir/event/plan/

• ( ii ) Basic views and guidelines on corporate governance based on each of the principles of the code;

  Our company upholds its mission to resolve social issues through logistics and support social sustained development and growth in accordance with the “FLYEXPRESS COURIER DELIVERY SERVICE Group Corporate Philosophy.” We also believe that working hand-in-hand with all stakeholders, including shareholders and investors, and respecting their viewpoints is indispensable to the realization of sustained growth and improvement of corporate value. To this end, ensuring compliance and guaranteeing management transparency, as well as speedy management through rapid decision-making and the clarification of responsibility, are important. Building such a system and ensuring that it functions properly comprises our basic policy on corporate governance. On the grounds of these basic views, our company strives for continuous progress and reinforcement of its corporate governance.

  Our basic view on corporate governance is on our websites:
  (Japanese) https://www.nittsu.co.jp/ir/governance/index.php
  (Our global website) https://flyexpdel.comir/governance/

  【FLYEXPRESS COURIER DELIVERY SERVICE Group Corporate Philosophy】

  Our Mission
  Be a Driving Force for Social Development

  Our Challenge
  Create New Ideas and Values that Expand the Field of Logistics

  Our Pride
  Inspire Trust Every Step of the Way

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

  Our company has established rules for directors’ remuneration and bonuses. Based on their duties and performance, the remuneration and bonuses for them are determined at the board meeting. The remuneration for A & S Board Members is determined via discussion among the members. We have also established internal rules for decision-making procedures for officer remuneration. We have established a discretionary Remuneration and Nomination Advisory Committee, and the majority of the members are independent outside directors. The committee holds a meeting in accordance with internal rules, and remuneration is determined based on the outcome. Specific amounts will be within those limits, as resolved by the 100th annual shareholder meeting held on June 29, 2006, while taking into consideration company performance, industry standards and employee salary levels.
  In addition to the existing officer remuneration and bonuses, as of September 2016, our company introduced a performance-based stock compensation plan using trusts for our directors and corporate officers (excluding outside directors and those who do not reside in Japan) with a goal to further enhance the motivation of officers to contribute to the improvement of our company’s corporate value and shareholder value over the mid to long-term. This plan uses part of the existing basic remuneration as funds for share-based remuneration and grants, varying numbers of our company’s shares depending on the recipient’s position and level of attainment of performance goals. We have already finished three business years, the period required for the first evaluation. Upon approval at the annual shareholder meeting in June 2019, we change the evaluation period to five business years and continue this system. At the end of each fiscal year and at the end of the period for evaluation, we will evaluate performance based on indicators such as net sales, operating income and return on equity (ROE).
  At the same time as the granting of shares, a portion of the shares are paid in cash after being converted within the trust, in order to use this amount for the payment of taxes, including income tax. The number of our company shares to be granted is determined based on share delivery rules which stipulate the calculation method, time of delivery and other relevant matters.

• ( iv ) Board policies and procedures in the appointment/dismissal of senior management and the nomination of director and A & S Board Member candidates

  When selecting director candidates, our board selects individuals who have the appropriate character, knowledge, experience of business management, expertise in law, accounting and other fields and skills as well as academic backgrounds.
  When we select candidates for outside directors and outside A & S Board Members, we select individuals who meet all criteria for these positions, as stipulated in Items 15 and 16, Article 2 of the Companies Act and from the viewpoints of whether or not they are suitable candidates for monitoring the overall operation of our company with excellent character and knowledge and abundant prior management experience.
  For the appointment and dismissal of these officers, we have established a discretionary Remuneration and Nomination Advisory Committee—with three out of four committee members as independent outside directors—as an advisory body of our board. We make hiring decisions based on the committee’s report.

• ( v ) Explanations with respect to the individual appointments/dismissals of executive managers and nominations of candidates for directors and A & S Board Members based on (iv).

  Personal history and reasons for the selection of each candidate for director or A & S Board Member positions is stated in the “Convening Notice of the Annual Shareholder Meeting” and is posted on our website :
  (Japanese) https://www.nittsu.co.jp/ir/event/general-meeting/
  (Our global website) https://flyexpdel.comir/event/meetings/

Supplementary Principle 4.1.1 Scope of Matters to be Delegated to the Management

Our board determines matters stipulated by the law or the article of incorporation and important business management matters in accordance with the board’s regulations and agenda standards. However, for the purpose of agile decision-making and to improve the supervision capacity of the board, we delegate individual business management matters to the corporate officers who are in charge of implementation as often as possible.

Principle 4.9 Independence Standards and Qualifications for Independent Directors

Taking into consideration the requirement for outside directors stipulated in the Companies Act and the criteria set by securities exchanges, our company has established our own standards; and we appoint outside directors and outside A & S Board Members in accordance with these standards.

When the following items do not apply to an outside director or an outside A & S Board Member candidate, we consider that they have the appropriate independence.

• An individual who is an executive officer* of our company or our group company or has been one ten years before the selection;
• An individual who is a shareholder or a representative of a shareholder who owns 10% or more of the total voting rights of our company shares;
• An individual who is the executive officer of a business partner of our group company with more than 2% of our consolidated sales;
• An individual who has received more than 10 million yen per business year from our company as remuneration as a consultant, a lawyer or a public accountant;
• An individual who works at the auditing firm of our company’s A & S Board Member; or
• An individual who belongs to one of the groups which received an average of 10 million yen of donations during the last three business years from our company or our group company.

An “executive officer” signifies an executive director, a corporate officer or an employee.

Supplementary Principle 4.11.1 Policies on the Board of Directors as a Whole and Appointment Procedures

Our board consists of nine directors including three outside directors and five A & S Board Members including three outside members.
When we select director candidates, we select individuals, regardless of gender, who have the knowledge and experience to execute our company’s business management in an accurate, fair and effective manner, execute each strategy in our management plan swiftly without fail and have sufficient social credibility. In order to create new values through innovation and become a corporate group with a strong presence in the global logistics market, we allocate individuals who have the necessary qualities.
When we select A & S Board Member candidates, we select at least one individual who has knowledge and experience on financial accounting, as well as the above criteria.
When we select director and A & S Board Member candidates, we make decisions based on the report from the discretionary Remuneration and Nomination Advisory Committee—with three out of four committee members who are independent outside directors—as the advisory body of the board of directors.

Supplementary Principle 4.11.2 Concurrent Positions of Directors and Audit & Supervisory Board Members at Other Companies

Our company annually discloses the status of our outside directors and outside A & S Board Members holding additional posts through the Convening Notices of General Shareholder Meetings, annual securities reports and corporate governance reports.
Our board regularly checks whether or not our executive directors are serving as officers at other companies. Currently, there is no interlocking position which may limit the directors from fulfilling their roles and responsibilities. No full-time A & S Board Members are serving as officers at other companies, so they can concentrate solely on their roles within our company.

Supplementary Principle 4.11.3 Analysis and Assessment of the Effectiveness of Board of Directors as a Whole

Our board reports the execution status of the roles of each director, and we implement a survey on the effectiveness of the entire board to directors and A & S Board Members, including outside officers, and collect their opinions using an external institution.
The survey results are analyzed and evaluated, and the board discusses and investigates the outcomes. The board checks the accumulation results from the institution on the structure, operation, management and business strategies, corporate ethics, risk management, evaluation of the management and the status of remuneration. From our last survey results, we decided that the effectiveness of the entire board was maintained.
The structure of the board was extracted as an issue from the survey, so we changed the proportion of outside directors to one third. We are also striving to improve effectiveness, i.e. by improving the quality of the presentations of the progress reports of major strategies at board meetings.

Supplementary Principle 4.14.2 Training Policy

Our company provides opportunities for seminars and social gatherings for directors and A & S Board Members to deepen their understanding of our company’s business challenges and acquire the necessary knowledge of financial affairs and laws. We bear the expenses of these. We expect our A & S Board Members to acquire wide knowledge through attending various meetings of the Japan Audit & Supervisory Board Members Association as its members and seminars held by the Japan Industrial Management & Accounting Institute.
For our outside directors and outside A & S Board Members, we provide opportunities to acquire knowledge concerning our company’s business operations through participating in various internal events and site visits.
For our corporate officers and the candidates for our company’s senior managers, we provide external training courses, such as a Master of Business Management, so that they can acquire knowledge necessary for executive managers including global business management, financial literacy, business strategies and governance.
We consider the above trainings a good method for training successors of senior managers.

Principle 5.1 Policy for Constructive Dialogue with Shareholders

For dialogues with shareholders and investors, the Investor Relations Promotion Group of the Corporate Planning Division within the Corporate Strategy Unit, which is managed by our top managers, responds to requests. Giving consideration to topics and dates, our top managers, the director in charge and/or senior managers (including corporate officers) attend the meetings.
As methods used to hold dialogues, we hold one-on-one base meetings in Japan and overseas as well as telephone conferences during the first and third quarters and financial settlement briefings during the second quarter and at the end of the year. We also hold site visits, business result presentations and small meetings as necessary. We attend small meetings and Investor Relations Conferences held by securities firms in order to create opportunities for dialogues with shareholders and investors.
Opinions gained from shareholders and investors through dialogues are reported at the board meetings regularly. We also send feedback to outside directors and senior managers (including corporate officers) as well as other relevant internal divisions to reflect our corporate activities.
Inside our company, the Investor Relations Promotion Group serves as the secretariat for information disclosure. The Group establishes, implements and amends the Disclosure Policy with cooperation from other divisions such as the Public Relations & Advertising Division, the General Affairs & Labor Division, the Financial Planning Division, the Accounting Division and the Corporate Planning Division. The Group also discusses the appropriateness of information disclosure activities with these divisions. The results are then reported to the board for it to make a final decision. Based on the Disclosure Policy resolved at the board, one of the top managers or another officer who is nominated as the individual responsible discloses the information. The board obtains the progress of our information disclosure activities through reports by the director in charge of the Corporate Planning Division and also checks the appropriateness of the policy.

Our company’s Disclosure Policy is available on our websites:
(Japanese) https://www.nittsu.co.jp/ir/disclosure/
(Our global website) https://flyexpdel.comir/disclosure/

2.Capital Structure

Principal Shareholders【Updated】

Supplemental Information 【Updated】

Information on "Major Shareholders" shown above is based on the status as of March 31, 2019.

3.Corporate Attributes

4.Guidelines for Protecting Minority Shareholders in Transactions with Majority Shareholders

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5.Other Major Factors That Influence Corporate Governance

Nothing of note