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 to significantly impact the financial position, operating results and cash flows of consolidated companies are as follows.

The Group positions strategic risks as risks that are closely related to its business and have a risk aspect among material issues (materiality) in management that must be addressed over the medium to long term namely, outsourcing risk (enhancement of logistics solutions), human capital risk (strengthening of growth platform with personnel and partners),climate change risk (strengthening measures to address environmental issues), legal violation risk (enhancement of safety and compliance / advancement of governance), and information security risk, which is an overall business risk. We consider and discuss measures to address risks through Group Risk Management Meetings, and reflect these in management planning.

The Group recognizes the potential for these risks to occur and has a policy to endeavor to avoid their occurrence and respond in the event of their occurrence, but it believes it is necessary for investment decisions related to the Company's shares to be made after carefully considering the matters described in this section and in other sections.

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

In the Delivery Business, the Group maximizes the use of its management resources to obtain logistics outsourcing contracts from companies (from B). For this reason, we outsource about 70% of our transportation services to private homes (to C) and most of our line-haul transportation (long-distance transportation between distribution centers such as between Tokyo and Osaka) to partner companies. In the Logistics Business and other businesses as well, some operations are outsourced to partner companies, as in the Delivery Business.

Under such circumstances, we are promoting the "SAGAWA Partner Program" to strengthen communication with our business partners. This initiative includes the development of the SG Partner Mall, the establishment of consultation services and notification functions, and the distribution of information through various manual and videos.We are also working to maintain and strengthen sustainable transportation and delivery infrastructure, including support for partner companies, through discussions on appropriate outsourcing unit price revisions and other matters via "meetings to promote appropriate transactions," as well as the development and provision of programs that help solve the management issues of partner companies through SD Transline Co., Ltd., established in August 2025.

Although the Group endeavors to secure multiple business partners according to the expected volume of transportation and operations, in the event that we are unable to secure sufficient business partners, there is a possibility that personnel expenses will increase more than expected due to longer working hours of the Group's employees, or that deliveries will be delayed. In addition, the expenses borne by the Group may increase due to rising outsourcing costs caused by labor shortages stemming from the declining birthrate and aging population, responses to the so-called "2024 problem" (overtime work regulations), inflation, and wage increases.

Furthermore, the occurrence of misconduct by the Group's business partners or the inability of business partners to meet the quality of work required by customers could result in a loss of public confidence in the Group. The Group's business, financial position and operating results may be affected if these risks materialize.

In Japan, which has a declining birthrate and aging population, and is in the process of a long-term population decline, competition to recruit and retain human resources is expected to continue to intensify. To achieve sustainable growth, securing personnel both quantitatively and qualitatively to support logistics infrastructure is an issue of extremely high importance for the Group, which operates in a labor-intensive industry. In order to ensure the continuous securing of resources, including those of our partner companies, and to sufficiently secure, develop, and retain human resources with the knowledge and expertise necessary for growth, we are working to create a fulfilling workplace through the development of an environment where anyone can work comfortably, as well as through appropriate evaluation and wages, etc.

With respect to the development of a comfortable working environment, we are operating measures to promote the advancement of women, such as the "Women's Career Support Training," with the aim of achieving active participation by diverse human resources. With regard to personnel who support frontline operations, including Sales Drivers responsible for maintaining profitability and improving productivity of the express package delivery services business, which serves as our business foundation, we will work improve productivity at logistics sites so that efficient operations can be maintained with limited human resources by reviewing operations through DX (labor-saving × workload reduction), implementing continuous base pay increases on the premise of an inflationary environment, and strengthening coordination with partner companies.

In addition, we operate various programs and are also working to promote flexible human resource recruitment, including the "Group open recruitment system" that allows employees to apply for internal job postings at Group companies on their own initiative, the "Challenge System" that allows talented and capable employees to challenge for early promotion to positions two grades higher regardless of age or years of experience, and a system through which employees can report their future career aspirations via the "self-application system" and receive "career interviews."

In addition, as a new initiative, we have introduced a "Free Agent System," under which employees may declare the positions they wish to take on and, if their declared skills and experience match the needs of the desired department, may have an opportunity to transfer to that department, and we have also introduced a share-based remuneration program (ESOP trust) as an employee incentive plan.

If these initiatives are not effective, it could lead to a shortage of human capital, which is the foundation of our Long-term Vision and Mid-Term Management Plan, and the Group's business, financial position and operating results may be affected due to missed targets, decreased operating revenues, and increased expenses.

In recent years, serious wind and flood damage as well as forest fires have been occurring frequently throughout Japan due to the effects of climate change, etc, creating a situation in which disaster countermeasures need to be strengthened.

Global warming is progressing rapidly, and according to the World Meteorological Organization, the global average temperature is expected to rise further over the five-year period from 2024 to 2028, making it critical to consider and implement climate change adaption and mitigation measures. Furthermore, the Japanese government has declared its goal of achieving a carbon neutral, decarbonized society by 2050, and as the transition to a decarbonized society progresses rapidly, efforts to reduce emissions of greenhouse gases in companies are becoming increasingly important. In particular, the transportation sector accounts for approximately 20% of Japan's CO₂ emissions, and as a corporate group handling social infrastructure in the form of logistics, it is our responsibility to work toward a decarbonized society, and we need to strengthen our measures even further than before.

The Group is expanding its business both domestically and internationally through M&A and other means, and will enhance its sensitivity to climate change risks and respond to them in a more multifaceted manner than ever before.

For climate change adaptation measures and mitigation measures, please refer to "2. Approach and Initiatives Concerning Sustainability (3) Response to Climate Change ②Strategy" in our securities report for FY 2026/3 (Only in Japanese).

*Annual Securities Report for FY2026/3

As the Group's business operations require numerous permits and licenses, we are strengthening our compliance framework for relevant laws and regulations and implementing initiatives to prevent violations.

Specifically, we have established a system whereby each Group company identifies and assesses risks, formulates countermeasures, conducts ongoing monitoring, and reviews risk items and countermeasures as necessary. Furthermore, for significant risks that affect the entire Group, such as compliance with relevant laws and regulations, we have established a system to strengthen Group-wide risk management, including requiring each company to formulate and monitor risk countermeasures.

If legal regulations are strengthened or new regulations become applicable in the future, the Group may incur additional costs associated with compliance, or may be required to modify its business operations. Such developments could adversely affect the Group’s business activities, financial position, and operating results.

The Group is continuously working to strengthen our response to cyberattacks including ransomware, in order to protect our information assets, maintain customer trust, and ensure the stable continuation of our business operations.

Through regular assessments of the Group's information security measures conducted by third-party organizations, we verify the appropriateness of our information security framework based on international guidelines and industry standards. We also conduct regular vulnerability assessments of the systems and applications we develop and operate, and have established a system to aggregate and analyze various internal log data. Furthermore, we have implemented operational procedures that enable the early detection of anomalies and prompt responses. In addition, we continuously provide information security education and awareness activities for employees, including management, and conduct drills simulating targeted e-mail attacks and other scenarios. As part of enhancing our organizational structure and systems, we have taken steps such as establishing SGH-CSIRT (SG Holdings Computer Security Incident Response Team) as a dedicated organization for responding to cyberattacks within the Group and joining the Nippon CSIRT Association.

However, in the unlikely event of leakage or loss of information due to a cyberattack, etc., this 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.

The Delivery Business is the principal business accounting for approximately 60 percent of the Group's consolidated operating revenues.

The Group positions the "Logistics Business" and the "Global Logistics Business" as priority businesses under its long-term vision through FY2031/3, and has adopted the provision of "Total Logistics"—a comprehensive logistics solution that integrates services across customers'entire supply chains—as a core pillar of its growth strategy. In the Global Logistics Business in particular, we aim to expand our business scale by growing customer industries and broadening our logistics domains, with a focus on freight forwarding services in consumer markets expected to experience continued economic growth. Our target for FY2031/3 is operating revenue of 600 billion yen, making this business the second largest after the Delivery Business.

In Japan, the Logistics Business contributes to increasing package volume in the Delivery Business by providing high value-added services such as storage and distribution processing, while also establishing a business foundation that is less susceptible to competitive pressures. Although the Group intends to continue pursuing these initiatives, a decline in personal consumption or corporate logistics due to economic downturns, geopolitical risks, or other factors may cause progress to fall short of expectations, which could adversely affect the Group’s business activities, financial position, and operating results.

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

The Group endeavors to contain the risk of expenses increasing due to fluctuations in the price of fuel by introducing environmentally friendly vehicles such as trucks powered by natural gas, and has a policy 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, if a rapid increase in fuel prices occurs due to factors such as escalating tensions in the Middle East, or if the pass-through of such cost increases to service prices results in reduced demand for the Group's services, or if the Group is unable to pass on these additional costs to service prices such as freight charges, the Group's operating results may be adversely affected.

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

The Group is committed to enhancing service competitiveness by providing comprehensive logistics solutions based on "GOAL," which integrates multiple services. Through these efforts, we aim to deliver more efficient and value-added logistics proposals to our customers and increase our market share in today's competitive environment. However, in the event the Group's relative advantage declines or there is a decrease in service prices due to further intensification of competition in the future, this may have an impact on the Group's business, financial position and 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, damage to the transported goods, or an error in the delivery destination or increase in the volume of transportation in the process of providing services by the Group.

In FY2026/3, a higher-than-expected increase in package volume resulted in temporary suspension of collections and delivery delays. In response, the Group is implementing measures with a focus on improving demand forecasting, enhancing operational processes, and strengthening relay functions.

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, operating revenue and operating profit are also generated through balance sheet management, including the flexible sale of logistics facilities owned or used by the Group, as well as multi-tenant logistics facilities developed by the Group, such as by converting these assets into trust beneficiary interests.

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 selling 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 is engaged in the land transportation business using public roads centered on the Delivery Business. Recently, there has been growing social pressure on transportation business operators to ensure safe driving as regulations related to safety measures have been continuously strengthened.

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, and the Group becomes subject to suspension of operations or revocation of its business license, it would become difficult to continue the business, which 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 securities report for FY2026/3 "1. Management Policy, Management Environment and Issues to Address," the Group intends to further strengthen its global logistics business, including international and overseas logistics.

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 due to intensifying trade frictions and conflicts between countries, 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.

*Annual Securities Report for FY2026/3

The Group considers M&A and business alliances as one of the options for the expansion of business and the enhancement of corporate value. In particular, when executing 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.

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 sustainability activities, and its policy is to continue to implement activities such as lending artwork at no charge and providing personnel support.

In FY2025/3, the Group established the SGH Disaster Prevention Support Foundation, a general incorporated foundation, with Eiichi Kuriwada serving as its Chairperson. In December 2025, the foundation received certification as a public interest incorporated foundation from the Cabinet Office and transitioned to the Public Interest Incorporated Foundation SGH Disaster Prevention Support Foundation.

This foundation aims to address the social challenge of disaster prevention in Japan, a country frequently affected by natural disasters. Its activities include developing and operating logistics infrastructure for disaster relief supplies, providing reconstruction assistance to affected areas, supporting the livelihoods of disaster victims in collaboration with both the public and private sectors, and establishing a system for immediate emergency response. Through these initiatives, the foundation seeks to contribute to the realization of a disaster-resilient and sustainable society.

The SGH Culture and Sports Promotion Foundation and the SGH Foundation hold a total of 58,636,362 shares of the Company's common shares (9.16% of the total number of issued shares) as of the end of the current consolidated fiscal year. The articles of incorporation of both foundations stipulate that the exercise of voting rights related to the Company's shares requires the approval of at least two-thirds of the members of their respective Boards of Directors. To ensure the independence of such voting decisions, directors who concurrently serve as officers or employees of the Group do not participate in board resolutions concerning the exercise of voting rights. In addition, the public interest incorporated foundation SGH Disaster Prevention Support Foundation is explicitly prohibited by its internal regulations from exercising voting rights. Furthermore, when appointing directors of any of these foundations, council members who concurrently serve as officers or employees of the Group abstain from voting on the appointment of directors who also hold concurrent positions within the Group.

The Group is continuously developing distribution facilities, and plans to commence operations of the Kanto Hub Center in July 2026 to strengthen relay functions and further enhance the efficiency of its transportation network in the Kanto area. The Group also plans to begin operating large-scale transfer centers in the Kansai region in FY2027/3 and in the Kyushu region in FY2029/3, and intends to continue maintaining and reinforcing a sustainable transportation and delivery infrastructure. If construction costs for these facilities exceed initial estimates, or if the completed facilities fail to deliver the expected investment returns, increased cost burdens or impairment losses may arise, which could adversely affect the Group’s business activities, 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. 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 FY2026/3, the Group had 60,483 employees and 45,281 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 Mid-term Management Plan, and actively designs systems aimed at the improvement of the working environment for employees.

In this way, the Group is continuously working to improve its labor environment. However, if misconduct in labor management were to occur during the Group's business operations, it may not only lower the Group's social credibility 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. To protect these secrets, 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 awareness of all employees, including management, through information security training and drills. 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 cyberattack, 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 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 provider, 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.