H2O RETAILING CORPORATIONFINANCIALREPORT 2019

Profile
Hankyu Department Stores, Inc. was established in 1929 in Umeda Osaka, as
the world’s first railway terminal department store by Mr. Ichizo Kobayashi, thefounder of the Hankyu Corporation. Helped by the ability of a railway terminal toattract customers, the store grew together with the Umeda area, and a succession of
stores in other areas were subsequently opened. In 1947, the Company was spunoff from Hankyu Corporation and the Hankyu Department Stores Group was formed.
On 1st October 2007, Hankyu Department Stores, Inc. changed its name to H2O
RETAILING CORPORATION and became a holding company in accordance withthe management integration between Hankyu Department Stores, Inc. and Hanshin
Department Store, Ltd.
On 1st June 2014, H2O RETAILING CORPORATION had a management
integration with Izumiya, Co., Ltd.
On 1st October 2017, the Group purchased the businesses of Sogo Kobe and
Seibu Takatsuki stores from Sogo & Seibu Co., Ltd.
Currently, the Group consists of 55 subsidiaries and 5 affiliates that operate retailbusinesses, including its core department store operations, supermarket operations
and shopping centre operations.

Contents
General Business Conditions

01

Corporate Governance System

12Five-Year Summary

44

Consolidated Balance Sheets

45

Consolidated Statements of Income

47

Consolidated Statements of Comprehensive Income

48

Consolidated Statements of Changes in Net Assets

49

Consolidated Statements of Cash Flows51

Notes to the Consolidated Financial Statements

52

Independent Auditors’ Report

107

Corporate Data

108

General Business Conditions
1. Management Analysis of Financial Position, Business Performance and Cash Flows
The overview of the financial position, business performance and cash flows of the Group (the Company, consolidated
subsidiaries and entities accounted for using equity method) (hereinafter, “Business performance”) in the fiscal year
ended 31st March 2019 and recognition, analysis and deliberation results on the Group’s Business performance fromthe management’s perspective are as follows.
The future information contained in these materials reflects judgments made at the end of fiscal year ended 31st March
2019.
(1) Business Performance for Reporting Period
Consolidated business performance for the fiscal year
(Millions of yen)March 2017
Cumulative
AmountMarch 2018
Cumulative
Amount427,644

March 2019 Cumulative
YOY

446,225

451,840

101.3%+5,614100.6%+2,764-23,37942,767182.9%+19,388

98.0%

(887)

409,454
9,970
54,151

386,552
10,36755,346

367,580
8,736
55,94895.1%
84.3%
101.1%(18,972)(1,631)
+601

97.2%
93.4%
98.8%

(10,716)
(619)
(668)

901,221921,871926,872

100.5%+5,001

98.9%(10,127)

15,99318,02017,582

97.6%

(437)

111.3%+1,782

-

603

301

49.9%

(302)

75.3%

(98)

3,977
5,038
2,863
(5,330)22,542

1,104
4,985
3,098
(5,047)22,765

(438)
4,281
5,030
(6,335)
20,42285.9%
162.4%
89.7%(1,543)(703)+1,932(1,288)(2,343)109.8%
96.4%
98.2%(1,988)
+381
(186)
(268)
(377)

21,72524,272

21,37688.1%(2,896)

99.4%

(123)

Extraordinary income
Extraordinary losses

4,561
6,281

5,243
6,296

895
14,22117.1%
225.9%(4,347)+7,925

Profit attributable to owners ofparent14,298

14,636

2,162

14.8%

(12,474)

21.6%(7,837)

Department StoreBusiness
Kobe and Takatsuki
Business
Supermarket Business
Shopping Centre Business
Other Businesses
Net sales
Department StoreBusiness
Kobe and Takatsuki
Business
Supermarket Business
Shopping Centre Business
Other Businesses
Adjustment
Operating income
Ordinary income

ChangeVersusforecast

AmountChange* Net sales refer to sales to external customers.
 Net sales
Net sales increased year on year because the Department Store Business experienced strong sales in urban
department stores, including the Hankyu Main Store, and the Kobe and Takatsuki Business, which was not part of theoperating results in the first half of the previous fiscal year, began contributing.
 Operating income / ordinary income
Both operating income and ordinary income decreased mainly because of stagnation in the Supermarket Business,1

progress of the redevelopment project in the Shopping Centre Business, and the rebuilding of the Hanshin Umeda
Main Store in the Department Store Business.
(Billions of yen)

Department Store BusinessAlthough the business was affected by natural disasters such as the Osaka Earthquake and typhoons, net sales
increased by ¥5.6 billion year on year largely due to a growth by 4.3% in net sales of the Hankyu Main Store driven bystrong domestic demand and demand generated by tourists visiting Japan. However, operating income decreased by¥0.4 billion year on year due to an increase in depreciation accompanying the opening of the Hanshin Umeda Main
Store Wing 1 in June 2018.
On the other hand, operating income increased by ¥1.7 billion against the forecast mainly because net sales of the
Hanshin Umeda Main Store was higher than the forecast figures by 6.5%.
Kobe and Takatsuki Business
As the Sogo Kobe Store and the Seibu Takatsuki Store (both acquired in October 2017) have been operating withoutchanging the store brands and services, their operating results were almost in line with expectations. Effective October
1, 2019, the Company will transfer the business operations of both stores to Hankyu Hanshin Department Stores, Inc.
and rename them “Kobe Hankyu” and “Takatsuki Hankyu,” respectively.
Supermarket Business
Sales and profit decreased from the previous fiscal year and was lower than expectations in the Supermarket Business.
In Izumiya Co., Ltd., net sales decreased by 6.3% year on year, and operating income decreased by ¥1.6 billion year
on year. Existing general merchandise stores (GMS) struggled to attract customers and bore the additional up-front
cost of store rebuilding.
In Hankyu Oasis Co., Ltd., net sales decreased by 3.6% year on year, and operating income decreased by ¥0.1 billion
year on year. Existing stores struggled with the effects of warm winter and low market prices of fresh products. The

2

closing of unprofitable stores, which the Company has been proceeding with from the previous fiscal year, also affected
the decrease in net sales.
Shopping Centre Business
Sales and profit decreased mainly because of a significant increase in the number of tenants withdrawing due to theredevelopment project in Centre Limited Liability Company, which is the beneficiary of the trust of SELCY, a shopping
centre in the Senri-chuo area.
Other Businesses
Profit in H2O RETAILING Corporation was up compared to the previous fiscal year because dividends received fromsubsidiaries increased. In Hankyu Hanshin Department Stores Tomonokai, Inc., profit was up after recognising the cost
related to system changes in the previous fiscal year.
 Profit attributable to owners of parent
The Company recorded extraordinary losses of ¥14.2 billion. The Company recorded loss on store closings of ¥7.2
billion accompanying ongoing projects under the medium- and long-term plan, including store redevelopment and store
closings of commercial facilities SELCY and Izumiya, which are under consideration for integrated redevelopment with
Senri Hankyu.
Also, the Company recorded impairment loss of ¥2.5 billion for the unprofitable stores of Izumiya and Hankyu Oasis,and loss on disaster of ¥1.4 billion as extraordinary losses, which included losses arising from the Osaka Earthquake,the Typhoon JEBI, and other natural disasters. For this loss on disaster, the Company recorded ¥0.8 billion of
insurance income as extraordinary income.
As a result of the above-mentioned factors, Profit attributable to owners of parent decreased by 85.2% year on year, to¥2.1 billion.

3

Extraordinary income and losses(Millions of yen)
Item
Extraordinary income
Insurance income
Extraordinary losses

Amount895
895
14,221

Loss on store closings

7,228

Impairment loss

2,592

Loss on disaster

1,402

Loss on retirement of
non-current assets
Outplacement expenses
Loss on transfer of business
Expenses for opening newstores1,266

Main contents(Down ¥4,347 million from the previous fiscal year)
Insurance for loss on disaster(Up ¥7,925 million from the previous fiscal year)
Store closing of SELCY for rebuilding ¥3,728 million
Store closing of Izumiya stores for rebuilding and store
reorganisation (Izumifuchu store, Hanazono store, Shonai
store, Fushimi store and other stores) ¥1,836 million
Store closing of Izumiya Ushiku store (Ibaraki) ¥1,185
millionHankyu Oasis ¥993 million
Izumiya ¥941 million
Loss arising from natural disasters such as the Osaka
Earthquake and the Typhoon JEBI
Hankyu Hanshin Department Stores, Izumiya

672
546

Hankyu Hanshin Department Stores
Apparel and sports business of Be-U

514

Hanshin Umeda Main Store

Track records of production, orders received and sales are as follows.
(i) Track record of production
The track record of production in the fiscal year ended 31st March 2019 by business segment is as follows:
Name of business segment
Supermarket BusinessAmount of production(millions of yen)
34,18734,187

Product

Foods
Total

YOY %
97.5
97.5

Notes:
1. The above amounts do not include consumption taxes.
2. The amounts are based on selling price.
3. There is no applicable information for business segments other than the above segment.
(ii) Status of orders received
There is no applicable information for the fiscal year ended 31st March 2019.
For the Supermarket Business (food manufacturing business), make-to-stock production is conducted based on thepast track records of sales.

4

(iii) Track record of sales
The track record of sales in the fiscal year ended 31st March 2019 by business segment is as follows:
Name of businesssegment

Department StoreBusiness

Kobe and Takatsuki
Business

Supermarket
Business

Shopping Centre
Business

Other Businesses

Product
Clothing
Accessories, bags and others
Household merchandise
Foods
Restaurants and cafes
General merchandise
Service and other
Elimination
Total
Clothing
Accessories, bags and others
Household merchandise
Foods
Restaurants and cafes
General merchandise
Service and other
Elimination
Total
Supermarkets
Food production
Service and other
Elimination
Total
Rental management of commercial facilities
Service and other
Elimination
Total
HotelsConstruction for interior decorating of stores
Eating and drinking establishments
Membership management
Home delivery and delivery platform
Food service
Temporary staffing
Information processing
OthersElimination
Total
Total

Net sales(millions of yen)
126,585
85,834
13,351
128,492
9,805
84,0234,041(293)
451,840
9,035
3,549
620
17,557
537
8,326
3,175
(36)
42,767360,208
9,753
2,653(5,034)
367,580
13,254
13,043(17,562)
8,736
5,442
6,247
3,123
1,642
9,406
8,858
2,088
617
44,816(26,295)
55,948926,872

YOY %
98.0
103.8
97.4
98.3
105.6
109.0
98.6
55.0
101.3
170.7
184.3
166.1
182.4
193.2
191.1
208.0
–
182.9
94.8
100.0
159.0
100.4
95.1
94.4
92.6
98.9
84.3
102.5
98.1
108.5
232.1
95.1
101.1
106.3
134.1
102.7
106.7
101.1
100.5

Notes:
1. The above amounts do not include consumption taxes.
2. In the Kobe and Takatsuki Business, the year-on-year changes are obtained in comparison to the period
between 1st October 2017 and 31st March 2018 due to the succession of businesses related to Sogo Kobe

5

store and Seibu Takatsuki store from Sogo & Seibu Co., Ltd. as of 1st October 2017.
(2) Financial Position(Millions of yen)

Cash anddeposits

31st March

31st March

2018

2019

Change67,15055,229accounts payable(11,921)+2,946and bonds

Inventories

35,29533,920Total liabilities

Total current assets

160,167

150,003(1,375)(10,163)499,415

513,331+13,916

659,582

663,335+3,752

receivable - trade

Total assets

2019

Change62,79459,732(3,062)

149,493

164,920+15,426

378,774

383,731+4,956242,390239,755(2,634)

280,807279,603(1,204)

659,582

663,335+3,752Loans payable
49,886assets2018- trade46,939Total non-current

31st March

Notes and

Notes andaccounts

31st MarchpayableShareholders’equityTotal net assets
Total liabilities and net
assetsNon-current assets rose by ¥13.9 billion mainly because of a ¥32.0 billion increase in capital investment onreconstruction of the Hanshin Umeda Main Store Wing 1, expansion of floor space of the Qanat Rakuhoku, renovationsof the Izumiya stores, etc. and a ¥17.3 billion decrease in depreciation.
Centre Limited Liability Company (fiscal year-end: 31st of December) repaid loans from external financial institutions of¥20.0 billion as of January, 2019. The above transaction is not reflected in the consolidated balance sheets as theyrefer to the financial statements of said company as of 31st of December 2018, and the ¥20.0 billion is included in both
cash and deposits, and the current portion of long-term loans payable.
In the current fiscal year, the Company has promoted each project based on the long-term business plan “GP10.”
Return on equity (ROE) was 0.8% (previous fiscal year: 5.4%). In addition, return on assets (ROA) was 3.2% (previous
fiscal year: 3.7%) and return on invested capital (ROIC) was 3.5% (previous fiscal year: 4.0%). These are attributable tothe increased cost due to the opening of the reconstructed Hanshin Umeda Main Store Wing 1 and recording ofextraordinary losses related to projects including redevelopment of the Senri-chuo area and reconstruction of the
Izumiya stores.
“Partial Amendments to the Accounting Standard for Tax Effect Accounting” (ASBJ No.28; February 16, 2018), etc.
have been applied from the beginning of the fiscal year ended March 31, 2019, and results for the fiscal year ended
March 31, 2018 are those after retrospective application.

6

(3) Cash Flows(Millions of yen)
Major items
Cash flows from operating activities
Profit before income taxes
Depreciation
Decrease (increase) in notes and accounts
receivable - trade
Increase (decrease) in notes and accounts
payable - trade
Income taxes paid

March 2017
38,74220,00515,857

March 2018
32,73923,21916,223

March 201915,392
8,050
17,3993,196(2,248)(3,017)(3,033)(8,266)

Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Payments for transfer of business
Proceeds from sales of property, plant andequipment
Cash flows from financing activities(5,721)(36,682)

5,827

3,259

1,412

(13,812)30,150–(29,578)(4,938)20,0409,946(22,624)(4,941)

38,000–(10,777)(4,628)35,120Cash and cash equivalents at end of year

(7,304)(35,492)

21,703Operating CF + investing CF + financing CF(2,249)(25,325)(23,983)(3,340)–

Proceeds from long-term loans payable
Proceeds from issuance of bonds
Repayments of long-term loans payable
Cash dividends paid

833

83,462(19,197)(4,009)(14,536)(16,565)
67,150(30,289)(3,713)–

9,581(11,707)55,229As of 31st March 2019, cash and cash equivalents stood at ¥55,229 million, a decrease of ¥11,921 million year on year.
Net cash provided by operating activities was ¥15,392 million, down ¥17,346 million year on year.
Net cash used in investing activities was ¥36,682 million, up ¥1,189 million year on year, due in part to purchase ofproperty, plant and equipment in conjunction with the opening of the Hanshin Umeda Main Store Wing 1 which is being
rebuilt.
Net cash provided by financing activities was ¥9,581 million year on year (¥13,812 million in cash flows used infinancing activities for the previous fiscal year) due in part to issuance of bonds and receipt of new loans.
With regard to the source of capital required for long-term projects such as the reconstruction of the Hanshin Umeda
Main Store and the opening of a new store in Ningbo, China, the Group has decided to raise the funds with cash flows
provided by operating activities and external loans.

7Changes in the Group’s indicators related to cash flows are as follows:Year ended 31st March
Equity ratio
Equity ratio based on market
priceInterest-bearing debt to cash
flow ratio
Interest coverage ratio(times)

2015
39.8%

2016
42.3%

2017
41.2%

2018
42.4%

2019
42.0%

44.3%

40.3%

34.6%

36.4%

28.7%

6.2

5.6

4.3

4.9

11.3

20.1

19.8

36.1

32.5

21.1

Equity ratio: Equity / Total assets
Equity ratio based on market price: Market capitalization / Total assets
Interest-bearing debt to cash flow ratio: Interest-bearing debt / Operating cash flows
Interest coverage ratio: Operating cash flows / Interest expenses paid
*1 These indicators are calculated based on figures from the consolidated financial statements.
*2 Market capitalization is calculated as the stock price at the end of the period multiplied by the number of shares
outstanding at the end of the period (excluding treasury shares).
*3 Operating cash flows are the cash flows from operating activities as indicated in the consolidated statements ofcash flows. Interest-bearing debt is all liabilities reflected on the consolidated balance sheets that are subject tointerest payments. Interest expenses paid is the amount of interest expenses paid in the consolidated statements ofcash flows.
2. Management Policies and Management Issues to be Resolved
The future information contained in this material reflects judgments made by H2O Retailing Corporation at the end of
fiscal year ended 31st March 2019.
(1) The Company’s Basic Management Policy
The H2O Retailing Group has been proceeding with the “strategy for dominance in Japan’s Kansai area” aiming to beindispensable in the Kansai trading area centred on the Umeda area of Osaka, premised on the Basic Philosophy ofthe H2O Retailing Group calling for us “to remain indispensable to the local communities through our activities ofproviding a model of lifestyle to local residents.” The Group will work on diversifying its retail business in order to makestronger connections with customers in the Kansai area.
(2) Our Target Business Indicators
The Group conducts business in mature markets. To continue to enhance its enterprise value within such markets, theGroup is working to improve its profitability and growth potential, focusing its corporate activities on operating income
and operating income margin by business segment. The Group also aims to improve its consolidated return on equity(ROE) by realising increased operating income.
(3) The Company’s Medium- to Long-term Management Strategy and Management Issues to be Resolved
The Japanese retail market is shrinking as a result of structural changes, including aging population, lower birth rates
and declining population. In the shrinking market, it is expected that companies with less competitiveness will not be8able to continue their businesses, and just a few companies will dominant the market. With this in mind, the Company
has formulated the long-term business plan “GP10,” based on the long-term perspective and is now proceeding with its
implementation in order to continuously expand its market share.
The Company has positioned the Department Store Business and the Supermarket Business as its core businesses.
The Company will continue to strengthen these businesses, since they both have value which only bricks-and-mortar
stores are able to provide and their business categories will be continuously needed by society.
The Company’s core businesses have dual targets: daily life purchases and special occasion purchases. In addition the
Company operates retail business positioned between these core businesses, and for these businesses, the Company
aims to collaborate with external partners to build an alliance network related to every aspect of customers’ lifestyles.
Through this alliance network, the Company aims to attract more customers to the core businesses and realise
increasing profit by expanding the market share.
3. Business Risk
Of matters concerning the overview of business, financial information, etc., provided in the financial report, matterswhich may have significant effects on investors’ judgment include those described below. However, risks anduncertainty that may be caused on future operating results and financial position are not limited to these matters.
Matters concerning the future in the text were judged by the Group as of the date of filing of the financial report.
(1) Business Environment
Environment surrounding retail businesses
As for the environment surrounding Japan’s retail businesses, significant changes are expected, including aging
population, polarization of consumption structure and tightening competition beyond business categories. Thesechanges are expected to have considerable effects on the Group’s operating results.
(2) Laws and Regulations, and Legal Revisions(i) Laws and regulations such as the Act on the Measures by Large-Scale Retail Stores for Preservation of Living
Environment
Opening of department stores and supermarkets by the Group is subject to regulation under the Act on the Measuresby Large-Scale Retail Stores for Preservation of Living Environment. Under the act, in cases where a new store withstore space of more than 1,000 m2 is opened and where the store space of an existing store is increased to more than
1,000 m2, local prefectural governments or ordinance-designated cities examine and control traffic congestion, noise,waste management and other matters from the standpoint of protecting the living environment of neighborhood
residents. Accordingly, the Group’s future plans to open stores may be affected by such laws and regulations.
Besides, the Group is subject to laws and regulations such as the Antimonopoly Act, the Subcontract Act, environmentand recycle related laws and regulations, and the Act against Unjustifiable Premiums and Misleading Representations
and other laws and regulations related to consumer protection, and may also be affected by these laws andregulations.

9(ii) Increase in the consumption tax rate resulting from the tax system revision
To secure a financial resource needed for future social welfare, the consumption tax rate is expected to be raised
gradually. This may cause a decline in personal consumption and have negative effects on the Group’s net sales.
(3) Natural Environment and Accidents(i) Unusual weather such as cooler-than-normal summers and warmer-than-normal winters
Many of clothing items, which are the Group’s mainline products, are highly fashionable and seasonable, and sales ofthese items are affected by weather to some extent. Therefore, cooler-than-normal summers, warmer-than-normal
winters and other unusual weather may have negative effects on the Group’s net sales.
(ii) Natural disasters and accidents
To prepare for natural disasters and accidents, the Group has made an emergency management manual and strives toraise awareness of crisis management through education of employees, etc. However, if business facilities including
stores are damaged by unforeseeable disasters or accident such as earthquake, flood, typhoon or fire, this may havenegative effects on the Group’s operating results.
(4) Others(i) Refusal to renew a lease agreement
Many of the Group’s stores and facilities are leasehold properties. If lessors including owners of buildings and land
refuse to renew (in the case of fixed-term building lease agreement, refuse to resign) an agreement due to expiration of
the lease period, operation of the store, etc. may become unable to be continued.
(ii) Safety of goods soldAs for quality control and hygiene control of goods sold, “Quality Control Promotion Committee” and “Food Hygiene
Quality Control Promotion Committee” have been set up within the Group to aggressively promote measures to ensure
safety and security of goods for customers. However, general consumers’ heightened sense of concern about foods
due to outbreaks of BSE, bird flu and other diseases, occurrence of accidents such as food poisoning and healthhazards, and a decrease in customer satisfaction or confidence stemming from defects in goods sold may havenegative effects on the Group’s net sales.
(iii) Management of customer information
As for management of customer information, the Group traditionally ensures the strict operation of rules and theeducation of employees based on the personal information management regulations and the management manual andstrives to comply with the Act on the Protection of Personal Information. However, if customer information is leaked tooutsiders as a result of any unpredictable accident or contingent event, this may cause a reduction in credibility of theGroup and have negative effects on its net sales.
(iv) Information system
The Group utilises information systems in each field to promote streamlining of operations and provide high-quality

10

services. However, if any unforeseeable contingency, such as earthquake, fire, massive blackout or computer virus,
disrupts the smooth operation of information system, this may have negative effects on the Group’s operating results.
(v) Overseas business risk
The Group operates stores in China. Therefore, the political climate, economic environment, changes in laws andregulations, terrorist acts and other factors in China may have negative effects on its operating results and financial
position.
In addition, items denominated in the local currency including net sales, expenses and assets of stores in China areconverted into yen to prepare consolidated financial statements. Exchange rate fluctuations at the time of conversion
may affect these items.

11

Corporate Governance System(1) Outline of Corporate Governance System(i) Corporate Governance System
a. Basic views on corporate governanceIn line with the basic philosophy “to remain indispensable to the local communities through providing a model of lifestyle
to local residents,” the Company conducts business under the vision to “pursue a strategy of market share expansion
via retail business diversification and realization of domination within the Kansai region, striving to achieve this throughconstant operational innovations which comply with social norms and laws while enabling rapid adaptation to achanging competitive landscape.”
Based on the basic philosophy and management vision, the Company will perform swift, efficient and strong-mindeddecision-making and work to increase its medium- to long-term corporate value, while meeting various stakeholders’expectations and emphasizing compliance. To this end, the Company will also ensure the enhancement of corporate
governance.
b. Outline and rationale of corporate governance system
In the H2O Retailing Group, H2O Retailing Corporation (the Company), a holding company, is responsible for thebusiness planning, management and oversight of the entire Group. It seeks through proper and legal means to raise
the corporate value of Group companies by building a corporate governance system that facilitates fast-acting andefficient companies.
Upon approval of the Ordinary General Shareholders’ Meeting held on 22nd June 2016, the Company has changed
from a “Company with a Board of Corporate Auditors” to a “Company with an Audit and Supervisory Committee”(hereinafter, ‘ASC’), aiming to maximise corporate value over the medium- to long-term. As a Company with an ASC,
the Company shall have three (3) or more directors who are ASC members and the majority of which shall be outside
directors. A director who is an ASC member (i) has voting rights at the Board of Directors’ meeting, (ii) may be involved
in discussions regarding the appointment, dismissal or resignation of directors who are not ASC members as well asother decision making processes on the execution of operations, and (iii) may state their opinions at a Shareholders’Meeting on the appointment, dismissal or remuneration of directors who are not ASC members. Thus, the Company
expects to improve its supervisory function. Furthermore, in cases in which a majority of the directors of a Company
with an ASC are outside directors or if provided in the Articles of Incorporation, the Board of Directors may delegate
decision making on the execution of important operations to directors by resolution. This new governance system will
enable the Company to make decisions and execute business operations more promptly and flexibly.
The Company’s Board of Directors consists of 10 directors (four (4) directors are ASC members), including four (4)outside directors (three (3) outside directors are ASC members). Thus, more than one-third of directors on the Board of
Directors will be outside directors. For names of the members, please see “(2) Status of Officers, (i) Officers.” The
Chairman of the Board of Directors is Mr. Atsushi Suzuki, President and Representative Director and the Chairman of
the ASC is Mr. Toshimitsu Konishi, Director, full-time ASC member.
To ensure the fairness and transparency of the process of appointing directors and deciding compensation for directors,
the Company will continue to have a voluntary Nominating and Compensation Advisory Committee (Note 1). Regarding12

the agenda on appointing candidates for directors or compensation for directors, in view of the basic principles
stipulated by the Company, the Nominating and Compensation Advisory Committee considers the agenda and advises
the Board of Directors before the Board of Directors makes a decision. As for the compensation for ASC members,
decisions are made with prior consent by the ASC.
In addition, for quick decision making and efficient management of the Group, the Group Management meeting (Note2) was established as the fronting body for the Board of Directors, making decisions on important matters for Group
companies. Group companies, including H2O Retailing Corporation, have clearly defined business responsibilities
established through the adoption of an executive officer system. The directors and the Board of Directors of eachcompany have adopted this system for managing and overseeing the business execution of the executive officers.
The ASC audits the status of business execution by the directors, the Board of Directors and executive officers.
■Corporate Governance Framework
General Shareholders' Meeting
Appointment/dismissal

Nominating
andCompensation

Appointment/dismissal

Appointment/dismissal

Cooperation

Board of Directors

AdviceAudit and Supervisory Committee

Advisory Committee
Oversight

President andRepresentative Director

Group
Compliance
Committee

Audit andSupervisory
Committee
OfficeAudit

Group
Management Meeting

Executive Officers
Divisions

Note 1:

Audit

Independent
AuditorGroup Companies

Nominating and Compensation Advisory Committee
The committee consists of independent outside directors (Mr. Makoto Yagi and Mr. Naoshi Ban), which
comprise the majority of the committee, and Mr. Atsushi Suzuki, President and Representative Director. The
Chairman is Mr. Makoto Yagi, independent outside director.

Note 2:

Group Management Meeting
The meeting consists of the Company’s full-time directors (Mr. Atsushi Suzuki, Mr. Naoya Araki, Mr. Katsuhiro
Hayashi and Mr. Tadatsugu Mori) and Audit and Supervisory Committee Member (Mr. Toshimitsu Konishi)
and President and Representative Director of a major subsidiary (Mr. Haruya Shijo) and the Company’s
executive officer (Mr. Hiroyasu Kuromatsu). The Chairman is Mr. Atsushi Suzuki, President andRepresentative Director.

13

c. Internal control and risk management system■Group Compliance and Risk Management System

The Company resolved the framework of its control system to ensure business appropriateness as follows:
A.

Ensuring performance of duties by directors and employees in full compliance with laws andregulations as well as the Company’s Articles of Incorporation

Compliance
The H2O Retailing Group has a code of conduct stipulating basic principles so that executives and employees will
act in accordance with the Companies’ code of ethics, laws, rules and regulations. We have also compiled the Group
Compliance Regulations, establishing basic policies and rules to ensure Group-wide compliance. In addition, we
appoint outside directors with the necessary knowledge and experience to help the Group ensure full compliance.
In addition to establishing the Group Compliance Committee (Note 1) to take the lead in the creation of a system forensuring compliance throughout the Group, the presidents of Group companies and executives in charge of generalaffairs for H2O Retailing Corporation, Hankyu Hanshin Department Stores, Inc., Izumiya Co., Ltd. and Hankyu Oasis
Co., Ltd. have been appointed as compliance officers for each company. They carry out compliance policy and pool
information.
In addition, the Group has set up a whistle-blowing system and established rules for disciplinary action in the case of14

legal and regulatory violations or instances of fraud committed by Group executives or employees.
The Company has an internal audit function and audits the status of compliance in accordance with the newly
established “Internal Audit Policy.”
Ensuring the reliability of financial reportingAt each company in the Group, we have set up internal control systems to ensure the reliability of financial reporting.
At the Company, we carry out appraisals of the implementation and operational status of internal controls related tofinancial reporting on a Group-wide basis in accordance with the Financial Instruments and Exchange Act andrelated laws and regulations.
Eliminating antisocial forces
The H2O Retailing Group code of conduct explicitly prohibits any accession by the Group to unacceptable demands
made by antisocial elements that threaten public order and safety. We are also strengthening our partnerships withspecialist external organisations such as the police and lawyers, and have created systems for insulating ourselvesfrom all contact with antisocial elements.
Note 1:

Group Compliance Committee
The committee consists of the Company’s President and Representative Director and officers in charge ofgeneral affairs of the Company and major subsidiaries (Mr. Katsuhiro Hayashi, Mr. Masaru Ikejima, Mr.
Kenji Hiraki and Mr. Yasuto Nagata). The Chairman is Mr. Atsushi Suzuki, President andRepresentative Director.

B.

Storage and management of information related to execution of duties by directors

Internal documentation related to the execution of duties by directors and executives and other information is stored
and managed based on laws and regulations for archiving.
C.

Regulations and other systems for management of risk of loss

Risk management systems
We have compiled a framework of risk management procedures which establishes principles for the prevention ofrisk events, reporting when risk events occur and dealing with the consequences of risk event occurrence. Basic
policies and regulations for risk management enable Group companies to take precautionary measures against risk
and to minimise losses when risk events occur. The Group Compliance Committee collates risk related informationand prepares countermeasures while Group companies voluntarily create their own systematic measures to deal
with risk based on individual Group company characteristics. Concurrently, a system for pooling information
regarding risk faced by all companies in the Group is in place.
D.

Ensuring effective performance of duties by Directors

In order to clarify the management supervisory responsibilities of directors and the responsibilities of executive

15

officers and to promote more efficient performance of duties by directors, an executive officer system has been
introduced at all Group companies, with the Group Management meeting responsible for effective businessdecision-making for the Company and the Group. This body manages business performance on a monthly andquarterly basis and assesses the progress of business plans at the Board of Directors meetings and GroupManagement meetings, making revisions to targets as necessary.
Authority and responsibility has also been clarified based on approval procedures for the issuing and acceptance ofmanagement instructions based on job grade.
E.

Ensuring sound conduct of business in the Group companies
Based on Group company management protocol, business planning, marketing policies and other important
operational matters at Group companies are taken up or reported at Group Management meetings and Board of
Directors’ meetings.

The Company’s internal auditing, compliance and risk management systems apply to all companies in the Group.
F.

Audit assistants and their independence from directors who are not ASC members and effectiveness of
instruction by ASC in cases in which an ASC seeks help in performing auditing duties
At a request by the ASC, dedicated ASC staff members are selected to help the ASC carry out its duties. These
assistants do not report to directors who are not ASC members.

G.

Reporting to the ASC by directors who are not ASC members and employees, other reporting to the ASC
and ensuring such reporting will not become the basis for any unfair treatment

ASC members regularly hold meetings with representative directors, dedicated ASC staff members, staff members ofinternal control divisions (Finance and Accounting Division, General Affairs and Human Resources Division and
System Planning Division, etc.) and the Group Corporate Auditors Committee, attend important meetings such asGroup Management meetings and review the approval documents and minutes of Group Management meetings andother committee meetings.
When requested by the ASC, the Group’s directors and employees shall promptly report to the ASC regarding
matters related to the administration of business. Upon discovering any issue such as the violation of laws andregulations which may cause significant loss to the Company or Group companies, the Group’s directors andemployees shall report to ASC members or corporate auditors of the respective companies of the Group who
subsequently report to the Company’s ASC.
The status of the Group’s internal audits, compliance, risk management and internal whistle-blower system isregularly reported to the Company’s ASC.

16

All members of the Group are informed that it is strictly prohibited to treat any director, officer or employee unfairly on
the grounds that they have provided a relevant report for the ASC or corporate auditors.
H.

System to ensure that audits by ASC are executed effectively

Based on requests from the ASC, dedicated ASC staff members are designated as corporate auditors of eachcompany of the Group. When the ASC requests the hiring of outside experts such as lawyers or certified public
accountants as their advisors and when ASC members request relevant expenses to fulfil their roles in advance, theCompany promptly bears such costs in accordance with applicable laws and regulations. The Company establishes
an annual budget for such costs for ASC members.
The following summarises the status of operations for the year ended March 31, 2019.
(1) In order to ensure proper operations, the Company prescribed the internal rules of “H2O Retailing Group Code of
Conduct” and “Group Compliance Regulations” and established the Group’s operations rules, which summarise thebasic matters with which each of Group companies shall comply. All directors and employees are informed of theserules.
In the fiscal year ended 31st March 2019, the content of “H2O Retailing Group Code of Conduct” was partiallyreviewed in light of changes in the social environment and others.
(2) As compliance and risk management initiatives, the Company has various committees in connection with fairtrading, quality control and information security which promotes measures for each field and shares information. In
the fiscal year ended 31st March 2019, with regard to the operation of the official account and the use of social
media by the Group’s employees, the basic stance to be adhered to was established as the “H2O Retailing Group
Social Media Policy” and the “Regulations on Operation and Management of Social Media” were set at Group
companies in order to promote the appropriate use of social media.

Moreover, in an effort to build a structure in which Group companies voluntarily create their own systematic
measures to deal with risk based on the business characteristics of individual Group company, the Company’s
General Affairs and Human Resources Office and the Audit and Supervisory Committee Office jointly conductedverification of risks and hearing for each Group company and made each company’s priority challenges to work on
more clear in the fiscal year ended 31st March 2019.

The Companies have a whistle-blower hotline named “Compliance Hotline,” and the Company and some major
subsidiaries have divisions in charge of the Hotline. While the internal whistle-blowing system is in continuous
operation, the Group worked to enhance the communication of Compliance Hotline to Group companies as part ofstrengthening of risk management in the fiscal year ended 31st March 2019. The status of whistle-blowing isregularly reported to Representative Directors and a full-time ASC member.

17

In order to ensure the reliability of financial reporting, we carried out assessments of group-wide controls and theimplementation and operation status of the business processes mainly of Hankyu Hanshin Department Stores, Inc.
and Izumiya Co., Ltd. The scope of the assessments encompassed the company-wide controls of F.G.J Co., Ltd. andnewly involved an upgrading and assessment of its internal controls in line with expansion of the business scale.
In relation to antisocial forces, the Company continues to ensure that clauses for the elimination of organised crimegroups are included in relevant contracts and documents.

(3) With respect to the audit system, the Company continues to assign ten (10) dedicated staff members who support
the duties of the ASC as requested by the ASC and designate each staff member as a corporate auditor of theGroup companies.
Additionally, ASC members periodically hold meetings with Representative Directors and staff members in theinternal control divisions (Business Strategy Division, Management Planning Division, Finance Division, System
Planning Division, General Affairs and Human Resources Division and J-SOX Division) while the full-time ASC
member attends important meetings such as Group Management meetings.
(4) A subsidiary of the Company, Hankyu Hanshin Department Stores, Inc. received a cease and desist order and anorder for payment of surcharge from the Japan Fair Trade Commission on October 3, 2018 for violation of the
Antimonopoly Act with respect to raising the shipping charges on seasonal gifts paid by customers.
After receiving the order, Hankyu Hanshin Department Stores newly formulated a guideline for cartel prevention,
implemented training for company officers and employees, and took other measures as part of efforts aimed toprevent recurrence of the incident mainly by striving to ensure thorough awareness of the details. At the Company,
while providing advice as necessary and giving confirmation of the above efforts, a Group Compliance Contact
Meeting was held, partial revisions were made to “H2O Retailing Group Code of Conduct,” and a thoroughreinforcement of efforts was carried out to promote fair trading practices to the other group companies.
(ii) Outline of the Liability Limitation Agreements
As of 22nd June 2016, the Company entered into a liability agreement with each outside director in accordance with
Article 427(1) of the Companies Act (“Act”) for the purpose of limiting liability as prescribed in Article 423(1) of the Act.
Under the agreement, the maximum amount of liability of an outside director shall be limited to the amount prescribedin the Act.
(iii) Exemption from Liability of Directors
The Company provides in the Articles of Incorporation that, at a resolution of the Board of Directors’ meeting, theliability of directors (including former directors) who fail to perform their duties shall be exempt by a statutory limit basedon Article 426(1) of the Act. This provision enables directors to perform their duties without the effects of anxiety andallows the Company to continue inviting outside directors with deep insights and a wealth of experience. The above18

provision also applies to the corporate auditors (including former corporate auditors) before a resolution of the 97th
Ordinary General Shareholders’ Meeting held on 22nd June 2016.
(iv) Number of Directors as Provided in the Articles of Incorporation
The Company provides in the Articles of Incorporation that the number of directors excluding directors who are ASC
members shall be ten (10) or less and that of directors who are ASC members shall be five (5) or less.
(v) Selection of Directors
The Company provides in the Articles of Incorporation that a resolution of a Shareholders’ Meeting shall be made by amajority of the votes of the shareholders present at meetings where shareholders holding one third or more of the votesof the shareholders entitled to exercise voting rights are present. It is also provided in the Articles of Incorporation that
directors shall not be appointed by cumulative voting.
(vi) Matters Regarding Dividends
For the purpose of implementing a dividend policy corresponding to the status of business operations, the Company
provides in the Articles of Incorporation that matters regarding dividends, including matters prescribed in Article 459(1)of the Act, shall be resolved at a Board of Directors’ meeting regardless of a resolution by a Shareholders’ Meeting
unless otherwise prescribed in the Act.
(vii) Requirement for Resolution of a Special Proposal at a Shareholders’ Meeting
For the purpose of smooth deliberations regarding a special proposal at a Shareholders’ Meeting, the Company
provides in the Articles of Incorporation that a special proposal submitted at a Shareholders’ Meeting as prescribed in
Article 309(2) of the Act shall be resolved by a majority of two thirds or more of the votes of the shareholders present atmeetings where the shareholders holding one third or more of the votes of the shareholders entitled to exercise voting
rights are present.

19

(2) Status of Officers(i) Officers
Male: 9; Female: 1 (The ratio of female officers is 10.0%)
Title

President andRepresentative
Director
In charge ofSupermarket
Business andBusiness Creation
Headquarters

Representative
Director
In charge of the
Department StoreBusiness

Name

Atsushi Suzuki

Naoya Araki

Date of birth

Brief history
Apr. 1980

Joined Hankyu Department
Stores, Inc.

Oct. 2000

Executive Manager, SC
Division, Hankyu Department
Stores, Inc.

Apr. 2003

Representative Director andSenior Managing Executive
Officer, Hankyu Shopping
Center Development Co., Ltd.

Apr. 2006

Executive Officer, Hankyu
Department Stores, Inc.

Mar. 2014

Director, H2O RETAILINGCORPORATION

Apr. 2014

President and Representative
Director, H2O RETAILINGCORPORATION (present
position)

Apr. 1981

Joined Hankyu Department
Stores, Inc.

Apr. 2003

General Manager, Suburban
Store Development Office,Hankyu Department Stores,
Inc.

Apr. 2004

Executive Officer, Hankyu
Department Stores, Inc.

Mar. 2012

President and Representative
Director, Hankyu Hanshin
Department Stores, Inc.
(present position)

Jun. 2012

Representative Director, H2O
RETAILING CORPORATION(present position)

5 April 1956

14 May1957

20

Term ofofficeNumber ofcompany
shares held

(Note) 2

20,100(Note) 2

10,800TitleName

Representative
Director and Executive
Vice President
In charge of the
Katsuhiro Hayashi
General Affairs andHuman Resources
Office and the Public
Relations OfficeDirector

Makoto Yagi

Date of birth

20 January
1958

13 October
1949

Brief history

Term ofofficeNumber ofcompany
shares held

11,200

Apr. 1982

Joined Hankyu Department
Stores, Inc.

Apr. 2002

General Manager, Public
Relations Office, Hankyu
Department Stores, Inc.

Apr. 2004

Executive Manager, Sales
Promotion Dept., Hankyu
Department Stores, Inc.

Apr. 2005

General Manager,
Compliance Office, Hankyu
Department Stores, Inc.

Apr. 2007

General Manager, General
Affairs Office, Hankyu
Department Stores, Inc.

Jun. 2009

Director and Executive Officer,
H2O RETAILINGCORPORATION(Note) 2
Director and Managing
Executive Officer, H2O
RETAILING CORPORATION

Apr. 2014
Apr. 2015

Representative Director andSenior Managing Executive
Officer, H2O RETAILINGCORPORATION

Apr. 2015

Representative Director andSenior Managing Executive
Officer, Hankyu Hanshin
Department Stores, Inc.
(present position)

Apr. 2017

Representative Director andExecutive Vice President,
H2O RETAILINGCORPORATION (present
position)

Apr. 1972

Joined The Kansai ElectricPower Company, Inc.

Jun. 2005

Director, The Kansai ElectricPower Company, Inc.

Jun. 2006

Managing Director, The
Kansai Electric Power
Company, Inc.

Jun. 2009

Vice President andRepresentative Director, The
Kansai Electric Power
Company, Inc.

Jun. 2010

President and Representative
Director, The Kansai ElectricPower Company, Inc.

Jun. 2015

Director, H2O RETAILINGCORPORATION (present
position)

Jun. 2016

Chairman and Representative
Director, The Kansai ElectricPower Company, Inc. (present
position)

21(Note) 2

2,300

TitleDirector

Name

Kazuo Sumi

Director and Managing
Executive Officer
General Manager,
Management Planning Tadatsugu Mori
Office, in charge ofFinance Office andSystem Planning OfficeDirector(Standing Audit andToshimitsu Konishi
Supervisory Committee
Member)Date of birth

19 April
1949

22
September
1963

17 April
1944

Brief history
Apr. 1973

Joined Hankyu Corporation(currently Hankyu Hanshin
Holdings, Inc.)

Jun. 2000

Director, Hankyu Corporation

Jun. 2002

Managing Director, Hankyu
Corporation

Jun. 2003

President and Representative
Director, Hankyu Corporation

Oct. 2007

Director, H2O RETAILINGCORPORATION (present
position)

Jun. 2017

Chairman and Representative
Director, Group CEO, Hankyu
Hanshin Holdings, Inc.
(present position)

Apr. 1987

Joined Hankyu Department
Stores, Inc.

Apr. 2004

General Manager,
Management Policy Office,Hankyu Department Stores,
Inc.

Apr. 2006

Executive Officer, Hankyu
Department Stores, Inc.

Jun. 2006

Director and Executive Officer,
Hankyu Department Stores,
Inc.

Mar. 2012

Director and Managing
Executive Officer, H2O
RETAILING CORPORATION(present position)

Apr. 1967

Joined Hankyu Department
Stores, Inc.

Sep. 1988

General Manager, Accounting
Department, Hankyu
Department Stores, Inc.

Jun. 2000

Director, Hankyu Department
Stores, Inc.

Apr. 2002

President and Representative
Director, Hankyu Foods Co.,
Ltd.

Jun. 2002

Adviser, Hankyu Department
Stores, Inc.

Jun. 2004

Standing Corporate Auditor,
Hankyu Department Stores,
Inc.

Jun. 2016

Director and Standing Audit
and Supervisory Committee
Member, H2O RETAILINGCORPORATION (present
position)

22

Term ofofficeNumber ofcompany
shares held

(Note) 2

22,200(Note) 2

6,400(Note) 3

19,900TitleName

Director(Audit and Supervisory Naoshi Ban
Committee Member)

Date of birth30
September
1946

Brief history
Apr. 1969

Joined Mitsubishi Warehouse
Co., Ltd.

Jun. 2000

Director, Mitsubishi Logistics
Corporation

Jun. 2001

Managing Director, Mitsubishi
Logistics Corporation

Jun. 2003

President and Representative
Director, Mitsubishi Logistics
Corporation

Jun. 2008

Representative Director andChairman, Mitsubishi
Logistics Corporation

Jun. 2010

Chairman of the Board,
Mitsubishi Logistics
Corporation

Term ofofficeApr. 2013

Director and Senior Corporate (Note) 3
Advisor, Mitsubishi Logistics
Corporation

Jun. 2013

Senior Corporate Advisor,
Mitsubishi Logistics
Corporation

Jun. 2015

Director, H2O RETAILINGCORPORATION

Jun. 2016

Director and Audit andSupervisory Committee
Member, H2O RETAILINGCORPORATION(present position)

Apr. 2018

Special Advisor, Mitsubishi
Logistics Corporation (present
position)

23

Number ofcompany
shares held

8,000

TitleName

Director(Audit and Supervisory Kenjiro Nakano
Committee Member)

Director(Audit and Supervisory Mayumi Ishihara
Committee Member)

Date of birth

13 August1947

3 May 1963

Brief history
Apr. 1971

Joined Sumitomo Bank, Ltd.

Apr. 1998

Director, Sumitomo Bank, Ltd.

Jun. 2002

Managing Executive Officer,
Sumitomo Mitsui Banking
Corporation

Jun. 2004

Managing Director cum
Managing Executive Officer,
Sumitomo Mitsui Banking
Corporation

Jun. 2005

Senior Managing Director
cum Senior Managing
Executive Officer, Sumitomo
Mitsui
Banking Corporation

Apr. 2006

Representative Director cum
Deputy President Executive
Officer, Sumitomo Mitsui
Banking Corporation

Apr. 2008

Representative Director cum
Deputy Chairman, Sumitomo
Mitsui Banking Corporation

Jun. 2010

President, Keihanshin Real
Estate Co., Ltd. (currently
Keihanshin Building Co., Ltd.)

Jun. 2016

Chairman, Keihanshin
Building Co., Ltd. (present
position)

Jun. 2016

Director and Audit andSupervisory Committee
Member, H2O RETAILINGCORPORATION(present position)

Apr. 1997

Registered as attorney with
the Osaka Bar Association

Apr. 1997

Joined Oh-Ebashi LPC &Partners

Jun. 2016

Director and Audit andSupervisory Committee
Member, H2O RETAILINGCORPORATION(present position)

Total

Term ofofficeNumber ofcompany
shares held

(Note) 3

1,600(Note) 3

500

103,000

Notes:
1. Mr. Makoto Yagi, Mr. Naoshi Ban, Mr. Kenjiro Nakano and Ms. Mayumi Ishihara are outside directors.
2. One year from the conclusion of the Ordinary General Shareholders’ Meeting held on 20th June 2019.
3. Two years from the conclusion of the Ordinary General Shareholders’ Meeting held on 22nd June 2018.
4. The Chairman of the Board of Directors is Mr. Atsushi Suzuki.
5. The Company is a Company with an Audit and Supervisory Committee. The Chairman of the Audit andSupervisory Committee is Mr. Toshimitsu Konishi. The members of the Audit and Supervisory Committee are
Mr. Naoshi Ban, Mr. Kenjiro Nakano and Ms. Mayumi Ishihara.

24

(ii) Outside Directors
The number of directors from outside the Company is four (4), of whom three (3) are ASC members.

a. Relationship with outside directors
Mr. Makoto Yagi had actively given advice and opinions at the Board of Directors’ meetings based on his extensive
management experience and his broad insights. The Company appointed Mr. Yagi again as an outside director,
expecting that his skills would contribute to the supervision of the Company group. Furthermore, since he fulfils therequirements as prescribed in the below mentioned “Independence Criteria for Outside Directors,” the Company
appointed Mr. Yagi as an independent director. Mr. Yagi has no special interests in the Company. Mr. Yagi is a
Chairman and Representative Director of The Kansai Electric Power Company, Incorporated. There is no particularconflict of interest between The Kansai Electric Power Company, Incorporated and the Company.
Mr. Naoshi Ban had actively given advice and opinions at the Board of Directors’ meetings based on his extensive
management experience and his broad insights. The Company appointed Mr. Ban again as an outside director and
ASC member, expecting that his skills would contribute to the supervision and audit of the Company group.
Furthermore, since he fulfils the requirements as prescribed in the below mentioned “Independence Criteria for Outside
Directors,” the Company appointed Mr. Ban as an independent director. Mr. Ban has no special interests in the
Company. Mr. Ban is a Special Corporate Advisor of Mitsubishi Logistics Corporation, which owns 0.57% of all issued
shares of the Company. The Company owns 0.63% of all issued shares of Mitsubishi Logistics Corporation. There areno particular conflicts of interest that require disclosure between Mitsubishi Logistics Corporation and the Company.
Mr. Kenjiro Nakano has been appointed as an outside director and ASC member based on his extensive management
experience, accomplishments at a financial institution and his broad insights, expecting that his skills would contributeto the supervision and audit of the Company group. Mr. Nakano is a former director of Sumitomo Mitsui Banking
Corporation, which is one of the main banks of the Company. However, he has never served with the bank, even as anadvisor, since his retirement more than five years ago. Thus, he fulfils the requirements as prescribed in the below
mentioned “Independence Criteria for Outside Directors,” and the Company appointed Mr. Nakano as an independent
director. Mr. Nakano has no special interests in the Company. Mr. Nakano is a Chairman and Director of Keihanshin
Building Co., Ltd. There is no particular conflict of interest between Keihanshin Building Co., Ltd. and the Company.
Ms. Mayumi Ishihara has been appointed as an outside director and ASC member based on her professional
knowledge and experience as an attorney-at-law, expecting that her skills would contribute to the supervision andaudit of the Company group, although she has no experience in corporate management except as an outside director.
Since she fulfils the requirements as prescribed in the below mentioned “Independence Criteria for Outside Directors,”
the Company appointed Ms. Ishihara as an independent director. Ms. Ishihara has no special interests in the
Company.

25

The Company has established the independence criteria for outside directors as follows:
Independence Criteria for Outside Directors

To maintain their independence from the Company, outside directors of the Company shall not meet any of thefollowing criteria.
(1)

A person for whom the Company and its subsidiaries (collectively, “the Group”) is a principal business partner(Note 1) or an executing person (“the executing person”) of such party, including a managing director, an
executive officer, a person who has similar authority, a manager or an employee.

(2)

A principal business partner (Note 2) of the Group or the executing person of such party.

(3)

An expert such as an attorney-at-law, a certified public accountant, a certified tax accountant or a consultant who
receives a certain amount (Note 3) of money or other property from the Group in addition to compensation forbeing a director and/or corporate auditor.

(4)

A person who belongs to the audit firm which is the statutory accounting auditor of the Group and conducts audit
work for the Group.

(5)

A major shareholder of the Company (directly or indirectly holding 10% or more of the total voting rights) or the
executing person of such major shareholder.

(6)

An executing person of a company of which the Group is the major shareholder.

(7)

In cases in which the Group’s executive director, a director who is a full-time ASC member or a full-time corporate
auditor also holds the post of outside director or outside auditor of other companies, the executing person of suchcompanies.

(8)

The executing person of Hankyu Hanshin Toho Group (including the Group).

(9)

A person receiving more than a defined amount (Note 4) of donations from the Group or, in cases in which theperson is a corporation or an association, the executing person of the party.

(10)

Any person identified in any of (1) to (9) above in the past five years or any executing person of the Group in thepast ten years.

(11)

Any person whose spouse or relatives within the second degree of kinship are identified in any of (1) to (10) above(limited to key persons (Note 5), excluding above (3) and (4)).

(12)

Any person with whom any special circumstances exist that would result in a conflict of interest with the Company.

Notes:
1. “A person for whom the Group is a principal business partner” means a party offering products and/or services
to the Group whose total amount of transactions with the Group in the previous fiscal year exceeds the greaterof ¥100 million or 2% of the consolidated sales of the party.
2. “A principal business partner” means (a) a party to whom the Group offers products and/or services whose total

26

amount of transactions with the Group in the previous fiscal year exceeds 2% of the consolidated sales of theCompany and (b) a party to whom the Group owes liabilities as loans of 2% or more of the consolidated total
assets of the Company as of the previous fiscal year end.
3. “Certain amount” means (a) ¥10 million a year of compensation (except director’s remuneration) received fromthe Group in the previous fiscal year in cases in which the expert is an individual offering services to the Groupor (b) the total amount of compensation received from the Group in the previous fiscal year reaches 2% of thetotal revenue of a party in cases in which the expert belongs to a party such as a corporation or association
offering services to the Group.
4. “Defined amount” means ¥10 million a year in the previous fiscal year.
5. “Key person” means an executing person with relevant authority as a director, operating officer, executive
officer and/or senior manager.

27

b. Main Activities of Outside Directors During the Reporting Period
Classification

Name

Main Activities

Director

Makoto Yagi

Attended 10 of 11 Board of Directors’ meetings held during thereporting period, giving his opinions on measures and asking
questions based on his extensive management experience. In
addition, he chaired the Nominating and Compensation
Advisory Committee, a voluntary committee, offering
appropriate advice at the committee’s meetings and striving to
improve the transparency and objectivity for personnel affairs
and compensation of the management.

Director who is an

Naoshi Ban

ASC member

Attended all 11 Board of Directors’ meetings and all 12 ASC
meetings held during the reporting period, giving his opinions
on measures and asking questions based on his extensive
management experience. In addition, he served on the
Nominating and Compensation Advisory Committee, avoluntary committee, offering appropriate advice at thecommittee’s meetings and striving to improve the transparency
and objectivity for personnel affairs and compensation of the
management.

Director who is an

KenjiroAttended 10 of 11 Board of Directors’ meetings and 11 of 12

ASC member

NakanoASC meetings held during the reporting period, giving his
opinions on measures and asking questions based on his
extensive management experience.

Director who is an

Mayumi

Attended 10 of 11 Board of Directors’ meetings and all 12 ASC

ASC member

Ishihara

meetings held during the reporting period, giving her opinions
on measures and asking questions based primarily on her
specialised knowledge as an attorney.

28

(3) Status of Audits(i) Internal Audits, ASC’s Audits and Accounting Audits, and Evaluation of Auditing Firm by ASC
The Company has four (4) ASC members, consisting of three (3) outside directors and one (1) director (full-time ASC
member). The Company assigns professionals with corporate management experience and specialised knowledge oflaw and other subjects as outside directors. A professional from within the Company with substantial knowledge offinance and accounting who has served as an accounting manager in the Company for approximately 30 years has
been assigned as the full-time ASC member. The full-time ASC member is assigned as an ASC member with theauthority to be reported to and to investigate. In addition, 12 assistant employees, consisting of seven (7) dedicatedauditors, each of whom serves as corporate auditor of four (4) to five (5) subsidiaries besides administrative operationof the ASC, and five (5) persons taking responsibility of internal audit function, assist the full-time ASC member at the
ASC Office.

The office in charge of financial reporting, as stipulated in the Financial Instruments and Exchange Act (J-SOX) (seven(7) members), is established to secure the reliability of financial reporting. They work to strengthen the audit function bymaking proposals for improvements based on regular interviews and on-site audits and assessing internal controls infinancial reporting and in business processes.
With regard to activities of the ASC, the ASC developed audit plans and implemented focused audits and ordinary
audits in accordance with the standards for ASC’s audits, etc., the standards for audits of internal control system andothers. Outside directors who are ASC members attended Board of Directors’ meetings and regular meetings withrepresentative directors, and gave their opinions and asked questions as necessary from the standpoint of attorneys
and specialists with extensive business management experience. A full-time ASC member attends the monthly “GroupManagement meeting” and the “Group Compliance Committee meeting,” which are held as needed. The full-time ASC
member expressed his opinions at these meetings as necessary and inspected final decision reports on key matters aswell as the minutes of the meetings, and heard reports regarding the execution of operations directly from internal
control divisions.
At the ASC meeting, which was held 12 times during the reporting period, the full-time ASC member spends
approximately two (2) hours making an explanation on the content of agendas for the Board of Directors’ meeting and adetailed report on the status of audits. Concurrently, a consensus on the ASC’s opinion in consideration of thesupervisory function over the executing person is formed through discussions about business issues, and the full-time
ASC member provides advice and recommendations on the role of the holding company to representative directors forembodiment of the management philosophy as necessary.
In addition, one (1) outside director who is an ASC member has become a member of the voluntary Nominating andCompensation Advisory Committee, and at ASC meetings, confirms the way of operating this committee and others aswell as discusses an ideal organisational structure that enables practice of aggressive governance, and provides

29advice and recommendations to representative directors as necessary.
Regarding the auditing of subsidiaries, the full-time ASC member concurrently serves as a corporate auditor of Hankyu
Hanshin Department Stores, Inc. and Izumiya Co., Ltd., the core subsidiaries, while the standing corporate auditor or
dedicated staff members who are assistant employees assume the position of corporate auditors of other subsidiaries,
leading to augmentation of the reporting system to the full-time ASC member by closely monitoring the site throughauditing visits. At the same time, these corporate auditors work to perform more effective audits by holding Group
Board of Corporate Auditors’ meetings where appropriate and verifying the progress of audit plans through individual
opinion exchanges with the full-time ASC member and corporate auditors of subsidiaries.
Regarding the coordination with the internal audit division, the full-time ASC member monthly receives a report on
assessment of internal control concerning financial reporting and internal control concerning business processes fromthe function in charge of J-SOX, which was established to secure the reliability of financial reporting, and a report on
the method and results of business audits from an assistant employee in charge of internal audits who coordinates with
the internal audit function of major companies while conducting activities centred on business audits of Hankyu
Hanshin Department Stores.
In addition, regarding the coordination with independent auditors, in appointing independent auditors, the ASC, centredaround the full-time ASC member, ensures close coordination with KPMG AZSA LLC. throughout the fiscal year, andproactively understands the independence of the independent auditors, status of quality control, appropriateness of thestructure of execution of duties, status of implementation of accounting audits for the current fiscal year and others. The
Company has judged that it is appropriate to appoint KPMG AZSA LLC. as its independent auditors, as a result of
deliberations on reasonableness of the independent auditors in view of the number of years of continuous audits andthe fee amount based on assessment using a scoring for 20 assessment items in accordance with the “Practical Guidefor Development of Criteria for Assessment and Appointment of Accounting Auditors for Audit & Supervisory Board
Members” issued by the Japan Audit & Supervisory Board Members Association. In drafting the accounting audit plan,
ASC members and the independent auditors exchange opinions about key audit matters, while the full-time ASC
member confirms the progress of the audit procedures and exchanges opinions on issues in audits once a month inprinciple. At ASC meetings, close coordination is maintained through discussion about major issues in auditing and theaudit procedures on a quarterly basis.
(ii) Name of the Auditing Firm, Composition of Certified Public Accountants Who Executed the Audits and Assistants
with the Audits, and Policy and Reason for Appointing the Auditing Firm
The Company has designated KPMG AZSA LLC. as its independent auditing firm. The certified public accountants who
executed the accounting audit were Mr. Motoharu Iyomasa, Mr. Naoki Sugita and Ms. Aki Yuge. Assisting them with theaudit were 13 other certified public accountants and 12 other staff members.
In appointing an auditing firm, the Company takes into account quality of audits, ample auditing experience in otherindustries and companies, enriched relevant services, appropriateness of audit fees, and others. Since the Company
has determined, as a result of taking into consideration these matters, that this firm has abilities to implement its

30

accounting audits, it has appointed KPMG AZSA LLC. as its independent auditors.
(iii) Policy on Dismissal or Non-Reappointment of Independent Auditors
If the independent auditors falls under any of the matter set forth in each item of Article 340 (1) of the Companies Act,
the ASC dismisses the independent auditors.
In addition, if quality and efficiency of audits might be lowered and there is no prospect for improvement inconsideration of the independent audit’s number of years of continuous audits, audit fees and others, or if the ASC
judges, in light of assessment of the independent auditors, that a change of the independent audit is reasonable tofurther increase the appropriateness of audits, the ASC determines the content of proposal for dismissal or
non-reappointment of the independent auditors to be submitted to a General Shareholders’ Meeting.
(iv) Fees Paid to Independent Auditors
For the provisions of Form 2, precautions for recording (56) d (f) i to iii in the amended “Cabinet Office Order on
Disclosure of Corporate Affairs” in accordance with “Cabinet Office Order for Partial Amendment of the Cabinet Office
Order on Disclosure of Corporate Affairs” (Cabinet Office Order No. 3, 31st January 2019), the Company has applied
the transitional measure.
Details of fees paid to certified public accountants, etc.
For the year ended 31st March 2018
Classification

Audit fees
(millions of yen)

For the year ended 31st March 2019

Fees for non-audit
services(millions of yen)

Audit fees
(millions of yen)

Fees for non-audit
services(millions of yen)

The Company

65

6

67

3

Consolidated
subsidiaries

144

―

158

―

Total

210

6

226

3

Details of Non-Audit Services
For the year ended 31st March 2018
The details of non-audit services for which the Company paid fees to certified public accountants consisted of “financial
due diligence services.”
For the year ended 31st March 2019
The details of non-audit services for which the Company paid fees to certified public accountants consisted of “comfort
letter services accompanying the issuance of bonds.”
Other Significant Fees Paid
For the year ended 31st March 2018
Suzhou Izumiya Co., Ltd., H2O (China) Investment Co., Ltd. and Suzhou Izumiya Supermarkets Co., Ltd., consolidated
subsidiaries of the Company, paid ¥3 million in fees to a member firm of KPMG to which certified public accountants

31

acting as the Company’s independent auditors belong.
For the year ended 31st March 2019
Suzhou Izumiya Co., Ltd., H2O (China) Investment Co., Ltd. and Suzhou Izumiya Supermarkets Co., Ltd., consolidated
subsidiaries of the Company, paid ¥11 million in fees to a member firm of KPMG to which certified public accountants
acting as the Company’s independent auditors belong.
Policy to Determine Audit Fees
Audit fees to independent auditors are determined based on the items to be audited, the contents and procedures of
the audits, the number of days required for audits and the appropriateness of the audit fees considering the scale andcharacteristics of the business of the Company.
Reasons for Consent to the Independent Auditors’ Remuneration by the ASC
In accordance with the “Practical Guide for Cooperation with Accounting Auditors” issued by the Japan Audit &Supervisory Board Members Association, the Company’s ASC examined the number of hours required for audits in thepast, evaluated audit results, reviewed fee trends in the past and compared the fees with those paid by othercompanies in the same business. The ASC also had an interview with the independent auditors to evaluate theircredentials and examined the appropriateness and reasonableness of fee calculations and the basis of estimates,
including the number of hours and staff estimated in the audit planning and audit procedures for significant audit issues.
As a result, the Company’s ASC agreed to the amounts of fees to the independent auditors.

32

(4) Compensation for Directors(i) Compensation Paid to Directors

Classification

Total
compensation(millions of yen)

Directors (excluding
ASC members)(excluding outside
directors)
Directors (ASCmembers) (excluding
outside directors)
Outside directors

Total compensation by type (millions of yen)
Stock option
Basic
based
Bonus
compensation compensation (performance(stock
based(fixedprice-linked compensation)compensation)compensation)

Number of
directors

183

116

30

37

6

26

26

—

—

1

35

35

—

—

4

(ii) Matters regarding Policy on Determining Compensation for Directors
Policy as of 31st March 2019 and activities involved in the decision making process
For executive directors, we instituted a system of compensation that allows for higher incentives for improving shortand medium- to long-term performance. Specifically, it consists of the following three components: 1) a monthly basic
compensation which is linked to the position of director and not directly linked to the performance of the Group, 2) anannual bonus that reflects single-year performance and other factors and 3) stock option based compensation that is
linked to stock price. However, the compensation for non-executive directors, including directors who are ASC
members, is dependent on the role expected to be performed and consists only of monthly compensation.
As for compensation for directors, the Board of Directors decides the agenda for the General Shareholders’ Meetingand individual amounts of compensation after consideration by the Nominating and Compensation Advisory Committee.
As for compensation for directors who are ASC members, individual amounts are determined through discussion bydirectors who are ASC members.
In deliberating the individual amounts of compensation for directors, the Nominating and Compensation Advisory
Committee considers the type of business, the level of compensation offered by comparable companies and the levelof compensation of other officers in the Company.
In the fiscal year ended 31st March 2019, activities were conducted as per the above policy at meetings of theNominating and Compensation Advisory Committee and the Board of Directors.
Performance-based compensation (bonus) above in the fiscal year ended 31st March 2019 was determined inaccordance with position and assessment of performance, mainly taking into account achievement of consolidated

33

operating income, profit attributable to owners of parent and others. Targeted operating income was ¥20,800 million,
actual operating income was ¥20,422 million, and actual profit attributable to owners of parent was ¥2,162 million, adecrease of 85.2% compared with the previous fiscal year.
Regarding compensation for executive directors, 50% is basic compensation and 50% is based on performance andstock price.
The outline of each component of compensation is as follows:
The maximum compensation based on a resolution of the General Shareholders’ Meeting is outlined below.
a.

At the 97th Ordinary General Shareholders’ Meeting held on 22nd June 2016, the total amount of basic
compensation for directors excluding directors who are ASC members was set at a maximum of ¥300 million peryear (of which, a maximum of ¥50 million is for outside directors), and basic compensation for directors who are
ASC members was set at a maximum of ¥90 million per year.

b.

Bonus amounts are decided at a Shareholders’ Meeting each time they are paid.

c.

At the 97th Ordinary General Shareholders’ Meeting held on 22nd June 2016, it was resolved that stock option
based compensation for directors excluding directors who are ASC members and outside directors would be basedon a different framework from the monthly compensation described above and was set at a maximum annualcompensation of ¥120 million.

Policy as of 20th June 2019
In order to provide higher incentives to improve short- and medium- to long-term performance, the compensation of theCompany’s executive directors and executive officers (“executive directors”) combine monthly basic compensation withannual bonus that reflects single-year performance and other factors and stock option based compensation that is
linked to stock price, and the compensation of outside directors and directors who are ASC members (“non-executive
directors”) was monthly basic compensation only. We decided to take advantage of the formulation of a new mid-termplan that starts in fiscal 2019 to review the new stock compensation plan and its recipients based on the following
policies:The plan should contribute to the sustainable growth and to the improvement of medium- to long-term corporate
value of the Company group.

The plan should motivate the executive directors to achieve the objectives of the mid-term plan.

The plan should help the Company group secure human resources who are capable of carrying out its mission andof achieving sustainable growth.

The plan should facilitate shared awareness with shareholders as well as an outlook that gives weight to theshareholder.

As for compensation for directors, etc., the Board of Directors decides the agenda for the General Shareholders’34Meeting and individual amounts of compensation after consideration by the Nominating and Compensation Advisory
Committee. As for compensation for directors who are ASC members, individual amounts are determined throughdiscussion by directors who are ASC members.
In deliberating the individual amounts of compensation for directors, the Nominating and Compensation Advisory
Committee considers the type of business, the level of compensation offered by comparable companies and the levelof compensation of other officers in the Company.
Regarding compensation for executive directors, 50% is monthly basic compensation and 50% is annual bonus andstock compensation.
The outline of each component of compensation and recipients is as follows:
Types of compensation and recipients
Executive directors

Stock compensation

Cash compensation

Non-executive
directors

Performance-based stock options

–Continuous service-based stock options



Bonus (performance-based compensation)

–

Basic compensation (fixed compensation)



Basic compensation
Monthly basic compensation is set in accordance with individual job responsibility and position. For executive directors,
monthly basic compensation is revised every April in accordance with an assessment for the previous year on the basisof the compensation table according to stages of the amount of consolidated operating income.
To non-executive directors, compensation is paid in accordance with individual role.
Bonus
Bonuses shall be compensation paid according to consolidated operating results for one fiscal year, principally linked toachievement levels of consolidated operating income, and determined in accordance with position and assessment inconsideration of profit attributable to owners of parent and others. For bonuses, approval shall be obtained at a General
Shareholders’ Meeting. Because consolidated operating income and profit attributable to owners of parent are target
indicators for single-year performance, they have been chosen as indicator for performance-based compensation.
Stock compensation
Stock compensation shall be the following two (2) types of stock options:

Stock option based compensation with continuous service conditions
Subscription rights to shares, which can be exercised by any eligible person for allotment of the subscription rights
to shares after losing any position as officer, such as director (including ASC member), corporate auditor and35

executive officer of the Company and its subsidiaries (but provided that the loss is for retirement due to expiration of
the terms of office or any other valid reason accepted by the Company), are granted in accordance with the position
each year.
Stock option based compensation with performance-based conditionsIn terms of management indicators targeted in the mid-term plan and other indicators predetermined by theCompany’s Board of Directors (such as consolidated net sales, each stage of income, ROE and ROIC), the numberof exercisable units is determined within the range of 0 to 100% of allotted subscription rights to shares inaccordance with achievement levels of the indicators in the final fiscal year for the mid-term plan, and subscription
rights to shares, which can be exercised after losing any position as officer, such as director (including ASC
member), corporate auditor and executive officer of the Company and its subsidiaries, are granted in accordancewith the position each year.
The performance-based indicators for allotment in June 2019 shall be as follows, and will be determined based on
results in the fiscal year ending 31st March 2022, the final year for Phase 2 of Stage II in the GP10 Plan.
Consolidated ordinary income is one of the target income indicators of the mid-term plan, and consolidated ROIC is
an indicator of capital efficiency. Accordingly, these two indicators have been chosen as the indicators for
performance-based compensation.
Performance-based criteria for fiscal 2019 to 2021
Indicator

Target for fiscal 2021

Weight(i) Consolidated ordinary income¥25.0 billion

50%

4.0%

50%

(ii) Consolidated ROIC

The maximum compensation based on a resolution of the General Shareholders’ Meeting is outlined below.
a.

At the 97th Ordinary General Shareholders’ Meeting held on 22nd June 2016, the total amount of basic
compensation for directors excluding directors who are ASC members was set at a maximum of ¥300 million peryear (of which a maximum of ¥50 million is for outside directors), and basic compensation for directors who are ASC
members was set at a maximum of ¥90 million per year.

b.

Bonus amounts are decided at a Shareholders’ Meeting each time they are paid.

c.

At the 100th Ordinary General Shareholders’ Meeting held on 20th June 2019, it was resolved as described belowthat stock option based compensation would be based on a different framework from the monthly compensation
described above.



Total amount of compensation for directors (excluding directors who are ASC members)
It was resolved that the upper limit will be set at ¥129 million per year (including ¥9 million for outside directors).
Of the amount, the upper limit of ¥93 million per year will be set for continuous service-based stock options(including ¥9 million for outside directors) and the upper limit of ¥36 million per year will be set for
performance-based stock options.

36Total amount of compensation for directors who are ASC members
It was resolved that the upper limit will be set at ¥22.5 million per year.

37

(5) Holding Status(i) Criteria and idea for division of investment securities
With regard to division of investment securities held for portfolio investment purposes and those held for other thanportfolio investment purposes, the Company classifies investment securities which are held for the purpose of gain onsale as portfolio investment purposes and those which are held for the purpose of building good relationships withbusiness partners and related parties such as business alliance partners and contributing to smooth promotion of theCompany group’s businesses and improvement of corporate value over the medium to long term as purposes otherthan portfolio investment purposes.
In principle, as its policy, the Company does not hold investment securities which are held for portfolio investment
purposes.
(ii) Investment securities which are held for other than portfolio investment purposesa. Holding policy and method for verification of reasonableness of holdings as well as details of verification by the
Board of Directors, etc., in relation to whether or not the holding of individual stock is appropriateWhen the Company considers that holding the stock helps build a good relationship with business partners andrelated parties such as business alliance partners and contributes to smooth promotion of the Company group’sbusinesses and improvement of corporate value over the medium to long term, it may hold the stock of the business
partner, etc., on a cross-shareholding basis.



The Company judges whether or not to exercise voting rights for stocks held on a cross-shareholding basis, for each
proposal from a viewpoint of whether doing so contributes to improvement of the Company group’s corporate value
over the medium to long term, also taking into account the holding purpose.



If a company that holds stock of the Company on a cross-shareholding basis (hereinafter, the “cross-shareholder”)
expresses its intention to sell that stock, the Company shall not perform actions such as indicating a reduction intransactions with this company as a means for preventing the sale.

For transactions with cross-shareholders, economic reasonableness of the transactions is fully verified so that any
transactions that may harm the common interests of the company and shareholders are not conducted.

The Company has been pushing forward reduction in stocks of which the holding necessity is considered low. The
Board of Directors will continue to verify holding purposes, details of transactions, dividend yields, holding risks andother matters, and consider selling stocks of which the holding necessity is considered low in view of market trends
and other factors, also taking into account the Company’s capital cost.

b. Number of investment securities and balance sheet value

Unlisted shares
Shares other thanunlisted shares

Number of

Total amount ofdifferent stocks

balance sheet value(stock)(millions of yen)

27

5,929

16

85,55238

Stocks of which the number of shares increased in the fiscal year ended 31st March 2019.
Total amount of
Number ofdifferent stocks(stock)acquisition cost
related to theincrease in the

Reason for the increase in the number of shares

number of shares(millions of yen)

Unlisted shares
Shares other thanunlisted shares

1

29

To strengthen business management relationship1

8

To strengthen business management relationship

Stocks of which the number of shares decreased in the fiscal year ended 31st March 2019.
Total amount of sale
Number ofvalue related to thedifferent stocks

decrease in the(stock)number of shares(millions of yen)

Unlisted shares

30c. Information on the number of shares, balance sheet value, etc., of specified investment securities and shares
deemed held by stockSpecified investment securities

Stock

For the year
ended 31st
March 2019

For the year
ended 31st
March 2018

(millions of yen)(millions of yen)

13,664,280

13,664,280

Purpose of holding, quantitative effects
Number of shares Number of shares of holding, and reason for the increasein the number of shares
Balance sheet
Balance sheet
value
value
(Purpose of holding) To strengthen
relationship with the Hankyu Hanshin
Toho Group(Method of verifying reasonableness ofholding) Based on the relationship of the
Hankyu Hanshin Toho Group, theCompany has judged that there arepositive effects of holding the stock.

Toho Co., Ltd.
60,737

48,23439

Whether or
not the stockof theCompany is
held

None

StockFor the year
ended 31st
March 2019

For the year
ended 31st
March 2018

(millions of yen)(millions of yen)

Purpose of holding, quantitative effects
Number of shares Number of shares of holding, and reason for the increasein the number of shares
Balance sheet
Balance sheet
value
value

8,887,000(Purpose of holding) To strengthen
relationship between both companies
through business partnership(Method of verifying reasonableness ofholding) The Company has determinedthat there are certain positive effects on
promotion of businesses, such as a joint
effort for products in the businessalliance.
* The number of shares decreased as aresult of consolidation of shares(consolidation at a ratio of one (1) sharefor two (2) shares) in September 2018.
(Purpose of holding) To strengthen
relationship between both companies
through business partnership(Method of verifying reasonableness ofholding) The Company has consideredthat there are positive effects of holding
in promotion of the Company group’sbusiness strategy, such as introductionof the Company group’s joint point
system, sale of the Company group’s
products, etc., through the businessalliance.
(Purpose of holding) To strengthenbusiness management relationship(Method of verifying reasonableness ofholding) As a result of taking into
account the business relationship withthis company, the Company has
considered that there are positiveeffects of holding the stock.
(Purpose of holding) For financial policy
reasons(Method of verifying reasonableness ofholding) As a result of taking into
account the business relationship withthis company (borrowing transaction),
the Company has considered that there
are positive effects of holding the stock.
(Purpose of holding) To strengthenbusiness management relationship(Method of verifying reasonableness ofholding) As a result of taking into
account the business relationship withthis company (transaction for purchaseof goods), the Company has consideredthat there are positive effects of holding
the stock.

17,774,000

Takashimaya Co.,Ltd.
13,09918,1473,200,000

3,200,000

Kansai Super Market
Ltd.

Mitsubishi Logistics
Corporation

3,299

3,612

554,500

554,500

1,713

1,253

3,012,740

3,012,740

Mitsubishi UFJ
Financial Group, Inc.

Kato Sangyo Co.,
Ltd.

1,657

2,099

363,300

363,300

1,326

1,353

40

Whether or
not the stockof theCompany is
held

Yes

Yes

Yes

None
(Note)

Yes

StockAsahi Group
Holdings, Ltd.

Umenohana Co.,Ltd.

Wacoal Holdings
Corp.

Sumitomo Mitsui
Financial Group, Inc.

For the year
ended 31st
March 2019

For the year
ended 31st
March 2018

(millions of yen)(millions of yen)

217,360

217,360

Purpose of holding, quantitative effects
Number of shares Number of shares of holding, and reason for the increasein the number of shares
Balance sheet
Balance sheet
value
value

1,071

1,231

374,500

374,500

1,011

1,082

267,000

267,000

734

822

120,528

120,528

467(Purpose of holding) To strengthenbusiness management relationship(Method of verifying reasonableness ofholding) As a result of taking into
account the business relationship withthis company (transaction for purchaseof goods), the Company has consideredthat there are positive effects of holding
the stock.
(Purpose of holding) To strengthen
relationship between both companies
through business partnership(Method of verifying reasonableness ofholding) As a result of taking into
account the business relationship withthis company (transaction for purchaseof goods), the Company has consideredthat there are positive effects of holding
the stock.
(Purpose of holding) To strengthenbusiness management relationship(Method of verifying reasonableness ofholding) As a result of taking into
account the business relationship withthis company (transaction for purchaseof goods), the Company has consideredthat there are positive effects of holding
the stock.
(Purpose of holding) For financial policy
reasons(Method of verifying reasonableness ofholding) As a result of taking into
account the business relationship withthis company (borrowing transaction),
the Company has considered that there
are positive effects of holding the stock.

537

41

Whether or
not the stockof theCompany is
held

None
(Note)

None

None(Note)

None(Note)

StockJoshin Denki Co.,
Ltd.

Sumitomo Mitsui
Trust Holdings, Inc.

Onward Holdings
Co., Ltd.

Toyo Seikan Group
Holdings, Ltd.

Tokyo Rakutenchi
Co., Ltd.

For the year
ended 31st
March 2019

For the year
ended 31st
March 2018

(millions of yen)(millions of yen)

56,00056,000142

217

25,37025,370Purpose of holding, quantitative effects
Number of shares Number of shares of holding, and reason for the increasein the number of shares
Balance sheet
Balance sheet
value
value

100

109

150,252

139,291

87

128

33,00033,000

74

52

5,500

5,500

27

28

(Purpose of holding) To strengthenbusiness management relationship(Method of verifying reasonableness ofholding) As a result of taking into
account the business relationship withthis company, the Company has
considered that there are positiveeffects of holding the stock.
(Purpose of holding) For financial policy
reasons(Method of verifying reasonableness ofholding) As a result of taking into
account the business relationship withthis company (borrowing transaction),
the Company has considered that there
are positive effects of holding the stock.
(Purpose of holding) To strengthenbusiness management relationship(Method of verifying reasonableness ofholding) As a result of taking into
account the business relationship withthis company (transaction for purchaseof goods), the Company has consideredthat there are positive effects of holding
the stock.
(Reason for the increase in shares) Thisis because the Company has
participated in the business partners
shareholding association andadditionally acquires shares on aregular basis.
(Purpose of holding) To facilitatebusiness activity(Method of verifying reasonableness ofholding) As a result of taking into
account the business relationship withthis company, the Company has
considered that there are positiveeffects of holding the stock.
(Purpose of holding) To strengthen
relationship with the Hankyu Hanshin
Toho Group(Method of verifying reasonableness ofholding) Based on the relationship of the
Hankyu Hanshin Toho Group, theCompany has judged that there arepositive effects of holding the stock.

42

Whether or
not the stockof theCompany is
held

Yes

None
(Note)

Yes

None

None

StockFor the year
ended 31st
March 2019

For the year
ended 31st
March 2018

(millions of yen)(millions of yen)

1,437

1,437

1

1

Purpose of holding, quantitative effects
Number of shares Number of shares of holding, and reason for the increasein the number of shares
Balance sheet
Balance sheet
value
value

Isetan Mitsukoshi
Holdings Ltd.

(Purpose of holding) To facilitatebusiness activity(Method of verifying reasonableness ofholding) No significant
unreasonableness has been found in
the holding, as a result of examining theimportance in terms of the amount.

Whether or
not the stockof theCompany is
held

None

* For stocks for which it is difficult to describe quantitative effects of holding, the method of verifying reasonableness ofholding has been provided.
Note: A Group company holds stock of the Company(iii) Investment securities which are held for portfolio investment purposesNone(iv) Investment securities whose purpose for holding was changed from portfolio investment purposes to purposes
other than portfolio investment purposes during the fiscal year ended 31st March 2019
None(v) Investment securities whose purpose for holding was changed from purposes other than portfolio investment
purposes to portfolio investment purposes during the fiscal year ended 31st March 2019
None

43

H2O RETAILING CORPORATION and Consolidated Subsidiaries

Five-Year SummaryYears ended 31st March
For the year:
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Interest expenses
Profit before income taxes
Profit attributable to owners of parent
Comprehensive income
Per share information (in yen and U.S. dollars)
Basic profit per share
Diluted profit per share
Cash dividends
At year-end:
Inventories
Property, plant and equipment (book value)
Total assets
Long-term debt
Shareholders' equity
Ratio analysis:
Gross profit / Net sales (%)
Profit before income taxes / Net sales (%)
Profit attributable to owners of parent / Net sales (%)
Profit attributable to owners of parent / Total assets (%)
Profit attributable to owners of parent / Shareholders' equity (%)
Shareholders' equity / Total assets (%)
Long-term debt / Shareholders' equity (times)
Net sales / Inventories (times)
Net sales / Total assets (times)

Millions of yen
2017

2015

2016

¥844,819
603,401
241,417220,059
1,201
17,582
11,586
31,600¥915,690
649,326
266,363242,538
1,244
24,374
14,053
4,966

98.06
97.64
25.00

Thousands of
U.S. dollars(Note 1)

2018

2019

2019

¥901,221
637,837
263,384
240,841
1,081
20,005
14,29816,192¥921,871
655,646
266,224
243,459
1,003
23,21914,636
21,380¥926,872
660,636
266,235
245,813
728
8,050
2,162
3,592

$8,350,198
5,951,675
2,398,513
2,214,531
6,558
72,522
19,47732,360113.93113.3935.00

115.84115.2840.00

118.54117.9040.00

118.54117.90
40.00

1.06
1.06
0.36

¥37,025
255,093
630,017
129,696
213,134¥35,507
253,461595,247
117,479
223,013¥35,292
258,961
639,305
118,593
232,786¥35,295
280,661
659,582
106,931242,390¥33,919284,860
663,335
136,718
239,755$305,576
2,566,306
5,975,990
1,231,693
2,159,954

28.58
2.08
1.37
2.30
6.16
33.83
0.61
22.82
1.34

29.09
2.66
1.53
2.29
6.44
37.47
0.53
25.79
1.54

29.23
2.22
1.59
2.32
6.27
36.41
0.51
25.54
1.41

28.88
2.52
1.59
2.25
6.16
36.75
0.44
26.12
1.40

28.72
0.87
0.23
0.33
0.90
36.14
0.57
27.33
1.40

Note 1. U.S. dollar amounts represent translations of yen amounts at the rate of \111 to U.S.$1.00.
2. Amounts less than one million yen and one thousand dollars are rounded down.
3. As for "Profit attributable to owners of parent / Total assets," the Company uses the average of total assets at the beginning and end of
the year.
4. As for "Profit attributable to owners of parent / Shareholders' equity," the Company uses the average of shareholders' equity at the beginningand end of the year.
5. On 1st September 2014, the Company executed a reverse stock split (two-to-one share).
Basic profit per share and diluted profit per share were calculated as if the reverse stock split had been executed at the beginning of the fiscal year
ended 31st March 2014.
6. The “Partial Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ Statement No. 28, issued on 16th February 2018,“Partial Amendments”) have been applied from the beginning of the fiscal year ended 31st March 2019.
The respective amount for the previous year was reclassified to conform to the current year’s presentation.

44

Consolidated Balance Sheets

H2O RETAILING CORPORATION and Consolidated Subsidiaries
Thousands of U.S.
dollars (Note 1)

Millions of yen

As of 31st March, 2018 and 2019
AssetsCurrent assets
Cash and deposits (Notes 9 and 11)
Notes and accounts receivable - trade (Note 11)
Merchandise and finished goods
Work in process
Raw materials and supplies
Accounts receivable - other (Note 11)
Other (Note 5)
Allowance for doubtful accounts (Note 11)
Total current assets\

Non-current assets
Property, plant and equipment (Note 5)
Buildings and structures
Accumulated depreciation
Buildings and structures, net
Machinery, equipment and vehicles
Accumulated depreciation
Machinery, equipment and vehicles, net
LandConstruction in progress
Other
Accumulated depreciation
Other, net
Property, plant and equipment, net
Intangible assets
Goodwill
Other
Total intangible assets
Investments and other assets
Investment securities (Notes 5, 11 and 12)Long-term loans receivable
Guarantee deposits (Notes 5 and 22)
Net defined benefit asset
Deferred tax assets (Note 16)
Other (Note 5)
Allowance for doubtful accounts
Total investments and other assets
Total non-current assets
Total assets\

See accompanying notes.

45

2018

2019

67,150 \46,93932,798
322
2,175
5,984
5,210
(413)
160,167

55,22949,886
31,600
329
1,990
6,778
4,643
(454)
150,003

317,072(208,379)
108,692
8,103(4,445)
3,657
149,550
8,839
46,131(36,210)
9,921
280,661

319,564(203,956)
115,608
8,221(4,801)
3,420
147,281
7,666
46,820(35,937)
10,882284,860

2,878,954(1,837,441)
1,041,513
74,063(43,252)
30,8101,326,855
69,063421,801(323,756)
98,0362,566,306

4,647
13,223
17,8704,076
14,68518,762

36,720132,297
169,027

114,544
3,986
70,079240
12,6492,306(2,922)200,884
499,415
659,582 \

121,149
4,571
72,2901,091,432
41,180651,261

11,942
2,683(2,928)
209,709513,331
663,335

2019$$

497,558
449,423
284,684
2,963
17,92761,063
41,828(4,090)1,351,378

107,585
24,171(26,378)
1,889,270
4,624,603
5,975,990

Thousands of U.S.
dollars (Note 1)

Millions of yen

2018

2019

62,794 \-59,732
8,000

42,561

20,201

181,990

19,162764
6,324
33,881
5,095
160
116
1,959
600
28,147
201,569

19,655749
4,151
29,676
5,018
156
967
1,823
68
23,888174,092

177,072
6,747
37,396
267,351
45,207
1,405
8,711
16,423612
215,207
1,568,396

10,00096,931
24,733
266
228
3,727
14,923
720
9,175
9,911
2,727
3,861
177,205
378,774

20,000116,718
26,152
266
221
4,020
16,827
621
8,686
9,820
2,755
3,548
209,639383,731

180,180
1,051,513
235,603
2,396
1,990
36,216
151,594
5,594
78,252
88,46824,81931,963
1,888,639
3,457,036

17,796

17,796160,324

Capital surplus
Retained earnings
Treasury shares

92,726135,057(3,190)92,675132,278(2,995)

834,909
1,191,693(26,981)

Total shareholders' equity

242,390239,755

2,159,954

37,662
59
124
(8)
(658)
37,178
1,234
3
280,807659,582 \

42,864

Liabilities
Current liabilities
Notes and accounts payable - trade (Notes 5 and 11) \Short-term loans payable (Notes 5, 11 and 23)
Current portion of long-term loans payable (Notes 5,
11 and 23)
Accounts payable - other (Note 11)
Lease obligations (Notes 10 and 23)
Income taxes payable (Note 16)
Gift certificates
Provision for bonuses
Provision for directors' bonuses
Provision for loss on store closings
Provision for point card certificates
Asset retirement obligations (Note 18)
Other (Note 5)
Total current liabilities
Non-current liabilities
Bonds payable (Notes 11 and 23)
Long-term loans payable (Notes 5, 11 and 23)
Deferred tax liabilities (Note 16)
Deferred tax liabilities for land revaluation (Note 5)
Provision for directors' retirement benefits
Provision for redemption of gift certificates
Net defined benefit liability (Note 14)
Long-term accounts payable - other
Lease obligations (Notes 10 and 23)
Long-term guarantee deposited
Asset retirement obligations (Note 18)
Other (Note 5)
Total non-current liabilities
Total liabilities
Net assets (Note 8)
Shareholders' equity
Capital stock:2019$

538,126
72,072

Common stock,
Authorised - 150,000,000 shares,
Issued - 125,201,396 shares in 2018 and 2019

- 1,713,817 shares in 2018
- 1,609,297 shares in 2019

Accumulated other comprehensive income (Note 7)
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Revaluation reserve for land (Note 5)
Foreign currency translation adjustment
Remeasurements of defined benefit plans
Total accumulated other comprehensive income
Subscription rights to shares
Non-controlling interests
Total net assets
Total liabilities and nets assets\
See accompanying notes.

46

386,162

-

124
(788)
(3,591)
38,6081,235
4
279,603
663,335$

1,117(7,099)(32,351)
347,819
11,12636
2,518,945
5,975,990

Consolidated Statements of Income

H2O RETAILING CORPORATION and Consolidated Subsidiaries
Thousands of U.S.
dollars (Note 1)

Millions of yen

Years ended 31st March, 2018 and 2019
Net sales
Cost of sales (Note 6)
Gross profit
Selling, general and administrative expenses
Salaries and allowances
Rent expenses
Other
Total selling, general and administrative expenses
Operating income\

Non-operating income
Interest income
Dividend income
Gain on debt settlement
Share of profit of entities accounted for using equity method
Foreign exchange gains
Other
Total non-operating income
Non-operating expenses
Interest expenses
Provision for redemption of gift certificates
Share of loss of entities accounted for using equity method
Other
Total non-operating expenses
Ordinary income
Extraordinary income (Note 6)
Insurance income
Gain on bargain purchase
Gain on sales of non-current assets
Gain on revision of retirement benefit plan
Total extraordinary income
Extraordinary losses (Note 6)
Loss on store closings
Impairment loss
Loss on disaster
Loss on retirement of non-current assets
Outplacement expenses
Loss on transfer of business
Expenses for store openings
Total extraordinary losses
Profit before income taxes
Income taxes - current (Note 16)
Income taxes - deferred (Note 16)
Total income taxes
Profit for the year
Profit attributable to non-controlling interests
Profit attributable to owners of parent\

See accompanying notes.

47

2018
921,871 \
655,646
266,2242019
926,872
660,636
266,235

78,03938,210127,209
243,459
22,76577,05939,306
129,448245,813
20,422694,225
354,108
1,166,198
2,214,531
183,981

198
1,230
1,256
195
485
1,141
4,508

80
1,326
1,429
1,051
3,887

720
11,945
12,873
9,468
35,018

1,003
913
1,082
3,000
24,272

728
1,066
179
958
2,932
21,376

6,558
9,603
1,612
8,630
26,414
192,576

2,010
1,787
1,445
5,243

895
895

8,063
8,063

1,639
3,479
1,177
6,296
23,219
7,780
803
8,583
14,636
0
14,636 \

7,228
2,592
1,402
1,266
672
546
514
14,221
8,050
4,696
1,192
5,888
2,162
0
2,162

65,11723,351
12,63011,405
6,054
4,918
4,630
128,117
72,52242,306
10,73853,045
19,477
0
19,477$$2019
8,350,198
5,951,675
2,398,513

Consolidated Statements of Comprehensive Income

H2O RETAILING CORPORATION and Consolidated Subsidiaries

Thousands of U.S.
dollars (Note 1)

Millions of yen

Years ended 31st March, 2018 and 2019
Profit for the year\
Other comprehensive income (Note 7)
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Revaluation reserve for land
Foreign currency translation adjustment
Remeasurements of defined benefit plans, net of tax
Share of other comprehensive income of entities accounted for using equity
methodTotal other comprehensive income
Comprehensive income\
Comprehensive income attributable to:
Owners of parent
Non-controlling interests\

See accompanying notes.

48

2018
14,636 \

2019
2,162

6,435
37
(1)
(15)
(29)

5,201
(59)
(110)
(2,932)

46,855(531)(990)(26,414)

316

(669)

(6,027)

6,743
21,380 \

1,429
3,592

21,380 \
0

3,592
0

$

$
$

2019
19,477

12,87332,36032,3600Consolidated Statements of Changes in Net Assets

H2O RETAILING CORPORATION and Consolidated Subsidiaries

Millions of yen

Shareholders' equity
Capital stock
Years ended 31st March 2018 and 2019
Balance at 1st April 2017
Cumulative effects of changes in accounting policies
Restated balance
Changes of items during period
Dividends of surplus
Profit attributable to owners of parent
Purchase and disposal of treasury shares
Net changes of items other than shareholders' equity
Total changes of items during period
Balance at 31st March 2018
Balance at 1st April 2018
Changes of items during period
Dividends of surplus
Profit attributable to owners of parent
Purchase and disposal of treasury shares
Change in ownership interest of parent due totransactions with non-controlling interests
Purchase of shares of consolidated subsidiaries
Net changes of items other than shareholders' equity
Total changes of items during period
Balance at 31st March 2019

CapitalsurplusRetainedearnings¥17,796¥92,732

17,796

92,732¥125,490(130)
125,360(4,938)
14,636(6)¥17,796¥17,796(6)¥92,726¥92,726

9,697¥135,057¥135,057(4,941)
2,162

(40)

¥17,796

Total
Treasuryshareholders'sharesequity¥(3,234)(3,234)¥232,786(130)
232,655

43(4,938)
14,63637

43¥(3,190)¥(3,190)

9,734¥242,390¥242,390

194(4,941)
2,162
154

(10)

(10)

(0)

(0)

(50)
¥92,675(2,778)¥132,278

194¥(2,995)(2,634)¥239,755

Millions of yen

Accumulated other comprehensive income
Valuationdifference on
available-forsale
securities
Balance at 1st April 2017
Cumulative effects of changes in accounting policies
Restated balance
Changes of items during period
Dividends of surplus
Profit attributable to owners of parent
Purchase and disposal of treasury shares
Net changes of items other than shareholders' equity
Total changes of items during period
Balance at 31st March 2018
Balance at 1st April 2018
Changes of items during period
Dividends of surplus
Profit attributable to owners of parent
Purchase and disposal of treasury shares
Change in ownership interest of parent due totransactions with non-controlling interests
Purchase of shares of consolidated subsidiaries
Net changes of items other than shareholders' equity
Total changes of items during period
Balance at 31st March 2019

Deferred
gains orlosses onhedges

Total
Foreign RemeasureRevaluation
accumulated Subscription
Noncurrency
ments ofreserve forotherrights to controllingtranslation
definedlandcomprehensharesinterests
adjustment benefit plans
sive income

Total net
assets¥31,227¥21¥125¥(309)¥(629)¥30,434¥1,098¥3

31,227

21

125

(309)

(629)

30,4341,098

3¥264,323(130)
264,192

00¥3¥3(4,938)
14,63637
6,880
16,615¥280,807¥280,807

6,435
6,435
¥37,662¥37,662

37
37
¥59
¥59

(1)
(1)
¥124
¥124

300
300
¥(8)
¥(8)

(29)
(29)
¥(658)¥(658)

6,743
6,743¥37,178¥37,178

136
136¥1,234¥1,234(4,941)
2,162
154
(10)
5,201
5,201
¥42,864

(59)
(59)
-

¥124

49

(779)
(779)
¥(788)(2,932)(2,932)¥(3,591)

1,429
1,429
¥38,608

1
1¥1,235

0
0
¥4

(0)
1,430
(1,204)¥279,603

Thousands of U.S. dollars (Note 1)

Shareholders' equity
Capital stockYear ended 31st March 2019
Balance at 1st April 2018
Changes of items during period
Dividends of surplus
Profit attributable to owners of parent
Purchase and disposal of treasury shares
Change in ownership interest of parent due totransactions with non-controlling interests
Purchase of shares of consolidated subsidiaries
Net changes of items other than shareholders' equity
Total changes of items during period
Balance at 31st March 2019

$160,324

CapitalsurplusRetainedearnings$835,369 $1,216,729(44,513)
19,477(360)$160,324

Total
Treasuryshareholders'sharesequity$(28,738)$2,183,693

1,747(44,513)
19,477
1,387

(90)

(90)

(0)

(0)

(450)
(25,027)$834,909 $1,191,693

1,747$(26,981)(23,729)$2,159,954

Thousands of U.S. dollars (Note 1)

Accumulated other comprehensive income
Valuationdifference on
available-forsale
securities
Balance at 1st April 2018
Changes of items during period
Dividends of surplus
Profit attributable to owners of parent
Purchase and disposal of treasury shares
Change in ownership interest of parent due totransactions with non-controlling interests
Purchase of shares of consolidated subsidiaries
Net changes of items other than shareholders' equity
Total changes of items during period
Balance at 31st March 2019

$339,297

Deferred
gains orlosses onhedges

Total
Foreign RemeasureRevaluation
accumulated Subscription
Noncurrency
ments ofreserve forotherrights to controllingtranslation
definedlandcomprehensharesinterests
adjustment benefit plans
sive income$531$1,117$(72)$(5,927)$334,936$11,117$27

Total net
assets$2,529,792(44,513)
19,4771,387(90)

46,85546,855$386,162

(531)
(531)
$-

$1,117

See accompanying notes.

50(7,018)(7,018)$(7,099)(26,414)(26,414)$(32,351)

12,873
12,873$347,8199
9$11,126

0
0
$36

(0)
12,882(10,846)$2,518,945

Consolidated Statements of Cash FlowsH2O RETAILING CORPORATION and Consolidated Subsidiaries

Thousands of U.S.
dollars (Note 1)

Millions of yen

Years ended 31st March 2018 and 2019
Cash flows from operating activities
Profit before income taxes
Depreciation
Impairment loss
Loss on store closings
Amortisation of goodwill
Gain on bargain purchase
Gain on revision of retirement benefit plan
Loss (gain) on transfer of business
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in provision for bonuses
Increase (decrease) in provision for directors' bonuses
Increase (decrease) in net defined benefit liability
Increase (decrease) in remeasurements of defined benefit plans
Increase (decrease) in provision for directors' retirement benefits
Increase (decrease) in provision for redemption of gift certificates
Increase (decrease) in provision for loss on store closings
Increase (decrease) in provision for point card certificatesInterest and dividend income
Interest expenses
Insurance income
Loss on disaster
Share of (profit) loss of entities accounted for using equity method
Loss (gain) on sales of non-current assets
Loss on retirement of non-current assets
Decrease (increase) in notes and accounts receivable - trade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable - trade
Increase (decrease) in accrued consumption taxes
Increase (decrease) in gift certificates
Increase (decrease) in advances received
Other
SubtotalInterest and dividend income received
Interest expenses paid
Income taxes paid
Proceeds from insurance income
Payments for loss on disaster
Cash flows from operating activities\

Cash flows from investing activities
Decrease (increase) in time deposits
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Proceeds from sales of intangible assets
Payments for asset retirement obligations
Purchase of investment securities
Proceeds from sales and redemption of short-term and long-term
investment securities
Payments for transfer of business
Payments for transfer of business (Note 9)
Payments of long-term loans receivableCollection of long-term loans receivable
Payments for guarantee deposits
Proceeds from collection of guarantee deposits
Other
Cash flows from investing activities
Cash flows from financing activities
Net increase (decrease) in short-term loans payable
Proceeds from long-term loans payable
Repayments of long-term loans payable
Proceeds from issuance of bonds
Redemption of bonds
Proceeds from sales of treasury shares
Purchase of treasury shares
Cash dividends paid
Repayments of lease obligations
Payments from changes in ownership interests in subsidiaries that do
not result in change in scope of consolidation
Cash flows from financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year (Note 9)
See accompanying notes.

2018

2019

23,219 \16,223
3,479
993
570
(2,010)(1,445)
(44)
58
(17)
(1,840)
(29)
(17)
169
(324)
208
(1,428)1,003(195)(1,787)600(2,248)1,796
833(2,481)
10,030(11,247)
4,028
38,0981,369(1,006)(5,721)
32,7398,050
17,399
2,592
4,398
570

$

72,522
156,747
23,351
39,621
5,135

-

-

546
46
(74)
(3)
2,001
(2,932)
(6)
292
851
(135)
(1,406)
728
(895)
1,402
179
343
(3,017)968(2,249)(429)(4,193)(3,316)762
22,4731,401(730)(7,304)895(1,343)
15,392

4,918
414
(666)
(27)
18,027(26,414)
(54)
2,630
7,666
(1,216)(12,666)
6,558(8,063)
12,6301,612
3,090(27,180)
8,720(20,261)(3,864)(37,774)(29,873)
6,864
202,459
12,621(6,576)(65,801)
8,063(12,099)
138,666

19(19,197)
3,259(4,009)
1,501
(973)
(53)

(30,289)
1,412(3,713)(374)(37)(272,873)
12,720(33,450)(3,369)
(333)

1

0

0

(14,536)(435)
190(2,756)
1,499(35,492)

(45)
(696)
147
(6,335)
3,712(463)(36,682)(405)(6,270)1,324(57,072)
33,441(4,171)(330,468)(2,000)30,150(29,578)(6,600)0(6)(4,938)
(839)

8,000
20,040(22,624)
9,946
0
(3)
(4,941)(836)

72,072
180,540(203,819)
89,6030(27)(44,513)(7,531)

-

\

2019

(13,812)253(16,311)83,462
67,150 \

51

(0)

(0)

9,581
(213)
(11,921)
67,15055,22986,315(1,918)(107,396)
604,954497,558$

Notes to the Consolidated Financial Statements

H 2 O RETAILING CORPORATION and Consolidated Subsidiaries

1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forthin the Japanese Financial Instruments and Exchange Act and its related accounting regulations and in conformity withaccounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as toapplication and disclosure requirements from International Financial Reporting Standards.
H2O RETAILING CORPORATION (“the Company”) and its consolidated domestic subsidiaries maintain theirofficial accounting records in Japanese yen. The accompanying consolidated financial statements have been
restructured and translated into English, with some expanded descriptions, from the consolidated financial statementsof the Company prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureauof the Ministry of Finance as required by the Financial Instruments and Exchange Act. Certain supplementary
information included in the statutory Japanese language consolidated financial statements, but not required for fairpresentation, is not presented in the accompanying consolidated financial statements.
As permitted by the regulations under the Financial Instruments and Exchange Act of Japan, amounts of less than one
million yen have been omitted. As a result, the totals shown in the accompanying consolidated financial statements inyen do not necessarily agree with the sums of the individual amounts.
The U.S. dollar amounts shown in the accompanying consolidated financial statements and notes thereto weretranslated from the presented Japanese yen amounts into U.S. dollar amounts at the rate of ¥111 to U.S. $1.00, using
the prevailing exchange rate at 31st March 2019, and were then rounded down. As a result, the totals shown in theaccompanying consolidated financial statements in U.S. dollars do not necessarily agree with the sums of the individual
amounts. The translations of the Japanese yen amounts into U.S. dollar amounts are included solely for theconvenience of readers outside Japan. The translations should not be construed as representations that the Japanese
yen amounts have been, could have been or could in the future be converted into U.S. dollars at this or any other rateof exchange.

2. Summary of Significant Accounting Policies
Consolidation and investments in associates
The accompanying consolidated financial statements include the accounts of the Company and significant companies(together, “the Companies”) over which the Company has power of control through majority voting rights or the
existence of certain other conditions evidencing control by the Company. Investments in associates over which theCompany has the ability to exercise significant influence over operating and financial policies are accounted for by
the equity method.
The consolidated financial statements include the accounts of the Company and its 55 (55 in 2018) majority owned
subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. The
principal subsidiaries are Hankyu Hanshin Department Stores, Inc., Izumiya Co., Ltd. and Hankyu Oasis Co., Ltd.

52

In the year ended 31st March 2019, Hankyu Freds Co., Ltd. was included in the scope of consolidation due to new
establishment, while Hankyu Hanshin Department Stores Insurance, Inc. was excluded from the scope of consolidation
due to merger with the consolidated subsidiary, Persona Co., Ltd.
The equity method was applied to 5 (5 in 2018) associates for the year ended 31st March 2019. The principal associates
were Ningbo Development Co., Ltd. and Hankyu Hanshin Point Co., Ltd.
In the year ended 31st March 2019, 4 (4 in 2018) consolidated subsidiaries had a financial year ending on 31st
December. With respect to the period from the subsidiary’s year-end to 31st March, necessary adjustments were madefor significant transactions to reflect them appropriately in the consolidated financial statements.
Securities
Investment securities consist principally of marketable and nonmarketable equity securities. The Companies categorise
the securities as “available-for-sale.” Available-for-sale securities with fair market values are stated at fair value.
Unrealised holding gains and losses on these securities are reported, net of applicable income taxes, as a separate
component of net assets. Realised gains and losses on sales of such securities are determined principally by the average
cost method. Available-for-sale securities with no fair market value are stated at average cost.
If the fair market value of available-for-sale securities declines significantly, the securities are stated at fair market
value, and the difference between fair market value and the carrying amount is recognised as loss in the period of
decline. If the net asset value of available-for-sale securities with no available fair market value declines significantly,
the securities are written down to the net asset value and charged to income. In these cases, the fair market value or
the net asset value will be carried forward as book value to the next year.
Inventories
Inventories are stated at cost. The book value of inventories is reduced on the basis of declines in profitability and isdetermined principally by the retail method for merchandise and finished goods and the weighted average method forwork in process and raw materials and supplies.
Property, plant and equipment
Property, plant and equipment, excluding lease assets, are carried at cost. Depreciation is computed principally by thestraight-line method at rates based on the estimated useful life of the asset. Expenditures for maintenance and repairs,
including minor replacements and betterments, are charged to income as incurred. The estimated useful life ofbuildings and structures is 1 to 60 years. The estimated useful life of machinery, equipment and vehicles is 2 to 17
years, and the estimated useful life of other assets is 1 to 20 years.
Software
Software is amortised using the straight-line method over the estimated useful life of 5 years.
Leased assets
Leased assets under lease contracts that do not transfer ownership of the leased property to the lessee are depreciated53

using the straight-line method over the period of the lease with a residual value at zero. Finance lease transactions that
do not transfer ownership of the leased property to the lessee and that were concluded prior to 1st April 2008 are
accounted for by the same method as that applied to ordinary operating leases.
Allowance for doubtful accounts
The allowance for doubtful accounts is provided in amounts management considers sufficient to cover possible losses
on collection. With respect to normal trade accounts receivable, it is stated at an amount based on the actual rate ofhistorical bad debts, and for certain doubtful receivables, the uncollectible amounts are individually estimated.
Provision for bonuses
The Companies accrue estimated amounts of employee bonuses based on the estimated amount to be paid in thesubsequent period.
Provision for directors' bonuses
The Companies accrue bonuses for directors based on estimated payments to be made after the end of the year.
Provision for loss on store closings
The Companies provide provision for loss on the closing of stores based on the estimated amount to be incurred in the
future.
Provision for point card certificates
The Companies provide provision for point card certificates based on the estimated amount to be incurred for sales
promotion expenses from the use of points given to customers.
Provision for directors’ retirement benefits
With regard to retirement benefits for directors of some consolidated subsidiaries, the liability for lump-sum payments
is stated at the amount which would be required to be paid if they retired as of the balance sheet date. The amount ofprovision for executive officers' severance and retirement benefits as of 31st March 2018 and 2019 was ¥25 millionand ¥15 million ($135 thousand), respectively.
Provision for redemption of gift certificates
The Companies record a liability for gift certificates upon the issuance of the certificates to its customers. If the gift
certificates are not redeemed by customers within a certain time period, the Companies reverse the liability andrecognise a gain. A provision is recorded by the Companies for the unredeemed gift certificates previously recognised
as gain based on the estimated future redemption of those certificates.
Retirement benefits
The Companies apply the benefit formula to attribute the estimated amount of retirement benefits to the fiscal year
upon calculation of projected benefit obligation. Prior service cost is recognised in expenses in equal amounts within
the average of the estimated remaining service years. Actuarial gains and losses are recognised in expenses in equalamounts within the average of the estimated remaining service years commencing with the following period.

54

Translation of foreign currencies
Monetary assets and liabilities denominated in foreign currency are translated into Japanese yen at the rates prevailingat each balance sheet date, and the resulting translation gains and losses are charged to income. In the translation of
the financial statements of the overseas subsidiary, assets and liabilities are translated at the rates prevailing at thesubsidiary's balance sheet date, revenue and expenses are translated using the average exchange rate for the fiscal year,
and shareholders' equity accounts are translated at historical rates. The resulting foreign currency translation
adjustment is shown as a separate component of net assets.
Hedge accounting(a) Accounting method
Deferral hedge accounting is adopted for hedge transactions. The Company applies the designation method for foreignexchange forward contracts and for currency swaps in cases in which the specific requirements for this treatment are
fulfilled. The Company applies the special accounting treatment for interest rate swaps in cases in which the specificrequirements for this treatment are fulfilled.
(b) Hedging instruments and hedged items(1) Hedging instruments: Interest rate swaps, currency swaps
Hedged items: Loans payable(2) Hedging instruments: Foreign exchange forward contracts
Hedged items: Monetary assets and liabilities denominated in foreign currency(c) Policies on hedges
As for interest related derivatives, interest rate swaps are used to exchange floating rates to fixed rates. In addition,
foreign exchange forward contracts and currency swaps are used to avoid losses from foreign exchange market
fluctuation. As a policy, the Company does not enter derivatives for speculative purpose or with a high leverage effect.
(d) Evaluation of hedge effectiveness
The Companies assess hedge effectiveness by comparing the cumulative variation in cash flows of hedged items andthe cumulative variation in cash flows of the hedging instruments. The Companies do not evaluate the effectivenessof hedges for interest rate swaps under special accounting treatment since the interest payments and terms of the swaps
are consistent with those of the hedged items.
Goodwill
The difference between the cost of investments in consolidated subsidiaries and the equity in their net assets at thedate of acquisition is generally amortised over 10 to 20 years. However, if the amount is insignificant, it is charged as
expense as incurred.
Cash flow statements
In preparing the consolidated statements of cash flows, cash on hand, readily available deposits and short-term highly
liquid investments with maturities not exceeding three months at the time of purchase are considered to be cash andcash equivalents.

55

Consumption taxes
Consumption taxes are excluded from revenue and expense accounts, which are subject to such taxes. However, thenon-deductible portion of consumption taxes is accounted for as expense in the same year the taxes are incurred.
Per share information
Computations of basic profit per share are based on the weighted average number of shares outstanding during eachperiod. For diluted profit per share for the years ended 31st March 2018 and 2019, see Note 21.
Cash dividends per share presented in the five-year summary of the accompanying consolidated financial statements
are dividends applicable to the respective years, including dividends to be paid after the end of the year.

3. Accounting Standards not yet Applied“Accounting Standard for Revenue Recognition” (Accounting Standards Board of Japan (“ASBJ”) Statement No. 29,
30th March 2018)“Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No. 30, 30th March
2018)(Overview)
This is a comprehensive accounting standard for revenue recognition. Revenue is recognised by applying thefollowing five steps:
Step 1: Identify the contract with customers.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognise revenue when (or as) the entity satisfies performance obligations.
(Date of Application)
The Company will apply the accounting standard and the implementation guidance from the beginning of the year
ending 31st March 2022.
(Effect of Application)
The Company is in the process of determining the effect of the application.

56

4. Changes in Presentation
Application of “Partial Amendments to Accounting Standard for Tax Effect Accounting”
The “Partial Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ Statement No. 28, issued on
16th February 2018, “Partial Amendments”) have been applied from the beginning of the fiscal year ended 31st
March 2019. Accordingly, “Deferred tax assets” are presented under “Investments and other assets,” “Deferred tax
liabilities” are presented under “Non-current liabilities,” and the respective notes were changed.
As a result of this change, “Deferred tax assets” under “Current assets” in the amount of ¥6,210 million and “Deferred
tax liabilities” under “Current liabilities” in the amount of ¥0 million were reclassified, and “Deferred tax assets”
under “Investments and other assets” increased by ¥3,919 million and “Deferred tax liabilities” under “Non-current
liabilities” decreased by ¥2,290 million in the previous year’s presentation.
In addition, because “Deferred tax assets” and “Deferred tax liabilities” were offset if they relate to the same taxable
entity, the total amount of “Total assets” and “Total liabilities” each decreased by ¥2,290 million.
Furthermore, the contents of Note 8 (excluding the total amount of valuation allowance) and Note 9 on the“Accounting Standard for Tax Effect Accounting” set forth in Paragraphs 3 to 5 of the “Partial Amendments” wereadded to Note 16, Income Taxes. The respective contents related to the previous fiscal year, however, were notdisclosed in accordance with the transitional treatments prescribed in Paragraph 7 of the “Partial Amendments.”
Consolidated statements of cash flows“Increase (decrease) in remeasurements of defined benefit plans” which was previously included in “Other” of “Cashflows from operating activities” in the previous fiscal year was reclassified as a separate line item effective from thefiscal year ended 31st March 2019 due to the increase in its materiality. The respective amount for the previous year
was reclassified to conform to the current year’s presentation.
As a result of this change, “Other” of “Cash flows from operating activities” in the amount of ¥3,999 million for theprevious fiscal year was reclassified to “Increase (decrease) in remeasurements of defined benefit plans” in theamount of ¥(29) million and “Other” in the amount of ¥4,028 million.

57

5. Matters Related to Consolidated Balance Sheets1.

Due to the acceptance of national subsidies, the following reduction entry amount was deducted from theacquisition cost of relevant assets.
Thousands ofMillions of yen

2018
Reduction entry amount:

2.

¥

U.S. dollars

2019

2019

404 ¥

490

$

Buildings and structures

267

296

2,666

Machinery, equipment and vehicles

57

59

531

Land

44

44

396

Construction in progress

–

52

468

Other

34

37

333

Assets related to associates were as follows:
Thousands ofMillions of yen

2018
Investment securities (stocks)¥[Investments in entities under common control]
3.

4,414

U.S. dollars

2019

2019

11,346 ¥10,439[10,715][9,898]$94,045[89,171]

Pledged assets

Assets pledged as collateral and corresponding secured liabilities are summarised below.
Thousands ofMillions of yen

2018
Buildings and structures¥

U.S. dollars

2019

2019

5,063 ¥

1,960

Land

16,99016,990153,063

Other

15

0

0

Current portion of long-term loans payable$

17,657¥22,069 ¥18,951$

170,729¥

20,211 ¥20,201$

181,990

2,101

1,900

22,313 ¥22,101Long-term loans payable¥

17,117$

199,108

Deposits under the Installment Sales Act were as follows:
Thousands ofMillions of yen

2018
Guarantee deposits¥

58

U.S. dollars

2019
192 ¥

2019
152

$

1,369

Deposits to secure accounts payable for the purchase of fruit and vegetables were as follows:
Thousands ofMillions of yen

2018
Guarantee deposits¥

U.S. dollars

2019
10 ¥

2019
10

$

90

Deposits under the Real Estate Brokerage Act were as follows:
Thousands ofMillions of yen

2018
Guarantee deposits
4.

¥

U.S. dollars

2019
10 ¥

2019
10

$

90

Land revaluation

In accordance with the Act on Revaluation of Land and Act on Partial Amendment to the Act on Revaluation of Land,
land used for business owned by the Company and some consolidated subsidiaries was revaluated. The unrealised
gains and losses, net of deferred taxes, were excluded from the statement of income and reported as “Revaluation
reserve for land” in net assets, and the relevant deferred taxes were shown as “Deferred tax liabilities for land
revaluation” in liabilities at 31st March 2018 and 2019.
Related information was as follows:
Thousands ofMillions of yen

2018

Date of revaluations: 28th February 2002 and 31st March 2002

Difference between book value of land after revaluation andmarket value of land
5.

¥

U.S. dollars

2019(826) ¥

2019
(826)

$

(7,441)

Commitment agreements

In order to obtain working funds efficiently, the Company had loan commitment agreements with 2 financial
institutions in 2018 and 2019. The loan commitment facilities and unused balances as of 31st March 2018 and 2019were as follows:
Thousands ofMillions of yen

2018
Total loan commitment facilities¥

Outstanding balances
Unused balances¥

59

U.S. dollars

2019

2019

20,000 ¥20,000–8,000

20,000 ¥12,000$180,180
72,072$

108,108

Some consolidated subsidiaries provide financial services using card loans and credit cards. The overdraft
commitment facilities and unused balances as of 31st March 2018 and 2019 were as follows:
Thousands ofMillions of yen

2018
Total overdraft commitment facilities¥

Outstanding balances
Unused balances¥

U.S. dollars

2019

2019

3,918 ¥

4,472

399

378

3,518 ¥

4,094$

40,2883,405$

36,882The overdraft commitment facilities include overdraft contracts that are executed subject to the customer's use offunds and credit condition. Thus, the total facilities are not always executed.
6.

Specified accounts pertaining to business combination

For the fiscal year ended 31st March 2018, due to the business transfer from Sogo & Seibu Co., Ltd. effective on 1st
October 2017, specified accounts pertaining to business combination were recorded for expenses necessary for
replacing customer credit cards (new issuance) and real estate acquisition tax in the amount of ¥1,500 million and¥116 million, respectively. In the consolidated balance sheets, they were recorded in “Other” under “Non-current
liabilities” and “Other” under “Current liabilities” in the amount of ¥1,500 million and ¥116 million, respectively.
For the fiscal year ended 31st March 2019, due to the business transfer from Sogo & Seibu Co., Ltd. effective on 1st
October 2017, specified accounts pertaining to business combination were recorded for expenses necessary for
replacing customer credit cards (new issuance) in the amount of ¥1,357 million ($12,225 thousand). In the
consolidated balance sheets, they were recorded in “Other” under “Non-current liabilities.”

6. Matters Related to Consolidated Statements of Income
1.

Reduction in the book value of inventories

Reduction in book value of inventories held for ordinary sale due to a decline in profitability for the years ended 31st
March 2018 and 2019 was as follows:
Thousands ofMillions of yen

2018
Cost of sales
2.

¥

U.S. dollars

2019
490 ¥

2019
422

$

3,801

Insurance income

Insurance income for the year ended 31st March 2019 consisted mainly of insurance income received for damages inmerchandise, buildings, etc., caused by disasters such as the Osaka Earthquake and the Typhoon JEBI.
3.

Gain on bargain purchase

Gain on bargain purchase for the year ended 31st March 2018 consisted of the gain on bargain purchase due to abusiness transfer from Sogo & Seibu Co., Ltd.

60

4.

Gain on sales of non-current assets

Gain on sales of non-current assets consisted mainly of gains on the sale of buildings and structures, as well as landof H2O Asset Management Co., Ltd. for the year ended 31st March 2018.
5.

Gain on revision of retirement benefit plan

Gain on revision of retirement benefit plan for the year ended 31st March 2018 consisted of the gain due to a transitionof a portion of the defined benefit pension plans and unfunded lump-sum payment plans to the defined contributionplans of Izumiya Co., Ltd. in April 2017.
6.

Loss on store closings

Loss on store closings for the years ended 31st March 2018 and 2019 is summarised below:
Thousands ofMillions of yen

2018
SELCY

¥

U.S. dollars

2019

2019

－ ¥

3,728

Izumiya Ushiku

52

1,185

10,675

Izumiya Izumifuchu

187

403

3,630

Izumiya Shonai

114

327

2,945

Izumiya Wakaeiwata

－

286

2,576

Izumiya Hanazono

240

269

2,423

Izumiya Fushimi

－

174

1,567

Hankyu Oasis Yamashita

－

165

1,486

Izumiya Higashineyagawa

－

165

1,486

Izumiya Imafuku

113

104

936

Izumiya Suminodo

226

31

279

Izumiya Saikudani

367

－

－

Izumiya Abiko

116

－

－

Izumiya Koya

89

－

－

Izumiya Kitasukematsu

75

－

－

Other

57

385

3,468

Total

¥

(*1) 1,639 ¥(*2) 7,228$$

33,585

65,117*1. The amount included an impairment loss of ¥731 million and a loss on retirement of non-current assets of ¥153
million in connection with store closings for the year ended 31st March 2018.
*2. The amount included an impairment loss of ¥4,398 million ($39,621 thousand), expenses for store closings of¥1,397 million ($12,585 thousand) and a loss on retirement of non-current assets of ¥932 million ($8,396
thousand) in connection with store closings for the year ended 31st March 2019.

61

7.

Impairment loss

The Companies recognise asset groups based on certain rules. As for stores and others, asset groups are based on the
management unit of performance. As for the idle assets and the assets to be sold, each individual asset constitutes anasset group.
The Companies recorded impairment loss for the year ended 31st March 2018 as follows:
Company

Izumiya Co., Ltd.

Asset Group

Hanazono store
and other

Use

Store

Location

Nishinari-ku, Osaka
City and otherType of Assets
Buildings and structures

Qanat Co., Ltd. and otherNishinokyo store
and other

Store

21

Other

217

other

¥1,880Nakagyo-ku, Kyoto

Machinery, equipment and vehicles

161

City and other

Land

20

Other

156

Buildings and structures¥177

Yao Mall store and Store and Yao City, Osaka andother¥1,318

Machinery, equipment and vehicles

Buildings and structures
Hankyu Oasis Co., Ltd.

Millions of yen

otherMachinery, equipment and vehicles

3

Land

24

Construction in progress

13

Other

214

For Izumiya Co., Ltd., impairment loss was recognised for asset groups in stores with continuous negative cash flows
from operating activities and asset groups in stores closed or decided to be closed.
For Hankyu Oasis Co., Ltd., Qanat Co., Ltd. and other companies, impairment loss was recognised for certain storesand facilities resulting from increased competition.
The recoverable amounts of assets were principally the present value of expected cash flows from on-going use andsubsequent disposal of the assets based on a discount rate of 4.0%. For some asset groups, the recoverable amounts
were the net saleable values based on the expected sales amounts.
As a result, the Group recognised a total of ¥4,210 million of impairment loss, of which, ¥731 million in connection
with the closing of the Hanazono store of Izumiya Co., Ltd. and other stores was included in “Loss on store closings”
and ¥3,479 million was included in “Impairment loss” under “Extraordinary losses” in the consolidated statement ofincome.

62

The Companies recorded impairment loss for the year ended 31st March 2019 as follows:
Company

Centre LLC

Izumiya Co.,
Ltd.

Asset Group

SELCY

Use

Store

Senbon-Kitaoji store,
Senbon-Nakadachiuri store,

Store

Kii-Kawanabe store and other

Location

Toyonaka City, Osaka

Kita-ku, Kyoto Cityand other

H2O Asset
Management

Ushiku store and otherStore

Ushiku City, Ibaraki

Co., Ltd.
Hankyu Oasis
Co., Ltd.

Qanat Co.,

Enmachi store,
Suitahonami store,

Store

Takadono store and other
Sumiyoshi store

Ltd. and other and otherNakagyo-ku, Kyoto
City and other

Store and Sumiyoshi-ku, Osaka
other

City and otherThousands ofType of Assets

Millions of yen

Buildings and structures¥2,465$22,207

11

99

¥907

$8,171

Machinery, equipment and vehicles

19

171

Other

507

4,567

Buildings and structures¥658$5,927

Land

672

6,054

Other

61

549

¥814

$7,333

Machinery, equipment and vehicles

82

738

Other

117

1,054

Buildings and structures¥165$1,486

Machinery, equipment and vehicles

13

117

Other

170

1,531

Land

¥323

$2,909Other
Buildings and structures

Buildings and structures

U.S. dollars

H2O Retailing
Corporation(The

Higashiyodogawa-ku, Land

Land for Higashiyodogawa-ku,
rent

Osaka City

Company)

For Izumiya Co., Ltd., impairment loss was recognised for asset groups in stores with continuous negative cash flows
from operating activities and asset groups in stores closed or decided to be closed.
For Centre LLC and H2O Asset Management Co., Ltd., impairment loss was recognised for asset groups in closed
stores.
For Hankyu Oasis Co., Ltd., Qanat Co., Ltd. and other companies, impairment loss was recognised for certain storesand facilities resulting from increased competition. For the Company, impairment loss was recognised for certain land
resulting from a decline in market value.
The recoverable amounts of assets were principally the present value of expected cash flows from on-going use andsubsequent disposal of the assets based on a discount rate of 4.4%. For some asset groups, the recoverable amounts
were the net saleable values based on the expected sales amounts.
As a result, the Group recognised a total of ¥6,990 million ($62,972 thousand) of impairment loss, of which, ¥4,398
million ($39,621 thousand) in connection with the closing of SELCY of Centre LLC and other stores was included in“Loss on store closings” and ¥2,592 million ($23,351 thousand) was included in “Impairment loss” under“Extraordinary losses” in the consolidated statement of income.

63

8.

Loss on retirement of non-current assets consisted of the following:Thousands ofMillions of yen

2018
Buildings and structures

¥

(*1)

Machinery, equipment and vehicles

U.S. dollars

2019

2019

425 ¥

255

$

2,297

15

16

144

Removal cost

(*1)

715

(*2) 1,783

16,063

Other

(*1)

174

143

1,288

Total

¥

(*1) 1,331 ¥(*2) 2,199$

19,810*1. The amounts included a loss on retirement of non-current assets for Izumiya Kitasukematsu store and other of¥153 million for the year ended 31st March 2018, which is presented in “Loss on store closings” under“Extraordinary losses.”*2. The amounts included a loss on retirement of non-current assets for Izumiya Izumifuchu store and other of¥932 million ($8,396 thousand) for the year ended 31st March 2019, which is presented in “Loss on store
closings” under “Extraordinary losses.”9.

Loss on disasterFor the year ended 31st March 2019, the amount of loss on disaster consisted of losses from damages caused bydisasters such as the Osaka Earthquake and the Typhoon JEBI.
10. Outplacement expenses
Outplacement expenses are additional retirement bonuses and support fees for employees' new careers based on thespecial career planning support scheme for the year ended 31st March 2019.
11. Loss on transfer of business
For the year ended 31st March 2019, the amount of loss on transfer of business related to the transfer of apparel andsportswear business of Be-U Co., Ltd.
12. Expenses for store opening
For the year ended 31st March 2019, the amount of expenses for store opening related to the store re-opening of thefirst part of the remodelling of Hanshin Umeda Main Store.

64

7. Matters Related to Consolidated Statements of Comprehensive Income
The recycling and effect of deferred income taxes on other comprehensive income for the years ended 31st March2018 and 2019 is summarised as follows:
Thousands ofMillions of yen

2018

U.S. dollars

2019

2019

Other comprehensive income
Valuation difference on available-for-sale securities
Amount arising for the year¥

9,282 ¥

7,494

－

－

－

Amount before the effect of deferred income tax

9,282

7,494

67,513

Effect of deferred income tax(2,846)(2,293)(20,657)

Valuation difference on available-for-sale securities

6,435

5,201

46,855

57

(90)

(810)

Effect of deferred income tax

(20)

31

279

Deferred gains or losses on hedges

37

(59)

(531)

Amount arising for the year

－

－

－

Reclassification adjustments

－

－

－

Amount before the effect of deferred income tax

－

－

－

Effect of deferred income tax

(1)

－

－

Revaluation reserve for land

(1)

－

－

Amount arising for the year

(15)

(110)

(990)

Reclassification adjustments

－

－

－

Amount before the effect of deferred income tax

(15)

(110)

(990)

Effect of deferred income tax

－

－

－

Foreign currency translation adjustment

(15)

(110)

(990)

Amount arising for the year377

(4,621)(41,630)

Reclassification adjustments

(487)

351

3,162

(110)

(4,270)(38,468)

Effect of deferred income tax

81

1,337

12,045Remeasurements of defined benefit plans, net of tax(29)(2,932)(26,414)

316

(669)

(6,027)

6,743 ¥

1,429

Reclassification adjustments$

67,513

Deferred gains or losses on hedges
Amount arising for the year

Revaluation reserve for land

Foreign currency translation adjustment

Remeasurements of defined benefit plans, net of tax

Amount before the effect of deferred income tax

Share of other comprehensive income of entities
accounted for using equity method
Amount arising for the year
Total other comprehensive income

¥

65

$

12,873

8. Matters Related to Consolidated Statements of Changes in Net Assets
1.

Changes in number of shares issued and outstanding during the years ended 31st March 2018 and 2019 were as
follows:

Common stock outstanding

Number of shares

2018

2019

125,201,396

125,201,396

Increase––

Decrease––

125,201,396

125,201,396

Balance at beginning of year

Balance at end of year
Treasury shares outstanding

Number of shares

2018

2019

1,737,627

1,713,817

Increase due to purchase of odd-lot shares

3,292

2,117

Decrease due to sales of odd-lot shares

(102)

(137)

Decrease due to exercise of stock options(27,000)(106,500)

Balance at end of year

1,713,817

1,609,297

Balance at beginning of year

2.

Subscription rights to shares
Thousands ofMillions of yen

2018

U.S. dollars

2019

2019

H2O Retailing Corporation:
March 2009 stock options

¥

20 ¥

14

March 2010 stock options

43

30

270

March 2011 stock options

52

38

342

February 2012 stock options

63

46

414

March 2013 stock options

130

104

936

March 2014 stock options

138

104

936

March 2015 stock options

233

204

1,837

March 2016 stock options

197

186

1,675

March 2017 stock options

175

165

1,486

March 2018 stock options

179

179

1,612

June 2018 stock options

–

159

1,432

1,234 ¥

1,235

Total

¥

66

$

$

126

11,126

3.

Dividends

Dividends paid in the year ended 31st March 2018

Resolution

Millions of yen

Yen

Class of shares

Total dividends

Dividend per share

Common stock¥2,469¥20.0011th May 2017
Board of

Record date

Effective date

31st March

31st May

2017

2017

30th

30th

September

November

2017

2017

Directors’ meeting
31st October 2017
Board ofCommon stock¥2,469¥20.00

Directors’ meeting

Dividends with a record date in the year ended 31st March 2018 but an effective date in the year ended 31st March2019

Resolution

15th May 2018
Board ofDirectors’ meeting

Class ofshares

SourceCommonRetainedstock

earnings

Millions of yen

Yen

Total dividends

Dividend per share¥2,469¥20.00Record date

Effective date

31st March

1st June

2018

2018

Dividends paid in the year ended 31st March 2019

Resolution

15th May 2018
Board ofDirectors’ meeting
30th October 2018
Board ofDirectors’ meeting

Class of shares

Commonstock
CommonstockMillions ofThousands ofyen

U.S. dollars

Yen

Total dividends¥2,469¥2,471

U.S. dollars

Dividend per share$22,243$22,261¥20.00$0.18¥20.00$0.18

Record date

Effective date

31st March

1st June

2018

2018

30th

30th

September

November

2018

2018

Dividends with a record date in the year ended 31st March 2019 but an effective date in the year ending 31st March
2020

Resolution

14th May 2019
Board of Directors’
meeting

Class ofshares

SourceCommonRetainedstock

earnings

Millions ofThousands ofyen

U.S. dollars

Total dividends¥2,471

67$22,261

U.S.
Yen

dollars

Dividend per share¥20.00$0.18

Record date

Effective
date

31st March

30th May

2019

2019

4.

Net assets

Under Japanese laws and regulations, the entire amount paid for new shares is required to be designated as common
stock. However, a company may, by a resolution of the Board of Directors, designate an amount not exceeding one
half of the price of the new shares as additional paid-in capital, which is included in capital surplus.
Under the Japanese Companies Act (the “Act”), in cases in which a dividend distribution of surplus is made, thesmaller of an amount equal to 10% of the dividends or the excess, if any, of 25% of common stock over the total of
additional paid-in capital and legal earnings reserve must be set aside as additional paid-in capital or legal earnings
reserve. Legal earnings reserve is included in retained earnings in the accompanying consolidated balance sheets.
Under the Act, legal earnings reserve and additional paid-in capital could be used to eliminate or reduce a deficit or
could be capitalised generally by a resolution of the shareholders’ meeting.
Additional paid-in capital and legal earnings reserve may not be distributed as dividends. Under the Act, all additional
paid-in capital and all legal earnings reserve may be transferred to other capital surplus and retained earnings,
respectively, which are potentially available for dividends. The maximum amount that the Company can distribute as
dividends is calculated based on the nonconsolidated financial statements of the Company in accordance with theAct.

9. Cash Flows Information
1.

The reconciliation of cash and deposits shown in the consolidated balance sheets and cash and cash equivalents
shown in the consolidated statements of cash flows as of 31st March 2018 and 2019 was as follows:
Thousands ofMillions of yen

2018
Cash and deposits¥

Time deposits with maturities exceeding three months

201967,150 ¥–Cash and cash equivalents¥

68

U.S. dollars

67,150 ¥2019

55,229$–55,229497,558–$

497,558

2.

Major components of the assets and liabilities related to a business transfer in consideration of cash and cash
equivalents

The following is a summary of assets and liabilities related to a transfer of the apparel and sportswear businesses of
Be-U Co., Ltd., the amount of business transferred and the payments for the business transfer:
Thousands ofMillions of yen

U.S. dollars

2019
Current assets

¥

2019
507

$

4,567

Non-current assets

161

1,450

Non-current liabilities(124)(1,117)

1

9

(546)

(4,918)Amount of business transferred00Cash and cash equivalents

44

396

Expenses for transfer of business

1

9

Other
Loss on transfer of business

Diff: Payments for transfer of business
3.

¥

45

$

405

Major components of the assets and liabilities related to a business transfer (acquisition) in consideration of cash
and cash equivalents

The following is a summary of assets and liabilities increased due to a business transfer (acquisition) from Sogo &Seibu Co., Ltd., the amount of business acquired and the payments for the business transfer:
Millions of yen

2018
Current assets

¥

3,847

Non-current assets

22,292Current liabilities(3,469)Non-current liabilities(5,534)Gain on bargain purchase(2,010)

Amount of business acquired

15,125

Cash and cash equivalents(588)

Diff: Payments for transfer of business
4.

¥

14,536Significant noncash transactions were as follows:
Thousands ofMillions of yen

2018
Assets and liabilities in connection with finance lease¥transactions
Asset retirement obligations

69

U.S. dollars

2019

2019

611 ¥

39

786

144

$

351
1,297

10. Lease Transactions
Finance lease transactions
The Group as lessee
Finance leases that are not deemed to transfer ownership of the lease property to the lessee(1) Breakdown of lease investment assets
Property, plant and equipment
Store facilities (buildings and structures) and merchandise display shelves and computers (other) in the supermarket
business are included in property, plant and equipment.
(2) Method of depreciation of leased assets
Leased assets under lease contracts that do not transfer ownership of the leased property to the lessee are depreciatedusing the straight-line method over the period of the lease with a residual value at zero.
Finance lease transactions that do not transfer ownership of the leased property to the lessee and that were concluded
prior to 1st April 2008 are accounted for by the same method as that applied to ordinary operating leases.
Information, as lessee, about non-capitalised finance leases at 31st March 2018 and 2019 was as follows:
Thousands ofMillions of yen

2018
Original lease obligations (including finance charges)¥

U.S. dollars

2019
1,203 ¥

2019
1,203

$

10,837

Payments remaining:
Payments due within one year

7

–

–

Payments due after one year

–

–

–

7 ¥

–

Total

¥

$

–

Rental expenses under such non-capitalised finance leases for the years ended 31st March 2018 and 2019 were ¥120
million and ¥7 million ($63 thousand), respectively.
Operating lease transactions
Future lease payments for non-cancellable operating leases:
The Group as lessee
Thousands ofMillions of yen

2018
Payments due within one year¥

Payments due after one year
Total

¥

70

U.S. dollars

201912,292 ¥14,20757,246

53,66869,539 ¥67,876

2019$

127,990
483,495$

611,495

The Group as lessor
Thousands ofMillions of yen

2018
Payments due within one year¥

Payments due after one year
Total

¥

U.S. dollars

2019

2019

2,330 ¥

2,456

10,301

11,108

12,632 ¥13,564$

22,126
100,072$

122,198

11. Financial Instruments
1. Matters related to financial instruments(1) Policies for financial instruments
In accordance with its capital investment plan, the Group procures needed funds primarily through loans from banks,
commercial papers and the issuance of bonds. Temporary surplus funds are invested in highly secure financial assets.
Derivative transactions are carried out within the confines of real demand according to internal control regulations,and no speculative transactions are performed.
(2) Financial instruments and their risks
Notes and accounts receivable - trade, which are operating receivables, and accounts receivable - other are subject tocredit risk. Investment securities are subject to market price volatility risk.
Notes and accounts payable - trade, which are operating payables, and accounts payable - other are almost all subject
to payment deadlines of one year or less. Commercial papers are used to procure necessary funds mainly for shortterm operations. Long-term loans payable and bonds payable are mainly for capital investment. Repayment deadlines
are at most 17 years and 11 months after the closing of accounts. Some are subject to interest rate risk because offloating interest rates. Moreover, notes and accounts payable - trade, accounts payable - other, long-term loans payable
and bonds payable are subject to the liquidity risk of the inability to make payment by the payment due date.
The Company enters interest rate swap transactions to hedge the fluctuation risk of interests on loans. The Company
also enters foreign exchange forward contracts, currency option contracts and currency swap transactions to hedge
foreign exchange market fluctuation risk of monetary assets and liabilities denominated in foreign currency. Hedging
instruments and hedged items, policies on hedges and the evaluation of hedge effectiveness are stated in Note 2,“Summary of Significant Accounting Policies.”(3) Risk management system for financial instruments
Management of credit risk (risk of customer default on contract)
At Hankyu Hanshin Department Stores, Inc., a consolidated subsidiary, the management of customer service units
cooperates with the accounting office concerning notes and accounts receivable - trade arising from sales activities
according to sales management guidelines and credit management guidelines and routinely monitors the status of key
customers by managing due dates and balances for each. At the same time, the Company attempts to quickly
determine if there are concerns about the collection of payment from particular customers due to worsening financial
conditions. Other consolidated subsidiaries also manage credit risk in the same way.

71

Management of market risk (risk of fluctuation in interest rates and foreign exchange markets)
To limit the risk of fluctuation in interest rate payments for long-term loans payable and bonds payable and to limit
the risk of foreign exchange market fluctuation of monetary assets and liabilities denominated in foreign currency, theCompany conducts derivative transactions only with major and highly trusted financial institutions according toderivative management guidance.
Management of price volatility risk
The Company and Hankyu Hanshin Department Stores, Inc. invest in and manage securities and investment securities
according to securities management guidance. Other consolidated subsidiaries also manage price volatility risk in thesame way.
Management of liquidity risk
The Company and Hankyu Hanshin Department Stores, Inc., manage liquidity risk for accounts payable - trade andlong-term loans payable following a cash management plan that the financial department prepares and updates basedon reports provided by all departments in accordance with accounting rules. Other consolidated subsidiaries also
manage liquidity risk in the same way.

72

2. Matters related to fair value of financial instruments
The book values recorded in the consolidated balance sheets for the fiscal years ended 31st March 2018 and 2019(the consolidated closing date for the reporting term) and fair values and differences between them are set forth in thetable below. Figures for which fair value was not readily determinable were not included in the chart (See “2. Financial
instruments whose fair value is not readily determinable” shown below).
Millions of yen

2018Book value(1) Cash and deposits¥

Fair value

67,150(2) Notes and accounts receivable - trade

46,939Allowance for doubtful accounts

(355)

¥

46,584(3) Accounts receivable - other

Difference

67,150¥–46,584

–

5,980

5,980

–

95,51095,510–5,984

Allowance for doubtful accounts(3)(4) Investment securities
Available-for-sale securities
Total assets¥

215,226¥

215,226¥–(1) Notes and accounts payable - trade¥

62,794¥62,794¥–(2) Accounts payable - other

19,162

19,162–(3) Short-term loans payable

–

–

–

(4) Bonds payable

10,000

10,207(207)(5) Long-term loans payable (*1)

139,493

139,184309

Total liabilities¥

231,450¥

231,349¥

101

Hedge accounting is applied

¥

(48)

¥

(48)

¥

–

Total derivative transactions

¥

(48)

¥

(48)

¥

–

Derivative transactions (*2)

73Millions of yen

Thousands of U.S. dollars

2019

2019

Book value(1) Cash and deposits¥

Fair value

55,229 ¥Difference

55,229 ¥–Book value$

497,558 $(2) Notes and accounts receivable - trade

49,886449,423

Allowance for doubtful accounts(255)(2,297)

49,631(3) Accounts receivable - other
Allowance for doubtful accounts

49,631

447,126–

6,778

61,063(160)(1,441)

Fair value

Difference

497,558 $–

447,126

–

6,617

6,617

–

59,612

59,612–103,013103,013–928,045928,045–(4) Investment securities
Available-for-sale securities
Total assets¥ 214,491 ¥ 214,491 ¥–$ 1,932,351 $ 1,932,351 $–(1) Notes and accounts payable - trade¥$

59,732 ¥59,732 ¥–(2) Accounts payable - other

19,655

19,655(3) Short-term loans payable

8,000(4) Bonds payable(5) Long-term loans payable (*1)
Total liabilities

538,126 $

538,126 $––

177,072

177,072

–

8,000

–

72,072

72,072–20,00020,170(170)

180,180

181,711(1,531)

136,920

136,670249

1,233,513

1,231,261

2,243¥ 244,308 ¥ 244,229 ¥78$ 2,200,972 $ 2,200,261 $

702

¥

– ¥

– ¥

–

$

– $

– $

–

¥

– ¥

– ¥

–

$

– $

– $

–

Derivative transactions:
Hedge accounting is applied
Total derivative transactions*1.

Figures shown include current portion of long-term loans payable.

*2.

Receivables and payables arising from derivative transactions are shown in net. Net payable is shown inparentheses.

Notes: 1. Matters related to the methods used to calculate fair value of financial instruments
Assets(1) Cash and deposits, (2) Notes and accounts receivable - trade and (3) Accounts receivable - otherBecause these items have short repayment periods, the fair value approximates book value. Therefore, the book value
is deemed to be the fair value.
(4) Investment securities
The fair value of these securities depends on their stock market price, while the fair value of bonds depends on theirstock market price or the price submitted by the correspondent financial institution.

74

Liabilities(1) Notes and accounts payable - trade, (2) Accounts payable - other and (3) Short-term loans payable
Because these items have short payment periods, the fair value approximates book value. Therefore, the book value isdeemed to be the fair value.
(4) Bonds payable and (5) Long-term loans payable
The fair value of bonds payable and long-term loans payable is determined by discounting the current value at theassumed applicable interest rates should new bonds or loans be taken with the same total principal and interest. Bonds
and long-term loans that are based on floating interest rates reflect market interest rates over the short term. In addition,
because the Company's credit status has not changed substantially since taking on these loans and as the fair value
approximates book value, the book value is deemed to be the fair value.
Derivative transactions
Fair value of derivative transactions is determined by quotes provided by counterparty financial institutions.
Interest rate swaps under the exceptional method are accounted for as an integral part of long-term loans payable,
hedged items. Thus, their fair value is included in that of long-term loans payable (See (5) above).
Currency swaps under the designation method are accounted for as an integral part of long-term loans payable,
hedged items. Thus, their fair value is included in that of long-term loans payable (See (5) above).
Foreign exchange forward contracts under the designation method are accounted for as an integral part of accounts
payable - other, hedged items. Thus, their fair value is included in that of accounts payable - other.
2. Financial instruments whose fair value is not readily determinable
These financial instruments have no market price and their future cash flow cannot be estimated. Because thefair value is not readily determinable, they have not been included in the above table.
Thousands ofMillions of yen

Unlisted shares¥

U.S. dollars

2018

2019

2019

Book value

Book value

Book value

19,033¥

18,136$

163,387

Guarantee deposits

70,07972,290651,261Long-term guarantee deposited

9,911

9,820

88,46875

3. Expected proceeds from redemption after the balance sheet date for monetary claims and securities thathave maturities
Millions of yen

2018

Within 1 year

Cash and deposits¥

67,150Over 1 year but

Over 5 years but

within 5 years

within 10 years

¥

–

¥

Over 10 years

–

¥

–

Notes and accounts receivable - trade

46,939–––Accounts receivable - other

5,984

–

–

–

Total

¥

120,074

¥

–

¥

–

¥

–

Millions of yen

2019Within 1 year

Cash and deposits¥

55,229Over 1 year but

Over 5 years but

within 5 years

within 10 years

¥

–

¥

Over 10 years

–

¥

–

Notes and accounts receivable - trade

49,886–––

Accounts receivable - other

6,778

–

–

–

Total

¥

111,893

¥

–

¥

–

¥

–

Thousands of U.S. dollars

2019

Within 1 year

Cash and deposits$

497,558

Over 1 year but

Over 5 years but

within 5 years

within 10 years

$

–

$

Over 10 years

–

$

–

Notes and accounts receivable - trade449,423–––

Accounts receivable - other

61,063

–

–

–

Total

$ 1,008,045

76

$

–

$

–

$

–

4. Expected payments from redemption after the balance sheet date for bonds payable, long-term loans payable,lease obligations and other interest bearing debts
Millions of yen

2018
Bonds payable

Within 1 year¥

Long-term loans payable
Lease obligations
Total

¥

–

Over 1 year but
within 2 years¥–

Over 2 years

Over 3 years

Over 4 years

but within 3

but within 4

but within 5

years

years

years

¥

–

¥

–

¥

Over 5 years–¥ 10,000

42,561326

16,262

48,262

62

32,106

764

704

630

600

565

6,673

16,892¥ 48,863

628¥ 48,780

43,326

¥

1,031

¥

¥

Millions of yen

2019
Short-term loans payable

Within 1 year¥

Bonds payable
Long-term loans payable
Lease obligations
Total

¥

8,000

Over 1 year but
within 2 years¥–

Over 2 years

Over 3 years

Over 4 years

but within 3

but within 4

but within 5

years

years

years

¥

–

¥

–

¥

Over 5 years

–

¥

–

–

–

–

–

–

20,00020,201

18,32946,26565

15,06537,048

749

738

689

666

1,502

5,090

28,951¥ 19,068

16,567¥ 62,139¥

46,954¥731¥

Thousands of U.S. dollars

2019
Short-term loans payable
Bonds payable
Long-term loans payable
Lease obligations
Total

Within 1 year$

72,072

Over 1 year but
within 2 years$–

Over 2 years

Over 3 years

Over 4 years

but within 3

but within 4

but within 5

years

years

years

$

–

$

–

$

Over 5 years

–

$

–

–

–

–

–

–

180,180

181,990

165,126

416,801

585

135,720

333,765

6,747

6,648

6,207

6,000

13,53145,855$ 260,819$ 171,783$ 423,009

6,585$ 149,252$ 559,810

77$

12. Investment Securities
The following tables summarise acquisition cost and book value (fair value) of available-for-sale securities withavailable fair values as of 31st March 2018 and 2019.
Available-for-sale securities with book value exceeding acquisition cost:
Millions of yen

Thousands of U.S. dollars

2018

2019

Acquisition
Book value
cost

2019

Acquisition
Book value
cost

Difference

Difference

Acquisition
Book value
cost

Difference

Equity securities¥ 36,096 ¥ 91,898 ¥ 55,801 ¥ 35,988 ¥ 99,626 ¥ 63,638 $ 324,216 $897,531 $ 573,315

Total¥ 36,096 ¥ 91,898 ¥ 55,801 ¥ 35,988 ¥ 99,626 ¥ 63,638 $ 324,216 $897,531 $ 573,315

Available-for-sale securities with book value not exceeding acquisition cost:
Millions of yen

Thousands of U.S. dollars

2018
Acquisition
cost

2019

Book value

Difference

Acquisition
cost

2019

Book value

Difference

Acquisition
Book value
cost

Difference

Equity securities¥ 5,171 ¥ 3,612 ¥ (1,558) ¥ 5,287 ¥ 3,387 ¥ (1,900) $ 47,630 $ 30,513 $ (17,117)

Total¥ 5,171 ¥ 3,612 ¥ (1,558) ¥ 5,287 ¥ 3,387 ¥ (1,900) $ 47,630 $ 30,513 $ (17,117)

Unlisted securities (¥7,687 million in 2018 and ¥7,696 million ($69,333 thousand) in 2019) are not included in theabove tables since they do not have available fair values and it is extremely difficult to determine fair values.
The following table summarises sales of available-for-sale securities for the years ended 31st March 2018 and 2019:
Millions of yen

Thousands of U.S. dollars

2018
Sales

Equity securities

¥

2019

Gains ofsales

1¥

Losses on
sales

0¥

Sales

–¥

2019

Gains ofsales

0¥

Losses on
sales

0¥

Gains of
sales

Sales

– $

0$

Losses on
sales

0$

The Companies recognise impairment loss on investment securities when the market value of securities decreases by
50% or more of the acquisition cost as of the balance sheet date or the market value continues to decrease by 30% ormore throughout the fiscal year.
The “acquisition cost” which appears in the tables above is the book value after impairment loss. Impairment loss forthe years ended 31st March 2018 and 2019 was insignificant and its disclosure was omitted.

78–13. Derivative Transactions
Derivatives for which hedge accounting is applied(1) Currency related
For the year ended 31st March 2018
Millions of yen

2018Type of derivativetransactions

Method of hedge accounting

Designation method for foreignexchange forward contract(Note)

Contract
amountHedged items

Currency swaps
Receive USD/
Pay JPY

Long-term
loans

¥

3,500

Due after one
year

Fair
value

¥

(Note)

3,500

Currency swaps under the designation method are accounted for as an integral part of long-term loans
payable, hedged items. Thus, their fair value is included in that of long-term loans payable.

For the year ended 31st March 2019

Method of hedge
accounting

Designation
method forforeignexchange
forwardcontract(Note)

Type ofderivativetransactions

Currency
swaps
Receive
USD/
Pay JPY

Hedgeditems

Millions of yen

Thousands of U.S. dollars

2019

2019

Contract
amountLong-term
loans

¥

3,500

¥

Due after
one year

Fair
value

3,500

(Note)$

Contract
amountDue after
one year

Fair
value

31,531$ 31,531(Note)

Currency swaps under the designation method are accounted for as an integral part of long-term loans
payable, hedged items. Thus, their fair value is included in that of long-term loans payable.

(2) Interest related
For the year ended 31st March 2018
Millions of yen

2018
Method of hedge accounting

Deferral method

Type of derivative transactions

Contract
amountHedged items

Interest rate swaps
Pay fixed/ Receive floating

Long-term loans¥

10,480Due after one
year

¥

–

Fair value¥(48)(Note 1)

Exceptional method forinterest rate swaps

Interest rate swaps
Pay fixed/ Receive floating

Long-term loans

Total

4,808
¥

15,288

3,501
¥

3,501

(Note 2)¥(48)

(Note 1) Fair value is determined by quotes provided by counterparty financial institutions.
(Note 2) Interest rate swaps under the exceptional method are accounted for as an integral part of long-term loans
payable, hedged items. Thus, their fair value is included in that of long-term loans payable.

79For the year ended 31st March 2019

Method ofhedge
accounting
Exceptional
method forinterest rate
swaps

(Note)

Type of derivativetransactions

Interest rate
swaps
Pay fixed/
Receive floating

Hedgeditems

Contract
amountLong-term ¥
loans

3,501

Millions of yen

Thousands of U.S. dollars

2019

2019

Due after
one year

Fair
value

¥

(Note)

3,501

Contract
amount$31,540$Due after
one year

Fair
value

31,540(Note)

Interest rate swaps under the exceptional method are accounted for as an integral part of long-term loans
payable, hedged items. Thus, their fair value is included in that of long-term loans payable.

14. Employees’ Severance and Retirement Benefits
The Companies provide three types of retirement benefit plans, unfunded lump-sum payment plans, defined benefit
pension plans and defined contribution pension plans, under which all eligible employees are entitled to benefits
based on the level of wages and salary at the time of retirement or termination, length of service and certain otherfactors.
Hankyu Hanshin Department Stores, Inc. has retirement benefits plans which consist of unfunded lump-sum payment
plans, defined benefit pension plans and defined contribution pension plans. Izumiya Co., Ltd. has unfunded lumpsum payment plans, defined benefit pension plans and defined contribution pension plans. In April 2017, Izumiya
Co., Ltd. transferred a portion of the defined benefit pension plans and unfunded lump-sum payment plans to defined
contribution plans. Other subsidiaries also have unfunded lump-sum payment plans, defined benefit pension plans ordefined contribution pension plans. Hankyu Hanshin Department Stores, Inc. and Izumiya Co., Ltd. each have aretirement benefit trust in their retirement benefit plans. Additional retirement benefits may be provided upon theretirement of employees, where those benefits are not considered to be retirement benefit obligations as calculated
under actuarial methods in accordance with the accounting standard for retirement benefits. The employees of theCompany are all seconded from Hankyu Hanshin Department Stores, Inc., Izumiya Co., Ltd., Hankyu Act For,
Persona Co., Ltd. or Izumiya Card Co., Ltd. and are provided with the respective subsidiaries’ retirement benefit
plans. Some subsidiaries which have unfunded lump-sum payment plans, calculate net defined benefit liability andretirement benefit cost by the simplified method.

80

1.

Defined benefit plans (excluding plans under the simplified method)(1) Changes in projected benefit obligation were as follows:
Thousands ofMillions of yen

2018
Projected benefit obligation - beginning balance¥

U.S. dollars

2019

2019

52,620 ¥48,059Service cost

1,829

1,772

15,963

Interest cost

388

382

3,441

Changes in actuarial differences

(335)

3,528

31,78316－－

Retirement benefits paid

(2,742)(2,988)(26,918)

Decrease due to the transfer to defined contribution plans(3,717)－－

Past service cost

Projected benefit obligation - ending balance¥

48,059 ¥50,754$$432,963457,243(2) Changes in plan assets were as follows:
Thousands ofMillions of yen

2018
Plan assets - beginning balance¥

U.S. dollars

2019

2019

36,986 ¥35,331

Expected return on plan assets

1,086

1,120

10,090Changes in actuarial differences

42(1,093)(9,846)

Employers' contributions

1,888

2,614

23,549Retirement benefits paid

(1,883)(2,129)(19,180)

Decrease due to the transfer to defined contribution plans(2,789)－－Plan assets - ending balance¥

81

35,331 ¥35,843$$

318,297

322,909(3) Ending balances of projected benefit obligation and plan assets and amounts included in the consolidated balance
sheets as of 31st March 2018 and 2019 were as follows:
Thousands ofMillions of yen

2018
Projected benefit obligation under funded plans¥

Plan assets

U.S. dollars

2019

2019

39,666 ¥41,849(35,331)(35,843)(322,909)

4,335

6,006

54,108

8,393

8,904

80,216

Projected benefit obligation under non-funded plans$

377,018

Net balance in the consolidated balance sheet¥

12,728 ¥14,910$134,324

Net defined benefit liability¥

12,968 ¥14,910$134,324

Net defined benefit asset(240)

Net balance in the consolidated balance sheet¥

12,728 ¥－14,910－$134,324(4) Components of retirement benefit cost were as follows:
Thousands ofMillions of yen

2018
Service cost¥

U.S. dollars

2019

2019

1,829 ¥

1,772

388

382

3,441

(1,086)(1,120)(10,090)

Amortisation of actuarial differences

485

420

3,783

Amortisation of past service cost

(52)

(68)

(612)

Other

61

33

297

Interest cost
Expected return on plan assets$

15,963Retirement benefit cost¥

1,627 ¥

1,419$

12,783Gain on transfer to defined contribution plans (Note 1)
Additional retirement bonuses based on the special careerplanning support scheme (Note 2)¥(1,445) ¥

－

$

－

－

656

5,909

Notes 1. Gain on transfer to defined contribution plans was included in “Extraordinary income.”
2. Additional retirement bonuses based on the special career planning support scheme was included in“Extraordinary losses.”82

(5) Remeasurements of defined benefit plans in other comprehensive income before the effect of deferred income tax
were as follows:
Thousands ofMillions of yen

2018
Past service cost¥

Actuarial differences
Total

¥

U.S. dollars

2019

2019

(483) ¥

(68)372

(4,201)(110) ¥

(4,270)$(612)(37,846)$(38,468)

Note: Past service cost and actuarial differences for the year ended 31st March 2018 included a reclassification in theamount of ¥(414) million for past service cost and ¥(490) million for actuarial differences due to the transfer
of a portion of the defined benefit pension plans and unfunded lump-sum payment plans to defined contributionplans.
(6) Remeasurements of defined benefit plans in accumulated comprehensive income before the effect of deferredincome tax were as follows:
Thousands ofMillions of yen

2018
Unrecognised past service cost¥

Unrecognised actuarial differences
Total

¥

U.S. dollars

2019

2019

(734) ¥

(665)

1,589

5,790

854 ¥

5,125

$

(5,990)52,162$

46,171(7) Information on plan assets was as follows:(i) The breakdown of plan assets by major category was as follows:
2018

2019

General account of life insurance

44%

43%

Debt securities

33%

24%

Real estate investment funds

13%

11%

Cash and deposits

6%

17%

Equity securities

2%

2%

Other

2%

2%

Total

100%

100%

Total plan assets include 3% contribution to the retirement benefit trust in the retirement benefit plans for the years
ended 31st March 2018 and 2019.
(ii) Long-term expected rate of return on plan assets is determined based on the current and future allocation of plan
assets and the current and long-term return on various components of the assets.

83

(8) Actuarial assumptions (weighted-average rate) were as follows:
2018

2019

Discount rate

0.80%

0.27%

Long-term expected rate of return

3.17%

3.17%

Estimated rate of salary increase

1.13%

1.10%

Note: Estimated rate of salary increase is an expected rate of increase in retirement benefit points.
2.

Defined benefit plans under the simplified method(1) Changes in projected benefit obligation for the defined benefit plans under the simplified method were as follows:
Thousands ofMillions of yen

2018
Projected benefit obligation - beginning balance¥

U.S. dollars

2019

2019

1,892 ¥

1,954

Defined benefit cost

287

281

2,531

Retirement benefits paid

(214)

(203)

(1,828)Decrease due to business divestiture

－

(97)

(873)

Other

(11)

(18)

(162)

1,954 ¥

1,916

Projected benefit obligation - ending balance

¥

$

$

17,603

17,261(2) Ending balances of projected benefit obligation and plan assets and amounts included in the consolidated balance
sheets as of 31st March 2018 and 2019 were as follows:
Thousands ofMillions of yen

2018
Projected benefit obligation under funded plans¥

U.S. dollars

2019

2019

－ ¥

－

－

－

－

－

－

－

Projected benefit obligation under non-funded plans

1,954

1,916

17,261

Net balance in the consolidated balance sheet

1,954

1,916

17,261

Net defined benefit liability

1,954

1,916

17,261

1,954 ¥

1,916

Plan assets

Net balance in the consolidated balance sheet

¥

$

$

－

17,261(3) Retirement benefit cost calculated by the simplified method was ¥287 million and ¥281 million ($2,531 thousand)for the years ended 31st March 2018 and 2019, respectively.
3.

The amount required for contributions to the defined contribution plans of the Company and its consolidated
subsidiaries was ¥623 million and ¥715 million ($6,441 thousand) for the years ended 31st March 2018 and 2019,respectively.

84

4.

With the transfer of a portion of the defined benefit pension plans to defined contribution plans, the plan assets
to be transferred to the defined contribution plans amounted to ¥2,789 million, the total amount of which wastransferred in the fiscal year ended 31st March 2018. With the transfer of a portion of the unfunded lump-sum
payment plans to defined contribution plans, the plan assets to be transferred to the defined contribution plansamounted to ¥387 million and are planned to be transferred over 8 years beginning from the fiscal year ended
31st March 2018. The plan assets not yet transferred amounted to ¥332 million and ¥279 million ($2,513
thousand) as of 31st March 2018 and 2019, respectively, and were recorded under “Long-term accounts payable- other.”

15. Stock Options
1.

The amount of cost and its presentation in the consolidated statements of income
Millions of yen

Thousands of
U.S. dollars

2018
Selling, general and administrative expenses
2.

2019
179

2019
159

1,432

Outline of stock options
Subscription rights to shares issued on March 2009 as stock options

Title and number of grantees

5 directors, 1 executive officer of the Company and4 directors, 8 executive officers of Hankyu Hanshin Department Stores, Inc.

Number of stock options (a)46,000 common shares

Date of issue

31st March 2009

Exercise conditions

No provisions

Intended service period

No provisions

Exercise period

From 1st April 2009 to 31st March 2039

Subscription rights to shares issued on March 2010 as stock options
Title and number of grantees

6 directors, 1 executive officer of the Company and4 directors, 16 executive officers of Hankyu Hanshin Department Stores, Inc.

Number of stock options (a)82,500 common shares

Date of issue

31st March 2010

Exercise conditions

No provisions

Intended service period

No provisions

Exercise period

From 1st April 2010 to 31st March 2040

85

Subscription rights to shares issued on March 2011 as stock options
Title and number of grantees

6 directors of the Company and
10 directors, 7 executive officers of Hankyu Hanshin Department Stores, Inc.

Number of stock options (a)97,000 common shares

Date of issue

31st March 2011

Exercise conditions

No provisions

Intended service period

No provisions

Exercise period

From 1st April 2011 to 31st March 2041

Subscription rights to shares issued on February 2012 as stock options
Title and number of grantees

6 directors, 1 executive officer of the Company and9 directors, 8 executive officers of Hankyu Hanshin Department Stores, Inc.

Number of stock options (a)99,500 common shares

Date of issue

29th February 2012

Exercise conditions

No provisions

Intended service period

No provisions

Exercise period

From 1st March 2012 to 28th February 2042

Subscription rights to shares issued on March 2013 as stock options
Title and number of grantees

6 directors of the Company and8 directors, 9 executive officers of Hankyu Hanshin Department Stores, Inc.

Number of stock options (a)99,000 common shares

Date of issue

31st March 2013

Exercise conditions

No provisions

Intended service period

No provisions

Exercise period

From 1st April 2013 to 31st March 2043

Subscription rights to shares issued on March 2014 as stock options
Title and number of grantees

6 directors of the Company and
10 directors, 7 executive officers of Hankyu Hanshin Department Stores, Inc.

Number of stock options (a)101,000 common shares

Date of issue

31st March 2014

Exercise conditions

No provisions

Intended service period

No provisions

Exercise period

From 1st April 2014 to 31st March 2044

86

Subscription rights to shares issued on March 2015 as stock options
Title and number of grantees

6 directors of the Company and9 directors, 11 executive officers of Hankyu Hanshin Department Stores, Inc.

Number of stock options (a)109,000 common shares

Date of issue

31st March 2015

Exercise conditions

No provisions

Intended service period

No provisions

Exercise period

From 1st April 2015 to 31st March 2045

Subscription rights to shares issued on March 2016 as stock options
Title and number of grantees

5 directors, 1 executive officer of the Company and7 directors, 14 executive officers of Hankyu Hanshin Department Stores, Inc.

Number of stock options (a)110,000 common shares

Date of issue

31st March 2016

Exercise conditions

No provisions

Intended service period

No provisions

Exercise period

From 1st April 2016 to 31st March 2046

Subscription rights to shares issued on March 2017 as stock options
Title and number of grantees

4 directors, 2 executive officers of the Company and7 directors, 13 executive officers of Hankyu Hanshin Department Stores, Inc.

Number of stock options (a)106,500 common shares

Date of issue

31st March 2017

Exercise conditions

No provisions

Intended service period

No provisions

Exercise period

From 1st April 2017 to 31st March 2047

Subscription rights to shares issued on March 2018 as stock options
Title and number of grantees

3 directors, 3 executive officers of the Company and7 directors, 12 executive officers of Hankyu Hanshin Department Stores, Inc.

Number of stock options (a)100,500 common shares

Date of issue

31st March 2018

Exercise conditions

No provisions

Intended service period

No provisions

Exercise period

From 1st April 2018 to 31st March 2048

87

Subscription rights to shares issued on June 2018 as stock options
Title and number of grantees

3 directors, 3 executive officers of the Company and8 directors, 10 executive officers of Hankyu Hanshin Department Stores, Inc.

Number of stock options (a)98,500 common shares

Date of issue

30th June 2018

Exercise conditions

No provisions

Intended service period

No provisions

Exercise period

From 1st July 2018 to 30th June 2048

Note: (a) Number of shares means total shares to be issued upon exercise of subscription rights to shares and isadjusted for the reverse stock split (two-to-one share) executed on 1st September 2014.

88

3.

Scale and changes in stock options

The following table describes the scale and changes in stock options that existed during the fiscal year ended 31st
March 2019. The number of stock options has been translated into number of shares and is adjusted for the reverse
stock split (two-to-one share) executed on 1st September 2014.
Subscription rights to shares issued on
In the year ended 31st

March 2009

March 2010

March 2011

February 2012

March 2013

March 2014

March 2015

stock options

stock options

stock options

stock options

stock options

stock options

stock options stock options

As of 31st March 2018

－

－

－

－

－

－

－

－

－

－

Granted

－

－

－

－

－

－

－

－

－

98,500Forfeited

－

－

－

－

－

－

－

－

－

－

Vested

－

－

－

－

－

－

－

－

－

98,500

Outstanding

－

－

－

－

－

－

－

－

－

－

March 2019:

March 2016

March 2017

March 2018

June 2018

stock options stock options stock options

Before vested

After vested
As of 31st March 2018

20,50038,00053,00058,00067,50088,500109,000

110,000

Vested

－

－

－

－

－

－

－

－

－

－

98,500Exercised

6,000

11,00013,50015,50013,50021,50013,500

6,000

6,000

－

－

Forfeited

－

－

－

－

－

－

－

－

－

－

－

14,50027,00039,50042,50054,00067,00095,500104,000

100,500 100,500

98,500

Outstanding

106,500 100,500－

Price information
Yen

Subscription rights to shares issued on
In the year ended
31st March 2019:
Exercise price
Average exercise price
Fair value at the grant
dateMarch 2009

March 2010

March 2011

February 2012

March 2013

March 2014

March 2015

stock options

stock options

stock options

stock options

stock options

stock options

stock options stock options

March 2016

March 2017

March 2018

June 2018

¥1

¥1

¥1

¥1

¥1

¥1

¥1

¥1

¥1

¥1

¥1

¥1,762¥1,833¥1,842¥1,721¥1,693¥1,645¥1,681¥1,762¥1,762

¥－

¥－

¥986

¥1,136¥984¥1,100¥1,932¥1,566¥2,141¥1,798¥1,645¥1,791¥1,615

March 2017

March 2018

June 2018

stock options stock options stock options

U.S. dollars

Subscription rights to shares issued on
In the year ended

March 2009

March 2010

March 2011

February 2012

March 2013

March 2014

March 2015

stock options

stock options

stock options

stock options

stock options

stock options

stock options stock options

March 2016

$0.009$0.009$0.009$0.009$0.009$0.009$0.009$0.009$0.009$0.009$0.009

$15

$16

$16

$15

$15

$14

$15

$15

$15

$–

$–

$8

$10

$8

$9

$17

$14

$19

$16

$14

$16

$14

stock options stock options stock options

31st March 2019:
Exercise price
Average exercise price
Fair value at the grant
date

89

4.

Valuation method for estimating per share fair value of stock options

Valuation technique used for valuating fair value of subscription rights to shares issued on each fiscal year of 31st
March 2019 as stock options was as follows:
Valuation method used was Adjusted Black-Scholes option-pricing model.
Principal parameters and estimation method

June 2018
stock options

Expected volatility of the underlying stock (Note 1)

29.16%

Remaining expected life of the option (Note 2)

4 years

Expected dividends on the stock (Note 3)¥40.0 per share

Risk-free interest rate during the expected option term (Note 4)(0.125)%

Notes 1. In the fiscal year ended 31st March 2019, the fair value of stock options was calculated on the basis of
the Company's weekly share price movements over 4 years from June 2014 to June 2018.
Due to the reverse stock split (two-to-one share) executed on 1st September 2014, the weekly shareprice information from 25th August 2014 to 5th September 2014 was excluded.
2. This period has been calculated using the average period of service for directors (or executive officers)of the Company and the average period from appointment as director (or executive officer) to the issuingdate of the stock options.
3. In the fiscal year ended 31st March 2019, the amount of expected dividends was calculated based on
the actual dividends paid as the interim dividend and the final dividend for the year ended 31st March2018.
4. This rate has been calculated using the compound interest rate on Japanese Government Bonds whose
remaining period is similar to that of the stock options.
5.

Method used to estimate the number of vested share subscription rights
All of the share subscription rights were vested when granted.

16. Income Taxes
Income taxes consist of corporation, inhabitants and enterprise taxes.
Significant components of the Companies’ deferred tax assets and liabilities as of 31st March 2018 and 2019 were as
follows:

90Thousands ofMillions of yen

2018

U.S. dollars

2019

2019

Deferred tax assets:
Tax loss carryforwards (Note 2)¥

10,004 ¥12,623

Provision for redemption of gift certificates

1,191

1,286

11,585

Provision for bonuses

1,635

1,606

14,468Net defined benefit liability

4,706

6,056

54,558Depreciation

695

542

4,882

Impairment loss

10,5009,992

90,018Retirement benefit trust assets

727

81

729

Provision for loss on store closings

40

308

2,774

Asset retirement obligations

1,250

1,061

9,558

Shares in subsidiaries

1,550

1,357

12,225

Valuation on the consolidation

1,538

1,267

11,414

Provision for point card certificates

609

560

5,045

Allowance for doubtful accounts

1,127

1,135

10,225

10,294

10,29492,738

596

470

4,234

4,883

4,547

40,96351,35453,193479,216－(10,081)(90,819)－(21,166)(190,684)

Valuation allowance (Note 1)(29,153)(31,248)(281,513)

Total deferred tax assets

22,20021,945

197,702

Reserve for advanced depreciation of non-current assets(5,039)(4,981)(44,873)

Land revaluation of consolidated subsidiaries(6,320)(6,038)(54,396)(3,511)(3,511)(31,630)(16,681)(18,969)(170,891)(1,036)(1,036)(9,333)(1,692)(1,617)(14,567)(34,283)(36,156)(325,729)(12,083) ¥(14,210)Deferred loss on sales of shares of subsidiaries andassociates based on Group Taxation Rule
Specified accounts pertaining to business combination
Other
Valuation allowance pertaining to tax loss carryforwards(Note 2)
Valuation allowance pertaining to total amount of
temporary deductible differences$

113,720

Deferred tax liabilities:

Valuation gain on investment securities resulting fromconversion of retirement benefit trust assets (equity
securities)
Valuation difference on available-for-sale securities
Deferred gain on sales of shares of subsidiaries andassociates based on Group Taxation Rule
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)

¥

91

$

(128,018)

Notes 1. Valuation allowance increased by ¥2,094 million ($18,864 thousand) mainly due to the valuation allowance
pertaining to tax loss carryforwards in the amount of ¥3,391 million ($30,549 thousand) recognised by the
consolidated subsidiaries and pertaining to decrease of impairment loss in the amount of ¥1,066 million($9,603 thousand).
2. Expected maturity of the deferred tax assets after the balance sheet date for tax loss carryforwards
Millions of yen

2019Within 1 year

Over 1 year

Over 2 years

Over 3 years

Over 4 years

but within 2

but within 3

but within 4

but within 5

years

years

years

years

Over 5 years

Total

Tax loss carryforwards (*1) ¥

200 ¥

59 ¥

263 ¥

773 ¥

1,334 ¥

9,992 ¥

12,623

Valuation allowance

(200)

(45)

(262)

(588)

(1,104)(7,881)(10,081)Deferred tax assets

–

13

1

185

229

2,110

(*2) 2,541

Thousands of U.S. dollars

2019

Within 1 year

Over 1 year

Over 2 years

Over 3 years

Over 4 years

but within 2

but within 3

but within 4

but within 5

years

years

years

years

Over 5 years

Total

Tax loss carryforwards (*1) $1,801 $

531 $

2,369 $

6,963 $ 12,018 $ 90,018 $

113,720

Valuation allowance(1,801)(405)(2,360)(5,297)(9,945)(71,000)(90,819)

Deferred tax assets

–

117

9

1,666

2,063

19,009(*2) 22,891*1. The amount of tax loss carryforwards was calculated by using the statutory tax rate.
*2. For tax loss carryforwards of ¥12,623 million ($113,720 thousand) (applying the statutory tax rate), deferred tax
assets of ¥2,541 million ($22,891 thousand) were recorded which mainly consisted of deferred tax assets related
to tax loss carryforwards of ¥1,912 million ($17,225 thousand) recognised by H2O Asset Management Co., Ltd.
The tax loss carryforwards incurred because impairment losses, etc., which were previously not allowed to be
deducted for tax purposes were permitted to be deducted from the fiscal year ended 31st March 2016 at H2O
Asset Management Co., Ltd. The Company judged the respective deferred tax assets related to tax loss
carryforwards as recoverable based on the estimated future taxable income.

92

Reconciliation of the differences between the statutory tax rate and the effective income tax rate was as follows:
2018
Aggregate statutory income tax rate

2019
30.9%

30.6%

Non-deductible expenses

0.6

1.7

Permanent differences (including dividends)

(0.5)

(2.5)

Tax on inhabitants per capita

1.9

5.5

Amortisation of goodwill

0.8

2.3

Changes in valuation allowances

10.5

37.8

Gain on bargain purchase

(2.8)

–

Others

(4.5)

(2.3)

37.0%

73.1%

Increase (reduction) in taxes resulting from:

Effective income tax rate

17. Business Combination
Business divestiture(1) Overview of the business divestiture(a) Corporate name of the counterparty of the business divestiture
MISUZU Co., Ltd.
(b) Lines of business divested
Apparel and sportswear businesses (“applicable businesses”) of Be-U Co., Ltd., a wholly owned subsidiary of theCompany(c) Primary reason for business divestitureConsidering the low profitability and the environment with intense competition of the applicable businesses, theCompany came to a conclusion that the transfer of the respective businesses would lead to the improvement of theGroup’s enterprise value and management efficiency.
(d) Date of business divestiture
30th September 2018(e) Legal form of business divestiture
Applicable businesses were transferred through an absorption type of company split, with Be-U Co., Ltd. as the
splitting company and Act Co., Ltd., newly established by the Company’s wholly owned subsidiary H2O AssetManagement Co., Ltd., as the succeeding company. All of the issued shares of Act Co., Ltd. were transferred to
MISUZU Co., Ltd. via H2O Asset Management in consideration of cash after conducting the absorption-type company
split.

93

(2) Overview of accounting treatment(a) Gain/loss on transfer of businessThousands ofMillions of yen

Loss on transfer of business¥

U.S. dollars

546

$

4,918

(b) Appropriate book value and breakdown of assets and liabilities of divested businessThousands ofMillions of yen

Current assets¥

U.S. dollars

507

$

4,567

Non-current assets

161

1,450

Total assets

668

6,018

Non-current liabilities

124

1,117

Total liabilities

124

1,117

(c) Accounting treatment
Accounting Standard for Business Divestitures (ASBJ Statement No. 7, issued on 13th September 2013) and Guidanceon Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures (ASBJ
Guidance No. 10, issued on 13th September 2013) were applied for the accounting treatment of this business divesture.
(3) Reportable segment of divested business
Other businesses(4) Gain/loss of the business divesture recorded on the consolidated statement of income for the fiscal year ended
31st March 2019
Thousands ofMillions of yen

Net sales¥

Operating loss

999
(111)

94

U.S. dollars

$

9,000
(1,000)18. Asset Retirement Obligations
1. Asset retirement obligations recorded on the consolidated balance sheets(1) Outline of the asset retirement obligations
The obligation to restore properties to their original state pursuant to real estate lease agreements for store properties, etc.
(2) Calculation method for asset retirement obligations
For the fiscal years ended 31st March 2018 and 2019, an estimated usage period of 1 to 47 years and a discount rate of
0.0% to 2.65% were used to calculate the amount of asset retirement obligations.
(3) Changes in the total amount of asset retirement obligations
For the fiscal year ended 31st March 2018, asset retirement obligations increased by ¥604 million since it became possible
to estimate the costs for asbestos removal related to the stores of Izumiya Co., Ltd. to be rebuilt. In addition, the acquisitionof fixed assets for the opening of branch shops by Hankyu Oasis Co., Ltd. also resulted in a ¥58 million increase in asset
retirement obligations.
Decrease due to fulfillment of asset retirement obligations is related mainly to Hankyu Hanshin Department Stores, Inc.
and Izumiya Co., Ltd.
For the fiscal year ended 31st March 2019, asset retirement obligations increased by ¥66 million ($594 thousand) since it
became possible to estimate the restoration costs for closed parking areas of Izumiya Co., Ltd located on separate sites. In
addition, the acquisition of fixed assets for the opening of branch shops by Kazokutei Co., Ltd. also resulted in a ¥28 million($252 thousand) increase in asset retirement obligations.
Decrease due to fulfillment of asset retirement obligations is related mainly to Izumiya Co., Ltd.
Changes in the balances were as follows:
Thousands ofMillions of yen

2018
Balance at beginning of year¥

Increase due to estimate changes
Increase due to acquisition of property, plant andequipment
Adjustments with passage of time
Decrease due to fulfilment of asset retirement obligations

2019

¥

2019

3,657 ¥

3,327

686

85

765

100

59

531

48

46

414

(1,171)(667)(6,009)

7

(26)

(234)

3,327 ¥

2,824

Other
Balance at end of year

U.S. dollars$$

29,97225,441

2. Asset retirement obligations not recorded on the consolidated balance sheets
The Companies are obligated to restore properties to their original state upon leaving based on the real estate leasing
agreements for stores, offices, etc. However, when the leasing period of leased assets is unclear and the future leaving is
not yet planned, asset retirement obligations are not recorded as it is not possible to reasonably estimate the asset retirement
obligations.

95

19. Segment Information
1.

General information about reportable segments

The Companies’ reportable segments are components of the Group whose operating results are regularly reviewed
by the Board of Directors when making resource allocation and performance assessment decisions and for which
discrete financial information is available. The Company Group is expanding its business activities primarily in thedepartment store business, but also in the supermarket business, the shopping centre business and other businesses.
Accordingly, “Department Store Business,” “Kobe Takatsuki Business,” “Supermarket Business,” “Shopping Centre
Business” and “Other Businesses” have been designated as reportable segments.
The “Department Store Business” segment is primarily engaged in the sale of clothing, accessories, home furnishings,
foods and others. The “Kobe Takatsuki Business” segment is engaged in the department stores of Sogo Kobe and
Seibu Takatsuki. The “Supermarket Business” segment is engaged in general merchandise stores, supermarkets andfood production, etc. The “Shopping Centre Business” segment is engaged in rental management of commercial
facilities and building maintenance. The “Other Businesses” segment is engaged in hotels, remodelling, homedelivery, membership management, temporary staffing, eating and drinking establishments, information processing
and others.
2.

Basis of measurement about reportable segment net sales, segment income and loss, segment assets and otheritems

The accounting policies for the reportable segments are basically the same as those described in Note 2, “Summaryof Significant Accounting Policies.” Income by reportable segment is presented on an operating income basis.
Intersegment sales and transfers are recognised based on current market prices.

96

3.

Information on net sales, segment income, segment assets and other items by reportable segment
Millions of yen

As of and for the year ended
31st March 2018

Department

Kobe

Store

Takatsuki

Business

Business

Supermarket
Business

Shopping

Other

CentreBusinesses

Business

Adjustments

Total

Net sales
External customers¥

Intersegment

446,225 ¥

23,379 ¥386,552 ¥

10,367 ¥55,346

¥

–

533

–

5,013

17,761

24,645(47,953)¥

921,871–

Total net sales¥

446,759 ¥

23,379 ¥391,565 ¥28,128 ¥79,991¥ (47,953)¥

921,871

Segment income¥

18,020 ¥603 ¥1,104 ¥

4,985 ¥

3,098¥

(5,047)¥22,765

Segment assets¥

170,690 ¥

29,281 ¥

144,303 ¥152,696 ¥488,001¥ (325,390)¥

659,582¥

4,227 ¥

159 ¥

5,746 ¥

2,254 ¥

3,903

¥

¥

16,223

Amortisation of goodwill

–

–

507

–

62

–

570

Investment in associatedcompanies accounted for by theequity method

–

238

–

–

11,107–

11,346

Impairment loss

–

–

3,877

25

307

–

4,210

9,618 ¥

260 ¥

9,226 ¥

1,558 ¥

5,873

Other items
Depreciation

Increase in property, plant andequipment and intangible assets

¥

¥

(67)

(95)

¥

Notes 1. Adjustments are as follows:
Adjustment of segment income was ¥(5,047) million for the year ended 31st March 2018 and comprised theelimination of intersegment transactions.
For the year ended 31st March 2018, adjustment of assets was ¥(325,390) million and included ¥(163,401)
million offset elimination of investments and capital, ¥(160,134) million offset elimination of debts andcredits and ¥(2,742) million adjustment for unrealised gains and losses on fixed assets.
Adjustment of depreciation amounting to ¥(67) million and adjustment of increase in property, plant andequipment and intangible assets amounting to ¥(95) million consisted of the elimination of intersegment
transactions for the year ended 31st March 2018.
2. Segment income is reconciled to operating income in the consolidated statement of income.

97

26,443

Millions of yen

As of and for the year ended
31st March 2019

Department

Kobe

Store

Takatsuki

Business

Business

Supermarket
Business

Shopping

Other

CentreBusinesses

Business

Adjustments

Total

Net sales
External customers¥

451,840 ¥

42,767 ¥367,580 ¥293

36Intersegment

8,736 ¥

55,948 ¥

– ¥

5,034

17,562

26,295(49,221)926,872–

Total net sales¥

452,134 ¥

42,803 ¥372,614 ¥26,298 ¥82,243 ¥(49,221) ¥926,872

Segment income¥

17,582 ¥301 ¥(438) ¥

4,281 ¥

5,030 ¥

(6,335) ¥20,422

Segment assets¥

174,698 ¥

29,687 ¥

142,867 ¥

174,503 ¥518,232 ¥ (376,654) ¥663,335¥

5,138 ¥

339 ¥

5,600 ¥

2,274 ¥

4,118 ¥

(71) ¥

17,399Amortisation of goodwill

–

–

507

–

62

–

570

Investment in associatedcompanies accounted for by theequity method

–

243

–

–

10,195

Impairment loss

75

–

2,542

3,876

496

–

6,990

10,866 ¥665 ¥9,048 ¥

6,727 ¥

4,857 ¥

(125) ¥

32,039Other items
Depreciation

Increase in property, plant and¥equipment and intangible assets–

10,439Thousands of U.S. dollars

As of and for the year ended
31st March 2019

Department

Kobe

Store

Takatsuki

Business

Business

Supermarket
Business

Shopping

Other

CentreBusinesses

Business

Adjustments

Total

Net sales
External customers$ 4,070,630 $Intersegment
Total net sales

2,639$ 4,073,279 $Segment income$

158,396 $Segment assets$ 1,573,855 $

385,288 $ 3,311,531 $324

45,351

385,612 $ 3,356,882 $
2,711 $

(3,945) $78,702 $504,036 $– $ 8,350,198

158,216

236,891

236,918 $

740,927 $ (443,432) $ 8,350,198

38,567 $45,315 $(443,432)(57,072) $–183,981

267,450 $ 1,287,090 $ 1,572,099 $ 4,668,756 $ (3,393,279) $ 5,975,990

Other items
Depreciation$

46,288 $3,054 $

50,450 $20,486 $37,099 $(639) $

156,747

Amortisation of goodwill

–

–

4,567

–

558

–

5,135

Investment in associatedcompanies accounted for by theequity method

–

2,189

–

675

–

22,90034,9184,468–

62,972

97,891 $5,990 $

81,513 $60,603 $43,756 $(1,126) $288,639

Impairment loss
Increase in property, plant and$equipment and intangible assets

98–

91,846–

94,045

Notes 1. Adjustments are as follows:
Adjustment of segment income was ¥(6,335) million ($(57,072) thousand) for the year ended 31st March
2019 and comprised the elimination of intersegment transactions.
For the year ended 31st March 2019, adjustment of assets was ¥(376,654) million ($(3,393,279) thousand)and included ¥(183,038) million ($(1,648,990) thousand) offset elimination of investments and capital,¥(191,144) million ($(1,722,018) thousand) offset elimination of debts and credits and ¥(2,740) million($(24,684) thousand) adjustment for unrealised gains and losses on fixed assets.
Adjustment of depreciation amounting to ¥(71) million ($(639) thousand) and adjustment of increase inproperty, plant and equipment and intangible assets amounting to ¥(125) million ($(1,126) thousand)consisted of the elimination of intersegment transactions for the year ended 31st March 2019.
2. Segment income is reconciled to operating income in the consolidated statement of income.
3. The “Partial Amendments to the Accounting Standard for Tax Effect Accounting” (ASBJ Statement No. 28,
issued on 16th February 2018), etc., have been applied from the beginning of the fiscal year ended 31st
March 2019. Accordingly, segment assets as of 31st March 2018 are those after retrospective application.

99

(Related Information)
Amortisation of goodwill and unamortised balance by reportable segments
Millions of yen

As of and for the year ended

Department

Kobe

Store

Takatsuki

Business

Business

31st March 2018

Supermarket

Business

Shopping

Other

CentreBusinesses

Business

Adjustments

Total

Goodwill
Amortisation

¥

– ¥

– ¥

507 ¥

– ¥

62 ¥

– ¥

570

Impairment

¥

– ¥

– ¥

– ¥

– ¥

– ¥

– ¥

–

Unamortised balance

¥

– ¥

– ¥

4,226 ¥

– ¥

420 ¥

– ¥

4,647

Millions of yen

As of and for the year ended

Department

Kobe

Store

Takatsuki

Business

Business

31st March 2019

Supermarket

Business

Shopping

Other

CentreBusinesses

Business

Adjustments

Total

Goodwill
Amortisation

¥

– ¥

– ¥

507 ¥

– ¥

62 ¥

– ¥

570

Impairment

¥

– ¥

– ¥

– ¥

– ¥

– ¥

– ¥

–

Unamortised balance

¥

– ¥

– ¥

3,719 ¥

– ¥

357 ¥

– ¥

4,076

Thousands of U.S. dollars

As of and for the year ended

Department

Kobe

Store

Takatsuki

Business

Business

31st March 2019

Supermarket

Business

Shopping
CentreBusiness

Other

Businesses

Adjustments

Total

Goodwill
Amortisation

$

– $

– $

4,567 $

– $

558 $

– $

5,135

Impairment

$

– $

– $

– $

– $

– $

– $

–

Unamortised balance

$

– $

– $

33,504 $– $3,216 $

– $ 36,720

Gain on bargain purchase by reportable segments
Gain on bargain purchase in the amount of ¥2,010 million was recognised in the segment “Kobe Takatsuki Business”
for the year ended 31st March 2018 due to the business transfer from Sogo & Seibu Co., Ltd. effective on 1st October
2017.

100

20. Related Party Transactions
For the year ended 31st March 2018
Transactions with related parties(1) Transactions between the reporting entity of the consolidated financial statements and related parties: None
(2) Transactions between subsidiaries of the reporting entity of the consolidated financial statements and related parties(a) Directors, corporate auditors and major individual shareholders of the reporting entity of the consolidated
financial statements: None(b) Companies whose parent is the same as the parent of the reporting entity or the other related companies
Classification

Name ofcompany orindividual

HankyuCorporation

Location

Kita-ku,
Osaka City

Capital orinvestment

Occupation orbusiness lines

Railway
operations,real estate¥100 rental andmillion dealership
operations,stage revues,
retailing

Ownershipof votingrights (%)–

Nature ofrelationshipSame person
serving
concurrently
as director
or corporate
auditor forboth parties,

Nature oftransactions

RentalexpensesFees fordisplay ofsigns, etc.

HANSHIN
ELECTRICRAILWAY
CO., LTD.

Fukushima-ku, OsakaCity¥12 million

Accruedexpenses¥82 million

Prepaid
expenses¥0 million

Guarantee
deposits¥21,881
millionPrepaid
expenses¥65 million

Accruedexpenses¥33 million

Prepaid
expenses¥0 million

Guarantee– deposits¥8,210
million¥8 million¥1 million¥3,844
millionFees fordisplay ofsigns, etc.

¥6 million

Deposits ofguarantee
money¥90 million

Return ofguarantee
money
Increase due tobusinesstransferbalance

Accounts¥8,831payable million
other

Return ofguarantee
money

Same person
serving
concurrently
11.98%
shares of as director
or corporate
theCompany auditor forboth parties,
directly
held
Rental of realestateEndingdesignation¥218 million¥59 million

Rentalexpenses

Accounting

Prepaid
expenses

Rental of real
Deposits ofestateguarantee
money

Subsidiaries
ofcompaniesthat havesignificant
stakes in thereportingentityRailway
operations,real estate
rental and¥29,384 dealership
million operations,sportsbusiness,travelbusiness

Value oftransactions¥491
millionBusiness terms and policies for determination of business terms
Notes 1. Transaction amounts are exclusive of consumption taxes; ending balances (exclusive of guarantee
deposits) include consumption taxes.
2. Rent expenses for buildings are determined by current market rates.
3. All other matters are determined according to general terms and conditions.

101For the year ended 31st March 2019
Transactions with related parties(1) Transactions between the reporting entity of the consolidated financial statements and related parties: None
(2) Transactions between subsidiaries of the reporting entity of the consolidated financial statements and related parties(a) Directors, corporate auditors and major individual shareholders of the reporting entity of the consolidated
financial statements: None(b) Companies whose parent is the same as the parent of the reporting entity or the other related companies
Classification

Name ofcompany orindividual

HankyuCorporation

Location

Kita-ku,
Osaka City

Capital orinvestment

Occupation orbusiness lines

Railway
operations,¥100 real estate
million rental and($900 dealership
thousand) operations,stage revues,
retailing

Ownershipof votingrights (%)–

Nature ofrelationshipSame person
serving
concurrently
as director
or corporate
auditor forboth parties,

Nature oftransactions

Rentalexpenses

Rental of real Fees fordisplay of
estatesigns, etc.
Deposits ofguarantee
money

Subsidiaries
ofcompaniesthat havesignificant
stakes in thereportingentityReturn ofguarantee
money

Rentalexpenses

HANSHIN
ELECTRICRAILWAY
CO., LTD.

Fukushima-ku, Osaka
City

Railway
operations,real estate¥29,384 rental andmillion dealership($264,720 operations,
thousand) sportsbusiness,travelbusiness

Same person
serving
concurrently
11.97%
shares of as director
or corporate
theCompany auditor forboth parties, Fees for
directly
helddisplay ofRental of real signs, etc.
estateDeposits ofguarantee
money
Return ofguarantee
money

Value oftransactions

Accounting
designation

Endingbalance

Accounts
receivable other¥19 million($171
thousand)Prepaid
expenses¥214 million($1,927
thousand)¥9,661
million($87,036
Accounts
thousand)payable otherAccruedexpenses¥2 million($18
thousand)¥9 million
Prepaid($81
expenses
thousand)¥0 million($0
thousand)¥1,579million($14,225
thousand) Guarantee
deposits¥76 million($684
thousand)¥24,884
million($224,180
thousand)Prepaid
expenses¥64 million($576
thousand)¥3,061
million Accounts($27,576 payable thousand) other¥210 million($1,891
thousand)Accruedexpenses¥40 million($360
thousand)¥1 million
Prepaid($9
expenses
thousand)¥– million($–
thousand)¥3,505
million($31,576
thousand) Guarantee¥1,705 deposits
million($15,360
thousand)¥8,509million($76,657
thousand)Business terms and policies for determination of business terms
Notes 1. Transaction amounts are exclusive of consumption taxes; ending balances (exclusive of guarantee
deposits) include consumption taxes.

102¥102 million($918
thousand)2. Rent expenses for buildings are determined by current market rates.
3. All other matters are determined according to general terms and conditions.
4. The lease agreement regarding the Osaka Umeda Twin Towers South, where the first part of theremodelling of Hanshin Umeda Main Store was located and re-opened in June 2018, was concluded bythree parties; Hanshin Electric Railway Co., Ltd. and Hankyu Corporation as lessor, and Hankyu Hanshin
Department Stores, Inc., a subsidiary of the Company, as lessee. Since the deposits of guarantee money,
etc., are contractually to be paid to Hanshin Electric Railway Co., Ltd. in a lump sum, the balance ofguarantee deposits as of 31st March 2018 was disclosed as transaction with Hanshin Electric Railway Co.,
Ltd. From the fiscal year ended 31st March 2019, the lump sum payments of rental fees and deposits ofguarantee money from lessee were separately disclosed in two lessors as confirmed by the lessors.

21. Per Share Information
Reconciliation of the difference between basic and diluted profit per share (Earnings Per Share “EPS”) for the years
ended 31st March 2018 and 2019 was as follows:
Thousands ofMillions of yen

2018

U.S. dollars

2019

2019

Basic profit per share calculation:
Profit (numerator):
Profit attributable to owners of parent¥

Amounts not belonging to common stockholders
Profit attributable to owners of parent
concerning common stock
Shares (denominator):
Weighted average number of shares
Basic EPS (yen and U.S. dollars)

14,636 ¥2,162$

19,477–––

14,636

2,162

19,477

123,473,119

123,538,732¥

118.54 ¥

17.50

$

0.157

¥

14,636 ¥2,162$

19,477

Diluted profit per share calculation:
Profit (numerator):
Profit attributable to owners of parent
Amounts not belonging to common stockholders
Profit attributable to owners of parent
concerning common stock
Effect of dilutive securities - convertible bonds
Adjusted profit

–

–

–

14,636

2,162

19,477–––

14,636

2,162

19,477

123,473,119

123,538,732

667,561

772,639

124,140,680

124,311,371

Shares (denominator):
Weighted average number of shares
Assumed exercise of subscription rights to shares
Adjusted weighted average number of shares
Diluted EPS (yen and U.S. dollars)¥

103

117.90 ¥

17.39

$

0.156

Net assets per share (Book value Per Share “BPS”) calculation for the years ended 31st March 2018 and 2019 was
as follows:
Thousands ofMillions of yen

2018

U.S. dollars

2019

2019

Net assets per share calculation:
Net assets¥

280,807 ¥279,603

1,238

1,239

11,162(1,234)(1,235)(11,126)

(3)

(4)

(36)

279,569

278,364

2,507,783

123,487,579

123,592,099

2,263.95

2,252.28

Deduction from net assets(Subscription rights to shares)(Non-controlling interests)
Net assets concerning common stock
Number of shares used for the calculation of
net assets per share
BPS (yen and U.S. dollars)$

2,518,945

20.29022. Guarantee Deposits
In connection with its department store business, the Company has entered into long-term lease agreements for store
sites and other premises. Under such agreements, lessors in Japan generally require the lessee to make substantial
deposits in addition to monthly rental payments. A large portion of such deposits is generally refundable only ontermination of the lease. The deposits bear no interest or bear interest only at a nominal rate.

23. Short-term and Long-term Loans, Bonds Payable and Lease Obligations
Short-term loans and long-term debt, including finance lease obligations, at 31st March 2018 and 2019 consisted of
the following.
Thousands ofMillions of yen

2018
Short-term loans payable (0.145% in 2019)¥

Current portion of long-term loans payable (0.558% in 2018

U.S. dollars

2019
– ¥

2019
8,000

$

72,072

42,561

20,201

181,990

764

749

6,747

96,931

116,718

1,051,513

9,175

8,686

78,2520.706% H2O Retailing unsecured bonds, due 2024

10,00010,00090,0900.480% H2O Retailing unsecured bonds, due 2028–

10,00090,090

and 0.308% in 2019)
Lease obligations, current portionLong-term loans payable (0.129% in 2018 and 0.141% in2019), excluding current portion, due through 2037
Lease obligations, excluding current portion, due through2037

Interest rates on loans payable present weighted average interest rates as at the balance sheet date.

104

Annual maturities of long-term debt including loans payable, long-term bonds payable and lease obligations as at 31st
March 2019 were as follows:
Thousands ofMillions of yen

U.S. dollars

2019
2021

¥

2019

19,068$

171,783

2022

46,954423,009

2023

731

6,585

2024

16,567

149,252

24. Subsequent Events
Grant of subscription rights to shares as stock option based compensation
For directors (including directors who serve as ASC members), corporate auditors and executive officers of the Company
and the subsidiaries of the Company, the Company maintains two systems of stock options based compensation withseniority-based and performance-based vesting conditions depending on their roles required.
At the Board of Directors’ meeting held on 26th June 2019, the Company resolved the grant of subscription rights to sharesas follows in order to grant the stock option based compensation for the year ending 31st March 2020. The Company
granted above mentioned directors and officers subscription rights to shares on 15th July 2019.
[Stock option based compensation with seniority-based vesting conditions]
1. Grant date
15th July 2019
2. Number of subscription rights to shares issued
1,125 units
3. Type and number of shares subject to subscription rights to shares
112,500 shares of common stock of the Company
4. Exercise price¥1 per share
5. Exercise period
From 16th July 2019 to 15th July 2049
6. Title and number of grantees
5 directors (excluding ASC members), 4 directors serving as ASC members, and 4 executive officers of the Company
9 directors, 1 corporate auditor and 11 executive officers of the subsidiaries of the Company
7. Increase in shareholders’ equity as a result of the issuance of shares upon the exercise of subscription rights to shares(1) The amount of capital stock to be increased as the result of the issuance of shares upon the exercise ofsubscription rights to shares shall be one half of the maximum amount of capital stock increase calculated inaccordance with Article 17, Paragraph 1 of the Regulations on Accounting of Companies, and any amountsof less than ¥1 shall be rounded up.
(2) The amount of capital surplus to be increased as the result of the issuance of shares upon the exercise ofsubscription rights to shares shall be calculated as the maximum amount of the capital stock increase provided

105

in paragraph (1) above, minus the amount of capital stock to be increased pursuant to paragraph (1) above.
8. Calculation of payment price of subscription rights to shares
The payment price shall be the fair market value calculated in accordance with the Black-Scholes model as of the
grant date of the subscription rights to shares.
For the grantees who are directors or executive officers of the Company (“Officers of the Company”), the payableamount for subscription rights to shares shall be offset by the remuneration of Officers of the Company. For the
grantees who are directors, corporate auditors or executive officers of the subsidiaries of the Company (“Officersof the Subsidiaries”), the payable amount of the subsidiaries of the Company for the remuneration shall be assumed
by the Company and the payable amount for subscription rights to shares shall be offset by the remuneration of
the Officers of the Subsidiaries.
[Stock option based compensation with performance-based vesting conditions]
1. Grant date
15th July 2019
2. Number of subscription rights to shares issued
410 units
3. Type and number of shares subject to subscription rights to shares
41,000 shares of common stock of the Company
4. Exercise price¥1 per share
5. Exercise period
From 16th July 2019 to 15th July 2049
6. Title and number of grantees
3 directors (excluding non-executive directors) and 4 executive officers of the Company
8 directors (excluding non-executive directors) and 11 executive officers of the subsidiaries of the Company
7. Increase in shareholders’ equity as a result of the issuance of shares upon the exercise of subscription rights to shares(1) The amount of capital stock to be increased as the result of the issuance of shares upon the exercise ofsubscription rights to shares shall be one half of the maximum amount of capital stock increase calculated inaccordance with Article 17, Paragraph 1 of the Regulations on Accounting of Companies, and any amountsof less than ¥1 shall be rounded up.
(2) The amount of capital surplus to be increased as the result of the issuance of shares upon the exercise ofsubscription rights to shares shall be calculated as the maximum amount of the capital stock increase provided
in paragraph (1) above, minus the amount of capital stock to be increased pursuant to paragraph (1) above.
8. Calculation of payment price of subscription rights to shares
The payment price shall be the fair market value calculated in accordance with the Black-Scholes model as of the
grant date of the subscription rights to shares.
For the grantees who are directors or executive officers of the Company (“Officers of the Company”), the payableamount for subscription rights to shares shall be offset by the remuneration of Officers of the Company. For the
grantees who are directors or executive officers of the subsidiaries of the Company (“Officers of the Subsidiaries”),
the payable amount of the subsidiaries of the Company for the remuneration shall be assumed by the Company
and the payable amount for subscription rights to shares shall be offset by the remuneration of the Officers of theSubsidiaries.

106

107

Corporate Data
H 2 O RETAILING CORPORATION and Consolidated Subsidiaries

Outline of the Company (as of 31st March 2019)
Date of Establishment

March 1947

Stated Capital¥17,796 million

Authorised Shares

150,000,000

Issued and Outstanding Shares

125,201,396

Shareholders

29,50582 (H2O Retailing Corporation)

Employees

8,793 (Consolidated basis)

Principal Shareholders (as of 31st March 2019)
Number of shares

Shareholders(thousands of shares)

Ratio of shareholdings

Hanshin Electric Railway Co., Ltd.

14,74911.9%

Hankyu Hanshin Holdings, Inc.

10,336

8.4%

Takashimaya Co., Ltd.

6,259

5.1%

The Master of Trust Bank of Japan, Ltd. (Trust account)

5,489

4.4%

Japan Trustee Service Bank, Ltd. (Trust account)

4,565

3.7%

Japan Trustee Service Bank, Ltd. (Trust account 9)

3,236

2.6%

Izumiya Kyowakai Assn.

2,623

2.1%

2,244

1.8%

Japan Trustee Service Bank, Ltd. (Trust account 5)

1,981

1.6%

H2O Retailing Group Employees' Shareholding Association

1,669

1.4%

JP MORGAN CHASE BANK 380684(Standing proxy: Mizuho Bank, Ltd., Settlement & Clearing
Services Department)

108

Principal Consolidated Subsidiaries
Subsidiary

Primary business activities

Department Store Business
Hankyu Hanshin Department Stores, Inc.

Department Stores

Kobe Takatsuki Business
H2O Asset Management Co., Ltd.

Management of department stores

Shinko Management, Inc.

Management of property

Supermarket Business
H2O Foods Group Co.,Ltd.

Management planning and administration of the food business

Hankyu Oasis Co., Ltd.

Supermarkets

Izumiya Co., Ltd.

General merchandise stores, supermarkets and supercentres

Hankyu Foods, Inc.

Manufacture and sale of laver seaweed and dried foods

Hankyu Bakery Co., Ltd.

Manufacture and sale of bread

Hankyu delica i, Inc.

Manufacture and sale of prepared foodHankyu Food process Co., Ltd.

Process and sales of fresh food

Qanat Co., Ltd.

Supermarkets

Sun Laurie Co., Ltd.

Restaurants

Shopping Centre Business
H2O Asset Management Co., Ltd.

Management and development of property

Hankyu Maintenance Service Co., Ltd.

General building maintenanceHankyu Shopping Center Development Co., Ltd.

Operational management of commercial facilities

Kanso Co., Ltd.

General building maintenance

Other Businesses
Be-U Co., Ltd.

Sales of toysCARNET CO., LTD.

Sales of ladies shoes and accessories

EveryD.com, Inc.

Supply of the system and the know-how of home-delivery
service

F.G.J Co.,Ltd.

Sales of personal care products

H.D. Base Mode Ltd.

Product planning, production management and sales operationof women's apparel109

H2O Smile Co.,Ltd.

Contractor engaged in office work and light work for thecompany

H2O STYLE NET Co., Ltd.

Operational management of internet shopping site

H2O System Co., Ltd.

Data processing and systems development

Hankyu Act For

Contractor engaged in bookkeeping and payroll calculation

Hankyu B&C Planning

Sales of bread and management of cafe

Hankyu Department Stores Uniform

Sales of uniforms

Hankyu Design Systems Co., Ltd.

Commercial design, web design and production, photographing& printing

Hankyu Freds Co.,Ltd.

Sales of bread and management of cafes

Hankyu Hanshin Department Stores Tomonokai, Inc.

Membership organisation for customer service

Hankyu Hello Dog Co., Ltd.

Sales of pet-accessories

Hankyu Home Styling Co., Ltd.

Sales of furniture and interior goods

Hankyu Job Yell Co., Ltd.

Manpower dispatching and fee-charging employment agency

Hankyu Kensou Co., Ltd.

Manufacture and sales of furniture and furnishings

Hankyu Kitchen Yell Kansai, Inc.

Membership-based home-delivery service providing groceries
and commodities in Kansai Area

Hankyu Kitchen Yell Kyushu, Inc.

Membership-based home-delivery service providing groceries
and commodities in Kyushu Area

Hankyu Quality Support

Quality testing and consulting service

Hankyu Sennan Green Farm

Production of organic farm products

Hankyu Trading Services Co., Ltd.

Foreign trade business

Hankyu Wedding

Costume salon for bridal use

Heart Dining, Inc.

Management of cafe, restaurants and company cafeteria

KAETOKU SERVICE Co., Ltd.

Sales of electronic gift certificates

KAZOKUTEI CO., LTD.

Restaurants mainly serving "Soba/Udon"

Oi Development Co., Ltd.

Operational management of a hotel

Persona Co., Ltd.

Management of services for members of Persona card

Souq Company Co., Ltd.

Product planning/manufacture/wholesaling,
event planning and Internet sales, etc.

Suzhou Izumiya Co., Ltd.

A department store in Suzhou, China110

H2O RETAILING CORPORATION
2-6-27, Shibata, Kita-ku, Osaka 530-0012
Telephone: +81 (0) 6 - 6365 - 8120
Facsimile: +81 (0) 6 - 6486 - 8320
URL: http://www.h2o-retailing.co.jp/