Tonami : Annual Report 2023

2023

Annual Report

For the year ended March 31, 2023

TONAMI HOLDINGS CO., LTD.

Capitalizing on expertise originally gained in the transportation business, the Tonami Group has long been a trailblazer in logistics.

We were among the first in the industry to introduce computer systems. In recent years, we have taken systematized distribution services fully

utilizing IT to new heights. In particular, our third-party logistics (3PL), offering companies the optimum solutions to their logistics needs, has enabled us to cultivate a loyal and growing customer base.

Tonami Holdings Co., Ltd. is now strengthening the fundamentals of the business as it embarks on a new round of development, bringing its capabilities as a pure holding company into full play. Leveraging the accumulated expertise and business know-how of the Tonami Holdings Group, we are sharpening our responsiveness to customer needs not only in the field of logistics but also in related businesses and new fields.

We strive to offer value-added services that transcend the traditional conception of logistics. As a pioneer with strengths in information processing, we are committed to delivering value a stride ahead.

By deploying IT infrastructure attuned to the increasingly diverse and sophisticated needs of the era, we aim to maximize the corporate value of the Tonami Holdings Group and be an enterprise needed

and respected by society.

We are taking a big stride toward realization of our "More Than Transportation" vision.

We Want to Deliver Value a Stride Ahead

Contents

1. Consolidated Financial Highlights
2. To Our Shareholders and Investors

1. Corporate Governance

1. Corporate Social Responsibility Activities
2. Financial Section

1. Consolidated Subsidiaries
2. Board of Directors and Corporate Auditors

1. Corporate Data

Forward-Looking Statements

This annual report includes forward-looking statements that represent Tonami's assumptions and expectations in light of currently available information. These statements reflect industry trends, clients' situations and other factors, and involve risks and uncertainties which may cause actual performance results to differ from those discussed in the forward-looking statements in accordance with changes in the business environment.

Consolidated Financial Highlights

TONAMI HOLDINGS CO., LTD.

AND CONSOLIDATED SUBSIDIARIES

Years ended March 31, 2023 and 2022

						Thousands of
						U.S. dollars
		Millions of yen		(Note 1)
		2023		2022			2023
FOR THE YEAR:
Operating revenues:	¥	141,920	¥	135,361		$	1,216,654
Logistics		133,545		127,691			1,000,116
Information processing		3,198		2,733			23,953
Sales		3,145		3,025			23,558
Others		2,030		1,911			15,207
Operating income		7,369		7,369			60,216
Net income		5,391		5,110			41,760
Comprehensive income		8,031		4,659			38,070
PER SHARE (Yen and U.S. dollars):
Net income, basic	¥	594.99	¥	563.99		$	4.4559
Net income, diluted		-		-		-
Cash dividends		140.00		120.00			1.0485
AT YEAR-END:
Total assets	¥	162,511	¥	154,263		$	1,155,273
Total net assets		87,861		80,920			606,011

Notes: 1. U.S. dollar amounts presented herein are included solely for convenience. The rate of ¥133.53 = U.S.$1, prevailing on March 31, 2023, has been used for the translation into U.S. dollar amounts. Such translations should not be construed as indications that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.

1. The computation of net income per share of common stock is based on the weighted average number of shares outstanding (which represents the number of issued shares less treasury stock) during each fiscal year.
2. Diluted net income per share is not presented for the years ended March 31, 2023 and 2022, since there were no potential securi- ties.

Operating Revenues by Business Segment

(Billions of yen)

150
100
50
0
'19	'20	'21	'22	'23

Logistics

Information processing

Sales

Others

Operating Income

(Billions of yen)

8

6

4

2

0

'19 '20 '21 '22 '23

Net Income and

Net Income per Share, Basic

(Billions of yen)			(Yen)
6.0				600
5.0				500
4.0				400
3.0				300
2.0				200
1.0				100
0				0
'19	'20	'21	'22	'23

Net Income (Left scale)

Net Income per Share, Basic (Right scale)

01

To Our Shareholders and Investors

I welcome this opportunity to report to our shareholders and investors on the Group's operating environment and business results for the fiscal year ended March 31, 2023.

The Japanese economy was expected to pick up as social and economic activities normalized, but the prolonged situation in Ukraine and the weak yen caused prices for crude oil and raw materials to soar, as well as consumer prices to rise, and the situation remained difficult.

In the logistics industry, domestic freight volume in the fiscal year ended March 31, 2023 was expected to turn negative for the first time in two years due to a decline in transportation of construction-related cargo, despite a pick-up in transportation of food and other daily necessities. In addition, diesel oil prices remained high, which had a serious impact on the operation of trucking companies, and the business environment continued to be difficult, with costs expected to increase due to improvements in the working environment in response to the 2024 problem.

In such circumstances, the Group is pursuing measures in line with its 22nd Medium-Term Business Plan (from April 1, 2021 to March 31, 2024) under the corporate slogan, "TONAMI NEW PLAN 2023." Aiming to transition to a new phase in the operation of our business, we are striving to achieve our highest financial targets ever, while also contributing to sustainable societal development. Our efforts to that end include leveraging digital transformation (DX) to develop our logistics system and engaging proactively in M&A and capital expenditure.

In our logistics-related business, we have endeavored to enhance our management foundation to ensure continued growth over the medium- to long-term by improving productivity through greater operational effi- ciency, and boosting our ability to propose comprehensive logistics solutions by strengthening the linkages between logistics services and transportation, as well as strengthening our efforts to control costs, most notably by bringing subcontracted operations in-house.

As a result of the above efforts, the Group's operating revenues for the fiscal year under review amounted to ¥141,920 million, an increase of ¥6,558 million or 4.8% from the previous year. With regard to profits, operating income increased by ¥11 million or 0.2% from the previous year to ¥7,381 million as a result of our efforts to strengthen the profitability of 3PL businesses, improve operational efficiency, and strengthen control over costs.

The year-end dividend for the fiscal year under review will be ¥80 per share, with an increase of ¥10 as commemorative dividend to celebrate the Company's 80th anniversary as well as an increase of ¥10 as ordinary dividend. Combined with the interim dividend of ¥60 per share already paid out, total annual dividends will amount to ¥140 per share.

From now on, we will continue striving to be a company that contributes to sustainable societal development within the context of a restructured society, enhancing corporate value by evolving the Group into a next-generation logistics enterprise. Accordingly, we will transform the Group throughout every phase of its development.

In all our endeavors, we will be grateful for your continued support.

Overview of Operations

In the logistics industry, domestic freight volume in the fiscal year ended March 31, 2023 was expected to turn negative for the first time in two years due to a decline in transportation of construction-related cargo, despite a pick-up in transportation of food and other daily necessities.

In addition, diesel oil prices remained high, which had a serious impact on the operation of trucking com- panies, and the business environment continued to be difficult, with costs expected to increase due to improvements in the working environment in response to the 2024 problem.

In such circumstances, the Group is pursuing measures in line with its 22nd Medium-Term Business Plan (from April 1, 2021 to March 31, 2024) under the corporate slogan, "TONAMI NEW PLAN 2023." Aiming to transition to a new phase in the operation of our business, we are striving to achieve the plan's goals in order to achieve our highest financial targets ever, while also contributing to sustainable societal development. Our efforts to that end include leveraging digital transformation (DX) to develop our logistics system and engaging proactively in M&A and capital expenditure.

In our logistics-related business, we have endeavored to enhance our management foundation to ensure continued growth over the medium- to long-term by improving productivity through greater operational effi- ciency, and boosting our ability to propose comprehensive logistics solutions by strengthening the linkages between logistics services and transportation, as well as strengthening our efforts to control costs, most notably by bringing subcontracted operations in-house.

As a result of the above efforts, the Group's operating revenues for the fiscal year under review amounted to ¥141,920 million, an increase of ¥6,558 million or 4.8% from the previous year.

With regard to profits, operating income increased by ¥11 million or 0.2% from the previous year to ¥7,381 million as a result of our efforts to strengthen the profitability of 3PL businesses, improve productivity through greater operational efficiency, and strengthen control over costs, most notably by bringing subcontracted operations in-house.

02

Net income attributable to owners of the parent was ¥5,391 million, an increase of ¥280 million or 5.5% from the previous year.

Results by Segment

In the logistics-related business for the fiscal year under review, operating revenues increased by ¥5,854 million or 4.6% from the previous fiscal year to ¥133,545 million, owing to an increase in freight volume and other factors.

Segment income was ¥6,483 million, an increase of ¥28 million or 0.4% from the previous year. Operating revenues from the information processing business increased by ¥465 million or 17.0% from the

previous fiscal year to ¥3,198 million.

Segment income was ¥517 million, an increase of ¥73 million or 16.6% from the previous fiscal year. Operating revenues from the sales business, which includes merchandising, consignment sales, and a non-

life insurance agency, amounted to ¥3,145 million, an increase of ¥119 million or 4.0% from the previous fiscal year.

Segment income was ¥286 million, an increase of ¥24 million or 9.5% from the previous fiscal year. Operating revenues from other businesses, which include automobile repair and other services, amounted

to ¥2,030 million, an increase of ¥119 million or 6.2% from the previous fiscal year.

Segment income was ¥294 million, a decrease of ¥109 million or 27.2% from the previous fiscal year.

Outlook for the Year Ending March 31, 2024

The economic outlook is still expected to remain unclear, primarily due to concerns about the prolonged situation in Ukraine, the slowdown in overseas economies, the risk of rising prices putting downward pressure on the economy, and continuously high fuel prices. This is despite expectations that restrictions on economic and social activities caused by the COVID-19 pandemic will be eliminated, and that the economy will move into a post-COVID-19 period where the economy will no longer be affected by the infection situation.

Amid such an environment, the Group is pursuing measures scheduled for the final year of its 22nd Medium-Term Business Plan (from April 1, 2021 to March 31, 2024) under the corporate slogan, "TONAMI NEW PLAN 2023."

Five Strategic Priorities under the 22nd Medium-Term Business Plan 1) Business growth

• Strengthen the linkages between transportation and logistics services, develop new distribution centers, and grow business through M&A and business restructuring

2) Transformation of business foundation

• Improve operational efficiency with TDX (Tonami Digital Transformation) and increase the sophistication of logistics transportation

3) Recruit talent

• Recruit and retain a diverse workforce, establishing personnel systems that match the business structure and regional characteristics

4) Capital formation

• Improve our capital adequacy ratio and implement stable capital policy
  5) Improve management quality
• Improve management quality (CSR, BCP), growth (ESG) assessment, and social awareness

We are endeavoring to enhance our management foundation to ensure continued growth over the medium- to long-term by improving productivity through greater operational efficiency, and working to improve profitability by boosting our ability to propose comprehensive logistics solutions by strengthening the linkages between logistics services and transportation.

We will continue striving to be a company that contributes to sustainable societal development within the context of a restructured society, enhancing corporate value by evolving the Group into a next-generation logistics enterprise. Accordingly, we will transform the Group throughout every phase of its development.

June 2023

Kazuo Takata

President and Representative Director

03

Tonami Holdings' Operating Subsidiaries and Affiliates

Tonami Buisiness Service Co.,Ltd.

Toyo Gomu Hokuriku Hanbai Co.,Ltd.

Tonami Trading Co.,Ltd.

Tonami System Solutions Co.,Ltd.

Subsidiary

Tonami Logistics (Dalian) Co., Ltd.

Tonami (Thailand) Co., Ltd.

Mahaporn Transport Co., Ltd.

H&R Forwarding Co., Ltd.

Tonami Transportation Co.,Ltd. (Core Company)	Hokuriku Tonami Transportation Co.,Ltd.
Tonami Transportation Shinetsu Co.,Ltd.	Takaoka Transportation Co., Ltd.
Tonami Transportation Chugoku Co.,Ltd.	Ishikawa Tonami Transportation Co.,Ltd.
Keishin Warehouse Co.,Ltd.	Fukui Tonami Transportation Co.,Ltd.
Tonami Global Logistics Co.,Ltd.	Anan Transportation Co.,Ltd.
Sunrise Transport Co.,Ltd.	Tonami Daiichi Warehouse Logistics Co.,Ltd.
Take One Co.,Ltd.	Miyuki Warehouse Co.,Ltd.
KYK Co.,Ltd.	Tonami Kinki Logistics Co.,Ltd.
Kanto Tonami Transportation Co.,Ltd.	Chuo Reizo Co.,Ltd.
Tonami Shutoken Logistics Co.,Ltd.	Sinsei Warehouse & Transportatio Co.,Ltd.
Niigata Tonami Transportation Co.,Ltd.

Subsidiary

(logistics companies)

Tonami Holdings

	Group	Associates
(consolidated company)
				Hokkaido Tonami Transportation Co., Ltd.
				Japan Tranz Line, Inc.
	Overseas			JESSCO Co., Ltd.
			Takaoka Cable Network Co., Ltd.
	subsidiaries
			Touto Transportation Co., Ltd.

Tonami Logistics Solutions

Physical distribution	Physical distribution
consulting functions	network functions

Procurement logistics
Raw materials (Parts etc.)
manufacturers
Overseas suppliers	Import

Production logistics	Environmental		Consumers
logistics
Factories		Goods returned, repairs,
In-house logistics	waste, etc.
Warehouses, distribution
centers		Sales logistics
		Wholesalers, retailers		Destinations in Japan
			Export	Destinations overseas
	International logistics
	Systematized distribution (3PL), information sharing
	Supply chain management (SCM)

Information system	Operational functions
development functions

04

Corporate Governance

At a meeting of the Board of Directors held on October 1, 2008, the Company passed a resolution concerning a basic policy for the corporate governance. The Company, with the Internal Control Committee in a central role, is implementing sound internal control systems in accordance with the policy, aiming to increase the corporate value of the Tonami Holdings Group.

1. Overview of the Corporate Governance System and Reason for Adopting the System
   1) Overview of the Corporate Governance System

The Board of Directors of the Company is the organization responsible for important matters concerning business policy and business strategy. The Board of Directors meets in accordance with the Board of Directors Regulations.

The Board of Directors of the Company is the organization responsible for important matters concerning business policy and business strategy. The Board of Directors meets in accordance with the Board of Directors Regulations.

The meetings of the Board of Directors are chaired by the President and Director, and held, in principle, once a month, and as necessary, enabling the directors to make important decisions regarding business execution, attain mutual understanding, and engage in mutual supervision of the execution of business. The Board of Directors utilizes the services of outside experts as necessary to prevent violations of the law or the Articles of Incorporation.

The Company employs a corporate auditor system as part of its internal control framework. The Board of Corporate Auditors consists of four corporate auditors: Standing Corporate Auditors Yasuhiro Saegusa and Mitsuharu Wadachi and Outside Corporate Auditors Atsuki Matsumura and Toshiyuki Oda.

The Board of Corporate Auditors, led by Standing Corporate Auditor Mitsuharu Wadachi, who chairs the board, audits the execution of business by the directors and its legality in accordance with the auditing policy and task assignments decided by the Board of Corporate Auditors, by attending meetings of the Board of Directors and other important meetings, expressing their opinions, and other means.

The progress of their audits is reported to and confirmed at periodic meetings of the Board of Corporate Auditors.

In the event that a director discovers a violation of the law or the Articles of Incorporation on the part of another director, the director is required to promptly report the violation to the corporate auditors and the Board of Directors and a remedy will be sought. The Company has an internal auditing unit, the Internal Audit Office, which is an organization independent of the business units.

Moreover, the Company has established the Tonami Group Employee Code of Conduct as the foundation of the Group's compliance system and the Internal Control Committee, chaired by President and Director Kazuo Takata, as the decision-making body. The Company's effort to enhance its internal control systems is led by an officer responsible for internal control.

The Compliance Committee is a compliance control organization, and the Internal Control Team within the Internal Audit Office performs control, operation and training in order to maintain and enhance internal control systems.

05

To ensure the propriety of business operations of the Group's operating subsidiaries, the Company applies the Tonami Group Employee Code of Conduct and the Group Operation Regulations to all operating subsidiaries of the Group, and each of the Group's operating subsidiaries has established its own regulations based on them. With regard to administration of operating subsidiaries, the Group Company Administration Procedures specify matters requiring approval by the headquarters and those to be reported.

Periodic meetings of the Company's Board of Directors were held 12 times during the fiscal year under review, and the attendance status of individual Directors is as follows.

Name	Position	Number of	Number of
		meetings held	meetings attended
Katsusuke Watanuki	President and Director (Note 1)	9	9
Kazuo Takata	President and Director (Note 2)	12	12
Shinichi Izumi	Senior Managing Director	12	12
Toyonobu Terahai	Managing Director	12	12
Masaaki Sato	Director	12	12
Shinichiro Inushima	Outside Director	12	12
Chiaki Kasai	Outside Director (Note 3)	9	9
Yasuhiro Saegusa	Standing Corporate Auditor	12	12
Mitsuharu Wadachi	Standing Corporate Auditor	12	12
Atsuki Matsumura	Outside Corporate Auditor	12	12
Toshiyuki Oda	Outside Corporate Auditor	12	12

(Notes) 1. Katsusuke Watanuki retired as a director due to his death on December 23, 2022. The number of Board of Directors meetings held and attended before his retirement are listed.

1. Kazuo Takata was appointed as President and Director on January 5, 2023, and has chaired the Board of Directors meetings held since his appointment.
2. Chiaki Kasai was elected as an outside director at the 102nd Ordinary General Meeting of Shareholders held on June 29, 2022, and the number of Board of Directors meetings held and attended since his appointment are listed.

In addition, the Company established a Sustainability Promotion Committee in February 2023 with the aim of formulating and implementing specific measures related to company-wide sustainability, such as response to climate change. We have established a system in which the Sustainability Promotion Committee reports to the Board of Directors as necessary regarding the risks and opportunities that climate change poses to our business, and the Board of Directors supervises and provides guidance on sustainability-related initiatives.

06

The Relationship between the Management Organization and Internal Control

2) Reason for Adopting the System

In order to make decisions swiftly and accurately in response to the rapidly changing business envi- ronment, the Company needs to have human resources well versed in the characteristics of the logistics business. The Board of Directors includes outside directors who are specialists in their fields and have objective viewpoints, in addition to other directors with a wealth of experience and insight, which secures management transparency and soundness. Corporate auditors audit the decision- making at the Board of Directors and the directors' performance of duties. The effectiveness of the monitoring function is ensured by appointment of independent outside corporate auditors. Thus, it is judged that necessary systems are put in place for the Group to further enhance corporate value.

3) State of Internal Auditing and Auditing by Corporate Auditors

Internal auditing at the Company is led by the Internal Audit Office, which is independent of the business units, and its staff assists with the work of the corporate auditors. The Internal Audit Office's independence from the Board of Directors is ensured since decisions of the Board of Directors on Internal Audit Office staff changes require approval of the Board of Corporate Auditors. The Internal Audit Office conducts periodic and unscheduled internal audits of the Company's busi- ness, reports to the Board of Corporate Auditors and the Board of Directors, and requests improvements.

The Company's corporate auditors exchange information with the independent auditors, cooperate with the Internal Audit Office, conduct appropriate audits, and hold periodic meetings of the Board of Corporate Auditors.

One standing corporate auditor and two outside corporate auditors possess significant expertise concerning financial and accounting matters gained through their experience over many years. In addition, one substitute corporate auditor has been elected under Article 329, Paragraph 3 of the Companies Act to prepare for any situation in which the number of corporate auditors falls below the number prescribed by laws and regulations.

07

4) Relationships between Outside Directors and Outside Corporate Auditors

The Company has appointed two outside directors. Directors Mr. Shinichiro Inushima and Mr. Ichiro Tanaka have no capital or business relationships with the Company or other interests in the Company.

The Company considers individuals who have no personal, capital, or business relationships with the Company or other interests in the Company, possess expertise, and are capable of overseeing the Company's overall management based on excellent insight to be suitable for election as outside directors.

Neither of the two outside directors have any of the above-mentioned relationships with the Company. The Company appointed one of the outside directors as an independent officer as required by the Tokyo Stock Exchange and has notified the Tokyo Stock Exchange accordingly.

In accordance with the provision of the Companies Act (Article 335, Paragraph 3), the Company has appointed four corporate auditors, including standing and part-time corporate auditors, of whom two are outside corporate auditors who are working to strengthen the audit function from a third-party stance without being involved in business execution of the Company.

Currently, regarding the supervisory function, which is the principal function of the Board of Directors, outside corporate auditors are working to strengthen the audit function from a third-party stance without being involved in business execution of the Company.

The Company has appointed two outside corporate auditors. Although Corporate Auditor Mr. Yohji Ishiguro owns shares of the Company, the capital relationship between him and the Company is negligible and he has no business relationships with the Company or other interests in the Company. Corporate Auditor Mr. Atsuki Matsumura has no capital or business relationships with the Company or other interests in the Company.

The Company considers individuals who have no personal, capital, or business relationships with the Company or other interests in the Company, possess expertise, and are capable of overseeing management based on excellent insight to be suitable for election as outside corporate auditors.

Neither of the two outside corporate auditors have any of the above-mentioned relationships with the Company. The Company appointed one of the outside corporate auditors as an independent officer as required by the Tokyo Stock Exchange and has notified the Tokyo Stock Exchange accordingly.

The Company has selected one candidate for substitute corporate auditor as provided for in Article 329, Paragraph 3 of the Companies Act in case the number of outside corporate auditors falls below the number prescribed by laws and regulations.

Linkage among auditing by corporate auditors, including outside corporate auditors, internal auditing, and accounting auditing as well as relationships with the internal control unit are described in 4) State of Internal Auditing and Auditing by Corporate Auditors. Through reporting and exchange of opinions at meetings of the Board of Directors, the Company strives to strengthen collaboration among supervision by the outside directors, auditing by corporate auditors, internal auditing, and accounting auditing and establish fruitful relationships between the outside directors and the internal control unit.

Pursuant to Article 427, Paragraph 1 of the Companies Act, the Company has concluded contracts with the outside directors and outside corporate auditors that limit their liability under Article 423, Paragraph 1 of the said Act. The liability for damages pursuant to these contracts is limited to the liability amount prescribed by laws and regulations. The limitation of liability stated above is only applicable if the outside director or outside corporate auditor is without knowledge and is not grossly negligent in performing his duties causing such liability.

08