financial report for fiscal 2016 (japanese gaap ... · logistics),” our group-wide strategic...

Financial Report for Fiscal 2016 (Japanese GAAP) (Consolidated) (May 1, 2017)

Company Name SG HOLDINGS CO., LTD. URL http://www.sg-hldgs.co.jp/english

Representative President and COO Tadashi Machida

Contact Director in charge of Finance and Accounting, and

Management and Control

Shunichi Nakajima (TEL) 075(671)8600

General Meeting of the

Shareholders Scheduled for June 9, 2017 Payment of Dividends Scheduled for June 12, 2017

(Note: Amounts less than 1 million yen are rounded down to nearest million yen)

1. Consolidated Financial Results for Fiscal Year Ended March 20, 2017 (March 21, 2016 - March 20, 2017) (1) Consolidated Operating Results

(Note: Percentage figures in the table below represent changes from the previous fiscal year)

Operating Revenue Operating profit Ordinary profit Profit Attributable to Owners

of Parent

Million yen % Million yen % Million yen % Million yen %

Fiscal 2016 930,305 (1.4) 49,474 (8.4) 51,208 (2.6) 28,452 (16.3)

Fiscal 2015 943,303 10.0 54,004 18.4 52,572 19.8 33,975 36.9 (Note) Comprehensive income: Fiscal 2016: 30,962 million yen ((7.4)%) Fiscal 2015: 33,449 million yen (17.7%)

Basic Earnings Per Share Diluted Earnings Per Share Return on Equity

(ROE)

Return on Assets

(ROA) Operating Margin

Yen Yen % % %

Fiscal 2016 274.98 11.0 8.3 5.3

Fiscal 2015 320.41 15.7 9.0 5.7

-

- (Reference) Equity in earnings of associates: Fiscal 2016: 2,954 million yen Fiscal 2015: 33 million yen

(2) Consolidated Financial Position

Total Assets Net Assets Equity Ratio Net Assets Per Share

Million yen Million yen % Yen

Fiscal 2016 650,843 309,771 43.9 2,758.57

Fiscal 2015 583,761 237,192 39.5 2,205.96

(Reference) Shareholders’ equity: Fiscal 2016: 285,429 million yen Fiscal 2015: 230,624 million yen

(3) Consolidated Cash Flows

Cash Flows from Operating

Activities

Cash Flows from Investing

Activities

Cash Flows from Financing

Activities

Cash and Cash Equivalents

at End of Year

Million yen Million yen Million yen Million yen

Fiscal 2016 43,907 (111,826) 51,009 70,990

Fiscal 2015 85,770 (16,870) (42,938) 88,428

2. Dividends

Dividend Per Share

Total

Dividends

(Annual)

Payout Ratio

(Consolidated)

Dividends on Net

Assets

(Consolidated) 1Q-end 2Q-end 3Q-end 4Q-end Total

Yen Yen Yen Yen Yen Million yen % %

Fiscal 2015 0.00 30.00 30.00 3,104 9.4 1.5

Fiscal 2016 0.00 36.00 36.00 3,724 13.1 1.5

Fiscal 2017 (Forecast)

- -

- -

- - - - - - (Note) “Dividends” above represents the dividend paid for the Company’s common shares. As to dividend payment for class shares

that differ from the Company’s common shares in respect to shareholders’ rights, see “Dividends of Class Shares” as

described below. Distribution of dividends from surplus is scheduled to be resolved at the 11th ordinary general shareholders’

meeting to be held on June 9, 2017. The Company’s articles of incorporation designate September 20 and March 20 as the

dividend record dates. However, a dividend forecast based on the said record dates is currently undecided.

Translation

3. Projection of Consolidated Performance for Fiscal 2017 (March 21, 2017 - March 31, 2018)


Operating Revenue Operating profit Ordinary profit Profit Attributable to

Owners of Parent

Basic Earnings Per

Share

Million yen % Million yen % Million yen % Million yen % Yen

Full year 1,000,000 - 58,000 - 60,000 - 33,000 - 318.93

(Note) Subject to the approval of “Partial Amendment of the Articles of Incorporation” at the 11th ordinary general shareholders’

meeting to be held on June 9, 2017, from the fiscal year 2017, the Company will change its closing date from March 20 to March 31. Accordingly, for all the consolidated subsidiaries, their closing date or provisional closing date will be unified to the revised consolidated closing date. In addition, from the fiscal year 2017, the Company and its domestic consolidated subsidiaries changed their depreciation method for property, plant and equipment to the straight-line method while changing some of the useful lives. Therefore, as a projection of consolidated performance for the fiscal year 2017, the forecast figures include such impact, and changes from previous fiscal year are not shown. Please refer to the section “(ii) Projections for the Next Fiscal Year” in “(1) Analysis of Operating Results” in “1. Analysis of Operating Results and Financial Position” on page 3 of the Appendix for further information.

* Disclaimer regarding forward-looking statements

The descriptions concerning the business forecasts included in this document are based on certain information obtained by the

Company and the assumptions that the Company has deemed reasonable as of the date of publication. Actual results may differ

substantially from these forecasts due to a variety of important factors.

* Notes

(1) Changes in significant subsidiaries during the period (Changes in specified subsidiaries resulting in changes in

None scope of consolidation):

Newly added: - (Company Name)

Excluded: - (Company Name)

(2) Changes in accounting policies and accounting estimates, and restatements

(i) Changes associated with revision to accounting standards: Yes

(ii) Changes in accounting policies other than (i) above: None

(iii) Changes in accounting estimates: None

(iv) Restatement: None (Note) Please refer to the section “(5) Notes on Consolidated Financial Statements (Changes in Accounting Policies)” in “4.

Consolidated Financial Statements” on page 22 of the Appendix for further information.

(3) Number of shares issued and outstanding (common shares)

(i) Number of shares outstanding at end of

period (including treasury shares)

(ii) Number of shares of treasury shares at end

of period

(iii) Average number of shares during the term

Fiscal 2016 106,732,400 shares Fiscal 2015 106,732,400 shares



(Reference) Summary of Non-Consolidated Operating Results

1. Non-Consolidated Operating Results for the Year Ended March 20, 2017 (March 21, 2016 – March 20, 2017)

(1) Non-Consolidated Operating Results


Operating Revenue Operating Profit Ordinary Profit Profit

Million yen % Million yen % Million yen % Million yen %

Fiscal 2016 19,128 9.7 11,196 11.3 12,079 24.9 100,894 687.7

Fiscal 2015 17,443 (0.4) 10,061 7.6 9,668 1.8 12,808 35.3

Basic Earnings Per Share Diluted Earnings Per Share

Yen Yen

Fiscal 2016 975.11 -

Fiscal 2015 115.84 -

(2) Non-Consolidated Financial Position

Total Assets Net Assets Equity Ratio Net Assets Per Share

Million yen Million yen % Yen

Fiscal 2016 466,892 273,822 58.6 2,646.39

Fiscal 2015 423,537 177,977 42.0 1,697.15

(Reference) Shareholders’ equity: Fiscal 2016: 273,822 million yen Fiscal 2015: 177,977 million yen

Dividends of Class Shares

Details of dividends per share on class shares that differ from the Company’s common shares in respect to shareholder’s rights are as

follows:

Dividend Per Share

1Q-end 2Q-end 3Q-end 4Q-end Total

Yen Yen Yen Yen Yen

Class A preferred shares

Fiscal 2015 0.00 30.50 30.50

Fiscal 2016

Class B preferred shares

Fiscal 2015 0.00 32.00 32.00

Fiscal 2016

- -

- - - - -

- -

- - - - -

(Note) Based on the resolution by the Board of Directors on June 17, 2016, the Company acquired all the Class A preferred shares and Class B preferred shares as of August 1, 2016, and cancelled all the acquired shares on the same date. Therefore, there is no dividend after 2Q-end of fiscal 2016.

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Table of Contents of Appendix

1. Analysis of Operating Results and Financial Position .............................................................................................................. 2

(1) Analysis of Operating Results ............................................................................................................................................ 2

(2) Analysis of Financial Position ............................................................................................................................................ 4

(3) Dividend Policy and Dividends for the Current and Next Fiscal Years ................................................................................ 5

2. Overview of SG HOLDINGS Group ........................................................................................................................................ 6

3. Management Policy ................................................................................................................................................................ 8

(1) Principle Policy of Corporate Management ........................................................................................................................ 8

(2) Medium- to Long-Term Management Strategies and Target Management Indicators ......................................................... 8

(3) Challenges to Be Addressed ............................................................................................................................................. 9

4. Consolidated Financial Statement .......................................................................................................................................... 11

(1) Consolidated Balance Sheets ........................................................................................................................................... 11

(2) Consolidated Statements of Income and Consolidated Statements of Comprehensive Income ......................................... 13

(3) Consolidated Statements of Changes in Equity ................................................................................................................. 15

(4) Consolidated Statements of Cash Flows ........................................................................................................................... 17

(5) Notes to Consolidated Financial Statements ..................................................................................................................... 19

(Significant Items Relating to the Preparation of Consolidated Financial Statements) ..................................................... 19

(Changes in Accounting Policies) ................................................................................................................................... 22

(Changes in Presentation) .............................................................................................................................................. 22

(Additional Information) .................................................................................................................................................. 22

(Segment Information, etc.) ............................................................................................................................................ 22

(Significant Subsequent Events) ..................................................................................................................................... 24

5. Non-Consolidated Financial Statements ................................................................................................................................. 25

(1) Balance Sheets ................................................................................................................................................................. 25

(2) Statements of Income........................................................................................................................................................ 27

(3) Statements of Changes in Equity....................................................................................................................................... 28

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1. Analysis of Operating Results and Financial Position

(1) Analysis of Operating Results

(i) Operating results for the fiscal year under review

During the fiscal year under review, the Japanese economy continued to see a moderate recovery supported by the highly

eased financial environment and the effect of the government’s large economic stimulus package as well as the moderate rise

in the growth rate of overseas economies.

The business environment in the logistics industry has remained challenging. Despite the improvement in business

performance due to low fuel prices, the labor supply and demand situation remained tight following the improvement in

Japan’s employment and ongoing concerns about the rise in the cost of labor.

This fiscal year, the first year of the medium-term management plan “First Stage 2018” (FY2016–FY2018), we have focused on

enhancing the ability to produce solutions and expanding the global logistics network driven by “GOAL (GO Advanced

Logistics),” our Group-wide strategic sales team (hereinafter referred to as “GOAL”). In addition, the Group has focused on

enhancing the offering of customer solution and expanding business by the capital and business alliance contract with Hitachi

Transport System, Ltd. (hereinafter referred to as “Hitachi Transport System”).

Under these circumstances, in its core delivery business, the Group has worked on sales expansion of Smart Delivery services

and featured delivery products as well as generating synergies with Hitachi Transport System through development of new

services and shared usage of vehicles and facilities. In the logistics business, the Group further accelerated the activities of

GOAL which provides integrated logistics solutions. In the real estate business, the Group continued to sell trust beneficiary

interests of its real estate but reduced the level of sales activities compared with the previous fiscal year. In other businesses,

we broadened the scope of business by leveraging the Group’s logistics networks and management resources.

Operating revenue for the consolidated fiscal year under review decreased by 1.4% from a year earlier to 930,305 million yen,

operating profit decreased by 8.4% to 49,474 million yen, and ordinary profit decreased by 2.6% to 51,208 million yen.

Meanwhile, profit attributable to owners of parent amounted to 28,452 million yen, a decrease of 16.3% from the previous year.

Below is an overview of business segments and their respective performances.

• Delivery Business

The number of packages handled and delivered by the Group in its main services was as follows:

Fiscal 2015 Fiscal 2016 Year-on-year Year-on-year

Service name (March 21, 2015 to (March 21, 2016 to change change (%)

March 20, 2016) March 20, 2017)

Hikyaku Express (in millions) 1,198 1,218 19 1.7

Hikyaku Air Express (in millions) 7 7 0 0.2

Hikyaku Cool Express (in millions) 32 36 3 11.1

Mail Express (in millions) 247 204 (42) (17.3)

Hikyaku Mail (in millions) 46 40 (5) (12.4)

Express

Hikyaku You-Mail (in millions) 200 163 (37) (18.5)

Express

(Reference) e-Collect (in millions) 105 104 (1) (1.2)

Service

(Notes) 1. Hikyaku Express is shown including Hikyaku Air Express and Hikyaku Cool Express.

2. Although e-Collect Service belongs to the “Other Businesses” segment, the information is provided for

reference purposes.

In the delivery business, the introduction of same-day delivery services in Tokyo’s 23 wards, the sales expansion of featured

delivery products and the roll-out of Smart Delivery services contributed to increase the number of packages handled and the

revenue. In addition, the Group, with Hitachi Transport System, launched the new delivery route to transport directly from

Hitachi Transport System’s distribution centers to Sagawa Express Co., Ltd.’s (hereinafter referred to as “Sagawa Express”)

transit center and pursued the efficiency from the shared usage of vehicles.

As a result, operating revenue from this business segment increased by 2.3% from the previous fiscal year to 738,186 million

yen while operating profit increased by 3.2% to 39,647 million yen.

- 3 -

• Logistics Business

In the logistics business, operating revenue in Japan remained strong due to the increase in new customers from the second

half of the previous fiscal year and the transaction volume of existing customers. However, costs were incurred in launching

new logistics sites.

In overseas markets, the Group was adversely affected by fluctuation in currency exchange despite the increase in transaction

volume. In addition, the Group executed business alliances with PT.Repex Wahana in Indonesia and LBC Express, Inc. in the

Philippines. Furthermore, the Group developed and commenced the operation of a large multi-tenant logistics facility called the

SG Sagawa Vietnam Distribution Center in Vietnam, converted SG SAGAWA EXPRESS VIETNAM, LLC into a subsidiary and

extended the logistics services for large distribution customers.

As a result, operating revenue from this business segment decreased by 3.2% from the previous fiscal to 110,471 million yen

while operating profit decreased by 27.9% to 786 million yen.

• Real Estate Business

In the real estate business, the Group continued to sell trust beneficiary interests of real estate for sale but reduced the level of

sales compared with the previous fiscal year.

As a result, operating revenue from this business segment decreased by 63.2% from the previous fiscal year to 17,513 million

yen while operating profit decreased by 49.8% to 5,146 million yen.

• Other Businesses

In other businesses, in addition to the increased sale of new cars, automobile services business, fuel sales and human

resources services were strong.

As a result, operating revenue from this business segment increased by 6.8% from the previous fiscal year to 64,134 million

yen. Operating profit totaled 5,704 million yen, an increase of 14.4% from a year earlier.

(ii) Projection for the Next Fiscal Year

The domestic economy for the new fiscal year will continue to see a moderate expansion supported by the eased financial

environment and the fiscal expenditures in the government’s large economic stimulus package. With respect to economies

overseas, growth rates are expected to rise moderately that is supported by solid growth in developed countries and recovery

in emerging economies. In the logistics industry, we anticipate the difficult business environment to remain unchanged

considering factors such as increasingly fierce competition and rising labor costs as a result of the tight labor supply and strong

labor demand.

Under such circumstances, we focus on creation of logistics solutions for clients leveraging the full-extent of the Group’s

expertise, establishment of the consistent logistics network locally and globally, and business expansion through the alliance

with Hitachi Transport System, as we move on to the second year of the medium-term management plan “First Stage 2018.”

In the delivery business and the logistics business, we continue to seek ways to address clients’ potential issues for optimized

logistics through GOAL and the Group-wide collaborative sales activities. In addition, through the capital and business alliance

with Hitachi Transport System, we enhance our solution capability and achieve synergies. With respect to global initiatives, we

strengthen logistics network that is consistent locally and globally through M&A and business alliances.

In the real estate business, we focus on continuous development and operational management towards building an optimal

Group infrastructure and also to promote the growth of the private open-end real estate investment trust (private REIT).

(Projection for consolidated business performance)

Operating revenue 1,000.0 billion yen

Operating profit 58.0 billion yen

Ordinary profit 60.0 billion yen

Profit attributable to owners of parent 33.0 billion yen

Subject to the approval of “Partial Amendment of the Articles of Incorporation” at the 11th ordinary general shareholders’

meeting to be held on June 9, 2017, from the fiscal year 2017, the Company will change its closing date from March 20 to

March 31. Accordingly, for all consolidated subsidiaries, their closing date or provisional closing date will be unified to the

revised consolidated closing date.

As a result, the projection of consolidated performance for the fiscal year 2017, which is a transition period for unifying the

closing date, reflects the following factors.

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Company

Financial statements used

when preparing for the

consolidated financial

statements to date

Closing

date after

the change

Period considered

the projection of

consolidated

performance

in

The Company and its domestic consolidated

subsidiaries

Financial statements based

on March 20 closing date March 31

March 21, 2017 to March

31, 2018

Overseas consolidated subsidiaries

(Companies whose former closing date was

December 31 and those that are able to change

the closing date under local laws and regulations)


on December 31 closing

date

March 31 January 1, 2017 to

March 31, 2018


(Companies whose former closing date was

December 31 and those that are unable to change

the closing date under local laws and regulations)


on December 31 closing

date

December

31

January 1, 2017 to

March 31, 2018

(planned for provisional

closing)


(Companies whose former closing date was March

31)


on December 31

provisional closing date

March 31 January 1, 2017 to

March 31, 2018

The effects of these changes are estimated as operating revenue of 43,000 million yen, operating profit of 1,200 million yen,

ordinary profit of 1,100 million yen and profit attributable to owners of parent of 300 million yen, in increase respectively.

In addition, from the fiscal year 2017, the Company and its domestic consolidated subsidiaries changed their depreciation

method of property, plant and equipment from the declining balance method to the straight-line method. Furthermore, the

delivery business changed the useful lives used in taxation to those on the actual condition. As a result, the amount of

depreciation is expected to decrease approximately by 7,000 million yen, and such effect has been reflected in the projections.

(2) Analysis of Financial Position

(i) Status of Assets, Liabilities and Net Assets

Total assets amounted to 650,843 million yen and it is up by 67,081 million yen from the end of the previous fiscal year. This

was mainly due to the increase of 91,809 million yen in investment securities through the acquisition of shares of Hitachi

Transport System, the decrease of 17,502 million yen in cash and deposits and 11,195 million yen in real estate for sale.

Liabilities totaled 341,071 million yen, and it is down by 5,497 million yen from the end of the previous fiscal year. This was due

primarily to the decrease of 3,795 million yen in loans payable.

Net assets amounted to 309,771 million yen and it is up by 72,579 million yen from the end of the previous fiscal year. This was

due mainly to the increase of 32,975 million yen in capital surplus following the sales of shares of Sagawa Express and 28,452

million yen in profit attributable to owners of parent while making dividend payments of 3,927 million yen from surplus.

All these factors combined brought our equity ratio up by 4.4 points above the end of the previous fiscal year, to 43.9%.

(ii) Status of Cash Flows

The balance of cash and cash equivalents (hereinafter referred to as “funds”) as of the end of the consolidated fiscal year

under review decreased by 17,438 million yen to 70,990 million yen.

The status of cash flows for the current fiscal year under review and factors behind them are provided below.

(Cash flows from operating activities)

Funds from operating activities totaled 43,907 million yen and it is decreased by 48.8% from the previous fiscal year.

This was primarily because of the recognition of 49,388 million yen in profit before income taxes, 24,209 million yen in

depreciation, the decrease of 9,533 million yen in inventories, and the payment of 34,201 million yen in income taxes.

(Cash flows from investment activities)

Funds used for investment activities increased by 562.8% from the previous year to 111,826 million yen.

This was primarily because of the purchase of shares of subsidiaries and associates of 87,784 million yen, purchase of

property, plant and equipment of 22,648 million yen and intangible assets of 6,327 million yen, the sale of property, plant and

equipment of 8,019 million yen.

(Cash flows from financing activities)

Funds from financing activities were 51,009 million yen (as compared to the payment of 42,938 million yen in the previous fiscal

year).

This was primarily because of 66,318 million yen in proceeds from subsidiaries not resulting in change in scope of

consolidation, 17,550 million yen in proceeds from long-term loans payable, and 21,390 million yen for the repayment of long-

term loans payable.

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(3) Dividend Policy and Plans for the Current and Next Fiscal Years

The Company has set a principle profit distribution policy to maintain a stable dividend payment while securing sufficient retained

earnings necessary to continue business operations in the future and enhance business management.

The Company distributes dividends of surplus annually as per the above policy by the resolution of the ordinary general

shareholders’ meeting. Meanwhile, the Company’s Articles of Incorporation stipulates that the Company is able to pay an interim

dividend by the resolution of the Board of Directors.

Based on this policy, the Company is planning to propose at the 11th ordinary general shareholders’ meeting scheduled for June

9, 2017 the payment of a dividend of 36.0 yen per common share for the fiscal year under review.

Based on the resolution by the Board of Directors on June 17, 2016, the Company acquired all the Class A preferred shares and

Class B preferred shares as of August 1, 2016, and revoked all the acquired shares on the same date. Therefore, there is no

dividend after 2Q-end of fiscal 2016 for these shares.

While dividends for the next fiscal year are not decided at this moment, the Company will consider payout based on the policy

described above..

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2. Overview of SG HOLDINGS Group

SG HOLDINGS Group (the Company and related companies) consists of the Company (SG HOLDINGS CO., LTD.) which is a pure

holding entity, 110 consolidated subsidiaries and 10 associates subject to the equity method and is engaged in the delivery business,

logistics business, real estate business, and other ancillary businesses.

Businesses performed by the Group and the segments of the individual subsidiaries and associates are shown below:

Segment Name Major products and services Major companies

Delivery Business Hikyaku Express, Hikyaku Cool Express

Hikyaku Mail Express, Mail Air

Express, etc.

Moving transportation, Route delivery

service, Charter transportation

Installation transportation, Art

transportation, Delivery agency service,

Food delivery service

SAGAWA EXPRESS CO., LTD.

SG MOVING CO., LTD.

WORLD SUPPLY CO., LTD.

2 other companies

(Total: 5 companies)

Logistics Business Comprehensive logistics services

Development of logistics systems

Control and management of inventory

and orders

Management of distribution centers

Warehousing

Transportation using public transport

Sgx (international delivery service)

International air and sea transportation

services

SAGAWA GLOBAL LOGISTICS CO., LTD.

SAGAWA LOGISTICS PARTNERS CO., LTD.

SGH GLOBAL JAPAN CO., LTD.

SHANGHAI POLY-SAGAWA LOGISTICS CO., LTD.

POLY-SAGAWA LOGISTICS CO., LTD.

SAGAWA EXPRESS (H.K.) CO., LTD.

SAGAWA EXPRESS PHILIPPINES INC.

SAGAWA EXPRESS VIETNAM CO., LTD.

SG SAGAWA VIETNAM CO., LTD.

SAGAWA EXPRESS SINGAPORE PTE. LTD.

SG SAGAWA AMEROID PTE. LTD.

PT. SAGAWA EXPRESS INDONESIA

EXPOLANKA HOLDINGS PLC

90 other companies


Real Estate Business Real estate leasing and management,

Real estate development

Real estate fund

Renewable energy supply

SG REALTY CO., LTD.

1 other company


Other Product sales, insurance agent, fuel

sales

Automobile services, sales of

automobiles

Manufacture of auto bodies,

System sales and maintenance

e-Collect Service

Temporary staffing services and

outsourcing

SAGAWA ADVANCE CO., LTD.

SG MOTORS CO., LTD.

SG SYSTEMS CO., LTD.

SAGAWA FINANCIAL CO., LTD.

SG FIELDER CO., LTD.

3 other companies


(Notes) 1. The Group’s consolidated subsidiary, SG EXPERT CO., LTD. (shared service business) and SG HOLDINGS

GLOBAL PTE. LTD. (overseas operation headquarters) have not been listed as they cover all segments.

2. SHANGHAI DAZHONG SAGAWA LOGISTICS CO., LTD. is excluded from the subject of consolidation and is

included in the equity-method applicable companies because its shares have been partially sold.

3. SG SAGAWA AMEROID PTE. LTD. changed its name from AMEROID LOGISTICS (S) PTE. LTD. as of September

30, 2016. SG SAGAWA AMEROID PTE. LTD., as the surviving company, integrated business with SAGAWA

EXPRESS SINGAPORE PTE. LTD. as of January 1, 2017.

- 7 -

The following diagram illustrates the roles, and the relations with segments, of SG HOLDINGS Group.

Customer

Delivery Business

SAGAWA EXPRESS CO.,

SG MOVING CO., LTD.


Plus 1 other consolidated subsidiary 1 associate subject to the equity method

Real Estate Business

SG REALTY CO., LTD.

Plus 1 other consolidated subsidiary

Other Businesses


SG MOTORS CO., LTD.


SAGAWA FINANCIAL CO.,


Plus 3 other consolidated subsidiaries

Logistics Business

Japan

SAGAWA GLOBAL LOGISTICS CO.,



1 associate subject to the equity method

Overseas

SHANGHAI POLY-SAGAWA LOGISTICS CO., LTD.

POLY-SAGAWA LOGISTICS CO., LTD.


Plus 81 other consolidated subsidiaries 8 associates subject to the equity

SG HOLDINGS CO., LTD. (holding company)

(Notes) 1. SG EXPERT CO., LTD. (shared service business) and SG HOLDINGS GLOBAL PTE. LTD. (overseas operation

headquarters) have not been listed as they cover all segments.

2. The names of the subsidiaries operating in multiple business segments are provided in their principle business segment.

LTD.

LTD.

LTD.

method

- 8 -

3. Management Policy

(1) Principle Policy of Corporate Management

Remaining committed to the founding spirit of “Hikyaku no Kokoro” (the spirit of express messenger), as the guiding principle, the

SG Holdings Group will:

• Earn the trust of customers and society and grow together.

• Create new value and contribute to social development.

• Always take on the challenges presented to us and pursue all possibilities.

The Group has always been committed to improving its services and quality by which the clients and customers can enjoy

security, satisfaction and trust. Looking toward the future, the Group makes its utmost efforts to become the business entity of

more value to society by promptly responding to the changing society and customer needs and providing total solutions.

(2) Medium- to Long-Term Management Strategies and Target Management Indicators

The Group established its corporate vision dubbed “Towards an integrated logistics corporate group representing Asia” in its long-

term management plan for 9 years from fiscal 2016 to fiscal 2024. As the first step, the Group is promoting a medium-term

management plan called “First Stage 2018” (for fiscal 2016 to fiscal 2018).

The current Japanese economy faces the environment where the labor supply and demand is further tightening, due in part to the

aging society and the low birthrate. Therefore, in order to realize a society with dynamic engagement of all citizens which is a

pillar for an economic growth strategy, work innovation to improve long working hours and pay equal for equal work has been

promoted by the government, employers and workers in cooperation since last year. In addition, following the growing e-

commerce market, social needs for the logistics industry, especially express service, are increasing.

Under such environment, the Group decided to revise the medium-term management plan “First Stage 2018” one year after its

establishment. As a matter of priority, the Group has engaged in improvement of working environment, enhancement of

resourcing as well as measures for parking in an accelerated manner, and by pursuing further efficiency, redevelops a system that

continuously provides stable logistics solutions.” The Group revised its consolidated management target in order to achieve stable

profit growth after an expected increase in outsourcing costs and labor costs that is necessary for promoting initiatives.

Furthermore, considering the impact of the real estate market and sharp increase in construction material costs, the Group

revised its real estate and capital investments and downscaled its investment plan. The investment plan shows the total amount of

investments for vehicles and facilities, information technology, real estate and capital. The real estate and capital investments only

reflect on-going or highly probable transactions, and may vary due to future investment activities.

Although the Group revised its consolidated management target, the basic policy in the medium-term management plan remains

unchanged. We will push forward with our business to achieve the management vision of “Towards an integrated logistics

corporate group representing Asia.”

(Management strategy in the medium-term management plan)

1. Enhancement of sustainable growth platform through evolution of its integrated logistics solutions and productivity

2. Enhancement of overseas business platform and establishment of the global logistics network through integration and

development with Japan businesses

3. Increase in the value and optimize the ancillary businesses around the logistics business

4. Establishment of the human resources management system and diversification in use of human resources

5. Differentiation of services through active and effective use of latest technologies and streamlined operations

Revision of management target

We have revised SG Holdings Group medium-term management plan announced on May 6, 2016, as follows:

Fiscal 2018 consolidated management target

Consolidated operating revenue 980.0 billion yen

Consolidated operating profit 56.5 billion yen

Investment plan *1

95.0 billion yen Total amount of depreciation &

amortization for 3-year period 62.5 billion yen

*1. The investment plan for 3-year period does not include 87,600 million yen of share acquisition of Hitachi Transport

System.

The investment plan has been changed from internal management figures to total of investment cash flow paid in

a 3-year period in a generally accepted market practice.

From the fiscal year 2017, the Company and its domestic consolidated subsidiaries changed their depreciation method of property,

plant and equipment from the declining balance method to the straight-line method. Furthermore, with respect to the useful lives

of vehicles in the delivery business, we revised the useful lives from periods allowed under tax laws to those based on the actual

condition. As a result, depreciation is expected to decrease approximately by 5,000 million yen in fiscal year 2018, and such effect

has been included in the target figure.

- 9 -

(3) Challenges to Be Addressed

The Group established its long-term management vision as “Towards an integrated logistics corporate group representing Asia,”

and in order to achieve this vision, the Group has set the tasks of enhancing solutions offering and establishing global logistics

network through Group-wide collaboration driven by GOAL.

To achieve this long-term management vision, the Group established and announced the medium-term management plan “First

Stage 2018” (fiscal 2016 to fiscal 2018) on May 6, 2016. In the plan, the Group discussed the strategic management objective and

the key initiatives for achieving such objective. In addition, considering the current tight labor environment in the logistics industry,

the revised plan was established and announced on May 1, 2017. To supplement the strategic management objective as set out

in the medium-term management plan and the key initiatives on achieving such objective, the revised plan sets out “our

commitment in improving working environment, enhancing resourcing as well as addressing issues around parking without delay,

and, by pursuing further efficiency, redeveloping an organizational structure that continuously encourages the provision of stable

logistics solutions” as its additional management challenges.

The Group acknowledges the achievement of its strategic management objective as set out in the medium-term management

plan and additional management challenges in consideration of the current environment as challenges to be addressed, and will

respond to them as follows:

1. Enhancement of sustainable growth platform through evolution of integrated logistics solutions and productivity

• Evolution of GOAL

The Group sees its strength in logistics mandates from corporate clients (from B). The Group expands business through

GOAL with the tailor-made solutions created by packaging the Group’s various services to address the potential issues of

the corporate client. It is our policy to advance and evolve this strategy.

• Evolution of Smart Delivery services

The Group launched Smart Delivery services, in which items to a certain customer accepted at multiple service offices are

delivered in one batch. This contributed to improved efficiency in the logistics for the clients. We will continue to commit in

the service, and by expanding the service offering and building the direct delivery routes from transit centers, we will offer

further efficiencies in service.

• Capital and business alliance with Hitachi Transport System

The Group entered into a capital and business alliance contract with Hitachi Transport System on March 30, 2016.

Under the theme of “integration of the delivery business and the logistics business,” the Group is generating various

business synergies by providing new logistics solutions through utilizing management resources of both companies, and

enhancing efficiency via the joint utilization of vehicles and centers.

2. Reinforcement of overseas business platform, and establishment of the global logistics network through integration and

development with Japan businesses

• Enhancement of forwarding business and expansion of global logistics network

By connecting EXPOLANKA group with offices in South Asia, Southeast Asia and Africa and our overseas locations we will

enhance the global logistics network in emerging markets which we expect to grow going forward.

• Enhancement of local logistics in the overseas locations

By developing our own operations, entering into alliances or securing subcontractors, we will secure “last one mile network”

(i.e. a distribution system to the final destination of packages) within the countries of our overseas locations, and establish

the system that enables a comprehensive logistics package in alliance with local warehouses and forwarding businesses.

3. Increase in the value and optimize the ancillary businesses around the logistics business

• Expansion of ancillary businesses of the logistics business

The Group recognizes that each of the businesses other than the logistics business (delivery and logistics business) have

function as infrastructure that supports the logistics business, and places these as ancillary businesses of the logistics

business. By maximizing the created value in ancillary businesses of the logistics business, the Group raises the quality of

the offered services in the logistics business while improving the quality of services to outside clients. In addition, with

enhanced work efficiency derived from utilizing such ancillary businesses of the logistics business, we will enhance the

Group profitability. Furthermore, we will commence discussions as soon as possible on the development of new business

fields in addition to the logistics and real estate areas as it is our plan to enter such fields.

- 10 -

4. Establishment of the human resources management system and diversification in use of human resources

• Securing excellent workforce

Through appropriate recruitment, training and talent management systems, we continue to secure excellent human

resources and labor that helps the Group to evolve into a global company.

• Diversity management

In order to foster the environment where the diversified human resources flourish, the Group will enhance its organizational

system by implementing a short working hour program and nurturing the corporate culture to actively utilize such benefits. By

pushing forward with these work style innovations, we achieve a good work life balance for all employees. In addition, to

respond to social issues including a large number of children waiting for admission to nursery schools, help needed for

women to take active roles in business, a good work-family balance supported by flexible working styles, we opened a

nursery school called SGH Kids Garden within our Tokyo office. We will implement various initiatives to help female

employees play active roles now and in the future.

• Improvement of long working hours

Work style innovation is under discussion amid government initiatives, and in the fiscal year 2019 an amended law is

expected to be applied to resolve the issue of long working hours. In the transport industry to which the Group belongs, the

application of regulations has been waived for 5 years due to labor shortage, with an announcement being made that the

maximum overtime work will be limited to 960 hours (monthly average of 80 hours) per year. In addition, with shrinking

domestic population, shortage of drivers is becoming a serious concern.

The Group, being one of the largest transport companies in Japan, is striving to have thorough management of working

hours to prevent long working hours. In addition, to respond to the shortage of drivers, we will enhance recruitment of drivers,

and secure workforce by promoting the acquisition of driving license for large-sized vehicles among Group employees and

utilize part-time employees to reduce the burden on drivers. We address the situation by taking various possible measures

including defining the work scope of drivers to manage the workload and implementing the solutions to pursue efficiency in

operation such as automating the sorting.

5. Differentiation of services through active and effective use of latest technologies and streamlined operations

• Promoting Information Technology (IT) usage

To respond to the labor shortage due to the continued population decline into the future, it is the Group’s policy to promote

active use of IT. Specifically, we will make upfront investments in actively using the latest technologies including automation

technology, big data, AI (artificial intelligence) and smart devices, and explore ways to put them to practical use.

6. Thorough enhancement of compliance system

The Group has steadily enhanced its management control structure including compliance through relevant committees and

projects as necessary.

Under these circumstances, we took the issue of illegal parking very seriously. The Group’s policy is to take firm actions for

the people in charge and make every effort for investigation while heeding the advice from external experts. The Group has

implemented measures to handle illegal parking. Specifically, in addition to additional physical facilities secured including

external parking lots and expansion of service centers, it is the Group’s policy to adopt a two-person structure in areas where

it is difficult to secure such parking after a detailed study on delivery routes in the area. Furthermore, not limited to these

specific measures, we utilize an internal online learning system to raise employees’ awareness of the need for compliance,

and improve the corporate culture by continuous communication on the subject.

To enhance the overall compliance system, in accordance with “SG Holdings Group Corporate Code of Ethics and Conduct,”

the Company and each of the group companies appoint a compliance manager, who ensures the compliance with laws and

regulations, and reports and handles any emergency matters. In addition, at the Risk Management Meeting, important

matters are reported regularly. These are part of actions taken across the Group. Furthermore, the Group launched and

expanded the SG Holdings Group Compliance Hotline in order to investigate causes promptly when any illegal incidents

occur, and establish measures to prevent further cases and a mechanism to monitor the situation. We will enhance these

systems going forward, and work towards better and effective systems.

- 11 -

4. Consolidated Financial Statements

(1) Consolidated Balance Sheets

(Million yen)

Fiscal 2015

(March 20, 2016)

Fiscal 2016

(March 20, 2017)

Assets

Current assets

Cash and deposits 88,509 71,007

Notes and operating accounts receivable 134,793 138,857

Real estate for sale 48,324 37,128

Merchandise and finished goods 327 337

Work in process 215 152

Raw materials and supplies 1,283 1,338

Deferred tax assets 5,439 4,447

Other 11,053 18,286

Allowance for doubtful accounts (884) (926)

Total current assets 289,061 270,629

Non-current assets

Property, plant and equipment

Buildings and structures, net 48,229 47,438

Vehicles, net 8,418 8,818

Land 124,689 123,618

Leased assets, net 14,274 14,609

Construction in progress 1,661 4,429

Other, net 16,742 15,379

Total property, plant and equipment 214,015 214,294

Intangible assets

Goodwill 5,682 5,815

Software 10,911 11,721

Leased assets 52 28

Other 6,706 6,403

Total intangible assets 23,353 23,969

Investments and other assets

Investment securities 9,415 101,225

Deferred tax assets 19,703 12,925

Other 30,164 29,609

Allowance for doubtful accounts (2,072 (1,887)

Total investments and other assets 57,211 141,873

Total non-current assets 294,579 380,136

Deferred assets

Bond issuance cost 119 76

Total deferred assets

Total assets

119 76

583,761 650,843

)

- 12 -

(Million yen)

Fiscal 2015

(March 20, 2016)

Fiscal 2016

(March 20, 2017)

Liabilities

Current liabilities

Notes and operating accounts payable-trade 46,567 46,557

Short-term loans payable 1,358 1,338

Current portion of long-term loans payable 20,970 38,236

Lease obligations 3,813 4,330

Income taxes payable 11,328 9,160

Deposits received 30,094 31,090

Provision for bonuses 5,202 5,954

Provision for directors bonuses ’ 37 19

Other 38,235 35,421

Total current liabilities 157,608 172,109

Non-current liabilities

Bonds payable 9,000 9,000

Long-term loans payable 119,841 98,799

Lease obligations 11,866 11,947

Provision for directors retirement benefits ’ 29 29

Net defined benefit liability 37,603 37,777

Asset retirement obligations 4,531 4,692

Other 6,089 6,715

Total non-current liabilities 188,960 168,961

Total liabilities 346,569 341,071

Net assets

Shareholders equity ’

Capital stock 11,882 11,882

Capital surplus 847 33,822

Retained earnings 219,534 242,509

Treasury shares (4,421) (4,421)

Total shareholders’ equity

Accumulated other comprehensive income

Valuation difference on available-for-sale securities

Deferred gains or losses on hedges

Foreign currency translation adjustment

Remeasurements of defined benefit plans

227,842

1,328

(265)

1,975

(257)

283,793

1,639

(155)

35

116

Total accumulated other comprehensive income 2,781 1,635

Non-controlling interests 6,568 24,342

Total net assets

Total liabilities and net assets

237,192 309,771

583,761 650,843

- 13 -

(2) Consolidated Statements of Income and Consolidated Statements of Comprehensive Income

(Consolidated Statements of Income)

(Million yen)

Fiscal 2015

(March 21, 2015 to March 20, 2016)

Fiscal 2016 (March 21, 2016 to March 20, 2017)

Operating revenue 943,303 930,305

Operating cost 853,639 843,734

86,571

37,096

49,474

Operating gross profit 89,663

Selling, general and administrative expenses 35,659

Operating profit 54,004

Non-operating income

Interest income 116 94

Dividend income 146 161

Share of profit of entities accounted for using equity 33 2,954

method

Other 2,503 1,660

4,871 Total non-operating income 2,800

Non-operating expenses

Interest expenses 2,988 2,740

Other 1,243 397

3,137

51,208

Total non-operating expenses 4,232

Ordinary profit 52,572

Extraordinary income

Gain on sales of non-current assets 481 359

Other 200 221

581 Total extraordinary income 682

Extraordinary loss

Loss on sales of non-current assets 54 635

Loss on retirement of non-current assets 539 195

Impairment loss 5,907 1,194

Other 443 376

2,401

49,388

8,451

Total extraordinary loss 6,944

Profit before income taxes 46,310

Income taxes-current 17,712

Income taxes-deferred (6,309) 8,479

16,931

32,457

4,004

28,452

Total income taxes 11,403

Profit 34,907

Profit attributable to non-controlling interests

Profit attributable to owners of parent

931

33,975

- 14 -

(Statements of comprehensive income)

(Million yen)

Fiscal 2015

(March 21, 2015 to March 20, 2016)

Fiscal 2016 (March 21, 2016

to March 20, 2017)

Profit 34,907 32,457

Other comprehensive income

Valuation difference on available-for-sale securities (114) 358

Deferred gains or losses on hedges 20 100

Foreign currency translation adjustment (1,230) (1,710)

Remeasurements of defined benefit plans, net of tax 26 163

Share of other comprehensive income of entities (160) (406)

accounted for using equity method

Total other comprehensive income (1,458) (1,494)

Comprehensive income 33,449 30,962

Total comprehensive income attributable to:

Owners of parent 32,652 27,306

Nnon-controlling interests 796 3,655

- 15 -

(3) Consolidated Statements of Changes in Equity


(Million yen)

’

Shareholders equity

Total Retained

Capital stock Capital surplus Treasury shares shareholders earnings

equity

Balance at beginning of current 11,882 882 188,964 (4,421) 197,309

period

Changes of items during period

’

Dividends of surplus (3,406) (3,406)

Profit attributable to owners 33,975 33,975

of parent

Change in ownership interest

of parent due to transactions (35) (35)

with non-controlling interests

Net changes of items other

than shareholders equity

Total changes of items during (35) 30,569 30,533

period

Balance at end of current 11,882 847 219,534 (4,421) 227,842

period

’

- -


Valuation Total Non-Deferred Foreign Remeasure Total net

difference on accumulated controlling gains or currency ments of assets

available-for- other comp- interests losses on translation defined

sale rehensive hedges adjustment benefit plans

securities income

Balance at beginning of current 1,446 (286) 3,205 (260) 4,104 6,133 207,547

period


Dividends of surplus (3,406)

Profit attributable to owners 33,975

of parent


of parent due to transactions (35)


Net changes of items other (117) 20 (1,230) 3 (1,323) 434 (888)

than shareholders’ equity

Total changes of items during (117) 20 (1,230) 3 (1,323) 434 29,644

period

Balance at end of current 1,328 (265) 1,975 (257) 2,781 6,568 237,192

period

- 16 -


(Million yen)

’

Shareholders equity

Total Retained

Capital stock Capital surplus Treasury shares Shareholders earnings

equity

Balance at beginning of current 11,882 847 219,534 (4,421) 227,842

period


Dividends of surplus (3,927) (3,927)

Profit attributable to owners 28,452 28,452

’

of parent

Purchase of treasury shares (1,549) (1,549)

Retirement of treasury (1,549) 1,549 -

shares

Transfer to capital surplus 1,549 (1,549) -

from retained earnings


of parent due to transactions 32,975 32,975


Net changes of items other

than shareholders equity

Total changes of items during - 32,975 22,975 - 55,950

period

Balance at end of current 11,882 33,822 242,509 (4,421) 283,793

period

’


Valuation Total Non-Deferred Foreign Remeasure Total net

difference on accumulated controlling gains or currency ments of assets

available-for- other comp- interests losses on translation defined

sale rehensive hedges adjustment benefit plans

securities income

Balance at beginning of current 1,328 (265) 1,975 (257) 2,781 6,568 237,192

period



Profit attributable to owners 28,452

of parent

Purchase of treasury shares (1,549)

Retirement of treasury -

shares

Transfer to capital surplus -



of parent due to transactions 32,975


Net changes of items other 310 110 (1,939) 373 (1,145) 17,774 16,629

than shareholders’ equity

Total changes of items during 310 110 (1,939) 373 (1,145) 17,774 72,579

period

Balance at end of current 1,639 (155) 35 116 1,635 24,342 309,771

period

- 17 -

(4) Consolidated Statements of Cash Flows

(Million yen)

Fiscal 2015

(March 21, 2015 to March 20, 2016)


to March 20, 2017)

Cash flows from operating activities

Profit before income taxes 46,310 49,388

Depreciation & amoetization 23,814 24,209

Impairment loss 5,907 1,194

Amortization of goodwill 1,116 962

Increase (decrease) in provision for bonuses (50) 635

Increase (decrease) in allowance for doubtful accounts 40 (96)

Increase (decrease) in other provision (10) (18)

Increase (decrease) in net defined benefit liability 184 505

Foreign exchange losses (gains) (361) 82

Interest and dividend income (263) (256)

Interest expenses 2,988 2,740

Share of (profit) loss of entities accounted for using equity method (33) (2,954)

Loss (gain) on sales of non-current assets (427) 275


Decrease (increase) in notes and accounts receivable-trade (10,369) (4,804)

Decrease (increase) in inventories 33,913 9,533

Increase (decrease) in notes and accounts payable-trade 260 546

Increase (decrease) in deposits received 4,028 1,032

Other, net

Subtotal 104,194 8

(3,102)

0,068

Interest and dividend income received 221 765

Interest expenses paid (3,070) (2,725)

Income taxes (paid) refund (15,575) (34,201)

Net cash provided by (used in) operating activities 85,770 43,907

Cash flows from investing activities

Payments into time deposits (0) -

Proceeds from withdrawal of time deposits 662 62

Purchase of property, plant and equipment (21,789) (22,648)

Proceeds from sales of property, plant and equipment 15,102 8,019

Purchase of intangible assets (7,558) (6,327)

Purchase of investment securities (20) (21)

Purchase of shares of subsidiaries and associates (49) (87,784)

Payments for investments in capital (3,213) (1,617)

Payments for guarantee deposits (1,607) (1,275)

Proceeds from collection of guarantee deposits 1,423 927

Purchase of shares of subsidiaries resulting in change in scope of

consolidation - (1,636)

Proceeds from sales of shares of subsidiaries resulting in change in

scope of consolidation - 262

Other, net 180 212

Net cash provided by (used in) investing activities (16,870) (111,826)

(3,393)

- 18 -

(Million yen)


to March 20, 2016)


to March 20, 2017)

Cash flows from financing activities

Net increase (decrease) in short-term loans payable (17,749) 88

Proceeds from long-term loans payable 23,700 17,550

Repayment of long-term loans payable (43,238) (21,390)

Repayments of lease obligations (1,935) (3,630)

Purchase of treasury shares - (1,549)

Cash dividends paid (3,406) (3,927)

Dividends paid to non-controlling interests (105) (224)

Payments from change in ownership interests in subsidiaries that do

not result in change in scope of consolidation (202) (2,223)

Proceeds from changes in ownership interests in subsidiaries that do

not result in change in scope of consolidation - 66,318

Net cash provided by (used in) financing activities (42,938) 51,009

Effect of exchange rate change on cash and cash equivalents (42) (529)

Net increase (decrease) in cash and cash equivalents 25,919 (17,438)

Cash and cash equivalents at beginning of period 62,509 88,428

Cash and cash equivalents at end of period 88,428 70,990

- 19 -

(5) Notes to Consolidated Financial Statements

(Significant Items Relating to the Preparation of Consolidated Financial Statements)

1. Scope of Consolidation

(1) Number of consolidated subsidiaries: 110

Names of principal consolidated subsidiaries:

SAGAWA EXPRESS CO., LTD.

SG MOVING CO., LTD.


SAGAWA GLOBAL LOGISTICS CO., LTD.



SG REALTY CO., LTD.


SG MOTORS CO., LTD.


SAGAWA FINANCIAL CO., LTD.


SG EXPERT CO., LTD.

SG HOLDINGS GLOBAL PTE. LTD.


SAGAWA EXPRESS VIETNAM CO., LTD.

SG SAGAWA VIETNAM CO., LTD.

SG SAGAWA AMEROID PTE. LTD.

EXPOLANKA HOLDINGS PLC

SG SAGAWA EXPRESS VIETNAM, LLC has been included in the scope of consolidation since the current fiscal

year because of its share acquisition.

SHANGHAI DAZHONG SAGAWA LOGISTICS CO., LTD. is excluded from the scope of consolidation and is included

in the scope of the equity-method because some of its shares have been sold.

Four (4) subsidiaries that are newly established by EXPOLANKA HOLDINGS PLC have been included in the scope

of consolidation since the current fiscal year, and three (3) subsidiaries whose shares are sold by EXPOLANKA

HOLDINGS PLC have been excluded from the scope of consolidation.

VST CO., LTD., a company that has been newly established by SAGAWA EXPRESS CO., LTD., has been included

in the scope of consolidation since the current fiscal year.

(2) Name etc. of non-consolidated subsidiary

Not applicable.

2. Application of the Equity Method

(1) Number of associates accounted for by the equity method: 10

Name of principal companies

Hitachi Transport System, Ltd.

SG Lawson, Inc.

Hitachi Transport System, Ltd. has been included in the scope of the equity-method since the current fiscal year

because of its share acquisition.

SHANGHAI DAZHONG SAGAWA LOGISTICS CO., LTD. is excluded from the scope of consolidation and is included

in the scope of the equity-method because some of its shares have been sold.

(2) Name etc. of non-consolidated subsidiaries and associates not accounted for by the equity method

Not applicable.

- 20 -

(3) Remarks on the procedure accounted for by the equity method

Closing dates for equity-method are as follows:

Hitachi Transport System, Ltd.: March 31

SG Lawson, Inc.: at the end of February

SHANGHAI DAZHONG SAGAWA LOGISTICS CO., LTD.: December 31

EXPO GLOBAL DISTRIBUTION CENTRE (PVT) LTD. and 6 other companies: March 31

As for Hitachi Transport System, Ltd., SG Lawson, Inc. and SHANGHAI DAZHONG SAGAWA LOGISTICS CO., LTD.,

we used their financial statements based on their fiscal years that ended on such date.

And as for EXPO GLOBAL DISTRIBUTION CENTRE (PVT) LTD. and 6 other companies, we used their financial

statements based on a provisional settlement of accounts as of December 31.

3. Accounting Periods of Consolidated Subsidiaries

Among our consolidated overseas subsidiaries, 22 companies including SAGAWA EXPRESS (H.K.) CO., LTD. close their

books on December 31. In preparing the consolidated financial statements, we used their financial statements that were

prepared based on their fiscal years that ended on such date.

Among our consolidated overseas subsidiaries, 71 companies including EXPOLANKA HOLDINGS PLC close their books

on March 31. In preparing the consolidated financial statements, we used their financial statements that were prepared

based on a provisional settlement of accounts as of December 31.

Necessary adjustment for consolidation is made in regard to significant transactions which occurred between such

closing date and the closing date of the company.

4. Accounting Policies

(1) Appraisal standards and methods for important assets

(a) Investment Securities

Other securities

Marketable

Reported at the fair value on the closing date

(Valuation differences are recorded as net unrealized gain on other securities in net assets, and the cost of

sales is calculated using the moving average method)

Non-marketable

Reported at cost using the moving average method

(b) Derivatives

Reported at the fair value on the closing date

(c) Inventories

Real estate for sale, merchandise, finished goods, work in process:

Mainly stated at cost approach method determined by specific identification method

(Balance sheet value is stated by writing down to net selling value)

Raw materials

Mainly stated at cost approach method determined by moving average method


Supplies

Mainly stated at cost approach method determined by first-in, first-out method


(2) Depreciation and amortization methods for important non-current assets

(a) Property, plant and equipment (except leased assets)

The Company and its major consolidated domestic subsidiaries adopt the declining balance method.

However, buildings (excluding fixtures) acquired on and after April 1, 1998 and building fixtures and structures

acquired on or after April 1, 2016 are depreciated using the straight-line method.

Major consolidated overseas subsidiaries adopt the straight-line method.

(b) Intangible assets (except leased assets)

Amortized using the straight-line method.

Software used in-house is amortized over the period it can be used by the Company (5 years).

(c) Leased assets

Leased assets related to finance leases that transfer ownership:

Depreciated by the same method as the depreciation method applied to property, plant and equipment held by the

Company.

Leased assets related to finance leases that do not transfer ownership:

Depreciated by the straight-line method, with the lease periods counted as their useful lives and no residual value.

- 21 -

(3) Treatment of deferred assets

(a) Bond issuance cost

Amortized by the straight-line method over the bond return.

(4) Reporting standards for important allowances

(a) Allowance for doubtful accounts

The allowance for doubtful accounts is stated in amounts considered to be appropriate primarily based on the

Group's past credit loss experience and an evaluation of potential losses in the receivables outstanding. In the

case of specific debts that are considered to be at risk of souring, the amount of the allowance is that is deemed

unlikely to be recovered following an assessment of the individual debt concerned.

(b) Provision for bonuses

Employees' bonuses are accrued at the end of the year to which such bonuses are attributable.

(c) Provision for directors’ bonuses

Bonuses to directors and Audit & Supervisory Board members are accrued at the year end to which such bonuses

are attributable.

(d) Provision for directors’ retirement benefits

Provision for directors are recorded as liabilityat the amount that would be required if all directors retired at end of

the balance sheet date.

The Company abolished the directors’ retirement benefits in June 2006, and no allowance for this benefit has been

recorded thereafter.

(5) Accounting for retirement benefits

(a) Attributing expected retirement benefits to periods

In calculating the projected benefit obligation, the benefit formula basis is used to attribute the expected benefit to

respective service period.

(b) Treatment of actuarial gains and losses and past service costs

Actuarial gains and losses are amortized on a straight-line basis over a specified number of years (8 years),

whithin the average remaining service period. Past service costs are charged to income at they are incurred.

(6) Accounting for important hedging activities

(a) Accounting for hedging activities

Deferred hedge accounting is adopted.

Interest rate swaps which qualify for hedge accounting and meet specific matching criteria are accounted for

exceptional treatments, while foreign currency forward contracts that meet the allocation method are accounted for

according to allocation method.

(b) Hedging instruments and items hedged

Hedging instruments: Interest rate swap, forward exchange contracts

Items hedged: Interest on loans, interest on bonds, accounts payable in foreign currencies

(c) Hedging policy

The Company enters into derivative contracts in order to hedge against the risk of fluctuations in interest rates and

currency exchange rates in an amount not exceeding the accounts payable relating thereto.

(d) Evaluation of the efficacy of hedging activities

The performance of the hedging instruments and the items hedged are compared using their total amount of

fluctuations in the market, based on which the efficacy is evaluated.

However, evaluation of the efficacy of the interest rate swaps subject to exceptional treatment is omitted.

(7) Amortization method and amortization period of goodwill

Goodwill is amortized using the straight-line method over its estimated useful life determined for each business

combination, not exceeding 20 years. However, goodwill which is fairly immaterial is included as an expense in the

consolidated fiscal year of its occurrence.

(8) Definitions of cash used in the consolidated cash flow statements

Cash and cash equivalents include cash at hand, highly liquid deposits at banks and short-term investments with

negligible risk of fluctuation in value and maturities of less than 3 months.

(9) Other accounting policies for the preparation of consolidated financial statements

(a) Treatment of consumption tax

Consumption tax is treated outside of the financial statements.

(b) Application of consolidated taxation system

The consolidated taxation system is being used.

- 22 -

(Changes in Accounting Policies)

(Application of “Practical Solution on a Change in Depreciation Method due to Tax Reform 2016”)

In accordance with the revision to the Corporation Tax Act, the Group applied the “Practical Solution on a Change in Depreciation

Method due to Tax Reform 2016” (Practical Issues Task Force No. 32, June 17, 2016) from the current fiscal year under review

and changed the depreciation method for building fixtures and structures acquired on or after April 1, 2016 from the declining

balance method to the straight-line method.

The effect of this change on the Group’s profit and loss is minor.

(Changes in Presentation)

(Changes in Application of Accounting Standards for Business Combination, etc.)

The Group adopted the provisions described in Article 39 and others of the “Revised Accounting Standard for Consolidated

Financial Statements” (ASBJ Statement No. 22 issued on September 13, 2013) and changed the presentation of net income and

others as well as that of minority interests to non-controlling interests. Consolidated financial statements for the previous fiscal

year have been reclassified to reflect the changes.

(Additional Information)

(Effect of changes in corporate tax rates)

Following the Diet’s enactment on March 29, 2016 of the “Act for Partial Revision of the Income Tax Act, etc.” (Act No. 15 of 2016)

and the “Act for Partial Revision of the Local Taxes, etc.” (Act No. 13 of 2016), corporate tax rates, etc. were lowered for the fiscal

years beginning on or after April 1, 2016.

Accordingly, the effective tax rates used to measure deferred tax assets and liabilities will be changed from 32.3% to 30.9% for

temporary differences expected to be eliminated in the fiscal years beginning on March 21, 2017 and on March 21, 2018, and

from 32.3% to 30.6% for temporary differences expected to be eliminated in the fiscal years beginning on or after March 21, 2019.

As a result of this tax rate change, deferred tax assets (after deducting deferred tax liabilities) decreased by 734 million yen while

income taxes-deferred increased by 754 million yen.

(Segment Information, etc.)

1. Overview of Reporting Segments

The Group’s reportable segments are those which separate financial information is available and regular evaluation by the

Board of Directors is being performed in order to decide how resources are allocated among the Group.

The Group is operating business by categorizing products and services of consolidated subsidiaries under the umbrella of the

Company, which is a pure holding company, into three business segments.

Therefore, the Company uses the three reporting segments of “Delivery Business,” “Logistics Business” and “Real Estate

Business” based on the said segments.

Main products and services of each reporting segment

Reporting segment Major products and services

Delivery Business

Hikyaku Express, Hikyaku Cool Express, Hikyaku Mail Express, Hikyaku Air Express,

Moving transportation, Route delivery service, Charter transportation, Installation

transportation, Art transportation, Collective delivery service, Food delivery service

etc.,

Logistics Business

Lump-sum acceptance of orders for logistics services, Development of logistics systems,

Control and management of inventory and orders placed and received, Management of

distribution centers, Warehousing, Transportation using public transport, Sgx (international

delivery service), International air and marine transportation

Real Estate Business Real estate leasing and management, Real estate development, Real estate fund,

Renewable energy supply

- 23 -

2. Methods of Measurement for the Amounts of Sales, Profit (Loss), Assets, Liabilities and Other Items for Each Reportable

Segment

The accounting method applied for reporting segments is the same as that described in “Significant Items Relating to the

Preparation of Consolidated Financial Statements.”

Profit by reporting segment is stated on an operating profit basis. Amounts for intersegment transactions or transfers are

calculated based on market prices.

3. Information on Operating Revenue, Income or Loss, Assets, and Other Items by Reporting Segment


(Million yen)

Amounts on

consolidate

financial

statements

(Note 3)

Delivery

Business

Logistics

Business

Real Estate

Business

Other

(Note 1) Total

Adjustments

(Note 2)

Operating revenue

Operating revenue to

external customers 721,573 114,099 47,558 60,070 943,303 - 943,303

Intersegment operating

revenue or transfers 37,249 7,759 4,307 69,007 118,323 (118,323) -

Total 758,823 121,858 51,866 129,078 1,061,626 (118,323) 943,303

Segment profit 38,422 1,092 10,248 4,986 54,748 (744) 54,004

Segment Asset 391,068 57,536 113,357 73,069 635,031 (51,269) 583,761

Other items

Depreciation and

amortization 17,395 1,502 2,924 1,182 23,005 766 23,772

Increase in property,

plant and equipment and

intangible assets

23,270 2,697 10,152 1,069 37,189 569 37,758

(Notes) 1. “Other” includes product sales, insurance agents, fuel sales, automobile services, automobile sales, manufacture of

auto bodies, system sales and maintenance, e-collect service, and temporary staffing service and providing staffing

services under contract.

2. The details of adjustments are as follows:

(1) The (744) million yen segment profit adjustment includes 6,807 million yen in eliminations for intersegment

transactions and (7,552) million yen of companywide expenses not allocated to the respective reporting segments.

Companywide expenses are primarily the Company’s operating expenses.

(2) The (51,269) million yen segment asset adjustment includes (111,095) million yen in eliminations for intersegment

transactions and 59,826 million yen of companywide assets not allocated to the respective reporting segments.

Companywide assets are primarily the Company’s surplus funds and funds for long-term investments (cash and

deposits, investment securities).

(3) The 766 million yen depreciation adjustment is primarily depreciation of companywide assets not allocated to the

respective reporting segments.

(4) The 569 million yen adjustment for an increase in property, plant and equipment and intangible assets comes from

(299) million yen in eliminations for intersegment transactions and the companywide capital investments totaling

868 million yen not allocated to the respective reporting segments.

3. Segment profit is adjusted to operating profit of consolidated financial statements.

- 24 -


(Million yen)

Amounts on

consolidated

financial

statements

(Note 3)

Delivery

Business

Logistics

Business

Real Estate

Business

Other

(Note 1) Total

Adjustments

(Note 2)

Operating revenue

Operating revenue to

external customers 738,186 110,471 17,513 64,134 930,305 - 930,305

Intersegment operating

revenue or transfers 37,965 8,390 4,564 71,515 122,435 (122,435) -

Total 776,152 118,861 22,077 135,650 1,052,741 (122,435) 930,305

Segment profit 39,647 786 5,146 5,704 51,286 (1,811) 49,474

Segment Asset 338,602 145,693 110,049 76,787 671,132 (20,289) 650,843

Other items

Depreciation 17,744 1,565 3,029 1,088 23,427 739 24,166

Investment to entities

accounted for using

equity method

10 90,141 - - 90,152 - 90,152

Increase in property,

plant and equipment and

intangible assets

17,505 3,184 16,164 1,839 38,694 (4,869) 33,824

(Notes) 1. “Other” includes product sales, insurance agents, fuel sales, automobile services, automobile sales, manufacture of auto bodies, system sales and maintenance, e-collect service, and temporary staffing service and providing staffing services under contract.

2. The details of adjustments are as follows: (1) The (1,811) million yen segment profit adjustment includes 6,843 million yen in eliminations for intersegment

transactions and (8,655) million yen of companywide expenses not allocated to the respective reporting segments. Companywide expenses are primarily the Company’s operating expenses.

(2) The (20,289) million yen segment asset adjustment includes (67,911) million yen in eliminations for intersegment transactions and 47,622 million yen of companywide assets not allocated to the respective reporting segments. Companywide assets are primarily the Company’s surplus funds and funds for long-term investments (cash and deposits, investment securities).

(3) The 739 million yen depreciation adjustment is primarily depreciation of companywide assets not allocated to the respective reporting segments.

(4) The (4,869) million yen adjustment for an increase in property, plant and equipment and intangible assets comes from (6,301) million yen in eliminations or transfer of balances for intersegment transactions and the companywide capital investments totaling 1,431 million yen not allocated to the respective reporting segments.

3. Segment profit is adjusted to operating profit of consolidated financial statements. (Significant Subsequent Events) VST CO., LTD., the Company’s consolidated subsidiary, entered into an absorption-type company split agreement with HUMONY CO., LTD. in accordance with the resolution of Board of Directors of the Company dated December 16, 2016. On April 3, 2017, VST CO., LTD. succeeded HUMONY CO., LTD.’s business, and VST CO., LTD. changed its trade name to HUMONY CO., LTD.

(i) Purpose

To increase market share of service similar to telegram (ii) The name of the company to take over

HUMONY CO., LTD. (iii) Business to take over

Service similar to telegram

(iv) Amount of assets and liabilities to take over Yet to be determined.

(v) Schedule of business transfer April 3, 2017

- 25 -

5. Non-Consolidated Financial Statements

(1) Balance Sheets

(Million yen)

FY2015 FY2016

(March 20, 2016) (March 20, 2017)

Assets

Current assets

Cash and deposits 42,055 29,341

Operating accounts receivable 327 359

Prepaid expenses 31 69

Deferred tax assets 596 557

Short-term loans receivable 995 821

Current portion of long-term loans receivable 11,790 9,909

Accounts receivable-other 8,885 1,419

Income taxes receivable 17 5,351

Other 347 342

Total current assets 65,047 48,171

Non-current assets

Property, plant and equipment

Buildings, net 0 82

Tools, furniture and fixtures, net 5 2,394

Leased assets, net 8 5

Construction in progress - 8

Total property, plant and equipment 14 2,490

Intangible assets

Trademark right 5 3

Software 13 36

Total intangible assets 19 39

Investments and other assets

Investment securities 3,970 4,419

Shares of subsidiaries and associates 198,895 263,648

Long-term loans receivable 152,744 147,830

Long-term prepaid expenses 18 27

Deferred tax assets 2,527

Other 179 188

Total investments and other assets 358,336 416,113

Total non-current assets 358,370 418,643

Deferred assets

Bond issuance cost 119 76

Total deferred assets

Total assets

119 76

423,537 466,892

-

- 26 -

(Million yen)

FY2015 (March 20, 2016)

FY2016 (March 20, 2017)

Liabilities

Current liabilities

Short-term loans payable 87,302 40,851

Current portion of long-term loans payable 20,970 38,236

Lease obligations 3 2

Accounts payable - other 841 1,258

Accrued expenses 692 761

Income taxes payable 6,379 3,380

Provision for bonuses 30 38

Other 18 2

84,532 Total current liabilities 116,237

Non-current liabilities

Bonds payable 9,000 9,000

Long-term loans payable 119,841 98,799

Lease obligations 6 3

Deferred tax liabilities - 329

Provision for retirement benefits 126 186

Other 348 219

108,538

193,070

Total non-current liabilities 129,322

Total liabilities 245,560

Net assets

Shareholders’ equity

Capital stock 11,882 11,882

Capital surplus

Legal capital surplus 109,089 109,089

109,089 Total capital surplus 109,089

Retained earnings

Other retained earnings

General reserve 30,000 30,000

Retained earnings brought forward 31,031 126,448

156,448

(4,421)

272,999

Total retained earnings 61,031

Treasury shares (4,421)

Total shareholders’ equity 177,582

Valuation and translation adjustments

Valuation difference on available-for-sale securitie 660 988

Deferred gains or losses on hedges (265) (165)

823

273,822

466,892

Total valuation and translation adjustments 394

Total net assets

Total liabilities and net assets

177,977

423,537

s

- 27 -

(2) Statements of Income

(Million yen)

FY2015

(March 21, 2015

to March 20, 2016)

FY2016

(March 21, 2016

to March 20, 2017)

19,128 Operating revenue 17,443

Operating cost 2,973 2,552

16,575

5,379

11,196

Operating gross profit 14,469

General and administrative expenses 4,408

Operating profit 10,061

Non-operating income

Interest income 8 0

Dividend income 122 688

Other 156 200

889 Total non-operating income 287

Non-operating expenses

Interest expenses 0 0

Other 680 6

6

12,079

Total non-operating expenses 680

Ordinary profit 9,668

Extraordinary income

Gain on sales of shares of subsidiaries and associates - 43,077

Extraordinary dividend - 60,255

103,332 Total extraordinary income -

Extraordinary loss


0

115,412

11,771

Total extraordinary loss 11

Profit before income taxes 9,656

Income taxes-current 140

Income taxes-deferred (3,292) 2,746

14,518

100,894

Total income taxes

Profit

(3,152)

12,808

- 28 -

(3) Statements of Changes in Equity


(Million yen)

Shareholders equity ’

Capital surplus Retained earnings

Capital stock Total

capital

surplus

Legal capital

surplus

Other retained earnings Total

retained

earnings

Retained

earnings

brought

forward

General

reserve

Treasury

shares

Total

shareholde

rs’ equity

Balance at beginning of

current period 11,882 109,089 109,089 30,000 21,628 51,628 (4,421) 168,179

Changes of items during

period

Dividends of surplus (3,406) (3,406) (3,406)

Profit 12,808 12,808 12,808

Net changes of items

other than shareholders

equity

’

Total changes of items

during period 9,402 9,402 9,402

Balance at end of current

period 11,882 109,089 109,089 30,000 31,031 61,031 (4,421) 177,582

- - - - -


Valuation

difference

on

available-

for-sale

securities

Valuation

and

translation

adjustment

Total

Deferred

gains or

losses on

hedges

Total net

assets

Balance at beginning of

current period 949 (286) 662 168,842


period


Profit 12,808


other than shareholders’

equity (288) 20 (267) (267)


during period (288) 20 (267) 9,134


period 660 (265) 394 177,977

- 29 -


(Million yen)

Shareholders’ equity

Capital

stock

Capital surplus Retained earnings

Treasury

shares ’

Total

sharehold

ers

equity

Legal

capital

surplus

Other

capital

surplus

Total capital surplus

Other retained

earnings Total

retained

earnings General

reserve

Retained

earnings

brought

forward

Balance at beginning

current period

of 11,882 109,089 - 109,089 30,000 31,031 61,031 (4,421) 177,582


period

Dividends of surplus (3,927) (3,927) (3,927)

Profit 100,894 100,894 100,894

Purchase of treasury

shares (1,549) (1,549)

Retirement of treasury

shares (1,549) (1,549) 1,549 -

Transfer to capital surplus


1,549 1,549 (1,549) (1,549) -


other than shareholders

equity

’


during period - - - - - 95,416 95,416 - 95,416


period 11,882 109,089 - 109,089 30,000 126,448 156,448 (4,421) 272,999


Total net

assets

Valuation

difference on

available-for-

sale securities

Deferred

gains or

losses on

hedges

Total valuation and

translation adjustments

Balance at beginning

current period

of 660 (265) 394 177,977


period


Profit 100,894

Purchase of treasury

shares (1,549)

Retirement of treasury

shares -

Transfer to capital surplus

from retained earnings -


other than shareholders’

equity 327 100 428 428


during period 327 100 428 95,845


period 988 (165) 823 273,822

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