NIPPON EXPRESS HOLDINGS, INC.

If the global economy declines against a backdrop of uncertainty over US trade policy, the prolonged Russia-Ukraine conflict, and instability in the Middle East, transportation demand from client companies could fall, with a particularly large impact on the Logistics business segment. As a slowdown in the US and Chinese economies would also spread to manufacturing industries in many countries including Japan, there is a risk of adverse effects on the NX Group's business performance and financial position. As countermeasures, the Group is expanding areas of contribution to manufacturing clients, strengthening sales logistics related to consumer goods, and accelerating business expansion into emerging areas.

Due to forecasts of declining demand amid a declining birthrate and aging population, as well as the rise of e-commerce, domestic B-to-B freight transportation demand in Japan is expected to decline over the medium to long term. As the NX Group's core business is "Logistics (Japan)", a shrinking domestic market poses a risk of directly and adversely affecting business performance and financial position. The Group is working to reduce this risk by capturing growth areas such as logistics for the pharmaceutical and semiconductor-related industries and green logistics, as well as by expanding investment in overseas markets.

As AI technology advances and drives sophisticated automation of operations and decision-making, companies from other industries and new entrants offering low-cost, highly efficient services may emerge, increasing the risk that the NX Group's competitive advantage will decline, leading to a shrinking market share and intensified price competition. Over the medium to long term, this could offset the strengths the NX Group has cultivated over many years, or lead to reduced logistics needs. Within the period of the management plan through 2028, the Group is addressing this through co-creation with companies in other industries and by creating services that incorporate digitalization.

Geopolitical risks are increasing, including tensions in US-China relations, the situation in Russia and Ukraine, instability in the Middle East, and the rise of protectionism in major countries. Economic sanctions, import/export restrictions, tariff increases, port closures, civil wars and other events could restrict international transportation and economic activity. Should such events occur, significant impacts could arise, including delays or suspensions of transportation, increased costs, suspension of operations at local sites, decreased revenue, and losses due to foreign exchange fluctuations or declines in asset value. The Group works to reduce this risk through information gathering within the Group, use of external experts, securing alternative transportation routes, and establishing BCPs.

Cyberattacks, which continue to grow in scale and sophistication, and unexpected failures in systems or communications could not only seriously affect the NX Group's business activities but also adversely affect its business performance and financial position. As the strategic use of information systems has become essential to business operations, ensuring system availability and appropriate handling of information are important management issues. The Group is promoting the establishment of Group-wide common rules on IT governance and system risk, security education for employees, and the building of a framework to prepare for external attacks.

Amid the ongoing tightening of various regulations globally, the NX Group's business, centered on logistics, spans a wide range of areas, and if part of its business activities is restricted by legal regulations, there is a risk of adverse effects on business performance and financial position due to decreased revenue or increased costs. The Group has established a Compliance Committee chaired by the Representative Director and President, and practices compliance-based management based on the "NX Group Charter of Conduct", but risk remains due to the Group's global business operations.

Natural disasters are becoming more severe and frequent due to the effects of climate change, and large-scale earthquakes, tsunamis, volcanic eruptions, and major wind and flood damage pose significant risks to the business activities of both the NX Group and its clients. As the NX Group operates a wide range of transportation methods including rail, trucking, ships, and aircraft, if alternative means cannot sufficiently mitigate the impact on clients' production and sales activities in the event of transportation disruptions, or if facilities are damaged, adverse effects on business performance and financial position may not be avoidable. The Group is working to improve resilience through the development of BCPs based on the "NX Group Basic Policy on Business Continuity".

The NX Group regards M&A as an important option for growth as a global logistics company, but there remains a possibility that risks in acquired companies could not be identified through due diligence. If unforeseen changes in the business environment occur after an acquisition, the initially envisioned business development may not proceed as planned, resulting in deteriorating performance at the acquired company or goodwill impairment losses, which could adversely affect business performance and financial position. The Group makes decisions after conducting thorough prior review of the financial condition and contractual details of target companies to identify risks.

Securing excellent talent is essential for providing advanced logistics solutions and responding to rapid changes in the business environment, but talent acquisition has become a common challenge across countries and industries worldwide. If the necessary talent cannot be secured, business operations and the execution of management plans could be hindered, adversely affecting business performance and financial position. In particular, within Japan, where actual transportation is the core business, the shortage of drivers and staff due to a declining working-age population is becoming serious, and if labor-saving and automation technologies are not adopted, there is a risk of business continuity being hindered. The Group is promoting the expansion of various training programs, global recruitment of professional talent, and the introduction of advanced equipment such as automated conveyance systems and robotics.

The NX Group raises funds through borrowings from financial institutions and the issuance of corporate bonds to meet funding needs such as transport commissioning costs, fuel costs, capital expenditures, and M&A, and if significant interest rate fluctuations or a downgrade of credit ratings by rating agencies occur, funding costs could increase, adversely affecting business performance and financial position. In addition, regarding the numerous logistics facilities held both domestically and internationally, if disposal or return of facilities occurs earlier than originally planned due to economic trends or client company movements, there is also a risk of temporary losses or impairment losses. For borrowings exposed to interest rate fluctuation risk, the Group generally uses hedging instruments such as interest rate swap transactions to reduce this risk.