Financial Report for Fiscal 2015 (Japanese GAAP ... · Accounting General Meeting of the...

Financial Report for Fiscal 2015 (Japanese GAAP) (Consolidated)

(May 6, 2016) 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 Shunichi Nakajima (TEL)075(671)8600 Accounting General Meeting of the Shareholders Scheduled for June 12, 2016 Payment of Dividends Scheduled for June 13, 2016

(Note: Amounts less than 1 million yen are rounded down to nearest million yen) Consolidated Financial Results for Fiscal Year Ended March 20, 2016 (March 21, 2015 - March 20, 2016)

(1) Consolidated Operating Results (Note: Percentage figures in table below represent changes from previous fiscal year) Operating Revenue Operating Income Ordinary Income Net Income

Million yen % Million yen % Million yen % Million yen %Fiscal 2015 943,303 10.0 54,004 18.4 52,572 19.8 33,975 36.9Fiscal 2014 857,449 2.7 45,594 5.1 43,901 7.7 24,815 49.0

(Note) Comprehensive income: Fiscal 2015 33,888 Million yen (19.2%) Fiscal 2014 28,426 Million yen (57.9%)

Net Income Per Share

Net Income Per Share Diluted

Return on Equity (ROE)

Return on Assets (ROA)

perating Margin

Yen Yen % % % Fiscal 2015 320.41 - 15.7 9.0 5.7 Fiscal 2014 232.42 - 13.1 7.7 5.3

O

(Reference) Income on investment in Fiscal 2015 33 Million yen Fiscal 2014 (8) Million yen equity-method affiliates:

(2) Consolidated Financial Position

Total Assets Net Assets Equity Ratio Net Assets Per Share Million yen Million yen % Yen

Fiscal 2015 583,761 237,192 39.5 2,205.96Fiscal 2014 585,230 207,547 34.4 1,924.69

(Reference) Shareholders’ equity: Fiscal 2015 230,624 Million yen Fiscal 2014 201,414 Million yen

(3) Consolidated Cash Flows

(Cash Flows from OperatingActivities)

(Cash Flows from InvestingActivities)

(Cash Flows from FinancingActivities)

Cash and Cash Equivalentsat the end of year

Million yen Million yen Million yen Million yen Fiscal 2015 85,770 (16,870) (42,938) 88,428 Fiscal 2014 45,882 (48,081) (23,378) 62,509

2. Dividend Status

1Q-end

Dividend Per Share

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

Total Dividends (annual)

Payout Ratio Consolidated

ividends on Net Assets onsolidated)

Yen Yen Yen Yen Yen Million % % yen Fiscal 2014 - 0.00 - 26.00 26.00 2,690 11.2 1.4 Fiscal 2015 - 0.00 - 30.00 30.00 3,104 9.4 1.5 Fiscal 2016 (Forecast) - - - - - -

( ) D

(C

(Note) “Dividend Status” 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 “Dividend Status of Class Shares” as described below. Distribution of dividends from surplus is scheduled to be resolved at the ordinary general shareholders’ meeting on June 10, 2016. The Company’s articles of incorporation designate September 20 and March 20 as the dividend record dates. However, dividend forecast based on the said record dates is currently undecided.

3. Projection of Consolidated Performance for Fiscal 2016 (March 21, 2016 - March 20, 2017) (Note: Percentage figures in table below represent changes from previous fiscal year)

Full year Million yen

920,000

Operating Revenue

% (2.5)

Operating Income

Million yen 50,000

% (7.4)

Ordinary Income

Million yen 50,000

% (4.9)

Net Income

Million yen 31,500

Yen 296.48

% (7.3)


* Notes

(1) Changes in significant subsidiaries during the period (Changes in specified subsidiaries resulting in changes in scope of : None 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 : Yes (iii) Changes in accounting estimates : None (iv) Restatements : None

(Note) Please refer to the section “4. CONSOLIDATED FINANCIAL STATEMENTS (5) NOTES ON CONSOLIDATED FINANCIAL STATEMENTS (Changes in Accounting Policies)” on page 18 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 stock) (ii) Number of shares of treasury stock at end

of period (iii) Average number of shares during the term

Fiscal 2015 106,732,400 shares Fiscal 2014 106,732,400 shares



(Reference) Summary of Non-Consolidated Operating Results

1. Non-Consolidated Operating Results for the Year Ended March 20, 2015 (March 21, 2015 – March 20, 2016) (Note: Percentage figures in table below represent changes from (1) Non-Consolidated Operating Results previous fiscal year)

Operating Revenue Operating Income Ordinary Income Net Income Million yen % Million yen % Million yen % Million yen %

Fiscal 2015 17,443 (0.4) 10,061 7.6 9,668 1.8 12,808 35.3 Fiscal 2014 17,518 31.8 9,349 78.3 9,496 76.6 9,468 83.6


Net Income Per Share Diluted

Yen YenFiscal 2015 115.84 - Fiscal 2014 84.41 -

(2) Non-Consolidated Financial Position

Total Assets Net Assets Equity Ratio Net Assets Per Share Million yen Million yen % Yen

Fiscal 2015 423,537 177,977 42.0 1,697.15Fiscal 2014 432,354 168,842 39.1 1,609.90

(Reference) Shareholders’ equity: Fiscal 2015 177,977 Million yen Fiscal 2014 168,842 Million yen

* Description concerning the appropriate use of business forecast and other remarks 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.

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Dividend Status of Class Shares

Details of dividend 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 2014 - 0.00 - 26.50 26.50 Fiscal 2015 - 0.00 - 30.50 30.50 Fiscal 2016 (Forecast) - - - - - Class B preferred shares Fiscal 2014 - 0.00 - 28.00 28.00 Fiscal 2015 - 0.00 - 32.00 32.00 Fiscal 2016 (Forecast) - - - - -

(Note) Distribution of dividends from surplus is scheduled to be resolved at the ordinary general shareholders’ meeting on June 10, 2016. The Company’s articles of incorporation designate September 20 and March 20 as the dividend record dates. However, dividend forecast based on the said record dates is currently undecided.

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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 ····················································· 4

2. Overview of SG HOLDINGS Group ······························································································· 5

3. Management Policy ···················································································································· 7

(1) Basic Policy of Corporate Management ························································································· 7

(2) Target Management Indicators and Medium- to Long-Term Management Strategies ···································· 7

(3) Challenges to Be Addressed ······································································································ 7

4. Consolidated Financial Statements ·································································································· 8

(1) Consolidated Balance Sheets ····································································································· 8

(2) Consolidated Statements of Income and Consolidated Statements of Comprehensive Income ························· 10

(3) Consolidated Statements of Changes in Net Assets ············································································ 12

(4) Consolidated Statements of Cash Flows ························································································ 14

(5) Notes on Consolidated Financial Statements ··················································································· 15

(Significant Items Relating to the Preparation of Consolidated Financial Statements) ···································· 15

(Changes in Accounting Policies) ································································································· 18

(Changes in Presentation) ·········································································································· 18

(Additional Information) ············································································································ 18

(Segment Information, etc.) ······································································································· 19

(Significant Subsequent Events) ···································································································· 22

5. Non-Consolidated Financial Statements ···························································································· 24

(1) Balance Sheets ……………………………………………………………………………………………………… 24

(2) Statements of Income ……………………………………………………………………………………………… 26

(3) Statements of Changes in Net Assets ……………………………………………………………………………… 27

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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 consolidated fiscal year under review, the Japanese economy was on a moderate recovery supported by the government’s economic and fiscal measures and by the Bank of Japan’s monetary easing measures while uncertainties lay for the future due partially to the slowdown of China’s economy and high volatility the foreign exchange market. The business environment in the logistics business has remained challenging. Despite a sign of improvement in business performance due to low crude oil prices, the labor supply and demand situation remained tight following the improvement in the employment situation while there were ongoing concerns about a rise in the cost of labor and car chartering. This fiscal year, marking the final year of the “Third Stage Plan” (our three-year medium-term management plan which started in FY2013, from FY2013 to FY2015), we focused on creating new profit opportunities by accurately capturing customer needs and expanding operations by leveraging the synergy within our Group to boost growth. Under these circumstances, in the Group’s core delivery business and logistics business, the Group continued its sales strategy by the team “GOAL” and strived to expand its business by providing proposals for integrated logistics solutions utilizing the Group’ synergy. Further, the Group integrated a transit center and a logistics facility and started operation of “Higashi Matsuyama SRC” to realize integrated solution services in November 2015. In the real estate business, the Group sold trust beneficiary rights in its real estate. In other businesses, the Group leveraged its management resources such as logistics networks, assets, and technologies to broaden our business scope. As a result, operating revenue for the consolidated fiscal year under review increased by 10.0% year on year to total 943,303 million yen and operating income rose 18.4% year on year to reach 54,004 million yen. Ordinary income was up 19.8% to total 52,572 million yen while net income amounted to 33,975 million yen for a year-on-year increase of 36.9%. Below is an overview of business segments and their respective performances.

• Delivery Business The number of packages handled and delivered by the Group through its main services was as follows:

Service name Fiscal 2014

(March 21, 2014 to March 20, 2015)

Fiscal 2015 (March 21, 2015 to March

20, 2016)

Year-on-year change

Year-on-year change

(%)

Hikyaku Express (in millions) 1,196 1,198 2 0.2

Hikyaku Air Express (in millions) 8 7 (0) (7.1)

Hikyaku Cool Express (in millions) 29 32 2 8.2

Mail Express (in millions) 280 247 (32) (11.6)

Hikyaku Mail

(in millions) Express

52 46 (6) (11.9)

Hikyaku You-Mail

(in millions)Express

227 200 (26) (11.5)

(Reference) e-Collect (in millions)

Service (in millions) 108 105 (2) (2.7)

Note: Although e-Collect Service belongs to the “Other Businesses” segment, the information is provided for reference purposes.

In the delivery business, while the number of packages handled remained unchanged, the Group continued to propose to optimize customers’ logistics, and sales increased due partially to expansion of charter service, etc. In November 2015, we started to operate “Higashi Matsuyama SRC”, a transit center, and strived to enforce transportation quality and efficiency. In the facility, we also strived to attain labor-saving operations through promotion of automated transport equipment. In addition to the above, the expanded lines of delivery solutions customized to meet customer needs as well as increased facility logistics services for large-scale commercial facilities were among the factors behind the profit increase. Although the above increase in sales contributed to profits, due partially to an increase in quality-related costs, profit decreased. All these factors brought operating revenue from this business segment up 1.3% year on year to total 721,573 million yen while operating income declined 1.8% year on year to reach 38,422 million yen.

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• Logistics Business In the logistics business in Japan, we actively promoted activities of the team “GOAL” and steadily accumulated favorable results through provision of proposals for integrated logistics services utilizing the Group functions cross-sectionally. We also kept actively expanding new sales offices. As a result the business remained favorable. Also, in “Higashi Matsuyama SRC”, taking advantage of the features of the facility incorporating a transit center and a logistics center, we are promoting solution services which effect improved efficiency through reduction in midway transportation and shortened lead time. In overseas, we expanded existing business domains. Also, the results of Explolanka Holdings PLC were favorable. In addition, during the fiscal year, the results of the company contributed to the Group’s earnings results, and thereby both sales and profit increased. In the end, operating revenue from this business segment increased by 41.0% from a year earlier to total 114,099 million yen while operating income rose 224.5% year on year to reach 1,092 million yen.

• Real Estate Business In the real estate business, SG Assetmax Co., Ltd., which was established through a joint investment between SG Realty Co., Ltd. and XYMax Corporation, started to operate management of assets as an unlisted open-ended real estate investment trust company starting in March 2015. Also, partially due to sale of trust beneficiary rights in the real estate for sale held by SG Realty Co., Ltd., both sales and profit increased. As a result, operating revenue from this business segment edged up 936.3% over last fiscal year to total 47,558 million yen while operating income rose 265.3% year on year to reach 10,248 million yen.

• Other Businesses In the other businesses, thanks to the start of the full-fledged operations of fuel sales, an increase in the number of new vehicles sold, and expansion of human resources services, sales increased, but partially affected by a decrease in the number of used vehicles sold and a decrease in IT-related transactions, profit decreased. All these factors brought operating revenue from this business segment up 1.2% year on year to total 60,070 million yen while operating income declined 0.4% year on year to reach 4,986 million yen.

(ii) Projections for the Next Fiscal Year With respect to the domestic economy for the new fiscal year, while the government’s economic and fiscal measures and the Bank of Japan’s monetary easing measures can be expected, uncertainties, such as concerns of a slowdown in the Chinese economy and the drastic fluctuations in the foreign exchange market, remain. Also, in the logistics industry, while profits can be boosted as a result of low crude oil prices, increasingly fierce competition among competitors, shortage of drivers, and increasing labor costs are continuing, and we acknowledge that a severe management environment will remain unchanged. Under such circumstances, marking the first year of the medium-term management plan “First Stage 2018”, in FY2016 we aim to focus on evolution of logistics solutions leveraging the full-extent of the Group’s capabilities and on establishment of a global logistics network consistent between domestic and overseas. In the delivery business and in logistics business, we will continue to propose to optimize customers’ logistics aiming to resolve latent issues of customers through the continued sales activities of the team “GOAL” which steadily accumulated favorable results during the fiscal year. Also, in addition to existing customers, we aim to strengthen our appeal to new markets and to develop new services. Overseas, we will expand our global logistics network with focus on Asia. In the real estate business, we aim to focus on continuous development and operational management towards building an optimal Group infrastructure and also to promote the growth of the unlisted open-end real estate investment company (private placement REIT). Projection for consolidated business performance

Operating revenue 920.0 billion yen Operating income 50.0 billion yen Ordinary income 50.0 billion yen Net income 31.5 billion yen

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(2) Analysis of Financial Position (i) Status of Assets, Liabilities and Net Assets

Liabilities totaled 583,761 million yen, falling 1,469 million yen from what they were at the end of the previous fiscal year. This was mainly because while real estate for sale decreased by 21,465 million yen and land decreased by 15,709 million yen, cash and deposits increased by 25,246 million yen and notes receivable-trade and operating accounts receivable increased by 9,519 million yen. Liabilities totaled 346,569 million yen, falling 31,114 million yen from what they were at the end of the previous fiscal year. This was mainly because loans payable decreased by 37,636 million yen. Net assets amounted to 237,192 million yen, up 29,644 million yen from what they were at the end of the previous fiscal year. Net income became as 33,975 million yen, despite 3,406 million yen in dividend payments took place from surplus. All these factors combined brought equity ratio up 5.1 percentage points above what it was at the end of the previous fiscal year, to hit 39.5%.

(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 increased by 25,919 million yen to total 88,428 million yen. The status of cash flows for the consolidated fiscal year under review and factors behind them are provided below. (Cash flows from operating activities) Funds provided by operating activities totaled 85,770 million yen, up 86.9% from a year earlier. This was mainly attributable to a recorded income before income taxes and minority interest of 46,310 million yen, a recorded depreciation and amortization of 23,814 million yen, a decrease in inventory assets of 33,913 million yen, and income taxes paid of 15,575 million yen. (Cash flows from investment activities) Funds used for investing activities amounted to 16,870 million yen, a year-on-year decrease of 64.9%. This was mainly attributable to 21,789 million yen of spending for acquiring property, plant and equipment, 7,558 million yen of spending for acquiring intangible fixed assets, and the proceeds of 15,102 million yen from sale of property, plant and equipment. (Cash flows from financing activities) Funds used for financing activities increased by 83.7% year on year to total 42,938 million yen. This was mainly attributable to 43,238 million yen of expenditures to repay long-term loans payable.

(3) Dividend Policy and Dividends for the Current and Next Fiscal Years The Company has set a basic profit distribution policy to maintain a stable dividend payment while securing sufficient retained earnings necessary to continue business operations in the future and to enhance business management. The Company makes it a basic policy to distribute dividends from surplus annually based on the resolution of the ordinary general shareholders’ meeting. Meanwhile, the Company’s articles of incorporation stipulate that the Company is able to pay an interim dividend based on the resolution of the Board of Directors. Based on those policies, the Company is planning to propose a resolution at the ordinary general shareholders’ meeting scheduled for June 10, 2016 to pay a dividend of 30.0 yen per common share, 30.5 yen per Class A preferred share, and 32.0 yen per Class B preferred share for the fiscal year under review. While dividends for the next fiscal year are undecided at this moment, the Company is committed to enhancing cost competitiveness to accommodate expected changes in the business environment, strengthening business infrastructure to meet market needs, and effectively investing retained earnings aimed at facilitating global strategies.

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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 company, 110 subsidiaries (including 108 consolidated subsidiaries and 2 nonconsolidated subsidiary not subject to the equity method), and 8 affiliates subject to the equity method and is engaging in the delivery business, logistics business, real estate business, and other associated businesses. Operations performed by the Group, together with the individual positions taken by related companies for performance of these operations, are as follows:

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 Collective delivery service, Food delivery service

SAGAWA EXPRESS CO., LTD. SG MOVING CO., LTD. WORLD SUPPLY CO., LTD.

(Total: 3 companies)

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 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. SHANGHAI DAZHONG 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. AMEROID LOGISTICS(S)PTE. LTD. PT. SAGAWA EXPRESS INDONESIA EXPOLANKA HOLDINGS PLC

Plus 87 other companies (Total: 101 companies)

Real Estate Business Real estate leasing and management Real estate development Real estate fund Renewable energy supply

SG REALTY CO., LTD.


Other Product sales, insurance agent, fuel salesAutomobile 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.


(Note) *1 The Group’s consolidated subsidiary, SG EXPERT CO., LTD. (shared service business) and SG HOLDINGS GLOBAL PTE. LTD. (overseas operation headquarters) have been omitted as they are common in all segments.

2. SG SAGAWA VIETNAM CO., LTD., a newly established company, has been included in the scope of consolidation since the current consolidated fiscal year.

3. We sold SAGAWA SILOX SHANGHAI CO., LTD. and SAGAWA SILOX QINGDAO CO., LTD.

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

Customer

Delivery Business

SAGAWA EXPRESS CO., LTD.

SG MOVING CO., LTD.

WORLD SUPPLY CO., LTD.

Real Estate Business

SG REALTY CO., LTD.

Plus 1 other consolidated subsidiary

1 affiliate not subject to the equity method

Other

SAGAWA ADVANCE CO., LTD.

SG MOTORS CO., LTD.

SG SYSTEMS CO., LTD.

SAGAWA FINANCIAL CO., LTD.

SG FIELDER CO., LTD.

Logistics Business

[Domestic]

SAGAWA GLOBAL LOGISTICS CO., LTD.

SAGAWA LOGISTICS PARTNERS CO., LTD.

SGH GLOBAL JAPAN CO., LTD.

[Overseas]

SHANGHAI POLY-SAGAWA LOGISTICS CO., LTD.

POLY-SAGAWA LOGISTICS CO., LTD.

SHANGHAI DAZHONG SAGAWA LOGISTICS CO., LTD.

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

Plus 79 other consolidated subsidiaries

7 affiliates subject to the equity method 1 nonconsolidated subsidiary not subject to the equity method

Plus 3 other consolidated subsidiary

1 affiliate not subject to the equity method

SG HOLDINGS CO., LTD. (holding company)

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

headquarters) have been omitted as they are common in all segments.

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3. Management Policy (1) Basic Policy of Corporate Management

Remaining committed to the founding spirit of "Hikyaku no Kokoro" (the spirit of express messenger), the SG Holdings Group has endeavored to improve its services and quality by which the customers can enjoy "Security," "Satisfaction" and "Trust." "Hikyaku no Kokoro" means, with a motto of "swiftly, surely, and carefully," a strong commitment to the customer creed, serving the development of local society, and emphasizing responsibility and good faith. Looking toward the future, the Group will make its utmost efforts to become a business entity of more value to society by quickly responding to the changing society and customer needs and providing total solutions.

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

The Group established an ideal situation dubbed “Towards an integrated logistics corporate group representing Asia” in its long-term management plan for 9 years from FY2016 to FY2024. In its first step, the Group has started a medium-term management plan dubbed “Fist Stage 2018” (for FY2016 to FY2018). In the medium-term management plan, we raise 5 items as described below as our management strategies, and we will promote our businesses aiming to attain consolidated operating revenue of 1 trillion yen, consolidated operating income of 62 billion yen and consolidated operating income margin of 6.2% for the last fiscal year 2018.

1. Reinforcing of its sustainable growth foundation through evolution of its integrated logistics solutions and enhancement of productivity

2. Reinforcement of its overseas business foundation, and establishment of a global logistics network through integration and development with its domestic businesses

3. Raising the value of peripheral businesses of the logistics business and optimization 4. Establishment of a human resources management system and diversification of utilization of human resources 5. Differentiation of services through effective use of latest technologies in an active manner and streamlining of

operations

(3) Challenges to Be Addressed The environment surrounding the Group is changing due to (i) growing diversification of customer needs and increasing customer expectations, (ii) the growth of the Asian economy, (iii) shortage of labor force due to declining population and changes in awareness, such as a work-life balance, (iv) increasing awareness of business management systems in society at large, (v) the global warming, etc. Viewing these changes as opportunities for growth, we are stepping up efforts on the following four key areas. (i) Developing new profitable lines of business

In the delivery business and in the logistics business, we are promoting solutions sales to meet the needs of customers in collaboration with Group companies, and we intend to focus on them also in the new medium-term management plan “First Stage 2018” further to promote enhancement of our earning power. As for overseas developments in the logistics business, we aim to continue to reinforce our businesses in the South-Eastern Asia and in the South Asia by devoting our management resources in key business fields particularly in Asia and through reinforcement of the forwarding network.

(ii) Securing human resources Our Group’s businesses are labor-intensive, and it is a key issue to secure and utilize human resources in a stable manner. Thus we have responded in a careful and attentive manner, such as by providing various options in how they work according to the characteristics of each logistics field. Continuously, we will focus on this issue with our recognition that recruitment of excellent human resources, appropriate allocation of manpower, and lowering of turnover are the key issues, and also we intend to work on promotion of diversity focusing on promotion of support for women to take active roles as well as provision of various options in work style.

(iii) Reinforcement of Business Administration Foundation We position safety, quality and compliance in the Group’s business management environment as critical management issues, and we intend to continuously reinforce our business administration foundation. Specifically, we will work on enhancement of delivery quality, such as by opening a transit center, and also for the purpose of fortification of our compliance system, we will work on firmly establishing the whistle-blowing system and reinforcement of our internal audits. Further, in order to build a corporate culture where business activities are performed with a sense of ethics, we will continuously implement educational activities to disseminate the “Ethical Standards and Code of Conducts of SG Holdings Group”.

(iv) Environmental conservation For the purpose of reducing burden on the environment, which cannot be avoided when we continue our business activities, we will keep working on activities towards conservation of the global environment, such as by focusing on reduction of CO2 emissions in its delivery system as a whole and through participation in forest preservation activities.

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4. Consolidated Financial Statements (1) Consolidated Balance Sheets

(Unit: million yen)

Fiscal 2014 (March 20, 2015)

Fiscal 2015 (March 20, 2016)

Assets

Current assets

Cash and deposits 63,263 88,509 Notes receivable-trade and operating accounts receivable

125,273 134,793

Real estate for sale 69,789 48,324

Merchandise and finished goods 338 327

Work in process 111 215

Raw materials and supplies 1,326 1,283

Deferred tax assets 4,897 5,439

Other 10,871 11,053

Allowance for doubtful accounts

Total current assets

Fixed assets

745 (884)

275,126 289,061

Property, plant and equipment

Buildings and structures (net) 53,493 48,229

Vehicles (net) 8,908 8,418

Land 140,398 124,689

Lease assets (net) 8,381 14,274

Construction in progress 4,480 1,661

Other (net)

Total property, plant and equipment

Intangible fixed assets

21,314 16,742

236,977 214,015

Goodwill 7,192 5,682

Software 12,187 10,911

Lease assets 83 52

Other

Total intangible fixed assets

Investments and other assets

4,553 6,706

24,017 23,353

Investment securities 6,512 9,415

Deferred tax assets 14,190 19,703

Other 30,447 30,164

Allowance for doubtful accounts

Total investments and other assets

Total fixed assets

Deferred assets

(2,203) (2,072)

48,946 57,211

309,941 294,579

Bond issuance cost

Total deferred assets

Total assets

162 119

162 119

585,230 583,761

- 10 -

(Unit: million yen)

Fiscal 2014 (March 20, 2015)

Fiscal 2015 (March 20, 2016)

Liabilities

Current liabilities

Notes and operating accounts payable-trade 46,723 46,567

Short-term loans payable 19,185 1,358

Current portion of long-term loans payable 29,138 20,970

Lease obligations 2,224 3,813

Income taxes payable 9,379 11,328

Deposits received 26,071 30,094

Provision for bonuses 5,253 5,202

Provision for directors’ bonuses 48 37

Other 43,791 38,235

Total current liabilities 181,816 157,608

Noncurrent liabilities

Bonds payable 9,000 9,000

Long-term loans payable 131,482 119,841

Lease obligations 6,873 11,866

Provision for directors’ retirement benefits 29 29

Net defined benefit liability 37,447 37,603

Asset retirement obligations 4,369 4,531

Other 6,664 6,089

Total non-current liabilities 195,867 188,960

Total liabilities 377,683 346,569

Net assets

Owners’ equity

Capital stock 11,882 11,882

Capital surplus 882 847

Retained earnings 188,964 219,534

Treasury stock (4,421) (4,421)

Total owners’ equity 197,309 227,842

Accumulated other comprehensive income

Valuation difference on available-for-sale securities 1,446 1,328

Deferred gains or losses on hedges (286) (265)

Foreign currency translation adjustment 3,205 1,975

Remeasurements of defined benefit plans (260) (257)

Total accumulated other comprehensive income 4,104 2,781

Minority interests 6,133 6,568

Total net assets

Total liabilities and net assets

207,547 237,192

585,230 583,761

- 11 -

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

(Unit: million yen)

Fiscal 2014

(March 21, 2014 to March 20, 2015)

Fiscal 2015 (March 21, 2015

to March 20, 2016)

Operating revenue 857,449 943,303

Operating cost 780,480 853,639

Operating gross profit 76,969 89,663

Selling, general and administrative expenses 31,375 35,659

Operating income 45,594 54,004

Non-operating income

Interest income 111 116

Dividends income 133 146

Equity in earnings of affiliates - 33

Other 2,176 2,503

Total non-operating income 2,421 2,800

Non-operating expenses

Interest expenses 3,731 2,988

Equity in losses of affiliates 8 -

Other 373 1,243

Total non-operating expenses 4,113 4,232

Ordinary income 43,901 52,572

Extraordinary income

Gain on sales of noncurrent assets 50 481

Other - 200

Total extraordinary income 50 682

Extraordinary loss

Loss on sales of noncurrent assets 1,048 54

Loss on retirement of noncurrent assets 338 539

Impairment loss 1,273 5,907

Other 596 443

Total extraordinary loss 3,256 6,944

Income before income taxes and minority interest 40,696 46,310

Income taxes-current 14,558 17,712

Income taxes-deferred 1,322 (6,309)

Total income taxes 15,880 11,403

Income before minority interests 24,815 34,907

Minority interests in income

Net income

(0) 931

24,815 33,975

- 12 -

(Statements of comprehensive income)

(Unit: million yen)

Fiscal 2014

(March 21, 2014 to March 20, 2015)


to March 20, 2016)

Income before minority interests 24,815 34,907

Other comprehensive income

Valuation difference on available-for-sale securities 765 (114)

Deferred gains or losses on hedges 39 20

Foreign currency translation adjustment 2,783 (790)

Remeasurements of defined benefit plans, net of tax - 26 Share of other comprehensive income of associates accounted for using equity method

Total other comprehensive income

Comprehensive income

(Comprehensive income attributable to)

22 (160)

3,610 (1,018)

28,426 33,888

Comprehensive income attributable to owners of the parent

27,769 32,652

Comprehensive income attributable to minority interests

656 1,236

- 13 -

(3) Consolidated Statements of Changes in Net Assets Fiscal 2014 (March 21, 2014 to March 20, 2015)

(Unit: million yen)

Capital stock Capital surplus

Owners’ equity

Retained earnings Treasury stock Total owners’

equity

Outstanding balance at the beginning of fiscal period 11,882 882 167,179 (3,461) 176,483

Changes of items during the period

Dividends from surplus (3,029) (3,029)

Net income 24,815 24,815

Purchase of treasury stock (960) (960)

Net changes of items other than owner’s equity

Total changes of items duringperiod 21,785 (960) 20,825

Balance as of March 20, 2015 11,882 882 188,964 (4,421) 197,309

-

- -


Valuation difference

on available-for-sale

securities

RemeasureDeferred Foreign ments of gains or currency defined losses on translation benefit hedges adjustment plans

Total accumulated

other omprehensive

income

Minority interests

Total net assets

Outstanding balance at the beginning of fiscal period

681 (325) 1,055 1,410 1,232 179,127


Dividends from surplus (3,029)

Net income 24,815

Purchase of treasury stock (960)

Net changes of items other than owner’s equity 765 39 2,149 (260) 2,693 4,900 7,593

Total changes of items during period

765 39 2,149 (260) 2,693 4,900 28,419

Balance as of March 20, 2015 1,446 (286) 3,205 (260) 4,104 6,133 207,547

c

-

-

-

-

- 14 -

Fiscal 2015 (March 21, 2015 to March 20, 2016)

(Unit: million yen)

Owners’ equity

Capital stock Capital surplus Retained earnings Treasury stock Total owners’

equity

Outstanding balance at the beginning of fiscal period 11,882 882 188,964 (4,421) 197,309


Change in parent company’sequity in relation to transactions with minority shareholders

(35) (35)

Dividends from surplus (3,406) (3,406)

Net income 33,975 33,975


Total changes of items duringperiod - (35) 30,569 - 30,533

Balance as of March 20, 2016 11,882 847 219,534 (4,421) 227,842

-


Valuation difference

on available-for-sale

securities

RemeasureDeferred Foreign ments of gains or currency defined losses on translation benefit hedges adjustment plans

Total accumulate

d other comprehen

sive income

Minority interests

Total net assets

Outstanding balance at the beginning of fiscal period 1,446 (286) 3,205 (260) 4,104 6,133 207,547


Change in parent company’sequity in relation to transactions with minority shareholders

(35)


Net income 33,975

Net changes of items other than owner’s equity (117) 20 (1,230) 3 (1,323 434 (888)

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

Balance as of March 20, 2016 1,328 (265) 1,975 (257) 2,781 6,568 237,192

-

-

-

)

)

- 15 -

(4) Consolidated Statements of Cash Flows

(Unit: million yen)


to March 20, 2015)


to March 20, 2016)

Net cash provided by (used in) operating activities Income before income taxes and minority interest 40,696 46,310 Depreciation and amortization 21,428 23,814 Impairment loss 1,273 5,907 Amortization of goodwill 633 1,116 Increase (decrease) in provision for bonuses 364 (50) Increase (decrease) in net defined benefit liability (543) 184 Interest and dividends income (245) (263) Interest expenses 3,731 2,988 Loss (gain) on sales and retirement of noncurrent assets 1,335 112 Decrease (increase) in notes and accounts receivable-trade (3,603) (10,369) Decrease (increase) in inventories (2,447) 33,913 Increase (decrease) in notes and accounts payable-trade 1,135 260 Increase (decrease) in deposits received (7,233) 4,028 Other Subtotal

8,399 (3,757) 64,923 104,194

Interest and dividends income received 204 221 Interest expenses paid (3,715) (3,070) Income taxes paid (15,530) (15,575) Net cash provided by (used in) operating activities

Net cash provided by (used in) investing activities Purchase of property, plant and equipment Proceeds from sales of property, plant and equipment Purchase of intangible fixed assets Proceeds from collection of guarantee deposits Purchase of investment securities Purchase of stocks of subsidiaries and affiliates Payments for investments in capital Purchase of investments in subsidiaries resulting in change in scope of consolidation Proceeds from sales of investments in subsidiaries resulting in change in scope of consolidation Purchase of investments in subsidiaries Other Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities Net increase (decrease) in short-term loans payable Proceeds from long-term loans payable Repayment of long-term loans payable Payments from changes in ownership interests in subsidiaries that do not result in change in scope of consolidation Repayments of lease obligations Purchase of treasury stock Cash dividends paid Cash dividends paid to minority shareholders Net cash provided by (used in) financing activities

Effect of exchange rate change on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Outstanding balance of cash and cash equivalents, beginning of fiscal period/year Outstanding balance of cash and cash equivalents, end of fiscal period/year

45,882 85,770

(37,406) 562

(3,787) 983 (40)

- (102)

(6,991)

534

(463) (1,369)

(21,789)

15,102 (7,558)

1,423 (20) (49)

(3,213)

-

-

- (765)

(48,081) (16,870)

18,030 19,785

(55,729)

-

(1,475) (960)

(3,029) -

(17,749)

23,700 (43,238)

(202)

(1,935) -

(3,406) (105)

(23,378) (42,938) 1,613 (42)

(23,964) 25,919

86,473 62,509

62,509 88,428

- 16 -

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

1. Scope of Consolidation (i) Number of consolidated subsidiaries: 108

Names of principal consolidated subsidiaries: SAGAWA EXPRESS CO., LTD. SG MOVING CO., LTD. WORLD SUPPLY CO., LTD. SAGAWA GLOBAL LOGISTICS CO., LTD. SAGAWA LOGISTICS PARTNERS CO., LTD. SGH GLOBAL JAPAN CO., LTD. SG REALTY CO., LTD. SAGAWA ADVANCE CO., LTD. SG MOTORS CO., LTD. SG SYSTEMS CO., LTD. SAGAWA FINANCIAL CO., LTD. SG FIELDER CO., LTD. SG EXPERT CO., LTD. SG HOLDINGS GLOBAL PTE. LTD. SAGAWA EXPRESS (H.K.) CO., LTD. SAGAWA EXPRESS VIETNAM CO., LTD. SG SAGAWA VIETNAM CO., LTD. AMEROID LOGISTICS(S)PTE. LTD. EXPOLANKA HOLDINGS PLC

SG SAGAWA VIETNAM CO., LTD., a newly established company, has been included in the scope of consolidation since the current consolidated fiscal year. As a result that EXPOLANKA HOLDINGS PLC has newly established one subsidiary company, the subsidiary company has been included in the scope of consolidation and also because it has sold its shares of two subsidiary companies, the two subsidiary companies have been excluded from the scope of consolidation since the current consolidated fiscal year. We sold our shares of SAGAWA SILOX QINGDAO CO., LTD. and SAGAWA SILOX SHANGHAI CO., LTD, and thus those two companies have been excluded from the scope of consolidation.

(iii) Name etc. of non-consolidated subsidiary Names of principal consolidated subsidiaries:

SAGAWA EXPRESS HAWAII, INC. (Reason for exclusion from the scope of consolidation)

This is because each size of this non-consolidated subsidiary is small, and the aggregate amount of total assets, operating revenue, net income (calculated by the equity method) and retained earnings (calculated by the equity method), etc. do not significantly affect the consolidated financial statements.

2. Notes on Application of the Equity Method

(i) Number of affiliates subject to the equity method: 8 Name of principal companies SG Lawson, Inc. SG Lawson, Inc. has been newly established and it has been included in the scope of equity-method applicable companies since the current consolidated fiscal year. We have sold shares of SINDHU CARGO SERVICES PTE. LTD., and therefore we have excluded the company and its two subsidiary companies from the scope of equity-method applicable companies.

(iii) Name etc. of non-consolidated subsidiaries and affiliates not subject to the equity method Name of principal companies SAGAWA EXPRESS HAWAII, INC. (Reasons for not applying the equity method) This is because unconsolidated subsidiaries not subject to the equity method have a minor impact on the consolidated financial statements in light of net income (calculated by the equity method), retained earnings (calculated by the equity method), etc. even if they are excluded from the scope of equity-method applicable companies and also they have no material impact on the consolidated financial statements as a whole.

- 17 -

(iii) SG Lawson, Inc. closes their books on February 29, and when preparing our consolidated financial statements, we used their financial statements as of the closing date.

Also, because seven domestic and overseas affiliated companies subject to the equity method, including EXPO GLOBAL DISTRIBUTION CENTRE (PVT) LTD., have closing dates different from our closing date of books, and therefore we used their financial statements that were prepared based on 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. When preparing our consolidated financial statements, we used their financial statements that were prepared based on their fiscal years ended on such date. Among our consolidated overseas subsidiaries, 70 companies including EXPOLANKA HOLDINGS PLC close their books on March 31. When preparing our consolidated financial statements, we used their financial statements that were prepared based on provisional settlement of accounts as of December 31. We made adjustments necessary for consolidation if there were material transactions during the period between such closing date and the closing date of consolidated accounts.

4. Accounting Policies and Standards

(i) Appraisal standards and methods for important assets (a) Securities

Other securities Marketable Reported at the market value of the securities 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 market value

(c) New inventories Real estate for sale, merchandise, finished goods, raw materials, work in process: Mainly reported at cost on an individual specified cost basis (Balance sheet value is stated by writing down the carrying value based upon lowered profitability.) Raw materials Mainly reported at cost using the gross average method (Balance sheet value is stated by writing down the carrying value based upon lowered profitability.) Supplies Mainly reported at cost based on the first-in first-out method (Balance sheet value is stated by writing down the carrying value based upon lowered profitability.)

(iii) Depreciation and amortization methods for important depreciable and amortizable assets

(a) Property, plant and equipment (except lease assets) The Company and its major consolidated domestic subsidiaries adopt the declining balance method, except for the buildings (excluding fixtures) acquired on and after April 1, 1998, which are depreciated using the straight-line method. Major consolidated overseas subsidiaries adopt the straight-line method.

(b) Intangible fixed assets (except lease assets) Amortized using the straight-line method. However, software for the Company’s own use is amortized over the period it can be used by the Company (five years).

(c) Lease assets Lease assets related to finance lease transactions with title transfer:

Depreciated by the same method as the depreciation method applied to the fixed assets held by the Company. Lease assets related to finance lease transactions without title transfer:

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

(iii) Treatment of deferred assets (a) Bond issuance cost

Depreciated by the straight-line method for a period of time up to the redemption of bonds.

- 18 -

(iv) Reporting standards for important allowances (a) Allowance for doubtful accounts

The Company makes this allowance for losses arising from doubtful account. For normal debts, the amount of the allowance is determined using past default rates. In the case of specific debts that are considered to be at risk of souring, the amount of the allowance is the amount that is deemed unlikely to be recovered following an assessment of the individual debt concerned.

(b) Provision for bonuses The Company makes this allowance for employees’ bonus payments based on estimated bonus to be paid in this consolidated fiscal year.

(c) Provision for directors’ bonuses The Company makes this allowance for directors’ bonus payments based on estimated bonus to be paid in this consolidated fiscal year.

(d) Provision for directors’ retirement benefits The Company makes allowance for directors’ retirement benefits at the end of the fiscal year in accordance with the Company’s internal rules. The Company abolished the directors’ retirement benefits in June 2006, and no allowance for this benefit is recorded thereafter.

(v) Accounting for retirement benefits (a) Attributing expected retirement benefits to periods

With respect to the method of attributing expected retirement benefits to periods until the end of the said consolidated fiscal year for the purpose of calculating retirement benefit obligation, we used the benefit formula method.

(b) Treatment of actuarial gains or losses and past service costs Actuarial gains or losses are recognized commencing with the consolidated fiscal year following their accrual and are amortized ratably on a straight-line basis over a specified number of years (8 years), which does not exceed the average remaining years of service of employees at the time of their accrual in each consolidated fiscal year. Past service costs are recognized as they are incurred.

(vi) Accounting for important hedging activities (a) Accounting for hedging activities

Deferred hedge accounting is adopted. Interest rate swaps that meet certain conditions are accounted for according to exceptional treatments, while forward exchange contracts that meet condition of appropriation are accounted for according to such appropriation treatment.

(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 the 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 is 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 the specific treatment is omitted.

(vii) 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 twenty years. However, goodwill which is fairly immaterial is included as an expense in the consolidated fiscal year of its occurrence.

(viii) 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 three months.

(ix) 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.

- 19 -

(Changes in Accounting Policies) (Adoption of Accounting Standard for Retirement Benefits, etc.) Starting with the current consolidated fiscal year, we have applied “Accounting Standard for Retirement Benefits” (ASBJ Statement No. 26, May 17, 2012 (hereinafter referred to as the “Accounting Standard for Retirement Benefits”))and “Guidance on Accounting Standard for Retirement Benefits” (ASBJ Guidance No. 25, March 26, 2015, hereinafter referred to as the “Guidance on Accounting Standard for Retirement Benefits”)) within the scope of regulations stipulated in the text of the Accounting Standard for Retirement Benefits Paragraph 35 and the Guidance on Accounting Standard for Retirement Benefits Paragraph 67. As a result, the Company reviewed on the calculation methods for the retirement benefit obligations and service cost, and also the Company has changed the method for determining the discount rate from the method using a rate based on years approximate to the average remaining service period of the employees to the method using single weighted average discount rate determined by reflecting the estimated period of retirement benefit payment and the amount for each estimated period of retirement benefit payment. The change has no effect on retained earnings and on profit and loss as of the beginning of the consolidated fiscal year. (Adoption of the Accounting Standard for Business Combinations) Starting with the start of the consolidated fiscal year commencing on and after April 1, 2014, it is allowed to apply “Revised Accounting Standard for Business Combinations” (ASBJ Statement No. 21 issued on September 13, 2013 (hereinafter referred to as the “Accounting Standards for Business Combinations”), the “Revised Accounting Standard for Consolidated Financial Statements” (ASBJ Statement No. 22 issued on September 13, 2013 (hereinafter referred to as the “Accounting Standards for Consolidated Financial Statements”)), the “Revised Accounting Standard for Business Divestitures” (ASBJ Statement No. 7 issued on September 13, 2013 (hereinafter referred to as the “Accounting Standards for Business Divestitures”)) and other standards, and the Company has started to apply these standards, etc. since the current consolidated fiscal year (however, excluding provisions described in Article 39 of the Standards for Consolidated Financial Statements). Accordingly, the accounting method was changed to record the difference arising from changes in equity interest in those subsidiaries over which the Parent Company continues to exercise control, as capital surplus of the parent company, and to record business acquisition costs as expenses for the relevant fiscal year. Regarding business combinations which became effective on or after the beginning of this fiscal year, the accounting method was changed to retroactively reflect adjustments to the provisional allocation of acquisition cost recorded in the relevant consolidated financial statements. In the consolidated statement of cash flows, the cash flow for the costs of the acquisition or sales of ownership interests in subsidiaries that do not result in change in scope of consolidation is stated in the net cash provided by (used in) financing activities, and the cash flow for the costs of the acquisition of ownership interests in subsidiaries resulting in change in scope of consolidation or the acquisition or sales of ownership interests in subsidiaries that do not result in change in scope of consolidation is stated in the net cash provided by (used in) operating activities. The Business Combinations Accounting Standard and other standards were applied in accordance with the transitional treatment set forth in Paragraph 58-2 (4) of the “Accounting Standards for Business Combinations”, Paragraph 44-5 (4) of the “Accounting Standards for Consolidated Financial Statements” and Paragraph 57-(4) of the “Accounting Standards for Business Divestitures”, and these standards have been applied from the beginning of the current consolidated fiscal year to the future. The effect of application of these standards, etc. on capital surplus and profit and loss is immaterial.

(Changes in Presentation)

(Consolidated Statements of Cash Flows) “Amortization of goodwill” and “Decrease (increase) in inventories”, which had been included in “Other” of “Net cash provided by (used in) operating activities” until the previous consolidated fiscal year, are now separately classified and stated from this consolidated fiscal year, since they have become significant in terms of amount. As a result, 6,585 million yen presented in “Other” of “Net cash provided by (used in) operating activities” in the previous consolidated financial statements was reclassified into “Amortization of goodwill” of 633 million yen, “Decrease (increase) in inventories” of (2,447) million yen, and “Other” of 8,399 million yen. “Payment for investment in capital”, which was included in “Other” of “Net cash provided by (used in) investing activities” in the previous consolidated fiscal year, is now separately classified and stated from this consolidated fiscal year, since it has become significant in terms of amount. As a result, (1,471) million yen presented in “Other” of “Net cash provided by (used in) investing activities” in the previous consolidated financial statements was reclassified into “Payment for investment in capital” of (102) million yen and “Other” of (1,369) million yen. (Additional Information) (“Effect of Changes in Corporate Tax Rate, Etc.) The “Act on Partial Revision of the Income Tax Act, Etc.” (Act No. 9 of 2015) and “Act on Revision of the Local Taxation Act, Etc. (Act No. 2 of 2015) were promulgated on March 31, 2015, and corporate taxation rates were decided to be decreased starting in consolidated fiscal year commencing on and after April 1, 2015. As a result, the statutory effective tax rate used for calculations of deferred tax assets and deferred tax liabilities will be changed from the past rate of 35.6% to 33.1% for temporary differences that are expected to be eliminated in a consolidated fiscal year starting on March 21, 2016, and to 32.3% for temporary differences that are expected to be eliminated in a consolidated fiscal year starting after March 21, 2017. As a result of the revised corporate taxation rates, the amount of Deferred tax assets (after deduction of the amount of deferred tax liabilities) decreased by 1,956 million yen and Income taxes-deferred increased by 1,998 million yen.

- 20 -

(Segment Information, etc.) 1. Overview of Reporting Segments

The Company’s reporting segments are regularly reviewed by the Board of Directors using the segregated financial information available within each segment to determine the allocation of management resources and evaluate business results. The Group is operating business by categorizing products and services of consolidated subsidiaries under the wings 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

Hikyaku Express, Hikyaku Cool Express, Hikyaku Mail Express, Mail Air Express, etc., Moving transportation, Route delivery service, Charter transportation, Installation transportation, Art transportation, Collective delivery service, Food delivery service

Delivery 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 services

Logistics Business

Real estate leasing and management, Real estate development, Real estate fund, Renewable energy supply Real Estate Business

2. Calculation Methods for Operating Revenue, Income or Loss, Assets and other Items

The accounting method applied for reported reporting segments is the same that described in “Changes in Significant Basic Items for Preparation of Consolidated Financial Statements.”

Profit by reporting segment is stated on an operating income basis. Amounts for intersegment transactions or transfers are calculated based on market prices.

- 21 -

3. Information on Operating Revenue, Income or Loss, Assets, and Other Items by Reporting Segment Fiscal 2014 (March 21, 2014 to March 20, 2015)

(Unit: million yen) Amounts on

Delivery Business

Logistics Business

Real Estate Business Other

(Note 1) Total consolidated Adjustments financial (Note 2) statements

(Note 3)

Operating revenue

Outside customers 712,566 80,935 4,589 59,358 857,449 857,449

Operating revenue from internal transactions between different segments / transfer of balances between different segments

36,022 7,719 4,666 70,941 119,349 (119,349)

Total 748,589 88,654 9,255 130,299 976,799 (119,349) 857,449

Segment income 39,119 336 2,805 5,006 47,268 (1,674) 45,594

Segment Asset 396,491 58,138 119,981 68,404 643,015 (57,784) 585,230

Other items Depreciation and amortization 14,831 1,293 3,339 1,289 20,753 632 21,385

Increase in property, plant and equipment and intangible fixed assets

22,816 1,820 21,975 1,871 48,483 421 48,905

-

-

(Note) 1. The “Other” includes product sales, insurance agent, 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 (1,674) million yen segment income adjustment includes 6,189 million yen in eliminations for intersegment

transactions and (7,864) million yen of companywide expenses not allocated to the respective reporting segments. Companywide expenses are primarily the Company’s operating expenses.

(2) The (57,784) million yen segment asset adjustment includes (93,222) million yen in eliminations for intersegment transactions and 35,437 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 632 million yen depreciation adjustment is primarily depreciation of companywide assets not allocated to the respective reporting segments.

(4) The 421 million yen adjustment for an increase in property, plant and equipment and intangible fixed assets comes from (302) million yen in eliminations for intersegment transactions and the companywide capital investments totaling 724 million yen not allocated to the respective reporting segments.

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

- 22 -


(Unit: million yen)

Delivery Business Logistics

Business

Real Estate Business Other

(Note 1) Total Adjustments(Note 2)

Amounts on consolidated

financial statements (Note 3)

Operating revenue

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

Operating revenue from internal transactions between different segments / transfer of balances between different segments

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 income 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 fixed assets

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

(Note) 1. The “Other” includes product sales, insurance agent, 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 income 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 fixed 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 income is adjusted to operating income of consolidated financial statements.

- 23 -

(Significant Subsequent Events) Our Company and Sagawa Express Co., Ltd. (hereinafter referred to as “Sagawa Express”), our Company’s consolidated subsidiary, concluded a capital and business alliance contract with Hitachi Transport System, Ltd. (hereinafter referred to as “Hitachi Transport System”, and these companies are referred to as the “Two Parties” hereunder) on March 30, 2016. In relation to the above, Hitachi Ltd. (hereinafter referred to as “Hitachi”), which is the parent company of Hitachi Transport System, concluded an agreement to transfer part of its shares in Hitachi Transport System to SG Holdings, and also SG Holdings concluded an agreement to transfer part of its shares in Sagawa Express to Hitachi Transport System.

(1) Reason for the Capital and Business Alliance While logistics industry, in which the Companies do business, plays a crucial role in supporting the foundation of Japan's social infrastructure, the Companies continue to face a tough business environment, in particular limited growth in freight demand in Japan and rising cost including personnel cost due to worker shortage. On the other hand, customer needs have grown more demanding and diverse, such as the need for seamless one-stop distribution connecting domestic & international network, in conjunction with increased globalization, requiring designated-time deliveries for rapidly-growing online and catalog sales, and expectations for logistics companies are higher than ever. The Companies share common understanding that in order to fulfill their social mission it is necessary to build a stronger business foundation and step up to become one of the most competitive corporations in Japan, and have engaged in various discussions under this philosophy. As a result, the Companies have reached to aim to carry out strategic measures for integrating their strengths and contribute to improve competitiveness of Japanese companies which are operating globally.

(2) Particulars, Etc. of the Capital and Business Alliance The Two Parties have business which mutually complements each other. Under the concept of "integration of the delivery business and the logistics business," the Companies will make the best use of Sagawa Express's transport and delivery expertise, Hitachi Transport System's logistics technology (hereinafter referred to as “LT”), their respective strengths in the 3PL business, and their abundant knowhow and sizeable customer bases. Consequently, the Two Parties will be able to provide comprehensive logistics where delivery and 3PL are seamlessly integrated, and not only maximize corporate value as logistics companies challenging themselves to become world-class players, but also fulfill the logistics industry's social mission. To realize this "vision", the Companies have agreed to the following Capital and Business Alliance measures.

(i) Particulars of the Business Alliance The Companies plan to carry out a business alliance involving the following measures. Concrete policies and details will continue to be discussed.

(a) Strengthen customer solution proposal-ability and expand business through marketing alliance making use of mutual customer base

(b) Promote central fleet management and share logistics center to improve utilization rates and efficiency (c) Work on advanced logistics using the Companies' IT and LT expertise (d) Reinforce and enhance global business, with a focus on Asia (alliance of forwarding business and cross-border

transport, etc.) (e) Reinforce and enhance peripheral businesses through mutual utilization of resources (real estate business and

system business, etc.) and collaboration (ii) Particulars of the Capital Alliance

(a) Acquisition of shares The Company will acquire from Hitachi 32,349,700 shares of Hitachi Transport System through off-market trading. On May 19, 2016. As a result, Hitachi Transport System will be an equity method affiliated company of the Company.

Name of the counterparty company of the Hitachi, Ltd. acquisition of shares Name of the company shares of which will be Hitachi Transport System, Ltd. acquired by the Company Timing of acquisition of shares May 19, 2016

Number of shares to be acquired and 32,349,700 shares acquisition price 87,570 million yen

Percentage of ownership after acquisition 29.0%

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(b) Transfer of shares The Company will transfer to Hitachi Transport System 10,655,240 shares of Sagawa Express on May 20, 2016. As a result, the Company’s percentage of ownership of Sagawa Express will be 80%.

Name of the counterparty company to which shares will be transferred

Hitachi Transport System, Ltd.

Timing of transfer May 20, 2016

Name of subsidiary company shares of which will be transferred

SAGAWA EXPRESS CO., LTD.

Number of shares to be transferred and transfer price

10,655,240 shares

66,318 million yen

Percentage of ownership after transfer 80.0%

(3) Profiles of the Other Party for Capital and Business Alliance

(i) Name Hitachi Transport System, Ltd.

(ii) Address 7-2-18, Toyo, Koto-ku, Tokyo

(iii) Representative title, name President and Chief Executive Officer Yasuo Nakatani Integrated logistics service industry (iv) Business description

(v) Capital 16,802 million yen

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5. Non-Consolidated Financial Statements (1) Balance Sheets

(Unit: million yen)

FY2014 FY2015 (March 20, 2015) (March 20, 2016)

Assets

Current assets

Cash and deposits 23,954 42,055

Operating accounts receivable 323 327

Prepaid expenses 23 31

Deferred tax assets 24 596

Short-term loans receivable 10,640 995

Current portion of long-term loans 28,229 11,790

Accounts receivable-other 6,356 8,885

Other 384 364

Total current assets 69,937 65,047

Fixed assets

Property, plant and equipment

Buildings (net) 0 0

Machinery and equipment (net) 11 -

Tools, furniture and fixtures (net) 16 5

Lease assets (net) 12 8

Total property, plant and equipment 40 14

Intangible fixed assets

Right of trademark 9 5

Software 13 13

Total intangible fixed assets 22 19

Investments and other assets

Investment securities 4,468 3,970

Stocks of subsidiaries and affiliates 196,417 198,895

Long-term loans receivable 161,104 152,744

Long-term prepaid expenses 22 18

Deferred tax assets - 2,527

Other 178 179

Total investments and other assets 362,192 358,336

Total fixed assets 362,255 358,370

Deferred assets

Bond issuance cost 162 119

Total deferred assets

Total assets

162 119

432,354 423,537

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(Unit: million yen)

FY2014 FY2015 (March 20, 2015) (March 20, 2016)

Liabilities

Current liabilities

Short-term loans payable 92,560 87,302

Current portion of long-term loans payable 23,138 20,970

Lease obligations 3 3

Accounts payable - other 1,014 841

Accrued expenses 724 692

Income taxes payable 4,587 6,379

Provision for bonuses 33 30

Other 117 18

Total current liabilities 122,181 116,237

Noncurrent liabilities

Bonds payable 9,000 9,000

Long-term loans payable 131,479 119,841

Lease obligations 9 6

Provision for retirement benefits 69 126

Deferred tax liabilities 391 -

Other 380 348

Total non-current liabilities 141,331 129,322

Total liabilities 263,512 245,560

Net assets

Owners’ equity

Capital stock 11,882 11,882

Capital surplus Legal capital surplus 109,089 109,089

Total capital surplus 109,089 109,089

Retained earnings Other retained earnings

General reserve 30,000 30,000 Retained earnings brought forward 21,628 31,031

Total retained earnings 51,628 61,031

Treasury stock (4,421) (4,421)

Total owners’ equity 168,179 177,582

Valuation and translation adjustments

Valuation difference on available-for-sale securities 949 660

Deferred gains or losses on hedges (286) (265)

Total valuation and translation adjustments 662 394

Total net assets

Total liabilities and net assets

168,842 177,977

432,354 423,537

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(2) Statements of Income

(Unit: million yen)

FY2014

(March 21, 2014 to March 20, 2015)

FY2015 (March 21, 2015

to March 20, 2016)

Operating revenue 17,518 17,443

Operating cost 3,636 2,973

Operating gross profit 13,881 14,469

General and administrative expenses 4,532 4,408

Operating income 9,349 10,061

Non-operating income

Interest income 7 8

Dividends income 106 122

Other 33 156

Total non-operating income 147 287

Non-operating expenses

Interest expenses 0 0

Other - 680

Total non-operating expenses 0 680

Ordinary income 9,496 9,668

Extraordinary loss

Loss on retirement of noncurrent assets 0 11

Total extraordinary loss 0 11

Income before income taxes and minority interest 9,496 9,656

Income taxes-current 42 140

Income taxes-deferred (14) (3,292)

Total income taxes

Net income

27 (3,152)

9,468 12,808

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(3) Statements of Changes in Net Assets Fiscal 2014 (March 21, 2014 to March 20, 2015)

(Unit: million yen)

Owners’ equity

Capital surplus Retained earnings

Capitalstock

Legal capital surplus

Total capital surplus

Other retained earningsRetained

General earnings reserve brought

Total retainedearnings

Treasury stock

Total owners’equity

forward Outstanding balance at the beginning of fiscal period 11,882 109,089 109,089 30,000 15,189 45,189 (3,461) 162,700


Dividends from surplus (3,029 (3,029) (3,029)

Net income 9,468 9,468 9,468

Purchase of treasury stock (960) (960)



6,439 6,439 (960) 5,479

Balance as of March 20, 2015 11,882 109,089 109,089 30,000 21,628 51,628 (4,421) 168,179

- )

-

- -

- - -

- - - -

Valuation and translation adjustments Valuation

difference on available-for-sale

securities

Deferred gains or osses on hedges

Valuation and translation

adjustments Total

Total net assets


356 (325) 30 162,731



Net income 9,468

Purchase of treasury stock (960)

Net changes of items other than owner’s equity 592 39 632 632


592 39 632 6,111

Balance as of March 20, 2015 949 (286) 662 168,842

l

-

-

-

- 29 -


(Unit: million yen)

Owners’ equity

Capital surplus Retained earnings

Capital stock

Legal capital surplus

Total capital surplus

Other retained earnings Retainedearnings brought forward

General reserve

Total retained earnings

Treasury stock

Total owners’ equity


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


Dividends from surplus (3,406) (3,406) (3,406)

Net income 12,808 12,808 12,808



9,402 9,402 9,402

Balance as of March 20, 2016 11,882 109,089 109,089 30,000 31,031 61,031 (4,421) 177,582

-

-

- - -

- - - - -

Valuation and translation adjustments Valuation

difference on available-for-sale

securities

Deferred gains or losses on hedges

Total valuation and translation

adjustments

otal net assets


949 (286) 662 168,842


Dividends from surplus - (3,406)

Net income - 12,808

Net changes of items other than owner’s equity (288) 20 (267) (267)


(288) 20 (267) 9,134

Balance as of March 20, 2016 660 (265) 394 177,977

T

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