The Sumitomo Warehouse Co., Ltd.

In the Logistics Business, fluctuations in domestic and overseas economic conditions and changes in the social environment may lead to a deterioration in cargo movement and intensified competition, while in the Real Estate Business, changes in market conditions and shifts in the supply-demand balance due to factors such as oversupply of office buildings may affect business performance. Both the Logistics Business, which combines Warehousing, Port Transportation, International Transportation, and Land Transportation, and the Real Estate Business in the Greater Tokyo and Kansai areas are exposed to economic cycles, posing challenges to the stability of earnings. No specific countermeasures are disclosed in the Annual Securities Report.

In addition to translation risk arising from converting the financial statements of overseas consolidated subsidiaries into yen, the Company and certain domestic consolidated subsidiaries hold foreign currency-denominated transactions and receivables/payables, and exchange rate fluctuations may affect the financial position and operating results. While mitigation measures are taken in consideration of the balance of foreign currency-denominated receivables and payables, complete hedging is difficult, and the extensive overseas expansion across North America, Europe, Asia, and elsewhere is a factor that magnifies this risk.

With respect to investment securities held for the purpose of maintaining and strengthening relationships with business partners, if recovery of the invested amount becomes unlikely due to a decline in stock prices or a deterioration in the financial condition of the investee, an impairment loss may be recognized, which could affect the financial position and operating results. The portfolio includes issues with the characteristics of cross-shareholdings, and there is a risk that losses could materialize during periods of deteriorating market conditions.

Liabilities for retirement benefits are recorded based on the difference between retirement benefit obligations calculated using assumptions such as the discount rate and pension assets measured at fair value, and a decline in the discount rate or a fall in the fair value of pension assets may adversely affect the financial position and operating results. The structure is such that changes in the interest rate environment or fluctuations in capital markets directly impact retirement benefit expenses and the outstanding liability balance.

In the countries where Warehousing, Port Transportation, International Transportation, and Land Transportation operations are conducted, the Group is subject to a wide range of laws and regulations covering storage, cargo handling, transportation, trade, antitrust, taxation, foreign exchange controls, environmental protection, and safety management, and changes in regulations or the introduction of new regulations may force an increase in compliance costs or changes to business strategy. In particular, given the multinational scope of operations, the geographic range of regulatory risk is broad, and there is a risk that tightening of regulations in one country could spread to affect the entire business.

The Group conducts business through affiliated companies in North America, Europe, China, Southeast Asia, the Middle East, and other regions, and is inherently exposed to risks such as uncertainty in local political and economic conditions and terrorism, conflict, and social unrest. Although the Group strives to identify and prevent risks through research into local conditions and the gathering of information from both within and outside the Group, if geopolitical risks materialize, they could have a material impact on the financial position and operating results.

The procurement of fuel oil is essential to the Port Transportation and Land Transportation businesses, and if fuel oil prices fluctuate due to factors such as the crude oil supply-demand balance, political conditions in oil-producing countries, or the inflow of speculative funds, the Group may be unable to fully pass on the increased costs through freight rates and other charges, which could put pressure on earnings. While the Group attempts to reflect such costs in freight rates and other charges with the understanding of customers, depending on the competitive environment, passing on costs may be difficult, directly affecting the profitability of the Logistics Business.

The Group operates a business storing information recording media such as corporate documents, magnetic tapes, and films, and if information leakage to outside parties occurs, it could damage the Group's social credibility and affect its business activities. Although management systems have been established through measures such as obtaining ISO27001 certification, ongoing audits by external auditing organizations, and the introduction of state-of-the-art security systems, complete prevention remains difficult amid the increasing sophistication of cyber threats.

Although insurance is carried on owned facilities such as warehouses and rental buildings, it is not always possible to fully cover damage from unpredictable natural disasters or accidents through insurance, which could affect business activities. Because the Group owns numerous facilities in both the Logistics Business and Real Estate Business, there is a risk that multiple sites could be damaged simultaneously in the event of a large-scale disaster, potentially creating challenges for business continuity.

The Group positions climate change countermeasures as an important business issue and implements initiatives such as setting greenhouse gas emission reduction targets, introducing solar power generation systems, and promoting a modal shift, but if these initiatives are evaluated as insufficient, it could affect business activities. Amid tightening environmental regulations and growing demands from ESG investors, if the Group's response is judged inadequate, there is a risk that this could lead to higher funding costs and the loss of customers.