Z : Corporate Governance Report

Corporate Governance Report

Last Update: March 15, 2022

Z Holdings Corporation

President and Representative Director, Co-CEO: Kentaro Kawabe Securities Code: 4689 https://www.z-holdings.co.jp/en

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

Other Basic Information

1. Basic Views

Promises to our Users (Charter of Corporate Behavior)

The Z Holdings Group, comprised of Z Holdings Corporation and its consolidated subsidiaries and affiliates, conducts business activities in a competitive marketplace in accordance with rules such as the law, fair business practices and social ethics.

We believe that there is value in winning only when you play by the rules, and not by cheating. We promise all stakeholders including our users, shareholders, investors, business partners, communities and employees to be trustworthy, and aim to create a safe and sustainable Internet community by being in tune with the society. We will practice business with the spirit of fair play, and strive to enhance our corporate value by fulfilling the company's social responsibilities.

For this, the directors and employees fully understand our expected and required roles, will maintain sound corporate governance and will practice efficient corporate activities in order to obtain trust and empathy from everyone.

Moreover, the top management acknowledges that it is our role to fulfill the social responsibilities by honoring the spirit of this Charter on each of the following items: achievement of customer satisfaction and trust; securement of fair and free competition; maintenance of sound relations with legislation and administration; timely and appropriate disclosure of management information; respect for employees; establishment of positive work environment, contribution to global environment conservation, implementation of social contribution activities as "good citizens"; separation from antisocial forces; harmony with communities and cultures; compliance with international rules; strict control of personal information; guarantee of information security; respect for intellectual property rights. With this in mind, we will respect the spirit of this Charter and commit ourselves to its implementation.

[Reasons Why We Do Not Conduct the Following Principles of the Corporate Governance Code]

[Principle 1.4: Cross-shareholdings]

• Policy on acquisition/possession and results of assessment

Z Holdings Corporation ("Company") decides the policy of cross-shareholding and its rationale based on the judgement on whether or not the collaboration with the companies to which shareholding investments are made will lead to the development of the Company's business and the improvement of the corporate value of the Z Holdings Group ("Group") Policy on cross- shareholdings and its rationale are examined periodically in the Top Management Committee, etc. The examination verifies the profitability of the cross-shareholding from the viewpoints of risks, costs and returns associated and evaluates the business effects derived from

- 1 -

business collaborations, etc. with the invested companies. As a result, comprehensive judgements are made on whether or not the cross-shareholding will lead to the development of the Company's business and the improvement of the corporate value of the Z Holdings Group. Details of this examination are disclosed in the annual securities report.

No. of brands held as cross-shareholding: 5

Total amount recorded in the balance sheet: JPY 3.99 billion

The Company does not have any so-called mutual shareholdings or deemed holding of equity securities.

• Basis of exercising voting rights

The Company makes individual judgements on the exercise of voting rights of shares of listed companies held by the Company. The Company considers the details of the agenda and based on the invested company's management policy and business plans, etc., the Company makes a comprehensive judgement on whether the agenda will lead to the increase in the corporate value of the invested company and to the common interest of the shareholders. The Company also considers whether the agenda will create business opportunities between the invested company and the Company or will have the effect of building, maintaining or strengthening the transaction/collaboration relationship between the two companies to improve the corporate value of the Company.

[Principle 2.4.1: Ensuring diversity in the appointment, etc. of key personnel

The Company acknowledges that ensuring diversity in the appointment, etc. of key personnel is an extremely important theme for the Group, given the nature and scope of its businesses. Some key ESG data are already disclosed below, however, based on the current situation, the Company will discuss its future direction, philosophy, and management structure, etc., and determine what the targets should look like, and the development policy. Details are available on the Company's sustainability website:

https://www.z-holdings.co.jp/en/sustainability/stakeholder/esg/

[Principle 4.1.3: Establishment and implementation of a succession plan by the board]

As an advisory body to the Board of Directors, the Company established a voluntary Nominating and Remuneration Committee, which is comprised of four independent outside directors serving on the Audit and Supervisory Committee, and two internal directors. The Committee is chaired by an independent outside director. The succession plan for the Representative Director is positioned as one of the important agenda in this Nominating and Remuneration Committee, which is also included in the fiscal 2021 annual plan, and discussions are underway.

[Principle 4.11: Preconditions for securing the effectiveness of the Board of Directors]

In order to ensure diversity, the Board of Directors consists of 10 members, including six executive directors and four Audit and Supervisory Committee members, who have in-depth knowledge and diverse experience in the Internet field, as well as management experience in other industries and expertise in administration, corporate planning, finance, etc. In light of the Group's situation, directors serving on the Audit and Supervisory Committee are elected based on their broad management experience on bookkeeping, law, etc. A lawyer who has a high level of expertise in governance and other areas is also elected. In respect to accounting, the Audit and Supervisory Committee members and the accounting auditors hold meetings, periodically and when necessary, to collaborate on conducting audits properly.

[Principle 5.2: Establishing and disclosing business strategies and business plans]

The evolution of IT technologies is remarkable and forecast is hard to make even in a medium term. Therefore, we do not disclose revenue plans, specific policies on capital policy and targets related to capital efficiency, etc. However, when considering the direction of future revenue expansion, we take capital cost into account to consider the revision of business portfolio and distribution of management resources. Furthermore, taking into account the possible effects of the business integration with LINE Corporation on the Group's business portfolio and allocation of

- 2 -

management resources, continuous monitoring is conducted by regularly reporting the progress of integration at the Board of Directors meetings. The direction of future revenue expansion is explained in the business results meetings and in the shareholders meetings.

- 3 -

[Disclosure Based on the Principles of the Corporate Governance Code]

[Principle 1.7: Framework for appropriate procedures in proportion to the importance and characteristics of the transaction with related parties]

・Z Holdings Corporation stipulates in its Regulations of the Board of Directors Meetings that a person having a special interest in the resolution of the Board of Directors cannot exercise his/her voting right. In judging whether a director's interest conflicts or not, we endeavor to make the right judgments by seeking the opinion of external experts as necessary.

• When doing business with our directors or a company in which our director serves as a

representative director, such that there is a risk of a conflict of interest arising, Z Holdings Corporation requires prior approval from the Board of Directors in accordance with the Companies Act and the Regulations of the Board of Directors Meetings. Furthermore, the current statuses of these transactions are to be reported to the Board of Directors once every three months.

・When a business transaction is carried out with one of Z Holdings' principal shareholders and the transaction is judged to be of high importance to the Company from a qualitative or quantitative standpoint, prior approval from the Board of Directors is required in accordance with the Regulations of the Board of Directors Meetings. Furthermore, certain transactions and actions with principal shareholders are required to be discussed by the Governance Committee.

[Principle 2.6: Roles of corporate pension funds as asset owners]

Although the Company does not have a corporate pension fund system, it has introduced a corporate defined contribution pension plan for the purpose of providing asset building opportunities for its employees, and the Company contributes a certain amount of premiums to eligible employees and provides education and training on the system and asset management.

[Principle 3.1 i): Company objectives (e.g., business principles), business strategies and business plans]

(1) Fundamental Business Management Policies

With its mission "UPDATE THE WORLD", unleashing the infinite potential of all people with the power of information technology, the Group aims to realize its vision of creating a hopeful future whereby "Mankind can be free and in control."

With the development of the information technology, we are now able to acquire all kinds of knowledge and information through the Internet and to disseminate information around the world. Using the power of information technology, we believe that mankind will be liberated from various restrictions and that a new future will be created.

The Group will adhere to a "users first" standpoint while endeavoring to improve services for sustainable growth. In addition, we aim to contribute to solving various problems of people and society, and to improve the corporate value of the Group.

(2) Management Performance Indicators Used for Goals

As its core management performance indicators, the Z Holdings Group gives priority to the revenue, and adjusted EBITDA*1 for the overall Group. As indicators for the Commerce Business, the Group uses e-commerce transaction value, and for the Strategic Business, credit card transaction volume and number of PayPay payments/GMV, etc. For the Media Business, advertising-related revenue, number of monthly logged-in user IDs, time spent by logged-in users via smartphones, etc., are used as important indicators of performance evaluation.

*1Adjusted EBITDA: Operating income + Depreciation & amortization ± EBITDA adjustment items

*EBITDA adjustment items: Gains/losses on non-recurring and non-cash transactions within operating revenue and expenses (loss on retirement of fixed assets, impairment losses, stock compensation expenses, losses/gains on step acquisition, other transactions with undetermined cash outflows (one-time provisions, etc.), etc.)

1. Medium- to Long-Term Business Strategies
2. • 4 -

(a) Business environment

Due to the recent development of information technology, the distinction between the online and offline worlds has rapidly disappeared in various sectors of society. In the midst of the dramatic expansion of the Internet's potential, the unexpected spread of COVID-19 has brought about a period of unprecedented change. In addition, as the online world merges with the offline world, the value of big data is growing exponentially. As the Japanese government's "Society 5.0" strategy points out, there is a demand for enterprises, which use data to create services and businesses that balance economic development and the solving of social issues.

Furthermore, through the use of the Internet, we have seen the birth of numerous innovative and highly convenient services around the world, such as cashless payment, IoT and big data, which are becoming the new standard of our lifestyle. Moreover, the presence of foreign IT companies which have entered the Japanese market is growing year by year. Meanwhile, many startups have also been launched in Japan, and we expect a dazzling evolution in the environment of the highly competitive Internet market in the future.

The businesses of Z Holdings Group can be largely classified into Commerce Business and Media Business. For the Commerce Business, according to a research by the Ministry of Economy, Trade and Industry ("METI"), the BtoC e-commerce market is JPY 19.2 trillion in 2020, and the EC ratio in the merchandising sector is 8.08%. Japan's EC ratio is rising every year, and we see considerable upside potential. In particular, the stay-at-home requests associated with the spread of the new coronavirus infection are expected to trigger an increase in the growth of e-commerce use, and the EC ratio in Japan is expected to rise further. Also, for the highly prospective field of cashless payment, METI's Cashless Vision, "Declaration of Payment Reform," sets a target of hiking the ratio of cashless payment to 40% by 2025, based on the fact that Japan's cashless payment ratio is at around 20%, lower than other countries. Going forward, we expect the market for our Commerce Business to expand and the online and offline domains to merge even further through the use of big data, technologies, and payment methods such as mobile payment.

As for the Media Business, a business we have been engaged in ever since our foundation, according to Dentsu Inc., total advertising expenditures in Japan was JPY 6.1594 trillion for 2020. Out of this, Internet advertising spending recorded JPY 2.2290 trillion, exceeding television advertising spending. Internet advertising media expenditures, which excludes Internet advertising production expenditure and advertising expenditure for merchandise-related EC platforms from the Internet advertising spending, continue to grow, and amounted to JPY 1.7567 trillion. By type, paid search advertising and display advertising accounted for more than 70% of the total, while video advertising grew from the year before, accounting for about 20% of the total.

(b) Management strategy

Since its founding, the Z Holdings group has developed services based on the "user first" principle. Even now, as its scale and organization have changed, its desire to further enhance the convenience of its services and enrich people's lives has not changed. Based on the belief that a more multifaceted and in-depth understanding of users is essential to achieving this goal, it is working to become "an entity that understands users the most through the accumulation and utilization of data," and by extension, "a domestic platform operator that understands Japanese users the most." The cross-use of multi-big data plays a central role in understanding the people living in Japan the best, solving social issues through the provision of the best user experience and creating the future. Positioning ourselves in our third founding since fiscal 2018, we have made active investments in future growth to transition to a data-driven company with a business model that leverages our multi-big data.

The Group offers a wide variety of services that center on e-commerce, media and fintech in two different business fields, Commerce and Media. We are a globally unique corporate group that covers online to offline services in a comprehensive manner. The wealth of data obtained from the diverse services provided by the Group is an important competitive advantage for creating services that are unique to the Group. We aim to provide optimal services for each and every user, and to provide even higher-quality user experiences through the cross-use of data we receive from each service.

One of the key initiatives undertaken to achieve this goal is the strengthening of collaborations with SoftBank Corp. From before, we have promoted business collaborations in e-commerce and

- 5 -