Of the matters related to the condition of the Group's business and the condition of accounting, the principal risks recognized by management as having the potential tosignificantlyimpact the financial position, operating resultsand cash flows of consolidated companies are as follows. The Group recognizes the potential for these risks to occur and has apolicy to endeavor to avoid their occurrence and respond in the event of their occurrence, but it believesit is necessary for investment decisions related to the Company's shares to be made after carefully considering the matters described in this sectionand in other sections.

Furthermore, the following items describethe details determined by the Group as of the filing date of the Annual Securities Report, and do not exhaustivelycover all risks related to investment in the Company's shares.

The Delivery Business is the principal business accounting for approximately 70 percent of the Group's consolidated operating revenues.

Through the promotion of "GOAL" to customers in this business, and in turn the proposal and provision of even more comprehensive logistics services, the Group will aim to boost profitability not only in the Delivery Business, but in the Logistics Business and others, too. In addition to providing services with high added value through the promotion of "GOAL" to customers in this business, the Group has endeavored to stabilize profitability since the past fiscal year by conducting individual price negotiations with each customer in order to appropriately reflect rising costs in freight tariffs, including personnel expenses, outsourcing expenses and miscellaneous expenses required for ensuring safety.

The Group's policy is to continually implement these initiatives in the future, but in the event these initiatives do not progress as anticipated due to a decrease in personal consumption or corporate logistics as a result of factors such as an economic recession, this may have an impact on the operating results of the Group.

The Group uses transportation equipment including many trucks to conduct business, and the fuel expenses thereof vary according to movements in the priceof crude oil and exchange rates.

The Group endeavors to contain the risk of expenses increasing due to fluctuations in the price of crude oil by introducing environmentally friendly vehicles such as trucks powered by natural gas, and has apolicy to actively introduce vehicles that save energy or support alternative energy through the introduction of new technologies in the event such vehicles are developed in the future. However, the Group's operating resultsmay be affected if there is a sudden rise in fuel prices, etc., the increase in expenses cannot be passed onto sale prices such as freight tariffs, or demand for the Group's services decreases due to passing on the increase to sale prices.

Competitionamong the three major companies including the Group is intensifying in the express package delivery services that are the principal service in the Delivery Business. Furthermore, the Group recognizes that competition with rival companies is also increasing in 3PL and forwarding services in the Logistics Business.

The Group intends to provide logistics solutions that are efficient for customers and offer high added value to increase share under such competitive conditions by providing composite services based on GOAL. However, in the event the Group's relative advantage declines or there is a decrease in prices due to further intensification of competition in the future, this may have an impact on the Group's business, financial positionand operating results.

The Delivery Business is centered on transportation of goods owned by customers including corporations and individuals according to the customer's instructions. For this reason, trust in the Group's services may be harmed if it is not possible to deliver on time due to damage to the transported goods, an error in the delivery destination or fluctuations in the volume of transportation in the process of providing services by the Group.

In order to contain the occurrence of such trouble, the Group has created a database of causes, etc. and continually implements improvement measures such as reduction of mistakes and training of Sales Drivers, but the frequent occurrence of trouble caused by these or an increase in compensation for damages due to such trouble may have an impact on the Group's business, financial position and operating results.

In the Real Estate Business, SG Realty Co., Ltd. plays a central role in the utilization of assets such as management and operation of assets at the Group's business sites, development of large facilities and conversion of existing facilities for different uses. Furthermore, assets are effectively utilized and the financial position is improved by converting the distribution facilities owned and used by the Group and multi-tenant distribution facilities into trust beneficiary interests and selling them, and operating revenues and operating income are recorded as a result.

The Group's policy is to continue to acquire properties expected to be continuously profitable, develop facilities and sell these, but it is possible that the purchase and sale of real estate and trust beneficiary interests in a timely manner at an appropriate price will be difficult due to fluctuations in the purchased price, book price and sale price of a property caused by fluctuations in the real estate market, increases in construction material and personnel expenses, and delays in property development, and such cases may have an impact on the Group's business, financial position and operating results caused by the complexity of accounting.

The Group has a network of business sites covering all of Japan, and also operates businesses in countries overseas centered on Asia, and it delegates actual business operations to the personnel engaged in business in each company and location within the Group. Furthermore, there are also cases in which services are provided using external vendors when they cannot be handled within the Group. For this reason, the possibility of embezzlement of funds received through cash-on-delivery services or the improper recording of sales cannot be ruled out.

The Group is endeavoring to ensure such misconduct does not occur by providing regulations and manuals required for business operations and establishing a system for discouraging such action through internal audits and checks when selecting business partners. However, in the event misconduct, etc. occurs or is discovered in the future, or the amount thereof is large, this may lower social confidence in the Group and have an impact on the Group's business, financial position and operating results.

The Group is engaged in the land transportation business using public roads centered on the Delivery Business. Recently, there has been growing demand for social responsibility for transportation business operators to drive safely as regulations on safe driving have been strengthened through the "Act to Partially Amend the Railway Business Act, etc. to Improve Transportation Safety" (the so-called "Transportation Safety Omnibus Act").

The Group is implementing measures with the highest priority on safety, but the occurrence of a serious accident may result in administrative disposition such as suspension of the use of vehicles, forcing the Group to suspend all or part of its business, and lowering social confidence in the Group. Furthermore, if the number of violation points in accidents reported to the Ministry of Land, Infrastructure, Transport and Tourism accumulates, this may lead to difficulty continuing the Group's business due to being subject to suspension of operations or revocation of the Group's business license. Such an event may have an impact on the Group's business, financial position and operating results.

The Group's Delivery Business fully utilizes the Group's management resources to obtain entrustment of logistics services from companies (from B). For this reason, approximately 70 percent of transportation services to individuals' homes (to C) and a large portion of line-haul transportation (long-haul transportation between logistics sites such as between Tokyo and Osaka) are entrusted to external business operators. The Group endeavors to secure multiple business partners according to the anticipated transportation volume, but cases where adequate business partners cannot be secured may result in greater labor expenses than anticipated due to the Group's drivers' working hours being longer, or the occurrence of delays in delivery. Furthermore, the Group's expenses may increase in the future in the event outsourcing expenses rise due to responses to "2024 problem" or shortage of drivers. In addition, the occurrence of a scandal in a business partner of the Group or the transportation quality of a business partner not meeting a customer's requirements may lead to a decline in social confidence in the Group. The manifestation of such risks may have an impact on the Group's business, financial position and operating results.

The Group conducts business in foreign countries centered on Asia. Furthermore, as stated in "1. Management Policy, Management Environment and Issues to Address," the Group intends to further strengthen its global network and strengthen international business.

For this reason, the Group's business, financial position and operating results may be affected in the event of a sudden fluctuation in exchange rates or air and ocean transportation freight tariffs, or the occurrence of risks in regions where the Group's business sites are located, such as deterioration of economic conditions or the business environment, unforeseen changes in laws and regulations, deterioration of political conditions or intensification of terrorist activities, differences in commercial practices or the occurrence of natural disasters or infectious diseases.

In particular, in the fiscal year ended March 31, 2023, in addition to air and ocean transportation freight tariffs rapidly falling as disruptions of global supply chains caused by COVID-19 began to subside, concerns about economic recession against a backdrop of rising prices and monetary tightening in each country, and increases in inventories of consignors during supply chain disruption lead the volume of air and ocean transportation to decrease significantly compared to the initial forecast, resulting in the high volatility of performance in international transportation having an impact on financial position and operating results on a consolidated basis. Fluctuations in the performance of international transportation associated with the macro environment may have a similar impact on the Group's business, financial position and operating results in future.

Expolanka Holdings PLC, a consolidated subsidiary of the Company, is headquartered in Sri Lanka, and major political and economic upheaval referred to as the "Sri Lankan economic crisis" occurred in around April 2022. However, we consider the impact of the "Sri Lankan economic crisis" on Expolanka's business, financial position and operating results is believed to be minor. The reasons for this are, commencement of international assistance such as financial assistance being approved by the Executive Board of the International Monetary Fund in March 2023, Expolanka's core forwarding business is basically being conducted in US dollars, transactions mainly being outside Sri Lanka, and Expolanka's financial functions being based in Singapore.

In order to realize our Long-term Vision, the Group has established a strategy from the perspective of human capital with personnel supporting on-site operations such as Sales Drivers in charge of maintaining profitability and increasing productivity of our business foundation of express package delivery business as "operation personnel" and personnel handling the expansion of TMS, 3PL and international business (other than express package delivery services) driving growth as "solution personnel," and recognizes that it is necessary to train and retain these personnel for the realization of sustained growth. However, due to the declining birthrate and aging population, competition in hiring and retaining personnel is anticipated to intensify further in future.

The Group's policy is to endeavor to secure adequate human resources for the realization of the Long-term Vision by establishing a worker-friendly environment for diverse personnel, providing a variety of work styles and creating a remuneration system commensurate with the operations performed and improving the efficiency of operations utilizing IT and the latest technologies, in addition to conducting regular training after hiring. However, the Group's business, financial position and operating results may be affected due to failure to reach targets in the Long-term Vision and Medium-term Management Plan, a decrease in operating revenues or an increase in expenses in the event such initiatives are not effective.

The Group actively utilizes M&A and business alliances for the expansion of business and the enhancement of corporate value. In particular, when implementing these management strategies, the Group conducts ample due diligence on the target companies, and executes the strategies after fully considering the appropriateness of the investment/acquisition amount in the Investment Committee also attended by Outside Directors and Audit & Supervisory Board Members. However, the Group's business, financial position and operating results may be affected due to the occurrence of business problems or the burden of expenses related to the transaction not initially foreseen such as impairment of goodwill or the value of the acquisition of shares due to expected results not being produced as planned at the time of implementation of the M&A or capital alliance.

Furthermore, in particular, in the event it is determined that the results initially planned such as when the alliance was implemented cannot be obtained in a capital and business alliance or a joint venture established through joint investment, the investment may be cancelled or the alliance partner company may be dissolved due to cancellation of the contract. This may have an impact on the Group's business, financial position and operating results.

The Company and Sagawa Express Co., Ltd. (hereinafter referred to as "Sagawa Express") concluded a capital and business alliance agreement with LOGISTEED, Ltd. (named changed from Hitachi Transport System, Ltd. on April 1, 2023; hereinafter referred to as "LOGISTEED") on March 30, 2016. Pursuant to this agreement, the Company held 8,210,600 common shares of LOGISTEED as of March 31, 2022, but these were all sold in the fiscal year ended March 31, 2023 and a gain on sales of investment securities was recorded as extraordinary income. As a result, the capital relationship with LOGISTEED was dissolved, but the business alliance continues, and through the mutual utilization of logistics functions of Sagawa Express and LOGISTEED, we will promote collaboration with the aim of enhancing added value of the services provided by both companies.

Eiichi Kuriwada, the Company's Chairperson, and CEO, serves as the Chairman of the SGH Culture and Sports Promotion Foundation and the SGH Foundation, which are auxiliary organizations of the Group. The Group supports the activities of both foundations as part of its CSR activities, and its policy is to continue to implement activities such as lending artwork at no charge and providing personnel support.

The two foundations hold a total of 58,636,362 of the Company's common shares (9.16% of the total number of issued shares) as of the end of the fiscal year under review. The articles of incorporation state that approval of no less than two thirds of the administration board is required when the foundations exercise voting rights pertaining to the Company's shares. In order to ensure the independence of voting by the two foundations, the Group has determined that administration officers who concurrently serve as officers or employees of the Group will not participate in votes by the administration board. Furthermore, when electing administration officers of the two foundations, councilors who concurrently serve as officers or employees of the Group do not participate in council resolutions on the election of administration officers who concurrently serve as officers or employees of the Group.

As stated in "1. Management Policy, Management Environment and Issues to Address," the Group has established the Medium-term Management Plan and published consolidated results forecasts for the fiscal year ending March 31, 2024 based on its management strategy on the Company's website. However, the Medium-term Management Plan is based on a variety of assumptions including the expansion of customer demand such as the expansion of e-commerce, the average unit price and number of packages deliveredunits handled in the express package delivery business, and Delivery Business, personnel and outsourcing expenses, and exchange rates and air and Ocean transportation freight tariffs in the Logistics Business, and in the event the assumptions are not fulfilled, the targets in the plan may not be able to be achieved, and this may have an impact on the Group's business, financial position and operating results as a result.

The Group is continuously developing distribution facilities, and recently constructed in the fiscal year ended March 2021 began full-scale operations at the X FRONTIER, large-scale logistics center , which was constructed in Koto-ku, Tokyo, to achieve efficient operation of line-haul transportation and increase handling capacity, and began full-scale operation in the year ended March 2021. We intend to continually strengthen our infrastructure in the future, but in the event costs exceed the anticipated level concerning facility construction, or in the event the anticipated effects cannot be obtained after completion, the increase of expenses and occurrence of impairment loss may have an impact on the Group's business, financial position and operating results.

The Group operates a comprehensive logistics business and uses many trucks. As a corporate group handling social infrastructure in the form of logistics, we recognize that it is our responsibility to take steps aimed at a carbon-free society, and believe that we should further strengthen measures to prevent global warming, which is an urgent issue faced by the world. In our Long-term Vision, we have published medium- to long-term greenhouse gas emission targets aimed at carbon neutrality by 2050 on the Company website, and have set the target of reducing CO2 emissions by 46% compared to the baseline year of FY2013 by FY2030. Furthermore, in our Medium-term Management Plan, we have established a greenhouse gas emission reduction target alongside operating revenues and income as KPIs, and are promoting initiatives aimed at decarbonization with the key strategy of "promotion of services aimed at solving social and environmental issues such as decarbonization." Specifically, in addition to initiatives for decarbonization of the Company such as the introduction of EVs and other environmentally friendly vehicles, the improvement of transportation and delivery efficiency through the utilization of large-scale transfer centers and distribution centers integrating distribution warehouses and transportation and distribution sites, modal shift utilizing rail and sea, utilization of power derived from renewable energy sources in logistics facilities, and forest conservation activities, we are also considering development of logistics services for the realization of reduction of greenhouse gases throughout the entire supply chain.

In this way, the Group is proceeding with efforts aimed at carbon neutrality in 2050, but strengthening of greenhouse gas emission regulations and reduction obligations, raising of carbon taxes, etc., or the Company's measures not progressing as planned or having the expected effect may have an impact on the Group's business, financial position and operating results. Furthermore, as a medium- to long-term impact, increased severity and frequency of natural disasters caused by failure to achieve decarbonization causing transportation routes to be cut, certain equipment being damaged or the stoppage of operation of equipment due to the stoppage of power supply as a result of a power outage may have an impact on the Group's business, financial position and operating results.

Compliance with a variety of laws and regulations including the following laws and regulations is necessary in the operation of the Group's business. In the event laws and regulations are strengthened or new laws and regulations apply in the future, the necessity for additional expenses to respond to such laws and regulation, or being forced to change the method of operation of the Group's business may have an impact on the Group's business, financial position and operating results.

Primarily, permissions such as the following are necessary in the operation of the Group's business. The Group endeavors to ensure compliance with the relevant laws and regulations, etc. pertaining to regulation of these permissions, and no situations impeding the business operations have arisen. However, in the event these permissions are suspended or revoked due to the occurrence of a violation of laws and regulations or laws and regulations are tightened in the future, this may result in difficulty continuing the Group's business, or have a severe impact on its financial position and operating results.

As of March 31, 2023, the Group had 52,268 employees and 41,819 partner employees (average number for the period), and has the obligation to comply with the Article 36 Agreement and secure break times pursuant to the Labor Standards Act for the domestic employees that account for the majority of these. The Group not only complies with these laws and regulations, but also sets forth the promotion of diverse work styles in its Medium-term Management Plan, and actively designs systems aimed at the improvement of the working environment for employees.

Furthermore, laws related to work style reforms are being enacted to correct longIn this way, the Group is continuously working hours and ensure the same wage for the sameto improve its labor, and the necessity for additional expenses to respond to such laws and regulations, or being forced to change the method environment. However, if an act of operation of the Group's business may misconduct were to be committed in labor management, it may not only lower the Group's reputation but also have an impact on the Group's business, financial position and operating results.

The Group acquires much personal information including not only information on officers and employees, but also information on senders and recipients and information on the personnel responsible in client companies in the course of business operations. Furthermore, there are cases in which the Group holds business secrets of client companies in its services aimed at corporate clients. In addition to password management and access restrictions related to data, and ensuring the management of locks related to hard copies for the protection of such confidential information, the Group endeavors to ensure the strict management of information such as continuously raising employees' awareness through information security training. Furthermore, in addition to strengthening information security measures such as taking steps to address access to and from the Internet in case of external cyber attacks from outside, —including ransomware attacks, which have seen a recent global surge—the Group is engaged in enhancing information security measures such as establishing SGH-CSIRT (SG Holdings Computer Security Incident Response Team) as a dedicated organization for responding to cyber attacks within the Group and joining the Nippon CSIRT Association. However, leakage or loss of information due to system trouble, unauthorized access, an intentional act or negligence on the part of a Group employee, unauthorized access due to an event such as a cyber attack, or a computer virus, etc. infection or the like may lead to lowering social confidence in the Group, and the occurrence of additional expenses required for claims for compensation for damages and information security measures may have an impact on the Group's business, financial position and operating results.

Within the Group's businesses, the utilization of IT is essential particularly in the Delivery Business and the Logistics Business from the perspective of real-time management of transportation status, inventory management in warehousing operations. Furthermore, there is a high reliance on systems in accounting due to the centralized management of a large volume of transactions using systems. SG Systems Co., Ltd. is a Group subsidiary which performs system development, maintenance and operation, and develops and provides logistics systems inside and outside the Group.

Although no problems have arisen at present and appropriate development is being conducted to avoid risk, in the event of system trouble (caused by the discovery of a severe bug, hacking unauthorized access due to an event such as a cyber attack, or a computer virus infection, or the like) or trouble at a system recipient, hacking or a virus infection, or trouble at a system recipient, there is a possibility of suspension of the Group's business operations and the incurrence of a large amount of expenses due to responses to system problems or claims for compensation for damages from the Company's customers, and this may have an impact on the Group's business, financial position and operating results as a result.

In the event of unforeseen trouble or problems in the Group's business operations, the Group may be subject to claims for compensation for damages or filing of litigation arising from these regardless of whether the Group is at fault. In such an event, social confidence in the Group may be lowered depending on the content of the litigation, the status of the claim for compensation for damages and the results thereof, and this may have an impact on the Group's business, financial position and operating results.

The Group's core business is the Delivery Business using vehicles and large-scale logistics centers, and this business and other businesses are based on the assumption of operation of business using equipment requiring power supply such as computer systems performing information management, automatic package sorters, and frozen and refrigerated warehouses. Furthermore, in addition to motor vehicles, the Group conducts business utilizing a variety of infrastructure such as railways, aircraft and ships.

For this reason, the occurrence of a natural disaster causing transportation routes to be cut, certain equipment being damaged or the stoppage of operation of equipment due to the stoppage of power supply as a result of a power outage may have an impact on the Group's business, financial position and operating results. Furthermore, in the event of the spread of an infectious disease, blockage or quantitative restriction of transportation, or economic stagnation may have an impact on the Group's business, financial position and operating results.