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Messages from CEO and COO

On December 13, 2017, SG Holdings Co., Ltd. successfully completed its listing on the First Section of the Tokyo Stock Exchange. We could not be reached to this point without the loyal patronage of our customers and the continued support of our many other stakeholders. I would like to offer my deepest thanks to all of them.

The SG Holdings Group plays a vital role in supporting the social infrastructure known as logistics. Aware of that role, we have managed the company to respond to the expectations of our stakeholders. As a public company, we continue to further enhance our management structure and strengthen our business base, as we strive to put in place highly transparent management practices.

Looking back, our origins stretch back to March of 1957, when our founder began his hikyaku courier service in Kyoto. Since then, we have pursued our efforts to deliver the valuable cargo entrusted to us to its destination quickly, securely and carefully. Today our business has expanded into a comprehensive logistics group with over 80,000 employees, growth that I think can be attributed to the sense of mission we have brought as we have continued to respond to the expectations of our customers with regards to logistics.

Recent years have seen significant changes in the management environment surrounding the logistics industry in Japan. While the impact of a shrinking, aging population has resulted in an increasingly severe shortage of personnel, at the same time, the market for internet-driven e-commerce continues to grow, further increasing expectations for the logistics industry, which is responsible for the "last mile" to the customer. Looking overseas, the fast-growing countries of Asia are also beginning to attract attention as enormous consumer markets, and it is not difficult to imagine that the demand for logistics will increase even further.

I sense that expectations for the logistics industry will continue to grow, both inside and outside of Japan. We will work together as a group to respond to the expectations of our customers, our local communities and all of our many other stakeholders, while fulfilling our mission as part of the social infrastructure. Further, we will continue to move forward with our long-term management vision of "Becoming Asia's Leading Comprehensive Logistics Group." We hope you will continue to support us in those efforts.

Eiichi Kuriwada
Chairperson and CEO
SG HOLDINGS CO., LTD.

I would like to discuss earnings results and actions taken for FY2018/3 (from 21 March 2017 to 31 March 2018).

The landscape for logistics operators has changed dramatically: labor shortages amid a shrinking population; the progress of social actions to address work style reforms; an increase in parcel delivery volumes caused by further EC expansion; and changes in customer needs.

In response, we drafted 3-year mid-term business plan called “First Stage 2018” to pursue a long-term vision. Through implementing 6 strategic priorities in the plan, we aim to enhance service and solution quality and delivery networks to meet customers’ expectations.
Actions taken include enhancement of hiring as well as procurement of subcontractors. We invest in our network. This leads to improvement in the work environment through less overtime, better delivery quality and enhanced business platform. Other major investments are in IT for boosting work efficiency and the development of a large-scale transfer center due for completion in 2020 for higher network capacity.
We provide solutions for better logistics networks through the activities of GOAL®. GOAL stands for GO Advanced Logistics and is a cross-functional sales team that spans the group. Its mission is to provide multi-functional services at an advanced level.
In alliance with Hitachi Transport Systems Ltd. (HTS), we are focusing on the common theme of “integration of delivery and logistic services” and are working together to produce solutions which would improve wider parts of the supply chains of customers.
Overseas, we are focusing on end-to-end logistics solutions across borders. We are also looking into the extension of our regional forwarding network in Asia as the core, and enhancement of local logistic networks.

In FY 2018/3 we continued selling high-value-added services as well as receiving appropriate freight tariffs. As a result, operating revenues were 1,045.0 billion yen (112.4% YoY) and operating income was 62.6 billion yen (126.8% YoY).
We enhanced our operational platform for growth from next year by prioritizing investment in delivery networks such as enhancement of hiring and procurement of subcontractors.
In FY 2019/3 we need to respond to the challenges of a tight labor market and rapid expansion of the EC business. The cost of actions to address work style reforms and labor shortages is increasing.

2018 is the final year of “First Stage 2018” and we will continue selling high-value-added services and receiving appropriate freight tariffs. We will also further enhance our business foundation including taking actions for work style reforms. Our mission is to capture business opportunities for sustainable growth by implementing our promises in building platforms such as completing one of the largest transfer centers in Japan in August 2020. Our prioritized investment in hiring and procurement of subcontractors is a strategic preparation for the planned expansion in number of parcels handled following the commencement of operation of the large transfer center.

2018 is also the third year of the capital and business alliance agreement with HTS, which we executed in March 2016. Various projects have been initiated where the expertise of both companies is fully utilized to offer extensive solutions to our customers. We will look into opportunities for further collaboration on top of the ongoing initiatives.

We propose paying a dividend to shareholders of 33 yen per share. We are committed to making stable dividends to shareholders by increasing profits based on higher service quality and enhanced networks.

Your continued support and understanding would be highly appreciated.

Tadashi Machida
President and COO
SG HOLDINGS CO., LTD.

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